Update on IFRS

Renold PLC
10 August 2005


Renold plc - IFRS update

Introduction

The Renold plc Group has to date prepared its consolidated financial statements
in accordance with UK Generally Accepted Accounting Practice ('UK GAAP'). For
the year to 31 March 2006 the Group is required to prepare its consolidated
financial statements in accordance with International Financial Reporting
Standards ('IFRS'). The first published statements prepared under IFRS will be
the Group's interim results for the six months ending 30 September 2005 which
are intended to be issued in the first half of December 2005. In advance of
issuing the interim results a statement will be published showing the restated
financial information for prior periods, as it will appear in the interim
statement.

The purpose of this statement is to provide narrative information on the more
significant matters that will be impacted in the financial statements following
the adoption of IFRS. Detailed financial information has not been provided as
this is in the course of preparation and remains subject to review by the
Group's auditors.

Transition to IFRS

Guidance on the transition to IFRS is specifically provided in IFRS 1 - 'First
Time Adoption of International Financial Reporting Standards'. The Group's
transition date to IFRS is 4 April 2004 (the previous financial year having
ended on 3 April 2004). There are certain exemptions granted under IFRS 1 that
apply to the transition period. Those which are most significant to the Group
are briefly outlined below:

Business combinations - As allowed under IFRS 1, business combinations that
occurred prior to the transition date will not be restated.

Financial instruments - Advantage will be taken of the option not to restate
comparative information under IAS 32 and IAS 39, the standards on Financial
Instruments. Therefore, UK GAAP will continue to apply in respect of Financial
Instruments, until these standards are adopted with effect from 1 April 2005.

Cumulative translation differences - IAS 21 (The effects of changes in foreign
exchange rates) requires that on disposal of an operation the cumulative amount
of exchange differences previously recognised directly in equity for that
foreign operation should be transferred to the income statement as part of the
profit or loss on disposal. The Group will adopt the exemption allowing these
cumulative translation differences to be reset to zero at the transition date.

Impact on financial statement disclosures
The primary statements drawn up in accordance with IFRS will require the
reclassification of certain existing balances under UK GAAP into different
captions under IFRS (e.g. Deferred tax assets transferred from 'current assets'
to 'deferred tax - non-current assets'). Such reclassifications are not
specifically considered for the purposes of this statement but attention is
rather focused on matters that will change the actual amounts disclosed in prior
periods. In summary, in this context, it is anticipated that the following
matters will have the most significant impact on the financial statements;

IFRS 1 - First time adoption of IFRS - In accordance with the options available
under IFRS 1, at the date of transition the Group will measure its freehold
properties on a fair value basis and use this valuation as deemed cost going
forward. This will result in a material increase in the value of property in the
Group's balance sheet. The basis on which freehold properties are depreciated
will be revised from a reducing balance basis to a straight line basis which is
considered to be a basis more in line with general practice. The impact of these
revisions is not anticipated to have a material change on earnings.

IAS 19 - Employee benefits - Under UK GAAP the Group had adopted Financial
Reporting Standard 17 ('FRS 17'). Following the revision made to IAS 19 in
December 2004, FRS 17 has many similarities with IAS 19. Therefore, the impact
on the Group's net pension scheme liability following the adoption of IAS 19 is
limited. There will however be classification changes in the balance sheet,
including the treatment of associated deferred tax balances and also there are
alternative classifications available for costs within the income statement.

IFRS 3 - Business combinations - Under this standard goodwill is carried at cost
and subject to an annual impairment review. Under UK GAAP the income statement
suffered a straight line amortisation charge, which will no longer be made. A
charge to income will only be required if an impairment is identified.

It is important to note one particular matter that will materially influence the
restated result for the year to 31 March 2005. In the final month of that year
the Group made an acquisition that gave rise to negative goodwill. The
acquisition accounting has been reassessed under IFRS but there will remain a
significant level of negative goodwill. IFRS 3 requires the immediate
recognition of negative goodwill as a credit to the income statement. Under UK
GAAP the credit to profit was restricted and this change in applicable GAAP will
result in a material improvement to the 2005 result.

IFRS 2 - Share based payments - The Group is required for the first time to
recognise a charge against operating profit in respect of the estimated fair
value of share options granted to employees. IFRS 1 provides an exemption to
apply IFRS 2 only to awards made after 7 November 2002 and which will vest after
1 January 2005; this exemption will be adopted by the Group. Whilst a charge
against profit will result, following the adoption of this Standard, the amount
involved is not considered to be material to the Group's results.

IAS 10 - Events after the balance sheet date - This standard specifically
prevents the recognition of a liability in the balance sheet for a dividend
declared after the period end. Therefore, the UK practice of recognising
proposed interim and final dividends as liabilities in the respective balance
sheets will no longer apply. This is because they do not meet the criteria of a
present obligation as defined by IAS 37, the Standard on provisions.

IAS 32 - Financial instruments: Disclosure and presentation and IAS 39 -
Financial instruments: Recognition and measurement - As noted above these
standards will have no impact on the financial statements of the Group as
published prior to 31 March 2005, following the adoption of the exemption
provided in IFRS 1. However, from 1 April 2005 the impact of these standards
will include a revised treatment in relation to derivative financial
instruments. Under UK GAAP the derivative financial instruments used by the
Group to manage its currency and interest rate exposures (forward foreign
exchange contracts and interest rate swaps) are not recognised in the financial
statements until the hedged transaction has itself been recognised. Under IFRS
such instruments must be recognised and stated at their fair values. The Group
will not adopt hedge accounting for routine hedged transactions under the
conditions set out by IAS 39 and therefore changes in the fair values of these
instruments will be recognised in the income statement.

IAS 12 - Income taxes - There will be changes to the deferred tax position
resulting both from the impact of adopting the IAS 12 and also as a result of
the deferred tax consequences of adopting other International Standards as set
out above.

Enquiries:

Tony Brown, Finance Director - Telephone [phone]



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