Final Results
Renold PLC
13 June 2005
13 June 2005
RENOLD plc
2005 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 31 March 2005.
Summary
• Turnover at £197.0 million (2004: £192.1 million).
• Operating profit (before goodwill and exceptional items) was £3.7 million
(2004 restated: £7.6 million); reported operating loss of £4.2 million (2004
restated: profit £8.6 million).
• Pre-exceptional profit before tax at £1.1 million (2004 restated: £3.7
million); reported loss before tax £6.8 million (2004 restated: profit £4.7
million).
• Steel prices, up 40% year on year, had major impact on second half
profitability.
• Integration of Sachs Automotive France SAS, acquired in March 2005,
proceeding as envisaged.
• Adjusted earnings per share were 1.4 pence (2004 restated: 4.5 pence);
basic loss per share 7.5 pence (2004 restated: earnings 6.8 pence).
• Board propose not to pay a final dividend due to reduced earnings and cash
needed to fund restructuring activities. Dividend for year 1.5 pence, paid
as interim (2004: 4.5 pence).
• Net debt £17.0 million (2004: £19.2 million).
• Continuing strategic review targeting a more tightly focused business
with substantially lower cost base and reduced borrowings.
Prospects
Roger Leverton, Chairman of Renold plc, said today:
'Overall the external economic environment remains difficult. The major
restructuring activities under way, together with action on prices to recover
steel and other cost increases, should lead to a recovery in margin as the year
progresses. The recent weakening of the Euro against the Dollar, if maintained,
will also be a positive factor for the Group.'
13 June 2005
RENOLD plc
Chairman: Roger Leverton
Preliminary Results
for the Financial Year ended 31 March 2005
FINANCIAL SUMMARY 2005 2004
restated
£m £m
Turnover 197.0 192.1
Operating (loss)/profit (4.2) 8.6
Operating profit before goodwill amortisation and
exceptional items 3.7 7.6
Profit before tax, goodwill amortisation and
exceptional items 1.1 3.7
(Loss)/profit before tax (6.8) 4.7
Basic and diluted (loss)/earnings per share (7.5)p 6.8p
Adjusted earnings per share (adjusting for the after
tax effects of goodwill and exceptional items) 1.4p 4.5p
Dividends per ordinary share, paid or proposed 1.5p 4.5p
Capital expenditure 7.6 7.2
Net debt 17.0 19.2
GROUP RESULTS AND DIVIDEND
After an encouraging start the outcome for the financial year 2005 was
disappointing with an operating profit before goodwill and exceptional items of
£3.7 million, compared with £7.6 million (restated) in 2004 on sales of £197.0
million (2004: £192.1 million), up 6% at constant exchange rates.
Steel price increases had a major effect in the second half of the year with the
Group experiencing an average year on year increase of some 40% in costs. Steel
represents the major part of raw material cost for the Group and whilst sales
prices are being increased, it is proving difficult to fully recover these cost
increases, particularly from OEM customers. Continuing weakness of the US Dollar
also had an adverse impact on performance as did slowing volumes in the
automotive business.
The power transmission segment saw growth in North America but weak market
conditions persisted in Europe. Development of the Group's activities in China
continued with further contracts won and an increase in the number of local
employees. The machine tool and rotor business continued to progress and
generated an operating profit of £0.6 million, up from £0.3 million in 2004 on
improved sales levels.
The Board's continuing strategic review of the Group and its constituent parts
is targeting a more tightly focused business with a substantially lower cost
base and a reduced level of borrowings. The process of outsourcing production to
lower cost economies is ongoing and the rationalisation of the Burton conveyor
chain facility has already been announced and is well advanced. The Board will
keep shareholders informed as these plans move forward.
Overall the Group recorded a pre tax loss of £6.8 million compared with a profit
of £4.7 million (restated) in 2004. This loss was after providing £3.2 million
for the rationalisation of the Burton conveyor chain facility and the creation
of a UK service centre. In addition there was a £2.4 million goodwill impairment
charge relating to the Jones & Shipman acquisition following a specific review
conducted in the second half of the year.
In March the Group completed the acquisition of Sachs Automotive France SAS from
ZF Sachs AG. This facility, which is located at Saint Simeon de Bressieux in
South East France, provides a platform for a European aftermarket business for
automotive chain products together with assets and technology which will enhance
the development of the existing OEM activity. Following acquisition the unit has
been renamed Renold SAF SAS and is currently being restructured as envisaged.
Group borrowings ended the year at £17.0 million compared with £19.2 million the
previous year after including cash of £9.7 million acquired with the Sachs
business, which will primarily fund the anticipated costs of restructuring that
business. Revised bank borrowing facilities have been agreed.
Dividend
Given this year's reduction in earnings and operational cashflow, together with
the cash requirements of funding restructuring activities, the Board believes it
is prudent to recommend that no final dividend be paid for this year. The
interim dividend of 1.5 pence per share paid on 28 January 2005 would therefore
be the total dividend for the year. The Board will consider future dividend
policy in the light of results.
Prospects
Overall the external economic environment remains difficult. The major
restructuring activities under way, together with action on prices to recover
steel and other cost increases, should lead to a recovery in margin as the year
progresses. The recent weakening of the Euro against the Dollar, if maintained,
will also be a positive factor for the Group.
CHIEF EXECUTIVE'S REVIEW
The last 12 months have been difficult for Renold. Commodity prices,
particularly steel, and exchange rate movements have caused significant input
cost increases. These external events have adversely impacted all businesses but
the chain businesses, whose products consist almost entirely of steel, have
suffered the worst impact. The machine tool, gears and couplings businesses,
where steel is a much smaller part of product cost, have managed to more than
offset the increases through cost reduction programmes and price increases. The
industrial and automotive chain operations have faced a much harder task than
these project based businesses.
The strength of the Euro has aggravated the problems faced by the chain
businesses as the majority of production is European-based whereas the sales
growth has come from Dollar-based economies.
Steel prices appear to have stabilised, at levels some 40% higher than a year
ago, however, it would be unwise to be dependent on any significant steel price
reductions to restore adequate levels of profitability. It is imperative that
the chain businesses bring the cost base in line with today's external
environment and the Group is focused on this target.
The majority of chain manufacturing still occurs in Europe. Over the coming year
we will migrate some of this production to lower cost countries, particularly
ones that also provide good growth opportunities. An automotive manufacturing
facility has been established in Tennessee and this will ramp up during the year
to provide a base for all US automotive and some high value industrial based
contracts.
To support custom and special chains in Europe, where close customer support is
required, it is proposed to establish a new facility in Poland which will
initially employ some 50 people.
It is also proposed to establish a wholly owned manufacturing facility in China,
on a greenfield site, to support a number of the Company's product lines. To
accelerate our manufacturing presence in China we are in negotiations with a
Chinese chain manufacturer with a view to a co-operation leading to Renold
establishing a controlling interest. This opportunity will not only provide cost
reduction but, more importantly, will provide better access to markets and
customers in the Far East.
In addition to these initiatives we will continue to drive Lean methodology in
all the manufacturing units. There have been positive results from this during
the past 18 months but further efficiencies should be achieved. Improved IT
systems will also allow us to increase the efficiency of the European sales
structure and enhance our customer service.
Unfortunately these changes have caused us to announce the closure of our
existing facility in Burton and to create a smaller service centre in the same
locality. To date 120 job reductions have been announced in Europe,
predominantly in the UK and Germany. The predicted growth in our French
automotive facility should avoid the need for any loss of permanent positions at
the plant in Calais.
Despite the poor trading performance we have maintained the sales initiatives in
countries that offer good growth prospects. In China a sales force of 12 has
been built during the year and we expect this to increase steadily throughout
the forthcoming year. Sales resource has also been added in the USA and this
helped to deliver the growth achieved in North America. South America and
Eastern Europe country managers have been added to drive growth in these
countries.
The programme of change within the Group will take time to fully implement and
places a significant burden on the existing management teams. I should like to
take this opportunity to thank these teams and all Renold employees for the
positive and enthusiastic way they have responded to these challenges.
OPERATIONS REVIEW
Power Transmission - Chain
The industrial chain business had a difficult year being severely impacted by
steel price increases and the weakness of the US Dollar. Steel costs make up the
vast majority of the material purchases for the Division and can be as high as
50% of the cost of sales. Although steel price increases varied, widely
dependent on the grade, on average the year-on-year increase was over 40%.
Prices to customers have been increased; however, these lagged behind the cost
increases and did not enable the business to fully recover the raw material cost
increases. Price recovery from major OEMs proved to be particularly difficult.
The net impact of steel cost increases to the division was over £3.0 million.
Further offset of increased raw material costs was achieved by the successful
introduction of Lean manufacturing at all the Division's facilities and resulted
in a reduction in labour costs greater than wage increases. Stock turns also
improved by some 10% despite the adverse impact of significantly increased raw
material costs.
Product distribution is being centralised at two centres in Europe to allow
better service to our customers as well as reducing inventory and distribution
costs across Europe. This model will more closely match the successful structure
already in place in the USA.
Overhead cost reduction actions were implemented during the year. The closure of
the Burton facility was announced with production moving to other Renold
facilities and being outsourced. Within Europe, a facility is planned for
Poland; this should be in operation in 2005/06. Further outsourcing is planned
going forward.
Negotiations are under way with a Chinese manufacturer with the objective of
establishing a Renold-owned manufacturing capability in the country. This will
allow better penetration of Far East markets, in addition to additional cost
reduction opportunities.
Sales, excluding price increases, were ahead of the previous year with North
America being the strongest territory. Demand in the USA was for both product
manufactured at the Jeffrey Chain facility, in Tennessee, and product
manufactured in Europe. This growth was driven by increased sales resource and a
stronger position with the major North American distributors. The weaker US
Dollar understates this growth and had an adverse impact of over £0.5 million to
the profitability of the chain business.
Within Europe sales were flat with little sign of market growth and increasing
competition from low cost suppliers. Some growth in Germany, Scandinavia and
Switzerland was offset by weaknesses in the UK, Benelux and Austria.
Asia Pacific, Australia and Malaysia showed growth, with the newly created
Chinese sales subsidiary in Shanghai winning its first orders.
Order growth largely matched the sales improvements with North America being the
strongest contributor.
Looking forward there appears to be a consensus that steel prices have plateaued
but with scant evidence of any significant reductions. Cost reduction
initiatives, in addition to pricing activity, should lead to more acceptable
margins rather than any benefit from commodity prices or exchange rates.
Power Transmission - Gears
The gear business had a good year with a further increase in sales and profits.
The division was particularly successful in China, winning major business from
the growth in infrastructure projects. This, coupled with an increase in OEM
business, led to an increase in orders of over 10%.
The division's success is driven by providing creative and innovative design
solutions to solve specific customer problems. This approach has allowed growth
in the relatively flat markets of the UK and Germany.
Input costs have suffered from large increases in steel and bronze commodity
prices. These were more than offset by outsourcing components from low cost
countries and the successful implementation of Lean manufacturing. The adverse
impact of raw material price increases on stock was also offset leading to an
improvement in stock turns.
The division is well positioned to continue to show an improvement in the coming
year.
Power Transmission - Couplings
During the year the businesses, based in Halifax, Cardiff and Westfield, were
combined under a single management team to better exploit the sales and
operational synergies. This integration has delivered good results with growth
in sales and operating profit compared with last year. Order growth came mainly
from North America but with prospects in Europe expected to materialize in the
current financial year.
Design release for the significant multi year contract for the Alstom/New York
City Transit Authority was completed during the year, on schedule, and initial
production has commenced. This contract will build up during 2005/06 and deliver
significant volumes during the following two years.
Sales growth also came from the steel industry where increased output and
capacity provided a number of opportunities.
Automotive
The performance of the automotive operations was disappointing with a failure to
achieve an improvement in sales or profits. Sales growth to the largest
customer, GM, did not materialise due to lower end-customer demand in both
Europe and the USA. The problem was aggravated by an increase in steel prices,
which could not be passed on to the customer during the year. Although some
efficiency gains were made these were not sufficient to offset the sales
shortfall and steel price increases. With over 40% of the output being shipped
to North America the strength of the Euro compared to the US Dollar had a
further adverse impact of some £0.7 million.
The new manufacturing facility based in Tennessee was established in December,
and the first pre-production chain shipped to the customer, on schedule, at the
end of March. Quality approval and first production shipments are expected ahead
of schedule later in the year. This facility will eventually produce Cam Drive
Systems for all Dollar-based contracts. In addition to this reduced currency
exposure there are also cost and working capital benefits from the use of
US-based manufacture and assembly.
The new German facility in Einbeck, designed to relieve the capacity pressure on
the Calais operation, was constructed and opened during the year. This is now
assembling all chain and manufacturing components for VW. The transition has
been successful with no disruption to the customer.
Towards the end of the year Sachs Automotive France SAS was purchased for a
nominal sum. This provides an entry into the aftermarket business. It also
provides manufacturing equipment and resources that will support the Calais
operation. The business is being kept separate from Renold Automotive Systems
until the restructuring programme is complete, after which it will be fully
integrated. Albeit a recent acquisition, to date it has met expectations.
During the year the first contract from GM in Shanghai was awarded. In Shanghai,
product shipments will commence at the end of 2005/06. In addition, a number of
new customer programmes were commenced during the year. Programmes already
awarded should result in a growth in sales of over 20% over the next two years
based on customer forecasts.
Machine Tool & Rotor
The machine tool business had another year of profit improvement. Order levels
at Jones & Shipman showed a significant increase over previous years with good
growth coming from the USA, UK and France.
The launch of the new Jones & Shipman Suprema machine, towards the end of the
year, was successful and this is expected to give a further boost to the already
strong order book. Holroyd machine tool orders did not reach expectations with a
number of prospective customer orders being delayed by several months. This
shortfall was somewhat offset by an increased demand for rotors and loose gears.
Both Holroyd and Jones & Shipman suffered from increases in raw materials and
utility costs; however, these were more than offset by outsourcing components
from Eastern Europe and Asia. Jones & Shipman in particular has been successful
in reducing costs by outsourcing a significant portion of major sub-assembly
work.
Recruitment of skilled machinists is becoming increasingly difficult and to
address this issue the Apprentice Training Programme was rekindled at Holroyd.
This scheme is designed to provide a flow of skilled, well-trained technicians
for both the gears and machine tool divisions. It is expected that this
investment will give excellent returns over the forthcoming years.
FINANCIAL REVIEW
Profit and Loss account
Turnover was £197.0 million compared with £192.1 million the previous year. The
Group operates in two sectors, power transmission and machine tool and rotor.
Power transmission sales were 6% higher at constant exchange rates with growth
in North America and Asia Pacific offset by lower domestic sales in the major
industrial markets of the UK and France. Machine tool and rotor sales were 6%
higher at constant exchange rates.
Operating profit, before goodwill amortisation and exceptional items, was £3.7
million, compared with £7.6 million (restated) in 2004. The industrial power
transmission and automotive businesses showed a reduction in operating profits
reflecting the significant escalation in steel prices particularly during the
second half of the year. The machine tool and rotor businesses recorded an
operating profit of £0.6 million, ahead of the £0.3 million profit in 2004,
reflecting the benefit of a reduced cost base and some improvement in activity
in the machine tool and rotor business.
Operating profit was lower in the UK, France, Germany and the rest of Europe.
The reduction in France was primarily due to a weaker automotive performance
while Germany and the UK it was mainly due to the surge in steel prices
exacerbated by the weakness of the US Dollar. North American profit was up due
to strong sales growth. Redundancy and restructuring costs were £4.3 million in
the year, which included a provision of £3.2 million charged to cover the costs
of the Burton site rationalisation announced in January 2005.
The acquisition of Sachs Automotive France SAS (SAF) took place on 14 March 2005
and had no material impact on the trading operations of the Group in the year.
However, a provision of £6.8 million was taken for restructuring the SAF
business, offset by a release of negative goodwill arising from the acquisition.
The return on average operating assets for the Group was 4.0% down from 8.6%
(restated) last year; the power transmission businesses achieved 3.9% return on
average operating assets as compared to 9.5% (restated) last year.
Net interest payable was £2.2 million, compared with £2.3 million in 2004; other
net finance costs of £0.4 million compared with £1.6 million in 2004 represents
the FRS 17 net finance costs relating to retirement benefits.
Profit before tax for the year before goodwill amortisation and exceptional
items was £1.1 million compared with £3.7 million (restated) last year.
The taxation credit of £1.6 million compares with a net taxation charge of nil
(restated) in the previous year. The effective tax rate on profit before
goodwill amortisation, goodwill impairment, exceptional redundancy and
restructuring costs and property sales was 30% compared with 30% in 2004.
Reported loss after tax was £5.2 million compared with a profit of £4.7 million
(restated) last year. Excluding goodwill amortisation and exceptional items,
this represented earnings per share of 1.4 pence, compared with 4.5 pence
earnings per share (restated) last year.
Balance sheet
Goodwill stands at £14.7 million after an amortisation charge of £1.2 million in
the year and an exceptional impairment charge of £2.4 million relating to the
acquisition of Jones & Shipman, which follows a strategic review of that
business. Negative goodwill was £4.5 million, after a release of £6.8 million,
resulting from the SAF acquisition.
Group operating assets at the year end of £93.5 million were 6% above last year.
Fixed assets at £49.5 million were £2.5 million higher after including £3.1
million for SAF acquired in March 2005. Capital additions totalled £7.6 million
compared with £7.2 million last year; the depreciation charge was £8.7 million
compared with £8.8 million last year. New investment was mainly in the
Automotive Systems business, in France and Germany, and the German and UK
industrial chain manufacturing businesses.
Shareholders' funds were £40.3 million at the year end (last year £57.9 million
(restated)) after deducting the FRS 17 pension deficit of £41.3 million.
Cash flow and borrowings
Cash flow from operating activities was £6.6 million which compared with £9.2
million the previous year. Working capital was higher by £2.4 million compared
with an increase of £3.4 million in 2004 (restated); stocks unchanged from the
previous year (excluding SAF); debtors increased by £5.9 million reflecting
higher sales levels in the final quarter and creditors increased by £3.5
million. Payments for fixed assets amounted to £8.0 million, whilst tax and
dividend payments were £4.2 million. After exchange differences and the cash
acquired with SAF there was a net cash inflow of £2.2 million, reducing year-end
borrowings to £17.0 million. This represented 21% of shareholders' funds before
the pension deficit (last year 22% (restated)).
Treasury and financial instruments
The Group treasury policy, approved by the directors, is to manage its funding
requirements and treasury risks without undertaking any speculative risks. The
Group does not use financial derivatives to hedge currency translation exposure
on its investments in overseas subsidiaries. Except for the arrangements
referred to below for the management of foreign currency and interest rate
risks, the Group has not made use of financial derivatives.
The Group's net debt of £17.0 million at 31 March 2005 is represented by gross
debt of £33.7 million less cash and short term deposits of £16.7 million. At 31
March 2005 the Group had 43% of its gross debt at fixed interest rates. Cash
deposits are placed short term with banks where security and liquidity are the
primary objectives. Revised borrowing facilities have been agreed with the
Group's principal bankers.
A major exposure of the Group relates to currency risk on its sales and
purchases made in foreign (non-functional) currencies, and to reduce such risks
these transactions are covered, as commitments are made, primarily by forward
foreign exchange contracts. Such commitments generally do not extend more than
six months beyond the balance sheet date, although exceptions can occur where
longer term projects are entered into.
Pension accounting
In a change of accounting policy, FRS 17 - Retirement Benefits has been adopted
in the second half of the year; detailed disclosures are given in note 15 on the
Accounts.
The deficit has increased to £41.3 million from £30.7 million last year despite
the recovering performance of equity markets in the year mainly due to changes
in mortality assumptions. FRS17 calculations are very susceptible to short term
changes in equity values, discount and interest rates.
International Financial Reporting Standards ('IFRS')
For the year ending 31 March 2006 the Group will be required to report its
financial results in accordance with IFRS. The conversion process from reporting
in accordance with UK GAAP to reporting under IFRS is ongoing. The interim
results for the period to 30 September 2005 will be reported under IFRS.
________________________________________________________________________________
Annual Report to be published 22 June 2005
Annual General Meeting 21 July 2005
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 3 April 2004 have been
delivered, and for the year ended 31 March 2005, will be delivered to the
Registrar of Companies. Both carry an unqualified audit report.
The financial statements for the year ended 31 March 2005 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 3 April 2004, with
the exception of the adoption in the year of Financial Reporting Standard 17
'Retirement Benefits'. Comparative information has been restated accordingly.
The preliminary announcement was approved by the Board on 13 June 2005.
For further information, please contact:
Bob Davies, Chief Executive 13 June 2005 Telephone: 020 7067 0700
Tony Brown, Finance Director
Renold plc Thereafter Telephone: 0161 498 4500
Terry Garrett/Stephanie Badjonat
Weber Shandwick Square Mile Telephone: 020 7067 0700
RENOLD PLC
PRELIMINARY RESULTS
Group Profit and Loss Account
________________________________________________________________________________
for the financial year ended 31 March 2005
2005 2004
restated
£m £m
Turnover 197.0 192.1
Operating costs
- normal operating costs (193.3) (184.5)
- goodwill amortisation (1.2) (1.3)
- impairment of goodwill (2.4)
- exceptional redundancy and restructuring
costs - continuing operations (4.3) (0.5)
- exceptional redundancy and restructuring
costs - acquisition:
Charges for redundancy and restructuring (6.8)
Release from negative goodwill 6.8
_______
- exceptional gain on disposal of property
held for sale 2.8
_________ ________
(201.2) (183.5)
_________ ________
Operating (loss)/profit (4.2) 8.6
Net interest payable (2.2) (2.3)
Other net finance costs (0.4) (1.6)
_________ ________
(Loss)/profit on ordinary activities before
tax (6.8) 4.7
Taxation 1.6
_________ ________
(Loss)/profit for the financial year (5.2) 4.7
Dividends (including non-equity) (1.1) (3.2)
_________ ________
(Loss)/retained profit for the year (6.3) 1.5
========= ========
Basic and diluted (loss)/earnings per share (7.5)p 6.8p
Adjusted earnings per share 1.4p 4.5p
The impact of the acquisition, which was made on 14 March 2005, was not material
to the continuing trading operations of the Group, other than in respect of the
exceptional redundancy and restructuring costs, disclosed above, which reflect
the cost of the post-acquisition restructuring and integration of the new
subsidiary and the associated release of negative goodwill arising from the
acquisition. All other amounts relate to continuing operations.
RENOLD PLC
PRELIMINARY RESULTS
Group Balance Sheet
________________________________________________________________________________
as at 31 March 2005
Group
2005 2004
restated
£m £m
Fixed assets
Intangible assets
- Goodwill 14.7 18.8
- Negative goodwill (4.5)
________ ________
Net goodwill 10.2 18.8
Tangible assets 49.5 47.0
________ ________
59.7 65.8
________ ________
Current assets
Stocks 47.3 47.0
Debtors 51.6 41.5
Cash and short-term deposits 16.7 8.9
________ ________
115.6 97.4
Creditors
- amounts falling due within one year
Loans and overdrafts (20.6) (12.1)
Other creditors (46.3) (44.4)
________ ________
Net current assets 48.7 40.9
________ ________
Total assets less current liabilities 108.4 106.7
Creditors
- amounts falling due after more than
one year
Loans (12.7) (15.5)
Other creditors (1.2) (1.4)
Provisions for liabilities and charges (12.9) (1.2)
________ ________
Net assets excluding pension liability 81.6 88.6
Pension liability (41.3) (30.7)
________ ________
Net assets including pension liability 40.3 57.9
======== ========
Capital and reserves
(including non-equity interests)
Called up share capital 17.9 17.9
Share premium 6.0 6.0
Profit and loss account 16.4 34.0
________ ________
Shareholders' funds 40.3 57.9
======== ========
RENOLD PLC
PRELIMINARY RESULTS
Extracts from the Group Cash Flow Statement
_________________________________________________________________________________
for the financial year ended 31 March 2005
2005 2004
£m £m £m £m
Net cash inflow from operating activities 6.6 9.2
Servicing of finance (2.1) (3.3)
Taxation (1.0) (1.6)
Capital expenditure and financial investment
- Purchase of tangible fixed assets (8.0) (6.0)
- Proceeds from disposal of property held for
sale 5.1
________ ________
(8.0) (0.9)
Acquisition
- Purchase of subsidiary undertaking (0.1)
- Net cash acquired with subsidiary undertaking 9.7
________
9.6
Equity dividends paid (3.2) (3.2)
________ ________
Net cash inflow before use of liquid
resources and financing 1.9 0.2
Management of liquid resources
Transfers (to) short-term deposits (9.5) (1.0)
Financing
Increase/(decrease) in debt and lease financing 2.3 (6.4)
________ ________
(Decrease) in cash in the year (5.3) (7.2)
======== ========
Reconciliation of net cash flow to movement
in net debt
(Decrease) in cash in the year (5.3) (7.2)
Cash flow from (increase)/decrease in debt
and lease financing (2.3) 6.4
Cash flow from increase in liquid resources 9.5 1.0
_______ ________
Change in net debt resulting from cash flows 1.9 0.2
New finance leases (0.5)
Other non-cash changes (0.1) (0.1)
Exchange translation difference 0.4 2.1
________ ________
Movement in net debt in the year 2.2 1.7
Net debt at beginning of year (19.2) (20.9)
________ ________
Net debt at end of year (17.0) (19.2)
======== ========
RENOLD PLC
PRELIMINARY RESULTS
Notes on the Accounts
for the financial year ended 31 March 2005
1. Analysis of activities
(a) Activities classified by business segment:
2005 2004
restated
Turnover Operating Operating Turnover Operating Operating
loss assets profit assets
£m £m £m £m £m £m
Power transmission 177.3 3.1 80.5 174.2 7.3 76.9
Machine tool and rotor 21.7 0.6 13.0 20.7 0.3 11.3
_____________________________________________________________________
199.0 3.7 93.5 194.9 7.6 88.2
Less:
Inter activity sales (2.0) (2.8)
Goodwill amortisation (1.2) (1.3)
Impairment of goodwill (2.4)
Exceptional redundancy
and restructuring costs (4.3) (0.5)
Redundancy and
restructuring
- acquisition (6.8)
Add:
Release from negative
goodwill 6.8
Exceptional gain
on disposal of
property held
for sale 2.8
_____________________________________________________________________
197.0 (4.2) 93.5 192.1 8.6 88.2
=====================================================================
The exceptional redundancy and restructuring cost of £4.3 million is attributed to the power
transmission segment (2004 - £0.3 million to the power transmission segment and £0.2 million
to the machine tool and rotor segment). Of the total goodwill charge of £1.2 million, £1.0
million (2004 - £1.1 million) relates to the power transmission businesses and £0.2 million
(2004 - £0.2 million) to the machine tool and rotor businesses. The impairment charge relates
to the machine tool and rotor businesses. The charge and credit of £6.8 million both arise in
relation to the power transmission businesses.
The exceptional gain of £2.8 million reported in 2004 related to the disposal of a non-trading
property held for sale. This property was part of the machine tool and rotor segment.
(b) Activities classified by geographical region of operation:
2005 2004
restated
Turnover Operating Operating Turnover Operating Operating
loss assets profit assets
£m £m £m £m £m £m
United Kingdom 70.9 (0.4) 36.6 70.8 2.7 37.5
Germany 33.1 2.2 13.9 31.9 2.4 12.3
France 47.7 (1.7) 20.7 49.1 (0.6) 14.8
Rest of Europe 16.2 0.5 3.8 16.0 0.4 3.9
North America 50.3 2.6 13.6 49.2 2.2 13.2
Other countries 21.2 0.5 4.9 18.4 0.5 6.5
_____________________________________________________________________
239.4 3.7 93.5 235.4 7.6 88.2
Less:
Intra Group
sales (42.4) (43.3)
Goodwill amortisation (1.2) (1.3)
Impairment of goodwill (2.4)
Exceptional redundancy
and restructuring costs (4.3) (0.5)
Redundancy and
restructuring
- acquisition (6.8)
Add:
Release from negative
goodwill 6.8
Exceptional gain on
disposal of property
held for sale 2.8
_____________________________________________________________________
197.0 (4.2) 93.5 192.1 8.6 88.2
=====================================================================
The exceptional cost of £4.3 million arises £3.3 million in the UK (2004 - £0.2
million), £0.1million in North America (2004 - £0.3 million), £0.4 million in
Germany, £0.2 million in France, £0.2 million in the Rest of Europe and £0.1
million in Australia. The goodwill amortisation and the impairment charge are
attributed to business acquisitions in North America. The charge and credit of
£6.8 million relate to the post acquisition restructuring and integration of the
SAF business in France.
Turnover by geographical region includes intra group sales as follows: United
Kingdom £27.3 million (2004 - £29.1 million), Germany £12.8 million (2004 -
£11.4 million) and France £1.8 million (2004 - £2.1 million).
Operating assets comprise fixed assets, current assets less creditors but
exclude net goodwill, cash, borrowings, dividends, current and deferred
corporate tax, finance lease obligations, other provisions for liabilities and
charges and pension liabilities.
(c) Geographical analysis of external turnover by market area:
2005 2004
£m £m
United Kingdom 25.9 24.4
Germany 25.1 25.4
France 10.0 9.2
Rest of Europe 34.4 36.8
North and South America 70.9 70.1
Other countries 30.7 26.2
________ ________
197.0 192.1
======== ========
2. Earnings per share
Earnings per share is calculated by reference to the earnings for the year and
the weighted average number of shares in issue during the year as follows:
2005 2004
restated
Weighted Weighted
average Per- average Per-
number of share number of share
Earnings shares amount Earnings shares amount
£m Thousands Pence £m Thousands Pence
Basic EPS
Earnings attributed
to ordinary
shareholders (after
preference dividends) (5.2) 69,328 (7.5) 4.7 69,313 6.8
Effect of dilutive
securities:
Employee share options 332 299
______________________________________________________________________
Diluted EPS (5.2) 69,660 (7.5) 4.7 69,612 6.8
======================================================================
Adjusted EPS
Basic EPS (5.2) 69,328 (7.5) 4.7 69,313 6.8
Effect of goodwill and
exceptional items,
after tax:
Goodwill amortisation 0.8 1.2 0.8 1.2
Impairment of goodwill 2.4 3.5
Redundancy and
restructuring costs 2.9 4.2 0.4 0.5
Redundancy and
restructuring
- acquisition 6.8 9.8
Release from negative
goodwill (6.8) (9.8)
Gain on disposal of
property held for sale (2.8) (4.0)
_____________________________________________________________________
Adjusted EPS 0.9 69,328 1.4 3.1 69,313 4.5
=====================================================================
Inclusion of the dilutive securities, shown above, in the calculation of adjusted EPS
does not change the amounts shown of 1.4p (2004 - 4.5p).
The adjusted earnings per share numbers have been provided in order to give a
useful indication of underlying performance by the exclusion of goodwill and
exceptional items.
3. Acquisition
On 14 March 2005 the Group purchased Sachs Automotive France SAS ('SAF') for a
cash consideration of one Euro. This purchase has been accounted for as an
acquisition. An analysis of the acquisition is provided below.
Net assets at date of acquisition:
Book value Provisional Provisional fair
fair value value to
adjustments the Group
£m £m £m
Tangible fixed assets 2.4 0.7 3.1
Stocks 1.2 1.2
Debtors 3.2 3.2
Creditors (3.2) (3.2)
Provisions (restructuring
provision of £0.4 million
included in book value) (1.2) (1.4) (2.6)
Cash 9.7 9.7
_______ ________ _______
12.1 (0.7) 11.4
======= ========
Negative goodwill arising
on acquisition (11.3)
_______
Consideration
- cash paid and costs 0.1
=======
Due to the proximity of the acquisition to the Group's year end, the fair value
to the Group is assessed on a provisional basis.
Revaluation adjustments in respect of tangible fixed assets comprise an open
market valuation of freehold property, together with the write down of certain
items of plant and machinery. Fair value provisions have been established in
respect of environmental and dilapidation liabilities. The provisional
assessment of fair value to the Group has indicated that no significant
adjustments to net assets are necessary as a consequence of aligning SAF
accounting policies with those of the Renold Group.
Immediately prior to the acquisition of SAF by Renold, there was both a cash
injection and forgiveness of inter-company loans by the former owners. In the
last financial year prior to acquisition, which ran to 31 December 2004, SAF
reported a pre-exceptional loss of Euros 3.9 million; the consideration given by
Renold reflected the post acquisition restructuring envisaged to make SAF a
viable business within the Renold Group.
The cash flow impact is as follows:
£m
Costs associated with the acquisition (0.1)
Net cash acquired 9.7
__________
Cash inflow on acquisition 9.6
==========
Having been acquired shortly before the Group's year end, the acquisition of SAF
has not had a material impact on the continuing operating activities, subject to
the reorganisation provision and negative goodwill release shown on the face of
the profit and loss account. Following the acquisition, and prior to the year
end, the Group established provisions amounting to £6.8 million representing the
costs of integrating SAF into the Renold Group and the necessary restructuring
required to turn SAF into a viable business as highlighted in the Stock Exchange
announcement issued on the date of the acquisition. These costs have been
matched by a release from the negative goodwill account, created on acquisition
as the previous owners had provided the aforementioned cash injection to fund
this restructuring programme.
4. Prior year adjustment
Following the full adoption of Financial Reporting Standard 17 'Retirement
Benefits' in the year, it has been necessary to restate certain comparative
information. Provided below is a summary of the revisions arising from this
change in accounting policy:
£m
Group profit and loss account
Profit for the year ended 3 April 2004 as previously reported 5.4
Impact of adopting FRS 17:
Reversal of pension charge made under SSAP 24 3.2
Charge for pension cost made in accordance with FRS 17 (3.3)
Net finance costs in accordance with FRS 17 (1.6)
Tax impact of the above changes 1.0
_______
Restated profit for the year ended 3 April 2004 4.7
=======
Had the former policy under Statement of Standard Accounting Practice 24
'Accounting for Pension Costs' continued through 2005, the loss for the year
would have been approximately £2.0 million higher.
Group balance sheet
£m £m
Net assets as at 3 April 2004 as previously reported 81.2
Adjustment to eliminate the SSAP 24 prepayment (6.4)
Adjustment to remove the SSAP 24 pension provision (Provision
for liabilities and charges) 11.8
Net adjustment to deferred tax balances
(Provision £1.3 million, asset £0.7 million) 2.0
Adoption of FRS 17 - net deficit as at 3 April 2004 (30.7)
______
Net prior year adjustment (23.3)
______
Restated net assets as at 3 April 2004 57.9
======
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