TIDMRNO

RNS Number : 9046E

Renold PLC

11 November 2020

Renold plc

("Renold" or the "Group")

Interim results for the half year ended 30 September 2020

11 November 2020

Renold, a leading international supplier of industrial chains and related power transmission products, today announces its unaudited interim results for the half year ended 30 September 2020 (the 'period').

Resilient performance...strong cash generation...significant net debt reduction

Financial highlights

 
                                                                          Half year ended 
                                                ------------------------------------------------------------------ 
                                                                    30 September                      30 September 
                                                                            2020                              2019 
                                                                            GBPm                              GBPm 
 Adjusted results at constant exchange rates 
  [1] 
----------------------------------------------  --------------------------------  -------------------------------- 
 Revenue at constant exchange rates                                         81.5                              97.4 
----------------------------------------------  --------------------------------  -------------------------------- 
 Adjusted operating profit at constant 
  exchange 
  rates                                                                      5.8                               7.7 
----------------------------------------------  --------------------------------  -------------------------------- 
 Adjusted operating profit margin at constant 
  exchange rates                                                            7.1%                              7.9% 
----------------------------------------------  --------------------------------  -------------------------------- 
 Adjusted earnings per share                                                1.1p                              1.5p 
----------------------------------------------  --------------------------------  -------------------------------- 
 Net debt                                                                   26.4                              34.2 
----------------------------------------------  --------------------------------  -------------------------------- 
 
 Reported results 
----------------------------------------------  --------------------------------  -------------------------------- 
 Revenue                                                                    81.5                              98.2 
----------------------------------------------  --------------------------------  -------------------------------- 
 Operating profit                                                            5.3                               6.3 
----------------------------------------------  --------------------------------  -------------------------------- 
 Profit before tax                                                           2.8                               3.5 
----------------------------------------------  --------------------------------  -------------------------------- 
 Basic earnings per share                                                   0.9p                              1.0p 
----------------------------------------------  --------------------------------  -------------------------------- 
 
      --                                       Revenue from continuing operations down 17.0% to GBP81.5m, 
                                                a resilient performance despite the impact of the Covid-19 
                                                pandemic 
      --                                       Adjusted operating profit from continuing operations at constant 
                                                exchange rates of GBP5.8m (2019: GBP7.7m); adjusted operating 
                                                margin 7.1% (2019: 7.9%), reflecting actions taken in both 
                                                the current and prior years to improve the flexibility of the 
                                                cost base 
      --                                       Strong cash generation resulting in a GBP10.2m reduction in 
                                                net debt to GBP26.4m (31 March 2020: GBP36.6m); with net debt 
                                                to adjusted EBITDA ratio of 1.2x (31 March 2020: 1.5x) 
      --                                       Adjusted EPS of 1.1p (2019: 1.5p) 
 

Trading and operational highlights

 
      --  Resilient margin performance and strong cash generation, as 
           a result of focused working capital management, completion of 
           restructuring program and careful reduction of costs 
      --  The impact of the Covid-19 pandemic on revenue is being partly 
           mitigated by improved efficiency and productivity from recent 
           years' capital investments and operational improvements 
      --  Order intake at the start of the period reflected customer destocking, 
           however, trends through the period end suggest a continued modest 
           improvement, albeit at levels below the prior year in the near 
           term, this was most evident in India, South East Asia and to 
           a lesser extent parts of Europe 
      --  The new factory in China continues to improve on time delivery, 
           efficiency and productivity 
 

Robert Purcell, Chief Executive of Renold plc, said:

" Whilst the market environment continues to be challenging, the strategic actions taken in recent years, augmented by the measures taken earlier this year in response to the Covid-19 pandemic, have resulted in a more resilient business that is better placed to overcome today's challenges.

Renold reacted quickly to the sharp decline in order intake arising from the pandemic and, as a result, delivered a robust operating margin and substantial reduction in net debt. I would like to thank all employees for their commitment and outstanding efforts in keeping our facilities open and serving our customers during this time.

The tight focus on cost and cash management in the first half has created a platform from which we can manage through short-term disruption. We are focused on ensuring Renold can respond strongly as markets recover."

Reconciliation of reported, constant exchange rate and adjusted results

 
                                              Revenue          Operating Profit 
                                              H1         H1         H1         H1 
                                         2020/21    2019/20    2020/21    2019/20 
                                            GBPm       GBPm       GBPm       GBPm 
------------------------------------- 
 Previously reported                        81.5       98.2        5.3        6.3 
 Exchange impact                               -      (0.8)          -          - 
                                       --------- 
 At constant exchange rates                 81.5       97.4        5.3        6.3 
 Restructuring costs                           -          -          -        0.9 
 Amortisation of acquired intangible 
  assets                                       -          -        0.5        0.5 
 Adjusted at constant exchange 
  rates                                     81.5       97.4        5.8        7.7 
-------------------------------------  ---------  ---------  ---------  --------- 
 

ENQUIRIES:

 
Renold plc             Peel Hunt LLP       Instinctif Partners 
Robert Purcell, CEO    Mike Bell           Mark Garraway 
Jim Haughey, Group FD  Ed Allsopp          Rosie Driscoll 
Tel: 0161 498 4500     Tel: 020 7418 8900  Tel: 020 7457 2020 
 

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. 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.

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, distributors and end-users. 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

Chief Executive's Statement

Renold delivered a resilient performance during the first half, despite the Group's markets being significantly impacted by the Covid-19 pandemic. Despite a significant reduction in revenue, the business produced an adjusted operating margin of 7.1% (2019: 7.8%) and achieved a significant reduction in net debt of GBP10.2m to GBP26.4m (31 March 2020: 36.6m).

Revenue for the period at GBP81.5m, supported for the first 3 months by the year end closing order book, was 17% lower than the prior year, reflecting the impact of shutdowns and lower levels of demand across a number of the Group's markets.

The effect of the pandemic has been more acute in order intake, which declined by 21% to GBP76m (2019: GBP96m). The earlier months of the period were impacted by customer destocking, especially in the OEM and distributor sectors, thereafter stabilising and, more recently, showing gradual improvement. Orders related to capital projects appear to have been the most severely affected while expenditure directed at ongoing maintenance has been impacted to a lesser degree. The trends exiting the period suggest that order intake should continue to improve slowly, albeit this is likely to be at levels below the prior year in the near term.

The Group benefited from the impact of the significant efforts undertaken in the current and previous years to lower the breakeven point and increase flexibility. In addition, tactical short-term cost saving measures, including tight control of operating costs, with significant reductions in discretionary expenditure and utilisation of Government-sponsored employment support schemes, limited the downside operational profit gearing.

Adjusted operating profit from continuing operations held up well at GBP5.8m (2019: GBP7.7m) with an adjusted operating profit margin of 7.1% (2019: 7.8%).

Business and Financial Review

 
                                                    Adjusted operating        Adjusted operating 
                                Revenue                    profit                    margin 
                          at constant exchange      at constant exchange      at constant exchange 
                                 rates                     rates                     rates 
---------------------  ------------------------  ------------------------  ------------------------ 
                          2020/21    2019/20(1)     2020/21    2019/20(1)     2020/21    2019/20(1) 
 Six month period            GBPm          GBPm        GBPm          GBPm           %             % 
 Chain                       62.5          75.9         5.7           8.1         9.1          10.7 
 Torque Transmission         19.0          21.5         2.5           2.3        13.2          10.7 
 Head office 
  costs                         -             -       (2.4)         (2.7)           -             - 
---------------------  ----------  ------------  ----------  ------------  ----------  ------------ 
 Total                       81.5          97.4         5.8           7.7         7.1           7.9 
---------------------  ----------  ------------  ----------  ------------  ----------  ------------ 
 

(1) The divisional split for the period ended 30 September 2019 has been re-presented due to the split of one Chain business unit into two, of which one has been allocated to Torque Transmission.

Chain

The Chain division's revenue at constant exchange rates was down 17.7% (GBP13.4m) to GBP62.5m.

While the impact of the Covid-19 pandemic resulted in a 19% drop across traditional markets including Europe and North America, this was partially offset by growth of 12% in the smaller South East Asia region.

Significant progress continues to be made in improving performance of the new Chinese factory. Notable headcount reductions were achieved whilst productivity and customer service levels continue to improve.

The benefits of recent capital investments have been apparent, with improved capability, capacity and flexibility, enabling the impact of reduced volumes to be substantially mitigated by cost reductions. Improved flexibility in the work force also allowed labour costs to be more closely matched with demand. As a result, despite a significant revenue decline, adjusted operating profit margin at constant exchange rates was robust at 9.1% (2019: 10.7%).

Order intake at constant exchange rates declined by 24% to GBP57.6m, resulting in book to bill (ratio of orders to sales) for the first half of the year of 92% (2019: 99%).

Torque Transmission

Trading was more stable in the Torque Transmission division, although most of our individual business units saw considerable market softening as a result of the pandemic. Revenue at constant exchange rates fell by 11.6% to GBP19.0m. The revenue reduction includes GBP0.5m in scheduled lower deliveries on a significant multi-year contract, which is expected to return to prior period levels in the second half of the financial year.

While demand across the traditional markets, including the UK and North America, dropped by 17%, this was partially offset by growth of 69% in China.

Significant actions to improve the Gears business unit were undertaken in the last financial year. The annualised benefits of these pricing and cost saving measures showed clearly in the first six months' operating performance, with the unit delivering a GBP0.4m year on year improvement in adjusted operating profit despite a significant reduction in revenue.

Divisional adjusted operating profit, at constant exchange rates, of GBP2.5m was 8.7% higher than the prior year, resulting in an adjusted operating profit margin of 13.2% (2019: 10.7%).

Order intake from continuing operations at constant exchange rates of GBP18.4m reduced by 5% in the period. The book to bill ratio for the first half of the year was 97% (2019: 91%).

Restructuring Costs

Restructuring costs in the period were nil (2019: GBP0.9m), following the completion of all major such initiatives in the prior year.

Cash Flow and Net Debt

 
                                                   2020/21   2019/20 
 Half year to 30 September                            GBPm      GBPm 
------------------------------------------------  --------  -------- 
 Adjusted operating profit                             5.8       7.7 
 Add back depreciation and amortisation                5.2       5.1 
------------------------------------------------  --------  -------- 
 Adjusted EBITDA                                      11.0      12.8 
 Movement in working capital                           3.7     (4.4) 
 Net Capital expenditure                             (1.0)     (4.6) 
 Operating cash flow                                  13.7       3.8 
 Income taxes                                          1.0     (1.4) 
 Pensions cash costs                                 (1.1)     (1.8) 
 Restructuring spend                                     -     (0.9) 
 Repayment of principal under lease liabilities      (1.7)     (1.6) 
 Financing costs paid                                (1.8)     (1.6) 
 Other movements/FX                                    0.1     (0.4) 
------------------------------------------------  --------  -------- 
 Change in net debt                                   10.2     (3.9) 
 Closing net debt                                   (26.4)    (34.2) 
------------------------------------------------  --------  -------- 
 

Cash generation in the first half was very strong, with net debt reducing by GBP10.2m from the position at 31 March 2020, to GBP26.4m.

Most of the GBP3.7m improvement in working capital was delivered in inventory (GBP4.9m) where measures were taken to improve the cash position in the short term. Specific and measured increases in inventory are planned in order to maintain customer service levels as demand returns. Receivables and payables moved broadly in line with activity levels in the period.

Net capital expenditure at GBP1.0m was tightly controlled and reduced by GBP3.6m compared to the prior period. The reduction in spend, down to maintenance levels, was possible due to prior year initiatives to invest in the production capabilities of our plants. Strategic investments in improved heat treatment facilities and the standardised IT system for the Group continue, but at a slower pace.

Corporation tax payments on account were reviewed across the Group with revised payment profiles leading to a recovery of GBP1.3m of prior year contributions.

Pensions

The Group has a number of defined benefit pension schemes (accounted for in accordance with IAS 19R 'Employee benefits'). During the period agreement was reached with the UK pension trustee to defer contributions (GBP2.8m) to the UK pension scheme. This delays agreed contributions, now payable between April 2022 and April 2027, but maintains the consistent cash requirements of the Group's schemes. Cash pension costs are sustainable, having remained consistent at approximately GBP5m for several years, and are expected to remain broadly stable over the longer term. The Group's retirement benefit obligations increased from GBP97.6m (GBP80.2m net of deferred tax) at 31 March 2020 to GBP115.6m (GBP94.7m net of deferred tax) at 30 September 2020.

Continuing declines in corporate bond yields, which determine discount rates, have increased the deficits in the key UK and German schemes. In the UK, discount rates falling to 1.55% (31 March 2020: 2.4%) and the CPI inflation assumption increasing to 2.2% (31 March 2020: 2.0%) has the effect of increasing the present value of future liabilities by GBP29.2m. Strong asset returns helped to mitigate the impact of change in the financial assumptions, with the net UK deficit increasing by GBP16.0m to GBP84.0m.

Pension liabilities in non-UK schemes increased by GBP2.0m to GBP31.6m.

The net financing expense (a non-cash item) was GBP1.0m (2019: GBP1.1m).

Dividend

In light of the difficult trading environment and the continuing investment in equipment and revenue expenditure to improve the performance of the business, the Board has decided not to declare an interim dividend. The dividend policy will remain under review as margin and cash flow performance continues to develop.

Going Concern

The interim condensed consolidated 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 ongoing uncertainty as to the future impact on the Group of the Covid-19 pandemic, alongside the resilient half year trading performance of the Group, have been considered as part of the adoption of the going concern basis. All manufacturing facilities which had been closed due to national restrictions reopened prior to June 2020 and have remained open since. Across the Group, public health measures advised by governments are being followed, operating costs have been reduced, and capital expenditure and other cash demands are being managed effectively.

As part of its assessment, the Board has considered downside scenarios that reflect the current uncertainty in the global economy. The most severe scenario considered Group revenue being more than 20% below revenues for the year ended 31 March 2020, and more than 25% below revenues in the year ended 31 March 2019. The downside scenario is considered to be severe but plausible, although recent trading activity and the improvement in net debt at 30 September 2020 results in the downside scenario being considered much less likely than it was at the year end.

The results of these scenarios show that there is sufficient liquidity in the business for a period of at least 12 months from the date of approval of these interim financial statements. However, the most severe downside case indicates the potential for a covenant breach during the test period, indicating a material uncertainty related to events or conditions which may cast significant doubt over the Group's ability to continue as a going concern in the event that, following a covenant breach, lenders elected to trigger a repayment of outstanding debt. In such circumstances, and without further mitigating actions, the Group may be unable to realise assets and discharge liabilities in the normal course of business. The condensed consolidated interim financial statements do not include the adjustments that would result if the Group were unable to continue as a going concern.

The Directors believe that the Group is well placed to manage its business risks and, after making enquiries including a review of forecasts and predictions, taking account of reasonably possible changes in trading performances and considering the existing banking facilities, including the available liquidity and amended covenant structure, have a reasonable expectation that the Group has adequate resources to continue in operational existence for the 12 months following the date of approval of the interim financial statements. Accordingly, they continue to adopt the going concern basis in preparing the consolidated financial statements.

Risks and Uncertainties

The principal risks and uncertainties affecting the business activities of the Group, as well as the risk mitigating controls put in place, remain those detailed on pages 32-36 of the 2019/20 Annual Report and Accounts. These include macro-economic and political uncertainty risks as well as various risks relating to Group treasury activities. Key operational risks are raw material prices and other input cost prices.

During the period, risks relating to macro-economic factors and political uncertainty have continued, especially with regard to the impact of the global Covid-19 pandemic. The sustained effect of uncertainty has the potential to reduce demand in end-markets for Renold's products. Renold benefits from its geographic, customer and sector diversity which helps to mitigate the impact of localised issues, but cannot fully mitigate the effects of widespread reductions in demand.

The valuation of retirement benefit obligations can be significantly impacted by changes to the yields on corporate bonds and inflation prospects. The schemes' investment strategies provide a partial hedge against these risks, and other de-risking strategies are employed where sensible. However, it should be noted that the actual cash flows to support the pension scheme are quite stable and subject to long term funding plans which are reviewed every three years. The triennial valuation for the UK scheme has been agreed with no significant change required to the long term funding of the scheme. The next triennial valuation will have an effective date of 5 April 2022.

Summary

Renold reacted quickly to the sharp deterioration of the trading environment arising from the pandemic-related downturn. Most costs have been reduced in line with sales and, together with focused cash preservation actions and managed reductions in working capital, the Group has delivered a robust operating margin and a substantial reduction in net debt.

The trends exiting the period suggest that order intake should continue to improve slowly, albeit this is likely to be at levels below the prior year in the near term. The immediate outlook varies by both geography and sector, and is difficult to forecast, however, Renold benefits from its geographic, customer and sector diversity. The tight focus on cost and cash management in the first half has created a strong platform from which the Group can manage through short-term disruption, whilst retaining the ability to invest in support of our strategy as markets recover.

Responsibility statement

The Directors confirm that to the best of their knowledge:

 
      --  the condensed set of financial statements has been prepared 
           in accordance with IAS 34 Interim Financial Reporting; 
      --  the interim management report includes a fair review of the 
           information required by DTR 4.2.7R (indication of important 
           events and their impact during the first six months of the financial 
           year and description of principal risks and uncertainties for 
           the remaining six months of the financial year); and 
      --  the interim management report includes a fair review of the 
           information required by DTR 4.2.8R (disclosure of related parties' 
           transactions and changes therein). 
 

The Directors of Renold plc are listed in the Annual Report for the year ended 31 March 2020. A list of current Directors is maintained on the Group website at www.renold.com.

By order of the Board

 
Robert Purcell    Jim Haughey 
Chief Executive   Group Finance Director 
11 November 2020  11 November 2020 
 

Condensed Consolidated Income Statement

for the six months ended 30 September 2020

 
                                                                  First half    Full year 
                                                                     2019/20      2019/20 
                                                   First half    (unaudited)    (audited) 
                                                      2020/21 
                                                  (unaudited) 
                                          Note           GBPm           GBPm         GBPm 
---------------------------------------  -----  -------------  -------------  ----------- 
 Revenue                                   3             81.5           98.2        189.4 
 Operating costs before adjusting 
  items                                                (75.7)         (90.5)      (176.0) 
---------------------------------------  -----  -------------  -------------  ----------- 
 Adjusted(1) operating profit                             5.8            7.7         13.4 
---------------------------------------  -----  -------------  -------------  ----------- 
 Adjusting items                           4 
 Restructuring costs                                        -          (0.9)        (2.4) 
 Amortisation of acquired intangible 
  assets                                                (0.5)          (0.5)        (0.9) 
 Operating profit                                         5.3            6.3         10.1 
                                         -----  -------------  ------------- 
 Net financing costs                       5            (2.5)          (2.8)        (5.2) 
---------------------------------------  -----  -------------  -------------  ----------- 
 Profit before tax                                        2.8            3.5          4.9 
 Taxation                                  6            (0.8)          (1.2)        (1.5) 
---------------------------------------  -----  -------------  -------------  ----------- 
 Profit for the period from continuing 
  operations                                              2.0            2.3          3.4 
 Discontinued operations                   13               -          (1.5)        (1.5) 
---------------------------------------  -----  -------------  -------------  ----------- 
 Profit for the period                                    2.0            0.8          1.9 
---------------------------------------  -----  -------------  -------------  ----------- 
 Attributable to: 
 Owners of the parent                                     2.0            0.7          1.8 
 Non-controlling interests                                  -            0.1          0.1 
---------------------------------------  -----  -------------  -------------  ----------- 
                                                          2.0            0.8          1.9 
---------------------------------------  -----  -------------  -------------  ----------- 
 Earnings per share from continuing 
  operations                               7 
 Basic                                                   0.9p           1.0p         1.5p 
 Diluted                                                 0.9p           0.9p         1.5p 
 
 Basic adjusted earnings per share                       1.1p           1.5p         2.9p 
 Diluted adjusted earnings per share                     1.1p           1.5p         2.9p 
---------------------------------------  -----  -------------  -------------  ----------- 
 Earnings per share from continuing 
  and discontinued operations              7 
 Basic                                                   0.9p           0.3p         0.8p 
 Diluted                                                 0.9p           0.3p         0.8p 
---------------------------------------  -----  -------------  -------------  ----------- 
 

(1) Adjusted: In addition to statutory reporting, the Group reports certain financial metrics on an adjusted basis. Definitions of adjusted measures, and information about the differences to statutory metrics are provided in Note 14 to the financial statements.

Condensed Consolidated Statement of Comprehensive Income

for the six months ended 30 September 2020

 
                                                                       First half    Full year 
                                                                          2019/20      2019/20 
                                                        First half    (unaudited)    (audited) 
                                                           2020/21 
                                                       (unaudited) 
                                                              GBPm           GBPm         GBPm 
---------------------------------------------  ----  -------------  -------------  ----------- 
 Profit for the period                                         2.0            0.8          1.9 
 Other comprehensive income/(expense): 
 Items that may be reclassified to 
  the income statement in subsequent 
  periods: 
 Exchange differences on translation 
  of foreign operations                                        0.3            3.5          1.8 
 Gain/(loss) on hedges of the net investment 
  in foreign operations                                        0.2          (0.4)        (0.4) 
 Cash flow hedges: 
  Fair value gain/(loss) arising on 
   cash flow hedges during the period                          0.1          (0.5)        (0.3) 
  Add: Cumulative gain arising on cash 
   flow hedges reclassified 
   to profit and loss                                          0.3            0.4          0.4 
 Income tax relating to items that 
  may be reclassified subsequently to 
  profit or loss                                             (0.3)              -          0.1 
---------------------------------------------------  -------------  -------------  ----------- 
                                                               0.6            3.0          1.6 
 --------------------------------------------------  -------------  -------------  ----------- 
 Items not to be reclassified to the 
  income statement in subsequent periods: 
 Re-measurement (losses)/gains on retirement 
  benefit obligations                                       (17.1)          (9.5)          3.1 
 Tax on re-measurement losses/(gains) 
  on retirement benefit obligations 
  - excluding impact of statutory rate 
  change                                                       3.4            1.7        (0.7) 
 Effect of changes in statutory tax 
  rate on deferred tax assets                                    -              -          1.3 
---------------------------------------------------  -------------  -------------  ----------- 
                                                            (13.7)          (7.8)          3.7 
 --------------------------------------------------  -------------  -------------  ----------- 
 Other comprehensive (expense)/income 
  for the period, net of tax                                (13.1)          (4.8)          5.3 
---------------------------------------------------  -------------  -------------  ----------- 
 Total comprehensive (expense)/income 
  for the period, net of tax                                (11.1)          (4.0)          7.2 
---------------------------------------------------  -------------  -------------  ----------- 
 Attributable to: 
 Owners of the parent                                       (11.1)          (4.2)          7.1 
 Non-controlling interests                                       -            0.2          0.1 
---------------------------------------------------  -------------  -------------  ----------- 
                                                            (11.1)          (4.0)          7.2 
 --------------------------------------------------  -------------  -------------  ----------- 
 

Condensed Consolidated Statement of Financial Position

as at 30 September 2020

 
                                                                                 31 March 
                                            30 September        30 September 
                                                    2020                2019         2020 
                                                                 (unaudited, 
                                                             re-presented(1) 
                                             (unaudited)                   )    (audited) 
                                     Note           GBPm                GBPm         GBPm 
----------------------------------  -----  -------------  ------------------  ----------- 
 Assets 
  Non-current assets 
 Goodwill                                           23.5                24.3         24.0 
 Other intangible fixed assets                       7.3                 6.0          8.0 
 Property, plant and equipment                      52.0                57.0         53.3 
 Right-of-use assets                                11.4                 9.5         11.3 
 Deferred tax assets                                24.2                22.9         20.4 
                                                   118.4               119.7        117.0 
----------------------------------  -----  -------------  ------------------  ----------- 
 Current assets 
 Inventories                                        41.8                49.1         46.1 
 Trade and other receivables                        31.5                37.1         35.8 
 Current tax                                         0.1                 1.7          1.5 
 Derivative financial instruments                    0.1                   -            - 
 Cash and cash equivalents              9           19.6                17.6         15.6 
----------------------------------  -----  -------------  ------------------  ----------- 
                                                    93.1               105.5         99.0 
----------------------------------  -----  -------------  ------------------  ----------- 
 Total assets                                      211.5               225.2        216.0 
----------------------------------  -----  -------------  ------------------  ----------- 
 Liabilities 
 Current liabilities 
 Borrowings                             9          (0.1)               (0.2)        (0.3) 
 Trade and other payables                         (32.5)              (41.5)       (37.6) 
 Lease liabilities                                 (3.4)               (3.3)        (3.0) 
 Current tax                                       (1.6)               (1.2)        (1.0) 
 Derivative financial instruments                      -               (0.5)        (0.3) 
 Provisions                                        (0.7)               (0.2)        (0.7) 
----------------------------------  -----  -------------  ------------------  ----------- 
                                                  (38.3)              (46.9)       (42.9) 
----------------------------------  -----  -------------  ------------------  ----------- 
 Net current assets                                 54.8                58.6         56.1 
----------------------------------  -----  -------------  ------------------  ----------- 
 Non-current liabilities 
 Borrowings                             9         (45.4)              (51.1)       (51.4) 
 Preference stock                       9          (0.5)               (0.5)        (0.5) 
 Trade and other payables                          (5.2)               (5.2)        (5.3) 
 Lease liabilities                                (13.3)              (13.4)       (14.1) 
 Deferred tax liabilities                          (4.7)               (6.0)        (4.6) 
 Retirement benefit obligations         8        (115.6)             (111.5)       (97.6) 
                                                 (184.7)             (187.9)      (173.5) 
----------------------------------  -----  -------------  ------------------  ----------- 
 Total liabilities                               (223.0)             (234.8)      (216.4) 
----------------------------------  -----  -------------  ------------------  ----------- 
 Net liabilities                                  (11.5)               (9.6)        (0.4) 
----------------------------------  -----  -------------  ------------------  ----------- 
 Equity 
 Issued share capital                  10           11.3                11.3         11.3 
 Share premium                                      30.1                30.1         30.1 
 Capital reserve                                    15.4                15.4         15.4 
 Currency translation reserve                       12.1                13.4         11.9 
 Other reserves                                      0.1               (0.5)        (0.3) 
 Retained earnings                                (80.5)              (81.5)       (68.8) 
----------------------------------  -----  -------------  ------------------  ----------- 
 Equity attributable to owners 
  of the parent                                   (11.5)              (12.0)        (0.4) 
 Non-controlling interests                             -                 2.4            - 
----------------------------------  -----  -------------  ------------------  ----------- 
 Total shareholders' deficit                      (11.5)               (9.6)        (0.4) 
----------------------------------  -----  -------------  ------------------  ----------- 
 

(1) The balance sheet at 30 September 2019 has been re-presented to reflect an adjustment of GBP0.2m between non-current lease liabilities and opening reserves on adoption of IFRS 16.

Condensed Consolidated Statement of Cash Flows

for the six months ended 30 September 2020

 
                                                First half     First half 
                                                                             Full year 
                                                   2020/21        2019/20      2019/20 
                                               (unaudited)    (unaudited)    (audited) 
                                                      GBPm           GBPm         GBPm 
-------------------------------------------  -------------  -------------  ----------- 
 Cash flows from operating activities 
 Cash generated by operations (Note 
  9)                                                  13.7            5.3         12.5 
 Income taxes refunded/(paid)                          1.0          (1.4)        (1.6) 
-------------------------------------------  -------------  -------------  ----------- 
 Net cash flows from operating activities             14.7            3.9         10.9 
-------------------------------------------  -------------  -------------  ----------- 
 Cash flows from investing activities 
 Proceeds from property disposals                      0.2              -          0.1 
 Purchase of property, plant and equipment           (1.0)          (4.0)        (6.7) 
 Purchase of intangible assets                       (0.2)          (0.6)        (2.5) 
 Disposal of business                                    -          (0.1)        (0.1) 
 Consideration paid for acquisition 
  of minority interest                                   -              -        (1.8) 
-------------------------------------------  -------------  -------------  ----------- 
 Net cash flows from investing activities            (1.0)          (4.7)       (11.0) 
-------------------------------------------  -------------  -------------  ----------- 
 Cash flows from financing activities 
 Repayment of principal under lease 
  liabilities                                        (1.7)          (1.6)        (3.3) 
 Financing costs paid                                (1.8)          (1.6)        (2.7) 
 Proceeds from borrowings                              2.8            4.6          7.5 
 Repayment of borrowings                             (9.0)          (1.0)        (4.2) 
-------------------------------------------  -------------  -------------  ----------- 
 Net cash flows from financing activities            (9.7)            0.4        (2.7) 
-------------------------------------------  -------------  -------------  ----------- 
 Net (decrease)/increase in cash and 
  cash equivalents                                     4.0          (0.4)        (2.8) 
 Net cash and cash equivalents at 
  beginning of period                                 15.1           17.4         17.4 
 Effects of exchange rate changes                        -            0.2          0.5 
-------------------------------------------  -------------  -------------  ----------- 
 Net cash and cash equivalents at 
  end of period                                       19.1           17.2         15.1 
-------------------------------------------  -------------  -------------  ----------- 
 

Condensed Consolidated Statement of Changes in Equity

for the six months ended 30 September 2020

 
                                 Share                 Currency      Capital              Attributable 
                       Share   premium   Retained   translation   redemption      Other      to owners   Non-controlling    Total 
                     capital   account   earnings       reserve      reserve   reserves      of parent         interests   equity 
                        GBPm      GBPm       GBPm          GBPm         GBPm       GBPm           GBPm              GBPm     GBPm 
------------------  --------  --------  ---------  ------------  -----------  ---------  -------------  ----------------  ------- 
 At 1 April 2019        11.3      30.1     (74.2)          10.4         15.4      (0.4)          (7.4)               2.2    (5.2) 
 Profit for the 
  year                     -         -        1.8             -            -          -            1.8               0.1      1.9 
 Other 
  comprehensive 
  income                   -         -        3.7           1.5            -        0.1            5.3                 -      5.3 
------------------  --------  --------  ---------  ------------  -----------  ---------  -------------  ----------------  ------- 
 Total 
  comprehensive 
  income for 
  the year                 -         -        5.5           1.5            -        0.1            7.1               0.1      7.2 
 Acquisition of 
  non-controlling 
  interest                 -         -        0.5             -            -          -            0.5             (2.3)    (1.8) 
 Share-based 
  payments                 -         -      (0.6)             -            -          -          (0.6)                 -    (0.6) 
------------------  --------  --------  ---------  ------------  -----------  ---------  -------------  ----------------  ------- 
 At 31 March 2020       11.3      30.1     (68.8)          11.9         15.4      (0.3)          (0.4)                 -    (0.4) 
 Profit for the 
  period                   -         -        2.0             -            -          -            2.0                 -      2.0 
 Other 
  comprehensive 
  income/(expense)         -         -     (13.7)           0.2            -        0.4         (13.1)                 -   (13.1) 
------------------  --------  --------  ---------  ------------  -----------  ---------  -------------  ----------------  ------- 
 Total 
  comprehensive 
  income/(expense) 
  for the period           -         -     (11.7)           0.2            -        0.4         (11.1)                 -   (11.1) 
 At 30 September 
  2020                  11.3      30.1     (80.5)          12.1         15.4        0.1         (11.5)                 -   (11.5) 
------------------  --------  --------  ---------  ------------  -----------  ---------  -------------  ----------------  ------- 
 At 1 April 2019        11.3      30.1     (74.2)          10.4         15.4      (0.4)          (7.4)               2.2    (5.2) 
 Profit for the 
  period                   -         -        0.7             -            -          -            0.7               0.1      0.8 
 Other 
  comprehensive 
  income/(expense)         -         -      (7.8)           3.0            -      (0.1)          (4.9)               0.1    (4.8) 
------------------  --------  --------  ---------  ------------  -----------  ---------  -------------  ----------------  ------- 
 Total 
  comprehensive 
  income/(expense) 
  for the period           -         -      (7.1)           3.0            -      (0.1)          (4.2)               0.2    (4.0) 
 Share-based 
  payments                 -         -      (0.2)             -            -          -          (0.2)                 -    (0.2) 
------------------  --------  --------  ---------  ------------  -----------  ---------  -------------  ----------------  ------- 
 At 30 September 
  2019 
  (re-presented(1) 
  )                     11.3      30.1     (81.5)          13.4         15.4      (0.5)         (11.8)               2.4    (9.4) 
------------------  --------  --------  ---------  ------------  -----------  ---------  -------------  ----------------  ------- 
 

(1) The balance sheet at 30 September 2019 has been re-presented to reflect an adjustment of GBP0.2m between non-current lease liabilities and opening reserves on adoption of IFRS 16.

Notes to the Interim Condensed Consolidated Financial Statements

   1.   Corporate information 

The interim condensed consolidated financial statements for the six months to 30 September 2020 were approved by the Board on 11 November 2020. These statements have not been audited or reviewed by the Group's auditor pursuant to the Auditing Practices Board guidance on the Review of Interim Financial Information.

Renold plc is a limited liability company, incorporated and registered under the laws of England and Wales, whose shares are publicly traded. The principal activities of the Company and its subsidiaries are described in Note 3.

These interim condensed consolidated financial statements do not constitute statutory accounts of the Group within the meaning of Section 434 of the Companies Act 2006. The statutory accounts for the year ended 31 March 2020 have been filed with the Registrar of Companies. The auditor's report on those accounts was unqualified but contained a material uncertainty paragraph in relation to going concern (see page 101 of the consolidated financial statements for the year ended 31 March 2020 for further detail). The auditor's report did not contain any statement under Section 498(2) or Section 498(3) of the Companies Act 2006.

   2.   Accounting policies 

Basis of preparation

The interim condensed consolidated financial statements for the six months ended 30 September 2020 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34 'Interim Financial Reporting' as adopted by the European Union. It does not include all of the information and disclosures required in the annual consolidated financial statements and should be read in conjunction with the Group's annual consolidated financial statements for the year ended 31 March 2020.

The accounting policies, presentation and methods of computation applied by the Group in these interim condensed consolidated financial statements are the same as those applied in the Group's latest audited annual consolidated financial statements for the year ended 31 March 2020, except as noted below.

The excess of the consideration transferred, the amount of any non-controlling interest and the acquisition date fair value of any previously held equity interest in the acquired entity as compared with the Group's share of the identifiable net assets are recognised as goodwill. Where the Group's share of identifiable net assets acquired exceeds the total consideration transferred, a gain from a bargain purchase is recognised immediately in the income statement after the fair values initially determined have been reassessed.

New and amended standards adopted by the Group

The same accounting policies, presentation and methods of computation are followed in the condensed set of financial statements as applied in the Group's latest annual audited financial statements.

As a result of the Covid-19 pandemic, the Group has utilised GBP2.3m (31 March 2020: GBPnil; 30 September 2019: GBPnil) of government assistance across its European units in the form of employee support schemes. In line with IAS 20, this income is recognised in the income statement at the date at which the conditions attached to receipt of such assistance have been met, in the period it becomes receivable.

New standards and interpretations not yet effective and not adopted

At the date of publishing these interim condensed consolidated financial statements, a number of new and revised standards and interpretations have been issued by the International Accounting Standards Board (IASB). None of these new and revised standards and interpretations are considered relevant to the Group and they have not been adopted early.

Going concern

The interim condensed consolidated 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 ongoing uncertainty as to the future impact on the Group of the Covid-19 pandemic, alongside the resilient half year trading performance of the Group, have been considered as part of the adoption of the going concern basis. All manufacturing facilities which had been closed due to national restrictions reopened prior to June 2020 and have remained open since. Across the Group, public health measures advised by governments are being followed, operating costs have been reduced, and capital expenditure and other cash demands are being managed effectively.

As part of its assessment, the Board has considered downside scenarios that reflect the current uncertainty in the global economy. The most severe scenario considered Group revenue being more than 20% below revenues for the year ended 31 March 2020, and more than 25% below revenues in the year ended 31 March 2019. The downside scenario is considered to be severe but plausible, although recent trading activity and the improvement in net debt at 30 September 2020 results in the downside scenario being considered much less likely than it was at the year end.

The results of these scenarios show that there is sufficient liquidity in the business for a period of at least 12 months from the date of approval of these interim financial statements. However, the most severe downside case indicates the potential for a covenant breach during the test period, indicating a material uncertainty related to events or conditions which may cast significant doubt over the Group's ability to continue as a going concern in the event that, following a covenant breach, lenders elected to trigger a repayment of outstanding debt. In such circumstances and without further mitigating actions, the Group may be unable to realise assets and discharge liabilities in the normal course of business. The condensed consolidated interim financial statements do not include the adjustments that would result if the Group were unable to continue as a going concern.

The Directors believe that the Group is well placed to manage its business risks and, after making enquiries including a review of forecasts and predictions, taking account of reasonably possible changes in trading performances and considering the existing banking facilities, including the available liquidity and amended covenant structure, have a reasonable expectation that the Group has adequate resources to continue in operational existence for the 12 months following the date of approval of the interim financial statements. Accordingly, they continue to adopt the going concern basis in preparing the consolidated financial statements.

Significant accounting judgements, estimates and assumptions

In the course of preparing these interim condensed consolidated financial statements, no judgements have been made in the process of applying the Group's accounting policies that have had a significant effect on the amounts recognised in the financial statements, other than those involving estimation uncertainty. The key sources of estimation uncertainty are those which applied in the annual consolidated financial statements for the year ended 31 March 2020, namely:

-- taxation

-- retirement benefit obligations

-- right-of-use assets

-- inventory valuation

-- impairment of non-financial assets

Financial risk management

The Group's financial risk management objectives and policies are consistent with those disclosed in the consolidated financial statements for the year ended 31 March 2020.

   3.   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 product through Chain National Sales Centres; and

-- The Torque Transmission segment manufactures and sells Torque Transmission products such as gearboxes and couplings used in power transmission with modest sales of chain products.

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.

The segment results for the period ended 30 September 2020 were as follows:

 
 
                                                                      Head office 
                                                       Torque               costs 
   Period ended 30 September            Chain    Transmission    and eliminations   Consolidated 
   2020                                  GBPm            GBPm                GBPm           GBPm 
-------------------------------------  ------  --------------  ------------------  ------------- 
 Revenue 
 External customer                       62.5            19.0                   -           81.5 
 Inter-segment                            0.8             1.6               (2.4)              - 
-------------------------------------  ------  --------------  ------------------  ------------- 
 Total revenue                           63.3            20.6               (2.4)           81.5 
-------------------------------------  ------  --------------  ------------------  ------------- 
 
 Adjusted operating profit/(loss)         5.7             2.5               (2.4)            5.8 
 Restructuring costs                        -               -                   -              - 
 Amortisation of acquired 
  intangible assets                     (0.5)               -                   -          (0.5) 
-------------------------------------  ------  --------------  ------------------  ------------- 
 Operating profit/(loss)                  5.2             2.5               (2.4)            5.3 
 Net financing costs                                                                       (2.5) 
-------------------------------------  ------  --------------  ------------------  ------------- 
 Profit before tax                                                                           2.8 
 Taxation                                                                                  (0.8) 
 Profit after tax                                                                            2.0 
-------------------------------------  ------  --------------  ------------------  ------------- 
 
 Other disclosures 
 Working capital                         29.0             9.7                 2.1           40.8 
 Capital expenditure                      0.7             0.6                 0.3            1.6 
 
 Depreciation and amortisation 
  included in adjusted operating 
  profit/(loss)                           3.4             0.9                 0.9            5.2 
 Amortisation of acquired 
  intangibles                             0.5               -                   -            0.5 
-------------------------------------  ------  --------------  ------------------  ------------- 
 Total depreciation and amortisation      3.9             0.9                 0.9            5.7 
-------------------------------------  ------  --------------  ------------------  ------------- 
 

The segment results for the period ended 30 September 2019 were as follows:

 
 
                                                                      Head office 
   Period ended 30 September                           Torque               costs 
   2019                                 Chain    Transmission    and eliminations   Consolidated 
   (re-presented(1) )                    GBPm            GBPm                GBPm           GBPm 
-------------------------------------  ------  --------------  ------------------  ------------- 
 Revenue 
 External Customer                       76.5            21.7                   -           98.2 
 Inter-segment                            0.5             2.0               (2.5)              - 
-------------------------------------  ------  --------------  ------------------  ------------- 
 Total revenue                           77.0            23.7               (2.5)           98.2 
-------------------------------------  ------  --------------  ------------------  ------------- 
 
 Adjusted operating profit/(loss)         8.1             2.4               (2.8)            7.7 
 Restructuring costs                    (0.4)           (0.4)               (0.1)          (0.9) 
 Amortisation of acquired 
  intangible assets                     (0.5)               -                   -          (0.5) 
-------------------------------------  ------  --------------  ------------------  ------------- 
 Operating profit/(loss)                  7.2             2.0               (2.9)            6.3 
 Net financing costs                                                                       (2.8) 
-------------------------------------  ------  --------------  ------------------  ------------- 
 Profit before tax from continuing 
  operations                                                                                 3.5 
 Taxation                                                                                  (1.2) 
 Discontinued operations                                                                   (1.5) 
 Profit after tax and discontinued 
  operations                                                                                 0.8 
-------------------------------------  ------  --------------  ------------------  ------------- 
 
 Other disclosures 
 Working capital                         35.0            10.5               (0.8)           44.7 
 Capital expenditure                      4.1             0.2                 0.6            4.9 
 
 Depreciation and amortisation 
  included in adjusted operating 
  profit/(loss)                           3.2             1.0                 0.9            5.1 
 Amortisation of acquired 
  intangibles                             0.5               -                   -            0.5 
-------------------------------------  ------  --------------  ------------------  ------------- 
 Total depreciation and amortisation      3.7             1.0                 0.9            5.6 
-------------------------------------  ------  --------------  ------------------  ------------- 
 

In addition to statutory reporting, the Group reports certain financial metrics on an adjusted basis (alternative performance measures, APMs). Definitions of adjusted measures, and information about the differences to statutory metrics are provided in Note 14 to the interim condensed consolidated financial statements. Constant exchange rate results are retranslated to current year exchange rates and therefore only the prior year comparatives are an alternative performance measure. A reconciliation is provided below and in Note 14.

 
 
                                                                   Head office 
   Period ended 30 September                        Torque               costs 
   2019                              Chain    Transmission    and eliminations   Consolidated 
   (re-presented(1) )                 GBPm            GBPm                GBPm           GBPm 
----------------------------------  ------  --------------  ------------------  ------------- 
 Revenue 
 External revenue from continuing 
  operations                          76.5            21.7                   -           98.2 
 Foreign exchange retranslation      (0.6)           (0.2)                   -          (0.8) 
----------------------------------  ------  --------------  ------------------  ------------- 
 External revenue from continuing 
  operations at constant exchange 
  rates                               75.9            21.5                   -           97.4 
----------------------------------  ------  --------------  ------------------  ------------- 
 Adjusted operating profit/(loss) 
  from continuing operations           8.1             2.4               (2.8)            7.7 
 Foreign exchange retranslation          -           (0.1)                 0.1              - 
----------------------------------  ------  --------------  ------------------  ------------- 
 Adjusted profit/(loss) from 
  continuing operations at 
  constant exchange rates              8.1             2.3               (2.7)            7.7 
----------------------------------  ------  --------------  ------------------  ------------- 
 

(1) The divisional split for the period ended 30 September 2019 has been re-presented due to the split of one Chain business unit into two, of which one has been allocated to Torque Transmission.

The segment results for the year ended 31 March 2020 were as follows:

 
 
 
                                                            Torque 
  Year ended 31 March 2020                                                      Head office 
                                                                                      costs 
                                        Chain         Transmission         and eliminations        Consolidated 
   (re-presented(1) )                    GBPm                 GBPm                     GBPm                GBPm 
-------------------------------------  ------  ---  --------------  ---  ------------------  ---  ------------- 
 Revenue 
 External Customer                      147.9                 41.5                        -               189.4 
 Inter-segment                            1.1                  4.6                    (5.7)                   - 
-------------------------------------  ------  ---  --------------  ---  ------------------  ---  ------------- 
 Total revenue                          149.0                 46.1                    (5.7)               189.4 
-------------------------------------  ------  ---  --------------  ---  ------------------  ---  ------------- 
 
 Adjusted operating profit/(loss)        13.8                  5.3                    (5.7)                13.4 
 Restructuring costs                    (1.9)                (0.4)                    (0.1)               (2.4) 
 Amortisation of acquired 
  intangible assets                     (0.9)                    -                        -               (0.9) 
-------------------------------------  ------  ---  --------------  ---  ------------------  ---  ------------- 
 Operating profit/(loss)                 11.0                  4.9                    (5.8)                10.1 
 Net financing costs                                                                                      (5.2) 
-------------------------------------  ------  ---  --------------  ---  ------------------  ---  ------------- 
 Profit before tax from continuing 
  operations                                                                                                4.9 
 Taxation                                                                                                 (1.5) 
 Discontinued operations                                                                                  (1.5) 
-------------------------------------  ------  ---  --------------  ---  ------------------  ---  ------------- 
 Profit after tax and discontinued 
  operations                                                                                                1.9 
-------------------------------------  ------  ---  --------------  ---  ------------------  ---  ------------- 
 
 Other disclosures 
 Working capital                         33.1                 10.7                      0.5                44.3 
 Capital expenditure                      6.8                  1.0                      1.3                 9.1 
 
 Depreciation and amortisation 
  included in adjusted operating 
  profit/(loss)                           6.8                  2.0                      1.7                10.5 
 Amortisation of acquired 
  intangibles                             0.9                    -                        -                 0.9 
-------------------------------------  ------  ---  --------------  ---  ------------------  ---  ------------- 
 Total depreciation and amortisation      7.7                  2.0                      1.7                11.4 
-------------------------------------  ------  ---  --------------  ---  ------------------  ---  ------------- 
 

The prior year results have been restated using this year's exchange rates as follows:

 
 
 
                                                         Torque 
  Year ended 31 March 2020                                                   Head office 
                                                                                   costs 
                                     Chain         Transmission         and eliminations        Consolidated 
   (re-presented(1) )                 GBPm                 GBPm                     GBPm                GBPm 
----------------------------------  ------  ---  --------------  ---  ------------------  ---  ------------- 
 Revenue 
 External revenue from continuing 
  operations                         147.9                 41.5                        -               189.4 
 Foreign exchange retranslation        0.4                  0.1                        -                 0.5 
----------------------------------  ------  ---  --------------  ---  ------------------  ---  ------------- 
 External revenue from continuing 
  operations at constant exchange 
  rates                              148.3                 41.6                        -               189.9 
----------------------------------  ------  ---  --------------  ---  ------------------  ---  ------------- 
 Adjusted operating profit/(loss) 
  from continuing operations          13.8                  5.3                    (5.7)                13.4 
 Foreign exchange retranslation          -                    -                        -                   - 
----------------------------------  ------  ---  --------------  ---  ------------------  ---  ------------- 
 Adjusted profit/(loss) from 
  continuing operations at 
  constant exchange rates             13.8                  5.3                    (5.7)                13.4 
----------------------------------  ------  ---  --------------  ---  ------------------  ---  ------------- 
 

(1) The divisional split for the period ended 30 September 2019 has been re-presented due to the split of one Chain business unit into two, of which one has been allocated to Torque Transmission.

   4.   Adjusting items 

In addition to statutory reporting, the Group reports certain financial metrics on an adjusted basis (alternative performance measures, APMs). Definitions of adjusted measures, and information about the differences to statutory metrics are provided in Note 14 to the interim condensed consolidated financial statements.

 
                                           First half       Full year 
                                        2020/21   2019/20     2019/20 
                                           GBPm      GBPm        GBPm 
-------------------------------------  --------  --------  ---------- 
 Included in operating costs: 
 Strategic Plan restructuring costs           -       0.5         2.0 
 Other                                        -       0.4         0.4 
-------------------------------------  --------  --------  ---------- 
 Restructuring Costs                          -       0.9         2.4 
 Amortisation of acquired intangible 
  assets (Note 8)                           0.5       0.5         0.9 
-------------------------------------  --------  --------  ---------- 
 Adjusting items in operating profit        0.5       1.4         3.3 
-------------------------------------  --------  --------  ---------- 
 Taxation on adjusting items                  -     (0.2)           - 
-------------------------------------  --------  --------  ---------- 
 Total adjusting items                      0.5       1.2         3.3 
-------------------------------------  --------  --------  ---------- 
 

Restructuring costs

No restructuring costs were incurred in the six months ended 30 September 2020. All major restructuring initiatives are complete.

Prior year restructuring costs included redundancy costs associated with headcount reductions and various other smaller costs associated with restructuring. A further GBP0.4m of other costs were incurred in relation to the investigation of the historical overstatement of profit in the Gears business unit and the purchase of the non-controlling interest in the Group's Indian operations.

Restructuring costs are recognised as adjusting items because they are considered material and non-recurring.

Amortisation of acquired intangible assets

Acquisition related intangible asset amortisation costs of GBP0.5m (2019: GBP0.5m) were recognised in the current period. This is considered to be an adjusting item on the basis that these charges result from acquisition accounting and do not relate to current trading activity.

   5.   Net financing costs 
 
                                            First half       Full year 
                                         2020/21   2019/20     2019/20 
                                            GBPm      GBPm        GBPm 
--------------------------------------  --------  --------  ---------- 
 Financing costs: 
 Interest payable on bank loans and 
  overdrafts                               (0.9)     (1.2)       (2.1) 
 Interest paid on lease liabilities        (0.3)     (0.3)       (0.5) 
 Amortised financing costs                 (0.2)     (0.1)       (0.2) 
 Loan financing costs                      (1.4)     (1.6)       (2.8) 
--------------------------------------  --------  --------  ---------- 
 
 Net IAS 19 financing costs                (1.0)     (1.1)       (2.2) 
 Discount unwind on non-current trade 
  and other payables                       (0.1)     (0.1)       (0.2) 
 Net financing costs                       (2.5)     (2.8)       (5.2) 
--------------------------------------  --------  --------  ---------- 
 
   6.   Taxation 
 
                                           First half       Full year 
                                        2020/21   2019/20     2019/20 
                                           GBPm      GBPm        GBPm 
-------------------------------------  --------  --------  ---------- 
 Current tax: 
 - UK                                         -         -           - 
 - Overseas                               (0.9)     (0.4)       (0.6) 
-------------------------------------  --------  --------  ---------- 
                                          (0.9)     (0.4)       (0.6) 
 Deferred tax: 
 - UK                                         -     (0.1)       (0.2) 
 - Overseas                                 0.1     (0.7)       (0.8) 
 - Effects of changes in corporate 
  tax rates                                   -         -         0.1 
 Total deferred tax charge (Note 17)        0.1     (0.8)       (0.9) 
-------------------------------------  --------  --------  ---------- 
 Total income tax expense                 (0.8)     (1.2)       (1.5) 
-------------------------------------  --------  --------  ---------- 
 

Factors affecting current and future tax charges

The overseas deferred tax credit relates to an increase in the deferred tax asset held in respect of overseas pensions, partially offset by 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 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.

   7.   Earnings per share 

Earnings per share (EPS) is calculated by reference to the earnings for the period and the weighted average number of shares in issue during the period as follows:

 
                                                First half                      Full year 
                                       2020/21              2019/20              2019/20 
                                                 Per                  Per                  Per 
                                               share                share                share 
                                  Earnings    amount   Earnings    amount   Earnings    amount 
                                      GBPm   (pence)       GBPm   (pence)       GBPm   (pence) 
-------------------------------  ---------  --------  ---------  --------  ---------  -------- 
 Basic EPS from continuing 
  and discontinued operations 
 Profit attributed to ordinary 
  shareholders                         2.0      0.9p        0.7      0.3p        1.8      0.8p 
 Loss for the period from 
  discontinued operations                -         -        1.5      0.7p        1.5      0.7p 
 Basic EPS from continuing 
  operations                           2.0      0.9p        2.2      1.0p        3.3      1.5p 
 Effect of adjusting items, 
  after tax: 
 Restructuring costs in 
  operating costs                        -         -        0.8      0.4p        2.4      1.1p 
 Amortisation of acquired 
  intangible assets                    0.5      0.2p        0.4      0.1p        0.9      0.3p 
 Adjusted EPS                          2.5      1.1p        3.4      1.5p        6.6      2.9p 
-------------------------------  ---------  --------  ---------  --------  ---------  -------- 
 
 
                                                    First half          Full year 
                                                 2020/21      2019/20      2019/20 
                                               Thousands    Thousands    Thousands 
-------------------------------------------  -----------  -----------  ----------- 
 Weighted average number of ordinary 
  shares: 
 For the purpose of calculating basic 
  earnings per share                             225,418      225,418      225,418 
 Effect of dilutive potential ordinary 
  shares: 
  Shares subject to performance conditions         6,210        6,900        1,944 
-------------------------------------------  -----------  -----------  ----------- 
 For the purpose of calculating diluted 
  earnings per share                             231,628      232,318      227,362 
-------------------------------------------  -----------  -----------  ----------- 
 
 
                                                        First half               Full year 
                                                  2020/21         2019/20          2019/20 
                                                  (pence)         (pence)          (pence) 
----------------------------------------------  ---------  ---  ---------  ---  ---------- 
 Diluted EPS from continuing and discontinued 
  operations                                         0.9p            0.3p             0.8p 
 Diluted EPS from continuing operations              0.9p            0.9p             1.5p 
 Diluted adjusted EPS                                1.1p            1.5p             2.9p 
----------------------------------------------  ---------  ---  ---------  ---  ---------- 
 

The adjusted EPS numbers have been provided 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.

   8.   Retirement benefit obligations 

The Group's retirement benefit obligations are summarised as follows:

 
                                              At 30        At 30     At 31 
                                          September    September     March 
                                               2020         2019      2020 
                                               GBPm         GBPm      GBPm 
--------------------------------------  -----------  -----------  -------- 
 
 Funded plan obligations                    (242.8)      (244.1)   (215.3) 
 Funded plan assets                           153.8        160.9     141.7 
--------------------------------------  -----------  -----------  -------- 
 Net funded plan obligations                 (89.0)       (83.2)    (73.6) 
 Unfunded obligations                        (26.6)       (28.3)    (24.0) 
--------------------------------------  -----------  -----------  -------- 
 Total retirement benefit obligations       (115.6)      (111.5)    (97.6) 
--------------------------------------  -----------  -----------  -------- 
 

Analysed as follows:

 
 Non-current liabilities: Retirement 
  benefit obligations                   (115.6)   (111.5)   (97.6) 
 Net deferred tax asset                    20.9      18.1     17.4 
 Retirement benefit obligation net 
  of deferred tax                        (94.7)    (93.4)   (80.2) 
-------------------------------------  --------  --------  ------- 
 

The increase in the Group's net pre-tax deficit from GBP97.6m at 31 March 2020 to GBP115.6m at 30 September 2020 primarily reflects a decrease in discount rates and increase in inflation rates across all schemes, partially offset by asset outperformance and experience gains in the UK scheme.

   9.   Additional Cashflow Information 

Reconciliation of operating profit to net cash flows from operations:

 
                                                First half       Full year 
                                             2020/21   2019/20     2019/20 
                                                GBPm      GBPm        GBPm 
------------------------------------------  --------  --------  ---------- 
 Cash generated from operations: 
 Operating profit from continuing and 
  discontinued operations                        5.3       6.0           9.8 
 Depreciation of property, plant and 
  equipment - owned assets                       3.2       3.0           6.1 
 Depreciation of property, plant and 
  equipment - right-of-use-assets                1.4       1.2           2.5 
 Amortisation of intangible assets               1.1       1.4           2.8 
 Loss on disposals of plant and equipment          -       0.1             - 
 Equity share plans                                -     (0.2)         (0.6) 
 Decrease/(increase) in inventories              4.9     (3.9)         (1.7) 
 Decrease in receivables                         4.6       1.0           1.6 
 Decrease in payables                          (5.8)     (1.5)         (4.4) 
 Decrease in provisions                            -         -           0.6 
 Cash contribution to pension schemes          (1.1)     (1.8)         (4.4) 
 Pension current service costs (non-cash)        0.1         -           0.2 
 Cash generated from operations                 13.7       5.3          12.5 
------------------------------------------  --------  --------  ------------ 
 

Reconciliation of net change in cash and cash equivalents to movement in net debt:

 
                                                First half       Full year 
                                             2020/21   2019/20     2019/20 
                                                GBPm      GBPm        GBPm 
------------------------------------------  --------  --------  ---------- 
 
 Increase/(decrease) in cash and cash 
  equivalents                                    4.0     (0.4)         2.8 
 Change in net debt resulting from 
  cash flows                                     6.4     (3.6)       (3.3) 
 Foreign Currency translation differences          -       0.1           - 
 Non-cash movement on capitalised finance 
  costs                                        (0.2)         -       (0.2) 
 Change in net debt during the period           10.2     (3.9)       (6.3) 
 Net debt at start of period                  (36.6)    (30.3)      (30.3) 
------------------------------------------  --------  --------  ---------- 
 Net debt at end of period                    (26.4)    (34.2)      (36.6) 
------------------------------------------  --------  --------  ---------- 
 

Net debt comprises:

 
                                         First half                   Full year 
                              At 30 September   At 30 September 
                                         2020              2019     At 31 March 
                                         GBPm              GBPm            2020 
                                                                           GBPm 
---------------------------  ----------------  ----------------  -------------- 
 Cash and cash equivalents               19.6              17.6            15.6 
 Total debt                            (46.0)            (51.8)          (52.2) 
                                       (26.4)            (34.2)          (36.6) 
---------------------------  ----------------  ----------------  -------------- 
 
 
                                             First half                   Full year 
                                  At 30 September   At 30 September 
                                             2020              2019     At 31 March 
                                                                               2020 
 Net cash and cash equivalents               GBPm              GBPm            GBPm 
-------------------------------  ----------------  ----------------  -------------- 
 Cash and cash equivalents                   19.6              17.6            15.6 
 Less: overdrafts                           (0.5)             (0.4)           (0.5) 
 Net cash and cash equivalents               19.1              17.2            15.1 
-------------------------------  ----------------  ----------------  -------------- 
 
 
                                      First half                   Full year 
                           At 30 September   At 30 September 
                                      2020              2019     At 31 March 
                                                                        2020 
 Total debt                           GBPm              GBPm            GBPm 
------------------------  ----------------  ----------------  -------------- 
 Borrowings: 
 Overdrafts                          (0.5)             (0.4)           (0.5) 
 Capitalised costs                     0.4               0.2             0.2 
------------------------  ----------------  ----------------  -------------- 
 Current borrowings                  (0.1)             (0.2)           (0.3) 
 Bank Loans                         (45.7)            (51.7)          (51.9) 
 Capitalised costs                     0.3               0.6             0.5 
------------------------  ----------------  ----------------  -------------- 
 Non-current borrowings             (45.4)            (51.1)          (51.4) 
------------------------  ----------------  ----------------  -------------- 
 Total borrowings                   (45.5)            (51.3)          (51.7) 
 Preference stock                    (0.5)             (0.5)           (0.5) 
 Total debt                         (46.0)            (51.8)          (52.2) 
------------------------  ----------------  ----------------  -------------- 
 

10. Called up share capital

 
                                    At 30        At 30    At 31 
                                September    September    March 
                                     2020         2019     2020 
                                     GBPm         GBPm     GBPm 
----------------------------  -----------  -----------  ------- 
 
 Ordinary shares of 5p each          11.3         11.3     11.3 
----------------------------  -----------  -----------  ------- 
 

At 30 September 2020, the issued ordinary share capital comprised 225,417,740 ordinary shares of 5p each (30 September 2019: 225,417,740 shares).

11. Capital commitments

At 30 September 2020 capital expenditure contracted for but not provided for in these accounts amounted to GBP1.0m (30 September 2019: GBP0.9m).

12. Related party transactions

Transactions between the Company and its wholly owned subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed.

13. Discontinued operations

In the prior half year the Group sold its shareholding in Renold Crofts (Pty) Ltd, the legal entity for the South African Torque Transmission business unit, for GBP0.1m consideration. The results of the discontinued operations are included as a single line item in the condensed consolidated income statement for the half year ended 30 September 2019 and the full year ended 31 March 2020. The results for the half year ended 30 September 2020 arise from continuing operations only.

14. Alternative performance measures

In order to provide users of the accounts with a clear and consistent presentation of the performance of the Group's ongoing trading activity, the Group uses various alternative performance measures (APMs), including the presentation of the income statement with 'Adjusted' measures shown separately from statutory items. Amortisation of acquired intangibles, restructuring costs, discontinued operations and material one-off items or remeasurements are identified separately as management seek to present a measure of performance which is not impacted by material non-recurring items or items considered non-operational. See Note 4 for a breakdown and explanation of the items excluded from adjusted profit. Performance measures for the Group's ongoing trading activity are described as 'Adjusted' and are used to measure and monitor performance as management believe these measures enable users of the financial statements to better assess the trading performance of the business. In addition, the Group reports sales and profit measures at constant exchange rates. Constant exchange rate metrics exclude the impact of foreign exchange translation, by retranslating the comparative to current period exchange rates.

The APMs used by the Group include:

 
 APM                                  Reference   Explanation of APM 
                                     ----------  ====================================== 
 -- adjusted operating profit         A           Adjusted measures are used 
                                                   by the Group as a measure 
                                                   of underlying business performance, 
                                                   adding back items that do 
                                                   not relate to underlying performance 
 -- adjusted profit before taxation   B 
 -- adjusted EPS                      C 
 -- return on sales                   D 
                                     ---------- 
 -- revenue at constant exchange      E           Constant exchange rate metrics 
  rates                                            adjust for constant foreign 
                                                   exchange translation and are 
                                                   used by the Group to better 
                                                   understand year-on-year changes 
                                                   in performance 
                                                 -------------------------------------- 
 -- adjusted operating profit 
  at constant exchange rates          F 
                                                 -------------------------------------- 
 -- adjusted operating profit         G 
  margin at constant exchange rates 
-----------------------------------  ----------  -------------------------------------- 
 -- EBITDA                            H           EBITDA is a widely utilised 
                                                   measure of profitability, 
                                                   adjusting to remove non-cash 
                                                   depreciation and amortisation 
                                                   charges 
                                                 -------------------------------------- 
 -- adjusted EBITDA                   I 
-----------------------------------  ----------  -------------------------------------- 
 -- net debt                                      Net debt, leverage and gearing 
                                        J          are used to assess the level 
                                                   of borrowings within the Group 
                                                   and are widely used in capital 
                                                   markets analysis 
                                                 -------------------------------------- 
 -- leverage ratio                    K 
                                                 -------------------------------------- 
 -- gearing ratio                     L 
-----------------------------------  ----------  -------------------------------------- 
 -- legacy pension cash costs         M           The cost of legacy pensions 
                                                   is used by the Group as a 
                                                   measure of the cash cost of 
                                                   servicing legacy pension schemes 
-----------------------------------  ----------  -------------------------------------- 
 

APMs are defined and reconciled to the IFRS statutory measure as follows:

(A) Adjusted operating profit

 
                                                  First half       Full year 
                                               2020/21   2019/20     2019/20 
                                                  GBPm      GBPm        GBPm 
--------------------------------------------  --------  --------  ---------- 
 Statutory operating profit from continuing 
  operations                                       5.3       6.3        10.1 
 Add back: 
  Restructuring costs                                -       0.9         2.4 
  Amortisation of acquired intangible 
   assets                                          0.5       0.5         0.9 
 Adjusted operating profit                         5.8       7.7        13.4 
--------------------------------------------  --------  --------  ---------- 
 

(B) Adjusted profit before taxation

 
                                             First half       Full year 
                                          2020/21   2019/20     2019/20 
                                             GBPm      GBPm        GBPm 
---------------------------------------  --------  --------  ---------- 
 Statutory profit before taxation from 
  continuing operations                       2.8       3.5         4.9 
 Add back: 
  Restructuring costs                           -       0.9         2.4 
  Amortisation of acquired intangible 
   assets                                     0.5       0.5         0.9 
 Adjusted profit before taxation              3.3       4.9         8.2 
---------------------------------------  --------  --------  ---------- 
 

(C) Adjusted earnings per share

Adjusted EPS is reconciled to statutory EPS in Note 7.

(D) Return on sales

 
                                 First half       Full year 
                              2020/21   2019/20     2019/20 
                                 GBPm      GBPm        GBPm 
---------------------------  --------  --------  ---------- 
 Adjusted operating profit        5.8       7.7        13.4 
 Revenue                         81.5      98.2       189.4 
 Return on sales %               7.1%      7.8%        7.1% 
---------------------------  --------  --------  ---------- 
 

(E),(F) & (G) Revenue, adjusted operating profit and adjusted operating profit margin at constant exchange rates

 
                                                              Head office 
                                               Torque               costs 
   Period ended 30 September    Chain    Transmission    and eliminations   Consolidated 
   2020                          GBPm            GBPm                GBPm           GBPm 
-----------------------------  ------  --------------  ------------------  ------------- 
 Adjusted operating profit        5.7             2.5               (2.4)            5.8 
 Revenue                         62.5            19.0                   -           81.5 
-----------------------------  ------  --------------  ------------------  ------------- 
 Adjusted operating profit 
  margin %                       9.1%           13.2%                   -           7.1% 
-----------------------------  ------  --------------  ------------------  ------------- 
 
 
 
                                                                   Head office 
   Period ended 30 September                        Torque               costs 
   2019                              Chain    Transmission    and eliminations   Consolidated 
   (re-presented(1) )                 GBPm            GBPm                GBPm           GBPm 
----------------------------------  ------  --------------  ------------------  ------------- 
 External revenue from continuing 
  operations                          76.5            21.7                   -           98.2 
 Foreign exchange retranslation      (0.6)           (0.2)                   -          (0.8) 
----------------------------------  ------  --------------  ------------------  ------------- 
 Revenue at constant exchange 
  rates                               75.9            21.5                   -           97.4 
----------------------------------  ------  --------------  ------------------  ------------- 
 Adjusted operating profit             8.1             2.4               (2.8)            7.7 
 Foreign exchange retranslation          -           (0.1)                 0.1              - 
----------------------------------  ------  --------------  ------------------  ------------- 
 Adjusted operating profit 
  at constant exchange rates           8.1             2.3               (2.7)            7.7 
----------------------------------  ------  --------------  ------------------  ------------- 
 Adjusted operating profit 
  margin at constant exchange 
  rates %                            10.7%           10.7%                   -           7.9% 
----------------------------------  ------  --------------  ------------------  ------------- 
 
 
 
 
                                                         Torque 
  Year ended 31 March 2020                                                   Head office 
                                                                                   costs 
                                     Chain         Transmission         and eliminations        Consolidated 
   (re-presented(1) )                 GBPm                 GBPm                     GBPm                GBPm 
----------------------------------  ------  ---  --------------  ---  ------------------  ---  ------------- 
 External revenue from continuing 
  operations                         147.9                 41.5                        -               189.4 
 Foreign exchange retranslation        0.4                  0.1                        -                 0.5 
----------------------------------  ------  ---  --------------  ---  ------------------  ---  ------------- 
 Revenue at constant exchange 
  rates                              148.3                 41.6                        -               189.9 
----------------------------------  ------  ---  --------------  ---  ------------------  ---  ------------- 
 Adjusted operating profit            13.8                  5.3                    (5.7)                13.4 
 Foreign exchange retranslation          -                    -                        -                   - 
----------------------------------  ------  ---  --------------  ---  ------------------  ---  ------------- 
 Adjusted operating profit 
  at constant exchange rates          13.8                  5.3                    (5.7)                13.4 
----------------------------------  ------  ---  --------------  ---  ------------------  ---  ------------- 
 Adjusted operating profit 
  margin at constant exchange 
  rates %                             9.3%                12.7%                        -                7.1% 
----------------------------------  ------  ---  --------------  ---  ------------------  ---  ------------- 
 

(1) The divisional split for the period ended 30 September 2019 has been re-presented due to the split of one Chain business unit into two, of which one has been allocated to Torque Transmission.

(H & I) EBITDA and adjusted EBITDA (earnings before interest, taxation, depreciation and amortisation)

 
                                                  First half       Full year 
                                               2020/21   2019/20     2019/20 
                                                  GBPm      GBPm        GBPm 
--------------------------------------------  --------  --------  ---------- 
 Statutory operating profit from continuing 
  operations                                       5.3       6.3        10.1 
 Depreciation and amortisation                     5.7       5.6        11.4 
--------------------------------------------  --------  --------  ---------- 
 EBITDA                                           11.0      11.9        21.5 
 Add back: 
 Restructuring costs                                 -       0.9         2.4 
 Adjusted EBITDA                                  11.0      12.8        23.9 
--------------------------------------------  --------  --------  ---------- 
 

(J) Net debt

Net debt is reconciled to the statutory balance sheet in Note 9.

(K) Leverage ratio

 
                                           At 30        At 30       At 31 
                                       September    September       March 
                                            2020         2019        2020 
                                            GBPm         GBPm        GBPm 
-----------------------------------  -----------  -----------  ---------- 
 Net debt (see Note 9)                      26.4         34.2        36.6 
 
 H2 2018/19 Adjusted EBITDA                    -         11.4           - 
 H1 2019/20 Adjusted EBITDA                    -         12.8        12.8 
 H2 2019/20 Adjusted EBITDA                 11.1            -        11.1 
 H1 2020/21 Adjusted EBITDA                 11.0            -           - 
-----------------------------------  -----------  -----------  ---------- 
 12 months rolling adjusted EBITDA          22.1         24.2        23.9 
-----------------------------------  -----------  -----------  ---------- 
 Leverage ratio                        1.2 times    1.4 times   1.5 times 
-----------------------------------  -----------  -----------  ---------- 
 

(L) Gearing ratio

 
                                                At 30        At 30    At 31 
                                            September    September    March 
                                                 2020         2019     2020 
                                                 GBPm         GBPm     GBPm 
----------------------------------------  -----------  -----------  ------- 
 Net debt (see Note 9)                           26.4         34.2     36.6 
 
  Equity attributable to equity holders 
   of the parent                               (11.5)       (11.8)    (0.4) 
  Net debt (see Note 9)                          26.4         34.2     36.6 
----------------------------------------  -----------  -----------  ------- 
 Total capital plus net debt                     14.9         22.4     36.2 
----------------------------------------  -----------  -----------  ------- 
 Gearing ratio %                                 177%         153%     101% 
----------------------------------------  -----------  -----------  ------- 
 

(M) Legacy pension cash costs

 
                                               First half       Full year 
                                            2020/21   2019/20     2019/20 
                                               GBPm      GBPm        GBPm 
-----------------------------------------  --------  --------  ---------- 
 Cash contributions to pension schemes          0.5       1.2         3.2 
 Pension payments in respect of unfunded 
  schemes                                       0.6       0.6         1.2 
 Scheme administration costs                    0.4       0.4         0.8 
                                                1.5       2.2         5.2 
-----------------------------------------  --------  --------  ---------- 
 

Ends

   [1]   See overleaf for reconciliation of reported, constant exchange rate and adjusted figures 

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(END) Dow Jones Newswires

November 11, 2020 02:00 ET (07:00 GMT)