TIDMRNO
RNS Number : 2219A
Renold PLC
28 May 2019
Renold plc
("Renold" or the "Group")
Preliminary results for the year ended 31 March 2019
28 May 2019
15% growth in adjusted operating profit;
strong organic growth delivered in the Chain division
Renold, a leading international supplier of industrial chains
and related power transmission products, today announces its
preliminary results for the year ended 31 March 2019, together with
an update on the progress of the Group's Strategic Plan.
Financial highlights
Year ended 31 March
2019 2018
GBPm GBPm
Underlying[1] revenue 202.4 190.8
Adjusted[2] operating profit 16.4 14.2
Adjusted2 operating profit margin 8.1% 7.4%
Statutory operating profit 16.2 5.6
Basic earnings/(losses) per share 3.3p (1.00p)
Adjusted earnings per share 4.9p 4.5p
----------------------------------- ----------- -------------
-- Organic growth in underlying revenue 6.1%; benefiting from
strong growth in the Chain division
-- Adjusted operating profit up by 15.5% to GBP16.4m (2018:
GBP14.2m); the highest adjusted operating profit for more than 15
years
-- Statutory operating profit increased to GBP16.2m (2018: GBP5.6m)
-- Return on sales 8.1% (2018: 7.4%); adjusted EBITDA GBP24.1m (2018: GBP21.5m)
-- Net debt GBP30.0m; net debt to adjusted EBITDA of 1.2x (2018:
1.1x), following a year of significant investment in the Chinese
factory relocation
Trading and operational highlights
-- Year on year growth in underlying order intake 5.5% (adjusted
to remove the major, multi-year Couplings order won in 2018); order
book at 31 March 2019 8.0% ahead of prior year
-- Completed the relocation of the Chinese chain manufacturing facility
-- Strong performance in the Chain division with underlying
revenue growth 7.5%; return on sales 11.2% (2018: 9.6%)
-- Stable revenue in the Torque Transmission division with continued growth in US markets
-- Move to AIM in support of acquisition strategy on schedule following shareholder approval
-- Group debt facilities amended and extended in the year; now committed until March 2024
Robert Purcell, Chief Executive of Renold plc, said:
"The Chain division has delivered encouraging organic growth as
well as improved operational efficiency, increasing adjusted
operating profit to record levels. The continued successful
execution of the strategic plan has enabled margin improvement to
be delivered in spite of labour cost inflation and the significant
relocation of our Chinese factory, which will take time to ramp up
to targeted output and productivity levels. We are mindful of these
factors entering the new year, but remain confident that our
strategic initiatives provide us with a clear pathway to further
future progress.
"Whilst not immediately visible in the trading performance in
the year to March 2019, the operational improvements in Torque
Transmission, along with additional revenue from the Couplings
long-term contract in the year ahead provide a platform for further
organic growth and margin improvement.
"Our strategy has delivered strong results and is the optimum
approach to creating and maintaining a higher quality, higher
margin business. Robust order books provide the basis for continued
improvement in the new financial year. We see significant
opportunity to build on the platform established, both through
ongoing organic growth initiatives and through an effective
acquisition strategy, the execution of which will be simplified by
the move to AIM. Delivering sustainable growth through these
initiatives, when combined with the benefits of further operational
efficiency, continues to support the expectation that mid-teens
operating margins can be delivered over time."
ENQUIRIES:
Renold plc 0161 498 4500
Robert Purcell, Chief Executive
Ian Scapens, Group Finance Director
Peel Hunt LLP 020 7418 8900
Mike Bell
Ross Allister
Ed Allsopp
Instinctif Partners 020 7457 2020
Mark Garraway
Rosie Driscoll
Cautionary statement regarding forward-looking statements
Some of the information in this document may contain projections
or other forward-looking statements regarding future events or the
future financial performance of Renold Plc and its subsidiaries
(the Group). You can identify forward-looking statements by terms
such as "expect", "believe", "anticipate", "estimate", "intend",
"will", "could", "may" or "might", the negative of such terms or
other similar expressions. Renold Plc (the Company) wishes to
caution you that these statements are only predictions and that
actual events or results may differ materially. The Company does
not intend to update these statements to reflect events and
circumstances occurring after the date hereof or to reflect the
occurrence of unanticipated events. Many factors could cause the
actual results to differ materially from those contained in
projections or forward-looking statements of the Group, including
among others, general economic conditions, the competitive
environment as well as many other risks specifically related to the
Group and its operations. Past performance of the Group cannot be
relied on as a guide to future performance.
ANALYSTS AND INVESTORS
A meeting for investors and analysts will be held on 29 May 2018
at 9.30 am at Instinctif, 65 Gresham Street, London, EC2V 7NQ. For
those unable to attend, a conference call facility is available as
follows:
Dial in: UK Dial-In: 0800 376 7922
Standard International Dial-In Number: +44 (0) 2071 928000
Conference ID: 8498502
NOTES FOR EDITORS
Renold is a global leader in the manufacture of industrial
chains and also manufactures a range of torque transmission
products which are sold throughout the world to a broad range of
original equipment manufacturers and distributors. The Company has
a reputation for quality that is recognised worldwide. Its products
are used in a wide variety of industries including manufacturing,
transportation, energy, metals and mining.
Further information about Renold can be found on their website
at: www.renold.com
Chairman's Letter
Overview
During the year ended 31 March 2019, Renold has continued to
make progress in the delivery of its strategic plan. The Chain
division has achieved significant performance improvement over the
prior year, delivering the highest adjusted operating profit within
the current strategic plan, and possibly ever. Performance in the
Torque Transmission division was slightly behind the prior year
level, reflecting a combination of expected lower long-term
contract revenues and a short-term change in product mix affecting
margin. The combined effect for the Group was the delivery of the
highest adjusted operating profit in recent history, along with
adjusted operating margins recovering towards the peak levels
achieved in the years ended 31 March 2015 and 31 March 2016.
Our markets
Overall market conditions remained robust through the year. The
exceptionally strong growth experienced in the US in the latter
part of the prior year has stabilised to more sustainable levels.
Revenue growth in the developing markets of China and India
continue to out-perform growth rates in more developed markets.
Strong order intake continued through the year, with orders for the
full year ahead of revenue (book-to-bill of 102%).
Trading performance
Revenue grew by 5.6% in the year (6.1% on an underlying basis),
reflecting the combined effects of targeted recovery of material
price increases alongside organic volume growth.
Having resolved the issues that depressed the Chain division's
performance in the prior year, adjusted return on sales for the
division improved significantly to 11.2% (2018: 9.6%). The Chain
division's improved trading performance is after absorbing cost
headwinds, particularly German wage costs as a result of union and
legislative changes.
This is the highest adjusted operating profit delivered by the
Chain division within the current strategic plan, and beyond this,
in recent history. While the progress of the plan has been slower
than originally envisaged, and greater cost headwinds have been
encountered, I remain certain that our strategic actions are
improving the underlying quality of the business and will further
improve margins on a sustainable basis.
Torque Transmission's adjusted return on sales declined in the
year to 10.6% (2018: 12.5%) as phasing of revenue on the multi-year
couplings contract combined with growth in lower margin product
areas to reduce divisional adjusted operating profit.
Adjusted operating profit of GBP16.4m (2018: GBP14.2m)
represents the highest annual adjusted operating profit delivered
under the current strategic plan. Statutory operating profit was
GBP16.2m (2018: GBP5.6m).
Step 2020 Strategic Plan
I am pleased to be able to report that we continue to make
strong progress in delivering key projects in support of the Step
2020 Strategic Plan.
We have completed the construction of and relocation to our new
purpose-built Chinese factory in Jintan, near Changzhou in Jiangsu
province.
We continue with our programme to roll out our chosen suite of
business systems solutions, including a standard ERP system and
associated scheduling and engineering packages. Our manufacturing
efficiency programmes are delivering increased efficiency with
sales per employee improving by 3.7%.
Off-setting this positive progress, our health and safety
statistics have been a disappointment in the year. Despite the
improved health and safety environment and framework that has been
introduced as a core element of the strategic plan, an increase in
volume at our manufacturing sites has coincided with an increase in
accidents and a deterioration in our health and safety KPIs. Health
and safety is a core element of our strategic plan and we will
redouble our efforts in this area to ensure that health and safety
performance returns to the improving trend that we have experienced
in preceding years.
The third element of the Step 2020 Strategic Plan addresses
acquisitions and the Group's appetite to grow through selective
acquisitions. In the November 2018 interim results, we highlighted
that the Board was considering whether to move the Group's stock
exchange listing to AIM. Following consideration by the Board, we
concluded that such a move would improve the Group's ability to
execute transactions, and in April we initiated the first steps of
the programme to implement the move by calling a General Meeting
and putting resolutions to shareholders for approval. At the
General Meeting on 8 May 2019, these resolutions were duly passed
with an overwhelming vote in support, and we remain on track with
the timetable outlined in the Circular for the Company's shares to
be admitted to trading on AIM on 6 June 2019.
We continue to be committed to the acquisition phase of the
strategy and consider the move to AIM to be part of the
preparations for ensuring we are correctly positioned to execute
acquisitions as and when they arise.
The Board and people
As previously reported, Tim Cooper was appointed to the Board as
a Non-Executive Director with effect from 14 November 2018 as part
of a programme of orderly Board succession. It is intended that Tim
will become Chairman of the Remuneration Committee after he has
completed 12 months service. To facilitate a smooth handover
period, Ian Griffith's term of office as a Non-Executive Director
has been extended beyond the usual nine-year tenure until the
conclusion of the 2020 AGM.
The Board continues to support the Executive team in reviewing
and monitoring key activities under the Step 2020 Strategic Plan.
The Board remains closely involved in the oversight of the major
project deliverables and all Board members have continued to give
additional time and support on a wide range of issues during the
year.
On behalf of the Board, I would like to thank all our employees
for their continued commitment and hard work during the year as we
progress the Group's strategy. The contribution of each employee is
valued and appreciated.
Debt facilities
In late March 2019, we completed an amendment and extension to
our core banking facilities, including the Group's core GBP61.5m
revolving credit facility. The revised facilities give access to
longer-term financing which now expires in March 2024 and adds a
GBP20.5m accordion facility, permitting an increase in debt if
required, for example, in support of acquisitions.
The amendment and extension resulted in changes to the banking
syndicate, which now includes HSBC, Allied Irish Bank (GB) and
Citibank. We welcome the new lending partners who complement
Renold's extensive geographic reach and can support our operations
across the world.
Pensions
The Group's net retirement benefit obligations increased to
GBP101.9m (2018: GBP97.4m), with the largest element of the
increase relating to reducing discount rates and increasing
inflation. This increase in the net deficit is despite actions that
have been implemented in the year to realign certain future
inflation measures to the consumer prices index rather than the
retail prices index used historically.
The Group remains committed to progressively de-risking this
position over time through a combination of agreed contributions to
the schemes and specific de-risking projects as they become
viable.
Future governance
Upon admission to AIM, the Company is required to adopt a
governance code. The recent changes to the UK Corporate Governance
Code introduce significant additional requirements that are not
considered by the Board to be appropriate for a company of Renold's
size and resources. Upon admission to AIM, the Company proposes to
adopt the Corporate Governance Code published by the Quoted
Companies Alliance. However, as outlined in the recent circular
proposing the move to AIM, the Directors intend to operate the
Company's reporting and governance in substantially the same manner
as at present.
Dividend
The Board fully recognises the importance of dividends to
shareholders. However, given the investment in the business in the
year to March 2019, particularly in the new Chinese facility, and
the resultant increase in net debt, the Board has decided not to
recommend the payment of a dividend on ordinary shares for the year
ended 31 March 2019. This approach will remain under active review
for future periods.
Summary
A great deal has been accomplished this year, with the Group's
financing facilities extended, the move to AIM well progressed, and
at the same time, delivering record adjusted operating margins in
the Chain division and the highest adjusted operating profit for
the Group in recent history.
There still remains a great deal of work yet to be done, but we
believe the actions delivered this year provide the platform to
progress the strategic plan further.
Mark Harper
Chairman
28 May 2019
Chief Executive's Review
Overview
I am pleased to be able to report a performance in the year that
has delivered revenue growth combined with improved margins, two of
our key strategic objectives. The result is the delivery of the
highest adjusted operating profit in recent history and the
recovery of adjusted operating margins towards the peak level
delivered in the year ended 31 March 2015.
We have been working diligently on improving performance for a
number of years as part of the strategic plan. This has involved
major restructuring projects such as factory moves and closures,
but has also been focused on attention to detail in manufacturing
processes and commercial capabilities. Our ability to demonstrate
the benefits of these actions in financial results has been limited
over the last few years by wider market issues. However, as revenue
growth has been achieved, the benefit of the actions implemented
has become visible and is reflected in the improvement in adjusted
operating profit margins.
Margin improvement in the year to 31 March 2019 has been focused
in the Chain division where underlying adjusted operating profit
margins increased to 11.2% (2018: 9.6%). These margins have been
delivered despite a number of headwinds, including the impact of
German wage inflation following union and legislative change and a
temporary reduction in profitability of our Chinese Chain
operations as we delivered the major factory move. This margin
improvement, along with further capacity for improvement in a
number of areas, demonstrates the potential for further increases
in margin as we continue with our strategic initiatives.
Performance of the Torque Transmission division has been more
challenging and the operating profit margin achieved in the year is
a disappointment. However, this performance masks a number of
underlying improvements, particularly in the US and in continued
strength of order intake, which give me confidence that performance
should improve in the coming year.
Group revenue grew by 6.1% to GBP202.4m on an underlying basis,
returning towards previous peak levels. Adjusted operating profit
increased to GBP16.4m (2018: GBP14.2m) which is a record adjusted
operating profit delivered in recent history.
Group order intake remained robust through the year, with total
orders growing by 5.5% on an underlying basis, and adjusted to
remove the impact of the major, multi-year contract won by
Couplings in the prior year. The Group's closing order book at 31
March 2019 is 8.0% ahead of the prior year on an underlying
basis.
Step 2020 Strategic Plan - update on progress
PHASE I - Business Improvement
Manufacturing efficiency
As noted above, we have been working diligently on improving
production efficiency as part of the strategic plan. As growth has
delivered a recovery in revenue to levels previously experienced in
the year ended 31 March 2015, the benefits of the strategic actions
are becoming visible. For the Chain division, particular
improvement is apparent in the margins being achieved in Chain
Americas and in India, with both being able to support the growing
volumes with limited additional resources as improvement programmes
delivered cost efficiencies and increased productivity. Chain
Europe has also been able to support growth with limited additional
resources; however, the impact of German labour cost inflation has
constrained margin improvement.
A further temporary constraint on margin improvement was
experienced, as anticipated, due to the reduced production output
of Chain China as we transferred to the new factory. We previously
outlined our programme to relocate the Chinese chain manufacturing
facility to a purpose-built facility near Changzhou in Jiangsu
province. This significant factory move was completed in the latter
part of the year, following two years of planning and construction.
This new facility is now fully operational and was delivered on
time and ahead of the deadline of 31 March 2019. The trading
performance of this business unit was impacted in the final quarter
of the year as the entire operation was relocated and a
substantially new workforce went through a 'learning curve'.
In order to deliver manufacturing efficiencies, one area of
focus during the year was on planning and scheduling systems across
the Group. As volumes increased in certain business units, the
capacity of their legacy processes to effectively support this
growth was proved to be inadequate. As a result, we have
accelerated the roll-out of scheduling systems and processes in
some areas, supporting improved service.
Over the last five years, we have invested in a number of
capital projects aimed at improving existing facilities and adding
new manufacturing capabilities and technologies. These initiatives
have improved reliability and efficiency, allowing us to reduce
costs, while at the same time enhance product quality and service
levels. There remains significant scope for further investment in
projects with attractive financial returns and we will continue to
invest in a disciplined manner, ahead of depreciation, to deliver
these.
On a more disappointing note, based on our KPIs, health and
safety performance deteriorated in the year. The health and safety
programmes which have been implemented as a core part of the
strategic plan remain appropriate and provide the framework to
ensure improved performance. As the sites become busier, we will
continue to refine and develop our processes and procedures defined
by the health and safety framework to ensure that our performance
in this area is on an improving trend.
Business process efficiency
The most significant element of the programme to improve
business process efficiency is the implementation of the Group's
ERP and associated business systems across all its sites. Progress
continues and the new Chinese factory and sales office are now
operating on the new systems. The preparation of the roll-out to
India is well progressed, but was ultimately delayed as we elected
to reduce the risk exposure of changing systems in both China and
India at the same time. India is expected to go live on the new
systems early in the new financial year.
This time last year, I outlined the launch of our Step 2 Service
programme which is focused on improving customer service. Customer
service has been a long-standing achilles heel for Renold, and the
programme is delivering initial improvements. However, there
remains more to do to deliver exceptional service to customers at
all times, and our management teams around the Group are assessing
all aspects of their business processes to identify and improve
processes that can enhance customer service.
PHASE II - Organic Growth
Growth activities
Over the last few years, Renold has been restructuring and
strengthening the commercial and sales teams around the world. This
has provided a platform for growth, which, in the year ended 31
March 2019, comprised a combination of pricing and volume growth.
Following the step-change increases in raw material prices
experienced in the year ended 31 March 2018, sales price increases
were implemented, providing benefit in the second half of the year
to 31 March 2018 and in the year ended 31 March 2019. Volume-driven
organic growth has been particularly strong in the US markets,
across both Chain and Torque Transmission divisions.
Underlying revenue growth was sustained throughout the year with
6.4% delivered for the first half, and 5.7% for the second half,
resulting in underlying growth for the year of 6.1%.
Renold's brand recognition and engineering capability are key
differentiators in the market and enable us to focus on premium
performance segments and applications with complex and challenging
requirements. As such, we continue to target non-traditional
sectors where we believe Renold's products can provide a
differentiated offering and where we can reduce our exposure to the
cyclicality of core industrial markets. We are seeing continued
progress from this approach in growth markets such as logistics and
ports and anticipate further benefits in the future.
Commercial positioning
We have been working towards product standardisation for some
time. This programme has further future potential, and in the year
to 31 March 2019, we delivered measurable success from the
programme. As part of the relocation of the Chinese factory, our
Indian facility provided identical specification chain to that
normally manufactured in China. This capability ensured continued
supply during the factory move, preventing any customer service
issues, but also providing an element of de-risking to the factory
transfer. This is part of an ongoing programme to increase
manufacturing flexibility at our sites, and to ensure that we
provide a consistent Renold specification and Renold quality,
independently of where the product is made.
I referred to our Step 2 Service programme earlier under the
manufacturing efficiency heading. Ultimately, Step 2 Service is
focused on ensuring that our customer service is befitting of
Renold's premium position in the market. As we use this programme
to diagnose process issues and improve customer experience, we are
focusing on ensuring that we get the basics right. This is drawing
together root causes from a number of business areas, and driving a
culture change across the organisation. Solutions are often simple,
but require a consistent approach from all areas of the business to
deliver improvement.
PHASE III - Acquisitions
Acquisitions remain a core component of our strategic plan.
Acquisitions that can deliver growth or enhance margin, either
through access to new markets and products or through consolidation
of production, have the potential to deliver value while
reinforcing Renold's reputation as a leading global supplier of
chain and torque transmission products.
The organic initiatives implemented in respect of the first two
phases of the strategic plan have created a stronger platform from
which to pursue acquisitions. Our improved commercial structures
and processes have given us greater insight and clarity as to the
most strategically attractive opportunities for consolidation in
our established markets and expansion into complimentary markets
and product areas. Furthermore, we are confident our operational
platform, following the restructuring and efficiency investments
made, will enable us to integrate acquired businesses effectively
and realise the financial and strategic synergy potential these
would bring.
The objective of moving Renold's stock exchange listing to AIM
is to ensure we have the flexibility to execute transactions more
quickly, more cost effectively and with greater certainty.
We are pursuing acquisition opportunities although, by their
nature, the timing of acquisitions is unpredictable and is
dependent upon availability of suitable targets. We have clear
acquisition criteria by which we will measure opportunities as they
arise.
Chain performance review
2019 2018
GBPm GBPm
------------------------------------- ----- -----
Revenue 163.9 153.1
Foreign exchange - (0.7)
------------------------------------- ----- -----
Underlying revenue 163.9 152.4
Adjusted operating profit 18.4 14.7
Foreign exchange - (0.1)
------------------------------------- ----- -----
Underlying adjusted operating profit 18.4 14.6
------------------------------------- ----- -----
Statutory operating profit 15.3 7.8
------------------------------------- ----- -----
The Chain division delivered strong performance in the year as
organic growth was delivered alongside operational improvements.
The raw material cost increases experienced in the prior year have
been passed on successfully and have combined with organic volume
growth and improved operational effectiveness to enhance
performance. As a result, the division delivered the highest
adjusted operating profit in recent history. This performance is in
spite of certain cost headwinds, most notably labour costs in
Germany following legislative and union-driven changes.
Underlying revenue of GBP163.9m was GBP11.5m (7.5%) ahead of the
prior year. Stronger macroeconomic conditions and sales price
increases have combined with an enhanced commercial team and
improved levels of customer service to deliver organic revenue
growth across all Chain regions. While regional performance has
varied, growth for the division as a whole increased through the
year with underlying revenue growth of 8.0% in the second half of
the year compared with 7.1% for the first half.
European revenue growth accelerated through the year with
underlying growth of 3.1% in the first half of the year, increasing
to 7.7% in the second half. The acceleration resulted from price
increases in the first half of the year being supplemented in the
second half with volume growth. Underlying revenue growth for the
year was 5.4%.
In the Americas, the improving demand experienced in the latter
part of the prior year continued during the year ended 31 March
2019, with an underlying revenue increase of 11.3%. This level of
growth reflects not only improvements in the underlying US market,
but also Renold's improved ability to access this market demand
through increased product and sector focus.
In Australasia, underlying revenue growth for the year as a
whole was marginal. However, this reflects an underlying revenue
decline in the first half of the year of 5.6% off-set by growth of
6.3% in the second half. This largely reflects volatility in
revenues in our South-East Asia regions of Malaysia and
Indonesia.
Domestic revenues in India grew strongly with underlying revenue
growth of 13.3%. In addition, and as a result of our strategic
product standardisation programme, India, for the first time,
supplied other Group companies with a specification of chain that
would normally be supplied from our Chinese factory. This mitigated
the risk of disruption as we moved our Chinese factory, but also
demonstrates the manufacturing flexibility benefits being delivered
by this programme.
Growth in domestic Chinese revenues was subdued in the year as
we relocated the factory. In spite of this, underlying revenue grew
by 7.0%, albeit from a low absolute base.
Underlying order intake of GBP165.5m was up by GBP7.5m (4.7%) on
the previous year. At a regional level, European underlying order
intake increased by 4.5%, and orders remain ahead of revenue for
the year. In the Americas, following particularly strong growth in
the year to 31 March 2018, underlying order intake grew at a more
sustainable 4.5%. Order intake in Australasia followed a similar
trend to revenue and was marginally up by 1.1%. Order intake
increased by 22.1% in China and 8.1% in India. Total orders for the
year finished GBP1.6m (1.0%) ahead of sales.
Contribution margin, the margin after all variable production
costs, fell by 49bps (as a percentage of revenue), with the most
significant cost increase relating to direct labour. Underlying
revenue per employee improved by 3.6% demonstrating improved labour
productivity from the various programmes underway. However, the
cost headwind largely resulted from union and legislation-driven
labour rate inflation in Germany, which was sufficient to more than
off-set these productivity gains. Steel prices were more stable
than in the prior year, although specific factors, such as US steel
tariffs, continue to create distortions in the market.
The combined effect of these movements was the delivery of the
highest revenue by the Chain division since the commencement of the
strategic plan at the highest adjusted operating profit margin of
11.2% (2018: 9.6%).
The Chain division made strong progress in the year and is
delivering the best results in recent times. Despite the cost
headwinds being encountered, the division continues to progress,
with further opportunity to improve margins.
Torque Transmission performance review
2019 2018
GBPm GBPm
------------------------------------- ----- -----
Revenue 38.5 38.5
Foreign exchange - (0.1)
------------------------------------- ----- -----
Underlying revenue 38.5 38.4
Adjusted operating profit 4.1 4.8
Foreign exchange - 0.1
------------------------------------- ----- -----
Underlying adjusted operating profit 4.1 4.9
------------------------------------- ----- -----
Statutory operating profit 4.1 4.6
------------------------------------- ----- -----
Underlying external revenue of GBP38.5m was largely unchanged
from the GBP38.4m delivered in the prior year.
For the division as a whole, the limited overall growth masks a
number of underlying movements. The production phasing for the
large, multi-year contract won by Couplings in the prior year
requires delivery in alternate years. Following the first year of
revenue from this contract in the year ended 31 March 2018, revenue
reduced for the year ended 31 March 2019. In the Couplings business
unit, this revenue was not replaced by other revenue streams, and
Couplings experienced a revenue decline in the year.
While this revenue 'gap' was not replaced in Couplings, other
Torque Transmission business units delivered growth to recover this
shortfall, but at lower margins. Growth was most significant in our
US operations which delivered underlying revenue growth of 12.5%.
The potential for growth was even greater, but was ultimately
constrained by supply chain limitations in servicing the levels of
order growth experienced. These supply chain constraints are being
progressively overcome, but will require continued focus in order
to service the levels of demand; the US order book at 31 March 2019
was 47.7% higher than the prior year position.
Underlying adjusted operating profit improved in all business
units with the exception of Couplings, with the scale of decline in
Couplings reflecting the impact of revenue phasing. A number of
management changes have been made in Couplings to refocus the
business and to ensure management actions reflect the environment
in which the business operates.
Order intake was GBP41.1m, which, after removing the large
multi-year order won by UK Couplings in the prior year, represents
underlying growth of 8.8%. This level of order intake has remained
robust through the year and has contributed to the order book at 31
March 2019 being 15.0% ahead of the prior year.
We continue with our programme of product development,
encompassing RBI Couplings, escalator drives and bespoke gearbox
solutions for OEMs, amongst others. The timeline for introducing
new products and for customers to adopt those new products in
industrial markets is long but we continue to believe that these
actions will deliver future growth in Torque Transmission.
The performance of Couplings masks the underlying improvements
that are being delivered in the other Torque Transmission business
units.
Strong order intake and an improved opening orderbook as we head
into the new financial year should combine with a recovering
Couplings performance, supported by a return of major contract
revenues, to provide the platform for revenue growth and margin
improvement.
Macroeconomic landscape and Brexit
There are a number of well-publicised macroeconomic risks, but
due to the lack of certainty as to whether or how these risks will
crystallise, we continue to deliver our strategy, cognisant of the
risks, but similarly very aware that these should not delay our
progress.
In Europe, the Brexit process creates uncertainty for Renold and
for our customers. However, with only 7% of our Group revenues
generated in the UK and with the majority of export sales from our
UK Torque Transmission plants to non-European destinations, we do
not believe that we are overly exposed to risk in this area.
In the US, which represents 34% of Group revenue, the threat of
increased tariff restrictions has the potential to disrupt the
markets in which we operate. However, Renold's US markets have
remained robust despite the tariffs already introduced. The
additional costs, either directly or indirectly related to the
tariffs, have been passed on to customers in increased sales
prices. While we cannot predict future changes, our operating model
includes US-manufactured product combined with imports of products
from other global Renold manufacturing locations. As a result, we
have flexibility to adjust our manufacturing strategy and adapt our
approach if required in response to longer-term changes in the
competitive environment.
Outlook
The Chain division has delivered encouraging organic growth as
well as improved operational efficiency, increasing adjusted
operating profit to record levels. The continued successful
execution of the strategic plan has enabled margin improvement to
be delivered in spite of labour cost inflation and the significant
relocation of our Chinese factory, which will take time to ramp up
to targeted output and productivity levels. We are mindful of these
factors entering the new year, but remain confident that our
strategic initiatives provide us with a clear pathway to further
future progress.
While not immediately visible in the trading performance in the
year to March 2019, the underlying improvements in Torque
Transmission, along with additional revenue from the Couplings
long-term contract in the year ahead, provide a platform for
further organic growth and margin improvement.
Our strategy has delivered strong results and is the optimum
approach to creating and maintaining a higher quality, higher
margin business. Robust order books provide the basis for continued
improvement in the new financial year. We see significant
opportunity to build on the platform established, both through
ongoing organic growth initiatives and through an effective
acquisition strategy, the execution of which will be simplified by
the move to AIM. Delivering sustainable growth through these
initiatives, when combined with the benefits of further operational
efficiency, continues to support the expectation that mid-teens
operating margins can be delivered over time.
Robert Purcell
Chief Executive
28 May 2019
Finance Director's Review
An improved performance of the Chain division has increased the
Group's adjusted operating profit to the highest levels in recent
years. Continued investment, particularly in the new Chinese
factory, has increased net debt, but with leverage remaining
low.
Orders and revenue
2019 2018
--------------------------- ---------------------------
Order Operating Order Operating
Reconciliation to reported intake Revenue profit intake Revenue profit
results GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- ------- ------- --------- ------- ------- ---------
As reported 206.6 202.4 16.2 201.9 191.6 5.6
Impact of foreign exchange - - - (0.9) (0.8) -
Pension administration costs - - 0.8 - - 0.9
Restructuring costs - - 2.9 - - 4.7
Pension past service credits - - (4.4) - - -
Amortisation of acquired
intangible assets - - 0.9 - - 0.9
Impairment of goodwill - - - - - 2.1
----------------------------- ------- ------- --------- ------- ------- ---------
Underlying adjusted 206.6 202.4 16.4 201.0 190.8 14.2
----------------------------- ------- ------- --------- ------- ------- ---------
Underlying order intake for the Chain division progressed well
in the year with growth in the second half of 4.4% over the strong
second half of the prior year (2018: 5.7%). This compared to growth
of 5.5% for the first half (2018: 5.3%), and together resulted in
order intake growth for the full year of 4.7% (2018: 5.5%). Order
intake in the Chain division remained higher than revenue with the
underlying ratio of orders to revenue (book-to-bill) being 101.0%
in the year (2018: 103.7%).
Underlying orders in the Torque Transmission division grew
strongly, by 8.8% (2018: 0.2%) when the impact of the major
multi-year order for UK Couplings is removed. The book-to-bill
ratio for the division was 107.8% (2018: 102.4%, adjusted for the
major multi-year order).
Group revenue for the year increased by GBP10.8m (5.6%) to
GBP202.4m. Underlying revenue increased similarly by GBP11.6m
(6.1%). Revenue benefited from a combination of organic volume
growth and increased sales prices to recover material cost
increases. Underlying growth was broadly consistent across the year
with growth of 6.4% for the first half moderating slightly, as
sales price increases fully annualised, to 5.7% for the second
half.
On a divisional basis, the Chain division saw underlying revenue
increase by 7.5% and Torque Transmission by 0.3%.
Operating profit
The Group generated an adjusted operating profit for the year of
GBP16.4m (2018: GBP14.2m). Reported operating profit after
adjusting items was GBP16.2m (2018: GBP5.6m).
Adjusted operating margins increased during the year to 8.1%
(2018: 7.4%), largely as a result of improved performance of the
Chain division where adjusted operating margins increased to 11.2%
(2018: 9.6%). The adjusted operating profit delivered by the Chain
division is the highest in recent history and demonstrates the
progress that is being made through the strategic plan.
Due to phasing of revenue and growth in lower margin product
areas, the adjusted operating margins for the Torque Transmission
division declined in the year to 10.6% (2018: 12.5%).
Foreign exchange rates
Foreign exchange rates have remained volatile during the year,
reflecting a depreciation of sterling against a number of
currencies through the year, but with a slight recovery in the last
few months of the year. The most significant movement for Renold
has been the 7% strengthening of the US dollar against sterling
between March 2018 to March 2019. However, due to the phasing of
movements over the current and prior years, the weighted average
exchange rate used to translate US dollar only reflects a 2%
strengthening of the US Dollar based on a weighted average rate of
1.31 for the year ended 31 March 2019 (2018: 1.33).
The sterling to euro rate has remained more stable, with the
euro 2% weaker at 31 March 2019 when compared to 31 March 2018.
Again, phasing of movements over the current and prior year mean
the weighted average exchange rate used to translate euro trading
results is unchanged based on a rate of 1.13 for the year ended 31
March 2019 (2018: 1.13).
FX Rates (% of Group Mar 18 Sep 18 Sep 18 Mar 19 Mar 19
sales) FX rate FX rate Var % FX rate Var %
--------------------- -------- -------- ------ -------- ------
GBPGBP / Euro (29%) 1.14 1.12 (2%) 1.16 2%
GBPGBP / US$ (37%) 1.40 1.31 (6%) 1.30 (7%)
GBPGBP / C$ (4%) 1.81 1.71 (6%) 1.74 (4%)
GBPGBP / A$ (5%) 1.83 1.82 (1%) 1.83 nil%
--------------------- -------- -------- ------ -------- ------
If the year-end exchange rates had applied throughout the year,
there would be an estimated decrease of GBP0.4m to revenue and
GBP0.1m to operating profit.
Restructuring costs
Various restructuring costs were incurred in the year as part of
the Step 2020 Strategic Plan. The most significant costs were in
connection with redundancy and restructuring costs arising on the
relocation of the Chinese factory of GBP1.8m.
Other costs incurred related to management changes, final costs
on the closure of the Singapore office and with the move of stock
exchange listing to AIM.
Other adjusting items
Other adjusting items include legacy pension scheme
administration costs of GBP0.8m (2018: GBP0.9m) and amortisation of
acquired intangible assets of GBP0.9m (2018: GBP0.9m).
More significant in the year is the past service credit for the
UK pension scheme of GBP4.4m which is the net impact of a gain
following the move of certain future pension increases from RPI to
CPI of GBP8.2m, partially off-set by a past service cost relating
to GMP equalisation of GBP3.8m. Further details on these pension
adjustments are outlined below.
Financing costs
External net interest costs in the year were GBP2.2m (2018:
GBP1.7m). The annual charge includes GBP0.3m (2018: GBP0.3m charge)
in respect of amortisation of the residual refinancing costs paid
in 2012, 2015 and in 2017. Financing costs also include GBP0.1m of
unwinding discounts on onerous lease provisions established for the
Bredbury factory site.
The net IAS 19R finance charge (which is a non-cash item)
remained stable at GBP2.4m (2018: GBP2.4m) and is treated as an
adjusting item. A further adjusting item included within finance
costs is a GBP0.3m cost write-off of all remaining bank facility
arrangement fees from the old facility, as a result of amending and
extending the facility in the year.
Result before tax
Profit before tax was GBP11.2m (2018: GBP1.4m). Adjusted profit
before tax, which excludes restructuring costs, IAS 19R financing
costs, amortisation of acquired intangible assets, legacy pension
scheme costs, amortisation of financing costs and discounts on
provisions, was GBP14.2m (2018: GBP12.5m).
Taxation
The current year tax charge of GBP3.5m (2018: GBP3.6m) is made
up of a current tax charge of GBP1.1m (2018: GBP1.1m) and a
deferred tax charge of GBP2.4m (2018: GBP2.5m). Following an
increased tax charge in the prior year resulting from US tax
reform, the tax charge remained high in the year to 31 March 2019
as a result of the deferred tax charge on the pension past service
credit arising in the year.
The Group cash tax paid reduced to GBP1.8m (2018: GBP3.8m).
Group results for the financial period
A profit after tax of GBP7.7m was achieved for the financial
year ended 31 March 2019 (2018: loss of GBP2.2m). Basic adjusted
earnings per share was 4.9p (2018: 4.5p). Basic earnings per share
of 3.3p compares with a loss per share of 1.0p for the year ended
31 March 2018.
Balance sheet
Net assets at 31 March 2019 were GBP1.6m (2018: GBP1.1m).
Although net profit of GBP7.7m was delivered for the year, net
assets increased only slightly as the impact of remeasurement
losses on retirement benefit obligations (driven by decreases in
discount rates and increases in inflation), reduced retained profit
by GBP11.2m.
Net assets continue to be impacted by the net pension deficit
which increased to GBP101.9m (2018: GBP97.4m). The net liability
for pension benefit obligations was GBP85.3m (2018: GBP81.7m) after
allowing for a net deferred tax asset of GBP16.6m (2018: GBP15.7m).
Overseas schemes now account for GBP29.3m (29%) of the net pension
deficits and GBP25.5m of this is in respect of the German scheme
which is unfunded.
Cash flow and borrowings
Cash generated from operations was GBP8.5m (2018: GBP6.1m).
Gross capital expenditure in the year was GBP10.7m (2018:
GBP10.1m), with the largest element relating to the new Chinese
factory.
The absolute level of working capital was GBP2.3m higher than in
the prior year, reflecting increased inventory holdings in support
of improving customer service through the Step to Service
programme.
Group net borrowings at 31 March 2019 of GBP30.0m were GBP5.7m
higher than the opening position of GBP24.3m comprising cash and
cash equivalents of GBP17.9m (2018: GBP13.9m) and borrowings of
GBP47.9m (2018: GBP38.2m). The increase in net debt reflects the
investment in the new Chinese factory, both through capital
investment and through cash restructuring costs.
Debt facility and capital structure
The Group's core banking facilities were amended and extended in
March 2019. Following the amendment, the Group's committed
multi-currency revolving credit facility (MCRF) totalled GBP61.5m,
with an additional GBP20.5m accordion facility providing a route to
additional funding if required, although this element is not
committed. As a result of the extension of term, the facility
matures in March 2024. Borrowing under the facility at 31 March
2019 was GBP48.3m.
The Group continues to operate comfortably within covenant
limits. The net debt/adjusted EBITDA ratio as at 31 March 2019 is
1.22 times (covenant requirement: up to 2.5 times; 2018: 1.12
times), based on the reported figures for the period as adjusted
for the banking agreement. The adjusted EBITDA/interest cover as at
31 March 2019 is 10.5 times (covenant requirement: greater than 4.0
times; 2018: 12.0 times), again on a banking basis.
At 31 March 2019, the Group had unused credit facilities
totalling GBP12.8m and cash balances of GBP17.9m. Total Group
credit facilities amounted to GBP63.2m, all of which were
committed.
Treasury and financial instruments
The Group's treasury policy, approved by the Board, is to manage
its funding requirements and treasury risks without undertaking any
speculative risks. Treasury and financing matters are assessed
further in the section on Principal Risks and Uncertainties.
To manage foreign currency exchange risk on the translation of
net investments, certain US dollar denominated borrowings taken out
in the UK to finance US acquisitions are designated as a hedge of
the net investment in US subsidiaries. At 31 March 2019 this hedge
was fully effective. The carrying value of these borrowings at 31
March 2019 was GBP6.7m (2018: GBP6.2m).
At 31 March 2019, the Group had 1% (2018: 1%) of its gross debt
at fixed interest rates. Cash deposits are placed short-term with
banks where security and liquidity are the primary objectives. The
Group has no significant concentrations of credit risk with sales
made to a wide spread of customers, industries and geographies.
Policies are in place to ensure that credit risk on individual
customers is kept to a minimum.
Pension assets and liabilities
The Group has a mix of UK (83% of gross liabilities) and
overseas (17%) defined benefit pension obligations as shown
below.
2019 2018
---------------------------- ----------------------------
Assets Liabilities Deficit Assets Liabilities Deficit
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ------ ----------- ------- ------ ----------- -------
Defined benefit schemes
UK scheme 138.6 (211.2) (72.6) 140.7 (210.3) (69.6)
Overseas schemes 13.8 (43.1) (29.3) 13.1 (40.9) (27.8)
------------------------ ------ ----------- ------- ------ ----------- -------
152.4 (254.3) (101.9) 153.8 (251.2) (97.4)
Deferred tax asset 16.6 15.7
------------------------ ------ ----------- ------- ------ ----------- -------
Net deficit (85.3) (81.7)
------------------------ ------ ----------- ------- ------ ----------- -------
The Group's retirement benefit obligations increased from
GBP97.4m (GBP81.7m net of deferred tax) at 31 March 2018 to
GBP101.9m (GBP85.3m net of deferred tax) at 31 March 2019. The
largest element of the increase relates to the UK scheme where the
deficit increased from GBP69.6m to GBP72.6m. Reflecting changes in
assumptions for discount rates and inflation rates, the deficit of
the overseas schemes increased by GBP1.5m to GBP29.3m.
UK funded scheme
The deficit of the UK scheme increased in the year to GBP72.6m
(2018: GBP69.6m) reflecting a number of changes in assumptions and
factors. Following the High Court judgment in the year, Renold,
along with many other pension scheme sponsors, is recognising an
estimate of the future cost of GMP equalisation in the valuation of
liabilities. This increases the liabilities by GBP3.8m.
As a continuation of the management of future liabilities,
agreement was reached with the Trustee to use the consumer prices
index (CPI) rather than the retail prices index (RPI) for future
increases of certain elements of the scheme where such a change is
permitted. This reduces the liabilities by GBP8.2m.
The net reduction in liabilities of GBP4.4m, from the combined
effects of GMP equalisation and the RPI to CPI change, is a past
service credit and is therefore included as operating income in the
Statement of Comprehensive Income.
Off-setting the reduction in deficit from the past service
credits is the impact of changes to the assumptions for discount
rate and inflation. The assumed discount rate has reduced by 0.2%
to 2.4%, increasing liabilities by GBP6.1m, while the assumed CPI
inflation rate has increased by 0.2% to 2.4%, further increasing
liabilities by GBP4.2m.
The latest triennial actuarial valuation of the UK Scheme, with
an effective date of 5 April 2016, was agreed in May 2017. The next
triennial valuation date will be as at 5 April 2019.
Total cash costs for UK deficit repair payments were GBP3.0m
(2018: GBP2.9m).
Overseas schemes
The largest element of the overseas schemes is the German
unfunded scheme, with a total deficit of GBP25.5m. Other overseas
funded schemes comprise a number of smaller schemes around the
world, with a combined deficit of GBP3.8m. The increase in combined
deficits of all the overseas schemes of GBP1.5m is most
significantly impacted by the discount rate and inflation financial
assumptions, which together result in a GBP2.0m increase in
deficit.
For overseas pension schemes, the Company contributions in the
year were GBP1.6m (2018: GBP1.7m).
Future accounting changes
For the year ending 31 March 2020, Renold will adopt IFRS 16
'Leases'. The requirements of this standard have not been adopted
for the year ended 31 March 2019, but we have estimated the impact
on the financial statements. Based on the Group's existing leases,
a right of use asset of c.GBP9.9m would be recognised, offset by
future lease liabilities of c.GBP17.6m.
In the statement of comprehensive income, in order to reflect
the change in recognition of annual lease costs, EBITDA would
increase by c.GBP2.9m, being offset by an increase in depreciation
of the right of use asset of c.GBP2.3m and an increase in financing
costs of c.GBP0.4m.
Ian Scapens
GROUP Finance Director
28 May 2019
Consolidated Statement of Comprehensive Income
for the year ended 31 March 2019
2019 2019 2019 2018 2018 2018
Statutory Adjustments Adjusted(1) Statutory Adjustments Adjusted(1)
Note GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------- ---- ---------- ------------ ------------ ---------- ------------ ------------
Revenue 2 202.4 - 202.4 191.6 - 191.6
Operating costs 3 (186.2) 0.2 (186.0) (186.0) 8.6 (177.4)
-------------------------------- ---- ---------- ------------ ------------ ---------- ------------ ------------
Operating profit 16.2 0.2 16.4 5.6 8.6 14.2
-------------------------------- ---- ---------- ------------ ------------ ---------- ------------ ------------
Operating profit is analysed
as: 3
Before adjusting items 16.2 - 16.2 5.6 - 5.6
Restructuring costs - 2.9 2.9 - 4.7 4.7
Amortisation of acquired
intangible assets - 0.9 0.9 - 0.9 0.9
Impairment of goodwill - - - - 2.1 2.1
Pension past service credits - (4.4) (4.4) - - -
Pension administration costs - 0.8 0.8 - 0.9 0.9
-------------------------------- ---- ---------- ------------ ------------ ---------- ------------ ------------
Operating profit 16.2 0.2 16.4 5.6 8.6 14.2
-------------------------------- ---- ---------- ------------ ------------ ---------- ------------ ------------
Financial costs (2.6) 0.4 (2.2) (1.8) 0.1 (1.7)
Net IAS 19R financing costs (2.4) 2.4 - (2.4) 2.4 -
Net financing costs 4 (5.0) 2.8 (2.2) (4.2) 2.5 (1.7)
-------------------------------- ---- ---------- ------------ ------------ ---------- ------------ ------------
Profit before tax 11.2 3.0 14.2 1.4 11.1 12.5
Taxation 5 (3.5) 0.6 (2.9) (3.6) 1.3 (2.3)
-------------------------------- ---- ---------- ------------ ------------ ---------- ------------ ------------
Profit/(loss) for the financial
year 7.7 3.6 11.3 (2.2) 12.4 10.2
-------------------------------- ---- ---------- ------------ ------------ ---------- ------------ ------------
Other comprehensive
income/(expense):
Items that may be reclassified
to the income statement
in subsequent periods:
Foreign exchange translation
differences 2.7 (5.9)
Foreign exchange differences
on loans hedging the net
investment in foreign
operations (0.5) 0.8
Gains arising on cash flow
hedges (0.7) 0.4
-------------------------------- ---- ---------- ------------ ------------ ---------- ------------ ------------
1.5 (4.7)
Items not to be reclassified
to the income statement
in subsequent periods:
Remeasurement losses on
retirement benefit obligations (11.2) 2.8
Tax on remeasurement losses
on retirement benefit
obligations 2.1 (1.6)
-------------------------------- ---- ---------- ------------ ------------ ---------- ------------ ------------
(9.1) 1.2
-------------------------------- ---- ---------- ------------ ------------ ---------- ------------ ------------
Other comprehensive expense
for the year, net of tax (7.6) (3.5)
-------------------------------- ---- ---------- ------------ ------------ ---------- ------------ ------------
Total comprehensive
income/(expense)
for the year, net of tax 0.1 (5.7)
-------------------------------- ---- ---------- ------------ ------------ ---------- ------------ ------------
Attributable to:
Owners of the parent (0.1) (5.8)
Non-controlling interest 0.2 0.1
-------------------------------- ---- ---------- ------------ ------------ ---------- ------------ ------------
0.1 (5.7)
-------------------------------- ---- ---------- ------------ ------------ ---------- ------------ ------------
Earnings/(loss) per share 6
Basic earnings/(loss) per
share 3.3p 4.9p (1.0p) 4.5p
Diluted earnings/(loss)
per share 3.2p 4.8p (1.0p) 4.5p
-------------------------------- ---- ---------- ------------ ------------ ---------- ------------ ------------
All results are from continuing operations.
1. Adjusted for the after tax effects of pension administration
costs, restructuring costs, changes in the provision discounts, IAS
19R financing costs, impairment of goodwill and amortisation of
acquired intangible assets (see Note 3).
Consolidated Balance Sheet
as at 31 March 2019
2019 2018
Note GBPm GBPm
--------------------------------------------- ---- ------- -------
ASSETS
Non-current assets
Goodwill 8 23.1 21.6
Other intangible assets 9 6.6 8.3
Property, plant and equipment 10 55.8 47.7
Deferred tax assets 21.5 20.6
--------------------------------------------- ---- ------- -------
107.0 98.2
--------------------------------------------- ---- ------- -------
Current assets
Inventories 12 44.8 41.0
Trade and other receivables 13 37.8 36.4
Derivative financial instruments - 0.4
Cash and cash equivalents 14 17.9 13.9
--------------------------------------------- ---- ------- -------
100.5 91.7
TOTAL ASSETS 207.5 189.9
--------------------------------------------- ---- ------- -------
LIABILITIES
Current liabilities
Borrowings 15 - (1.3)
Trade and other payables 16 (41.0) (39.6)
Current tax (0.4) (1.2)
Derivative financial instruments (0.4) -
Provisions 17 (0.8) (4.6)
--------------------------------------------- ---- ------- -------
(42.6) (46.7)
--------------------------------------------- ---- ------- -------
NET CURRENT ASSETS 57.9 45.0
--------------------------------------------- ---- ------- -------
Non-current liabilities
Borrowings 15 (47.4) (36.4)
Preference stock 15 (0.5) (0.5)
Trade and other payables 16 (5.4) (0.3)
Deferred tax liabilities (5.6) (4.2)
Retirement benefit obligations (101.9) (97.4)
Provisions 17 (2.5) (3.3)
--------------------------------------------- ---- ------- -------
(163.3) (142.1)
--------------------------------------------- ---- ------- -------
TOTAL LIABILITIES (205.9) (188.8)
--------------------------------------------- ---- ------- -------
NET ASSETS 1.6 1.1
--------------------------------------------- ---- ------- -------
EQUITY
Issued share capital 11.3 11.3
Share premium account 30.1 30.1
Capital redemption reserve 15.4 15.4
Currency translation reserve 10.4 7.1
Other reserves (0.4) 1.4
Retained earnings (67.4) (66.2)
--------------------------------------------- ---- ------- -------
Equity attributable to equity holders of the
parent (0.6) (0.9)
Non-controlling interests 2.2 2.0
--------------------------------------------- ---- ------- -------
TOTAL SHAREHOLDERS' EQUITY 1.6 1.1
--------------------------------------------- ---- ------- -------
Approved by the Board on 28 May 2019 and signed on its behalf
by:
Robert Purcell Ian Scapens
Chief Executive Finance Director
Consolidated Statement of Changes in Equity
for the year ended 31 March 2019
Share Currency Capital Attributable Non-
Share premium Retained translation redemption Other to owners controlling Total
capital account earnings reserve reserve reserves of parent interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------- -------- -------- -------- ----------- ---------- -------- ------------ ----------- -------
At 31 March 2017 26.7 30.1 (64.9) 12.2 - 1.0 5.1 2.7 7.8
Loss for the year - - (2.3) - - - (2.3) 0.1 (2.2)
Other
comprehensive
income/(expense) - - 1.2 (5.1) - 0.4 (3.5) (0.8) (4.3)
----------------- -------- -------- -------- ----------- ---------- -------- ------------ ----------- -------
Total
comprehensive
income/(expense)
for
the year - - (1.1) (5.1) - 0.4 (5.8) (0.7) (6.5)
Reclassification
for
cancellation of
deferred
shares (15.4) - - - 15.4 - - - -
Employee share
options:
- value of
employee
services - - (0.2) - - - (0.2) - (0.2)
----------------- -------- -------- -------- ----------- ---------- -------- ------------ ----------- -------
At 31 March 2018 11.3 30.1 (66.2) 7.1 15.4 1.4 (0.9) 2.0 1.1
Profit for the
year - - 7.5 - - - 7.5 0.2 7.7
Other
comprehensive
income/(expense) - - (9.1) 3.3 - (1.8) (7.6) - (7.6)
----------------- -------- -------- -------- ----------- ---------- -------- ------------ ----------- -------
Total
comprehensive
income/(expense)
for
the year - - (1.6) 3.3 - (1.8) (0.1) 0.2 0.1
Employee share
options:
- value of
employee
services - - 0.4 - - - 0.4 - 0.4
----------------- -------- -------- -------- ----------- ---------- -------- ------------ ----------- -------
At 31 March 2019 11.3 30.1 (67.4) 10.4 15.4 (0.4) (0.6) 2.2 1.6
----------------- -------- -------- -------- ----------- ---------- -------- ------------ ----------- -------
Consolidated Statement of Cash Flows
for the year ended 31 March 2019
2019 2018
GBPm GBPm
------------------------------------------------------- ------ ------
Cash flows from operating activities (Note 18)
Cash generated from operations 10.3 9.9
Income taxes paid (1.8) (3.8)
------------------------------------------------------- ------ ------
Net cash from operating activities 8.5 6.1
------------------------------------------------------- ------ ------
Cash flows from investing activities
Proceeds from property disposals - 0.5
Purchase of property, plant and equipment (9.1) (8.7)
Purchase of intangible assets (1.6) (1.4)
Consideration paid for acquisition - (1.2)
------------------------------------------------------- ------ ------
Net cash from investing activities (10.7) (10.8)
------------------------------------------------------- ------ ------
Cash flows from financing activities
Financing costs paid (3.0) (1.7)
Proceeds from borrowings 12.0 3.9
Repayment of borrowings - (0.1)
------------------------------------------------------- ------ ------
Net cash from financing activities 9.0 2.1
------------------------------------------------------- ------ ------
Net increase/(decrease) in cash and cash equivalents 6.8 (2.6)
Net cash and cash equivalents at beginning of year 12.3 15.4
Effects of exchange rate changes (1.4) (0.5)
------------------------------------------------------- ------ ------
Net cash and cash equivalents at end of year (Note 14) 17.7 12.3
------------------------------------------------------- ------ ------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of preparation
The preliminary statement was approved by the Board on 28 May
2019. The preliminary statement does not represent the full
consolidated financial statements of Renold plc and its
subsidiaries which will be delivered to the Registrar of Companies
following the Annual General Meeting. The audited consolidated
financial statements of Renold plc for the year ended 31 March 2019
have been prepared in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union.
While the financial information included in this preliminary
announcement has been prepared in accordance with the recognition
and measurement criteria of International Financial Reporting
Standards (IFRSs), this announcement does not itself contain
sufficient information to comply with IFRSs. The Company expects to
publish full financial statements that comply with IFRSs in June
2019.
The preliminary statement has been prepared on a consistent
basis using the accounting policies set out in the Renold plc
annual report for the year ended 31 March 2018. The financial
information set out above does not constitute the Company's
statutory accounts for the years ended 31 March 2018 or 2019, but
is derived from those accounts. Statutory accounts for 2018 have
been delivered to the Registrar of Companies and those for 2019
will be delivered following the Company's Annual General Meeting.
The auditor has reported on those accounts: their reports were
unqualified, did not draw attention to any matters by way of
emphasis and did not contain statements under s498(2) or (3) of the
Companies Act 2006.
Changes in accounting policies and disclosures
The Group has adopted all applicable amendments to standards
with an effective date from 1 April 2018. Adoption of these
standards did not have any material impact on financial performance
or position of the Group.
Going concern
The financial statements have been prepared on a going concern
basis. In determining the appropriate basis of preparation of the
financial statements, the Directors are required to consider
whether the Group can continue in operational existence for the
foreseeable future.
The Directors have assessed the future funding requirements of
the Group and the Company and compared them to the level of
available borrowing facilities. The assessment included a detailed
review of financial and cash flow forecasts, financial instruments
and hedging arrangements for at least the twelve month period from
the date of signing the Annual Report and Accounts. The Directors
consider a range of potential scenarios within the key markets the
Group serves and how these might impact on the Group's cash flow,
facility headroom and banking covenants. The Directors also
considered what mitigating actions the Group could take to limit
any adverse consequences. The Group's forecasts and projections,
taking account of reasonably possible scenarios show that the Group
should be able to operate within the level of its borrowing
facilities and covenants.
Having undertaken this work, the Directors are of the opinion
that the Company and the Group have adequate resources to continue
in operational existence for the foreseeable future. Accordingly
they continue to adopt the going concern basis in preparing the
consolidated financial statements.
2. Segmental information
For management purposes, the Group is organised into two
operating segments according to the nature of their products and
services and these are considered by the Directors to be the
reportable operating segments of Renold plc as shown below:
-- The Chain segment manufactures and sells power transmission
and conveyor chain and also includes sales of torque transmission
products through Chain National Sales Companies (NSCs); and
-- The Torque Transmission segment manufactures and sells torque
transmission products such as gearboxes and couplings.
No operating segments have been aggregated to form the above
reportable segments.
The Chief Operating Decision Maker (CODM) for the purposes of
IFRS 8: 'Operating Segments' is considered to be the Board of
Directors of Renold plc. Management monitor the results of the
separate reportable operating segments based on operating profit
and loss which is measured consistently with operating profit and
loss in the consolidated financial statements. The same segmental
basis applies to decisions about resource allocation. Disclosure
has not been included in respect of the operating assets of each
segment as they are not reported to the CODM on a regular basis.
However, Group net financing costs, retirement benefit obligations
and income taxes are managed on a Group basis and therefore are not
allocated to operating segments. Transfer prices between operating
segments are on an arm's length basis in a manner similar to
transactions with third parties.
Head office
Torque costs and
Chain(2) Transmission eliminations Consolidated
Year ended 31 March 2019 GBPm GBPm GBPm GBPm
------------------------------------------- -------- ------------- ------------- ------------
Revenue
External customer 163.9 38.5 - 202.4
Inter-segment(1) (1.3) 4.4 (3.1) -
------------------------------------------- -------- ------------- ------------- ------------
Total revenue 162.6 42.9 (3.1) 202.4
------------------------------------------- -------- ------------- ------------- ------------
Adjusted operating profit/(loss) 18.4 4.1 (6.1) 16.4
Pension administration costs - - (0.8) (0.8)
Pension past service costs - - 4.4 4.4
Restructuring costs (2.2) - (0.7) (2.9)
Amortisation of acquired intangible assets (0.9) - - (0.9)
------------------------------------------- -------- ------------- ------------- ------------
Operating profit/(loss) 15.3 4.1 (3.2) 16.2
Net financing costs (5.0)
------------------------------------------- -------- ------------- ------------- ------------
Profit before tax 11.2
------------------------------------------- -------- ------------- ------------- ------------
Other disclosures
Working capital(3) 26.8 12.5 2.0 41.3
Capital expenditure(4) 13.0 0.9 1.3 15.2
Depreciation and amortisation included
in adjusted operating profit/loss 5.1 1.6 1.1 7.8
Amortisation of acquired intangibles 0.9 - - 0.9
------------------------------------------- -------- ------------- ------------- ------------
Total depreciation and amortisation 6.0 1.6 1.1 8.7
------------------------------------------- -------- ------------- ------------- ------------
2. Segmental information (continued)
Head office
Torque costs and
Chain(2) Transmission eliminations Consolidated
Year ended 31 March 2018 GBPm GBPm GBPm GBPm
------------------------------------------- -------- ------------- ------------- ------------
Revenue
External customer 153.1 38.5 - 191.6
Inter-segment(1) 1.4 3.9 (5.3) -
------------------------------------------- -------- ------------- ------------- ------------
Total revenue 154.5 42.4 (5.3) 191.6
------------------------------------------- -------- ------------- ------------- ------------
Adjusted operating profit/(loss) 14.7 4.8 (5.3) 14.2
Pension administration costs - - (0.9) (0.9)
Restructuring costs (3.9) (0.2) (0.6) (4.7)
Impairment of goodwill (2.1) - - (2.1)
Amortisation of acquired intangible assets (0.9) - - (0.9)
------------------------------------------- -------- ------------- ------------- ------------
Operating profit/(loss) 7.8 4.6 (6.8) 5.6
Net financing costs (4.2)
------------------------------------------- -------- ------------- ------------- ------------
Profit before tax 1.4
------------------------------------------- -------- ------------- ------------- ------------
Other disclosures
Working capital(3) 25.9 11.6 0.1 37.6
Capital expenditure(4) 7.2 0.9 1.3 9.4
Depreciation and amortisation included
in adjusted operating profit/(loss) 4.8 1.6 0.9 7.3
Amortisation of acquired intangibles 0.9 - - 0.9
------------------------------------------- -------- ------------- ------------- ------------
Total depreciation and amortisation 5.7 1.6 0.9 8.2
------------------------------------------- -------- ------------- ------------- ------------
The Group uses a variety of alternative performance measures,
which are non-IFRS, to assess the performance of its operations.
The Group considers these performance measures to provide useful
historical financial information to help investors evaluate the
underlying performance of the business by adjusting for volatility
created by one-off items and non-trading performance related costs
such as amortisation and legacy pensions costs.
The two consistently applied performance measures which are
disclosed within this annual report and accounts include adjusted
results and underlying results.
Adjusted results exclude the impact of restructuring costs,
pension financing charges, pension administration costs, pension
past service costs, impairment of goodwill and the amortisation of
acquired intangible assets and the tax thereon. A reconciliation of
these results is shown on the face of the consolidated statement of
comprehensive income and in the tables opposite. Adjusted profit of
GBP16.4m is derived from the statutory profit of GBP16.2m.
Underlying results are retranslated to current year exchange
rates and therefore only prior year comparatives would be deemed an
alternative performance measure. A reconciliation is provided
below.
Head office
Torque costs and
Chain(2) Transmission eliminations Consolidated
Year ended 31 March 2018 GBPm GBPm GBPm GBPm
-------------------------------------------- -------- ------------- ------------- ------------
Revenue
External customer 153.1 38.5 - 191.6
Foreign exchange retranslation (0.7) (0.1) - (0.8)
-------------------------------------------- -------- ------------- ------------- ------------
Underlying external sales 152.4 38.4 - 190.8
-------------------------------------------- -------- ------------- ------------- ------------
Adjusted operating profit/(loss) 14.7 4.8 (5.3) 14.2
Foreign exchange retranslation (0.1) 0.1 - -
-------------------------------------------- -------- ------------- ------------- ------------
Underlying adjusted operating profit/(loss) 14.6 4.9 (5.3) 14.2
-------------------------------------------- -------- ------------- ------------- ------------
1. Inter-segment revenues are eliminated on consolidation.
2. Included in Chain external sales is GBP4.2m (2018: GBP4.9m)
of Torque Transmission product sold through the Chain NSCs, usually
in countries where Torque Transmission does not have its own
presence.
3. The measure of segment assets reviewed by the CODM is total
working capital, defined as inventories and trade and other
receivables, less trade and other payables. Working capital is also
measured as a ratio of rolling annual sales.
4. Capital expenditure consists of additions to property, plant
and equipment and intangible assets.
2. Segmental information (continued)
Geographical analysis of external sales by destination,
non-current asset location and average employee numbers
The UK is the home country of the parent company, Renold plc.
The principal operating territories, the proportions of Group
external revenue generated in each (customer location), external
revenues, non-current assets (asset location) and average employee
numbers in each are as follows:
Revenue ratio External revenues Non-current assets Employee numbers
2019 2018 2019 2018 2019 2018
% % GBPm GBPm GBPm GBPm 2019 2018
---------------- ------- ------ --------- -------- --------- --------- -------- --------
United Kingdom 7.4 7.8 15.0 15.0 12.8 13.9 321 355
Rest of
Europe 30.4 30.7 61.5 58.9 18.9 19.0 558 557
Americas 41.2 38.0 83.4 72.8 31.1 30.1 328 323
Australasia 9.6 10.3 19.4 19.7 2.7 2.8 125 128
China 4.1 4.1 8.4 7.9 14.1 5.7 339 258
India 4.1 4.2 8.4 8.0 5.1 5.0 392 379
Other countries 3.1 4.9 6.3 9.3 0.8 1.1 35 49
---------------- ------- ------ --------- -------- --------- --------- -------- --------
100.0 100.0 202.4 191.6 85.5 77.6 2,098 2,049
---------------- ------- ------ --------- -------- --------- --------- -------- --------
All revenue relates to the sale of goods and services. No
individual customer, or group of customers, represents more than
10% of Group revenue (2018: None).
Non-current assets consist of goodwill, other intangible assets,
property, plant and equipment and investment property. Other
non-current assets and deferred tax assets are not included
above.
3. Adjusting items
2019 2018
GBPm GBPm
--------------------------------------------------------- ----- -----
Included in operating costs
Step 2020 restructuring costs - China factory relocation 1.8 3.9
Step 2020 restructuring costs - other 0.6 0.8
AIM listing provision 0.5 -
Restructuring costs 2.9 4.7
Pension administration costs 0.8 0.9
Pension past service credit (4.4) -
Impairment of goodwill (Note 8) - 2.1
Amortisation of acquired intangible assets (Note 9) 0.9 0.9
--------------------------------------------------------- ----- -----
Adjusting items 0.2 8.6
--------------------------------------------------------- ----- -----
2019 2018
GBPm GBPm
----------------------------------------------- ----- -----
Included in net financing costs
Discount unwind on onerous lease provision 0.1 0.1
Amortisation of financing costs on refinancing 0.3 -
Net IAS 19R financing costs 2.4 2.4
----------------------------------------------- ----- -----
2.8 2.5
----------------------------------------------- ----- -----
Various restructuring costs were incurred in the year as part of
the Step 2020 Strategic Plan. A restructuring cost of GBP1.8m was
incurred in the year as we continued a multi-year project to
transfer the China Chain manufacturing facility from leased
premises in Hangzhou to a purpose-built facility near Changzhou in
Jiangsu province.
A further GBP0.6m was incurred in relation to other projects
including European restructuring and in relation for the closure of
our Singapore site. In addition GBP0.5m has been provided for costs
associated with transferring the company's stock market listing to
AIM.
Prior year restructuring costs included GBP3.9m for the
multi-year project to transfer the China Chain manufacturing
facility, other cost included the final restructuring costs
associated with the European distribution and sales operations and
the transfer of the HiTec Couplings business.
The past service credit of GBP4.4m for the UK pension scheme is
the net impact of an GBP8.2m gain following the move of certain
future pension increases from RPI to CPI, off-set by a GBP3.8m past
service cost relating to GMP equalisation. The change in inflation
measure to consumer prices index (CPI) rather than the retail
prices index (RPI) applies to future increases of certain elements
of the scheme where such a change is permitted. Following the High
Court judgment in the year, the Group, along with many other
pension scheme sponsors, is recognising an estimate of the future
cost of GMP equalisation in the valuation of liabilities.
4. Net financing costs
2019 2018
GBPm GBPm
----------------------------------------------- ----- -----
Financing costs:
Interest payable on bank loans and overdrafts (1.9) (1.4)
Amortised financing costs (0.3) (0.3)
Amortisation of financing costs on refinancing (0.3) -
----------------------------------------------- ----- -----
Loan financing costs (2.5) (1.7)
Net IAS 19R financing costs (2.4) (2.4)
Discount unwind on provisions (0.1) (0.1)
----------------------------------------------- ----- -----
Net financing costs (5.0) (4.2)
----------------------------------------------- ----- -----
5. Taxation
Analysis of tax charge in the year
2019 2018
GBPm GBPm
------------------------------------------------------------- ----- -----
United Kingdom
UK corporation tax at 19% (2018: 19%) - -
Overseas taxes
Corporation taxes 1.6 1.0
Adjustments in respect of prior periods (0.6) -
Withholding taxes 0.1 0.1
------------------------------------------------------------- ----- -----
Current income tax charge 1.1 1.1
------------------------------------------------------------- ----- -----
Deferred tax
UK - origination and reversal of temporary differences 1.0 0.2
Overseas - origination and reversal of temporary differences 1.8 -
Effect of changes in corporate tax rates - 2.4
Adjustments in respect of prior periods (0.4) (0.1)
------------------------------------------------------------- ----- -----
Total deferred tax charge 2.4 2.5
------------------------------------------------------------- ----- -----
Tax charge on profit on ordinary activities 3.5 3.6
------------------------------------------------------------- ----- -----
2019 2018
GBPm GBPm
------------------------------------------------------------ ----- -----
Tax on items taken to other comprehensive income
Deferred tax on changes in net pension deficits (2.1) 1.6
------------------------------------------------------------ ----- -----
Tax (credit)/charge in the statement of other comprehensive
income (2.1) 1.6
------------------------------------------------------------ ----- -----
Factors affecting the Group tax charge for the year
The current year UK deferred tax charge relates to pensions with
the charge arising on the net of the past service credit, interest
charges, and cash contributions. Overseas deferred tax relates to
the utilisation of recognised deferred tax assets. The increase in
overseas current corporate tax relates to jurisdictions where
historical tax losses have now been fully utilised.
The US Government has enacted substantial tax reforms during the
prior year. The impact on our US operations was to reduce the value
of deferred tax assets and liabilities in relation to the reduced
tax rate, and to increase the restrictions on interest
deductibility which led to the derecognition of the related
deferred tax asset given the current capital structure of our US
operations. Accordingly, the US deferred tax balances were reduced
by GBP2.4m.
The Group's tax charge in future years will be affected by the
profit mix, effective tax rates in the different countries where
the Group operates and utilisation of tax losses. No deferred tax
is recognised on the unremitted earnings of overseas subsidiaries
in accordance with IAS 12.39.
5. Taxation (continued)
The actual tax on the Group's profit before tax differs from the
theoretical amount using the UK corporation tax rate as
follows:
2019 2018
GBPm GBPm
------------------------------------------ ----- -----
Profit on ordinary activities before tax 11.2 1.4
------------------------------------------ ----- -----
Theoretical tax charge at 19% (2018: 19%) 2.1 0.3
Effects of:
Permanent differences 0.3 (0.3)
Overseas tax rate differences 0.7 0.3
Effect of changes in corporate tax rates - 2.4
Adjustments in respect of prior periods (1.0) (0.1)
Movement in unrecognised deferred tax 1.4 1.0
------------------------------------------ ----- -----
Total tax charge 3.5 3.6
------------------------------------------ ----- -----
Effective tax rate
The effective tax rate of 31% (2018: 225%) is higher than the UK
tax rate of 19% (2018: 19%) due to the following factors:
-- Losses in jurisdictions where, due to uncertain future
profitability, deferred tax assets are not recognised;
-- Permanent differences including items that are disallowed
from a tax perspective such as entertaining and certain employee
costs;
-- Prior year adjustments arising as tax submissions are
finalised and agreed in specific jurisdictions; and
-- Differences in overseas tax rates, typically being higher than the rates in the UK.
Tax payments
Cash tax paid in the year of GBP1.8m (2018: GBP3.8m) is higher
than the current tax charge as payments on account exceeded the
calculated liabilities for the year.
6. Earnings per share
Earnings per share (EPS) is calculated by reference to the
earnings for the year and the weighted average number of shares in
issue during the year as follows:
2019 2018
--------------------------------- ---------------------------------
Per share Per share
Earnings Shares amount Earnings Shares amount
GBPm (thousands) (pence) GBPm (thousands) (pence)
------------------------------ -------- ------------ --------- -------- ------------ ---------
Basic EPS
Profit attributed to ordinary
shareholders 7.5 225,418 3.3 (2.3) 225,418 (1.0)
------------------------------ -------- ------------ --------- -------- ------------ ---------
Basic EPS 7.5 225,418 3.3 (2.3) 225,418 (1.0)
------------------------------ -------- ------------ --------- -------- ------------ ---------
2019 2018
--------------------------------- ---------------------------------
Per share Per share
Earnings Shares amount Earnings Shares amount
GBPm (thousands) (pence) GBPm (thousands) (pence)
--------------------------------- -------- ------------ --------- -------- ------------ ---------
Adjusted EPS
Basic EPS 7.5 225,418 3.3 (2.3) 225,418 (1.0)
Effect of adjusting items,
after tax:
Restructuring costs in
operating costs 2.9 1.3 4.6 2.0
Pension administration
costs included in operating
costs 0.7 0.3 0.8 0.4
Pension past service cost (3.6) (1.6) - -
Refinancing costs 0.3 0.1 - -
Discount unwind on restructuring
costs - - 0.1 -
Amortisation of acquired
intangible assets 0.6 0.3 0.6 0.3
Impairment of goodwill - - 1.7 0.8
US tax reform - - 2.4 1.0
Net pension financing
costs 2.7 1.2 2.2 1.0
--------------------------------- -------- ------------ --------- -------- ------------ ---------
Adjusted EPS 11.1 225,418 4.9 10.1 225,418 4.5
--------------------------------- -------- ------------ --------- -------- ------------ ---------
Inclusion of the dilutive securities, comprising 7,820,809
(2018: 4,367,312) additional shares due to share options, in the
calculation of basic and adjusted EPS changes the amounts shown
above to 3.2p and 4.8p respectively (2018: no dilutive effect).
The adjusted EPS numbers have been provided in order to give a
useful indication of underlying performance by the exclusion of
adjusting items. Due to the existence of unrecognised deferred tax
assets there were no associated tax credits on some of the
adjusting items and in these instances adjusting items are added
back in full.
7. Dividends
No ordinary dividend payments were paid or proposed in either
the current or prior year.
8. Goodwill
Goodwill
GBPm
---------------------------------------- --------
Cost
At 1 April 2017 27.8
Exchange adjustment (2.8)
At 1 April 2018 25.0
Exchange adjustment 1.6
---------------------------------------- --------
At 31 March 2019 26.6
---------------------------------------- --------
Accumulated amortisation and impairment
At 1 April 2017 1.4
Impairment charge 2.1
Exchange adjustment (0.1)
---------------------------------------- --------
At 1 April 2018 3.4
Exchange adjustment 0.1
At 31 March 2019 3.5
---------------------------------------- --------
Net book amount at 31 March 2019 23.1
---------------------------------------- --------
Net book amount at 31 March 2018 21.6
---------------------------------------- --------
Net book amount at 31 March 2017 26.4
---------------------------------------- --------
The Group performed its annual impairment test of goodwill at 31
March 2019 which compares the current book value to the recoverable
amount from the continued use or sale of the related business.
No impairment charge has been recognised in the period for any
CGUs.
The recoverable amount of each Cash Generating Unit (CGU) has
been determined on a value in use basis. Value in use is calculated
as the net present value of cash flows derived from detailed
financial plans for the next two financial years as approved by the
Board. Cash flows beyond this are extrapolated using the long-term
country growth rates disclosed below:
Growth rates CGU discount rates Carrying values
-------------- -------------------- -----------------
2019 2018 2019 2018 2019 2018
% % % % GBPm GBPm
---------------------------- ------ ------ --------- --------- -------- -------
Jeffrey Chain, USA 1.4 1.4 17.0 14.9 20.2 18.7
Ace Chains, Australia 2.6 2.8 16.9 11.6 0.5 0.5
Renold Chain, India 7.7 8.1 27.7 25.0 1.9 1.9
Renold Tooth Chain, Germany 1.2 1.2 15.6 15.5 0.5 0.5
---------------------------- ------ ------ --------- --------- -------- -------
23.1 21.6
---------------------------- ------ ------ --------- --------- -------- -------
Key assumptions used in the value in use calculations:
Sales volumes, selling prices and cost changes
The Group prepares cash flow forecasts based on the latest
management estimates for the next two financial years. The expected
sales prices and volumes reflect management's experience of how
sales will develop at this point of the economic cycle. The
expected profit margin reflects management's experience of each
CGU's profitability at the forecast level of sales and incorporates
the impact of any restructuring that took place during the year
ended 31 March 2019.
Cash flows beyond the period of projections are extrapolated
using long-term growth rates published by the Organisation for
Economic Co-operation and Development for the territory in which
the CGU is based. The discount rates applied to the cash flows of
each of the CGUs are based on the risk free rate for long-term
bonds issued by the government in the respective market. This is
then adjusted to reflect both the increased risk of investing in
equities and the systematic risk of the specific CGU (using an
average of the betas of comparable companies).
Management believe that no reasonably possible change in any of
the key assumptions would cause the recoverable amount of any CGU
to fall below the relevant carrying values.
9. Intangible assets
Customer Customer Technical Computer
orderbook lists know-how software Total
GBPm GBPm GBPm GBPm GBPm
---------------------------------------- ---------- -------- --------- --------- -----
Cost
At 1 April 2017 0.3 4.0 0.2 15.0 19.5
Exchange adjustment - 0.2 - (0.2) -
Additions - - - 1.4 1.4
Disposals - - - (0.3) (0.3)
---------------------------------------- ---------- -------- --------- --------- -----
At 31 March 2018 0.3 4.2 0.2 15.9 20.6
Exchange adjustment - - - (0.2) (0.2)
Additions - - - 1.5 1.5
At 31 March 2019 0.3 4.2 0.2 17.2 21.9
---------------------------------------- ---------- -------- --------- --------- -----
Accumulated amortisation and impairment
At 1 April 2017 0.3 1.0 - 8.5 9.8
Exchange adjustment - - - (0.2) (0.2)
Amortisation charge - 0.8 0.1 2.1 3.0
Disposals - - - (0.3) (0.3)
---------------------------------------- ---------- -------- --------- --------- -----
At 31 March 2018 0.3 1.8 0.1 10.1 12.3
Exchange adjustment - 0.1 - (0.2) (0.1)
Amortisation charge - 0.8 0.1 2.2 3.1
At 31 March 2019 0.3 2.7 0.2 12.1 15.3
---------------------------------------- ---------- -------- --------- --------- -----
Net book amount at 31 March 2019 - 1.5 - 5.1 6.6
---------------------------------------- ---------- -------- --------- --------- -----
Net book amount at 31 March 2018 - 2.4 0.1 5.8 8.3
---------------------------------------- ---------- -------- --------- --------- -----
Net book amount at 31 March 2017 - 3.0 0.2 6.5 9.7
---------------------------------------- ---------- -------- --------- --------- -----
The acquisition of the Tooth Chain business in January 2016
brought significant benefit to the Group in terms of new customers,
relationships and technical 'know-how'. These benefits have been
valued under IFRS 3 using estimates of useful lives and discounted
cash flows of expected income. The values are being amortised as
follows:
Customer orderbook
Customer orderbook is amortised when the orderbook at the date
of acquisition has been fulfilled. This is now fully amortised.
Customer lists and technical know-how
Customer lists and technical know-how is being amortised over
five years as the benefits are likely to crystallise over a longer
period.
No brand names were acquired as part of the acquisition.
10. Property, plant and equipment
Land and Plant and
buildings equipment Total
GBPm GBPm GBPm
---------------------------------------- ---------- ---------- -----
Cost
At 1 April 2017 18.1 116.7 134.8
Exchange adjustment (0.3) (3.8) (4.1)
Additions 2.8 5.3 8.1
Disposals - (4.6) (4.6)
At 31 March 2018 20.6 113.6 134.2
Exchange adjustment 0.7 0.7 1.4
Additions 3.9 9.8 13.7
Disposals - (3.9) (3.9)
---------------------------------------- ---------- ---------- -----
At 31 March 2019 25.2 120.2 145.4
---------------------------------------- ---------- ---------- -----
Accumulated depreciation and impairment
At 1 April 2017 3.5 84.1 87.6
Exchange adjustment 0.3 (2.2) (1.9)
Charge for the year 0.3 4.9 5.2
Disposals - (4.4) (4.4)
At 31 March 2018 4.1 82.4 86.5
Exchange adjustment 0.1 0.5 0.6
Charge for the year 0.4 5.1 5.5
Disposals - (3.0) (3.0)
---------------------------------------- ---------- ---------- -----
At 31 March 2018 4.6 85.0 89.6
---------------------------------------- ---------- ---------- -----
Net book amount at 31 March 2019 20.6 35.2 55.8
---------------------------------------- ---------- ---------- -----
Net book amount at 31 March 2018 16.5 31.2 47.7
---------------------------------------- ---------- ---------- -----
Net book amount at 31 March 2017 14.6 32.6 47.2
---------------------------------------- ---------- ---------- -----
Property, plant and equipment pledged as security for
liabilities amounted to GBP36.5m (2018: GBP34.8m).
Future capital expenditure
At 31 March 2019 capital expenditure contracted for but not
provided for in these accounts amounted to GBP2.2m (2018:
GBP2.7m).
Asset held for sale
In the prior year the former HiTec Couplings manufacturing site
located in Halifax, UK was sold for net proceeds of GBP0.5m
realising a gain of GBP0.2m. This site was formerly classed as an
asset held for sale (see Note 11).
11. Asset held for sale
2019 2018
GBPm GBPm
------------ ----- -----
At 1 April - 0.3
Disposal - (0.3)
At 31 March - -
------------ ----- -----
During the previous year, the HiTec Couplings' Halifax site was
sold for net proceeds of GBP0.5m realising a gain of GBP0.2m.
12. Inventories
2019 2018
GBPm GBPm
----------------------------------------- ----- -----
Raw materials 6.4 8.1
Work in progress 5.4 4.8
Finished products and production tooling 33.0 28.1
----------------------------------------- ----- -----
44.8 41.0
----------------------------------------- ----- -----
Inventories pledged as security for liabilities amounted to
GBP36.3m (2018: GBP33.0m).
13. Trade and other receivables
2019 2018
Current Current
GBPm GBPm
--------------------------- -------- --------
Trade receivables(1) 32.2 31.0
Less: impairment provision (0.5) (0.5)
--------------------------- -------- --------
Trade receivables: net 31.7 30.5
Other receivables(1) 3.8 3.4
Prepayments 2.3 2.5
--------------------------- -------- --------
37.8 36.4
--------------------------- -------- --------
1. Financial assets carried at amortised cost.
The Group has no significant concentration of credit risk but
does have a concentration of translational and transactional
foreign exchange risk in both US Dollars and Euros, however, the
Group hedges against these risks.
Trade receivables are non-interest bearing and are generally on
30-90 days terms. As at 31 March, the ageing analysis of trade
receivables is as follows:
Past due but not impaired
----- --------------- --------- ------------------------------------------
Neither
past
Total due nor
(not impaired) impaired <30 days 30-60 days 60-90 days >90 days
GBPm GBPm GBPm GBPm GBPm GBPm
----- --------------- --------- -------- ---------- ---------- --------
2019 31.7 24.9 4.9 1.0 0.4 0.5
2018 30.5 24.9 3.5 0.8 0.3 1.0
----- --------------- --------- -------- ---------- ---------- --------
2019 2018
GBPm GBPm
-------------------------------------------- ----- -----
Movement on impairment provision
Opening provision 0.5 0.3
Net charge to income statement 0.3 0.2
Utilised in year through assets written off (0.3) -
-------------------------------------------- ----- -----
Closing provision 0.5 0.5
-------------------------------------------- ----- -----
14. Cash and cash equivalents
In the Group cash flow statement, net cash and cash equivalents
are shown after deducting bank overdrafts as follows:
2019 2018
GBPm GBPm
------------------------------ ----- -----
Cash and cash equivalents 17.9 13.9
Less: Overdrafts (Note 15) (0.2) (1.6)
------------------------------ ----- -----
Net cash and cash equivalents 17.7 12.3
------------------------------ ----- -----
15. Borrowings
2019 2018
GBPm GBPm
---------------------------------------------- ----- -----
Amounts falling due within one year:
Overdrafts 0.2 1.6
Capitalised costs (0.2) (0.3)
---------------------------------------------- ----- -----
- 1.3
---------------------------------------------- ----- -----
Amounts falling due after more than one year:
Bank loans 48.1 36.7
Capitalised costs (0.7) (0.3)
Preference stock 0.5 0.5
---------------------------------------------- ----- -----
47.9 36.9
---------------------------------------------- ----- -----
Total borrowings 47.9 38.2
---------------------------------------------- ----- -----
All financial liabilities above are carried at amortised
cost.
Core banking facilities
On 29 March 2019 the Group renewed its GBP61.5m Multi-Currency
Revolving Facility banking facilities with HSBC UK, Allied Irish
Bank (GB), and Citibank. The facility matures in March 2024 and is
fully committed and available until maturity.
At the year end the undrawn core banking facility was GBP12.8m
(2018: GBP23.0m). The Group pays interest at LIBOR plus a variable
margin in respect of this facility. The average rate of interest
paid in the year was LIBOR plus 1.95% for Sterling, Euro and US
Dollar denominated facilities (2018: LIBOR plus 1.94% for Sterling
denominated facility and LIBOR plus 1.84% for the Euro and US
Dollar denominated facility). This facility has two primary
financial covenants which are tested on a six monthly basis. The
first is net debt as a ratio of rolling annual EBITDA with a
maximum ratio of 2.5 times. The second is interest cover with a
minimum ratio of 4.0 times (rolling annual EBITDA divided by net
financial interest cost). The Group also benefits from a number of
overseas facilities totalling GBP1.4m (2018: GBP2.0m) with
availability at year end of GBP1.3m.
Secured borrowings
Included in Group borrowings are secured borrowings of GBP47.5m
(2018: GBP36.1m). Security is provided by fixed and floating
charges over assets (including certain property, plant and
equipment and inventory) primarily in the UK, USA, France, Germany
and Australia. Certain group companies have provided
cross-guarantees in respect of these borrowings.
Preference Stock
At 31 March 2019, there were 580,482 units of Preference Stock
in issue (2018: 580,482).
All payments of dividends on the Preference Stock have been paid
on the due dates. The Preference Stock has the following
rights:
i. a fixed cumulative preferential dividend at the rate of 6%
per annum payable half yearly on 1 January and 1 July in each
year;
ii. rank both with regard to dividend (including any arrears on
the commencement of a winding up) and return of capital in priority
to all other stock or shares in the Company, but with no further
right to participate in profits or assets;
iii. no right to attend or vote, either in person or by proxy,
at any general meeting of the Company or to have notice of any such
meeting, unless the dividend on the Preference Stock is in arrears
for six calendar months; and
iv. no redemption entitlement and no fixed repayment date.
There is no significant difference between the carrying value of
financial liabilities and their equivalent fair value.
16. Trade and other payables
2019 2019 2018 2018
Current Non-current Current Non-current
GBPm GBPm GBPm GBPm
------------------------------ -------- ------------ -------- ------------
Trade payables 21.9 - 20.7 -
Other tax and social security 2.9 - 1.9 -
Other payables 1.0 5.1 0.9 -
Accruals 15.2 0.3 16.1 0.3
------------------------------ -------- ------------ -------- ------------
41.0 5.4 39.6 0.3
------------------------------ -------- ------------ -------- ------------
Trade payables are non-interest bearing and are normally settled
within 60 day terms. The Group does have a concentration of
translational foreign exchange risk in both US Dollars and Euros,
however, the Group hedges against this risk. The non-current other
payables is the deferred element of the construction costs for the
new Chinese factory in Jintan.
17. Provisions
Business Onerous Contingent Total
restructuring lease consideration provisions
GBPm GBPm GBPm GBPm
----------------------------- -------------- ------- -------------- -----------
At 1 April 2018 3.2 4.0 0.7 7.9
Exchange - (0.1) 0.1 -
Arising during the year - - - -
Utilised in the year (3.1) (0.8) (0.8) (4.7)
Discount unwind on provision - 0.1 - 0.1
----------------------------- -------------- ------- -------------- -----------
At 31 March 2019 0.1 3.2 - 3.3
----------------------------- -------------- ------- -------------- -----------
2019 2018
Allocated as: GBPm GBPm
----------------------- ----- -----
Current provisions 0.8 4.6
Non-current provisions 2.5 3.3
----------------------- ----- -----
3.3 7.9
----------------------- ----- -----
Business restructuring
At 31 March 2018, a provision of GBP3.1m was made against costs
to be incurred as part of the closure and relocation of our Chinese
Chain manufacturing facility.
At 31 March 2019, a provision of GBP0.1m has been made for site
closure and clean up costs.
Restructuring provisions are expected to be utilised within 12
months.
Onerous lease
This provision relates to onerous lease costs in respect of the
lease of the Bredbury plant in the UK and the Mulgrave facility in
Australia. The Bredbury lease expires in May 2030. In August 2016,
it was agreed to sublet a significant part of the property for a
five year term for an annual rent of GBP0.6m. GBP0.3m of the
provision was utilised in the year (2018: GBP0.2m) leaving a
provision of GBP2.7m in respect of this lease (2018: GBP3.0m).
In addition, as part of the sale agreement of the Mulgrave
facility in Australia completed in March 2017, it was agreed that
the business could remain in the property for a maximum of three
additional years for an annual rent of GBP0.5m. This lease was
deemed to be onerous and as a result a provision was established in
relation to the total lease cost of GBP1.6m. Costs of GBP0.5m were
incurred in the year offset by exchange of GBP0.1m, resulting in a
provision at 31 March 2019 of GBP0.5m.
Contingent consideration
Renold (Hangzhou) Co Limited, China
The provision for the purchase of the outstanding 10% of the
equity in Renold (Hangzhou) Co Limited was utilised in the period
ended 31 March 2019.
18. Additional cash flow information
Reconciliation of operating profit to net cash flows from
operations:
2019 2018
GBPm GBPm
----------------------------------------- ----- -----
Cash generated from operations:
Operating profit 16.2 5.6
Depreciation and amortisation 8.6 8.2
Impairment of goodwill - 2.1
Loss on disposals of plant and equipment 0.9 -
Equity share plans 0.4 -
Increase in inventories (2.9) (2.6)
Increase in receivables (0.8) (1.1)
Increase in payables 1.4 1.1
(Decrease)/increase in provisions (4.6) 1.0
Cash contribution to pensions (4.5) (4.4)
Pension past service credit (non-cash) (4.4) -
----------------------------------------- ----- -----
Cash generated from operations 10.3 9.9
----------------------------------------- ----- -----
Reconciliation of net change in cash and cash equivalents to
movement in net debt:
2019 2018
GBPm GBPm
------------------------------------------------- ------ ------
Increase/(decrease) in cash and cash equivalents 6.8 (2.6)
Change in net debt resulting from cash flows (12.0) (3.8)
Foreign currency translation differences (1.4) (0.5)
Non-cash movement on capitalised finance costs 0.9 -
Change in net debt during the period (5.7) (6.9)
Net debt at start of year (24.3) (17.4)
------------------------------------------------- ------ ------
Net debt at end of year (30.0) (24.3)
------------------------------------------------- ------ ------
Net debt comprises:
Cash and cash equivalents (Note 14) 17.9 13.9
Total borrowings (Note 15) (47.9) (38.2)
------------------------------------------------- ------ ------
(30.0) (24.3)
------------------------------------------------- ------ ------
19. Post balance sheet events
There were no significant post balance sheet events to
report.
[1] Underlying adjusts prior year results to the current year
exchange rates to give a like-for-like comparison as set out in
Note 2.
[2] Adjusted means excluding the impact of restructuring costs,
amortisation of acquired intangible assets, impairment of goodwill,
pension administration costs and any associated tax thereon.
Adjusting items are separately identified in the Consolidated
Statement of Comprehensive Income.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR SELFAWFUSELI
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May 28, 2019 02:01 ET (06:01 GMT)
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