Final Results

Renold PLC 13 June 2005 13 June 2005 RENOLD plc 2005 PRELIMINARY RESULTS Renold plc, a leading international supplier of industrial chains and related power transmission products, automotive cam drive systems and machine tools and rotors, today announces its preliminary results for the year ended 31 March 2005. Summary • Turnover at £197.0 million (2004: £192.1 million). • Operating profit (before goodwill and exceptional items) was £3.7 million (2004 restated: £7.6 million); reported operating loss of £4.2 million (2004 restated: profit £8.6 million). • Pre-exceptional profit before tax at £1.1 million (2004 restated: £3.7 million); reported loss before tax £6.8 million (2004 restated: profit £4.7 million). • Steel prices, up 40% year on year, had major impact on second half profitability. • Integration of Sachs Automotive France SAS, acquired in March 2005, proceeding as envisaged. • Adjusted earnings per share were 1.4 pence (2004 restated: 4.5 pence); basic loss per share 7.5 pence (2004 restated: earnings 6.8 pence). • Board propose not to pay a final dividend due to reduced earnings and cash needed to fund restructuring activities. Dividend for year 1.5 pence, paid as interim (2004: 4.5 pence). • Net debt £17.0 million (2004: £19.2 million). • Continuing strategic review targeting a more tightly focused business with substantially lower cost base and reduced borrowings. Prospects Roger Leverton, Chairman of Renold plc, said today: 'Overall the external economic environment remains difficult. The major restructuring activities under way, together with action on prices to recover steel and other cost increases, should lead to a recovery in margin as the year progresses. The recent weakening of the Euro against the Dollar, if maintained, will also be a positive factor for the Group.' 13 June 2005 RENOLD plc Chairman: Roger Leverton Preliminary Results for the Financial Year ended 31 March 2005 FINANCIAL SUMMARY 2005 2004 restated £m £m Turnover 197.0 192.1 Operating (loss)/profit (4.2) 8.6 Operating profit before goodwill amortisation and exceptional items 3.7 7.6 Profit before tax, goodwill amortisation and exceptional items 1.1 3.7 (Loss)/profit before tax (6.8) 4.7 Basic and diluted (loss)/earnings per share (7.5)p 6.8p Adjusted earnings per share (adjusting for the after tax effects of goodwill and exceptional items) 1.4p 4.5p Dividends per ordinary share, paid or proposed 1.5p 4.5p Capital expenditure 7.6 7.2 Net debt 17.0 19.2 GROUP RESULTS AND DIVIDEND After an encouraging start the outcome for the financial year 2005 was disappointing with an operating profit before goodwill and exceptional items of £3.7 million, compared with £7.6 million (restated) in 2004 on sales of £197.0 million (2004: £192.1 million), up 6% at constant exchange rates. Steel price increases had a major effect in the second half of the year with the Group experiencing an average year on year increase of some 40% in costs. Steel represents the major part of raw material cost for the Group and whilst sales prices are being increased, it is proving difficult to fully recover these cost increases, particularly from OEM customers. Continuing weakness of the US Dollar also had an adverse impact on performance as did slowing volumes in the automotive business. The power transmission segment saw growth in North America but weak market conditions persisted in Europe. Development of the Group's activities in China continued with further contracts won and an increase in the number of local employees. The machine tool and rotor business continued to progress and generated an operating profit of £0.6 million, up from £0.3 million in 2004 on improved sales levels. The Board's continuing strategic review of the Group and its constituent parts is targeting a more tightly focused business with a substantially lower cost base and a reduced level of borrowings. The process of outsourcing production to lower cost economies is ongoing and the rationalisation of the Burton conveyor chain facility has already been announced and is well advanced. The Board will keep shareholders informed as these plans move forward. Overall the Group recorded a pre tax loss of £6.8 million compared with a profit of £4.7 million (restated) in 2004. This loss was after providing £3.2 million for the rationalisation of the Burton conveyor chain facility and the creation of a UK service centre. In addition there was a £2.4 million goodwill impairment charge relating to the Jones & Shipman acquisition following a specific review conducted in the second half of the year. In March the Group completed the acquisition of Sachs Automotive France SAS from ZF Sachs AG. This facility, which is located at Saint Simeon de Bressieux in South East France, provides a platform for a European aftermarket business for automotive chain products together with assets and technology which will enhance the development of the existing OEM activity. Following acquisition the unit has been renamed Renold SAF SAS and is currently being restructured as envisaged. Group borrowings ended the year at £17.0 million compared with £19.2 million the previous year after including cash of £9.7 million acquired with the Sachs business, which will primarily fund the anticipated costs of restructuring that business. Revised bank borrowing facilities have been agreed. Dividend Given this year's reduction in earnings and operational cashflow, together with the cash requirements of funding restructuring activities, the Board believes it is prudent to recommend that no final dividend be paid for this year. The interim dividend of 1.5 pence per share paid on 28 January 2005 would therefore be the total dividend for the year. The Board will consider future dividend policy in the light of results. Prospects Overall the external economic environment remains difficult. The major restructuring activities under way, together with action on prices to recover steel and other cost increases, should lead to a recovery in margin as the year progresses. The recent weakening of the Euro against the Dollar, if maintained, will also be a positive factor for the Group. CHIEF EXECUTIVE'S REVIEW The last 12 months have been difficult for Renold. Commodity prices, particularly steel, and exchange rate movements have caused significant input cost increases. These external events have adversely impacted all businesses but the chain businesses, whose products consist almost entirely of steel, have suffered the worst impact. The machine tool, gears and couplings businesses, where steel is a much smaller part of product cost, have managed to more than offset the increases through cost reduction programmes and price increases. The industrial and automotive chain operations have faced a much harder task than these project based businesses. The strength of the Euro has aggravated the problems faced by the chain businesses as the majority of production is European-based whereas the sales growth has come from Dollar-based economies. Steel prices appear to have stabilised, at levels some 40% higher than a year ago, however, it would be unwise to be dependent on any significant steel price reductions to restore adequate levels of profitability. It is imperative that the chain businesses bring the cost base in line with today's external environment and the Group is focused on this target. The majority of chain manufacturing still occurs in Europe. Over the coming year we will migrate some of this production to lower cost countries, particularly ones that also provide good growth opportunities. An automotive manufacturing facility has been established in Tennessee and this will ramp up during the year to provide a base for all US automotive and some high value industrial based contracts. To support custom and special chains in Europe, where close customer support is required, it is proposed to establish a new facility in Poland which will initially employ some 50 people. It is also proposed to establish a wholly owned manufacturing facility in China, on a greenfield site, to support a number of the Company's product lines. To accelerate our manufacturing presence in China we are in negotiations with a Chinese chain manufacturer with a view to a co-operation leading to Renold establishing a controlling interest. This opportunity will not only provide cost reduction but, more importantly, will provide better access to markets and customers in the Far East. In addition to these initiatives we will continue to drive Lean methodology in all the manufacturing units. There have been positive results from this during the past 18 months but further efficiencies should be achieved. Improved IT systems will also allow us to increase the efficiency of the European sales structure and enhance our customer service. Unfortunately these changes have caused us to announce the closure of our existing facility in Burton and to create a smaller service centre in the same locality. To date 120 job reductions have been announced in Europe, predominantly in the UK and Germany. The predicted growth in our French automotive facility should avoid the need for any loss of permanent positions at the plant in Calais. Despite the poor trading performance we have maintained the sales initiatives in countries that offer good growth prospects. In China a sales force of 12 has been built during the year and we expect this to increase steadily throughout the forthcoming year. Sales resource has also been added in the USA and this helped to deliver the growth achieved in North America. South America and Eastern Europe country managers have been added to drive growth in these countries. The programme of change within the Group will take time to fully implement and places a significant burden on the existing management teams. I should like to take this opportunity to thank these teams and all Renold employees for the positive and enthusiastic way they have responded to these challenges. OPERATIONS REVIEW Power Transmission - Chain The industrial chain business had a difficult year being severely impacted by steel price increases and the weakness of the US Dollar. Steel costs make up the vast majority of the material purchases for the Division and can be as high as 50% of the cost of sales. Although steel price increases varied, widely dependent on the grade, on average the year-on-year increase was over 40%. Prices to customers have been increased; however, these lagged behind the cost increases and did not enable the business to fully recover the raw material cost increases. Price recovery from major OEMs proved to be particularly difficult. The net impact of steel cost increases to the division was over £3.0 million. Further offset of increased raw material costs was achieved by the successful introduction of Lean manufacturing at all the Division's facilities and resulted in a reduction in labour costs greater than wage increases. Stock turns also improved by some 10% despite the adverse impact of significantly increased raw material costs. Product distribution is being centralised at two centres in Europe to allow better service to our customers as well as reducing inventory and distribution costs across Europe. This model will more closely match the successful structure already in place in the USA. Overhead cost reduction actions were implemented during the year. The closure of the Burton facility was announced with production moving to other Renold facilities and being outsourced. Within Europe, a facility is planned for Poland; this should be in operation in 2005/06. Further outsourcing is planned going forward. Negotiations are under way with a Chinese manufacturer with the objective of establishing a Renold-owned manufacturing capability in the country. This will allow better penetration of Far East markets, in addition to additional cost reduction opportunities. Sales, excluding price increases, were ahead of the previous year with North America being the strongest territory. Demand in the USA was for both product manufactured at the Jeffrey Chain facility, in Tennessee, and product manufactured in Europe. This growth was driven by increased sales resource and a stronger position with the major North American distributors. The weaker US Dollar understates this growth and had an adverse impact of over £0.5 million to the profitability of the chain business. Within Europe sales were flat with little sign of market growth and increasing competition from low cost suppliers. Some growth in Germany, Scandinavia and Switzerland was offset by weaknesses in the UK, Benelux and Austria. Asia Pacific, Australia and Malaysia showed growth, with the newly created Chinese sales subsidiary in Shanghai winning its first orders. Order growth largely matched the sales improvements with North America being the strongest contributor. Looking forward there appears to be a consensus that steel prices have plateaued but with scant evidence of any significant reductions. Cost reduction initiatives, in addition to pricing activity, should lead to more acceptable margins rather than any benefit from commodity prices or exchange rates. Power Transmission - Gears The gear business had a good year with a further increase in sales and profits. The division was particularly successful in China, winning major business from the growth in infrastructure projects. This, coupled with an increase in OEM business, led to an increase in orders of over 10%. The division's success is driven by providing creative and innovative design solutions to solve specific customer problems. This approach has allowed growth in the relatively flat markets of the UK and Germany. Input costs have suffered from large increases in steel and bronze commodity prices. These were more than offset by outsourcing components from low cost countries and the successful implementation of Lean manufacturing. The adverse impact of raw material price increases on stock was also offset leading to an improvement in stock turns. The division is well positioned to continue to show an improvement in the coming year. Power Transmission - Couplings During the year the businesses, based in Halifax, Cardiff and Westfield, were combined under a single management team to better exploit the sales and operational synergies. This integration has delivered good results with growth in sales and operating profit compared with last year. Order growth came mainly from North America but with prospects in Europe expected to materialize in the current financial year. Design release for the significant multi year contract for the Alstom/New York City Transit Authority was completed during the year, on schedule, and initial production has commenced. This contract will build up during 2005/06 and deliver significant volumes during the following two years. Sales growth also came from the steel industry where increased output and capacity provided a number of opportunities. Automotive The performance of the automotive operations was disappointing with a failure to achieve an improvement in sales or profits. Sales growth to the largest customer, GM, did not materialise due to lower end-customer demand in both Europe and the USA. The problem was aggravated by an increase in steel prices, which could not be passed on to the customer during the year. Although some efficiency gains were made these were not sufficient to offset the sales shortfall and steel price increases. With over 40% of the output being shipped to North America the strength of the Euro compared to the US Dollar had a further adverse impact of some £0.7 million. The new manufacturing facility based in Tennessee was established in December, and the first pre-production chain shipped to the customer, on schedule, at the end of March. Quality approval and first production shipments are expected ahead of schedule later in the year. This facility will eventually produce Cam Drive Systems for all Dollar-based contracts. In addition to this reduced currency exposure there are also cost and working capital benefits from the use of US-based manufacture and assembly. The new German facility in Einbeck, designed to relieve the capacity pressure on the Calais operation, was constructed and opened during the year. This is now assembling all chain and manufacturing components for VW. The transition has been successful with no disruption to the customer. Towards the end of the year Sachs Automotive France SAS was purchased for a nominal sum. This provides an entry into the aftermarket business. It also provides manufacturing equipment and resources that will support the Calais operation. The business is being kept separate from Renold Automotive Systems until the restructuring programme is complete, after which it will be fully integrated. Albeit a recent acquisition, to date it has met expectations. During the year the first contract from GM in Shanghai was awarded. In Shanghai, product shipments will commence at the end of 2005/06. In addition, a number of new customer programmes were commenced during the year. Programmes already awarded should result in a growth in sales of over 20% over the next two years based on customer forecasts. Machine Tool & Rotor The machine tool business had another year of profit improvement. Order levels at Jones & Shipman showed a significant increase over previous years with good growth coming from the USA, UK and France. The launch of the new Jones & Shipman Suprema machine, towards the end of the year, was successful and this is expected to give a further boost to the already strong order book. Holroyd machine tool orders did not reach expectations with a number of prospective customer orders being delayed by several months. This shortfall was somewhat offset by an increased demand for rotors and loose gears. Both Holroyd and Jones & Shipman suffered from increases in raw materials and utility costs; however, these were more than offset by outsourcing components from Eastern Europe and Asia. Jones & Shipman in particular has been successful in reducing costs by outsourcing a significant portion of major sub-assembly work. Recruitment of skilled machinists is becoming increasingly difficult and to address this issue the Apprentice Training Programme was rekindled at Holroyd. This scheme is designed to provide a flow of skilled, well-trained technicians for both the gears and machine tool divisions. It is expected that this investment will give excellent returns over the forthcoming years. FINANCIAL REVIEW Profit and Loss account Turnover was £197.0 million compared with £192.1 million the previous year. The Group operates in two sectors, power transmission and machine tool and rotor. Power transmission sales were 6% higher at constant exchange rates with growth in North America and Asia Pacific offset by lower domestic sales in the major industrial markets of the UK and France. Machine tool and rotor sales were 6% higher at constant exchange rates. Operating profit, before goodwill amortisation and exceptional items, was £3.7 million, compared with £7.6 million (restated) in 2004. The industrial power transmission and automotive businesses showed a reduction in operating profits reflecting the significant escalation in steel prices particularly during the second half of the year. The machine tool and rotor businesses recorded an operating profit of £0.6 million, ahead of the £0.3 million profit in 2004, reflecting the benefit of a reduced cost base and some improvement in activity in the machine tool and rotor business. Operating profit was lower in the UK, France, Germany and the rest of Europe. The reduction in France was primarily due to a weaker automotive performance while Germany and the UK it was mainly due to the surge in steel prices exacerbated by the weakness of the US Dollar. North American profit was up due to strong sales growth. Redundancy and restructuring costs were £4.3 million in the year, which included a provision of £3.2 million charged to cover the costs of the Burton site rationalisation announced in January 2005. The acquisition of Sachs Automotive France SAS (SAF) took place on 14 March 2005 and had no material impact on the trading operations of the Group in the year. However, a provision of £6.8 million was taken for restructuring the SAF business, offset by a release of negative goodwill arising from the acquisition. The return on average operating assets for the Group was 4.0% down from 8.6% (restated) last year; the power transmission businesses achieved 3.9% return on average operating assets as compared to 9.5% (restated) last year. Net interest payable was £2.2 million, compared with £2.3 million in 2004; other net finance costs of £0.4 million compared with £1.6 million in 2004 represents the FRS 17 net finance costs relating to retirement benefits. Profit before tax for the year before goodwill amortisation and exceptional items was £1.1 million compared with £3.7 million (restated) last year. The taxation credit of £1.6 million compares with a net taxation charge of nil (restated) in the previous year. The effective tax rate on profit before goodwill amortisation, goodwill impairment, exceptional redundancy and restructuring costs and property sales was 30% compared with 30% in 2004. Reported loss after tax was £5.2 million compared with a profit of £4.7 million (restated) last year. Excluding goodwill amortisation and exceptional items, this represented earnings per share of 1.4 pence, compared with 4.5 pence earnings per share (restated) last year. Balance sheet Goodwill stands at £14.7 million after an amortisation charge of £1.2 million in the year and an exceptional impairment charge of £2.4 million relating to the acquisition of Jones & Shipman, which follows a strategic review of that business. Negative goodwill was £4.5 million, after a release of £6.8 million, resulting from the SAF acquisition. Group operating assets at the year end of £93.5 million were 6% above last year. Fixed assets at £49.5 million were £2.5 million higher after including £3.1 million for SAF acquired in March 2005. Capital additions totalled £7.6 million compared with £7.2 million last year; the depreciation charge was £8.7 million compared with £8.8 million last year. New investment was mainly in the Automotive Systems business, in France and Germany, and the German and UK industrial chain manufacturing businesses. Shareholders' funds were £40.3 million at the year end (last year £57.9 million (restated)) after deducting the FRS 17 pension deficit of £41.3 million. Cash flow and borrowings Cash flow from operating activities was £6.6 million which compared with £9.2 million the previous year. Working capital was higher by £2.4 million compared with an increase of £3.4 million in 2004 (restated); stocks unchanged from the previous year (excluding SAF); debtors increased by £5.9 million reflecting higher sales levels in the final quarter and creditors increased by £3.5 million. Payments for fixed assets amounted to £8.0 million, whilst tax and dividend payments were £4.2 million. After exchange differences and the cash acquired with SAF there was a net cash inflow of £2.2 million, reducing year-end borrowings to £17.0 million. This represented 21% of shareholders' funds before the pension deficit (last year 22% (restated)). Treasury and financial instruments The Group treasury policy, approved by the directors, is to manage its funding requirements and treasury risks without undertaking any speculative risks. The Group does not use financial derivatives to hedge currency translation exposure on its investments in overseas subsidiaries. Except for the arrangements referred to below for the management of foreign currency and interest rate risks, the Group has not made use of financial derivatives. The Group's net debt of £17.0 million at 31 March 2005 is represented by gross debt of £33.7 million less cash and short term deposits of £16.7 million. At 31 March 2005 the Group had 43% of its gross debt at fixed interest rates. Cash deposits are placed short term with banks where security and liquidity are the primary objectives. Revised borrowing facilities have been agreed with the Group's principal bankers. A major exposure of the Group relates to currency risk on its sales and purchases made in foreign (non-functional) currencies, and to reduce such risks these transactions are covered, as commitments are made, primarily by forward foreign exchange contracts. Such commitments generally do not extend more than six months beyond the balance sheet date, although exceptions can occur where longer term projects are entered into. Pension accounting In a change of accounting policy, FRS 17 - Retirement Benefits has been adopted in the second half of the year; detailed disclosures are given in note 15 on the Accounts. The deficit has increased to £41.3 million from £30.7 million last year despite the recovering performance of equity markets in the year mainly due to changes in mortality assumptions. FRS17 calculations are very susceptible to short term changes in equity values, discount and interest rates. International Financial Reporting Standards ('IFRS') For the year ending 31 March 2006 the Group will be required to report its financial results in accordance with IFRS. The conversion process from reporting in accordance with UK GAAP to reporting under IFRS is ongoing. The interim results for the period to 30 September 2005 will be reported under IFRS. ________________________________________________________________________________ Annual Report to be published 22 June 2005 Annual General Meeting 21 July 2005 Annual Report: This preliminary announcement does not form the Group's statutory accounts. The figures shown in this release have been extracted from the Group's full financial statements which, for the year ended 3 April 2004 have been delivered, and for the year ended 31 March 2005, will be delivered to the Registrar of Companies. Both carry an unqualified audit report. The financial statements for the year ended 31 March 2005 have been prepared in accordance with applicable accounting standards, using the same accounting policies as set out in the Annual Report for the year ended 3 April 2004, with the exception of the adoption in the year of Financial Reporting Standard 17 'Retirement Benefits'. Comparative information has been restated accordingly. The preliminary announcement was approved by the Board on 13 June 2005. For further information, please contact: Bob Davies, Chief Executive 13 June 2005 Telephone: 020 7067 0700 Tony Brown, Finance Director Renold plc Thereafter Telephone: 0161 498 4500 Terry Garrett/Stephanie Badjonat Weber Shandwick Square Mile Telephone: 020 7067 0700 RENOLD PLC PRELIMINARY RESULTS Group Profit and Loss Account ________________________________________________________________________________ for the financial year ended 31 March 2005 2005 2004 restated £m £m Turnover 197.0 192.1 Operating costs - normal operating costs (193.3) (184.5) - goodwill amortisation (1.2) (1.3) - impairment of goodwill (2.4) - exceptional redundancy and restructuring costs - continuing operations (4.3) (0.5) - exceptional redundancy and restructuring costs - acquisition: Charges for redundancy and restructuring (6.8) Release from negative goodwill 6.8 _______ - exceptional gain on disposal of property held for sale 2.8 _________ ________ (201.2) (183.5) _________ ________ Operating (loss)/profit (4.2) 8.6 Net interest payable (2.2) (2.3) Other net finance costs (0.4) (1.6) _________ ________ (Loss)/profit on ordinary activities before tax (6.8) 4.7 Taxation 1.6 _________ ________ (Loss)/profit for the financial year (5.2) 4.7 Dividends (including non-equity) (1.1) (3.2) _________ ________ (Loss)/retained profit for the year (6.3) 1.5 ========= ======== Basic and diluted (loss)/earnings per share (7.5)p 6.8p Adjusted earnings per share 1.4p 4.5p The impact of the acquisition, which was made on 14 March 2005, was not material to the continuing trading operations of the Group, other than in respect of the exceptional redundancy and restructuring costs, disclosed above, which reflect the cost of the post-acquisition restructuring and integration of the new subsidiary and the associated release of negative goodwill arising from the acquisition. All other amounts relate to continuing operations. RENOLD PLC PRELIMINARY RESULTS Group Balance Sheet ________________________________________________________________________________ as at 31 March 2005 Group 2005 2004 restated £m £m Fixed assets Intangible assets - Goodwill 14.7 18.8 - Negative goodwill (4.5) ________ ________ Net goodwill 10.2 18.8 Tangible assets 49.5 47.0 ________ ________ 59.7 65.8 ________ ________ Current assets Stocks 47.3 47.0 Debtors 51.6 41.5 Cash and short-term deposits 16.7 8.9 ________ ________ 115.6 97.4 Creditors - amounts falling due within one year Loans and overdrafts (20.6) (12.1) Other creditors (46.3) (44.4) ________ ________ Net current assets 48.7 40.9 ________ ________ Total assets less current liabilities 108.4 106.7 Creditors - amounts falling due after more than one year Loans (12.7) (15.5) Other creditors (1.2) (1.4) Provisions for liabilities and charges (12.9) (1.2) ________ ________ Net assets excluding pension liability 81.6 88.6 Pension liability (41.3) (30.7) ________ ________ Net assets including pension liability 40.3 57.9 ======== ======== Capital and reserves (including non-equity interests) Called up share capital 17.9 17.9 Share premium 6.0 6.0 Profit and loss account 16.4 34.0 ________ ________ Shareholders' funds 40.3 57.9 ======== ======== RENOLD PLC PRELIMINARY RESULTS Extracts from the Group Cash Flow Statement _________________________________________________________________________________ for the financial year ended 31 March 2005 2005 2004 £m £m £m £m Net cash inflow from operating activities 6.6 9.2 Servicing of finance (2.1) (3.3) Taxation (1.0) (1.6) Capital expenditure and financial investment - Purchase of tangible fixed assets (8.0) (6.0) - Proceeds from disposal of property held for sale 5.1 ________ ________ (8.0) (0.9) Acquisition - Purchase of subsidiary undertaking (0.1) - Net cash acquired with subsidiary undertaking 9.7 ________ 9.6 Equity dividends paid (3.2) (3.2) ________ ________ Net cash inflow before use of liquid resources and financing 1.9 0.2 Management of liquid resources Transfers (to) short-term deposits (9.5) (1.0) Financing Increase/(decrease) in debt and lease financing 2.3 (6.4) ________ ________ (Decrease) in cash in the year (5.3) (7.2) ======== ======== Reconciliation of net cash flow to movement in net debt (Decrease) in cash in the year (5.3) (7.2) Cash flow from (increase)/decrease in debt and lease financing (2.3) 6.4 Cash flow from increase in liquid resources 9.5 1.0 _______ ________ Change in net debt resulting from cash flows 1.9 0.2 New finance leases (0.5) Other non-cash changes (0.1) (0.1) Exchange translation difference 0.4 2.1 ________ ________ Movement in net debt in the year 2.2 1.7 Net debt at beginning of year (19.2) (20.9) ________ ________ Net debt at end of year (17.0) (19.2) ======== ======== RENOLD PLC PRELIMINARY RESULTS Notes on the Accounts for the financial year ended 31 March 2005 1. Analysis of activities (a) Activities classified by business segment: 2005 2004 restated Turnover Operating Operating Turnover Operating Operating loss assets profit assets £m £m £m £m £m £m Power transmission 177.3 3.1 80.5 174.2 7.3 76.9 Machine tool and rotor 21.7 0.6 13.0 20.7 0.3 11.3 _____________________________________________________________________ 199.0 3.7 93.5 194.9 7.6 88.2 Less: Inter activity sales (2.0) (2.8) Goodwill amortisation (1.2) (1.3) Impairment of goodwill (2.4) Exceptional redundancy and restructuring costs (4.3) (0.5) Redundancy and restructuring - acquisition (6.8) Add: Release from negative goodwill 6.8 Exceptional gain on disposal of property held for sale 2.8 _____________________________________________________________________ 197.0 (4.2) 93.5 192.1 8.6 88.2 ===================================================================== The exceptional redundancy and restructuring cost of £4.3 million is attributed to the power transmission segment (2004 - £0.3 million to the power transmission segment and £0.2 million to the machine tool and rotor segment). Of the total goodwill charge of £1.2 million, £1.0 million (2004 - £1.1 million) relates to the power transmission businesses and £0.2 million (2004 - £0.2 million) to the machine tool and rotor businesses. The impairment charge relates to the machine tool and rotor businesses. The charge and credit of £6.8 million both arise in relation to the power transmission businesses. The exceptional gain of £2.8 million reported in 2004 related to the disposal of a non-trading property held for sale. This property was part of the machine tool and rotor segment. (b) Activities classified by geographical region of operation: 2005 2004 restated Turnover Operating Operating Turnover Operating Operating loss assets profit assets £m £m £m £m £m £m United Kingdom 70.9 (0.4) 36.6 70.8 2.7 37.5 Germany 33.1 2.2 13.9 31.9 2.4 12.3 France 47.7 (1.7) 20.7 49.1 (0.6) 14.8 Rest of Europe 16.2 0.5 3.8 16.0 0.4 3.9 North America 50.3 2.6 13.6 49.2 2.2 13.2 Other countries 21.2 0.5 4.9 18.4 0.5 6.5 _____________________________________________________________________ 239.4 3.7 93.5 235.4 7.6 88.2 Less: Intra Group sales (42.4) (43.3) Goodwill amortisation (1.2) (1.3) Impairment of goodwill (2.4) Exceptional redundancy and restructuring costs (4.3) (0.5) Redundancy and restructuring - acquisition (6.8) Add: Release from negative goodwill 6.8 Exceptional gain on disposal of property held for sale 2.8 _____________________________________________________________________ 197.0 (4.2) 93.5 192.1 8.6 88.2 ===================================================================== The exceptional cost of £4.3 million arises £3.3 million in the UK (2004 - £0.2 million), £0.1million in North America (2004 - £0.3 million), £0.4 million in Germany, £0.2 million in France, £0.2 million in the Rest of Europe and £0.1 million in Australia. The goodwill amortisation and the impairment charge are attributed to business acquisitions in North America. The charge and credit of £6.8 million relate to the post acquisition restructuring and integration of the SAF business in France. Turnover by geographical region includes intra group sales as follows: United Kingdom £27.3 million (2004 - £29.1 million), Germany £12.8 million (2004 - £11.4 million) and France £1.8 million (2004 - £2.1 million). Operating assets comprise fixed assets, current assets less creditors but exclude net goodwill, cash, borrowings, dividends, current and deferred corporate tax, finance lease obligations, other provisions for liabilities and charges and pension liabilities. (c) Geographical analysis of external turnover by market area: 2005 2004 £m £m United Kingdom 25.9 24.4 Germany 25.1 25.4 France 10.0 9.2 Rest of Europe 34.4 36.8 North and South America 70.9 70.1 Other countries 30.7 26.2 ________ ________ 197.0 192.1 ======== ======== 2. Earnings per share Earnings per share is calculated by reference to the earnings for the year and the weighted average number of shares in issue during the year as follows: 2005 2004 restated Weighted Weighted average Per- average Per- number of share number of share Earnings shares amount Earnings shares amount £m Thousands Pence £m Thousands Pence Basic EPS Earnings attributed to ordinary shareholders (after preference dividends) (5.2) 69,328 (7.5) 4.7 69,313 6.8 Effect of dilutive securities: Employee share options 332 299 ______________________________________________________________________ Diluted EPS (5.2) 69,660 (7.5) 4.7 69,612 6.8 ====================================================================== Adjusted EPS Basic EPS (5.2) 69,328 (7.5) 4.7 69,313 6.8 Effect of goodwill and exceptional items, after tax: Goodwill amortisation 0.8 1.2 0.8 1.2 Impairment of goodwill 2.4 3.5 Redundancy and restructuring costs 2.9 4.2 0.4 0.5 Redundancy and restructuring - acquisition 6.8 9.8 Release from negative goodwill (6.8) (9.8) Gain on disposal of property held for sale (2.8) (4.0) _____________________________________________________________________ Adjusted EPS 0.9 69,328 1.4 3.1 69,313 4.5 ===================================================================== Inclusion of the dilutive securities, shown above, in the calculation of adjusted EPS does not change the amounts shown of 1.4p (2004 - 4.5p). The adjusted earnings per share numbers have been provided in order to give a useful indication of underlying performance by the exclusion of goodwill and exceptional items. 3. Acquisition On 14 March 2005 the Group purchased Sachs Automotive France SAS ('SAF') for a cash consideration of one Euro. This purchase has been accounted for as an acquisition. An analysis of the acquisition is provided below. Net assets at date of acquisition: Book value Provisional Provisional fair fair value value to adjustments the Group £m £m £m Tangible fixed assets 2.4 0.7 3.1 Stocks 1.2 1.2 Debtors 3.2 3.2 Creditors (3.2) (3.2) Provisions (restructuring provision of £0.4 million included in book value) (1.2) (1.4) (2.6) Cash 9.7 9.7 _______ ________ _______ 12.1 (0.7) 11.4 ======= ======== Negative goodwill arising on acquisition (11.3) _______ Consideration - cash paid and costs 0.1 ======= Due to the proximity of the acquisition to the Group's year end, the fair value to the Group is assessed on a provisional basis. Revaluation adjustments in respect of tangible fixed assets comprise an open market valuation of freehold property, together with the write down of certain items of plant and machinery. Fair value provisions have been established in respect of environmental and dilapidation liabilities. The provisional assessment of fair value to the Group has indicated that no significant adjustments to net assets are necessary as a consequence of aligning SAF accounting policies with those of the Renold Group. Immediately prior to the acquisition of SAF by Renold, there was both a cash injection and forgiveness of inter-company loans by the former owners. In the last financial year prior to acquisition, which ran to 31 December 2004, SAF reported a pre-exceptional loss of Euros 3.9 million; the consideration given by Renold reflected the post acquisition restructuring envisaged to make SAF a viable business within the Renold Group. The cash flow impact is as follows: £m Costs associated with the acquisition (0.1) Net cash acquired 9.7 __________ Cash inflow on acquisition 9.6 ========== Having been acquired shortly before the Group's year end, the acquisition of SAF has not had a material impact on the continuing operating activities, subject to the reorganisation provision and negative goodwill release shown on the face of the profit and loss account. Following the acquisition, and prior to the year end, the Group established provisions amounting to £6.8 million representing the costs of integrating SAF into the Renold Group and the necessary restructuring required to turn SAF into a viable business as highlighted in the Stock Exchange announcement issued on the date of the acquisition. These costs have been matched by a release from the negative goodwill account, created on acquisition as the previous owners had provided the aforementioned cash injection to fund this restructuring programme. 4. Prior year adjustment Following the full adoption of Financial Reporting Standard 17 'Retirement Benefits' in the year, it has been necessary to restate certain comparative information. Provided below is a summary of the revisions arising from this change in accounting policy: £m Group profit and loss account Profit for the year ended 3 April 2004 as previously reported 5.4 Impact of adopting FRS 17: Reversal of pension charge made under SSAP 24 3.2 Charge for pension cost made in accordance with FRS 17 (3.3) Net finance costs in accordance with FRS 17 (1.6) Tax impact of the above changes 1.0 _______ Restated profit for the year ended 3 April 2004 4.7 ======= Had the former policy under Statement of Standard Accounting Practice 24 'Accounting for Pension Costs' continued through 2005, the loss for the year would have been approximately £2.0 million higher. Group balance sheet £m £m Net assets as at 3 April 2004 as previously reported 81.2 Adjustment to eliminate the SSAP 24 prepayment (6.4) Adjustment to remove the SSAP 24 pension provision (Provision for liabilities and charges) 11.8 Net adjustment to deferred tax balances (Provision £1.3 million, asset £0.7 million) 2.0 Adoption of FRS 17 - net deficit as at 3 April 2004 (30.7) ______ Net prior year adjustment (23.3) ______ Restated net assets as at 3 April 2004 57.9 ====== This information is provided by RNS The company news service from the London Stock Exchange

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