Half Year Results
Renold PLC
20 November 2007
Renold plc
('Renold' or the 'Group')
Results for the half year to 30 September 2007
Renold, a leading international supplier of industrial chains and related power
transmission products, today announces its interim results for the half year
ended 30 September 2007.
Key Highlights
• Successful first half, with performance meeting Board expectations
o 22% increase in adjusted earnings per share from continuing operations
o 7% revenue growth at constant exchange rates
• Board anticipates further performance improvement in second half
• PACE restructuring programme execution is ahead of schedule
• Renold Hangzhou progressing ahead of expectations
• Reduction in pension deficit of £5.6 million
• Next phase of strategic development initiated
Matthew Peacock, Chairman of Renold plc, said:
'Following a 22% increase in adjusted earnings per share from continuing
operations, and with the present order book higher than at the commencement of
the year, increased sales volumes and continuing actions to reduce costs, the
second half year should see further performance improvement.'
Financial Summary
Half year ended 30 September
2007 2006
£m £m
Continuing operations:
Revenue (+ 7% at constant exchange rates) 82.1 79.3
Operating profit 4.5 4.6
Operating profit before exceptional items 5.1 4.8
Operating profit at constant exchange rates (+19%) 5.7 4.8
Profit before tax and exceptional items 3.6 3.6
Profit before tax 3.0 3.4
Basic and diluted earnings per share 2.0p 2.4p
Adjusted* earnings per share 3.3p 2.7p
* Adjusting for the after tax effects of exceptional items and change in UK
corporate tax rate
Enquiries:
Renold plc 20 November Tel: 020 7457 2020
Bob Davies, Chief Executive Thereafter Tel: 0161 498 4500
Peter Bream, Finance Director
College Hill Tel: 020 7457 2020
Matthew Gregorowski/Nicholas Potter
20 November 2007
The results presentation will be available on the Company's website
www.renold.com at 9.30 a.m. on Tuesday 20 November.
Note to Editors:
Renold is a global leader in the manufacture of industrial chains and also
manufactures a range of gears and couplings which are sold throughout the world
to a broad range of original equipment manufacturers and distributors. Its
products are used in a wide variety of industries including manufacturing,
transportation, energy, steel, and mining. Renold has a well deserved reputation
for quality that is recognised worldwide.
The Group has 13 manufacturing plants throughout the world and employs 2,500
staff. It is currently expanding its geographical footprint by increasing its
manufacturing presence in 'low cost countries'.
Further information about Renold can be found on the Company's website
www.renold.com
Chairman's Statement
The results for the first half to 30 September 2007 are in line with the Board's
expectations, with a 22% increase in adjusted earnings per share from continuing
operations. Renold is in its strongest position for many years. The Executive
has delivered a solidly funded business and the restructuring programme is
progressing ahead of schedule, underpinned by the recent acquisition in China.
With the cost restructuring well underway there is now an increasing focus on
growth opportunities which will make up the next phase of its development.
Continuing Operations
Sales for the first half to 30 September 2007 were £82.1 million (2006/07: £79.3
million). At constant exchange rates sales were 7% ahead of last year.
Operating profit before exceptional items was £5.1 million (2006/07: £4.8
million), a 6.2% return on sales (2006/07: 6.1%). The £0.3 million improvement
was despite the £0.6 million impact from the adverse average US Dollar/GB Pound
exchange rate movement experienced during the period. On a constant exchange
rate basis the improvement was £0.9 million. Forward exchange contracts are in
place to beyond the end of the financial year-end to hedge the exposure to
future US Dollar/GB Pound exchange rate movements.
Net financing costs of £1.5 million (2006/07: £1.2 million) were higher
principally because of the increase in market interest rates. Financing
included a net charge of £0.1 million (2006/07: £0.1 million) relating to
pension plan balances.
The reported tax charge in the period was £1.6 million (2006/07: £1.7 million).
Excluding the £0.4 million tax charge resulting from the revaluation of the
deferred tax asset following the reduction in the UK corporate tax rate from 30%
to 28%, the effective rate was 40% (2006/07: 50%). Adjusted earnings per share
from continuing operations were up 22% to 3.3 pence (2006/07: 2.7 pence) and
basic earnings per share from continuing operations were 2.0 pence (2006/07: 2.4
pence).
Cash Flow and Borrowings
Cash absorbed by continuing operations was £1.5 million (2006/07: generated £1.1
million). The principal working capital movement was a planned net outflow on
payables of £7.1 million. Capital expenditure amounted to £2.5 million (2006/
07: £3.5 million). Additionally £2.2 million was paid in the period for the
acquisition of the business of Hangzhou Shanshui. This spend allowed us to cut
£4 million of budgeted capital expenditure.
Net borrowings, including finance lease obligations and preference shares, at 30
September 2007 were £27.8 million compared with £27.0 million at 30 September
2006 and £19.4 million at 31 March 2007.
Dividend
The Board has decided to recommend that no interim dividend be paid but it will
consider the payment of a dividend in the light of results for the year as a
whole.
Strategic Development
The recent focus for Renold has been on cost reduction and securing the platform
for global growth of its well regarded product range. Following the resolution
of a number of legacy issues, the achievement of financial stability, and the
initiation of a robust plan (PACE) to improve business efficiency further on
which we are making excellent progress, Renold is now able to initiate the next
phase of its strategic development.
The focus of this next phase will be to deliver future sales and margin growth.
This will be achieved by geographic expansion with existing products into those
markets in which we are presently under-represented and through the introduction
of new products manufactured in low cost countries to our core territories. We
estimate that we have a greater than 15% market share in our traditional markets
for industrial chain and less than 1% in the new markets which have aggregate
annual sales of £400 million. Our entry into new territories will be facilitated
by the Renold brand's reputation for performance and quality and the
availability of product from our expanding manufacturing operations in low cost
countries including Renold Hangzhou where capacity is planned to double by the
end of the financial year. New products will be delivered both from our
innovative engineering team and through a selective programme of infill
corporate acquisitions.
PACE (Profit and Cash Enhancement Programme)
The PACE programme continues to be on schedule and a further cost reduction of
£0.6 million is anticipated in the second half year which equates to an
additional 0.5 pence earnings per share in that period. At the period end 41%
of direct labour was in low cost countries compared to the original PACE target
of 40% by March 2009. Following the acquisition of Renold Hangzhou the target
was revised to 60% over the same time period. Negotiations with the works
council in Einbeck, Germany, are concluded and there will be a reduction of 70
jobs within the next 6 months. This production can now be accommodated following
the relocation to a larger manufacturing site in Poland which was completed in
July.
Cost savings, cash generation and capital expenditure remain in line with the
original plans. Risk reduction actions on exchange rate exposure and energy
prices are concluded. Progress has been made on normalising the tax rate, and
the assets held in the pension fund have been diversified.
Renold Hangzhou
In June we completed the acquisition of a 90% interest in Hangzhou Shanshui, a
chain manufacturer based in Hangzhou, China, 200 kilometres west of Shanghai.
Integration is proceeding ahead of expectations with output increased 20% from
pre-acquisition levels. The majority of £2 million of capital expenditure is
now committed which will double the capacity of the facility by March 2008. A
large part of this capital expenditure is sourced locally and represents
excellent value for money compared to what it would cost if sourced in Europe or
in the US. This important strategic acquisition underpins and reduces the
execution risk of PACE and provides a major growth opportunity in the domestic
Chinese market and into other parts of South East Asia.
Business Review
The business operated in an environment of relatively stable, albeit high, raw
material, utility and freight costs. At constant exchange rates sales grew by
7% over the first half of 2006/07 with growth predominantly in China, Europe and
the USA. Although the Board remains cautious about the outlook for the US
economy, sales in the US were ahead of last year and the order outlook has
strengthened since July of this year when we issued our first Interim Management
Statement. For the business as a whole, margins have been maintained despite the
impact of adverse exchange rates through volume increases plus continued
reductions in the cost base across the business. The Company continues to win
new business including the recently announced $14 million order from Alstom for
Phase 2 of the New York Mass Transit Authority contract.
Burton Site
Planning consent for mixed use development of the Burton-upon-Trent factory was
received on 25 June 2007. The Board expects the sale of the site to complete,
and the gross proceeds of £6.4 million to be received by Jan 5th.
Pensions
The gross pension deficit of £42.4 million shows a decrease of £5.6 million from
£48.0 million at 31 March 2007. This decrease is principally due to the
discount rate increasing to 5.9% as a result of market interest rate movements.
Risks and Uncertainties
The principal risks and uncertainties affecting the business activities of the
Group remain those detailed in the Annual Report for the year ended March 2007
which include exposure to the US Dollar/GB Pound exchange rate. To mitigate this
exposure, the Company has a policy of hedging currency exposure and has forward
exchange contracts in place beyond the end of the financial year. In the medium
term the expansion of manufacturing in China and a predominantly stable US
Dollar/Chinese Renminbi exchange rate presents a growing natural exchange rate
hedge as does the prospect of increasing US manufacturing.
Outlook
With the order book higher than at the commencement of the year, increased sales
volumes and continuing actions to reduce costs (PACE), the Board anticipates
that the second half year will see further performance improvement in line with
its expectations.
Furthermore, as the Group enters this next phase in its strategic development
predicated on delivering further sales and margin growth, the Board looks
forward to the future with confidence and enthusiasm.
RENOLD PLC
Interim Consolidated Income Statement
for the six months ended 30 September 2007 (unaudited)
First half Full year
Note 2007/08 2006/07 2006/07
£m £m £m
Continuing operations:
Revenue 3 82.1 79.3 159.3
Operating costs (77.6) (74.7) (155.4)
Operating profit 4.5 4.6 3.9
Operating profit before exceptional items 5.1 4.8 9.8
Exceptional items 4 (0.6) (0.2) (5.9)
Operating profit 4.5 4.6 3.9
Financial costs (7.5) (6.9) (13.9)
Financial revenue 6.0 5.7 11.4
Net financing costs 5 (1.5) (1.2) (2.5)
Profit before tax 3.0 3.4 1.4
Taxation 6 (1.6) (1.7) (0.6)
Profit for the period from continuing operations 1.4 1.7 0.8
Discontinued operations
Loss for the financial period from
discontinued operations 7 - (6.4) (13.5)
Profit/(loss) for the financial period 1.4 (4.7) (12.7)
Earnings per share 8
Basic earnings/(loss) per share 2.0p (6.8)p (18.3)p
Diluted earnings/(loss) per share 2.0p (6.8)p (18.1)p
Basic and diluted earnings per share from
continuing operations 2.0p 2.4p 1.2p
Adjusted earnings per share from continuing
operations* 3.3p 2.7p 8.4p
Diluted adjusted earnings per share from
continuing operations* 3.2p 2.7p 8.3p
*Adjusted for the after tax effects of exceptional items and the change in UK
corporate tax rate.
The notes on pages 10 to 17 form an integral part of this condensed consolidated
half-yearly financial information.
RENOLD PLC
Interim Statement of Recognised Income and Expense
for the six months ended 30 September 2007 (unaudited)
First half Full year
2007/08 2006/07 2006/07
£m £m £m
Profit/(loss) for the period 1.4 (4.7) (12.7)
Net income/(expense) recognised directly in equity:
Foreign exchange translation differences (0.9) (1.5) (4.8)
Gains/(losses) on fair value of hedging net investments
in foreign operations 0.3 (0.9) 0.9
Gains/(losses) on cash flow hedges taken to equity (0.1) - -
Actuarial gains/(losses) on retirement benefit
obligations 5.5 (3.5) 0.9
Tax on items taken directly to equity (2.1) 1.0 (1.2)
Total income and expense recognised directly in equity 2.7 (4.9) (4.2)
Total recognised income and expense for the period 4.1 (9.6) (16.9)
The notes on pages 10 to 17 form an integral part of this condensed consolidated
half-yearly financial information.
RENOLD PLC
Interim Consolidated Balance Sheet
as at 30 September 2007 (unaudited) Note At At At
30 September 2007 30 September 31 March
£m 2006 2007
£m £m
Assets
Non-current assets
Goodwill 15.5 15.9 15.2
Other intangible fixed assets 0.7 0.2 0.6
Property, plant and equipment 35.6 36.9 34.0
Investment property 1.6 - 1.6
Other non-current assets 0.4 0.3 0.4
Deferred tax assets 14.1 18.9 17.4
67.9 72.2 69.2
Current assets
Inventories 34.1 37.4 33.1
Trade and other receivables 30.0 26.0 30.1
Cash and cash equivalents 11 8.3 9.6 20.3
72.4 73.0 83.5
Asset held for sale 3.4 3.4 3.4
Assets of discontinued operations - 13.4 -
75.8 89.8 86.9
Total assets 143.7 162.0 156.1
Liabilities
Current liabilities
Borrowings 11 (6.4) (32.3) (7.8)
Trade and other payables (29.1) (27.3) (36.1)
Derivative financial instruments (0.1) (0.2) (0.1)
Provisions (5.0) (0.2) (5.2)
Current tax liabilities (0.2) (1.3) (0.6)
(40.8) (61.3) (49.8)
Liabilities directly associated with
discontinued operations - (6.9) -
(40.8) (68.2) (49.8)
Net current assets 35.0 21.6 37.1
Non-current liabilities
Borrowings 11 (29.2) (3.8) (31.4)
Preference shares 11 (0.5) (0.5) (0.5)
Trade and other payables (1.2) (1.3) (1.2)
Deferred tax liabilities (1.4) (0.8) (1.3)
Retirement benefit obligations 9 (42.4) (56.4) (48.0)
(74.7) (62.8) (82.4)
Total liabilities (115.5) (131.0) (132.2)
Net assets 28.2 31.0 23.9
Equity
Issued share capital 17.5 17.4 17.4
Share premium 6.2 6.1 6.1
Other reserves (2.0) 1.1 (1.2)
Retained earnings 6.5 6.4 1.6
Total shareholders' equity 10 28.2 31.0 23.9
The notes on pages 10 to 17 form an integral part of this condensed consolidated
half-yearly financial information.
RENOLD PLC
Interim Consolidated Cash Flow Statement
for the six months ended 30 September 2007 (unaudited)
First half Full year
2007/08 2006/07 2006/07
£m £m £m
Cash flows from operating activities (Note 11)
Cash (absorbed)/generated by operations - continuing (1.5) 1.1 10.3
Cash (absorbed)/generated by operations - discontinued - (6.3) (4.7)
(1.5) (5.2) 5.6
Income taxes paid (0.9) (0.6) (1.4)
Net cash from operating activities (2.4) (5.8) 4.2
Cash flows from investing activities
Acquisition of subsidiary (net of cash in subsidiary) (2.2) - -
Proceeds from disposal of businesses (net of cash - 3.8 5.4
transferred)
Purchase of property, plant and equipment (2.4) (3.5) (6.0)
Purchase of intangible assets (0.1) - (0.6)
Proceeds on disposal of property, plant and equipment - - 0.2
Interest received 0.1 - 0.2
Net cash from investing activities (4.6) 0.3 (0.8)
Cash flows from financing activities
Financing costs paid (1.5) (1.3) (3.0)
(Decrease)/increase in borrowings (0.7) (0.5) 6.1
Issue of ordinary shares 0.1 - 0.1
New obligations under finance leases 0.1 0.2 -
Payment of finance lease obligations - (0.3) (0.4)
Net cash from financing activities (2.0) (1.9) 2.8
Net (decrease)/increase in cash and cash equivalents (9.0) (7.4) 6.2
Net cash and cash equivalents at beginning of period 15.4 9.6 9.6
Effects of exchange rate changes 0.2 (0.3) (0.4)
Net cash and cash equivalents at end of period 6.6 1.9 15.4
In the balance sheet net cash and cash equivalents comprised:
Cash and cash equivalents 8.3 9.6 20.3
Overdrafts (included in borrowings - Note 11) (1.7) (7.7) (4.9)
6.6 1.9 15.4
The notes on pages 10 to 17 form an integral part of this condensed consolidated
half-yearly financial information.
Notes to the Interim Condensed Consolidated Financial Statements
1 Corporate information
The condensed consolidated interim financial statements for the six months to 30
September 2007 were approved by the Board on 20 November 2007. These statements
have not been audited or reviewed by the Group's Auditors pursuant to the
Auditing Practices Board guidance on the Review of Interim Financial
Information.
Renold plc is a limited liability company incorporated and domiciled in the
United Kingdom 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 Chairman's Statement.
These interim condensed consolidated financial statements do not constitute
statutory accounts of the Group within the meaning of Section 240 of the
Companies Act 1985. The statutory accounts for the year ended 31 March 2007
have been filed with the Registrar of Companies. The Auditors' report on those
accounts was unqualified, did not contain an emphasis of matter paragraph and
did not contain any statement under Section 237 of the Companies Act 1985.
2 Basis of preparation
The interim condensed consolidated financial statements for the six
months ended 30 September 2007 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. The
accounting policies used are consistent with those followed in the preparation
of the Group's annual financial statements for the year ended 31 March 2007.
However, the interim condensed consolidated financial statements do not include
all the information and disclosures required in the annual financial statements,
and should be read in conjunction with the Group's annual financial statements
as at 31 March 2007.
In the current financial year the Group has adopted IFRS 7, 'Financial
Instruments; Disclosures' and IAS 1, 'Capital Disclosures'. These mandatory
standards require additional disclosures that will be provided in the annual
financial statements but there is no impact on the disclosures required in these
interim condensed financial statements.
In addition, the Group has adopted the new interpretations applicable for this
period, namely IFRIC 8, 'Scope of IFRS 2', IFRIC 9, 'Reassessment of embedded
derivatives', IFRIC 10, 'Interim Financial Reporting and impairment' and IFRIC
11 , 'IFRS 2 - Group and treasury share transactions'. Adoption of these
interpretations did not have any effect on the financial position or performance
of the Group.
Of those new standards, amendments to standards and interpretations that have
been issued, but are not effective for the financial year ending 31 March 2008
and have not been early adopted by the Group, the following are noted as being
relevant. IFRIC 14, 'IAS 19 - The limit on a defined benefit asset, minimum
funding requirements and their interaction' is relevant to the Group but, in
view of the prevailing net obligation valuations, adoption is not expected to
impact the Group's financial position. IFRS 8, 'Operating segments' and IAS 1,
'Presentation of financial statements (Revised)' will not have an impact on the
Group's results or financial position but will affect the disclosure of
information in the Group's financial statements in future years. It is noted
that these three pronouncements remain subject to EU endorsement.
3 Segment information
The Group's continuing activities are in one class of business, Industrial Power
Transmission. The consolidated income statement for continuing operations
therefore relates wholly to the Industrial Power Transmission business.
The geographical analysis of revenue by market areas is as follows:
First half Full year
2007/08 2006/07 2006/07
£m £m £m
United Kingdom 10.2 10.1 19.6
Germany 6.7 7.8 14.9
Rest of Europe 19.3 18.4 37.5
North and South America 29.3 28.9 56.7
Other countries 16.6 14.1 30.6
82.1 79.3 159.3
4 Exceptional items
First half Full year
2007/08 2006/07 2006/07
£m £m £m
UK Burton conveyor chain factory restructuring - 0.2 0.3
PACE restructuring initiatives:
Reorganisation and redundancy costs 0.6 - 2.9
Exceptional inventory provision - - 2.7
0.6 0.2 5.9
During the period charges arising under the Profit and Cash Enhancement
initiative ('PACE') have been incurred principally in respect of redundancies in
Germany.
5 Net financing costs
First half Full year
2007/08 2006/07 2006/07
£m £m £m
Financial costs:
Interest payable on bank loans and overdrafts (1.5) (1.2) (2.6)
Interest cost on pension plan balances (6.0) (5.7) (11.1)
Costs associated with refinancing - - (0.2)
(7.5) (6.9) (13.9)
Financial revenue:
Interest receivable on bank deposits 0.1 0.1 0.2
Expected return on pension plan assets 5.9 5.6 11.2
6.0 5.7 11.4
Net financing costs (1.5) (1.2) (2.5)
6 Taxation
First half Full year
2007/08 2006/07 2006/07
£m £m £m
Current tax:
- UK - - -
- Overseas 0.4 1.0 1.3
0.4 1.0 1.3
Deferred tax:
- UK 0.4 - -
- Overseas 0.8 0.2 -
1.2 0.2 -
Income tax expense 1.6 1.2 1.3
Attributable to:
- Continuing operations 1.6 1.7 0.6
- Discontinued operations - (0.5) 0.7
1.6 1.2 1.3
Legislative changes, that are substantively enacted as at 30 September 2007,
have reduced the UK corporation tax rate from 30% to 28%. This has resulted in
a £0.4m deferred tax charge, due to the reduction in the value of the deferred
tax asset recognised in the UK.
7 Discontinued operations
In the year ended 31 March 2007 the Group disposed of its Automotive and Machine
Tool business segments. These were treated as discontinued operations in both
the comparative half year and full year statements. The results of the
discontinued operations are set out in the table below:
First half Full year
2007/08 2006/07 2006/07
£m £m £m
External revenue - 24.9 29.1
Operating loss before exceptional items - (2.7) (3.5)
Exceptional items - - 1.7
Operating loss - (2.7) (1.8)
Bank interest - (0.2) (0.2)
Loss before taxation - (2.9) (2.0)
Taxation - 0.5 -
Loss after taxation - (2.4) (2.0)
Adjustments to fair value less costs to sell and losses
on disposal
- (4.0) (10.8)
Taxation - - (0.7)
- (4.0) (11.5)
Loss for the period on discontinued operations - (6.4) (13.5)
8 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
2007/08 2006/07 2006/07
Pence per share Pence per Pence per share
share
Basic 2.0 (6.8) (18.3)
Diluted EPS 2.0 (6.8) (18.1)
Basic and diluted EPS from continuing operations 2.0 2.4 1.2
Adjusted EPS from continuing operations 3.3 2.7 8.4
Diluted adjusted EPS from continuing operations 3.2 2.7 8.3
£m £m £m
Continuing operations
Profit for the period 1.4 1.7 0.8
Discontinued operations
Loss from discontinued operations - (6.4) (13.5)
Continuing and discontinued operations 1.4 (4.7) (12.7)
£m £m £m
Profit for calculation of adjusted EPS for continuing
operations
Profit from continuing operations 1.4 1.7 0.8
Adjusted for:
(a) the after tax effects of exceptional items:
PACE restructuring initiatives 0.5 - 4.7
Redundancy and restructuring costs - 0.2 0.3
(b) deferred tax charge due to the change in
UK corporate tax rate 0.4 - -
2.3 1.9 5.8
Thousands Thousands Thousands
Weighted average number of ordinary shares
For calculating basic earnings per share 69,714 69,438 69,501
Effect of dilutive securities - employee share options 569
1,357 109
For calculating diluted earnings per share 71,071 69,547 70,070
9 Retirement benefit obligations
The Group's retirement benefit obligation is summarised as follows:
At 30 At 30 September 2006 At 31
September 2007 March 2007
£m £m £m
Funded plan obligations (204.0) (214.0) (209.5)
Funded plan assets 180.2 175.8 179.5
Net funded plan obligations (23.8) (38.2) (30.0)
Unfunded obligations (18.6) (18.2) (18.0)
Total retirement benefit obligations (42.4) (56.4) (48.0)
The reduction in the Group's liability from £48.0m at 31 March 2007 to £42.4m at
30 September 2007 is primarily due to the increase in the discount rate
assumption applied to the UK pension plans. This has been increased to 5.9% (31
March 2007 - 5.4%) in line with market conditions.
10 Reconciliation of movements in total equity
First half Full year
2007/08 2006/07 2006/07
£m £m £m
Opening total equity 23.9 40.6 40.6
Total recognised income and expense 4.1 (9.6) (16.9)
Employee share options - value of employee services 0.1 - 0.1
Employee share options - proceeds from shares issued 0.1 - 0.1
28.2 31.0 23.9
11 Cash generated by operations
First half Full year
2007/08 2006/07 2006/07
£m £m £m
Continuing operations:
Profit before taxation 3.0 3.4 1.4
Depreciation and amortisation 2.5 2.5 4.9
Loss on plant and equipment disposals - - 0.1
Equity share plans 0.1 - 0.1
Net finance costs 1.5 1.2 2.5
(Increase)/decrease in inventories (0.1) (2.7) 1.2
Decrease/(increase) in receivables 0.2 (1.1) (2.3)
(Decrease)/increase in payables (7.1) (1.9) 4.1
(Decrease)/increase in provisions (1.0) (0.2) 1.7
Movement on pension plans (0.6) (0.4) (3.5)
Movement on derivative financial instruments - 0.3 0.1
Cash (absorbed)/generated by continuing operations (1.5) 1.1 10.3
Discontinued operations:
Loss before taxation - (2.9) (2.0)
Depreciation and amortisation - - -
Plant and equipment impairment - - -
Gain on plant and equipment disposals - - 0.2
Net finance cost - 0.2 0.2
(Increase) in inventories - (0.5) (0.3)
Decrease in receivables - 1.0 2.2
(Decrease) in payables - (3.5) (2.0)
(Decrease) in provisions - (0.6) (1.2)
Movement on pension schemes - - (1.8)
Cash (absorbed) by discontinued operations - (6.3) (4.7)
Cash (absorbed)/generated by operations (1.5) (5.2) 5.6
The reconciliation of the movement in cash and cash equivalents to movement in
net debt is as follows:
At 30 At 30 September 2006 At 31
September 2007 March 2007
£m £m £m
(Decrease)/increase in cash and cash equivalents (9.0) (7.4) 6.2
Change in net debt resulting from cash flows 0.7 0.5 (6.1)
Finance lease inception (0.1) (0.2) (0.2)
Other non-cash movements (0.1) - -
Foreign currency translation differences 0.1 0.8 1.4
Change in net debt during the period (8.4) (6.3) 1.3
Net debt at start of year (19.4) (20.7) (20.7)
Net debt at end of year (27.8) (27.0) (19.4)
Net debt comprised: At 30 September At 30 September At 31 March
2007 2006 2007
£m £m £m
Cash and cash equivalents 8.3 9.6 20.3
Borrowings:
Bank overdrafts (1.7) (7.7) (4.9)
Bank loans - current (4.6) (24.5) (2.8)
Obligations under finance leases - current (0.1) (0.1) (0.1)
Sub-total - Current borrowings (6.4) (32.3) (7.8)
Bank loans - non-current (28.9) (3.5) (31.2)
Obligations under finance leases - non-current (0.3) (0.3) (0.2)
Sub-total - Non-current borrowings (29.2) (3.8) (31.4)
Preference shares (0.5) (0.5) (0.5)
Net debt (27.8) (27.0) (19.4)
12 Business combination
On 16 June 2007 the Group acquired an interest in the plant, equipment,
inventory and existing workforce of the chain manufacturing business of Hangzhou
Shanshui Industrial Co Limited ('HZSS'), located in China.
Renold's interest is represented by a 90% equity investment in Renold (Hangzhou)
Co Limited ('RHZ'), the vehicle used to acquire the respective trade and
business assets of HZSS. The contract establishing RHZ contains both a put and
call option allowing either party to enforce the right of Renold to acquire the
remaining 10% equity interest from HZSS at a date ten years after the
acquisition (or by mutual agreement at any time between three and ten years from
acquisition). As a consequence of this arrangement the investment has been
accounted for as a 100% subsidiary. The Group has recognised the fair value of
the related contingent consideration to acquire the remaining 10% interest in
RHZ as a provision in the Group's balance sheet and as part of the purchase
consideration.
The purchase consideration is summarised as follows;
£m
Cash paid 2.1
Contingent consideration 0.5
Direct costs relating to the acquisition 0.2
Total purchase consideration 2.8
Fair value of net identifiable assets acquired 1.9
Goodwill 0.9
At the time of publishing the interim financial statements, the Group has yet to
finalise the amount of the fair value of the net identifiable assets acquired.
Therefore, provisional fair values have been used in these interim financial
statements.
The goodwill resulting from the acquisition is attributable to certain
intangible assets that cannot be individually separated and reliably measured
due to their nature. These include the synergies expected to result from
combining RHZ within the Renold Group and the acquisition of an assembled
workforce.
The assets and liabilities arising from the acquisition are as follows:
Book Provisional
value fair values
£m £m
Plant and equipment 1.1 1.1
Inventories 1.1 0.9
Liabilities - (0.1)
Net identifiable assets acquired 2.2 1.9
From the date of acquisition on 16 June 2007 RHZ has contributed a break even
position to the Group's results from a turnover of £1.1 million. Separable and
reliable data for the trading operation acquired is not readily available for
the period prior to acquisition. In view of this, and the planned changes in
operational activities following the acquisition by Renold, it is not considered
helpful or meaningful to provide pro forma data as if RHZ had been owned by the
Group since 1 April 2007.
Statement of directors' responsibilities
The directors confirm that this condensed set of financial statements has been
prepared in accordance with IAS 34 as adopted by the European Union, and that
the Chairman's Statement herein includes a fair review of the information
required by the DTR 4.2.7 and DTR 4.2.8.
The directors of Renold plc are listed in the Renold Group Annual Report for 31
March 2007 and there have been no changes in the composition of the Board since
that Report was published. A list of current directors is maintained on the
Renold Group website: www.renold.com.
By order of the Board
Robert Davies Peter Bream
Chief Executive Finance Director
20 November 2007 20 November 2007
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