Interim Results

RNS Number : 5150G

Renold PLC

16 November 2022

 

Renold plc

Interim results for the half year ended 30 September 2022

("Renold", the "Company" or, together with its subsidiaries, the "Group")

 Strong performance, strategic chain acquisition and significant increase in earnings

Renold (AIM: RNO), a leading international supplier of industrial chains and related power transmission products, announces its interim results for the six month period ended 30 September 2022.

Financial summary	Half year ended
£m	30 September 2022	Restated1   30 September 2021	Change %	Change % (Constant currency)
Revenue	116.3	95.3	+22.0%	+14.3%
Adjusted operating profit2	9.6	7.2	+33.3%	+20.8%
Return on sales3	8.3%	7.5%	+80bps	+50bps
Adjusted profit before tax3	7.3	5.2	+40.4%
Net debt4	34.0	13.9
Adjusted earnings per share	2.7p	1.9p	+42.1%
Additional statutory measures
Operating profit	8.8	8.7	+1.1%
Profit before tax	6.5	6.7	(3.0)%
Basic earnings per share	2.3p	2.6p	(11.5)%

Financial highlights

· Revenue up 22.0% (14.3% at constant exchange rates) to £116.3m driven by strong growth in Chain (2021: £95.3m)

· Adjusted operating profit up 33.3% (20.8% at constant exchange rates) to £9.6m (2021: £7.2m)

· Return on sales increased by 80bps, (50bps at constant exchange rates) to 8.3% (2021: 7.5%). Price increases offset input cost and supply chain challenges

· Net debt as at 30 September 2022 £34.0m (1.2x rolling 12 month EBITDA), higher primarily due to €20.0m initial cash consideration for the acquisition of Industrias YUK, S.A.

· Adjusted EPS up 42.1% to 2.7p (2021: 1.9p)

· IAS 19 pension deficit reduced by 29.6% to £61.3m (31 March 2022: £87.1m)

Business highlights

· Strong first half performance as markets continued to recover, despite cost inflation, economic uncertainty and global supply chain disruption

· Group order intake in the period £121.3m, up 18.9%, excluding prior year long term military contract (11.0% at constant exchange rates)

· Order book at 30 September 2022 £99.0m, continues at record high (30 September 2021: £72.1m)

· Acquisition of Industrias YUK, S.A. ("YUK") for €24m, increases the Group's access to the Iberian Chain and wider European CVC markets. The integration process is well progressed and the business is performing ahead of expectations

· Good progress on capital investment, productivity improvements and cost reduction programmes, accelerating the integration of Group-wide supply chain and increasing capabilities

¹ See Note 12 for details of the prior period restatements.

² See below for reconciliation of actual rate, constant exchange rate and adjusted figures.

³ See Note 11 for definitions of adjusted measures and the differences to statutory measures.

⁴ See Note 8 for a reconciliation of net debt which excludes lease liabilities.

Robert Purcell, Chief Executive of Renold plc, said:

" The strong trading momentum experienced in the second half of the last financial year has continued in the first half, with the Group continuing to successfully manage significant inflation and supply chain disruption, resulting in growing sales and record orders. Whilst we are mindful that global markets continue to be uncertain, with ongoing labour and energy cost inflation and supply chain challenges, the Group's trading momentum continues to be positive. The Group has record order books and the acquisition of YUK provides opportunities for synergies and further growth."

Reconciliation of reported, constant exchange rate and adjusted results

	Revenue		Operating profit		Earnings per share
				Restated1		Restated1
	H1 2022/23 £m	H1 2021/22 £m	H1 2022/23 £m	H1 2021/22 £m	H1 2022/23 pence	H1 2021/22 pence
Statutory at actual exchange rates	116.3	95.3	8.8	8.7	2.3	2.6
Adjust for non-recurring items:
US PPP loan forgiveness	-	-	-	(1.7)
Dilapidation costs for closed sites	-	-	-	0.2
Acquisition costs	-	-	0.6	-
Amortisation of acquired intangible assets	-	-	0.2	-
Adjusted at actual exchange rates	116.3	95.3	9.6	7.2	2.7	1.9
Exchange impact	(7.4)	-	(0.9)	-
Adjusted at constant exchange rates	108.9	95.3	8.7	7.2

¹ See Note 12 for details of the prior period restatements

Investor Presentation

The Company will conduct a live presentation and Q&A session for investors at 5:30 pm GMT today, 16 November 2022. The presentation is open to all existing and potential shareholders. Those wishing to attend should register via the following link and they will be provided with log in details:

https://us02web.zoom.us/webinar/register/WN_6WUx953NTUmetFUprlFHSA

There will be the opportunity for participants to ask questions at the end of the presentation. Questions can also be emailed to [e-mail] ahead of the presentation.

ENQUIRIES:

Renold plc	IFC Advisory Limited
Robert Purcell, Chief Executive	Tim Metcalfe
Jim Haughey, Group Finance Director	Graham Herring
	[e-mail]
0161 498 4500	020 3934 6630

Nominated Adviser and Joint Broker	Joint Broker
Peel Hunt LLP	F innCap Limited
Mike Bell	Ed Frisby / Tim Harper (Corporate Finance)
Ed Allsopp	Andrew Burdis / Harriet Ward (ECM)
020 7418 8900	020 7220 0500

Cautionary statement regarding forward-looking statements

Some of the information in this document may contain projections or other forward-looking statements regarding future events or the future financial performance of Renold plc and its subsidiaries. You can identify forward-looking statements by terms such as "expect", "believe", "anticipate", "estimate", "intend", "will", "could", "may" or "might", the negative of such terms or other similar expressions. Renold plc (the Company) wishes to caution you that these statements are only predictions and that actual events or results may differ materially. The Company does not intend to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in projections or forward-looking statements of the Group, including among others, general economic conditions, the competitive environment as well as many other risks specifically related to the Group and its operations. Past performance of the Group cannot be relied on as a guide to future performance.

NOTES FOR EDITORS

Renold is a global leader in the manufacture of industrial chains and also manufactures a range of torque transmission products which are sold throughout the world to a broad range of original equipment manufacturers, distributors and end-users. The Company has a reputation for quality that is recognised worldwide. Its products are used in a wide variety of industries including manufacturing, transportation, energy, metals and mining.

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

Chief Executive's statement

The Group has continued to successfully manage a period of sustained cost inflation and supply chain disruption.  Materials, energy, labour and transportation costs have all increased substantially, however, selling price increases have been implemented, and margins have been robust. The Group expects to experience further cost pressures through the second half of the year but we are confident that these will again be managed successfully.

Renold continues to focus efforts on driving and optimising performance through identified projects, some requiring capital investment, targeting better operational efficiency,  improved design and standardisation of products, better asset utilisation, more flexible working practices, and leveraging improved procurement strategies.

The Group performed well in the first half, delivering an increase in revenues of 22.0% to £116.3m (2021: £95.3m). At constant exchange rates, revenues increased 14.3%. Order intake continues to run ahead of sales, totalling £121.3m for the period. Excluding the impact of the £11.0m long term military contract announced on 13 July 2021, this represents an increase of 18.9% over the prior year equivalent period, or 11.0% at constant exchange rates.  

Order books as at 30 September 2022 of £99.0m again represent a record high for the Group, and are 37.3% higher than the prior year equivalent; 24.3% at constant exchange rates.

Adjusted operating profit increased to £9.6m (2021: £7.2m, excluding the impact of non-recurring items, notably the benefit of US PPP loan forgiveness of £1.7m and £0.2m of costs relating to closed sites) with return on sales of 8.3% (2021: 7.5%), driven by productivity enhancements and the benefit of increased volumes and pricing. Statutory operating profit increased to £8.8m (2021: £8.7m), with statutory operating profit margin for the period of 7.6% (2021: 9.1%).

Net debt increased during the period by £20.2m to 34.0m (31 March 2022: £13.8m) due to the acquisition of Industrias YUK, S.A. and an investment in inventory.

M&A

On 3 August 2022 the Group acquired Industrias YUK, S.A. ("YUK") based in Valencia, Spain, a manufacturer and distributor of high quality conveyor chain ("CVC") and ancillary products.

The acquisition will allow Renold to leverage YUK's strong CVC market position in Spain and Portugal to expand sales of the Group's existing range of premium European transmission chain ("TRC") products, and enable sales of YUK products throughout Renold's extensive European sales network. Opportunities exist for significant manufacturing synergies between YUK and Renold's current international operations.

During the period in which Renold has owned YUK, which includes the August holiday period, YUK has traded ahead of our initial expectations. Since acquisition YUK recorded sales of £2.2m, operating profit of £0.2m, and an initial return on sales of 9.1%.

The initial cash consideration was €20.0 million, with two deferred cash payments of €2.0 million each, payable 12 months and 24 months from the date of acquisition.

There remains an active pipeline of acquisition opportunities which the Group continues to review as part of its growth strategy. The Board adopts a disciplined approach to M&A focussed on complementary, earnings enhancing acquisitions to supplement organic growth, whilst maintaining a conservative level of leverage.

Business and financial review

	Revenue		Adjusted operating profit		Return on sales
				Restated1		Restated1
Six month period	2022/23 £m	2021/22 £m	2022/23 £m	2021/22 £m	2022/23 %	2022/21 %
Chain	89.2	76.6	11.7	9.2	13.1	12.0
Torque Transmission	21.5	20.6	1.4	1.8	6.5	8.7
Head office costs/ Inter segment sales elimination	(1.8)	(1.9)	(4.4)	(3.8)	-	-
Total Adjusted at constant rates	108.9	95.3	8.7	7.2	8.0	7.5
Impact of foreign exchange	7.4	-	0.9	-
Total Adjusted at actual rates	116.3	95.3	9.6	7.2	8.3	7.5
Adjusting items:
US PPP loan forgiveness	-	-	-	1.7
Dilapidation costs for closed sites	-	-	-	(0.2)
Amortisation of acquired intangibles	-	-	(0.2)	-
Acquisition costs	-	-	(0.6)	-
Statutory	116.3	95.3	8.8	8.7	7.6	9.1

¹ See Note 12 for details of the prior period restatements

Chain

The Chain division's revenue at constant exchange rates increased by 16.4% (£12.6m) to £89.2m.

Revenue increased across all regions:

· Europe increased turnover 8.6% at constant currency rates. Demand was robust driven by strong OEM and end user activity. The integration of the YUK business is proceeding as planned with the Group already starting to substitute externally sourced products, sell increased CVC product throughout Europe, and increase TRC sales in Spain.

· The Americas increased constant currency revenues by 19.2%, driven by the need to recover costs through pricing, new aftermarket business in transmission chain and strong demand for capital equipment in the food processing, ethanol and mining industries.

· Australasian revenues increased by 27.6% at constant exchange rates, as the business continued to benefit from execution of its growth strategy, targeting the move in Australia to more domestically manufactured goods, continuing strong demand from the Australian mining sector and notable increases in activity in both Indonesia and Malaysia. A new machining centre was installed in the Melbourne factory and progress was made in the development of chains for the cement and coal industries. 

· India achieved first half constant currency revenue growth of 13.9% as activity levels recovered. An expansion of the domestic dealer network and an increase in the number of local warehouses is underway, to enhance geographic coverage and service.

· Revenue in China was up 15.4% (at constant exchange rates) as a result of higher demand from Europe and the USA. Significant progress continues to be made in enhancing the performance of the factory in Jintan. As a result of a programme of standardisation and improvement projects, including the commissioning of new equipment, the factory is increasingly able to manufacture higher specification products.

Divisional adjusted operating profit at constant exchange rates was £11.7m, £2.5m higher than the prior year. Return on sales increased by 110bps to 13.1% (2021: 12.0%).

Order intake at constant exchange rates increased by 12.4% to £93.7m, resulting in a book to bill (ratio of orders to sales) for the first half of the year of 105.0% (2021: 108.7%).

Torque Transmission

Divisional revenues at constant exchange rates of £21.5m were £0.9m higher than in the prior year. This was due to increased demand for couplings in Australia and further recovery in North America, along with increased activity in the Gears business.

However, timing of the long-term military contracts resulted in some temporary reduction in revenue. Additionally, a number of key customers with long term supply arrangements in Eastern Europe were impacted by the war in Ukraine.

Divisional operating profit at constant currency reduced by £0.4m to £1.4m due to the timing of the military contract, and a weaker product mix between higher margin spare parts and lower margin OEM business.

Momentum in this division is expected to improve in the second half of the year, underpinned by an increase of 27.1% in order intake compared to the prior year (at constant exchange rates), excluding the benefit of the latest military contract.

Cash flow and net debt

		Restated1
Half year to 30 September	2022/23 £m	2021/22 £m
Adjusted operating profit	9.6	7.2
Add back: Depreciation and amortisation	4.9	4.7
Share-based payments	0.5	0.5
Adjusted EBITDA	15.0	12.4
Movement in working capital	(7.6)	-
Net capital expenditure	(2.2)	(1.3)
Operating cash flow	5.2	11.1
Income taxes	(1.3)	(1.3)
Pensions cash costs	(3.1)	(2.4)
Repayment of principal under lease liabilities	(1.2)	(1.4)
Financing costs paid	(1.3)	(0.8)
Consideration paid for acquisition2	(17.8)	(0.3)
Own shares purchased	-	(1.8)
US PPP loan forgiveness	-	1.7
Other movements	(0.7)	(0.3)
Change in net debt	(20.2)	4.5
Closing net debt	(34.0)	(13.9)

¹ See Note 12 for details of the prior period restatements
² Includes £0.1m deferred consideration in relation to the acquisition of the conveyor chain business of Brooks Ltd in the prior year and £0.6m of acquisition costs for Industrias YUK, S.A.

Net Debt increased during the period by £20.2m to £34.0m, largely due to the acquisition of Industrias YUK, S.A. for cash consideration of €20.0m in the period, along with associated costs of £0.6m.

Working capital increased during the period. Inflation has increased inventory value, though this was partly offset by a corresponding increase in creditors. In addition, stocks of raw materials and finished goods have been temporarily increased in Germany in case energy supplies are disrupted this winter. A focus on customer terms and collections has seen debtor days improve, which largely offsets the effect of increased selling prices on receivables.

Further inflationary pressures on materials, together with a continuation of extended shipment times in supplying product between operating sites, will result in the increased levels of inventory being maintained in the second half year. This coupled with higher input prices will result in modest further increases in working capital.

Net capital expenditure was £2.2m representing an increase over the prior half year, but remained below historic levels as delays in the shipment of capital equipment continue. Strategic investments in production capabilities, including improved heat treatment and a roll-out of a standardised IT system continued and are expected to gather pace during the second half of the year.

Corporation tax payments on account (£1.3m) were at normal levels.

Cash financing costs increased in the half year, due both to the additional borrowing resulting from the YUK acquisition, and the increase in interest rates over the period. Further increases in interest rates are expected within the second half of the year.

Pensions

The Group has a number of closed defined benefit pension schemes (accounted for in accordance with IAS 19 'Employee Benefits'). During the pandemic, the Group negotiated a £2.8m one-off deferment in contributions with the UK pension scheme trustees. Contributions have now returned to normal levels, but in addition, the first of five annual deferred payments of c.£0.6m was made.

As a result of arrangements agreed with the UK pension scheme trustees and approved by the Pension Regulator, pension cash costs are known and stable, though increasing by RPI capped at 5%.

The Group's IAS 19 deficit decreased from £100.3m at 30 September 2021 to £61.3m at 30 September 2022.

	At 30 September 2022			At 31 March 2022
	UK schemes	Overseas schemes	Total	UK schemes	Overseas schemes	Total
	£m	£m	£m	£m	£m	£m
IAS 19 retirement benefit obligations	(41.2)	(20.1)	(61.3)	(64.1)	(23.0)	(87.1)
Net deferred tax asset	2.3	2.4	4.7	7.8	3.2	11.0
Retirement benefit obligations net of deferred tax asset	(38.9)	(17.7)	(56.6)	(56.3)	(19.8)	(76.1)

The yield on corporate bonds increased sharply during the period. Consequently the discount rates used for the UK scheme rose from 2.75% to 5.45%, and resulted in a net reduction in UK pension liabilities of £22.9m. The long term expectation for CPI inflation remained broadly stable at 3.20% (3.25% prior year). Asset returns fell sharply during the period as both the value of gilts and equities fell. The scheme has insurance assets linked directly to the benefits of certain scheme members. As the liability to these members reduces, for example with an increase in discount rate, so does the value of the corresponding insurance asset.

Pension liabilities in non-UK schemes reduced by £2.9m to £20.1m, due in the main to an increase in discount rates.

The net financing expense (a non-cash item) was £1.0m (2021: £0.9m).

Dividend

In line with recent policy based on enhancing Group performance through focussed investment in new equipment and earnings enhancing acquisitions the Board has decided not to declare an interim dividend. The dividend policy will remain under review as margin and cash flow performance continues to develop.

Summary

Demand in the first half was strong, showing a good recovery as the worst effects of the pandemic receded. Whilst this performance is expected to continue, supported by the record order book at the period end, the widely reported challenging global market and supply chain conditions are continuing, with significant inflationary trends being experienced, particularly with respect to materials, transport and energy costs. The Group is working to mitigate these headwinds as far as possible and it enjoys significant geographic, customer and sector diversity. With the Group benefiting from the strategic initiatives previously implemented, we are well placed for the future, with a robust business that is well positioned for the coming period.

Going concern

The interim condensed consolidated financial statements have been prepared on a going concern basis. In determining the appropriate basis of preparation of the financial statements, the Directors are required to consider whether the Group can continue in operational existence for the foreseeable future.

The ongoing macro-economic uncertainty, together with the impact of the war in Ukraine and the ongoing impact of Covid-19, alongside the continued improvement in the half year trading performance of the Group have been considered as part of the adoption of the going concern basis. The Group continues to closely monitor operating costs, and capital expenditure and other cash demands are being managed carefully.

As part of its assessment, the Board has considered downside scenarios that reflect the current uncertainty in the global economy, including significant material and energy supply issues, transport delays, and continuing inflationary pressures.

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

Risks and uncertainties

The Directors have reviewed the principal risks and uncertainties of the Group. The Directors consider that the principal risks and uncertainties of the Group published in the Annual Report for the year ended 31 March 2022 remain appropriate. The risks and associated mitigation processes can be found on pages 48-55 of the 2022 Annual Report, which is available at www.renold.com.

The risks referred to and which could have a material impact on the Group's performance for the remainder of the current financial year relate to:

· Macroeconomic and geopolitical volatility, including potential energy supply disruption in Germany;

· Strategy execution;

· Corporate transactions / business development;

· Health and safety in the workplace;

· Security and effective deployment and utilisation of IT systems;

· Prolonged loss of a major manufacturing site;

· People and change;

· Liquidity, foreign exchange and banking arrangements;

· Pension deficit; and
Legal, financial and regulatory compliance.

Responsibility statement

The Directors confirm that to the best of their knowledge:

· the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting;

· the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events and their impact during the first six months of the financial year and description of principal risks and uncertainties for the remaining six months of the financial year); and

· the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).

The Directors of Renold plc are listed in the Annual Report for the year ended 31 March 2022. A list of current Directors is maintained on the Group website at www.renold.com.

By order of the Board

Robert Purcell  Jim Haughey

Chief Executive  Group Finance Director

16 November 2022  16 November 2022

Condensed consolidated income statement

for the six months ended 30 September 2022

	Note	First half 2022/23 (unaudited) £m	Restated2 First half 2021/22 (unaudited) £m	Full year 2021/22 (audited) £m
Revenue	3	116.3	95.3	195.2
Operating costs		(107.5)	(86.6)	(179.0)
Operating profit		8.8	8.7	16.2
Net financing costs	4	(2.3)	(2.0)	(3.8)
Profit before tax		6.5	6.7	12.4
Taxation	5	(1.7)	(1.1)	(2.2)
Profit for the period		4.8	5.6	10.2
Earnings per share	6
Basic		2.3p	2.6p	4.7p
Diluted		2.1p	2.4p	4.4p
Basic adjusted1 earnings per share		2.7p	1.9p	4.3p
Diluted adjusted earnings per share		2.4p	1.8p	4.0p

¹ Adjusted: In addition to statutory reporting, the Group reports certain financial metrics on an adjusted basis. Definitions of adjusted measures and information about the differences to statutory metrics are provided in Note 11 to the financial statements.

² See Note 12 for details of the prior period restatements.

All results are from continuing operations

Condensed consolidated statement of comprehensive income

for the six months ended 30 September 2022

		First half 2022/23 (unaudited) £m	Restated1 First half 2021/22 (unaudited) £m	Full year 2021/22 (audited) £m
Profit for the period		4.8	5.6	10.2
Items that may be reclassified to the income statement in subsequent periods:
Exchange differences on translation of foreign operations		9.3	1.1	3.2
Loss on hedges of the net investment in foreign operations		(1.2)	(0.1)	(0.3)
Cash flow hedges:
Fair value loss arising on cash flow hedges during the period		(1.4)	(0.3)	(0.5)
Less: Cumulative gain arising on cash flow hedges reclassified to profit and loss		0.7	0.1	0.1
Income tax relating to items that may be reclassified subsequently to profit or loss		0.2	0.1	0.1
		7.6	0.9	2.6
Items not to be reclassified to the income statement in subsequent periods:
Re-measurement gains on retirement benefit obligations		24.7	1.0	12.3
Tax on re-measurement gains on retirement benefit obligations - excluding impact of statutory rate change		(6.4)	(2.1)	(3.1)
Effect of changes in statutory tax rate on deferred tax assets		-	4.0	2.3
		18.3	2.9	11.5
Other comprehensive income for the period, net of tax		25.9	3.8	14.1
Total comprehensive income for the period, net of tax		30.7	9.4	24.3

¹ See Note 12 for details of the prior period restatements.

Condensed consolidated balance sheet

as at 30 September 2022

	Note	30 September 2022 (unaudited) £m	Restated1 30 September 2021 (unaudited) £m	31 March  2022 (audited) £m
Assets Non-current assets
Goodwill		30.0	22.2	22.7
Other intangible fixed assets		10.3	5.3	5.1
Property, plant and equipment		57.3	47.0	49.3
Right-of-use assets		17.6	10.8	8.0
Deferred tax assets		13.3	17.7	15.4
		128.5	103.0	100.5
Current assets
Inventories		70.8	44.7	48.4
Trade and other receivables		43.5	37.8	35.7
Current tax		0.1	0.1	-
Derivative financial assets		0.1	-	-
Cash and cash equivalents	8	15.7	11.5	10.5
		130.2	94.1	94.6
Total assets		258.7	197.1	195.1
Liabilities
Current liabilities
Borrowings	8	(2.9)	(0.1)	(1.0)
Trade and other payables		(63.7)	(45.5)	(48.5)
Lease liabilities		(2.6)	(2.2)	(2.8)
Current tax		(3.2)	(2.9)	(2.8)
Derivative financial  liabilities		(1.5)	(0.3)	(0.5)
Provisions		-	(0.2)	(0.2)
		(73.9)	(51.2)	(55.8)
Net current assets		56.3	42.9	38.8
Non-current liabilities
Borrowings	8	(46.3)	(24.8)	(22.8)
Preference stock	8	(0.5)	(0.5)	(0.5)
Trade and other payables		(6.8)	(5.7)	(4.7)
Lease liabilities		(18.8)	(13.3)	(9.2)
Deferred tax liabilities		(10.1)	(4.2)	(5.4)
Retirement benefit obligations	7	(61.3)	(100.3)	(87.1)
Provisions		(4.0)	(3.7)	(3.8)
		(147.8)	(152.5)	(133.5)
Total liabilities		(221.7)	(203.7)	(189.3)
Net assets/(liabilities)		37.0	(6.6)	5.8
Equity
Issued share capital	9	11.3	11.3	11.3
Currency translation reserve		18.1	7.9	9.8
Other reserves		(6.1)	(2.1)	(5.4)
Retained earnings/(deficit)		13.7	(23.7)	(9.9)
Total shareholders' funds/(deficit)		37.0	(6.6)	5.8

¹ See Note 12 for details of the prior period restatements.

Condensed consolidated statement of changes in equity

for the six months ended 30 September 2022

	Share capital (Note 9) £m	Share premium account £m	Restated1 Retained earnings /(deficit) £m	Currency translation reserve £m	Capital redemption reserve £m	Other reserves £m	Restated1 Total shareholders' funds/(deficit) £m
At 1 April 2021	11.3	30.1	(78.2)	6.8	15.4	(0.1)	(14.7)
Profit for the year	-	-	10.2	-	-	-	10.2
Other comprehensive income/(expense)	-	-	11.5	3.0	-	(0.4)	14.1
Total comprehensive income/(expense) for the year	-	-	21.7	3.0	-	(0.4)	24.3
Own shares purchased	-	-	-	-	-	(4.9)	(4.9)
Capital reorganisation	-	(30.1)	45.5	-	(15.4)	-	-
Share-based payments	-	-	1.1	-	-	-	1.1
At 31 March 2022	11.3	-	(9.9)	9.8	-	(5.4)	5.8
Profit for the period	-	-	4.8	-	-	-	4.8
Other comprehensive income/(expense)	-	-	18.3	8.3	-	(0.7)	25.9
Total comprehensive income/(expense) for the period	-	-	23.1	8.3	-	(0.7)	30.7
Share-based payments	-	-	0.5	-	-	-	0.5
At 30 September 2022	11.3	-	13.7	18.1	-	(6.1)	37.0
At 1 April 2021	11.3	30.1	(78.2)	6.8	15.4	(0.1)	(14.7)
Profit for the period	-	-	5.6	-	-	-	5.6
Other comprehensive income/(expense)	-	-	2.9	1.1	-	(0.2)	3.8
Total comprehensive income/(expense) for the period	-	-	8.5	1.1	-	(0.2)	9.4
Own shares purchased	-	-	-	-	-	(1.8)	(1.8)
Capital reorganisation	-	(30.1)	45.5	-	(15.4)	-	-
Share-based payments	-	-	0.5	-	-	-	0.5
At 30 September 2021 (Restated)1	11.3	-	(23.7)	7.9	-	(2.1)	(6.6)

¹ See Note 12 for details of the prior period restatements.

Included in retained earnings is £2.4m (31 March 2022: £1.9m) relating to a share option reserve.

The other reserves are stated after deducting £4.9m (31 March 2022: £4.9m) relating to shares held in the Renold plc Employee Benefit Trust. The Renold Employee Benefit Trust holds Renold plc shares and satisfies awards made under various employee incentive schemes.

At 30 September 2022 the Renold Employee Benefit Trust held 18,422,509 (31 March 2022: 18,422,509) ordinary shares of 5p each and, following recommendations by the employer, are provisionally allocated to satisfy awards under employee incentive schemes. At 30 September 2022 the market value of these shares was £4.2m (31 March 2022: £3.7m).  

Condensed consolidated statement of cash flows

for the six months ended 30 September 2022

	First half 2022/23 (unaudited) £m	First half 2021/22 (unaudited) £m	Full year 2021/22 (audited) £m
Cash flows from operating activities
Cash generated by operations (Note 8)	3.7	10.1	21.0
Income taxes paid	(1.3)	(1.3)	(1.7)
Net cash flows from operating activities	2.4	8.8	19.3
Cash flows from investing activities
Proceeds from property disposals	0.3	0.1	0.2
Purchase of property, plant and equipment	(1.9)	(0.8)	(4.1)
Purchase of intangible assets	(0.6)	(0.6)	(1.2)
Consideration paid for acquisitions	(17.2)	(0.3)	(0.5)
Net cash flows from investing activities	(19.4)	(1.6)	(5.6)
Cash flows from financing activities
Repayment of principal under lease liabilities	(1.2)	(1.4)	(4.2)
Financing costs paid	(1.1)	(0.8)	(1.5)
Own shares purchased	-	(1.8)	(4.9)
Proceeds from borrowings	23.3	-	4.7
Repayment of borrowings	(1.2)	(9.2)	(16.0)
Net cash flows from financing activities	19.8	(13.2)	(21.9)
Net increase/(decrease) in cash and cash equivalents	2.8	(6.0)	(8.2)
Net cash and cash equivalents at beginning of period	9.5	17.3	17.3
Effects of exchange rate changes	0.5	(0.1)	0.4
Net cash and cash equivalents at end of period	12.8	11.2	9.5

Notes to the interim condensed consolidated financial statements

1.  Corporate information

The interim condensed consolidated financial statements for the six months ended 30 September 2022 were approved by the Board on 16 November 2022. These statements have not been audited or reviewed by the Group's auditor pursuant to the Auditing Practices Board guidance on the Review of Interim Financial Information. 

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

These interim condensed consolidated financial statements do not constitute statutory accounts of the Group within the meaning of Section 434 of the Companies Act 2006. The statutory accounts for the year ended 31 March 2022 have been filed with the Registrar of Companies. The auditor's report on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498(2) or Section 498(3) of the Companies Act 2006.

2.  Accounting policies 

Basis of preparation

The interim condensed consolidated financial statements for the six months ended 30 September 2022 have been prepared in accordance with the UK adopted International Accounting Standard 34, 'Interim financial reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the UK's Financial Conduct Authority (FCA).

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended 31 March 2022, which were prepared in accordance with UK-adopted international accounting standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under these standards.

The accounting policies, presentation and methods of computation applied by the Group in these interim condensed consolidated financial statements are the same as those applied in the Group's latest audited annual consolidated financial statements for the year ended 31 March 2022, except as noted below. 

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

New and revised accounting standards adopted by the Group 

During the period, the International Accounting Standards Board and International Financial Reporting Interpretations Committee have issued the following standards, amendments and interpretations, which are considered relevant to the Group. Their adoption has not had any significant impact on the amounts or disclosures reported in these financial statements. 

· Amendments to IAS 16 (Property, Plant and Equipment - Proceeds before Intended Use) 

· Annual Improvements to IFRS 2018-2020  

· Conceptual Framework (Amendments to References to the Conceptual Framework in IFRS Standards) 

· Amendments to IAS 37 (Onerous contracts - Cost of fulfilling a contract)

New and revised accounting standards and interpretations which were in issue but were not yet effective and have not been adopted early by the Group 

The IASB published a number of amendments to IFRSs, new standards and interpretations which are not yet effective, and of which some have been endorsed for use in the EU. An impact assessment has been performed for each of these, with no significant financial impact being identified for the consolidated financial statements of the Group and the separate financial statements of Renold plc. The amendments, new standards and interpretations will be adopted in accordance with their effective dates.

· Applying IFRS 9 'Financial Instruments' with IFRS 4 'Insurance Contracts' (Amendments to IFRS 4)

· Amendments to IAS 1 (Classification of Liabilities as Current or Non-Current) 

· IFRS 17 'Insurance Contracts'

· Amendments to IAS 1 and IFRS Practice Statement 2 (Disclosure of accounting policies) 

· Amendments to IAS 12 (Deferred Tax related to Assets and Liabilities arising from a single transaction) 

· Amendments to IAS 8 (Definition of Accounting Estimates) 

· Lease Liability in a Sale and Leaseback (Amendments to IFRS 16)

Significant accounting judgements, estimates and assumptions  

In the course of preparing these interim condensed consolidated financial statements, no judgements have been made in the process of applying the Group's accounting policies that have had a significant effect on the amounts recognised in the financial statements, other than those involving estimation uncertainty. The key sources of estimation uncertainty are those which applied in the annual consolidated financial statements for the year ended 31 March 2022, namely: 

· Taxation 

· Retirement benefit obligations 

· Right-of-use assets 

· Inventory valuation 

· Impairment of non-financial assets 

Financial risk management 

The Group's financial risk management objectives and policies are consistent with those disclosed in the consolidated financial statements for the year ended 31 March 2022.

3.  Segmental information

For management purposes, the Group is organised into two operating segments according to the nature of their products and services and these are considered by the Directors to be the reportable operating segments of Renold plc as shown below:   

· The Chain segment manufactures and sells power transmission and conveyor chain and also includes sales of torque transmission products through Chain National Sales Companies (NSCs); and

· The Torque Transmission segment manufactures and sells torque transmission products, such as gearboxes and couplings .

No operating segments have been aggregated to form the above reportable segments.

The Chief Operating Decision Maker (CODM) for the purposes of IFRS 8 'Operating Segments' is considered to be the Board of Directors of Renold plc. Management monitor the results of the separate reportable operating segments based on operating profit and loss which is measured consistently with operating profit and loss in the consolidated financial statements. The same segmental basis applies to decisions about resource allocation. Disclosure has not been included in respect of the operating assets of each segment as they are not reported to the CODM on a regular basis. However, Group net financing costs, retirement benefit obligations and income taxes are managed on a Group basis and therefore are not allocated to operating segments. Transfer prices between operating segments are on an arm's length basis in a manner similar to transactions with third parties.   

The segment results for the period ended 30 September 2022 were as follows:

Period ended 30 September 2022	Chain2 £m		Torque Transmission £m		Head office costs1 and eliminations £m		Consolidated £m
Revenue
External customer - transferred at a point in time	94.7		21.0		-		115.7
External customer - transferred over time	-		0.6		-		0.6
Inter-segment	0.4		1.4		(1.8)		-
Total revenue	95.1		23.0		(1.8)		116.3
Operating profit/(loss)	12.3		1.5		(5.0)		8.8
Financing costs							(2.3)
Profit before tax							6.5
Taxation							(1.7)
Profit after tax							4.8
Other disclosures
Working capital	49.7		10.4		(9.5)		50.6
Capital expenditure	0.9		1.6		0.5		3.0
Total depreciation and amortisation	3.3		0.8		1.0		5.1

¹ The head office operating loss includes non-recurring costs of £0.6m relating to the acquisition of the YUK business.

² Chain operating profit includes costs of £0.2m relating to amortisation of acquired intangibles.

The segment results for the period ended 30 September 2021 were as follows:

Period ended 30 September 2021	Restated1 Chain £m		Torque Transmission £m		Restated1 Head office costs and eliminations £m		Restated1 Consolidated £m
Revenue
External customer- transferred at a point in time	76.2		18.3		-		94.5
External customer - transferred over time	-		0.8		-		0.8
Inter-segment	0.4		1.5		(1.9)		-
Total revenue	76.6		20.6		(1.9)		95.3
Operating profit/(loss)	10.9		1.8		(4.0)		8.7
Net financing costs							(2.0)
Profit before tax							6.7
Taxation							(1.1)
Profit after tax							5.6
Other disclosures
Working capital	32.5		8.0		(3.5)		37.0
Capital expenditure	0.5		0.4		0.4		1.3
Total depreciation and amortisation	2.9		0.9		0.9		4.7

¹ See Note 12 for details of the prior period restatements.

In addition to statutory reporting, the Group reports certain financial metrics on an adjusted basis (alternative performance measures, APMs). Definitions of adjusted measures, and information about the differences to statutory metrics are provided in Note 11 to the interim condensed consolidated financial statements. Constant exchange rate results are current period results retranslated using prior year exchange rates. A reconciliation is provided below and in Note 11.   

Period ended 30 September 2022	Chain £m		Torque Transmission £m		Head office costs and eliminations £m		Consolidated £m
Revenue
External customer- transferred at a point in time	94.7		21.0		-		115.7
External customer - transferred over time	-		0.6		-		0.6
Inter-segment	0.4		1.4		(1.8)		-
Foreign exchange retranslation	(5.9)		(1.5)		-		(7.4)
Total revenue at constant exchange rates	89.2		21.5		(1.8)		108.9
Operating profit/(loss)	12.3		1.5		(5.0)		8.8
Foreign exchange retranslation	(0.8)		(0.1)		-		(0.9)
Operating profit/(loss) at constant exchange rates	11.5		1.4		(5.0)		7.9

The segment results for the year ended 31 March 2022 were as follows:

Year ended 31 March 2022	Chain £m		Torque Transmission £m		Head office costs and eliminations £m		Consolidated £m
Revenue
External customer - transferred at a point in time	158.2		35.6		-		193.8
External customer - transferred over time	-		1.4		-		1.4
Inter-segment	1.0		3.4		(4.4)		-
Total revenue	159.2		40.4		(4.4)		195.2
Operating profit/(loss)	20.5		4.1		(8.4)		16.2
Net financing costs							(3.8)
Profit before tax							12.4
Taxation							(2.2)
Profit after tax							10.2
Other disclosures
Working capital	30.0		9.0		(3.4)		35.6
Capital expenditure	3.4		2.0		0.9		6.3
Total depreciation and amortisation	6.2		1.9		1.4		9.5

4.  Net financing costs

	First half				Full year
	2022/23 £m		2021/22 £m		2021/22 £m
Financing costs:
Interest payable on bank loans and overdrafts	(0.9)		(0.6)		(1.1)
Interest expense on lease liabilities	(0.2)		(0.2)		(0.5)
Amortised financing costs	(0.2)		(0.2)		(0.3)
Loan financing costs	(1.3)		(1.0)		(1.9)
Net IAS 19 financing costs	(1.0)		(0.9)		(1.8)
Discount unwind on non-current trade and other payables	-		(0.1)		(0.1)
Net financing costs	(2.3)		(2.0)		(3.8)

5.  Taxation

	First half				Full year
	2022/23 £m		Restated1 2021/22 £m		2021/22 £m
Current tax:
- UK	-		-		0.1
- Overseas	(1.5)		(1.5)		(2.1)
- Adjustments in respect of prior periods	0.3		-		-
Current income tax charge	(1.2)		(1.5)		(2.0)
Deferred tax:
- UK	-		(0.2)		(0.1)
- Overseas	(0.5)		(0.1)		(0.1)
- Effects of changes in corporate tax rates	-		0.6		0.5
- Adjustments in respect of prior periods	-		0.1		(0.5)
Total deferred tax charge	(0.5)		0.4		(0.2)
Total income tax expense	(1.7)		(1.1)		(2.2)

¹ See Note 12 for details of the prior period restatements.

Factors affecting current and future tax charges 

The decrease in the current tax charge for the period is attributable to the recognition of a receivable for the carry back of tax losses against prior year taxable profits.

The UK tax rate change from 19% to 25% was substantively enacted in the prior year, resulting in a credit to the income statement on remeasurement of the opening deferred tax asset balance in the prior period.

The Group's tax charge in future years will be affected by the profit mix, effective tax rates in the different countries where the Group operates, and utilisation of tax losses.  No deferred tax is recognised on the unremitted earnings of overseas subsidiaries in accordance with IAS 12.39.

6.  Earnings per share

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

	First half						Full year
	2022/23			Restated1 2021/22			2021/22
	Earnings	Per share amount		Earnings	Per share amount		Earnings	Per share amount
	£m	(pence)		£m	(pence)		£m	(pence)
Basic EPS - Profit attributed to ordinary shareholders	4.8	2.3p		5.6	2.6p		10.2	4.7p
Effect of adjusting items, after tax:
Amortisation of acquired intangible assets	0.2	0.1p		-	-		0.1	0.1p
Acquisition costs	0.6	0.3p		-	-		-	-
US PPP loan forgiveness	-	-		(1.7)	(0.8p)		(1.7)	(0.8p)
Dilapidations on closed sites	-	-		0.2	0.1p		-	-
New lease arrangements on sublet properties	-	-		-	-		0.7	0.3p
Adjusted EPS	5.6	2.7p		4.1	1.9p		9.3	4.3p

¹ See Note 12 for details of the prior period restatements.

	First half				Full year
	2022/23 Thousands		2021/22 Thousands		2021/22 Thousands
Weighted average number of ordinary shares:
For the purpose of calculating basic earnings per share	206,995		219,458		214,795
Effect of dilutive potential ordinary shares:   Shares subject to performance conditions	23,737		14,195		16,909
For the purpose of calculating diluted earnings per share	230,732		233,653		231,704

	First half				Full year
	2022/23 (pence)		2021/22 (pence)		2021/22 (pence)
Diluted EPS	2.1p		2.4p		4.4p
Diluted adjusted EPS	2.4p		1.8p		4.0p

The adjusted EPS numbers have been provided to give a useful indication of underlying performance by the exclusion of adjusting items. Due to the existence of unrecognised deferred tax assets there were no associated tax credits on some of the adjusting items and in these instances adjusting items are added back in full. 

7.  Retirement benefit obligations

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

	At 30 September 2022 £m		Restated1 At 30 September 2021 £m		At 31 March 2022 £m
Funded plan obligations	(160.7)		(233.5)		(214.4)
Funded plan assets	118.8		156.1		149.8
Net funded plan obligations	(41.9)		(77.4)		(64.6)
Unfunded obligations	(19.4)		(22.9)		(22.5)
Total retirement benefit obligations	(61.3)		(100.3)		(87.1)

Analysed as follows:

Non-current liabilities: Retirement benefit obligations	(61.3)		(100.3)		(87.1)
Net deferred tax asset	4.1		14.3		11.0
Retirement benefit obligation net of deferred tax	(57.2)		(86.0)		(76.1)

¹ See Note 12 for details of the prior period restatements.

The decrease in the Group's net pre-tax deficit from £87.1m at 31 March 2022 to £61.3m at 30 September 2022 primarily reflects changes in the underlying assumptions, such as the discount rate, plus employer contributions made in the period.   

8.  Additional cash flow information

Reconciliation of operating profit to net cash flows from operations:

	First half				Full year
	2022/23 £m		Restated1 2021/22 £m		2021/22 £m
Cash generated from operations:
Operating profit	8.8		8.7		16.2
Depreciation of property, plant and equipment - owned assets	2.9		2.7		5.3
Depreciation of property, plant and equipment - right-of-use-assets	1.2		1.4		2.6
Amortisation of intangible assets	1.0		0.6		1.6
Loss on disposals of plant and equipment	-		-		(0.9)
Impairment of right-of-use-asset	-		-		1.7
US PPP loan forgiveness	-		(1.7)		(1.7)
Equity share plans	0.5		0.5		1.1
Increase in inventories	(10.9)		(6.3)		(9.5)
Increase in receivables	(0.9)		(7.1)		(4.5)
Increase in payables	4.2		13.6		13.7
Increase in provisions	-		-		0.1
Cash contribution to pension schemes	(3.1)		(2.4)		(4.8)
Pension current service cost (non-cash)	-		0.1		0.1
Cash generated from operations	3.7		10.1		21.0

¹ See Note 12 for details of the prior period restatements.

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

	First half				Full year
	2022/23 £m		2021/22 £m		2021/22 £m
Increase/(decrease) in cash and cash equivalents	2.8		(6.0)		(8.2)
Change in net debt resulting from cash flows
- Proceeds from borrowings	(23.3)		-		(4.7)
- Repayment of borrowings	1.2		9.2		16.0
US PPP loan forgiveness	-		1.7		1.7
Foreign currency translation differences	(0.7)		(0.2)		0.1
Non-cash movement on capitalised finance costs	(0.2)		(0.2)		(0.3)
Change in net debt during the period	(20.2)		4.5		4.6
Net debt at start of period	(13.8)		(18.4)		(18.4)
Net debt at end of period	(34.0)		(13.9)		(13.8)

Net debt comprises:

	At 30 September 2022 £m		At 30 September 2021 £m		At 31 March 2022 £m
Cash and cash equivalents	15.7		11.5		10.5
Total debt	(49.7)		(25.4)		(24.3)
Net debt	(34.0)		(13.9)		(13.8)

	At 30 September 2022		At 30 September 2021		At 31 March 2022
Net cash and cash equivalents	£m		£m		£m
Cash and cash equivalents	15.7		11.5		10.5
Less: Overdrafts	(2.9)		(0.3)		(1.0)
Net cash and cash equivalents	12.8		11.2		9.5

	At 30 September 2022		At 30 September 2021		At 31 March 2022
Total debt	£m		£m		£m
Borrowings:
Overdrafts	(2.9)		(0.3)		(1.0)
Capitalised costs	-		0.2		-
Current borrowings	(2.9)		(0.1)		(1.0)
Bank Loans	(46.3)		(25.0)		(22.8)
Capitalised costs	-		0.2		-
Non-current borrowings	(46.3)		(24.8)		(22.8)
Total borrowings	(49.2)		(24.9)		(23.8)
Preference stock	(0.5)		(0.5)		(0.5)
Total debt	(49.7)		(25.4)		(24.3)

9.  Called up share capital

	At 30 September 2022 £m		At 30 September 2021 £m		At 31 March 2022 £m
Ordinary shares of 5p each - issued and fully paid	11.3		11.3		11.3

At 30 September 2022, the issued ordinary share capital comprised 225,417,740 ordinary shares of 5p each (30 September 2021: 225,417,740 shares).

10. Acquisition of businesses

During the period the Group completed the acquisition of 100% of the ordinary share capital of Industrias YUK, S.A. for the total consideration of €24m, of which €20m was paid on the date of the acquisition and the remaining €4m is deferred. Of the deferred consideration, €2m will be paid on 3 August 2023 and €2m on 3 August 2024. YUK is a Valencia-based, manufacturer and distributor of high quality conveyor chain ("CVC") and ancillary products. 

The transaction has been accounted for as a business combination under IFRS 3 and is summarised below:

	Provisional as at 30 September 2022
	£m
Fair value of net assets acquired:
Other intangible assets	5.4
Property, plant and equipment	5.3
Right-of-use-assets	9.5
Inventories	7.4
Trade and other receivables	4.4
Deferred tax asset	0.2
Trade and other payables	(5.7)
Lease liabilities	(9.5)
Net identifiable assets and liabilities	17.0
Goodwill	3.5
Total consideration	20.5
Consideration
Cash paid	17.1
Deferred consideration	3.4
Total consideration	20.5

Acquisition related costs amounted to £0.6m and have been included in the condensed consolidated income statement.

The gross contractual value of the trade and other receivables was £4.4m. The best estimate at the acquisition date of the contractual cash flows not expected to be collected was £nil. 

Deferred consideration of €4m is payable within 2 years.

The goodwill arising on acquisition is expected to be deductible for tax purposes and is attributable to:

• the anticipated profitability of the distribution of the Group's services in new markets; and 

• the synergies that can be achieved in the business combination including management, processes and maximising site capacities.  

The business was acquired on 3 August 2022 and contributed £2.2m revenue and £0.2m headline operating profit for the period between the date of acquisition and the balance sheet date.

If the acquisition had been completed on the first day of the financial period, the acquisition would have contributed £8.4m to Group revenue, £1.2m to Group operating profit and £1.9m adjusted operating profit (after adding back £0.1m for amortisation of acquired intangibles and £0.6m acquisition costs).

11. Alternative performance measures

In order to provide users of the accounts with a clear and consistent presentation of the performance of the Group's ongoing trading activity, the Group uses various alternative performance measures (APMs). Amortisation of acquired intangibles, restructuring costs, discontinued operations and material one-off items or remeasurements are added back / (deducted) as adjusting items as management seek to present a measure of performance which is not impacted by material non-recurring items or items considered non-operational. Performance measures for the Group's ongoing trading activity are described as 'Adjusted' and are used to measure and monitor performance as management believe these measures enable users of the financial statements to better assess the trading performance of the business. In addition, the Group reports sales and profit measures at constant exchange rates. Constant exchange rate metrics exclude the impact of foreign exchange translation, by retranslating the current year results using prior year exchange rates. 

The APMs used by the Group include:

APM	Reference	Explanation of APM
• adjusted operating profit	A	Adjusted measures are used by the Group as a measure of underlying business performance, adding back items that do not relate to underlying performance
• adjusted profit before taxation	B
• adjusted EPS	C
• return on sales	D
• operating profit gearing	D
• revenue at constant exchange rates	E	Constant exchange rate metrics adjust for constant foreign exchange translation and are used by the Group to better understand year-on-year changes in performance
• adjusted operating profit at constant exchange rates	F
• return on sales at constant exchange rates	G
• EBITDA	H	EBITDA is a widely utilised measure of profitability, adjusting to remove non-cash depreciation, amortisation charges and share-based payment charge
• adjusted EBITDA	H
• operating cash flow	H
• net debt	I	Net debt, leverage and gearing are used to assess the level of borrowings within the Group and are widely used in capital markets analysis
• leverage ratio	J
• gearing ratio	K
• legacy pension cash costs	L	The cost of legacy pensions is used by the Group as a measure of the cash cost of servicing legacy pension schemes
• average working capital ratio	M	Working capital as a ratio of rolling 12 month revenue is used to measure cash performance and balance sheet strength

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

(A) Adjusted operating profit

	Period ended 30 September 2022
	Chain	Torque Transmission	Head office costs and eliminations	Consolidated
	£m	£m	£m	£m
Operating profit	12.3	1.5	(5.0)	8.8
Add back/(deduct):
Amortisation of acquired intangible assets	0.2	-	-	0.2
Acquisition costs	-	-	0.6	0.6
Adjusted operating profit	12.5	1.5	(4.4)	9.6

	Period ended 30 September 2021 (Restated1)
	Chain	Torque Transmission	Head office costs and eliminations	Consolidated
	£m	£m	£m	£m
Operating profit	10.9	1.8	(4.0)	8.7
Add back/(deduct):
US PPP loan forgiveness	(1.7)	-	-	(1.7)
Dilapidation costs for closed sites	-	-	0.2	0.2
Adjusted operating profit	9.2	1.8	(3.8)	7.2

¹ See Note 12 for details of the prior period restatements.

	Year ended 31 March 2022
	Chain	Torque Transmission	Head office costs and eliminations	Consolidated
	£m	£m	£m	£m
Operating profit	20.5	4.1	(8.4)	16.2
Add back/(deduct):
Amortisation of acquired intangible assets	0.1	-	-	0.1
US PPP loan forgiveness	(1.7)	-	-	(1.7)
New lease arrangements on sublet properties	-	-	0.7	0.7
Adjusted operating profit	18.9	4.1	(7.7)	15.3

(B) Adjusted profit before taxation

	First half				Full year
	2022/23		Restated1 2021/22		2021/22
	£m		£m		£m
Profit before taxation	6.5		6.7		12.4
Add back/(deduct):
Amortisation of acquired intangible assets	0.2		-		0.1
US PPP loan forgiveness	-		(1.7)		(1.7)
Acquisition costs	0.6		-		-
Dilapidation costs for closed sites	-		0.2		-
Property related costs	-		-		0.7
Adjusted profit before taxation	7.3		5.2		11.5

¹ See Note 12 for details of the prior period restatements.

(C) Adjusted earnings per share

Adjusted EPS is reconciled to statutory EPS in Note 6.

(D) Return on sales and operating profit gearing

	Chain		Torque Transmission		Head office costs and eliminations		Consolidated
Period ended 30 September 2022	£m		£m		£m		£m
Adjusted operating profit	12.5		1.5		(4.4)		9.6
Total revenue (including inter-segment sales)	95.1		23.0		(1.8)		116.3
Return on sales %	13.1%		6.5%		n/a		8.3%

	Restated1 Chain		Torque Transmission		Restated1 Head office costs and eliminations		Restated1 Consolidated
Period ended 30 September 2021	£m		£m		£m		£m
Adjusted operating profit	9.2		1.8		(3.8)		7.2
Total revenue (including inter-segment sales)	76.6		20.6		(1.9)		95.3
Return on sales %	12.0%		8.7%		n/a		7.5%

¹ See Note 12 for details of the prior period restatements.

	Chain		Torque Transmission		Head office costs and eliminations		Consolidated
Year ended 31 March 2022	£m		£m		£m		£m
Adjusted operating profit	18.9		4.1		(7.7)		15.3
Total revenue (including inter-segment sales)	159.2		40.4		(4.4)		195.2
Return on sales %	11.9%		10.1%		n/a		7.8%

	Chain		Torque Transmission		Head office costs and eliminations		Consolidated
Period ended 30 September 2022	£m		£m		£m		£m
Year-on-year change in adjusted operating profit	3.3		(0.3)		(0.6)		2.4
Year-on-year change in total revenue (including inter-segment sales)	18.5		2.4		0.1		21.0
Adjusted operating profit gearing %	18%		-13%		n/a		11%

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

	Chain		Torque Transmission		Head office costs and eliminations		Consolidated
Six months ended 30 September 2022	£m		£m		£m		£m
External revenue - transferred at a point in time	94.7		21.0		-		115.7
External revenue - transferred over time	-		0.6				0.6
Inter-segment	0.4		1.4		(1.8)		-
Foreign exchange retranslation	(5.9)		(1.5)		-		(7.4)
Revenue at constant exchange rates	89.2		21.5		(1.8)		108.9
Adjusted operating profit	12.5		1.5		(4.4)		9.6
Foreign exchange retranslation	(0.8)		(0.1)		-		(0.9)
Adjusted operating profit at constant exchange rates	11.7		1.4		(4.4)		8.7
Return on sales at constant exchange rates %	13.1%		6.5%		n/a		8.0%

(H) EBITDA, adjusted EBITDA (earnings before interest, taxation, depreciation and amortisation) and operating cashflow

	First half				Full year
	2022/23		Restated1 2021/22		2021/22
	£m		£m		£m
Operating profit	8.8		8.7		16.2
Depreciation and amortisation	5.1		4.7		9.5
Share-based payments	0.5		0.5		1.1
EBITDA2	14.4		13.9		26.8
Add back/(deduct):
US PPP loan forgiveness	-		(1.7)		(1.7)
Acquisition costs	0.6		-		-
Dilapidation costs for closed properties	-		0.2		-
Property related costs	-		-		0.7
Adjusted EBITDA2	15.0		12.4		25.8
Inventories	(10.9)		(6.3)		(9.5)
Trade and other receivables	(0.9)		(7.1)		(4.5)
Trade and other payables	4.2		13.6		13.7
Provisions	-		(0.2)		0.1
Movement in working capital	(7.6)		-		(0.2)
Purchase of property, plant and equipment	(1.9)		(0.8)		(4.1)
Purchase of intangible assets	(0.6)		(0.6)		(1.2)
Proceeds from property disposals	0.3		0.1		0.2
Net capital expenditure	(2.2)		(1.3)		(5.1)
Operating cash flow	5.2		11.1		20.5

¹ See Note 12 for details of the prior period restatements.

² The calculation of EBITDA, adjusted EBITDA and operating cash flow includes the add back for the non-cash share-based payment charge of £0.5m for the period ended 30 September 2022 (2021: £0.5m).

(I) Net debt

Net debt is reconciled to the statutory balance sheet in Note 8.

(J) Leverage ratio

	At 30 September 2022 £m		At 30 September 2021 £m		At 31 March 2022 £m
Net debt (see Note 8)	34.0		13.9		13.8
H2 2020/21 Adjusted EBITDA	-		10.4		-
H1 2021/22 Adjusted EBITDA	-		12.4		12.4
H2 2021/22 Adjusted EBITDA	13.4		-		13.4
H1 2022/23 Adjusted EBITDA	15.0		-		-
12 months rolling adjusted EBITDA	28.4		22.8		25.8
Leverage ratio	1.2 times		0.6 times		0.5 times

(K) Gearing ratio

	At 30 September 2022 £m		Restated1 At 30 September 2021 £m		At 31 March 2022 £m
Net debt (see Note 8)	34.0		13.9		13.8
Equity attributable to equity holders of the parent	37.0		(6.6)		5.8
Net debt (see Note 8)	34.0		13.9		13.8
Total capital plus net debt	71.0		7.3		19.6
Gearing ratio %	48%		190%		70%

¹ See Note 12 for details of the prior period restatement.

(L) Legacy pension cash costs

	First half				Full year
	2022/23		2021/22		2021/22
	£m		£m		£m
Cash contributions to pension schemes	2.5		1.8		3.7
Pension payments in respect of unfunded schemes	0.6		0.6		1.1
Scheme administration costs	0.4		0.3		0.7
	3.5		2.7		5.5

( M) Average working capital ratio

	First half				Full year
	2022/23		2021/22		2021/22
	£m		£m		£m
Inventories	70.8		44.7		48.4
Trade and other receivables	43.5		37.8		35.7
Trade and other payables	(63.7)		(45.5)		(48.5)
Total working capital	50.6		37.0		35.6
Average working capital1 (a)	43.8		38.9		36.1
12 months rolling revenue (b)	216.2		179.1		195.2
Average working capital ratio ((a)/(b))	20%		22%		18%

¹ Calculated as a simple average of the previous 12 months' working capital.

12. Prior period adjustments

The Group has changed its accounting policy related to the capitalisation of certain software costs, this change follows the IFRIC Interpretation Committee's agenda decision published in April 2021, which clarifies the accounting treatment of the costs of configuring or customising software under software as a service (SaaS) arrangements. Previously capitalised SaaS costs have now been written off at the point they were originally incurred, and the related subsequent amortisation of these costs in the prior year has now been reversed and added back to profit. 

In addition, prior period adjustments have been recorded relating to the following:

- Dilapidations provision - The prior period adjustment records an increased dilapidations provision for certain leased properties across the Group. The adjustment arose following changes to sublease arrangements on previously closed sites which prompted a global review of dilapidations across the Group's property portfolio. The adjustment includes the reclassification of £0.6m of dilapidations provision that had been incorrectly netted against the opening right-of-use asset cost on adoption of IFRS 16. Dilapidation provisions have been increased; with property, plant and equipment increased to the extent the group has incurred capital cost to modify lease properties alongside a corresponding obligation to remove the modification and restore the property on surrender of the lease. The adjustment to the income statement reflects the extent to which dilapidations were charged in the period to 30 September 2021, but related to obligations which arose in previous financial periods.

- Deferred taxation - The prior period adjustment reduces the value of the deferred tax asset (DTA) recognised in respect of UK pensions (reduction of £8.4m at 30 September 2021) and increases the value of deferred tax recognised in respect of UK losses (increase of £0.8m at 30 September 2021). The adjustment to the pensions DTA arose in respect of a deemed contribution of £40m that was made to the UK pension scheme in 2014. The contribution formed part of the Group's 25-year asset-backed partnership structure (the Scottish Limited Partnership, 'SLP'). At the inception of the partnership structure the £40m contribution was recorded as an allowable deduction in the tax computations of the Group's UK subsidiaries. This upfront tax deduction reduces the future tax deductions that are available over the remainder of the 25-year agreement. The gross pension DTA has historically been assumed to equal the IAS 19 deficit for the UK scheme, multiplied by the future expected tax rate, however, due to the upfront deduction taken at the inception of the scheme the UK pension DTA has been reduced to cap the implied future available deductions at each balance sheet date. The reduction in the UK pensions DTA resulted in the recognition of a DTA for UK losses. Previously no forecast UK taxable profits were available for loss recognition due to the assumption that the annual deductions expected on the pension contributions would be significantly higher than those now calculated as part of this review. Consequently, due to the lower level of allowable pension deductions expected each year in the forecast period used to assess taxable profits available for loss recognition, headroom now remains and accordingly a DTA for losses has been recognised at 30 September 2021.

The impact, on a line item basis for those affected, on the Condensed consolidated statement of comprehensive income for the period ended 30 September 2021 and the Condensed consolidated balance sheet as at 30 September 2021 is as follows:

Condensed consolidated statement of comprehensive income for the period ended 30 September 2021	As previously reported	Dilapidations provision	Deferred taxation	Change in accounting policy	First half 2021/22 (restated)
	£m	£m	£m	£m	£m
Revenue	95.3	-	-	-	95.3
Operating costs	(87.1)	0.3	-	0.2	(86.6)
Operating profit	8.2	0.3	-	0.2	8.7
Profit before tax	6.2	0.3	-	0.2	6.7
Taxation	(1.2)	-	0.1	-	(1.1)
Profit for the financial year	5.0	0.3	0.1	0.2	5.6
Tax on remeasurement gains/losses on retirement benefit obligations	(0.2)	-	(1.9)	-	(2.1)
Other comprehensive income/(expense) for the year, net of tax	5.7	-	(1.9)	-	3.8
Total comprehensive income/(expense) for the year, net of tax	10.7	0.3	(1.8)	0.2	9.4
Earnings per share
Basic earnings per share	2.3p	0.2p	-	0.1p	2.6p
Diluted earnings per share	2.1p	0.2p	-	0.1p	2.4p
Condensed consolidated balance sheet as at 30 September 2021	As previously reported	Dilapidations provision	Deferred taxation	Change in accounting policy	30 September 2021 (restated)
	£m	£m	£m	£m	£m
ASSETS
Non-current assets
Property, plant and equipment	46.7	0.3	-	-	47.0
Other intangible fixed assets	6.3	-	-	(1.0)	5.3
Deferred tax assets	25.3	-	(7.6)	-	17.7
Other non-current assets	33.0	-	-	-	33.0
	111.3	0.3	(7.6)	(1.0)	103.0
TOTAL ASSETS	205.4	0.3	(7.6)	(1.0)	197.1
LIABILITIES
Non-current liabilities
Provisions	(2.1)	(1.6)	-	-	(3.7)
Other non-current liabilities	(148.8)	-	-	-	(148.8)
	(150.9)	(1.6)	-	-	(152.5)
TOTAL LIABILITIES	(202.1)	(1.6)	-	-	(203.7)
NET LIABILITIES	3.3	(1.3)	(7.6)	(1.0)	(6.6)
EQUITY
Other equity items	17.1	-	-	-	17.1
Retained earnings	(13.8)	(1.3)	(7.6)	(1.0)	(23.7)
TOTAL SHAREHOLDERS' EQUITY	3.3	(1.3)	(7.6)	(1.0)	(6.6)

Ends

 

END

 

 

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