Final Results

Renold PLC 09 June 2003 9 June 2003 RENOLD plc 2003 PRELIMINARY RESULTS Renold plc, a leading international supplier of industrial chains and related power transmission products, automotive cam drive systems and machine tools and rotors, today announces its preliminary results for the year ended 29 March 2003. Summary - Pre-exceptional trading profit up by 18% to £9.2 million (2002: £7.8 million). - Profit before tax improved by £9.8 million to £4.2 million (2002: loss £5.6 million), reflecting the flow through benefits of the actions taken to refocus the Group's activities and reduce operating costs. - Restructuring of the machine tool business successfully completed in the first half; restructured business reported a trading profit in the second half. - Adjusted earnings per share increased by 37% to 5.2 pence (2002: 3.8 pence). - Final dividend maintained at 3.0 pence, giving 4.5 pence for the year (2002: 4.5 pence). - Strong cash inflow from operating activities after capital expenditure at £12.9 million, contributing to a reduction in gearing from 35% last year to 25% this year. - Further reduction in borrowings post year end from the sale of surplus property, generating net cash proceeds of £5.2 million. - Group operations firmly restructured and repositioned, focused on the core chain business, to exploit growth opportunities worldwide. Prospects Roger Leverton, Chairman of Renold plc, said today: 'The Group's future development is clearly focused as a supplier of chain along with supporting niche power transmission products into industrial applications, together with automotive cam drive systems. The Group's markets continue to be challenging with both political and economic uncertainty. Although this year has started slowly we expect the benefit of internal efficiency and developing market positions to show through as the year progresses. Additionally, with the balance sheet strengthened over the last two years, the Group is well placed to take advantage of growth opportunities.' 9 June 2003 RENOLD plc Chairman: Roger Leverton Preliminary Results for the Financial Year ended 29 March 2003 FINANCIAL SUMMARY 2003 2002 % £m £m change Turnover 187.4 190.2 -1 Trading profit before goodwill amortisation and exceptional items 9.2 7.8 +18 Profit before tax, goodwill amortisation and exceptional items 6.1 4.2 +45 Profit/(loss) before tax 4.2 (5.6) Adjusted earnings per share 5.2p 3.8p +37 Basic and diluted earnings per share 3.5p (7.2)p Dividends per ordinary share, paid or proposed 4.5p 4.5p Capital expenditure 5.7 5.4 Gearing (net borrowings to shareholders' funds) 25% 35% GROUP RESULTS AND DIVIDEND I am pleased to report that Group performance for the financial year 2003 showed considerable improvement against a background of continuing challenging market conditions. Within the power transmission segment, the chain based industrial power transmission business continued to perform well, offset by a reduced performance from the automotive cam drive business as it struggled to meet substantially increased demand. Also of note was the return to profitability in the second half of the machine tool and rotor business. As a result, pre-exceptional profit before goodwill amortisation and tax grew by 45% compared with the prior period on sales which were marginally lower overall. Further actions were taken to reduce the cost base and the benefits of these and of previous restructuring activities are reflected in the significant progress the Group made during the year. Furthermore, strong cash flow was achieved resulting in a substantial reduction in net debt to £20.9 million and year end gearing of 25% (2002 - 35%). Subsequent to the year end the sale of the former Jones & Shipman site at Leicester was completed and the resultant net cash proceeds of £5.2 million have been utilised to reduce further the Company's borrowings. The Board is recommending the payment of a final dividend of 3.0 pence per share. Together with the interim dividend of 1.5 pence per share paid on 31 January 2003, this gives total dividends for the year of 4.5 pence, the same as last year. During the year the Board has been strengthened by the appointment of Tony Brown into the new role of Managing Director Chain and Power Transmission Products, and by Steve Mole's appointment to the Board as Finance Director. Both appointments were made from within the Group and will add weight to the development and implementation of Group strategy. I wish them both every success in their new positions. Finally, on behalf of the Board, I would like to thank all Group employees for their contribution and support which has enabled the improved result for 2003 to be achieved. Prospects The Group's future development is clearly focused as a supplier of chain along with supporting niche power transmission products into industrial applications, together with automotive cam drive systems. The Group's markets continue to be challenging with both political and economic uncertainty. Although this year has started slowly we expect the benefit of internal efficiency and developing market positions to show through as the year progresses. Additionally, with the balance sheet strengthened over the last two years, the Group is well placed to take advantage of growth opportunities. Chief Executive's Review Today we are firmly focused on building our future through our core chain business. This is where Renold has strong brand recognition, significant international market position and is respected as a supplier of innovative products and value added systems solutions. POWER TRANSMISSION Industrial chain and power transmission The worldwide reputation of our industrial chain brands and the international presence of Renold provides the momentum for future development not only in our traditional markets but into new markets and geographies. The acquisition in 2000 of Jeffrey Chain in the USA was an important first step in furthering our international position. During the dull economic conditions of the last two years, significant reductions in the cost base of the chain and power transmission businesses have been achieved, particularly in the Gear business which has been refocused as a supplier of units, packages and systems that complement the market and customer connections of our mainline chain business. The European chain production plants have also achieved significant savings. The UK operations 'adopted' the Euro from its introduction further stimulating cost base reductions and improved competitiveness. In total the chain based industrial power transmission businesses now operate from a more cost effective base. The focus for the future is to strengthen our leading market position for industrial chain in Europe, to extend our position in the USA whilst developing business in other regions where we are currently underweight. We will shift the emphasis of the business to ensure that all activities are focused on fully meeting customer expectations. This will require a new level of expertise in supply management, and a change from a manufacturing to a supply ethos. We will continue to drive down our supply cost base potentially involving the relocation of some assets to take advantage of supply sources in lower cost economies. Our engineering and technological expertise is a key competitive advantage and we shall continue to encourage and resource our engineering skills in the development and innovation of products and power transmission package systems. In addition, we are committed to strengthening and developing our front line customer capabilities. Our chain and power transmission sales professionals worldwide have been through an assessment college, with selling skills and training programmes carried out locally. Further modules are to be implemented during 2003. To ensure full effectiveness of this new direction our worldwide industrial chain and power transmission businesses have been drawn together as a global business unit headed by Tony Brown, as announced on 18 February 2003. Since then we have further strengthened the management structure and created two new regional business units - 'Renold South East Asia' and 'Renold China'. These moves are designed to promote our global market position through exploiting a wider international presence and to transform our supply management capabilities. We expect this market and customer based strategy to both strengthen our current position and broaden our geographic market. It will drive down the cost base through reducing over-dependency on supply from high cost Western economies and improve supply and logistics to secure reductions in working capital. This strategy continues the revitalisation of Renold through our core industrial chain and power transmission businesses. It sets our sights clearly on exploiting growth opportunities worldwide. We will maintain the superiority and specification integrity of our key chain brands through engineering development and innovation, filling product gaps and extending market positions. Automotive cam drive systems Renold Automotive Systems continues to experience substantial growth as new engine programmes come into production. Our penetration of this market through Renold's chain based cam drive technology and increasing customer preference for chain based systems have contributed to a period of unprecedented growth. This rapid increase in demand was earlier and greater than anticipated and the Calais facility encountered some inefficiency in production. Despite this it continued to maintain customer service levels and actions have been taken to address the issue. In addition to resourcing our commitment to technology and engineering, we have strengthened manufacturing management with the appointment of a business Operations Director and added additional resources to the production management team. Furthermore, during the course of this year we will commission an automotive chain production facility in our German chain plant which will expand capacity by 20% and relieve the pressure and dependence on the Calais plant. In spite of these short term performance issues, we have developed new business opportunities and over the course of the next few years we are confident of maintaining sales growth and, more importantly, achieving our performance targets. Renold Automotive Systems has, in the space of the last five years, achieved global recognition and is counted in the top three world suppliers of chain based cam drive systems. Our technology is regarded as 'world class' and as a result we intend to open up markets beyond Europe and North America. We expect demand from these new markets to be supported from our European base initially, with supply moving locally as both management resources and business build. In the short-term our objectives are clear; the focus is to improve returns substantially from the current business through improved production efficiency and technological development. For the future we intend to expand beyond our existing markets to become a truly global supplier of automotive cam drive systems. MACHINE TOOL AND ROTOR During the last two years considerable effort has been directed at restructuring and repositioning the Group. The machine tool business restructuring is complete, with Jones & Shipman relocated on schedule to its new smaller site in Leicester operating as an engineering, design and assembly operation with manufactured components being sourced from low cost economies. The Edgetek machine range is now fully integrated at Holroyd and the business as a whole has undergone a substantial cost reduction leading to a lower break-even position. Summary Now that we have successfully repositioned the Group, our energy will be directed to growing the core chain and automotive cam drive systems business. We have the ability and resources necessary to achieve our goals and are confident of success. Operations Review POWER TRANSMISSION Industrial chain and power transmission The industrial chain and power transmission businesses performed well in a year when economic conditions in our major markets of Europe and North America remained weak. Overall, sales were close to the previous year on a like for like basis, largely as a result of improvements in market position. This, together with earlier actions to reduce costs and restructure, resulted in improved profitability. The UK businesses operated in a domestic market in which manufacturing activity continued to decline throughout the year. Despite this, sales were close to the previous year's level, after adjusting for operations closed last year. This was the result of improving market share within the UK and higher exports of UK chain products to the USA as the Bredbury chain factory increased sales of transmission chain products into the US market through Jeffrey Chain. The Bredbury factory operated at a high level of utilisation, and investment in additional capacity and in process automation is ongoing. The Burton conveyor chain factory had a difficult year as demand remained subdued. Encouragingly there has been an upturn in orders for agricultural applications going into the new financial year. The UK gears and couplings businesses produced much improved results this year, benefiting from the substantial restructuring carried out last year. The industrial gearbox business at Milnrow made good progress, growing sales of the modular ePM gearboxes and of the large Titan worm gearbox range. The couplings businesses at Cardiff and Halifax improved profits; their products are sold through the Group's sales network around the world and enhance the power transmission product portfolio. In continental Europe, the German manufacturing sector, a key demand driver for power transmission products, weakened progressively throughout the year. However, sales of transmission chain products from the Einbeck operation increased as deliveries into the US market were well ahead. The German business again produced an excellent profit performance, as the contribution from the highly automated manufacturing facility improved as factory load increased. The French chain business grew its share in a weaker market, holding sales at last year's level but improving profitability. The focused activity by the sales team continues to succeed in building relationships with key distributors and OEM customers. Turnover of the sales businesses elsewhere in Europe was lower, including in Switzerland where the market is dominated by machinery builders, although the rate of new order intake improved in the final quarter. The North American operations improved their competitive position, particularly in the US chain market. The Whitney Renold brand of roller transmission chain, launched last year, achieved our targets and has built up a strong market presence through key US distributors. Although overall US demand for roller transmission chain products fell year on year, the Jeffrey Chain business achieved increased sales and market share. The US factory at Morristown, Tennessee, saw activity reduced on lower offtake of engineered chains in products for the construction industry and other key sectors. As we enter the new financial year there are indications of an improvement for these products. Renold Ajax produces specialised industrial couplings for industry including mass transit applications. Whilst the steel industry, a major customer, remained weak, this operation successfully adopted and implemented 'Lean Manufacturing' techniques and performed well. The Canadian distribution and sales business also had a good year, reflecting the gains in the USA for roller transmission chain with sales and profits ahead of last year. The Australian business improved substantially with a significantly lower cost base offsetting the effects of severe drought which reduced demand from the agricultural sector. New Zealand had a difficult year as the economy slowed. South Africa achieved its best result for a number of years reflecting increased sales of both products imported from Group factories and gear products produced locally. In the Far East the businesses in Malaysia and Singapore generated further sales growth, the UK factories in particular benefiting from increased sales of conveyor chain and gearboxes supplied to those markets. Overall the year benefited from the restructuring carried out last year and profit margins improved despite difficult market conditions. The Group's brands are a major strength and our new generation flagship Renold Synergy(R) transmission chain, announced at the Hannover Fair in April, is being launched in key markets in the first quarter. Going forward the industrial chain and power transmission businesses are clearly focused on growing their position in markets which, in the short term, remain weak. Automotive cam drive systems Demand for Renold Automotive's chain driven cam drive systems grew rapidly as we continued to serve many of the world's leading automotive manufacturers. Sales were up by 21% in the first half year, and in the second half were 37% higher than the previous year as offtake for new engine programmes supplied by the Calais facility built up ahead of expectations. However, the sharp acceleration in output required from Calais caused short-term inefficiencies in the production process. Production output ran below targeted levels, resulting in excessive labour and transportation costs with a consequent adverse impact on profitability. Operational management has been strengthened, new investment committed and work is in progress to return efficiency to acceptable levels. During the year there has been positive progress in securing new contracts and broadening the customer base. New products continue to be developed and introduced and opportunities for this business in which we have 'world class' technology are excellent. MACHINE TOOL AND ROTOR The market for machine tools remained poor throughout the year as manufacturing investment was cut back worldwide especially in Europe and North America. It is pleasing, therefore, that the Group's machine tool activities were able to record a small profit in the second half year even though sales were lower than the previous year. This turnaround in profitability has been achieved through the major rationalisation programme completed in the first half. The business now offers a strong range of Holroyd and Jones & Shipman machines complemented by high precision component production, and by machine service facilities. The range of Edgetek superabrasive machine tools, now produced at the Holroyd factory, has gained excellent new orders for aerospace and other demanding applications. The Holroyd and Jones & Shipman businesses have been re- established on sound footings with tight controls on costs and cash being maintained. In the short term there is no sign of a recovery in machine tool markets but levels of recent enquiries are encouraging. ------------------------------------------------------------ Annual Report to be published 17 June 2003 Annual General Meeting 17 July 2003 Dividend - to be paid 7 August 2003 - record date for shareholders 11 July 2003 Annual Report: This preliminary announcement does not form the Group's statutory accounts. The figures shown in this release have been extracted from the Group's full financial statements which, for the year ended 30 March 2002 have been delivered, and for the year ended 29 March 2003, will be delivered to the Registrar of Companies. Both carry an unqualified audit report. The financial statements for the year ended 29 March 2003 have been prepared in accordance with applicable accounting standards, using the same accounting policies as set out in the Annual Report for the year ended 30 March 2002. For further information, please contact: Ian Trotter, Chief Executive 9 June 2003 Telephone: 020 7067 0700 Steve Mole, Finance Director Renold plc Thereafter Telephone: 0161 498 4500 Terry Garrett/Christian San Jose Weber Shandwick Square Mile Telephone: 020 7067 0700 Group Profit and Loss Account for the financial year ended 29 March 2003 2003 2002 £m £m Turnover 187.4 190.2 Trading costs - normal operating costs (178.2) (182.4) - goodwill amortisation (1.4) (1.5) - exceptional redundancy and restructuring costs (1.0) (3.9) ------- ------- (180.6) (187.8) ------- ------- Trading profit 6.8 2.4 Exceptional loss on termination of operation (4.4) Exceptional gain on disposal of property 0.5 ------- ------- 7.3 (2.0) Net interest payable (3.1) (3.6) ------- ------- Profit/(loss) on ordinary activities before tax 4.2 (5.6) Taxation (1.7) 0.6 Profit/(loss) for the financial year 2.5 (5.0) Dividends (including non-equity) (3.2) (3.2) ------- ------- Retained loss for the year (0.7) (8.2) ======= ======= Adjusted earnings per share 5.2p 3.8p Basic and diluted earnings per share 3.5p (7.2)p Group Balance Sheet as at 29 March 2003 2003 2002 £m £m Fixed assets Intangible asset - goodwill 22.6 26.2 Tangible assets 50.0 54.6 ------- ------- 72.6 80.8 ------- ------- Current assets Stocks 46.1 46.9 Debtors 46.7 38.3 Cash and short term deposits 9.3 6.4 ------- ------- 102.1 91.6 Creditors - amounts falling due within one year Loans and overdrafts (10.2) (9.9) Other creditors (48.0) (41.2) ------- ------- Net current assets 43.9 40.5 ------- ------- Total assets less current liabilities 116.5 121.3 Creditors - amounts falling due after more than one year Loans (20.0) (25.6) Other creditors (0.6) (0.6) Provisions for liabilities and charges (13.8) (12.6) ------- ------- Net assets 82.1 82.5 ======= ======= Capital and reserves (including non-equity interests) Called up share capital 17.9 17.9 Share premium 6.0 6.0 Revaluation reserve 3.8 Other reserves 0.9 Profit and loss account 58.2 53.9 ------- ------- Shareholders' funds 82.1 82.5 ======= ======= Extracts from the Group Cash Flow Statement for the financial year ended 29 March 2003 2003 2002 £m £m £m £m Net cash inflow from operating activities 17.9 16.5 Servicing of finance (2.8) (2.9) Taxation (1.3) (3.5) Capital expenditure and financial investment - Purchase of tangible fixed assets (5.6) (6.0) - Proceeds from disposal of fixed assets 0.6 0.5 ------- ------- (5.0) (5.5) Equity dividends paid (3.2) (5.4) ------- ------- Net cash inflow/(outflow) before use of liquid resources and financing 5.6 (0.8) Management of liquid resources Transfers from short term deposits 3.0 0.7 Financing Decrease in debt and lease financing (1.8) ------- ------- Increase/(decrease) in cash in the year 8.6 (1.9) ======= ======= Reconciliation of net cash flow to movement in net debt Increase/(decrease) in cash in the year 8.6 (1.9) Cash flow from decrease in debt and lease financing 1.8 Cash flow from decrease in liquid resources (3.0) (0.7) ------- ------- Change in net debt resulting from cash flows 5.6 (0.8) Exchange translation difference 2.6 ------- ------- Movement in net debt in the year 8.2 (0.8) Net debt at beginning of year (29.1) (28.3) ------- ------- Net debt at end of year (20.9) (29.1) ======= ======= Note to the Financial Statements for the financial year ended 29 March 2003 Analysis of activities (a) Activities classified by business segment: 2003 2002 Trading Trading Trading Trading Turnover profit assets Turnover profit assets £m £m £m £m £m £m Power transmission 168.3 10.0 75.2 168.0 10.8 80.9 Machine tool and rotor 20.0 (0.8) 13.6 23.6 (3.0) 16.4 ------- ------- ------- ------- ------- ------- 188.3 9.2 88.8 191.6 7.8 97.3 Less: Inter activity sales (0.9) (1.4) Goodwill amortisation (1.4) (1.5) Exceptional redundancy and restructuring costs (1.0) (3.9) ------- ------- ------- ------- ------- ------ 187.4 6.8 88.8 190.2 2.4 97.3 ------- ------- ------- ------- ------- ------ The exceptional redundancy and restructuring cost of £1.0 million is attributed £0.3 million to the power transmission segment (2002 - £1.2 million) and £0.7 million to the machine tool and rotor segment (2002 - £2.7 million). Of the total goodwill charge of £1.4 million, £1.2 million (2002 - £1.3 million) relates to the power transmission businesses and £0.2 million (2002 - £0.2 million) to the machine tool and rotor businesses. (b) Activities classified by geographical region of operation: 2003 2002 Trading Trading Trading Trading Turnover profit assets Turnover profit assets £m £m £m £m £m £m United Kingdom 69.2 1.6 38.1 74.2 (0.4) 43.7 Germany 30.4 3.0 12.5 29.0 2.4 11.5 France 43.0 0.2 10.9 35.0 1.7 10.3 Rest of Europe 16.3 0.9 4.2 16.2 1.1 4.2 North America 51.2 2.6 16.9 56.4 2.6 21.6 Other countries 17.4 0.9 6.2 16.5 0.4 6.0 ------- ------- ------- ------- ------- ------- 227.5 9.2 88.8 227.3 7.8 97.3 Less: Intra Group sales (40.1) (37.1) Goodwill amortisation (1.4) (1.5) Exceptional redundancy and restructuring costs (1.0) (3.9) ------- ------- ------- ------- ------- ------- 187.4 6.8 88.8 190.2 2.4 97.3 ------- ------- ------- ------- ------- ------- The exceptional cost of £1.0 million arises £0.9 million in the UK (2002 - £3.1 million) and £0.1 million in North America (2002 - £0.6 million in North America, £0.1 million in the Rest of Europe and £0.1 million in other countries). The goodwill amortisation is attributed to business acquisitions in North America. Turnover by geographical region includes intra group sales as follows: United Kingdom £26.5 million (2002 - £26.4 million), Germany £10.8 million (2002 - £7.9 million) and France £1.9 million (2002 - £2.0 million). Trading assets comprise fixed assets, current assets less creditors but exclude goodwill, cash, borrowings, dividends, current and deferred corporate tax, finance lease obligations, property held for sale, pension prepayments and other provisions for liabilities and charges. This information is provided by RNS The company news service from the London Stock Exchange

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