Interim Results - Half Year to 2 October 1999

Renold PLC 15 November 1999 Interim results for the half year to 2 October 1999 Precision engineering group, Renold plc, the leading international manufacturer of chains, couplings, gears and machine tools and rotors, today announces its interim results for the half year to 2 October 1999. - Results in line with market expectations - Turnover £86.3 million (1998/9: £86.5 million) - Profit before tax (and redundancy costs of £0.2 million) £4.0 million (1998/9: £9.0 million before redundancy costs of £0.5 million) - Unchanged dividend of 3.1 pence per share - Operating cash flow of £3.4 million; balance sheet remains strong with cash of £6.3 million - Chain businesses produce another sound performance, particularly at Automotive Systems and Germany - Improvement at Holroyd in first half; considerable increase in sales expected in second half - Encouraging forecasts for world grinding machine tool market, Jones & Shipman well placed to benefit Roger Leverton, Chairman of Renold plc, said: 'The Group has substantially reduced the cost base and strengthened the competitive position of the UK businesses. The major chain businesses in mainland Europe are expected to perform satisfactorily. Benefits from improved prospects and the actions taken by the machine tool businesses are also now starting to be realised. Overall, although trading conditions remain difficult, we expect to see an improvement in performance in the second half.' RENOLD PLC Chairman: Roger Leverton Interim Statement for the half year ended 2 October 1999 Financial Summary ____________________________________________________________________________ First half year 1999/2000 1998/9 £m £m Turnover 86.3 86.5 Profit before exceptional redundancy costs 4.3 8.7 Profit before tax and before exceptional redundancy costs 4.0 9.0 Profit before tax 3.8 8.5 Earnings per ordinary share - based on adjusted earnings 3.8 p 9.5 p - based on reported earnings 3.6 p 8.9 p Interim dividend per ordinary share 3.1 p 3.1 p Capital expenditure 4.5 5.2 Operating cash flow 3.4 4.4 Group results and dividend The results for the half year to 2 October 1999, whilst disappointing, are in line with expectations when the trading statement was issued on 8 October 1999. Profit before tax (and before redundancy costs of £0.2 million) was £4.0 million (1998/9 - £9.0 million before redundancy costs of £0.5 million) on a turnover of £86.3 million (1998/9 - £86.5 million). Adjusted earnings per share were 3.8 pence (1998/9 - 9.5 pence) after a higher tax charge. The Group's effective tax rate has increased to 34% from 28% in the first half of last year, due to the increased proportion of overseas profits taxed at higher rates. The Board has declared an interim dividend of 3.1 pence per share, at the same level as last year. This dividend will be paid on 28 January 2000 to shareholders appearing on the register on 6 January 2000. COMMENT The first half of 1999/2000 has been another challenging period for the Group. The results reflect a continuation of the trading conditions in the second half of last year, with the Group's UK businesses continuing to experience flat domestic demand, whilst the strong pound has affected exports. The Jones & Shipman machine tool businesses, which were acquired last December, have suffered particularly in the North American market from the weak demand experienced throughout the international machine tool industry. In contrast, the Group's major chain businesses in mainland Europe performed satisfactorily and there have been further signs of recovery in Australasia and the Far East. Power transmission Within power transmission, the chain businesses again performed soundly. Sales and profits rose at the French automotive cam drive systems business, where output was further increased to meet the growth in customer demand. Production commenced of a new system for a world engine for General Motors, and substantial investment continues to be made in additional manufacturing capacity at Calais. The German chain business achieved another good result, although both domestic and export demand were a little easier, whilst the merchanting operations elsewhere in Europe fell short of last year's strong performance. The UK chain business earned profits at the same level as in the previous half year, despite continuing weak domestic demand from distributors and direct customers, and exports being affected by the strong pound. Sales of new and recently introduced chain products have grown steadily, with new applications for Coris stainless steel chain and new products for the stores escalator and leisure ride markets. The UK based engineering products businesses were particularly affected by the depressed home and export markets, and strenuous management action has been taken to improve performance. Considerable progress has been made at the Milnrow gear box business in broadening the product range by introducing new helical and bevel helical gearboxes to complement its updated worm gear products, and in carrying through a factory modernisation programme. Management has been strengthened at Manifold, the indexing gear business, which is being relocated to a modern new factory in December 1999. The two UK couplings businesses, at Cardiff and Halifax, continued to trade reasonably although below last year's levels. In North America, the power transmission businesses reported lower profits. Sales of large couplings by the US manufacturing operation to the steel industry were down from last year's good performance. However, the order book is firm which should lead to a better second half. The businesses in Australasia and the Far East are steadily recovering as market conditions gradually improve. Renold Australia has strengthened its position in conveyor chain manufacturing by acquiring a competitor, Ace Chains, on 4 October 1999. Machine tools and rotors The Holroyd machine tools and rotors business has broadened its customer base for rotors, and this, together with a recovery in rotor demand in the North American airconditioning market, has resulted in improved performance compared with the second half of last year. Delivery of the bulk of a substantial machine tool package to an American airconditioning and refrigeration customer, and of other machine tool orders won against European competition, will lead to a considerable increase in Holroyd's sales in the second half. The Jones & Shipman businesses have suffered, particularly in the North American market, from the weak demand experienced throughout the international machine tool industry. Enquiry levels for major projects have risen sharply in recent months and prospects have improved. Industry forecasts for the world grinding machine tool market are encouraging, and the combined product range of Jones & Shipman and Holroyd is well placed to benefit. The Jones & Shipman Leicester factory has combined with Holroyd in a number of areas, including the integration of engineering and manufacturing resources, as well as joint sales projects for grinding cell applications. In the USA the management of Edgetek, the superabrasive machine tool business, and of the Jones & Shipman US sales operation have been strengthened. Significant cost reductions have been and continue to be achieved in both the Jones & Shipman and Edgetek businesses. Capital expenditure and cash Capital expenditure in the half year was £4.5 million, with the major investment in additional production equipment at the Calais automotive systems plant, which will continue through the second half. Operating cash flow after capital expenditure was £3.4 million, compared with £4.4 million in the first half of last year, and the Group's balance sheet remains strong, with net cash of £6.3 million, providing significant capacity for further investment. Strategy The Group now operates in two distinct market sectors, power transmission, which includes our chain, couplings and gears businesses, and machine tools and rotors. The machine tool businesses are Holroyd and Jones & Shipman. Holroyd is a major supplier of milling and grinding machine tools and rotors for screw compressors used in the airconditioning, chilling, refrigeration and other industries, and has been a strong profit generator for the Group in all but one of the last fifteen years. The acquisition of the Jones & Shipman businesses at the end of 1998 gave us a unique opportunity to obtain complementary and world leading technology in precision grinding machine tools servicing a wider industrial base. It was unfortunate that early in 1999 the important market for high precision machining of aerospace engine turbine blades suffered a significant deterioration. Action has been taken to cut costs and strengthen management and, when their long term growth markets recover, the precision machine tools businesses can be expected to make a full contribution to future Group profits. Within power transmission, the core chain business has benefited from heavy investment in modern manufacturing technology and, since the mid-1990s, has established a consistent profit record. We will continue to seek opportunities to develop the chain business both organically and through acquisition, as well as to invest in other attractive sectors of the power transmission industry. Long term, your Board has confidence in the durability of the constituent parts of the Group as major suppliers to growth industries serving the economies of the future. Prospects For the last eighteen months the UK engineering industry has contended with the effects of a strong pound and a depressed home market, and as yet there are few tangible signs of the much heralded improvement in the manufacturing economy. In addition, the economic crisis in the Far East has had a more far- reaching impact than anticipated, not just on direct sales but also on our customers serving this area, but there are now signs of recovery there. Over this period, the Group has substantially reduced the cost base and strengthened the competitive position of the UK businesses. The major chain businesses in mainland Europe are expected to perform satisfactorily. Benefits from improved prospects and the actions taken by the machine tool businesses are also now starting to be realised. Overall, although trading conditions remain difficult, we expect to see an improvement in performance in the second half. RELEASE OF INTERIM STATEMENT The Interim Statement will be posted to shareholders on 19 November 1999. Copies will be available for the public from that date at the Company's registered office, Renold House, Styal Road, Wythenshawe, Manchester M22 5WL. For further information, please contact David Cotterill, Chief Executive) 15 November 1999 Telephone: 0171-329 0096 John Allan, Finance Director ) Thereafter Telephone: 0161-437 5221 Renold plc ) Issued by: Shandwick Consultants Limited Ben Padovan/Ben Atwell Telephone: 0171-329 0096 Group Profit and Loss Account ____________________________________________________________________________ for the half year ended 2 October 1999 (unaudited) First half year Full year 1999/2000 1998/9 1998/9 £m £m £m Turnover 86.3 86.5 171.6 Trading costs - normal operating costs excluding goodwill amortisation 81.9 77.8 157.6 - goodwill amortisation 0.1 - - - exceptional redundancy and restructuring costs 0.2 0.5 1.8 ________ ________ ________ 82.2 78.3 159.4 ________ ________ ________ Trading profit 4.1 8.2 12.2 Interest (payable) receivable (0.3) 0.3 0.2 ________ ________ ________ Profit on ordinary activities before tax 3.8 8.5 12.4 ________ ________ ________ Tax: UK - 0.4 1.8 Overseas 1.3 2.0 2.9 ________ ________ ________ 1.3 2.4 4.7 ________ ________ ________ Profit for the period 2.5 6.1 7.7 Dividends (including non-equity) 2.1 2.1 6.4 ________ ________ ________ Retained profit for the period 0.4 4.0 1.3 ________ ________ ________ Adjusted earnings per ordinary share - based on reported earnings adjusted for exceptional redundancy and restructuring costs after tax relief 3.8p 9.5p 13.5p ________ ________ ________ Basic earnings per ordinary share - based on reported earnings 3.6p 8.9p 11.1p ________ ________ ________ Diluted earnings per ordinary share, in accordance with FRS 14 - based on reported earnings 3.6p 8.9p 11.1p ________ ________ ________ Dividends per ordinary share 3.1p 3.1p 9.25p ________ ________ ________ Group Balance Sheet ____________________________________________________________________________ as at 2 October 1999 (unaudited) At At At 2 October 3 October 3 April 1999 1998 1999 £m £m £m Fixed assets Intangible asset - goodwill 2.8 - 2.9 Tangible assets 53.0 47.4 53.6 ________ ________ ________ 55.8 47.4 56.5 ________ ________ ________ Current assets Stocks 45.2 39.8 46.6 Debtors 34.5 35.0 36.7 Cash and short term deposits 16.5 28.8 22.6 ________ ________ ________ 96.2 103.6 105.9 ________ ________ ________ Creditors - due within one year Loans and overdrafts (4.6) (3.3) (5.8) Other creditors (40.5) (37.8) (49.0) ________ ________ ________ (45.1) (41.1) (54.8) ________ ________ ________ Net current assets 51.1 62.5 51.1 ________ ________ ________ Total assets less current liabilities 106.9 109.9 107.6 Creditors - due after one year Loans (5.3) (5.6) (5.5) Other creditors (0.7) (0.7) (0.8) Provisions for pensions (12.5) (12.7) (12.6) ________ ________ ________ Net assets 88.4 90.9 88.7 ________ ________ ________ Capital and reserves (including non-equity interests) Called up share capital 17.9 17.8 17.9 Share premium 6.0 5.7 5.9 Other reserves 64.5 67.4 64.9 ________ ________ ________ Shareholders' funds 88.4 90.9 88.7 __________ ________ ________ Summarised Group Cash Flow Statement ____________________________________________________________________________ for the half year ended 2 October 1999 (unaudited) First half year Full year 1999/2000 1998/9 1998/9 £m £m £m Cash flow from operating activities Trading profit 4.1 8.2 12.2 Depreciation 4.0 3.6 7.5 Goodwill amortisation 0.1 - - (Increase) decrease in working capital (0.6) (2.3) 3.8 Other 0.3 0.1 0.3 ________ ________ ________ 7.9 9.6 23.8 Net interest paid (0.4) - - Taxation (3.2) (4.1) (6.5) Capital expenditure (4.5) (5.2) (11.5) Acquisition - purchase consideration including costs - - (5.7) - net overdrafts acquired with - - (1.7) subsidiary Equity dividends paid (4.3) (4.1) (6.2) ________ ________ ________ Cash outflow before use of liquid resources and financing (4.5) (3.8) (7.8) Management of liquid resources Transfers from short term deposits 8.7 5.6 11.2 Financing Issue of shares 0.1 0.4 0.7 Decrease in debt and lease financing (0.4) (0.9) (5.6) ________ ________ ________ Increase (decrease) in cash in the period 3.9 1.3 (1.5) ________ ________ ________ Reconciliation of net cash flow to movement in net funds Increase (decrease) in cash in the period 3.9 1.3 (1.5) Cash outflow from decrease in debt and lease financing 0.4 0.9 5.6 Cash flow from decrease in liquid resources (8.7) (5.6) (11.2) ________ ________ ________ Change in net funds resulting from cash flows (4.4) (3.4) (7.1) Loans and finance leases acquired with subsidiary - - (4.7) Exchange translation difference (0.1) 0.5 0.3 ________ ________ ________ Movement in net funds in the period (4.5) (2.9) (11.5) Net funds at beginning of period 10.8 22.3 22.3 ________ ________ ________ Net funds at end of period 6.3 19.4 10.8 ________ ________ ________ Notes to the Interim Statement ____________________________________________________________________________ 1. Statement of total recognised gains and losses First half year Full year 1999/2000 1998/9 1998/9 £m £m £m Profit for the period 2.5 6.1 7.7 Exchange translation differences on net assets of overseas subsidiaries (0.8) 0.5 0.7 ________ _______ ________ Total recognised gains 1.7 6.6 8.4 ________ ________ ________ 2. Reconciliation of movements in shareholders' funds First half year Full year 1999/2000 1998/9 1998/9 £m £m £m Profit for the period 2.5 6.1 7.7 Dividends (2.1) (2.1) (6.4) ________ ________ ________ Retained profit for the period 0.4 4.0 1.3 Issue of ordinary shares 0.1 0.4 0.7 Exchange translation differences on net assets of overseas subsidiaries (0.8) 0.5 0.7 ________ ________ ________ Net addition to shareholders' funds (0.3) 4.9 2.7 Opening shareholders' funds 88.7 86.0 86.0 ________ ________ ________ Closing shareholders' funds 88.4 90.9 88.7 ________ ________ ________ 3. Analysis of activities Activities classified by business segment: First half year Full year 1999/2000 1998/9 1998/9 £m £m £m Turnover Power transmission 73.0 80.1 157.0 Machine tools and rotors 14.4 6.8 15.9 ________ ________ ________ 87.4 86.9 172.9 Less: Inter Activity sales 1.1 0.4 1.3 ________ ________ ________ 86.3 86.5 171.6 ________ ________ ________ Trading Profit Power transmission 5.3 8.0 14.2 Machine tools and rotors (0.9) 0.7 (0.2) ________ ________ ________ 4.4 8.7 14.0 Less: Goodwill amortisation 0.1 - - Exceptional redundancy and restructuring costs 0.2 0.5 1.8 ________ ________ ________ 4.1 8.2 12.2 ________ ________ ________ Trading Assets Power transmission 69.2 71.6 68.4 Machine tools and rotors 20.5 12.5 21.3 ________ ________ ________ 89.7 84.1 89.7 ________ ________ ________ Activities classified by geographical region of operation: First half year Full year 1999/2000 1998/9 1998/9 £m £m £m Turnover United Kingdom 40.7 43.4 81.4 Germany 16.6 18.4 36.7 France 15.8 14.5 31.0 Rest of Europe 8.1 9.1 17.9 North America 16.7 14.9 30.7 Other countries 8.5 7.9 16.1 ________ ________ ________ 106.4 108.2 213.8 Less: Intra Group sales 20.1 21.7 42.2 ________ ________ ________ 86.3 86.5 171.6 ________ ________ ________ Turnover by geographical region includes intra group sales as follows: United Kingdom 13.5 14.7 28.2 Germany 4.6 4.9 9.8 France 1.5 1.6 3.3 Trading Profit United Kingdom 1.3 4.0 4.8 Germany 1.5 1.7 3.7 France 0.8 1.0 2.0 Rest of Europe 0.6 0.9 1.7 North America 0.1 1.2 1.7 Other countries 0.1 (0.1) 0.1 ________ ________ ________ 4.4 8.7 14.0 Less: Goodwill amortisation 0.1 - - Exceptional redundancy and restructuring costs 0.2 0.5 1.8 ________ ________ ________ 4.1 8.2 12.2 ________ ________ ________ Trading Assets United Kingdom 51.7 47.3 52.3 Germany 10.3 11.9 10.9 France 9.0 7.2 7.5 Rest of Europe 3.6 4.0 4.1 North America 9.5 8.3 9.5 Other countries 5.6 5.4 5.4 ________ ________ ________ 89.7 84.1 89.7 ________ ________ ________ Trading assets comprise fixed assets, current assets less creditors but exclude goodwill, cash, property held for sale, borrowings, dividends, corporate tax, finance lease obligations and provisions for pensions. First half year Full year 1999/2000 1998/9 1998/9 £m £m £m Geographical analysis of external turnover by market area: United Kingdom 18.9 18.1 35.3 Germany 14.3 14.5 30.1 Rest of Europe 20.4 22.8 44.7 North and South America 21.8 20.0 40.2 Other countries 10.9 11.1 21.3 ________ _______ ________ 86.3 86.5 171.6 ________ _______ ________ 4. Year 2000 The Group's programme to address Year 2000 issues has been substantially completed, and communication with key suppliers and customers has not revealed any significant issues. The Group's businesses are finalising their contingency plans to ensure a high state of readiness; however, despite this it is not possible to guarantee that no Year 2000 problems will arise. The capital cost of new computer hardware and software purchased in the half year to replace non-compliant systems was £0.3 million, bringing the total over the last two and a half years to £2.8 million, with a further £0.3 million committed. Other work to implement action plans is, in the main, being carried out by in-house personnel, the cost of which is not separately identifiable. 5. The interim accounts are unaudited and do not constitute statutory accounts. They have been prepared: (a) under the historical cost convention, but include some past revaluations of properties and equipment; the book values of revalued assets have been retained under the transitional arrangements of FRS 15, and (b) in accordance with applicable accounting standards, including FRS 15 'Tangible Fixed Assets' which has been adopted for the current year, using the same accounting policies as set out in the Annual Report for the year ended 3 April 1999. There is no material difference between the result as disclosed in the profit and loss account and the result on an unmodified historical cost basis. Following the acquisition of Jones & Shipman p.l.c. and the consequent increase in the Group's sales of machine tools, a segmental analysis by business activity has been included in the results for the half year together with appropriate comparative information. With the exception of this additional segmental analysis, the financial information for the full year 1998/9 is taken from accounts filed with the Registrar of Companies containing an unqualified audit report. The Interim Statement was approved by the Board on 15 November 1999.

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