Renold plc
("Renold" or the "Group")
Renold, a leading international supplier of industrial chains and related power transmission products, today announces its preliminary results for the year ended 31 March 2013, together with new Chief Executive Robert Purcell's strategic review and outline turnaround plan,
"Re-Engineering Our Future".
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FY ended 31 March |
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2013 £m |
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2012 £m |
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Underlying[1] revenue |
190.3 |
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205.5 |
Adjusted[2] operating profit as reported |
7.2 |
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14.1 |
Underlying adjusted operating profit |
7.2 |
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13.7 |
(Loss)/profit before tax |
(7.7) |
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7.6 |
Other information |
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Basic (loss) / earnings per share |
(3.9)p |
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2.8p |
Adjusted earnings per share |
1.4p |
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4.2p |
Operational Summary
· Financial performance reflects ongoing macro-economic challenges in many end markets and a number of internal business process issues
· Appointment of Mark Harper as Non-Executive Chairman and Robert Purcell as Chief Executive
o Full strategic review commenced
o Industry-leading reputation confirmed
o Performance can be boosted by improving internal operational processes
· Following first phase of our global capacity review, significant excess capacity has been identified resulting in asset impairment provisions of £9.4m (all being non-cash charges)
· Core banking facilities successfully re-financed for four year term ending October 2016
· Agreement to merge three defined benefit pension schemes will significantly reduce administrative expense and reduce annual cash costs by £1.0m
· Maintained similar level of net debt to prior year
Mark Harper, Non-Executive Chairman of Renold plc, said:
"These are disappointing, if unsurprising, results due as much to long-standing inefficient business processes within the Group as they are to very challenging end markets.
The good news, however, is that the extensive research we are conducting amongst our customer base demonstrates that Renold's reputation for offering a superior and differentiated product range is strong and secure. We also believe that by removing excess capacity and instituting smarter working practices across the Group, we can lower the breakeven point and hence achieve a sustainable performance improvement over the medium term without the need for substantial sales growth.
With a differentiated product offering and market leading positions, Renold is a business with a viable long term future. The Board looks forward to supporting Robert as he refines and executes his turnaround plan to drive business performance and generate shareholder value."
28 May 2013
ENQUIRIES:
Renold plc |
Tel: 0161 498 4500 |
Robert Purcell, Chief Executive |
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Brian Tenner, Group Finance Director |
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Arden Partners (Broker) |
Tel: 020 7614 5917 |
Chris Hardie |
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College Hill (Public Relations) |
Tel: 020 7457 2020 |
Mark Garraway Helen Tarbet |
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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 and distributors. 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 on their website at: www.renold.com
In my first statement to shareholders, it is clearly disappointing to be reporting such poor results. They reflect ongoing macro-economic challenges in many of our end markets combined with a number of long-standing internal issues within Renold itself. The fact that a 7% reduction in underlying[3] revenue led to a near halving of our adjusted[4] operating profit partly reflects an unacceptably high level of operational gearing within the business. In addition, we understand from research that many of our customers respect our reputation for engineering excellence but that we let ourselves down on customer service and delivery which in turn leads to lower value being generated from our high quality products.
In response to our poor financial performance, we started a fundamental review of the Chain business model at the time of our Interim Results in November 2012. One of the key areas of focus was an assessment of our global manufacturing capability. The preliminary assessment concluded that in a number of key manufacturing processes and locations, we have significant excess capacity. The Group has therefore recognised in the financial statements an impairment of £9.4m in respect of assets in the Chain division. Total exceptional charges in the year, including the asset impairments, amounted to a net £11.8m (detailed in note 3). Further details of the strategic review are set out in the Chief Executive's report.
During the year the Group successfully re-financed its core banking facilities for a four year term expiring in October 2016. The new facilities, which are provided by a banking group comprised of Lloyds TSB Bank plc and Svenska Handelsbanken AB, comprise a £41m Multi-Currency Revolving Credit Facility and an additional £8m of ancillary facilities. The new facilities brought a reduction in borrowing margins which will reduce our financing costs.
We made further progress with our strategy of managing down our defined benefit pension obligations with the completion of a number of key initiatives during the year. In the UK, our agreement, announced in March 2013, to merge the three defined benefit schemes during the first half of the new financial year will lead to a significant reduction in administrative expenses and a real reduction in annual cash funding totalling £1.0m. In South Africa, we completed the process of winding up the closed pension scheme and the surplus pre-tax funds of £1.4m were returned to the Group in April 2013. In Canada, the small defined benefit pension scheme was closed to new members. The Group continues to focus on measures to reduce exposure to defined benefit pension obligations, whilst acknowledging that in the current low yield environment accounting pension deficits will remain high.
There were a number of changes to the Board during the year. I joined the Board as a Non-Executive Director on 1 May 2012 and subsequently assumed the role of Chairman at the Annual General Meeting on 12 July 2012 when Matthew Peacock stood down. John Allkins succeeded David Shearer as our Senior Independent Director, following David's decision not to seek re-election to the Board. Robert Purcell joined the Group as Chief Executive in January 2013 following the early retirement of Robert Davies in December 2012, whereupon I became Non-Executive Chairman. I would like to take this opportunity to thank the former Board members for their service to the Group and wish them well in their future activities. I also look forward to supporting and working with Robert Purcell in executing the turnaround in the performance of the Group.
In the light of the need to invest in the business, and the Group's disappointing financial performance, the Board has decided not to recommend the payment of a dividend.
The markets in which we operate are expected to remain volatile and challenging in the coming year, and we do not expect significant support for the business from increases in sales volumes. As a result, our plans are focused on lowering the break even point of the business through the reduction of overhead costs and ensuring that our reputation for product quality, combined with improvements in customer service and lead times, delivers value for our shareholders. The delivery of these objectives will require some investment but will largely come from improvements in basic processes, systems and skills. In summary, we believe that there is significant scope to improve the performance and profitability of the business without placing reliance on the external market for additional profitability through revenue growth. This improvement will be the principal focus of the Board in the year ahead.
Chairman
Our challenge is to match the undoubted strength of the Renold brand and superior product offering with significant improvements in service delivery by re-engineering a number of key business processes whilst reducing our breakeven point.
Overview
The past year has been a challenging one. Revenue declines resulting from ongoing macro-economic uncertainty continued to impact performance. Our high cost base and management structures meant that the 7% underlying revenue decline reduced adjusted operating profit by almost 50%. In response, we have commenced a full strategic review of the business in a project called "Re-Engineering Our Future". We will build upon our reputation for engineering excellence to examine how we can generate sustainable long-term shareholder value in these challenging times. More on our initial strategic thinking is outlined below.
The year got off to a weak start for orders and revenue, down 14% and 3% respectively in the first half compared to the same period in the prior year. Order intake was slightly better than revenue performance in the year, with an improving trend in the third and fourth quarters which were down versus the prior year on an underlying basis by 8% and 3% respectively. The book to bill ratio of order intake to revenue for the year as a whole was 97% although in the last six months of the year the ratio was, on average, 6% better than the same six months in the prior year. This improving trend suggests that the rate of revenue decline in Chain (described below) is slowing with the potential to level off in the first half of the new financial year.
The fall in revenue was the result of the weakness in many of the Group's geographical end markets and sectors. In Chain, underlying revenue was down by £6.5m (11%) versus the prior year in Europe, down £0.8m (2%) in North America and down £1.5m (6%) in Australasia. Whilst trading was difficult in many regions, Switzerland continued to be the weakest performer (down 29%), driven by the continuing strength of the Swiss Franc which created export challenges for many of our Swiss OEM customers. In Australasia, the impact of subdued commodity prices had a negative impact on revenue throughout the year with a weak finish in the fourth quarter although the rate of order intake decline showed signs of levelling off. In Torque Transmission, the rate of revenue decline increased from 3% in the first half to 10% in the second with particular softness in attractive commodity markets and capital projects.
We took decisive steps in the second half to reduce our overhead costs in both divisions to offset the impact of falling revenue. As a result, whilst revenue in the second half was £3.1m below the first half, profitability was maintained through a net reduction in overheads of approximately £2.0m. A number of actions were taken in the third and fourth quarter which will have a beneficial impact in the new financial year. In addition, the consolidation of back office functions in Europe was completed during the year with smaller scale consolidation activity occurring in North America at the end of the fourth quarter. One of the two offices in Switzerland was closed in December 2012.
Whilst the operating result was disappointing with adjusted operating profit falling to £7.2m (2012: £14.1m), it is encouraging that the Group managed to maintain a similar level of net debt to the prior year end. This was despite an adverse foreign exchange movement on our debt of £0.6m. Key to the delivery of the strong net debt result was our continuing focus on month on month improvement in working capital management. Our average ratio of working capital to rolling annual sales improved to 21.2% compared to 22.4% in 2011/12 and 24.7% in 2010/11. Each one percent improvement represents a reduction in average net debt throughout the year of around £2.0m.
Underlying external revenue of £141.9m in the Chain division was 8% behind the prior year primarily as a result of the weakness in European markets where revenues as a whole finished the year down 11%. The weak Swiss performance was partially offset by improvements in Germany where domestic demand remained relatively strong compared to the rest of Europe. The North American market was broadly flat with a slight 2% fall in sales following a weak third quarter whereas Australasia was weaker with underlying sales down 6% on the back of a weak fourth quarter.
Operating profit fell 23% to £6.9m before exceptional charges. This was largely the result of the revenue decline but was in part mitigated by a reduction in overheads in the second half. Overhead reductions included the closure of one of two offices in Switzerland at the end of the third quarter and the completion of the European back office restructuring project. Further cost saving opportunities continue to be identified as we review the Chain business model and at the end of the year in North America we were able to merge our US and Canadian Chain finance functions following the implementation of our ERP system in Canada.
Order intake in Chain was weaker in the second and third quarters but started to improve in the fourth quarter which was slightly ahead of the same period in the prior year. This suggests that revenue decline within Chain may soon come to an end though ongoing market challenges mean revenue growth may be some way off. Hence we are focussed on self-help initiatives to lower the breakeven point and add value through an enhanced service offering.
Renold Torque Transmission
Underlying revenue for the year as a whole fell 7% to £48.4m from £51.8m in the prior year. The fall in revenue was the result of softness in a mixture of commodities sectors and capital projects. The year in Torque Transmission was in many ways the reverse of that seen in Chain. A better first half when underlying revenues were down 3% compared to the prior year was followed by a weaker second half with underlying revenue down 10%.
Order intake followed a similar trend with first half orders down 7% on the prior year whereas the second half was down 12%. More encouraging was the fourth quarter book to bill ratio which was 104% (4% ahead of the prior year). The longer average lead times in Torque Transmission do however mean that sales are likely to continue to decline in the first half of the new financial year.
Operating margins remained above 10% but have fallen from 16% in the prior year to 11% with underlying operating profit before exceptional charges falling 35% to £5.3m from £8.2m. The impact on margins was exacerbated by revenue declines in South Africa that centred on the normally attractive commodity and resource industries and a general fall in demand for some high value add products.
In Torque Transmission we also took steps in the second half to reduce our overhead costs by £0.5m to partially offset the impact of falling revenue. A number of actions were taken in the third and fourth quarter that will have a full impact in the new financial year.
The implementation of our ERP system in the first Torque Transmission plant, Milnrow in the UK, created the opportunity to reduce our cost base in the fourth quarter though this was offset by some initial production and shipping performance issues as the business mastered the new operating environment and business processes.
While the initial stages of our strategic review have focussed on the Chain division, Torque Transmission has also been tasked with identifying further ways in which it can operate more efficiently and effectively to assist in delivering the overall Group goal of lowering our breakeven point.
Chief Executive's strategic review
Early findings from our strategic review point to a clear need to reduce our break even sales point and significantly improve our commercial positioning.
Lowering the breakeven point
The first of these strategic objectives relates to our Chain operating structure. Renold is uniquely positioned in the global chain market through our ownership of manufacturing sites across a number of developed and emerging economies. We have substantial capacity in the low-cost economies of China, India and Malaysia, which complement our long established factories in North America, Europe and Australia. Whilst our more recent acquisitions have been adequately integrated into the Group, it is apparent that we have opportunities to achieve substantial operating performance improvements, and achieve a lower breakeven cost structure.
We have therefore undertaken an assessment of our global manufacturing capacity in all of our Chain production processes. The preliminary assessment concluded that we had significant levels of excess capacity in a number of key manufacturing locations and processes. The resulting exceptional impairment charges of £6.5m against the relevant production assets have been recorded in the Financial Statements. We have now begun the next stage in the business model review, to identify and deliver changes in our operating structure and reductions in cost base.
Product management and customer service
The second strategic objective relates to product management and customer service. In customer surveys, the Renold name consistently achieves strong responses for awareness and credibility, and is associated with premium products, high levels of engineering expertise, and high levels of trust. However, the same surveys reveal that we let ourselves down with the quality of our customer service.
The company has developed a broad range of sub-brands related to specific customer requirements, including specialist solutions and premium performance products, some of which have been tailored to suit local market requirements. This is a key foundation on which we can build to re-engineer our future.
There have been substantial changes in both our end markets and the economic environment over the last decade, and we recognise that there are opportunities to review our brand strategy and service propositions to align them with the changing requirements of our core markets. An initial framework has been developed, in which products and brands will be aligned to ensure consistency on a global basis, whilst retaining local control of product availability and service offering tailored to the requirements of customers in each location. Improvements to critical business processes will also lead to improved customer service.
Chief Executive's summary
The thorough review of the Group that I have been conducting since joining as Chief Executive has been both revealing and instructive. Encouragingly, we know that we have a market leading brand reputation and product offering which provide us with an excellent platform from which to drive growth. However, we also have outmoded and sub-optimal working practices across the Group which have contributed to this year's poor performance. The good news is that self-help measures will enable us to address these issues and to substantially improve performance over the medium term even without significant improvements in end markets sales. In addition, the more positive order intake trends which emerged in the fourth quarter are continuing. My focus now is on driving forward these measures to improve performance and generate shareholder value.
Chief Executive
The re-financing of the Group's principal bank facilities, and the agreement to merge the UK pension schemes, combine to reduce annual cash costs to service both debt and pension obligations in the future.
Overview
The results for the year were disappointing with revenue and profitability falling during the year ended 31 March 2013, reflecting ongoing macro-economic challenges in many of the Group's end markets. The business continues to make progress on improving working capital management and on cash generation generally. Working capital reductions in the year generated £4.2m of cash. This was combined with restraint on capital investment to maintain net debt at a similar level to the opening position, despite the reduction in operating profit noted above.
Orders and revenue
Order intake during the year was slightly lower than revenue with the ratio of orders to revenue (book to bill) being 97.3%. Chain and Torque Transmission had a mixed performance in the two halves of the year. Order intake, which was down 13.1% in Chain in the first half, recovered in the second half to show a 0.9% decline with key regions of Europe down 1.2% and the Americas 4.7% ahead in the second half. In contrast, Torque Transmission orders saw a 7.2% reduction in the first half growing to a 12.5% reduction in the second.
Group revenue for the year decreased by 9.2% to £190.3m. On an underlying basis, excluding the impact of foreign exchange, the decrease was 7.4%. Chain saw underlying revenue declines of 5.7% and 9.3% in the first and second halves respectively. In Chain Europe, revenue was down by 15.9% in the first half, improving to show a reduced decline of 5.9% in the second half. This improvement was offset by underlying revenue reductions in the second half in Chain North America and Chain Australasia of 8.8% and 8.3% respectively. The overall trend was more positive in the closing quarter in Chain with only Australasia seeing a larger revenue decline than in the third quarter. Torque Transmission saw an increase in the underlying revenue decline from 2.9% in the first half to 10.4% in the second half with lower end user demand for Hi-tec coupling products and SAP related production issues in the Milnrow facility.
Operating result
The Group generated £3.6m of operating profit before exceptional items in the first half (2012: £6.4m) and the same result in the second half (2012: £7.7m) with a full year result of £7.2m (2012: £14.1m). The second half result was achieved on 3.2% (£3.1m) lower revenue than the first half. This reflects management actions taken to reduce overheads by approximately £2.0m in the second half. These reductions were primarily achieved through headcount reductions in a number of locations as well as the closure of one of our two offices in Switzerland.
During the year, the Group continued to streamline its operations to achieve greater efficiency. These included finalising the reorganisation of our Chain Europe back office and, in the fourth quarter, a number of changes to the Executive management team were also made. The cost reductions in the second half will help to offset the expected impact of a full year depreciation charge of £1.0m for the ERP system in the new financial year (2013: charge £0.2m).
Exceptional items
A number of exceptional items have been recognised during the year. The principal driver was the completion of the first phase of our global capacity review for Chain which has led to exceptional impairments of fixed assets, stock and associated tooling in a number of locations with a total value of £6.5m. In addition, the change in strategic focus to deliver improved margins as opposed to prioritising revenue growth has impacted our facility in Hangzhou and, as a result, £1.5m of goodwill and £1.1m of ERP system costs have been written off. Other reorganisation and redundancy charges relate to a number of cost reduction initiatives including the European back office restructuring and Swiss office closure (detailed further in Note 3). Total exceptional cash expenditure over the next two years is estimated at £6.0m as the emerging findings of the strategic review are implemented.
Financing costs
External net interest costs in the year were £2.9m (2012: £2.5m) with the increase on the prior year being the result of higher margins being charged by the previous banking club for six months of the year, until the re-financing at the end of September 2012, and exceptional refinancing costs of £0.2m in relation to the write off of capitalised costs associated with the previous facility. Net IAS 19 finance charges (which are a non-cash item) were £0.3m (2012: £1.8m); the movement being due to lower interest charges on pension plan liabilities in the UK and overseas. The change in the accounting standard covering pension finance charges means that we expect next year's net IAS 19 financing charge to rise significantly by around £2.5m.
Result before tax
Profit before tax and exceptional items was £4.1m (2012: £9.7m). The loss before tax after exceptional items was £7.7m (2012: profit of £7.6m).
Taxation
The current year tax charge of £0.9m (2012: £1.2m) is made up of a current tax charge of £0.7m (2012: £1.0m) and a deferred tax charge of £0.2m (2012: £0.2m). The charge represents an effective adjusted rate of approximately 20% (2012: 17%). Cash tax paid of £0.7m was lower than the charge to the income statement due to the utilisation of tax losses and other tax assets in various parts of the Group (2012: £0.5m).
Group results for the financial period
Loss for the financial year ended 31 March 2013 was £8.6m (2012: profit of £6.4m); the basic loss per share and the diluted loss per share were 3.9p (2012: earnings 2.8p). The basic adjusted earnings per share and diluted adjusted earnings per share were 1.4p (2012: 4.2p).
Balance sheet
Net assets at 31 March 2013 were £28.6m (2012: £53.2m). The net liability for retirement benefit obligations was £58.7m (2012: £45.2m) after allowing for a net deferred tax asset of £17.7m (2012: £10.5m). The deficit increased as a result of significantly lower UK discount rates (4.3% compared to 4.9%) and higher inflation assumptions in the UK (3.2% compared to 3.0%). Overseas schemes account for £23.2m or 40% of the post tax pension deficits and £21.4m of this is in respect of the German scheme which is not required to be prefunded.
Cash flow and borrowings
Cash generated from operations was £8.9m (2012: £5.9m) which was in part delivered by £4.2m of working capital reductions. Capital expenditure was reduced to £4.9m (2012: £5.6m). Group net borrowings at 31 March 2013 of £22.8m were £0.1m lower than the opening position of £22.9m comprising cash and cash equivalents of £9.8m (2012: £4.8m) and borrowings, including preference stock, of £32.6m (2012: £27.7m).
Bank facility
During the period, the Group completed a new banking facility agreement for a four year term, maturing in October 2016. The new facilities comprise a committed £41m Multi-Currency Revolving Credit Facility (MRCF), and an additional £8m of ancillary facilities. These facilities have been provided by a new banking group comprised of Lloyds TSB Bank plc and Svenska Handelsbanken AB. This is the Group's principal credit facility although the Group also benefits from numerous overseas facilities totalling £9.6m.
The principal covenants are the Net Debt / Adjusted EBITDA ratio (calculated on a rolling 12 months basis), which has been set at a maximum of 2.5 times until maturity, and Adjusted EBITDA / Interest cover which is required to be greater than 4.0 times until maturity.
The new facilities bring an immediate reduction in borrowing margins of 125 - 150 basis points with scope for further savings as leverage reduces. This reduction in the margin on the new facility, combined with the benefits of rationalising our global banking arrangements, is expected to give rise to annual interest savings of approximately £0.5m.
Costs of £1.1m associated with this refinancing were offset against borrowings and are being amortised as financing costs over the period of the loan.
At 31 March 2013 the Group had unused credit facilities totalling £16.1m and cash balances of £9.8m. Total Group credit facilities amounted to £48.3m with £44.7m being committed and £3.6m repayable on demand.
Treasury and financial instruments
The Group's treasury policy, approved by the Board of Directors, is to manage its funding requirements and treasury risks without undertaking any speculative risks.
To manage foreign currency exchange risk on the translation of net investments, certain Dollar denominated borrowings taken out in the UK to finance US acquisitions had been designated as a hedge of the net investment in US subsidiaries. At 31 March 2013 this hedge was fully effective. The carrying value of these borrowings at 31 March 2013 was £6.4m (2012: £8.1m).
At 31 March 2013, the Group had 2% (2012: 4%) of its gross debt at fixed interest rates. Cash deposits are placed short term with banks where security and liquidity are the primary objectives. The Group has no significant concentrations of credit risk with sales made to a wide spread of customers, industries and geographies. Policies are in place to ensure that credit risk on individual customers is kept to a minimum.
Pensions
Agreement was reached at the end of the financial year to merge the three closed UK defined benefit pension schemes into one and to wind up the other two schemes. The merger will lead to a significant reduction in administration costs of approximately £0.5m per annum. The merger and wind up process itself is expected to be substantially completed during the first half of the current financial year.
In order to support further investment in the business, the Trustees have also agreed to pay the first £0.5m of the remaining expenses (the Company will fund any excess each year). The expected net impact of the agreed changes is therefore a reduction in the Company's annual cash costs of £1.0m. In the first year this saving will be partially offset by the partnership set up costs and the costs of executing the merger itself.
Members and their benefits will either be transferred into the Renold Supplementary Pension Scheme or, for those members with smaller pension entitlements who have the option, be paid out in wind up lump sums. If all the members entitled to leave the schemes chose that option, the total gross assets and liabilities that would be extinguished would be approximately £20m.
The merged UK pension funds will be underpinned by a 25 year asset backed partnership structure which will provide annual cash contributions of £2.5m to the pension fund, with annual increases linked to RPI and capped at 5%. The present value of this funding stream will be fully recognised as a pension fund asset in the accounts of the merged scheme and will remove £40.0m of the funding basis deficit (estimated at £63m in January 2013). The new arrangement replaces all other existing funding arrangements for the UK defined benefit schemes.
This 25 year deficit funding plan would, when paid, give rise to a surplus as measured under IFRS of approximately £19.7m. This surplus is deemed to be recoverable by the Group, but would currently be subject to a 35% tax charge deducted at source. Consequently, a liability for £6.9m is recognised at the balance sheet date, which along with a £4.5m deferred tax asset results in a net £2.4m decrease in the Group statement of other comprehensive income.
In South Africa the Financial Services Board gave approval to complete the wind up and liquidation of the pension fund surplus having already made final benefit distributions and enhancements to members. The pre-tax cash surplus of £1.4m was returned to the Group in April 2013.
As at 31 March 2013, total UK assets were £156.0m (2012: £149.1m). UK asset performance reflects actual asset returns of £14.3m (circa 9.6%) and employer contributions of £3.8m less the funding of £11.2m of pension benefits.
Overseas asset values rose by £1.6m and included the residual scheme surplus of £1.4m in South Africa noted above. The overseas asset portfolio earned an average annual return of 7.7%.
The completion of the UK scheme merger will be followed by an opening Triennial Valuation of the merged scheme the results of which will be available during the current financial year.
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Assets £m |
2013 Liabilities £m |
Deficit £m |
Assets £m |
2012 Liabilities £m |
Deficit £m |
Defined benefit schemes |
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|
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UK funded |
156.0 |
(199.1) |
(43.1) |
149.1 |
(180.6) |
(31.5) |
IFRIC 14 adjustment on pension funding contributions |
- |
(6.9) |
(6.9) |
- |
- |
- |
Overseas funded |
15.9 |
(18.6) |
(2.7) |
14.3 |
(17.3) |
(3.0) |
Overseas unfunded |
- |
(23.7) |
(23.7) |
- |
(21.2) |
(21.2) |
|
171.9 |
(248.3) |
(76.4) |
163.4 |
(219.1) |
(55.7) |
Deferred tax asset |
|
|
17.7 |
|
|
10.5 |
Net deficit |
|
|
(58.7) |
|
|
(45.2) |
Finance Director
Risk is inherent in our business activities. We take steps at both a Group and subsidiary level to understand and evaluate potential risks and uncertainties which could have a material impact on our performance in order to mitigate them. Accordingly, a risk aware environment is promoted and encouraged throughout the Group. Details of the principal risks and uncertainties are summarised below and set out in more detail in the Annual Report.
We operate in 20 countries and sell to customers in over 100. While benefitting from the opportunities and growth in these diverse territories, we are necessarily exposed to the economic, political and business risks associated with international operations such as a global recession, sudden changes in regulation, imposition of trade barriers and wage controls, security risk, limits on the export of currency and volatility of prices, taxes and currencies. Our diversified geographic footprint mitigates against exposure within any one country in which we operate, although we are still exposed to global events.
The Group's profit and cash flows are impacted by the price of its principal raw material, steel, which in recent years has seen considerable price volatility driven by global market conditions outside the control of the Group. Where contractually possible, we pass price increases on to our customers but this ability is, to some extent, dependent upon market conditions. There may be periods of time in which the Group is not fully able to recover increases in the cost of raw materials due to the weakness in demand for its products or the action of its competitors. During periods in which prices of raw materials fall, the Group may face demands from its customers to reduce its prices or experience a fall in demand for its products whilst customers delay orders in anticipation of price reductions. All of these factors could have a material adverse affect on the Group's business, financial condition, prospects, customer retention and results of operations. In recent years, the majority of unmitigated cost increases have been passed on to customers.
The Group's profits and cash flows are dependent on the continued use of its various facilities. Operational risks include equipment failure, failure to comply with applicable regulations and standards, raw materials supply disruptions, labour force shortages, events impeding or increasing the cost of transporting the Group's products and natural disasters. Any disruption of the manufacturing processes can result in delivery delays, interrupt production or even lead to a full cessation of production. If production is interrupted, customers may decide to purchase products from other suppliers. The Group has insurance cover to mitigate the impact of a number of these risks.
The pressure to maintain short lead times, requires the Group to significantly enhance our own working capital management processes and detailed plans are in place to achieve this.
The Group is presently implementing a global ERP system to replace numerous legacy systems. This change is expected to improve customer service and to facilitate further cost and inventory reduction. While four locations are now actively using the new system, the risk continues that an unsuccessful implementation at an individual site could seriously impact the Group's business, financial condition, prospects, customer retention and results of operations. In any event, a temporary increase in operating costs is inevitable in any major change process. To mitigate this risk, the Group is making extensive use of external consultants, the implementation is taking place in phases and a thorough project plan is in place with agreed milestones reviewed by the Board.
Revision of environmental legislation in various countries takes time and we monitor this at a local level in order to anticipate the effect on our businesses and customers. Unforeseen legislative changes may increase manufacturing costs but we believe that they can also drive change to make operations more efficient.
As a result of the nature of the products manufactured, we face the inherent business risk of exposure to product liability and warranty claims in the event that a product fails. In order to mitigate these risks, where possible, we maintain product liability insurance. In order to mitigate the risk of warranty claims for property damage or consequential losses, we have adopted a policy of contractually limiting liability, where possible.
In the present economic climate, all companies face risk in relation to the availability of debt to fund their ongoing operations. In order to manage this risk, the Group maintains a mix of short and medium term facilities to ensure that it has sufficient funds available. Cash deposits are placed short term with banks where security and liquidity are the primary objectives.
The Group has operations in 20 countries and sells into many more with the result that two forms of currency risk, transactional and translational exposure, arise.
Ÿ Transactional exposure: a major exposure of the Group earnings and cash flows relates to currency risk on its sales and purchases made in foreign (non-functional) currencies. To reduce such risks, these transactions are covered primarily by forward foreign exchange contracts or cash flow hedges. Such commitments generally do not extend more than 12 months beyond the balance sheet date, although exceptions can occur where longer term projects are entered into.
Ÿ Translational exposure: arises due to exchange rate fluctuations in the translation of the results of overseas subsidiaries into Sterling. To manage foreign exchange currency risk on the translation of net investments, certain Dollar denominated borrowings taken out in the UK to finance US acquisitions have been designated as a hedge of the net investment in US subsidiaries.
Borrowings at variable rates expose the Group to cash flow interest rate risk and borrowings at fixed rates expose the Group to fair value interest rate risk. The Group has the option to use interest rate swaps to manage part of this exposure but in the current environment has not elected to do so.
Estimates of the amount and timing of future funding obligations for the Group's pension plans are based upon a number of assumptions including future long term corporate bond yields, the actual and projected performance of the pension plan assets, legislative requirements and increased longevity of members. The Group continually reviews risks in relation to the Group's pension schemes and takes action to mitigate them where possible. While the Group is consulted by the trustees on the investment strategies of its pension plans, it does not have direct control over these matters, as trustees are responsible for the strategy.
|
Note |
|
2013 |
|
2012 |
|
|
|
|
£m |
|
£m |
|
Revenue |
2 |
|
190.3 |
|
209.5 |
|
Normal operating costs |
|
|
(183.1) |
|
(195.4) |
|
Operating profit before exceptional items |
|
|
7.2 |
|
14.1 |
|
Exceptional items |
3 |
|
(11.6) |
|
(2.1) |
|
Operating (loss)/profit |
|
|
(4.4) |
|
12.0 |
|
Share of post tax loss of jointly controlled entity |
|
|
(0.1) |
|
(0.1) |
|
Financial costs |
|
|
(2.7) |
|
(2.5) |
|
Net IAS 19 financing costs |
|
|
(0.3) |
|
(1.8) |
|
Exceptional financing costs |
3 |
|
(0.2) |
|
- |
|
Net financing costs |
4 |
|
(3.2) |
|
(4.3) |
|
(Loss) / profit before tax |
|
|
(7.7) |
|
7.6 |
|
Taxation |
5 |
|
(0.9) |
|
(1.2) |
|
(Loss) / profit for the financial year |
|
|
(8.6) |
|
6.4 |
|
Attributable to: |
|
|
|
|
|
|
Owners of the parent |
|
|
(8.7) |
|
6.2 |
|
Non-controlling interests |
|
|
0.1 |
|
0.2 |
|
|
|
|
(8.6) |
|
6.4 |
|
(Loss) /earnings per share |
6 |
|
|
|
|
|
Basic (loss) / earnings per share |
|
|
(3.9)p |
|
2.8p |
|
Diluted (loss) / earnings per share |
|
|
(3.9)p |
|
2.8p |
|
Adjusted[5] earnings per share |
|
|
1.4p |
|
4.2p |
|
Diluted adjusted earnings per share |
|
|
1.4p |
|
4.2p |
|
|
2013 £m |
|
2012 £m |
|
|
|
|
(Loss) / profit for the year |
(8.6) |
|
6.4 |
Other comprehensive income/(expense): |
|
|
|
Net (losses) / gains on cash flow hedges |
(0.2) |
|
0.1 |
Foreign exchange translation differences |
0.8 |
|
(1.1) |
Foreign exchange differences on loans forming part of the net investment in foreign operations |
1.0 |
|
(0.5) |
Actuarial losses on retirement benefit obligations |
(18.6) |
|
(9.9) |
Tax on components of other comprehensive income |
7.9 |
|
1.4 |
IFRIC 14 adjustment on pension funding contributions |
(6.9) |
|
- |
Other comprehensive expense for the year, net of tax |
(16.0) |
|
(10.0) |
Total comprehensive expense for the year, net of tax |
(24.6) |
|
(3.6) |
Attributable to: |
|
|
|
Owners of the parent |
(24.7) |
|
(3.8) |
Non-controlling interest |
0.1 |
|
0.2 |
|
(24.6) |
|
(3.6) |
Consolidated balance sheet as at 31 March 2013 |
Note |
2013 £m |
|
2012 £m |
ASSETSNon-current assets |
|
|
|
|
Goodwill |
|
21.8 |
|
22.3 |
Other intangible assets |
|
6.2 |
|
5.8 |
Property, plant and equipment |
|
43.1 |
|
47.2 |
Investment property |
|
1.4 |
|
1.9 |
Investment in jointly controlled entity |
|
- |
|
0.2 |
Other non-current assets |
|
0.4 |
|
0.2 |
Deferred tax assets |
|
25.9 |
|
18.1 |
|
|
98.8 |
|
95.7 |
Current assets |
|
|
|
|
Inventories |
|
40.9 |
|
45.5 |
Trade and other receivables |
|
32.8 |
|
33.4 |
Retirement benefit surplus |
|
1.4 |
|
1.6 |
Cash and cash equivalents |
|
9.8 |
|
4.8 |
|
|
84.9 |
|
85.3 |
TOTAL ASSETS |
|
183.7 |
|
181.0 |
|
|
|
|
|
LIABILITIES |
|
|
|
|
Current liabilities |
|
|
|
|
Borrowings |
|
(6.3) |
|
(13.6) |
Trade and other payables |
|
(39.8) |
|
(38.6) |
Current tax |
|
(1.4) |
|
(1.4) |
Derivative financial instruments |
|
(0.2) |
|
(0.1) |
Provisions |
|
(1.6) |
|
(1.5) |
|
|
(49.3) |
|
(55.2) |
NET CURRENT ASSETS |
|
35.6 |
|
30.1 |
|
|
|
|
|
Non-current liabilities |
|
|
|
|
Borrowings |
|
(25.8) |
|
(13.6) |
Preference stock |
|
(0.5) |
|
(0.5) |
Trade and other payables |
|
(0.8) |
|
(0.4) |
Deferred tax liabilities |
|
(0.6) |
|
(0.8) |
Retirement benefit obligations |
|
(77.8) |
|
(57.3) |
Provisions |
|
(0.3) |
|
- |
|
|
(105.8) |
|
(72.6) |
TOTAL LIABILITIES |
|
(155.1) |
|
(127.8) |
NET ASSETS |
|
28.6 |
|
53.2 |
|
|
|
|
|
EQUITY |
|
|
|
|
Issued share capital |
7 |
26.5 |
|
26.4 |
Share premium account |
|
29.6 |
|
29.4 |
Currency translation reserve |
|
6.1 |
|
4.3 |
Other reserves |
|
1.2 |
|
1.5 |
Retained earnings |
|
(37.2) |
|
(10.7) |
Equity attributable to equity holders of the parent |
|
26.2 |
|
50.9 |
Non-controlling interests |
|
2.4 |
|
2.3 |
TOTAL SHAREHOLDERS' EQUITY |
|
28.6 |
|
53.2 |
Approved by the Board on 28 May 2013 and signed on its behalf by:
Mark Harper Robert Purcell
Chairman Chief Executive
Consolidated statement of changes in equity for the year ended 31 March 2013
|
Share capital £m |
Share premium account £m |
Retained earnings £m |
Currency translation reserve £m |
Other reserves £m |
Attributable to owners of parent £m |
Non- controlling interests £m |
Total equity £m |
At 1 April 2011 |
26.4 |
29.4 |
(8.3) |
5.9 |
1.4 |
54.8 |
2.1 |
56.9 |
|
|
|
|
|
|
|
|
|
Profit for the year |
- |
- |
6.2 |
- |
- |
6.2 |
0.2 |
6.4 |
|
|
|
|
|
|
|
|
|
Other comprehensive income/ (expense) |
- |
- |
(8.5) |
(1.6) |
0.1 |
(10.0) |
- |
(10.0) |
Total comprehensive income / (expense) for the year |
- |
- |
(2.3) |
(1.6) |
0.1 |
(3.8) |
0.2 |
(3.6) |
Employee share options: |
|
|
|
|
|
|
|
|
- value of employee services |
- |
- |
(0.1) |
- |
- |
(0.1) |
- |
(0.1) |
At 31 March 2012 |
26.4 |
29.4 |
(10.7) |
4.3 |
1.5 |
50.9 |
2.3 |
53.2 |
|
|
|
|
|
|
|
|
|
Loss for the year |
- |
- |
(8.7) |
- |
- |
(8.7) |
0.1 |
(8.6) |
|
|
|
|
|
|
|
|
|
Other comprehensive income/ (expense) |
- |
- |
(17.6) |
1.8 |
(0.2) |
(16.0) |
- |
(16.0) |
Total comprehensive income/ (expense) for the year |
- |
- |
(26.3) |
1.8 |
(0.2) |
(24.7) |
0.1 |
(24.6) |
Employee share options: |
|
|
|
|
|
|
|
|
- value of employee services |
- |
- |
(0.3) |
- |
- |
(0.3) |
- |
(0.3) |
Exercise of share warrants: |
|
|
|
|
|
|
|
|
- release of share warrant reserve |
- |
- |
0.1 |
- |
(0.1) |
- |
- |
- |
- proceeds from share issue |
0.1 |
0.2 |
- |
- |
- |
0.3 |
- |
0.3 |
|
|
|
|
|
|
|
|
|
At 31 March 2013 |
26.5 |
29.6 |
(37.2) |
6.1 |
1.2 |
26.2 |
2.4 |
28.6 |
Consolidated statement of cash flows for the year ended 31 March 2013
|
2013 £m |
|
2012 £m |
Cash flows from operating activities (Note 8) |
|
|
|
Cash generated from operations |
8.9 |
|
5.9 |
Income taxes paid |
(0.7) |
|
(0.5) |
Net cash from operating activities |
8.2 |
|
5.4 |
Cash flows from investing activities |
|
|
|
Investment in jointly controlled entity |
- |
|
(0.3) |
Purchase of property, plant and equipment |
(3.1) |
|
(3.7) |
Purchase of intangible assets |
(1.8) |
|
(1.9) |
Net cash from investing activities |
(4.9) |
|
(5.9) |
Cash flows from financing activities |
|
|
|
Proceeds from issue of ordinary shares |
0.3 |
|
- |
Financing costs paid |
(2.8) |
|
(2.7) |
Proceeds from borrowings |
43.1 |
|
10.7 |
Repayment of borrowings |
(36.1) |
|
(10.9) |
Payment of finance lease liabilities |
(0.1) |
|
(0.1) |
Net cash from financing activities |
4.4 |
|
(3.0) |
Net increase / (decrease) in cash and cash equivalents |
7.7 |
|
(3.5) |
Net cash and cash equivalents at beginning of year |
1.2 |
|
4.9 |
Effects of exchange rate changes |
0.3 |
|
(0.2) |
Net cash and cash equivalents at end of year |
9.2 |
|
1.2 |
Notes to the Financial Information
1(a) Basis of preparation
The preliminary statement was approved by the Board on 28 May 2013. The preliminary statement does not represent the full consolidated financial statements of Renold plc and its subsidiaries which will be delivered to the Registrar of Companies following the Annual General Meeting. The audited consolidated financial statements of Renold plc for the year ended 31 March 2013 have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.
The preliminary statement has been prepared on a consistent basis using the accounting policies set out in the Renold plc annual report for the year ended 31 March 2012. The financial information for the year ended 31 March 2012 has been extracted from the Renold plc annual report for that year as filed with the Registrar of Companies.
The 2012 and 2013 financial statements both carry unqualified audit reports which do not contain an emphasis of matter reference and do not contain a statement under section 237(2) or 237(3) of the Companies Act 1985 or section 498(2) or 498(3) of the Companies Act 2006.
1(b). Basis of preparation - Going Concern
The 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 Directors have assessed the future funding requirements of the Group and the Company and compared them to the level of available borrowing facilities. The assessment included a detailed review of financial forecasts, financial instruments and hedging arrangements for at least the twelve month period from the date of signing the accounts and a review of cash flow projections. The Directors considered a range of potential scenarios within the key markets the Group serves and how these might impact on the Group's cash flow, facility headroom and banking covenants. The Directors also considered what mitigating actions the Group could take to limit any adverse consequences. The Group's forecasts and projections, taking account of reasonably possible scenarios show that the Group should be able to operate within the level of its borrowing facilities and covenants.
Having undertaken this work, the Directors are of the opinion that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly they continue to adopt the going concern basis in preparing the Annual Report and accounts.
2. Segmental information
For management purposes, the Group is organised into two reportable operating segments according to the nature of their products and services. Having considered the management reporting and organisational structure of the Group, the Directors have concluded that Renold plc has two reportable operating segments as follows:
· The Chain segment manufactures and sells power transmission and conveyor chain and also includes sales of Torque Transmission product through Chain National Sales Companies (NSC's);
· The Torque Transmission segment manufactures and sells torque transmission products such as gearboxes and couplings used in power transmission.
No operating segments have been aggregated to form the above reportable segments.
Management monitors the operating results of its business units separately for the purpose of making decisionsabout resource allocation and performance assessment. 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. Segment performance is evaluated based on operating profit and loss and is measured consistently with operating profit and loss in the consolidated financial statements. However, Group financing (including finance costs and finance income), retirement benefit obligations and income taxes are managed on a Group basis and 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.
Year ended 31 March 2013 |
Chain
£m |
Torque Transmission
£m |
Head Office costs and eliminations |
Consolidated
£m |
|
|
|
|
|
Revenue |
|
|
|
|
External customer |
141.9 |
48.4 |
- |
190.3 |
Inter-segment |
0.8 |
4.6 |
(5.4) |
- |
Total revenue |
142.7 |
53.0 |
(5.4) |
190.3 |
|
|
|
|
|
Operating profit/(loss) before exceptional items |
6.9 |
5.3 |
(5.0) |
7.2 |
Exceptional items |
(9.5) |
0.7 |
(2.8) |
(11.6) |
Operating profit/(loss) |
(2.6) |
6.0 |
(7.8) |
(4.4) |
Share of post tax loss of jointly controlled entity |
|
|
|
(0.1) |
Net financing costs |
|
|
|
(3.2) |
Loss before tax |
|
|
|
(7.7) |
|
|
|
|
|
Other disclosures |
|
|
|
|
Inventories |
30.4 |
10.2 |
0.3 |
40.9 |
Working capital |
18.5 |
8.6 |
6.0 |
33.1 |
Capital expenditure |
2.3 |
0.8 |
1.8 |
4.9 |
Depreciation and amortisation |
3.2 |
1.0 |
0.4 |
4.6 |
Year ended 31 March 2012 |
Chain
£m |
Torque Transmission
£m |
Head Office costs and eliminations |
Consolidated
£m |
|
|
|
|
|
Revenue |
|
|
|
|
External customer |
157.5 |
52.0 |
- |
209.5 |
Inter-segment |
1.5 |
5.9 |
(7.4) |
- |
Total revenue |
159.0 |
57.9 |
(7.4) |
209.5 |
|
|
|
|
|
Operating profit/(loss) before exceptional items |
9.3 |
8.3 |
(3.5) |
14.1 |
Exceptional items |
(1.6) |
(0.1) |
(0.4) |
(2.1) |
Operating profit/(loss) |
7.7 |
8.2 |
(3.9) |
12.0 |
Share of post tax loss of jointly controlled entity |
|
|
|
(0.1) |
Net financing costs |
|
|
|
(4.3) |
Profit before tax |
|
|
|
7.6 |
|
|
|
|
|
Other disclosures |
|
|
|
|
Inventories |
35.4 |
10.8 |
(0.7) |
45.5 |
Working capital |
27.0 |
9.1 |
3.8 |
39.9 |
Capital expenditure |
2.4 |
1.2 |
2.0 |
5.6 |
Depreciation and amortisation |
3.4 |
1.0 |
0.2 |
4.6 |
i. Inter-segment revenues are eliminated on consolidation.
ii. Capital expenditure consists of additions to property, plant and equipment, and intangible assets including assets from the acquisition of subsidiaries.
iii. Included in Chain external sales is £13.8m (2012: £12.3m) of Torque Transmission product sold through the Chain NSCs. The Torque Transmission businesses may use the Chain NSC framework in countries where it does not have its own presence.
iv. The measures of segment assets reviewed by the CODM are inventories and total working capital.
v. Working capital includes inventories and trade and other receivables less trade and other payables.
The Board reviews the performance of the business using information presented at consistent exchange rates ('underlying'). The prior year results have been restated using this year's exchange rates as follows:
Year ended 31 March 2012 (restated) |
Chain
£m |
Torque Transmission
£m |
Head Office costs and eliminations |
Consolidated
£m |
|
|
|
|
|
Revenue |
|
|
|
|
External customer |
157.5 |
52.0 |
- |
209.5 |
Foreign exchange |
(3.8) |
(0.2) |
- |
(4.0) |
Underlying external sales |
153.7 |
51.8 |
- |
205.5 |
|
|
|
|
|
Operating profit/(loss) before exceptional items |
9.3 |
8.3 |
(3.5) |
14.1 |
Foreign exchange |
(0.3) |
(0.1) |
- |
(0.4) |
Underlying operating profit/(loss) before exceptional items |
9.0 |
8.2 |
(3.5) |
13.7 |
The operations of the Group are based in four main geographical areas. The UK is the home country of the parent company, Renold plc. The principal operating territories and sales analysis (based on the location of the customer). The analysis of non-current assets is based on the location of the assets are as follows:
|
|
External revenues
|
Non-current assets |
|
||||||||
|
|
2013 £m |
2012 £m |
2013 £m |
2012 £m |
|
||||||
|
|
|
|
|
|
|
||||||
United Kingdom |
17.6 |
20.3 |
14.0 |
16.9 |
|
|||||||
Rest of Europe |
50.1 |
61.3 |
13.2 |
14.0 |
|
|||||||
North America |
69.3 |
66.7 |
26.0 |
24.7 |
|
|||||||
Other countries |
53.3 |
61.2 |
19.3 |
21.8 |
|
|||||||
|
|
190.3 |
209.5 |
72.5 |
77.4 |
|
||||||
|
|
|
|
|
|
|
||||||
|
All revenue relates to the sale of goods. No individual customer, or group of customers, represents more than 10% of Group revenue (2012 - none). |
|
|
|
||||||||
Non-current assets consist of goodwill, other intangible assets, property, plant and equipment, investment property and investment in jointly controlled entities. Other non-current assets and deferred tax assets are not included above.
3. Exceptional items
Included in operating costs |
2013 £m |
|
2012 £m |
Chain business model review - impairment of goodwill |
1.5 |
|
- |
- impairment of intangible assets |
1.1 |
|
- |
- impairment of tangible fixed assets |
3.7 |
|
- |
- impairment of inventory and production tooling |
2.8 |
|
- |
- provision for onerous licence costs |
0.3 |
|
- |
Impairment of investment in jointly controlled entity |
0.1 |
|
- |
Impairment of investment property |
0.5 |
|
- |
Reorganisation and redundancy costs |
2.6 |
|
1.7 |
Abortive acquisition costs |
- |
|
0.4 |
Insurance proceeds |
(1.0) |
|
- |
|
11.6 |
|
2.1 |
Included in financing costs: |
|
|
|
Costs associated with refinancing |
0.2 |
|
- |
|
0.2 |
|
- |
Following the Interim results, the Group began a review of the business model for the Chain division. One aspect of that review was to assess manufacturing capacity across the full range of operational activities. Future increases in demand and volume were compared to the current installed capacity base (whether manned or unmanned). The review identified that significant excess capacity existed in a number of steps in the manufacturing process for a range of Chain products.
The identification of excess capacity considered existing demand, the likelihood of further subdued demand growth in future due to the economic conditions in many of the Group's end markets, and also the change in strategic objectives to focus on lowering the breakeven point of the Chain division as opposed to pursuing uncertain and riskier growth opportunities. As a result of this exercise, it was identified that a number of assets were impaired: goodwill in respect of the acquisition of Renold Hangzhou (£1.5m), a number of production assets (£3.7m) and items of stock and tooling (£2.8m) used in various production processes.
In addition, related to the strategic review but also arising from a reduction in the number of management units and expected users resulting from restructuring activities completed during the last year, a proportion of the costs in respect of the ERP system that is being implemented has also been impaired (intangible assets impairment charge of £1.1m). A provision for future payments for licences that are now unlikely to be used has also been made of £0.3m.
Reorganisation and redundancy costs incurred in the current year relate to the completion of the restructuring of the Group's European back office support functions (£0.7m) that was started in the prior year and a number of additional cost reduction exercises in the second half that were initiated in response to the continuing slow down in many end markets. These included a number of changes in the executive management team in the fourth quarter and the closure of one of the two offices in Switzerland.
An impairment charge of £0.5m has been made against the valuation of the investment property following the independent valuation performed in March 2013 on the basis of continuing use as a rented industrial facility. The property is now held at £1.4m.
In the prior year, exceptional costs primarily related to the European restructuring noted above and the closure of distribution facilities elsewhere. The prior year also saw abortive acquisition costs of £0.4m.
During the year a machine in the Milnrow (UK) facility was destroyed by fire. A new machine has been ordered and the insurers have accepted liability to pay for the new machine. The sum above represents the net difference between the book value of the old machine and the replacement cost of the new machine.
Following completion of the refinancing of the Group principal borrowing facilities, costs of £0.2m associated with the previous borrowing arrangements that would have been amortised over the remaining duration of those facilities were charged to exceptional financing costs.
4. Net financing costs
|
2013 £m |
|
2012 £m |
Financial costs: |
|
|
|
Interest payable on bank loans and overdrafts |
(2.6) |
|
(2.4) |
Amortised financing costs |
(0.1) |
|
(0.1) |
Exceptional refinancing costs |
(0.2) |
|
- |
Total financing costs |
(2.9) |
|
(2.5) |
|
|
|
|
IAS 19 financing costs: |
|
|
|
Interest cost on plan balances |
(10.1) |
|
(11.6) |
Expected return on pension plan assets |
9.8 |
|
9.8 |
Net IAS 19 financing costs |
(0.3) |
|
(1.8) |
Net financing costs |
(3.2) |
|
(4.3) |
5. Taxation
Analysis of tax charge/(credit) in the year
|
2013 £m |
|
2012 £m |
United Kingdom |
|
|
|
UK corporation tax at 24% (2012: 26%) |
- |
|
- |
Less: double taxation relief |
- |
|
- |
|
- |
|
- |
Overseas taxes |
|
|
|
Corporation taxes |
0.6 |
|
0.9 |
Withholding taxes |
0.1 |
|
0.1 |
Current income tax charge |
0.7 |
|
1.0 |
Deferred tax |
|
|
|
UK - origination and reversal of temporary differences |
0.2 |
|
0.7 |
Overseas - origination and reversal of temporary differences |
- |
|
(0.5) |
Total deferred tax charge |
0.2 |
|
0.2 |
Tax charge on (loss)/profit on ordinary activities |
0.9 |
|
1.2 |
|
2012 £m |
|
2012 £m |
Tax on items taken to other comprehensive income |
|
|
|
Deferred tax on changes in net pension deficits |
(7.9) |
|
(1.4) |
Tax credit in the statement of other comprehensive income |
(7.9) |
|
(1.4) |
Factors affecting the Group tax charge for the year
In his annual Budget announcement on 20 March 2013, the Chancellor of the Exchequer announced certain tax changes which will have a significant effect on the Group's future tax position. The proposals included phased reductions in the UK corporation tax rate to 20% from 1 April 2015. As at 31 March 2013, only the previously announced reduction in the rate to 23% has been substantively enacted and this has been reflected in the Group's financial statements as at 31 March 2013. This has resulted in a £0.2m deferred tax charge to the income statement and a £0.5m deferred tax charge to other comprehensive income, due to the reduction in the value of the deferred tax assets recognised in the UK.
Based on the closing deferred tax assets at the balance sheet date, the effect of the reduction of the UK corporation tax rate to 20% on the Group's deferred tax asset would be to reduce the deferred tax asset by £1.8 million.
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.
The actual tax on the Group's (loss) / profit before tax differs from the theoretical amount using the UK corporation tax rate as follows:
|
2013 |
|
2012 |
|
£m |
|
£m |
(Loss) / profit on ordinary activities before tax |
(7.7) |
|
7.6 |
Theoretical tax credit at 24% (2012: 26%) |
(1.8) |
|
2.0 |
Effects of: |
|
|
|
Permanent differences |
0.3 |
|
0.1 |
Overseas tax rate differences |
0.4 |
|
- |
Deferred tax not recognised |
1.8 |
|
- |
Utilisation of previously unrecognised tax losses |
- |
|
0.1 |
Other temporary differences |
- |
|
(1.2) |
Change in tax rate |
0.2 |
|
0.2 |
Total tax charge |
0.9 |
|
1.2 |
6. (Loss) / earnings per share
(Loss) / earnings per share (EPS) is calculated by reference to the (loss) / earnings for the year and the weighted average number of shares in issue during the year as follows:
|
2013 |
2012 |
|||||||
|
Loss £m |
Shares (Thousands) |
Per share amount (pence) |
Earnings £m |
Shares (Thousands) |
Per share amount (pence) |
|
||
Basic EPS |
|
|
|
|
|
|
|
||
(Loss) / earnings attributed to ordinary shareholders |
(8.7) |
220,939 |
(3.9) |
6.2 |
219,565 |
2.8 |
|
||
|
|
|
|
|
|
|
|
||
Basic EPS |
(8.7) |
220,939 |
(3.9) |
6.2 |
219,565 |
2.8 |
|
||
|
2013 |
2012 |
|||||
|
(Loss) / earnings £m |
Shares (Thousands) |
Per share amount (pence) |
Earnings £m |
Shares (Thousands) |
Per share amount (pence) |
|
Adjusted EPS |
|||||||
Basic EPS |
(8.7) |
220,939 |
(3.9) |
6.2 |
219,565 |
2.8 |
|
Effect of exceptional items, after tax: |
|
|
|
|
|||
Exceptional items in operating costs |
11.5 |
|
5.2 |
1.8 |
|
0.8 |
|
Exceptional items in financing costs |
0.2 |
|
0.1 |
- |
|
- |
|
Net pension financing costs |
0.1 |
|
- |
1.3 |
|
0.6 |
|
Adjusted EPS |
3.1 |
220,939 |
1.4 |
9.3 |
219,565 |
4.2 |
|
Inclusion of the dilutive securities, comprising 30,000 (2012: 1,357,000) additional shares due to share options and 434,000 (2012: 1,246,000) additional shares due to warrants over shares, in the calculation of adjusted EPS does not change the amounts shown above (2012: no change).
The adjusted earnings per share numbers have been provided in order to give a useful indication of underlying performance by the exclusion of exceptional items. Due to the existence of unrecognised deferred tax assets, there was no associated tax credit on some of the exceptional charges and in these instances exceptional costs are added back in full.
7. Called up share capital |
|
Issued |
||
|
|
2013 £m |
|
2012 £m |
Ordinary shares of 5p each |
|
11.1 |
|
11.0 |
Deferred shares of 20p each |
|
15.4 |
|
15.4 |
|
|
26.5 |
|
26.4 |
At 31 March 2013, the issued ordinary share capital comprised 221,064,453 ordinary shares of 5p each (2012: 219,564,703) and 77,064,703 deferred shares of 20p each (2012: 77,064,703). In May 2012, the Company issued 1,499,750 fully paid ordinary 5p shares (2012: nil) pursuant to the exercise of Warrants by Fortis Bank UK Branch at a price of 21.06p. The warrants had a seven year term commencing from 13 August 2009 during which they could be exercised at any time and were granted as part of the re-financing agreed with the Group's banks at that time. Outstanding warrants with the Royal Bank of Scotland plc number 2,000,250 with the same terms noted above.
8. Additional cash flow information
Reconciliation of operating profit to net cash flows from operations: |
2013 £m |
|
2012 £m |
Cash generated from operations:
|
|
|
|
Operating (loss) / profit |
(4.4) |
|
12.0 |
Depreciation and amortisation |
4.6 |
|
4.6 |
Impairment of goodwill |
1.5 |
|
- |
Impairment of intangible assets |
1.1 |
|
- |
Impairment of tangible assets |
3.7 |
|
- |
Impairment of inventories |
2.8 |
|
- |
Impairment of investment in jointly controlled entity |
0.1 |
|
- |
Impairment of investment property |
0.5 |
|
- |
Proceeds from plant and equipment disposals |
0.4 |
|
- |
Equity share plans |
(0.3) |
|
(0.1) |
Decrease / (increase) in inventories |
2.8 |
|
(2.0) |
Decrease / (increase) in receivables |
1.3 |
|
(1.2) |
Increase / (decrease) in payables |
0.1 |
|
(1.1) |
Increase in provisions |
0.4 |
|
0.3 |
Movement on pension plans |
(5.8) |
|
(6.5) |
Movement in derivative financial instruments |
0.1 |
|
(0.1) |
Cash generated from operations |
8.9 |
|
5.9 |
Reconciliation of net decrease in cash and cash equivalents to movement in net debt:
|
2013 £m |
|
2012 £m |
Decrease in cash and cash equivalents |
7.7 |
|
(3.5) |
Change in net debt resulting from cash flows |
(7.0) |
|
0.2 |
Foreign currency translation differences |
(0.6) |
|
0.4 |
Change in net debt during the period |
0.1 |
|
(2.9) |
Net debt at start of year |
(22.9) |
|
(20.0) |
Net debt at end of year |
(22.8) |
|
(22.9) |
|
|
|
|
Net debt comprises: |
|
|
|
Cash and cash equivalents |
9.8 |
|
4.8 |
Total borrowings |
(32.6) |
|
(27.7) |
|
(22.8) |
|
(22.9) |
[1] Underlying adjusts prior year results to the current year exchange rates to give a like for like comparison
[2] "Adjusted" means excluding the impact of exceptional items
[3] Underlying adjusts prior year results to the current year exchange rates to give a like for like comparison
[4]"Adjusted" means excluding the impact of exceptional items
[5] Adjusted earnings per share excludes the post tax impact of exceptional items