Preliminary Results

Renold PLC 12 June 2000 RENOLD PLC 2000 Preliminary Results Precision engineering group, Renold plc, the leading international manufacturer and supplier of chains, gears, couplings, machine tools and rotors, today announces its preliminary results for the year ended 1 April 2000. Summary * Profits in line with market expectations. * Turnover was £174.2 million (1998/9: £171.6 million). * Profit before tax, and before redundancy costs and goodwill amortisation, was £10.2 million (1998/9: £14.2 million). * Reflecting the Board's confidence in its strategy for recovery, the dividend for the year is maintained at 9.25p. At the current share price of 108.5p this represents a yield of 8.5%. * US$55 million acquisition of Jeffrey Chain on 31 March 2000 has made a step change to Renold's core chain business: - It provides Renold with significant opportunities to increase its penetration of the US market, the world's biggest market for industrial chain, through accelerated growth in sales of Renold products manufactured in Europe. - Similarly, outside the US, selling Jeffrey Chain's extensive product range through Renold's world-wide sales network will present further growth opportunities. Prospects Roger Leverton, Chairman of Renold plc, said today: 'Order intake in our important markets in mainland Europe has improved, although trading conditions in the UK remain patchy. In addition, stronger demand in North America and economic recovery in the Far East are providing opportunities for a number of our businesses. 'With the acquisition of Jeffrey Chain, the core chain business will benefit from Jeffrey's strong and well established position in the huge US market. Good progress has already been made in integrating Jeffrey and in starting to achieve the expected synergies from the acquisition. Benefits will also be realised from the actions taken to reduce unit costs and strengthen the engineering products and machine tool businesses. 'Overall, we expect to see improving performance as the year progresses.' 12 June 2000 RENOLD PLC Chairman: Roger Leverton Preliminary Results for the Financial Year ended 1 April 2000 FINANCIAL SUMMARY 2000 1999 £m £m Turnover 174.2 171.6 Trading profit before goodwill amortisation and exceptional redundancy and restructuring costs 11.0 14.0 Profit before tax, goodwill amortisation and exceptional redundancy and restructuring costs 10.2 14.2 Profit before tax 9.6 12.4 Adjusted earnings per share 9.4p 13.5p Basic earnings per share 8.6p 11.1p Dividends per ordinary share, paid or proposed 9.25p 9.25p Capital expenditure 10.3 11.3 Business acquisitions 36.2 5.7 Gearing (net borrowings to net tangible assets) 56% (13)% RESULTS It has been another challenging year for the Group, with trading conditions remaining difficult, particularly in the UK. Whilst the results for the full year are lower than last year, profits in the second half improved in line with our expectations, and were ahead of each of the two previous half years. Profit before tax (and before redundancy costs and goodwill amortisation) was £10.2 million (1998/9 - £14.2 million) on a turnover of £174.2 million (1998/9 - £171.6 million). Adjusted earnings per share were 9.4 pence (1998/9 - 13.5 pence). The Board is recommending the payment of an unchanged final dividend of 6.15 pence per share. Together with the interim dividend of 3.1 pence per share paid on 28 January 2000, this gives total dividends for the year of 9.25 pence, the same level as last year. This reflects the Board's confidence in the Group's strategy and the commitment to recovery. During the year the core chain business has continued to perform well, benefiting from its strong market position and significant manufacturing operations in mainland Europe. The acquisition of Jeffrey Chain in the USA presents a number of exciting growth opportunities and reinforces our position as a major player in the global industrial chain market. The UK engineering products businesses have suffered from reduced domestic demand and competition from manufacturers enjoying the benefits of the weak Euro, and further action has been taken to strengthen their competitive position. The machine tool and rotor businesses achieved a turnround to a small profit in the second half on the back of a higher order intake, although the Jones & Shipman businesses continued to be affected by the weakness of the international machine tool industry. Overall, as the year progressed, the gathering pace of economic recovery in the Far East benefited a number of our operations, both through growth in direct sales, particularly to Korea and Malaysia, and in higher deliveries to US customers serving Far Eastern markets. Power Transmission In the power transmission businesses, the chain operations again performed soundly. In the UK, the pound's strength impacted adversely the manufacturing economy and, in particular, machinery and equipment builders, whilst there was also a lack of large projects. Direct exports from the UK were also down, but were much improved in the second half following the uplift in demand in the Far East. In the circumstances, the UK chain business produced a respectable profit performance. At the Calais Automotive Systems business, demand for timing systems rose. However, it was only in the last quarter that the business began to achieve the profit levels required from the considerable investment in new plant. Additional manufacturing capacity came on stream to supply a system for a world engine to General Motors and a further assembly line was introduced for direct supplies to a manufacturer in Japan. The Automotive Systems business will continue to grow as existing contracts gather pace and further new contracts commence. Sales in the French market for power transmission products were disappointing, and there was a similar trend in other mainland European markets. However, the German chain business had a most successful year and earned record profits. A strong export market more than compensated for weaker local demand, and sales of new products have grown steadily, with stainless steel sales particularly good. Manufacturing efficiency increased, helped by additional investment in automated assembly equipment. The UK coupling businesses enjoyed a strong second half performance, but the other UK power transmission businesses had a more difficult time. The strength of the pound bit hard into the margins of Manifold, which has been successfully relocated to a purpose built factory in Loughton Essex, and has achieved increased orders in recent months. The gearbox business at Milnrow also had a difficult year. The home market was depressed and there was a lack of orders for major projects, particularly in the escalator market. Whilst strenuous action has been taken to reduce unit costs, both of own manufacture and of bought in components, and to strengthen management, the key issue is to increase the order intake. Overseas, the North American power transmission businesses reported slightly lower profits. The Renold Ajax coupling business had a good year with strong sales of mass transit railcar drive couplings and a second half recovery in orders for spindle couplings for the steel industry, but chain and other power transmission product sales were softer overall in North America. The sales operations in Malaysia and Singapore had a good year, with order intake climbing steeply, recovering from the collapse of local markets two years ago, whilst the New Zealand business also benefited from a sharp rise in orders. The Australian business continued to have a tough time in difficult market conditions. In October 1999, Renold Australia purchased Ace Chains, a manufacturer of conveyor chain in Melbourne, to strengthen its market position. Machine Tool and Rotor At Holroyd machine tools and rotors, there was a marked upturn in order intake during the year, which led to a strong second half performance. Machine tool orders for a range of different applications were won against European competition, and delivery was made of the major part of a large machine tool order to a US air conditioning customer. Sales of rotors to the air conditioning market also rose sharply. Prospects for the current year are good. One of the main markets for the new range of Jones & Shipman and Edgetek machine tools is the aerospace industry. This market was flat last year and the machine tool market worldwide was depressed. Costs were cut and rationalisation has taken place with Holroyd, but the trading environment has made it impractical to achieve the progress in turning round the business in the time frame envisaged when the acquisition was made. Despite a significant improvement in performance in the last quarter, the businesses sustained a substantial loss in the year. Although the Jones & Shipman and Edgetek businesses have not experienced the upturn that Holroyd has felt in its markets, there are signs, especially in the USA, of increasing demand, particularly from the aero engine sector. Jeffrey Chain We have been seeking for some time to develop our successful chain business by investment in areas which complement our existing strengths in product range and geographical coverage. A major step forward in this strategy was taken with the purchase of Jeffrey Chain of Morristown, Tennessee, USA for $55 million in cash on 31 March 2000. Jeffrey is one of the largest US manufacturers and suppliers of industrial chain, with an extensive range of engineered and precision roller chain. It has strong US brands and established relationships with major US distributors of power transmission equipment, as well as with original equipment manufacturers and users serving a diversity of markets including timber, environmental, construction and automotive conveyor lines. The Morristown plant is a substantial, well resourced manufacturing facility with the potential for increasing capacity. Renold's chain business has a leading market position in Europe, and is also a major supplier to the Canadian and Australian markets, but it had a relatively low share of the large US industrial chain market. With the acquisition of Jeffrey, the Renold Group has become one of the largest suppliers of industrial chain in the USA. Jeffrey's customer relationships provide a significant opportunity to increase our penetration of the US market, through the supply of transmission chain and other Renold products manufactured in Europe. Similarly, outside the USA, the ability to sell Jeffrey's products through Renold's extensive world-wide sales network will extend our overall product offering. Plans are in place and actions already being taken to exploit these opportunities. In summary, the acquisition of Jeffrey provides us with a strong foothold in the world's largest single market for power transmission products, and is an excellent fit with our existing chain business. Capital expenditure and financing Capital expenditure was £10.3 million, slightly down on 1998/9. The major new investment continued to be in additional manufacturing capacity at the fast growing automotive systems business, and there was further expenditure on updating production facilities in other businesses. The purchase of Jeffrey Chain has been financed from new borrowing facilities, which enable the Group to make use of its hitherto underutilised gearing capacity. Following this acquisition, group borrowings at 1 April 2000 rose to £33.5 million, representing 56% of net tangible assets. Directors The Board is pleased to announce that Tony Brown, Group Financial Controller, is to succeed John Allan as Group Finance Director with effect from 1 August 2000. Tony, who joined the Group in 1990 and has been Group Financial Controller since 1991, has an extensive knowledge of the business and will be of great assistance in our pursuit of opportunities for further growth. John Allan is to retire from the Board and the Group at the end of July. He joined the Group in 1987 and has made a significant contribution to the Group's well being in his thirteen years as Group Finance Director. The Board thanks him for his committed service and wishes him well in retirement. Prospects Order intake in our important markets in mainland Europe has improved, although trading conditions in the UK remain patchy. In addition, stronger demand in North America and economic recovery in the Far East are providing opportunities for a number of our businesses. With the acquisition of Jeffrey Chain, the core chain business will benefit from Jeffrey's strong and well established position in the huge US market. Good progress has already been made in integrating Jeffrey and in starting to achieve the expected synergies from the acquisition. Benefits will also be realised from the actions taken to reduce unit costs and strengthen the engineering products and machine tool businesses. Overall, we expect to see improving performance as the year progresses. Annual Report to be published 20 June 2000 Annual General Meeting 20 July 2000 Dividend - to be paid 10 August 2000 - record date for shareholders 14 July 2000 Annual Report: This preliminary announcement does not form the Group's statutory accounts. The figures shown in this release have been extracted from the Group's full financial statements which, for the year ended 3 April 1999 have been delivered, and for the year ended 1 April 2000, will be delivered to the Registrar of Companies. Both carry an unqualified audit report. The financial statements for the year ended 1 April 2000 have been prepared in accordance with applicable accounting standards, using the same accounting policies as set out in the Annual Report for the year ended 3 April 1999 except for the implementation of FRS 15, Tangible Fixed Assets. For further information, please contact: David Cotterill, Chief Executive ) 12 June 2000 Telephone: 020 7329 0096 John Allan, Finance Director ) Renold plc ) Thereafter Telephone: 0161-437 5221 Ben Padovan/James Gordon Shandwick International Telephone: 020 7329 0096 RENOLD PLC PRELIMINARY RESULTS Group Profit and Loss Account ---------------------------------------------------------------------------- for the financial year ended 1 April 2000 2000 1999 £m £m Turnover 174.2 171.6 Trading costs - normal operating costs (163.2) (157.6) - goodwill amortisation (0.2) - exceptional redundancy and restructuring costs (0.4) (1.8) --------- --------- (163.8) (159.4) --------- --------- Trading profit 10.4 12.2 Interest (payable)/receivable (0.8) 0.2 --------- --------- Profit on ordinary activities before tax 9.6 12.4 Taxation (3.5) (4.7) --------- --------- Profit for the financial year 6.1 7.7 Dividends (including non-equity) (6.5) (6.4) --------- -------- Retained (loss)/profit for the year (0.4) 1.3 ========= ======== Adjusted earnings per share 9.4p 13.5p Basic and diluted earnings per share 8.6p 11.1p RENOLD PLC PRELIMINARY RESULTS Group Balance Sheet -------------------------------------------------------------------------- as at 1 April 2000 2000 1999 £m £m Fixed assets Intangible asset - goodwill 26.3 2.9 Tangible assets 58.7 53.6 --------- --------- 85.0 56.5 --------- --------- Current assets Stocks 50.1 46.6 Debtors 45.7 36.7 Cash and short term deposits 14.3 22.6 --------- --------- 110.1 105.9 Creditors - amounts falling due within one year Loans and overdrafts (11.4) (5.8) Other creditors (49.9) (49.0) --------- --------- Net current assets 48.8 51.1 --------- --------- Total assets less current liabilities 133.8 107.6 Creditors - amounts falling due after more than one year Loans (36.1) (5.5) Other creditors (0.5) (0.8) Provisions for pensions (10.8) (12.6) --------- --------- Net assets 86.4 88.7 ========= ========= Capital and reserves (including non-equity interests) Called up share capital 17.9 17.9 Share premium 6.0 5.9 Revaluation reserve 4.9 6.3 Other reserves 1.1 1.3 Profit and loss account 56.5 57.3 --------- --------- Shareholders' funds 86.4 88.7 ========= ========= RENOLD PLC PRELIMINARY RESULTS Extracts from the Group Cash Flow Statement --------------------------------------------------------------------------- for the financial year ended 1 April 2000 2000 1999 £m £m £m £m Cash flow from operating activities 12.7 23.8 Servicing of finance (0.6) Taxation (4.7) (6.5) Capital expenditure - Purchase of tangible fixed assets (9.5) (11.5) Acquisitions - Purchase consideration including costs (35.3) (5.7) - Cash/(net overdrafts) acquired with subsidiary 0.1 (1.7) ------ ------ (35.2) (7.4) Equity dividends paid (6.5) (6.2) ------- ------- Cash outflow before use of liquid resources and financing (43.8) (7.8) Management of liquid resources Transfers from short term deposits 11.1 11.2 Financing Issue of shares 0.1 0.7 Increase/(decrease) in debt and lease financing 32.2 (5.6) ------ ------ 32.3 (4.9) ------- ------- Decrease in cash in the year (0.4) (1.5) ======= ======= Reconciliation of net cash flow to movement in net (debt)/funds Decrease in cash in the year (0.4) (1.5) Cash flow from (increase)/decrease in debt and lease financing (32.2) 5.6 Cash flow from decrease in liquid resources (11.1) (11.2) ------ ------ Change in net (debt)/funds resulting from cash flows (43.7) (7.1) Loans and finance leases acquired with subsidiary (4.7) Exchange translation difference (0.6) 0.3 ------- ------- Movement in net (debt)/funds in the year (44.3) (11.5) Net funds at beginning of year 10.8 22.3 ------- ------- Net (debt)/funds at end of year (33.5) 10.8 ======= ======= RENOLD PLC PRELIMINARY RESULTS NOTE TO THE FINANCIAL STATEMENTS for the financial year ended 1 April 2000 Analysis of activities Activities classified by business segment: 2000 1999 Turnover Trading Trading Turnover Trading Trading profit assets profit assets £m £m £m £m £m £m Power 145.2 11.8 83.4* 157.0 14.2 68.4 transmission Machine tool and rotor 31.2 (0.8) 21.7 15.9 (0.2) 21.3 -------------------------------------------------------- 176.4 11.0 105.1 172.9 14.0 89.7 Less: Inter activity sales 2.2 1.3 Goodwill amortisation 0.2 Exceptional redundancy and restructuring costs 0.4 1.8 -------------------------------------------------------- 174.2 10.4 105.1 171.6 12.2 89.7 -------------------------------------------------------- * Includes £12.8 million trading assets of Jeffrey Chain LP acquired on 31 March 2000. The acquisition of Jones & Shipman p.l.c. in the prior year has led to a significant increase in machine tool activity. As a consequence the power transmission and machine tool and rotor segments have been identified as separate activities. Activities classified by geographical region of operation: 2000 1999 Turnover Trading Trading Turnover Trading Trading profit assets profit Assets £m £m £m £m £m £m United Kingdom 85.1 3.4 52.9 81.4 4.8 52.3 Germany 32.8 4.2 9.7 36.7 3.7 10.9 France 31.5 1.4 9.9 31.0 2.0 7.5 Rest of Europe 15.4 1.0 3.9 17.9 1.7 4.1 North America 33.3 0.6 22.7* 30.7 1.7 9.5 Other countries 17.5 0.4 6.0 16.1 0.1 5.4 ---------------------------------------------------------- 215.6 11.0 105.1 213.8 14.0 89.7 Less: Intra Group sales 41.4 42.2 Goodwill amortisation 0.2 Exceptional redundancy and restructuring costs 0.4 1.8 ---------------------------------------------------------- 174.2 10.4 105.1 171.6 12.2 89.7 ---------------------------------------------------------- * Includes £12.8 million trading assets of Jeffrey Chain LP acquired on 31 March 2000. Turnover by geographical region includes intra group sales as follows: United Kingdom £28.2 million (1998/9 - £28.2 million), Germany £9.5 million (1998/9 - £9.8 million) and France £2.8 million (1998/9 - £3.3 million). Trading assets comprise fixed assets, current assets less creditors but exclude goodwill, cash, property held for sale, borrowings, dividends, corporate tax, finance lease obligations and provisions for pensions.

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