Half Yearly Report ...

/**/

RNS Number : 9015F

Renold PLC

17 November 2015

 



Renold plc
('Renold' or the 'Group')

 

Interim results for the half year ended 30 September 2015

 

Renold, a leading international supplier of industrial chains and related power transmission products, announces continued margin gains for the half year ended 30 September 2015 ('the period') driven by the continuing implementation of the STEP 2020 Strategic Plan.

 

First half performance highlights

·      Underlying¹ adjusted² operating profit up 2.6%

·      Adjusted EPS up 8.7% to 2.5p

·      Challenging markets resulted in underlying sales down 6.8%

·      Significant increase in attractive capital investments to £5.2m

·      Agreement signed to acquire Aventics TC - an excellent fit with our Strategic Plan

·      New five year borrowing agreement with accordion facility delivering lower financing costs

·      Leverage ratio (net debt : adjusted EBITDA) maintained below 1.0x, the lowest margin ratchet

Financial Summary	Half year ended 30 September
Underlying adjusted interim results3	2015 £m		2014 £m
Underlying revenue	84.5		90.7
Underlying adjusted operating profit	7.9		7.7
Underlying adjusted operating margin	9.3%		8.5%
Reported interim results
Revenue	84.5		90.5
Operating profit	6.8		6.6
Operating margin	8.0%		7.3%
Profit before tax	4.6		4.4
Net debt	21.6		24.4
Other information
Basic earnings per share	1.6p		1.5p
Adjusted earnings per share	2.5p		2.3p

 

Robert Purcell, Chief Executive of Renold plc, said:

"The benefits of our self-help projects have ensured that we continue to improve our profit margins despite challenging and volatile end markets. Further projects continue to be developed and delivered for the future and, together with the increased expenditure on attractive capital investments, will continue to lower our breakeven point.

"While weaker trading patterns since the half year end have lowered our expectations for full year adjusted operating profit to around the lower end of the range of market forecasts⁴, we remain focussed on delivering our medium term goal of mid-teens operating margins.

"Our recently announced agreement to purchase Aventics TC demonstrates that we are now also able to take advantage of opportunistic bolt-on acquisitions as they arise."

17 November 2015

 

_____________

¹ ‘Underlying’ adjusts prior year figures to the current year exchange rates to give a like for like comparison.

² Throughout these interim results ‘adjusted’ means after eliminating the effects of exceptional items, IAS 19 pensions charges (which include financing charges and scheme administration costs included in operating charges), and any associated tax thereon.

³ See overleaf for reconciliation of reported, underlying and adjusted figures.

⁴ The current range of market forecasts for full year adjusted operating profit is from £16.7m to £17.6m

 

 

Reconciliation of reported, underlying and adjusted results

	Revenue			Operating Profit
First half year	2015/16 £m	2014/15 £m	2015/16 £m		2014/15 £m
Reported	84.5	90.5	6.8		6.6
Exchange impact	-	0.2	-		0.2
Underlying	84.5	90.7	6.8		6.8
Exceptional items	-	-	0.8		0.6
Pension administration costs	-	-	0.3		0.3
Underlying adjusted	84.5	90.7	7.9		7.7

 

  

 

ENQUIRIES: Renold plc	Tel: [phone]
Robert Purcell, Chief Executive
Brian Tenner, Group Finance Director
Arden Partners	Tel: [phone]
Chris Hardie
Instinctif Partners	Tel: [phone]
Mark Garraway Helen Tarbet

 

 

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, end users and distributors. The Company has a well deserved reputation for quality that is recognised worldwide. Its products are used in a wide variety of industries including manufacturing, transportation, energy, steel and mining.

 

Further information about Renold can be found on the website at: www.renold.com

 

Chief Executive's Statement

 

We are pleased to report that we have continued to make good progress with the delivery of our STEP 2020 Strategic Plan. Operating margins have increased to 9.3% and absolute operating profit has also increased. This has been achieved despite challenging and volatile conditions in most of our geographical markets which led to a fall in underlying Group revenues by 6.8% with the impact being felt in both OEM and maintenance, repair and overhaul sectors of the market. Our profit performance was delivered by the optimisation of previously executed projects such as the Bredbury site closure, new capital investments and also new restructuring activities. The recently announced acquisition of Aventics TC is an excellent fit with the Group's strategy and demonstrates our ability to take advantage of opportunistic bolt-on acquisitions as and when they arise.

 

Strategic Plan Progress Review

Our STEP 2020 Strategic Plan is built around three overlapping phases: 'Restructuring' in Phase 1, 'Organic Growth' in Phase 2, and ultimately 'Structural Activities' in Phase 3. Phase 1 is based on self-help and continuous improvement activities with a particular focus on manufacturing efficiency and business process improvement. Our ongoing objective is to drive down our breakeven point.

 

Phase 1 - 'Restructuring'

We previously set out our plans to maintain focus on manufacturing and business process efficiency throughout Phase 1 of the STEP 2020 Strategic Plan. During the period we saw the capture of the full benefits from the closure of the Bredbury facility with annual operating profit gains of £3.8m following the elimination of excess transitional costs incurred during the factory moves. We also delivered significant increases in capital investment in our facilities, with projects both delivered in the period and also new projects launched to come on stream in the second half and in the next financial year. Capital expenditure in the period almost doubled year on year from £2.7m to £5.2m. We also made progress on our new Group wide Enterprise Resource Planning system ('ERP') with the first site now being prepared for Go Live alongside a number of new and improved business processes.

 

Some of the capital investments already made are part of Bredbury Phase 2 initiatives to further optimise production processes in the sites that received the Bredbury transfers. These investments will not only deliver savings but also lead to enhancements in our service offering, particularly with respect to on time delivery and shortening lead times that will offer some protection for revenues in the short term and ultimately will support organic growth. The net impact on the cost base of the initiatives implemented since the start of our three phase plan in 2013 has been a very significant lowering in the Group's breakeven point. This has been instrumental in maintaining the Group's profitability in the period despite lower revenues.

 

Phase 2 - 'Organic Growth'

We have continued to invest further in growth orientated expenditure as we transition into the second, 'Organic Growth' phase of our plan. This has undoubtedly been challenging given the volatility and revenue headwinds in many geographical markets. However, we have managed to protect sales and marketing expenditure to ensure we position the business for growth in the medium to long term. This activity is proceeding in parallel with the continuous improvement activities which are now a permanent feature of our business.

 

During the period we opened a new sales office in South East Asia and a further site is in progress. Our new customer service offices in a number of key European territories are also progressing well with plans to expand our local presence into further European territories. We also continue to develop our service and product offering and to drive new product management ideas.

 

Phase 3 - 'Structural Activities

The active pursuit of acquisition opportunities is not a priority for management at present. However, we have said that if an attractive acquisition arose on an opportunistic basis then we would consider it. The acquisition would need to meet certain criteria: being easy to integrate with the rest of the Group, capable of being run on a largely stand alone basis for a reasonable period of time, or being in a niche or unexplored product or market for Renold.

 

The current agreement to buy the Tooth Chain business of Aventics Gmbh meets all of those criteria and is an excellent strategic fit for the Group. Through the acquisition of Aventics TC, Renold will gain access to a high value-added product not currently part of the Renold offering. The Group expects to expand sales through Renold's existing international sales presence and network. In addition, as the factory is close to Renold's plant in Einbeck, Germany, the business will be able to share expertise and some infrastructure services within the more substantial Renold Group.

 

Business Review

 

Group Results

The Group continued to deliver improvements in operating profits and margins despite experiencing difficult trading conditions in the period with underlying sales and orders down in comparison with the same period in the prior year.  Underlying sales in the period were down 6.8% (£6.2m) compared with the prior year and the book to bill ratio was 0.96 (that is, order intake in the period was 4% lower than sales).

 

Roughly one third of the fall in orders and roughly half of the fall in sales (c.£3.0m in both cases) are attributable to the large one-off Swiss contract win disclosed in the prior year. The overall falls in both sales and orders are discussed in more detail in the Chain and Torque Transmission divisional operating segment reviews.

 

Underlying adjusted operating profit increased to £7.9m (2014: £7.7m) despite lower sales, as both divisions continue to deliver the benefits of cost savings and margin enhancing self-help measures.

 

Chain

Driven by a focus on manufacturing efficiency, the Chain division continued to make margin and operating profit gains despite the revenue headwinds in many end markets. Underlying sales were down 7.0% (£4.8m) in the period compared with the prior year and the book to bill ratio in the first half was 0.96.  

Underlying external sales decreased in most territories compared with the same period in the prior year.  In Europe, underlying sales fell by 14% and orders by 19%. A significant part of this decline was due to the prior year benefitting from a large one off contract in Switzerland (c.£3.0m of revenue) that was delivered in the first half of the prior year. Excluding the impact of this contract, European sales fell by a more modest 3% and order intake by 9% in the period.  In the Americas, a small increase in orders in Canada was more than offset by a decrease in the US. However, North American sales were more buoyant and showed a modest increase compared with the prior year.  Distributor destocking was experienced in Europe and the Americas, particularly focussed in the second quarter.

 

In Australasia, underlying external sales fell by 8% due to the continuing weak domestic market in Australia. A new sales office was opened in Indonesia and a second is in progress in Thailand. These remain sound decisions despite the short term impact of a weaker than normal palm oil harvest. 

 

Against the back drop of lower sales, the Chain division continued to make gains on the double digit margin milestone achieved in the prior year, with underlying adjusted operating profit increasing from 10.5% for the prior year to 11.4%.  Adjusted underlying operating profit of £7.3m was also marginally ahead (2014: £7.2m), on 7.0% lower sales. These gains result primarily from efficiencies made at the Germany facility following the transfer of the Bredbury business in the prior year and other smaller cost reduction projects. India continued to grow its underlying operating profit on the back of an improving mix and manufacturing efficiencies, despite sales being down 5%.

 

 

Torque Transmission

The Torque Transmission division also delivered improved operating profit and operating margins in difficult trading conditions with sales and orders down on the previous year. Underlying sales were down 6.4% (£1.4m) and the book to bill ratio in the period was 0.97.  

The picture for the individual Torque Transmission business units was mixed, with sales falls in five units partially offset by growth in the other three. Demand was good for our high value added Hi-Tec couplings and there were also signs of new activity in the Chinese market for our UK sourced products (gears and couplings). In our Westfield business, the materials handling sector also showed some comparative strength.

 

The underlying operating profit margin increased from 16% to 18% and underlying adjusted operating profit increased to £3.6m compared with £3.5m in the prior year. Both were achieved against the back drop of the fall in underlying sales noted above. Cost saving projects at all units have helped to ensure a lower breakeven point for the division. In Milnrow, a low margin gear production agreement came to an end, allowing the business to reduce costs in the second half and refocus effort and capital expenditure on higher margin product lines. Significant investment in new equipment at the Cardiff couplings facility will provide future efficiency gains as the machines enter production at the end of the second half.

 

Financial Review

 

	Underlying External Revenue		Adjusted Operating Profit		Adjusted Operating Margin
First half year	2015/16 £m	2014/15 £m	2015/16 £m	2014/15 £m	2015/16 %	2014/15 %
Chain	64.0	68.8	7.3	7.2	11.4	10.5
Torque Transmission	20.5	21.9	3.6	3.5	17.6	16.0
Head office costs	-	-	(3.0)	(3.0)	-	-
Total	84.5	90.7	7.9	7.7	9.3	8.5

 

The fall in underlying sales of 6.8% could have resulted in a fall of approximately £2.9m in operating profit had it not been for the benefit of cost reduction and margin enhancement projects that were successfully completed in the period. Against this back drop of uncertain trading conditions, there is a continued focus to identify areas to reduce costs and further reduce the breakeven point for the Group. At the same time the Group is working hard to protect attractive investment opportunities and also to keep positioning the Group for the Organic Growth Phase of the Strategic Plan.

 

Exceptional items

During the period, we announced the restructuring of our Milnrow and Australian facilities, responding to the end of an agreement for a low margin gear product and the continuing weakness in the local market respectively. Exceptional redundancy and restructuring costs of £0.5m arose as a result.

 

The Group also relocated to new Head Office premises. This move will generate cost savings in excess of £0.1m per annum with costs incurred during the relocation of £0.3m. The total exceptional charges of £0.8m (2014: £0.6m) are detailed further in Note 4 to the Interim Financial Statements.

 

Financing

In May 2015 the Group completed an amendment and extension to its core banking facilities. This delivered an important foundation for the next phases of the Strategic Plan. The revised facilities give the Group access to longer term financing that matures in 2020, a flexible £20.0m accordion facility that can be used for major investments or strategically aligned opportunistic bolt-on acquisitions, and also lowers the cost of financing the Group's net debt. External financing costs in the period fell to £0.8m (2014: £0.9m).

 

 

Cash Flow and Net Debt

 

Half year to 30 September	2015/16 £m	2014/15 £m
Adjusted Operating Profit	7.9	7.5
Add back depreciation and amortisation	2.8	2.6
Adjusted EBITDA	10.7	10.1
Net Working Capital movement	(2.5)	(0.9)
Pension cash costs and administration costs	(2.3)	(2.4)
Movements in provisions	(0.7)	(1.9)
Other operating cash flows	(1.2)	(0.8)
Net cash flow from operating activities	4.0	4.1
Net capital expenditure	(5.2)	(2.7)
Net financing costs	(1.1)	(0.8)
Other net impacts on net debt	0.3	(0.1)
Impact of foreign exchange	(0.1)	(0.1)
Change in net debt	(2.1)	0.4
Net Debt (Note 11)	(21.6)	(24.4)

 

Cash of £6.3m was generated by operations before pension contributions and administration costs of £2.3m. Net debt in the period increased by £2.1m as a result of a significant increase in capital expenditure in the period which increased by £2.5m compared with the same period in the prior year. Financing cash costs increased in the period due to the upfront costs associated with the refinancing in May 2015. Working capital as a ratio of rolling 12 month revenue improved to a period end level of 17.6% (2014: 18.9%).

 

Pensions

 

The Group is responsible for a number of defined benefit pension schemes which it accounts for in accordance with IAS 19 Employee benefits.  The Group's retirement benefit obligations increased from £75.7m (£61.2m net of deferred tax) at 31 March 2015 to £76.0m (£61.6m net of deferred tax) at 30 September 2015. Whilst the net increase was small, the individual movements were significant. Weaker asset performance, and an increase in the inflation rate used to determine future pension liabilities in the UK, was offset by an increase in discount rates in the UK and Germany (3.7% and 2.4% respectively at 30 September 2015, compared with 3.3% and 1.4% respectively at 31 March 2015).

 

The aggregate expense of administering the pension schemes was £0.3m (2014: £0.3m) which is now included in operating costs but is excluded in arriving at adjusted operating profit as it relates to closed legacy pension schemes which bear no relation to the ongoing business and its performance. The net financing expense on pension scheme balances was £1.3m (2014: £1.2m). It is similarly excluded when calculating adjusted EPS.

 

During the period the Renold Pension Scheme completed a medically underwritten insured buy-in that fully de-risked approximately £25m (or 25%) of the current UK pensioner liabilities in respect of the highest liability pensioner members (35 members in total). The Scheme was able to secure the liabilities at a small discount to their assumed funding valuation. This transaction is approximately neutral from an accounting perspective as the insurance policy remains an asset of the Scheme. As a result, the transaction has no impact on the funding of the Scheme and did not require any additional contributions from the Group.

 

The Group also initiated a 'small pots' exercise which gave members an option to take advantage of recent changes in legislation that raised the limit for the size of pension pot that can be taken as a one-off lump sum. That exercise completed after the period end and resulted in a reduction in the membership of the scheme by 204 members (or approximately 6% of the membership at the start of the year). Since March 2012, membership of the UK schemes has fallen by 2,250 members (equivalent to 41% of the membership at that time).  Finally, in Australia, notice to terminate the existing defined benefit scheme was given and the liquidation process is progressing well. The scheme was in surplus when terminated and therefore there will be no additional cost for the Group when the final payments are made. The accounting impact is expected to be broadly neutral and will be included in the full year results.

 

Dividend

 

In light of the ongoing actions being taken to improve the performance of the business and the opportunities the Group has to invest in new capital equipment, the Board has decided not to declare an interim dividend. The dividend policy will remain under review as margin and cash flow performance continue to develop.

 

Going concern

 

The directors have a reasonable expectation that the business has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis in preparing the condensed consolidated interim financial information.

 

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 in the 2014/15 Annual Report and Accounts.  The exception to this is the specific risk regarding the Bredbury site closure which has now diminished significantly. These include macro-economic 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, foreign exchange rates have continued to be volatile. These have had a favourable translational impact on Group revenue and a similar impact on operating profit. Transactional foreign exchange losses of £0.2m were included in operating profit in the period. These impacts primarily reflect the weakening Euro being offset by the strengthening of the US Dollar since the same period in the prior year.  A similar impact is expected in the second half if exchange rates remain unchanged. Longer term differences in foreign exchange rates could impact the Group's ability to maintain competitive production prices in certain territories. However, the Group's business and assets are spread across multiple currencies and this provides a form of natural hedge against some currency risks as well as providing some opportunity to move production to different facilities to overcome potential foreign exchange disadvantages. In addition, the Group's treasury and foreign exchange hedging policies are designed to manage and mitigate residual risks in these areas.

 

The valuation of retirement benefit obligations can be significantly impacted by changes to the market based 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 more stable and subject to long term funding plans which are reviewed every three years.

 

Outlook

 

Trading conditions since the half year end have weakened across the Group with demand down in most regions. The actions already delivered and those now underway will allow the Group to partially offset the impact of the weaker demand. In the expectation that current trading patterns persist in the second half, the Board now expects full year adjusted operating profit to be around the lower end of current market forecasts.

 

Notwithstanding the comment above, the Group is pleased to have maintained positive momentum in margins, profits and earnings. The Group is working hard to continue to do the right things to protect capital and revenue investment in projects to support the medium term delivery of the STEP 2020 Strategic Plan rather than simply cost cutting to deliver short term gains at the expense of the Group's future development.

 

The business remains engaged in a number of value adding projects that will further enhance manufacturing and business processes, reducing costs and making our service proposition more compelling for customers. We are positioning ourselves to create and exploit growth opportunities over the medium and longer term.

 

The recent improvements in the robustness of the business allowed the Group to take advantage of the opportunity to purchase the Aventics Tooth Chain business when it arose. That business is an excellent fit with the Strategic Plan and the acquisition is a clear sign that the Group can take advantage of good opportunities as they arise.

 

Statement of directors' responsibilities

 

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 as adopted by the European Union;

 

·      the interim management report includes a fair review of the information required by:

 

(a)      DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of interim financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

 

(b)      DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Group during that period; and any changes in the related party transactions described in the last annual report that could do so.

 

The directors of Renold plc are listed in the Annual Report for the year ended 31 March 2015. A list of current directors is maintained on the Group website at www.renold.com.

 

By order of the Board

  Robert Purcell                                     Brian Tenner

Chief Executive                                       Finance Director

16 November 2015                                 16 November 2015

 

 

RENOLD PLC

Condensed Consolidated Income Statement

for the six months ended 30 September 2015

 

			First half				Full year
	Note		2015/16 (unaudited) £m		2014/15 (unaudited) £m		2014/15 (audited) £m
Revenue	3		84.5		90.5		181.4
Operating costs before exceptional items			(76.9)		(83.3)		(166.4)
Operating profit before exceptional items			7.6		7.2		15.0
Exceptional items	4		(0.8)		(0.6)		(2.9)
Operating profit			6.8		6.6		12.1
Financing costs			(0.8)		(0.9)		(1.7)
Net IAS 19 financing costs			(1.3)		(1.2)		(2.5)
Discount on provisions			(0.1)		(0.1)		(0.2)
Net financing costs	5		(2.2)		(2.2)		(4.4)
Profit before tax			4.6		4.4		7.7
Taxation	6		(0.9)		(0.9)		(2.1)
Profit for the period			3.7		3.5		5.6
Attributable to:
Owners of the parent			3.6		3.4		5.5
Non-controlling interests			0.1		0.1		0.1
			3.7		3.5		5.6
Earnings per share	7
Basic earnings per share			1.6p		1.5p		2.5p
Diluted earnings per share			1.6p		1.5p		2.5p
Adjusted earnings per share			2.5p		2.3p		5.0p
Diluted adjusted earnings per share			2.5p		2.3p		5.0p

 

RENOLD PLC

Condensed Consolidated Statement of Comprehensive Income

for the six months ended 30 September 2015

 

	First half				Full year
	2015/16 (unaudited) £m		2014/15 (unaudited) £m		2014/15 (audited) £m
Profit for the period	3.7		3.5		5.6
Other comprehensive income/(expense) Items that may be reclassified to profit or loss in subsequent periods:
Net gains/(losses) on cash flow hedges taken to other comprehensive income	0.1		(0.2)		(0.2)
Foreign exchange translation differences	(3.1)		0.5		4.6
Foreign exchange differences on loans hedging the net investment in foreign operations	0.1		(0.1)		(0.6)
	(2.9)		0.2		3.8
Items not to be reclassified to profit or loss in subsequent periods:
Re-measurement (losses) on retirement benefit obligations	(0.7)		(5.8)		(15.1)
Tax on re-measurement losses/(gains) on retirement benefit obligations	(0.6)		0.9		3.4
	(1.3)		(4.9)		(11.7)
Other comprehensive income/(expense) for the period, net of tax	(4.2)		(4.7)		(7.9)
Total comprehensive income/(expense) for the period, net of tax	(0.5)		(1.2)		(2.3)
Attributable to:
Owners of the parent	(0.6)		(1.3)		(2.4)
Non-controlling interests	0.1		0.1		0.1
Total comprehensive expense for the period	(0.5)		(1.2)		(2.3)

 

RENOLD PLC

Condensed Consolidated Statement of Financial Position

as at 30 September 2015

 

	Note	30 September 2015 (unaudited) £m		30 September 2014 (unaudited) restated £m		31 March 2015 (audited) £m
Assets Non-current assets
Goodwill		21.4		20.1		21.9
Other intangible fixed assets		6.5		6.5		6.1
Property, plant and equipment		40.9		38.2		39.7
Investment property		-		1.3		-
Other non-current assets		-		0.2		-
Deferred tax assets Retirement benefit surplus	8	16.5 0.1		15.1 0.5		17.3 0.2
		85.4		81.9		85.2
Current assets
Inventories		36.0		38.1		35.8
Trade and other receivables		28.1		29.0		30.6
Derivative financial instruments		0.1		-		-
Cash and cash equivalents	11	12.2		10.6		12.6
		76.4		77.7		79.0
Non-current asset classified as held for sale		1.4		1.5		1.4
		77.8		79.2		80.4
Total assets		163.2		161.1		165.6
Liabilities
Current liabilities
Borrowings	11	(1.9)		(0.7)		(0.7)
Trade and other payables		(33.4)		(35.9)		(36.6)
Current tax		(1.9)		(1.8)		(1.6)
Derivative financial instruments		-		(0.1)		(0.1)
Provisions		(2.2)		(1.7)		(2.1)
		(39.4)		(40.2)		(41.1)
Net current assets		38.4		39.0		39.3
Non-current liabilities
Borrowings	11	(31.4)		(33.8)		(30.9)
Preference stock	11	(0.5)		(0.5)		(0.5)
Trade and other payables		(0.7)		(0.3)		(1.1)
Deferred tax liabilities		(0.2)		(0.2)		(0.2)
Retirement benefit obligations	8	(76.1)		(69.1)		(75.9)
Provisions		(3.6)		(4.3)		(4.3)
		(112.5)		(108.2)		(112.9)
Total liabilities		(151.9)		(148.4)		(154.0)
Net assets		11.3		12.7		11.6
Equity
Issued share capital		26.6		26.6		26.6
Share premium		29.9		29.9		29.9
Currency translation reserve		(0.7)		(1.3)		2.3
Other reserves		1.1		1.0		1.0
Retained earnings		(48.3)		(46.1)		(50.8)
Equity attributable to owners of the parent		8.6		10.1		9.0
Non-controlling interests		2.7		2.6		2.6
Total shareholders' equity		11.3		12.7		11.6

 

RENOLD PLC Condensed Consolidated Statement of Cash Flows

for the six months ended 30 September 2015

 

	First half				Full year
	2015/16 (unaudited) £m		2014/15 (unaudited) £m		2014/15 (audited) £m
Cash flows from operating activities (Note 9)
Cash generated by operations	4.5		4.6		14.2
Income taxes paid	(0.5)		(0.5)		(1.4)
Net cash flows from operating activities	4.0		4.1		12.8
Cash flows from investing activities
Purchase of property, plant and equipment	(4.5)		(1.5)		(3.8)
Purchase of intangible assets	(0.7)		(1.2)		(1.7)
Net cash flows from investing activities	(5.2)		(2.7)		(5.5)
Cash flows from financing activities
Financing costs paid	(1.1)		(0.8)		(1.4)
Proceeds from borrowings	1.0		3.2		1.0
Repayment of borrowings	(0.5)		-		(1.1)
Net cash flows from financing activities	(0.6)		2.4		(1.5)
Net (decrease)/increase in cash and cash equivalents	(1.8)		3.8		5.8
Net cash and cash equivalents at beginning of period	12.2		6.6		6.6
Effects of exchange rate changes	(0.1)		(0.1)		(0.2)
Net cash and cash equivalents at end of period	10.3		10.3		12.2
Cash and cash equivalents (Note 11)	12.2		10.6		12.6
Overdrafts (included in borrowings - Note 11)	(1.9)		(0.3)		(0.4)
Net cash and cash equivalents at end of period	10.3		10.3		12.2

 

 

RENOLD PLC Condensed Consolidated Statement of Changes in Equity

for the six months ended 30 September 2015

 

	Share capital     £m	Share premium account   £m	Retained earnings     £m	Currency translation reserve   £m	Other reserves     £m	Attributable to equity holders of parent £m	Non-controlling interests   £m	Total equity     £m
Balance at  1 April 2014 (restated)	26.6	29.9	(44.6)	(1.7)	1.2	11.4	2.5	13.9
Profit for the year	-	-	5.5	-	-	5.5	0.1	5.6
Other comprehensive income	-	-	(11.7)	4.0	(0.2)	(7.9)	-	(7.9)
Total comprehensive income/(expense) for the year	-	-	(6.2)	4.0	(0.2)	(2.4)	0.1	(2.3)
Employee Share Options:
-    settled share based payment transactions	-	-	(0.2)	-	-	(0.2)	-	(0.2)
-    value of employee services	-	-	0.2	-	-	0.2	-	0.2
Balance at 31 March 2015	26.6	29.9	(50.8)	2.3	1.0	9.0	2.6	11.6
Profit for the period	-	-	3.6	-	-	3.6	0.1	3.7
Other comprehensive income	-	-	(1.3)	(3.0)	0.1	(4.2)	-	(4.2)
Total comprehensive income/(expense) for the period	-	-	2.3	(3.0)	0.1	(0.6)	0.1	(0.5)
Employee Share Options:        -    value of employee services	-	-	0.2	-	-	0.2	-	0.2
Balance at 30 September 2015	26.6	29.9	(48.3)	(0.7)	1.1	8.6	2.7	11.3
Balance at 1 April 2014 (restated)	26.6	29.9	(44.6)	(1.7)	1.2	11.4	2.5	13.9
Profit for the period	-	-	3.4	-	-	3.4	0.1	3.5
Other comprehensive income	-	-	(4.9)	0.4	(0.2)	(4.7)	-	(4.7)
Total comprehensive income/(expense) for the period	-	-	(1.5)	0.4	(0.2)	(1.3)	0.1	(1.2)
Balance at 30 September 2014	26.6	29.9	(46.1)	(1.3)	1.0	10.1	2.6	12.7

 

Notes to the Interim Condensed Consolidated Financial Statements

 

1      Corporate information

 

The interim condensed consolidated financial statements for the six months to 30 September 2015 were approved by the Board on 16 November 2015. 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 and the performance in the half year is set out in the Interim Management Report.

 

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 2015 have been filed with the Registrar of Companies.  The auditor's report on those accounts was unqualified, did not contain an emphasis of matter paragraph and 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 2015 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 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 2015.

 

        Except as described below, 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 2015.

 

Changes in accounting policy

 

The Group has adopted all applicable amendments to standards with an effective date from 1 April 2015. Adoption of these standards did not have any material impact on financial performance or position of the Group.

 

Restatements

 

As explained in the Annual Report for the year ended 31 March 2015 page 107, following a review of the tax base of the unfunded pension scheme in Germany, it was identified that the value of the tax base in relation to the pension deficit that had been used in calculating the deferred tax asset on the German pension deficit in 2014 was understated.

 

The effect of this restatement has been to reduce the closing recognised deferred tax asset by £4.2m as at 30 September 2014. The tax credit shown in other comprehensive income in the consolidated statement of comprehensive income in the prior year has been reduced by the same amount. The restatement has no impact on the current or prior year income statement, cash flows or earnings per share.

 

The restatement has been made in accordance with IAS 8, 'Accounting Policies, Changes in Accounting Estimates and Errors'. The effect of the restatement to the financial statements including the related impact on taxation is summarised below:

 

Restatements (continued)

 

	30 September 2014 Reported £m	Adjustment £m	30 September 2014 Restated £m
Balance Sheet
- Recognised deferred tax assets	19.3	(4.2)	15.1
- Total assets	165.3	(4.2)	161.1
- Net assets	16.9	(4.2)	12.7

 

Significant accounting judgements, estimates and assumptions

 

The preparation of these interim condensed consolidated financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were of the same type as those applied to the annual consolidated financial statements for the year ended 31 March 2015, namely;

·      assumptions used to evaluate potential impairment of non-financial assets;

·      recognition of deferred tax assets; and

·      assumptions used in the valuation of retirement benefit obligations.

 

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 2015.

 

3      Segment information

The Group is organised into business units according to the nature of their products and services. Having considered the management reporting and organisational structure of the Group, the directors have concluded that Renold plc has two reportable operating segments as follows:

·      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.

        No operating segments have been aggregated to form the above reportable segments. Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment.

 

 

The segment results for the period ended 30 September 2015 were as follows:

 

Period ended 30 September 2015	Chain £m		Torque Transmission   £m		Head office costs and eliminations £m		Consolidated     £m
Revenue
External revenue	64.0		20.5		-		84.5
Inter-segment	0.1		1.2		(1.3)		-
Total revenue	64.1		21.7		(1.3)		84.5
Adjusted operating profit/(loss)	7.3		3.6		(3.0)		7.9
Pension administration costs	-		-		(0.3)		(0.3)
Exceptional items	(0.1)		(0.4)		(0.3)		(0.8)
Segment operating profit/(loss)	7.2		3.2		(3.6)		6.8
Net financing costs							(2.2)
Profit before tax							4.6
Other disclosures
Working capital	26.0		9.6		(5.6)		30.0
Capital expenditure	3.1		1.2		0.9		5.2
Depreciation and amortisation	1.6		0.5		0.7		2.8

 

 

The segment results for the period ended 30 September 2014 were as follows:

 

Period ended 30 September 2014	Chain     £m		Torque Transmission   £m		Head office costs and eliminations £m		Consolidated     £m
Revenue
External revenue	69.3		21.2		-		90.5
Inter-segment	0.1		2.4		(2.5)		-
Total revenue	69.4		23.6		(2.5)		90.5
Adjusted operating profit/(loss)	7.1		3.4		(3.0)		7.5
Pension administration costs	-		-		(0.3)		(0.3)
Exceptional items	(0.5)		(0.1)		-		(0.6)
Segment operating profit/(loss)	6.6		3.3		(3.3)		6.6
Net financing costs							(2.2)
Profit before tax							4.4
Other disclosures
Working capital	27.4		9.2		(5.7)		30.9
Capital expenditure	1.3		0.3		1.1		2.7
Depreciation and amortisation	1.4		0.6		0.6		2.6

 

 

The Board also reviews the performance of the business using information presented at consistent exchange rates. The prior year results have been restated using this year's exchange rates as follows:

 

Period ended 30 September 2014	Chain £m		Torque Transmission   £m		Head office costs and eliminations £m		Consolidated     £m
Revenue
External revenue	69.3		21.2		-		90.5
Foreign exchange	(0.5)		0.7		-		0.2
Underlying external sales	68.8		21.9		-		90.7
Operating profit/(loss) before pension administration costs and exceptional items	7.1		3.4		(3.0)		7.5
Foreign exchange	0.1		0.1		-		0.2
Underlying profit/(loss) before  pension administration costs and exceptional items	7.2		3.5		(3.0)		7.7

 

The segment results for the year ended 31 March 2015 were as follows:

 

 

Year ended 31 March 2015	Chain £m		Torque Transmission   £m		Head office costs and eliminations £m		Consolidated     £m
Revenue
External revenue	138.3		43.1		-		181.4
Inter-segment	-		4.6		(4.6)		-
Total revenue	138.3		47.7		(4.6)		181.4
Operating profit/(loss) before pension administration costs and exceptional items	14.2		6.9		(5.6)		15.5
Pension administration costs	-		-		(0.5)		(0.5)
Exceptional items	(2.1)		(0.2)		(0.6)		(2.9)
Operating profit/(loss)	12.1		6.7		(6.7)		12.1
Net financing costs							(4.4)
Profit before tax							7.7
Other disclosures
Working capital	22.3		9.3		(3.0)		28.6
Capital expenditure	4.4		0.9		1.3		6.6
Depreciation and amortisation	3.0		1.1		1.2		5.3

 

The Board also reviews the performance of the business using information presented at consistent exchange rates. The prior year results have been restated using this year's exchange rates as follows:

 

Year ended 31 March 2015	Chain £m		Torque Transmission   £m		Head office costs and eliminations £m		Consolidated     £m
Revenue
External sales	138.3		43.1		-		181.4
Foreign exchange	(2.2)		0.6		-		(1.6)
Underlying external sales	136.1		43.7		-		179.8
Operating profit/(loss) before pension administration costs and exceptional items	14.2		6.9		(5.6)		15.5
Foreign exchange	(0.3)		0.2		-		(0.1)
Underlying adjusted operating profit/(loss)	13.9		7.1		(5.6)		15.4

 

 

 

 

 

4      Exceptional items

	First half				Full year
	2015/16 £m		2014/15 £m		2014/15 £m
Included in operating costs:
Impairment of software licences	-		0.2		0.2
Bredbury factory closure costs	-		0.3		0.2
Increase in onerous lease provision due to change in discount rate	-		-		0.5
Reorganisation and redundancy costs	0.5		0.1		0.8
Other impairment of investment property	-		-		1.2
Head office relocation costs	0.3		-		-
Net exceptional costs	0.8		0.6		2.9

 

During the period the Group head office was relocated to new premises. Costs of £0.3m were incurred including dilapidations and the cost of the move itself. The final costs were settled in cash in October and annual benefits in excess of £0.1m per annum will now be delivered.

 

At the Milnrow facility, a contract for the production of a low-margin product line was discontinued and a restructuring of the business was announced. In Australia, in response to continued weakness in the market, a further restructuring was also announced. In both cases more than 10% of the workforce were impacted and as a result, charges of £0.5m were recognised for future redundancy costs and a small inventory write off.

 

During the prior year, the Board concluded a review of the Group's Strategy for a single integrated Enterprise Resource Planning ('ERP') system.  As a result of this review, a number of licences for the previous ERP were written off.

 

Also, in the prior year, the group recognised an impairment charge of £1.2m in relation to an investment property located in Calais, France, writing down the value of the property to a net book value of nil.

 

The Bredbury factory closure costs incurred in the prior period primarily result from operational decisions to upgrade to new equipment or new processes following production transfers and these resulted in the write off of some additional machinery and stock. Details of the exceptional Bredbury closure and site onerous lease provision costs as reported in the full year 2014/15 can be found in the Group's annual consolidated financial statements for the year ended 31 March 2015.

 

 

 

 

5      Net financing costs

	First half				Full year
	2015/16 £m		2014/15 £m		2014/15 £m
Financing costs:
Interest payable on bank loans and overdrafts	0.7		0.8		1.4
Amortised financing costs	0.1		0.1		0.3
Discount on provisions	0.1		0.1		0.2
Total financing costs	0.9		1.0		1.9
IAS 19 financing costs	1.3		1.2		2.5
Net financing costs	2.2		2.2		4.4

 

 

 

6      Taxation

	First half				Full year
	2015/16 £m		2014/15 £m		2014/15 £m
Current tax:
- UK	-		-		-
- Overseas	0.7		0.7		1.4
	0.7		0.7		1.4
Deferred tax:
- UK	(0.1)		(0.1)		(0.3)
- Overseas	0.3		0.3		1.0
	0.2		0.2		0.7
Income tax expense	0.9		0.9		2.1

 

 

Changes to the UK corporation tax rates were announced in the Chancellor's Budget on 8 July 2015. These include reductions to the main rate from 20% to 19% from 1 April 2017 and 18% from 1 April 2020. As the changes had not been substantively enacted at the balance sheet date, their effects are not included in these financial statements. The overall effect of these changes, if they had applied to the deferred tax balance at the balance sheet date, would be to reduce the deferred tax asset by an additional £0.8m and increase the tax charge to the statement of comprehensive income for the period by £0.8m.

 

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.

 

 

7    Earnings per share

 

Basic earnings per share is calculated by dividing the profit for the period by the weighted average number of shares in issue during the period.  Diluted earnings per share takes into account the dilutive effect of the options and awards outstanding under the Group's employee share schemes. The calculation of earnings per share is based on the following data:

 

	First half				Full year
	2015/16 Pence per share		2014/15 Pence per share		2014/15 Pence per share
Basic EPS	1.6		1.5		2.5
Diluted EPS	1.6		1.5		2.5
Adjusted EPS	2.5		2.3		5.0
Diluted adjusted EPS	2.5		2.3		5.0
	£m		£m		£m
Profit/(loss) for calculation of adjusted EPS
Profit/(loss) for the financial period	3.6		3.4		5.5
Adjusted for exceptional items, after tax:
- Exceptional items in operating costs	0.8		0.6		2.9
- Exceptional tax charge	-		-
- Pension administration costs included in  operating costs	0.3		0.3		0.5
- Discount unwind on exceptional items	0.1		-		0.2
- Net pension financing costs	0.9		0.9		2.1
Profit for the calculation of adjusted EPS	5.7		5.2		11.2
	Thousands		Thousands		Thousands
Weighted average number of ordinary shares
For calculating basic earnings per share	223,065		223,065		223,065

 

Inclusion of the dilutive securities, comprising 3,222,000 (2014: 2,593,000 restated) additional shares due to share options and nil (2014: nil) additional shares due to warrants over shares, in the calculation of adjusted EPS does not change the amount shown above (2014: no change).

 

The adjusted earnings per share numbers have been provided in order to give a useful indication of the underlying performance of the business by the exclusion of exceptional items. Due to the existence of unrecognised deferred tax assets, there was no associated tax credit on some of the exceptional charges and in these instances exceptional costs are added back in full.

 

8      Retirement benefit obligations

 

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

 

	At 30 September 2015 £m		At 30 September 2014 £m		At 31 March 2015 £m
Funded plan obligations	(210.6)		(206.4)		(221.0)
Funded plan assets	157.6		162.6		171.3
Net funded plan obligations	(53.0)		(43.8)		(49.7)
Unfunded obligations	(23.0)		(24.8)		(26.0)
Total retirement benefit obligations	(76.0)		(68.6)		(75.7)

 

        Analysed as follows:

Non-current assets
Retirement benefit surplus	0.1		0.5		0.2
Non-current liabilities
Retirement benefit obligations	(76.1)		(69.1)		(75.9)
Net retirement benefit obligation	(76.0)		(68.6)		(75.7)
Net deferred tax asset (restated)	14.4		12.6		14.5
Retirement benefit obligation net of deferred tax	(61.6)		(56.0)		(61.2)

 

The increase in the Group's pre-tax liability from £75.7m at 31 March 2015 to £76.0m at 30 September 2015 primarily reflects asset returns being lower than expected due to a weakening in the performance of the equity and corporate bond markets. In addition, there was a small increase in the assumed rate of UK inflation (CPI) at 30 September 2015 (1.9% compared with 31 March 2015: 1.7%). This was offset by an increase in the yield on corporate bonds that in turn led to an increase in the discount rates being applied to the future pension liabilities. In the UK (which represents 82% of the total liabilities), the discount rate has risen by 0.4% from 3.3% at 31 March 2015 to 3.7% at 30 September 2015. The increase in deficit in the UK scheme was largely offset by a reduction in the deficit in the unfunded German scheme driven by the increase in the German discount rate from 1.4% at 31 March 2015 to 2.4% at 30 September 2015. The retirement benefit surplus is all in Australia.

 

9      Cash generated by operations

	First half				Full year
	2015/16 £m		2014/15 £m		2014/15 £m
Operating profit	6.8		6.6		12.1
Depreciation and amortisation	2.8		2.6		5.3
Impairment of intangible assets	-		0.2		0.2
Impairment of investment property	-		-		1.2
Proceeds from plant and equipment disposals	-		0.1		-
Equity share plans	0.2		-		-
(Increase)/decrease in inventories	(1.3)		(2.4)		0.7
Decrease/(increase) in receivables	1.6		0.5		(0.2)
(Decrease)/increase in payables	(2.8)		1.0		0.9
Decrease in provisions	(0.7)		(1.9)		(1.5)
Movement on pension plans	(2.0)		(2.1)		(4.4)
Movement on derivative financial instruments	(0.1)		-		(0.1)
Cash generated by operations	4.5		4.6		14.2

 

 

 

 

10    Reconciliation of the movement in cash and cash equivalents to movement in net debt

 

		First half						Full year
		2015/16 £m				2014/15 £m		2014/15 £m
	(Decrease)/increase in cash and cash equivalents		(1.8)		3.8			5.8
	Change in net debt resulting from cash flows		(0.5)		(3.2)			0.1
	Other non-cash movement		0.3		(0.2)			(0.3)
	Foreign currency translation differences		(0.1)		-			(0.3)
	Change in net debt during the period		(2.1)		0.4			5.3
	Net debt at start of period		(19.5)		(24.8)			(24.8)
	Net debt at end of period		(21.6)		(24.4)			(19.5)

 

 

11    Net Debt

 

	At 30 September 2015 £m		At 30 September 2014 £m		At 31 March 2015 £m
Cash and cash equivalents	12.2		10.6		12.6
Borrowings:
Bank overdrafts	(1.9)		(0.3)		(0.4)
Bank loans - current	-		(0.4)		(0.3)
Sub-total - current borrowings	(1.9)		(0.7)		(0.7)
Bank loans - non-current	(31.4)		(33.8)		(30.9)
Preference stock	(0.5)		(0.5)		(0.5)
Net debt	(21.6)		(24.4)		(19.5)

 

 

 

12    Post balance sheet events

 

Set out below is the Regulatory News Announcement of the Agreement to Purchase the tooth chain business of Aventics Gmbh as published on 17 November 2015.

 

Proposed acquisition of Aventics TC ("the Acquisition")

Renold, a leading international supplier of industrial chains and related power transmission products, is pleased to announce that it has signed a conditional sale and purchase agreement to acquire the business and trading assets of Aventics Tooth Chain ("Aventics TC"), an operating division of Aventics Gmbh based in Germany, for up to €6.3 million (£4.5 million) in cash.

 

The consideration (on a cash and debt free basis) will be satisfied by an initial payment of €4.8 million at completion followed by further expected payments of up to €1.5 million over the two year period following completion, contingent on achieving certain sales targets. All payments will be satisfied from the Group's existing banking facilities. Completion of the Acquisition is expected to occur after the statutory 'TUPE' consultation period with the employees in Germany and after certain carve out activities have been completed to separate the business from Aventics.

 

As a division of Aventics Gmbh, Aventics TC does not prepare separate audited accounts. Based on financial information obtained by Renold during the due diligence process, third-party sales in the year to 31 December 2014 were €7.5 million (£5.3 million). In addition, approximately €1.5 million (£1.0 million) of sales were delivered indirectly via other Aventics group companies and plans are in place to transition this indirect business to Renold as part of the post closing process. On a proforma basis, Aventics TC made an operating profit before exceptional items of €1.1 million (£0.8 million) in the year ended 31 December 2014. Gross assets at that date were €1.7 million (£1.2 million).

 

Renold anticipates that the Acquisition will be broadly neutral for adjusted earnings in the current financial year, as a result of the business separation costs to be incurred, but should be earnings enhancing thereafter. The Acquisition constitutes a Class 2 transaction for the purposes of the UK Financial Authority's Listing Rules and, as such, does not require Renold shareholders' approval.

 

Aventics TC

Aventics TC is the market leader in the manufacture of inverted tooth chain for industrial applications. Tooth chain is a specialist product not currently manufactured by Renold and is typically seen in applications such as bottling plants and other manufacturing facilities and equipment. The business employs 65 people and operates from a self-contained rented facility in Gronau, Lower Saxony with its own dedicated manufacturing, engineering and sales teams. Two thirds of Aventics TC sales are currently made in Germany with the balance of sales being made in a wide range of international territories including other western European countries, the USA and China. The business operates as a niche division of Aventics Gmbh which specialises in pneumatics equipment and shares certain sales and back office processes with the Aventics Group as a whole.

 

Benefits of the acquisition

Through the Acquisition of Aventics TC, Renold will gain access to a high value-added product not currently part of the Renold offering. Renold expects to expand sales through the existing Renold global sales presence and network which will allow access to a much wider geographical market than currently. In addition, as the factory is close to Renold's plant in Einbeck, Germany, the business will be able to share expertise and some infrastructure services within the more substantial Renold Group.

 

Ends

 

This information is provided by RNS

The company news service from the London Stock Exchange

 

  END

 

 

IR GGGCCGUPAGQQ