Interim Results

RNS Number : 3293I

Renold PLC

18 November 2008

 



Renold plc

('Renold' or the 'Group')

Results for the half year to 30 September 2008

Renold plc, a leading international supplier of industrial chains and related power transmission products, today announces its interim results for the half year ended 30 September 2008.

Financial Summary

	Half year ended 30 September
	2008		2007
	£m		£m
Revenue	95.2		82.1
Operating profit	6		4.5
Operating profit before exceptional items	6		5.1
Profit after tax	2.8		1.4
Other information:
Basic and diluted earnings per share	3.9p		2.0p
Adjusted earnings per share - continuing operations (adjusting for the after tax effects of exceptional items and the non-cash IAS 19 finance charge)	4.3p		2.9p

Highlights

• Strong first half, with performance meeting Board expectations.

  • Revenue increased 16%

  • Operating profit increased 33%

  • Adjusted EPS increased 48%

• Management forecasts achieved despite steel price inflation and global economic turmoil.

• Profit and Cash Enhancement Programme (PACE) is now substantially complete.

• The significant acquisition of the industrial chain business of LGB in India follows last year's successful acquisition and integration of Renold Hangzhou in China.

• US$17 million contract for mass transit couplings from Mitsubishi for New York City Metro follows US$14 million contract last year from Alstom.

Prospects

Matthew Peacock, Chairman of Renold plc, said:

'I am pleased to report yet another set of improved financial results for Renold with profit after tax double that of the same period last year. This is a commendable achievement given a more difficult background of input price inflation than envisaged.  The development of Renold in India, recent falls in input costs, and the strengthening of the US Dollar are all positive for the Group's future prospects.'

 Enquiries:

Renold plc	0161 498 4517
Bob Davies, Chief Executive
Peter Bream, Group Finance Director
College Hill	020 7457 2020
Mark Garraway
Adam Aljewicz

Notes to editors

Renold plc is a global leader in the manufacture of industrial chains and a wide range of precision engineering products which are sold throughout the world to a broad range of original equipment manufacturers and distributors. Its products are used in a wide variety of industries including transportation, energy, steel, manufacturing and mining.

The company has a well deserved reputation for quality that is recognized worldwide.

The group has 15 manufacturing plants throughout the world and employs 2,800 staff. It is currently expanding its geographical footprint by increasing its manufacturing presence in 'low cost countries'.

In September 2008, Renold bought a 75% interest in the industrial chain business of the Indian quoted group, L.G. Balakrishnan & Bros Ltd (LGB), the biggest manufacturer of industrial chain in India, while in June 2007 the company completed the acquisition of a 90% interest in Hangzhou Shanshui, a chain manufacturer based in Hangzhou, China, 200 kilometres west of Shanghai.

The company's expertise and products are currently being used in the Thames Barrier and Big Ben in London. 

For more information on Renold, visit www.renold.com

Chairman's Statement 

The results for the six months to 30 September 2008 are in line with the Board's expectations, with a 48% increase in adjusted earnings per share from continuing operations.  Management has delivered a robust set of results with the Group's prospects expected to benefit from its recent acquisition in India and ongoing cost restructuring programme.

Group Results

Sales for the first half to 30 September 2008 were £95.2 million (2007/08: £82.1 million), 16% ahead of last year (7% at constant exchange rates).

Operating profit before exceptional items was £6.0 million (2007/08: £5.1 million), a 6.3% return on sales (2007/08: 6.2%). Operating profit was £6.0 million (2007/08: £4.5 million), a 33% increase.

Net financing costs of £1.9 million (2007/08: £1.5 million) were higher because of the increased net charge of £0.5 million (2007/08: £0.1 million) relating to pension plan balances. This non-cash charge increased principally as a result of the higher IAS 19 discount rate.

The reported tax charge in the period was £1.3 million (2007/08: £1.6 million), resulting in an effective rate of 32% (2007/08: 40%). Adjusted earnings per share from continuing operations were 4.3 pence (2007/08: 2.9 pence), an increase of 48% and basic earnings per share from continuing operations were 3.9 pence (2007/08: 2.0 pence).

Cash Flow and Borrowings

Cash absorbed by continuing operations was £9.2 million (2007/08: £1.5 million). The principal working capital movements were a net outflow on payables of £10.7 million (2007/08: £7.1 million) due to seasonality and a tighter credit environment and a net outflow of £2.5 million (2007/08: £0.1 million) on inventory due to increased steel costs. Capital expenditure amounted to £3.0 million (2007/08: £2.5 million). Additionally £5.7 million was paid for the acquisition in India which was broadly matched by the £5.1 million raised from the placing of 7,000,000 ordinary shares in August 2008.

Net borrowings, including finance lease obligations and preference shares, at 30 September 2008 were £40.1 million compared with £27.8 million at 30 September 2007 and £23.9 million at 31 March 2008.  As steel price increases work their way through the working capital cycle, actions on reducing inventory volumes progress, and with the usual seasonal factors, debt is expected to normalise by the year end.

Dividend

The Board has decided to recommend that, in line with last year, no interim dividend be paid but it will consider the payment of a final dividend in the light of results for the year as a whole.

Business Review

The Company continues to win new business including the recently announced US$17 million order from Mitsubishi to supply couplings and gearboxes for the New York City Metro North Transit Authority. This award follows the similar US$14 million order from Alstom which was announced in November 2007.

The business operated in an environment of rapidly increasing raw material, utilities and freight costs, and a global economy dominated by the fallout from bank liquidity issues.  Nevertheless, sales grew 16% overall with growth of 23% in Europe, 8% in North America and 9% in Asia Pacific. Output prices were increased to recover the increased input costs, which together with increased efficiencies lead to improved margins.

PACE

The Profit and Cash Enhancement (PACE) programme is now substantially complete. At the period end 61% of direct labour was in low cost countries. This includes the business in India which increased the percentage by 15%. Following the acquisition of Renold Hangzhou the original PACE target of 40% by March 2009 was revised to 60%.  

Renold India

On 29 September 2008 the Group acquired a 75% interest in the industrial chains business of L. G. Balakrishnan & Bros Limited ('LGB') in India. Initial consideration was £5.7 million with a further £2.2 million either contingent or deferred (see note 11).  Given the timing of the acquisition, this business did not have any impact on the profitability of the Group during the period.

The assets acquired comprised Goodwill £3.1 million, property, plant and equipment £4.3 million, intangibles £0.4 million and inventories £1.7 million. LGB's share of these assets is £1.6 million.

Renold India is now the market leader for the production of industrial chains in India and provides an established manufacturing base and sales distribution network which will enable Renold to promote its existing product range into India's rapidly growing market place.

Pensions

The liability for retirement benefit obligations was £35.8 million (30 September 2007: £42.4 million), an increase of £4.6 million from £31.2 million at 31 March 2008. This increase is principally due to the reduction in plan assets (£9.7 million) as a result of the recent movements in the financial market which have been only partly offset by the reduction in plan obligations (£5.1 million) principally due to the discount rate increasing to 7.0% from 6.6% at 31 March 2008 as a result of market interest rate movements.  Of the £35.8 million obligation, £19.0 million arises in respect of non-UK unfunded schemes which do not require to be prefunded. The UK pension schemes' deficit net of deferred tax is £11.1 million.  In September 2008 two of the three UK defined benefit pension schemes were closed to future accrual. The Company is exploring the buy-out of parts of its defined benefit pension liabilities.

Risks and uncertainties

The principal risks and uncertainties affecting the business activities of the Group remain those detailed in the Annual Report for the year ended March 2008. The Group's reported profit has particular exposure to the movements in steel prices and the US Dollar/GB Pound exchange rate. The valuation of retirement benefit obligations is significantly impacted by changes to the value of pension scheme investments and by changes to the discount rate assumption which is based on the AA rated corporate bond yield.  In addition recent volatility in global capital markets has impacted the cost and availability of funding and threatens a slowdown in economic output. The Group's geographically diverse operations will be carefully monitored to ensure that, as much as possible, supply will be kept in equilibrium with demand.  The Group's principal bank account credit facility expires in February 2010. The Group operates with adequate headroom on its facilities and covenants.

Outlook

At the end of October 2008 the order book is 36% up on October 2007 (16% at constant exchange rates). The development of Renold India, recent falls in the costs of raw materials, utility and freight and the recent strengthening of the US Dollar, are all positive for the Group's future prospects.

The Group benefits from an expanding footprint in low cost, more flexible labour markets, increasing exposure to developing markets and a diverse, global, multi-sector mix of customers and products.  

Despite this buoyant position, we recognise that we do not operate in isolation from the global economy and therefore temper our outlook for the immediate future.  We are acting proactively to ensure that the business is fit for the environment which prevails next year.

Statement of directors' responsibilities

The directors confirm that to the best of their knowledge:

• the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union;

• the interim management report includes a fair review of the information required by:

(a)	DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of interim financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and
(b)	DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the Group during that period; and any changes in the related party transactions described in the last annual report that could do so.

The directors of Renold plc are listed in the Renold Group Annual Report for 31 March 2008 with the exception of Barbara Beckett who retired from the Board on 30 July 2008.  A list of current directors is maintained on the Renold Group website: www.renold.com.

By order of the Board

Robert Davies	Peter Bream
Chief Executive	Finance Director
17 November 2008	17 November 2008

Interim Consolidated Income Statement 

for the six months ended 30 September 2008 (unaudited)

			First half				Full year
	Note		2008/09 £m		2007/08 £m		2007/08 £m
Continuing operations:
Revenue	3		95.2		82.1		172.6
Operating costs			(89.2)		(77.6)		(160.4)
Operating profit			6.0		4.5		12.2
Operating profit before exceptional items			6.0		5.1		12.0
Exceptional items	4		-		(0.6)		0.2
Operating profit			6.0		4.5		12.2
Financial costs			(7.8)		(7.5)		(14.7)
Financial revenue			5.9		6.0		11.8
Net financing costs	5		(1.9)		(1.5)		(2.9)
Profit before tax			4.1		3.0		9.3
Taxation	6		(1.3)		(1.6)		(3.1)
Profit for the period from continuing operations			2.8		1.4		6.2
Discontinued operations
Profit for the financial period from discontinued operations			-		-		1.5
Profit for the financial period			2.8		1.4		7.7
Earnings per share	7
Basic earnings per share			3.9p		2.0p		11.0p
Diluted earnings per share			3.9p		2.0p		10.8p
Basic earnings per share from continuing operations			3.9p		2.0p		8.9p
Diluted earnings per share from continuing operations			3.9p		2.0p		8.7p
Adjusted earnings per share from continuing operations*			4.3p		2.9p		8.6p
Diluted adjusted earnings per share from continuing operations*			4.3p		2.8p		8.4p

*Adjusted for the after tax effects of exceptional items.

Interim Consolidated Balance Sheet as at 30 September 2008 (unaudited)

	Note	At		At		At
		30 September 2008		30 September 2008		31 March 2008
		£m		£m		£m
Assets
Non-current assets
Goodwill		21.1		15.5		16.3
Other intangible fixed assets		1.7		0.7		1.2
Property, plant and equipment		45.2		35.6		39.5
Investment property		1.9		1.6		1.9
Other non-current assets		0.4		0.4		0.3
Deferred tax assets		11.1		14.1		9.9
		81.4		67.9		69.1
Current assets
Inventories		47		34.1		41
Trade and other receivables		38.2		30		35.2
Derivative financial instruments		0.1		-		0.1
Current tax asset		0.1		-		0.1
Cash and cash equivalents	10	8.4		8.3		15.5
		93.8		72.4		91.9
Asset held for sale		0.8		3.4		-
		94.6		75.8		91.9
Total assets		176		143.7		161
Liabilities
Current liabilities
Borrowings	10	(16.8)		(6.4)		(8.3)
Trade and other payables		(34.4)		(29.1)		(41.8)
Derivative financial instruments		(0.9)		(0.1)		(0.9)
Provisions		(3.8)		(5)		(3.9)
Current tax liabilities		-		(0.2)		-
		(55.9)		(40.8)		(54.9)
Net current assets		38.7		35		37
Non-current liabilities
Borrowings	10	(31.2)		(29.2)		(30.6)
Provisions		(0.5)		-		(0.5)
Preference shares	10	(0.5)		(0.5)		(0.5)
Trade and other payables		(0.6)		(1.2)		(0.7)
Deferred tax liabilities		(1.9)		(1.4)		(1.6)
Retirement benefit obligations	8	(35.8)		(42.4)		(31.2)
		(70.5)		(74.7)		(65.1)
Total liabilities		(126.4)		(115.5)		(120)
Net assets		49.6		28.2		41
Equity
Issued share capital		19.3		17.5		17.5
Share premium		9.6		6.2		6.3
Currency translation reserve		1.6		(1.9)		(1.3)
Other reserves		(0.5)		(0.1)		(0.6)
Retained earnings		18		6.5		19.1
Equity attributable to equity holders of the parent		48		28.2
Minority interests	11	1.6		-		-
Total shareholders' equity	9	49.6		28.2		41

Interim Consolidated Cash Flow Statement 

for the six months ended 30 September 2008 (unaudited)

	First half				Full year
	2008/09		2007/08		2007/08
	£m		£m		£m
Cash flows from operating activities (Note 10)
Cash (absorbed)/generated by operations	(9.2)		(1.5)		4.5
Income taxes paid	(0.7)		(0.9)		(2.3)
Net cash from operating activities	(9.9)		(2.4)		2.2
Cash flows from investing activities
Acquisition of subsidiary (Note 11)	(5.7)		(2.2)		(2.4)
Proceeds from disposal of businesses (net of cash transferred)	-		-		0.2
Purchase of property, plant and equipment	(2.8)		(2.4)		(7.5)
Purchase of intangible assets	(0.2)		(0.1)		(0.7)
Proceeds on disposal of property, plant and equipment	-		-		1.1
Proceeds on disposal of assets held for sale	-		-		6
Interest received	-		0.1		0.1
Net cash from investing activities	(8.7)		(4.6)		(3.2)
Cash flows from financing activities
Financing costs paid	(1.1)		(1.5)		(2.8)
Proceeds from borrowings	6.6		3		7.1
Repayment of borrowings	(5.2)		(3.7)		(5.8)
Issue of ordinary shares	5.1		0.1		0.3
New obligations under finance leases	-		0.1		-
Payment of finance lease obligations	-		-		(0.1)
Net cash from financing activities	5.4		(2)		(1.3)
Net (decrease) in cash and cash equivalents	(13.2)		(9)		(2.3)
Net cash and cash equivalents at beginning of period	14.2		15.4		15.4
Effects of exchange rate changes	0.1		0.2		1.1
Net cash and cash equivalents at end of period	1.1		6.6		14.2
In the balance sheet net cash and cash equivalents comprised:
Cash and cash equivalents	8.4		8.3		15.5
Overdrafts (included in borrowings - Note 10)	(7.3)		(1.7)		(1.3)
	1.1		6.6		14.2

Interim Statement of Recognised Income and Expense 

for the six months ended 30 September 2008 (unaudited)

	First half				Full year
	2008/09		2007/08		2007/08
	£m		£m		£m
Profit for the period	2.8		1.4		7.7
Net income/(expense) recognised directly in equity:
Recycling of losses on cashflow hedges to the income statement	0.2		-		0.2
Foreign exchange translation differences	3.4		(0.9)		(0.7)
(Losses)/gains on fair value of hedging net investments in foreign operations	(0.7)		0.3		0.6
Gains/(losses) on cash flow hedges taken to equity	0.1		(0.1)		(0.8)
Actuarial (losses)/gains on retirement benefit obligations	(5.5)		5.5		16
Tax on items taken directly to equity	1.5		(2.1)		(6.3)
Total income and expense recognised directly in equity	(1)		2.7		9
Total recognised income and expense for the period	1.8		4.1		16.7

The notes that follow form an integral part of this condensed consolidated half-yearly financial information.  Notes to the Interim Condensed Consolidated Financial Statements

1.  Corporate information

The condensed consolidated interim financial statements for the six months to 30 September 2008 were approved by the Board on 17 November 2008. These statements have not been audited or reviewed by the Group's Auditors pursuant to the Auditing Practices Board guidance on the Review of Interim Financial Information.

Renold plc is a limited liability company incorporated and domiciled in the United Kingdom whose shares are publicly traded. The principal activities of the Company and its subsidiaries are described in Note 3 and the performance in the half year is set out in the Interim Management Report.

These interim condensed consolidated financial statements do not constitute statutory accounts of the Group within the meaning of Section 240 of the Companies Act 1985. The statutory accounts for the year ended 31 March 2008 have been filed with the Registrar of Companies. The Auditors' report on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 237 of the Companies Act 1985.

2.  Basis of preparation

The interim condensed consolidated financial statements for the six months ended 30 September 2008 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34 ('Interim Financial Reporting') as adopted by the European Union. 

The accounting policies used are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 March 2008. However, the interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements as at 31 March 2008.

The preparation of these interim condensed consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were of the same type as those applied to the consolidated financial statements for the year ended 31 March 2008.

The Group's financial risk management objectives and policies are consistent with those disclosed in the consolidated financial statements for the year ended 31 March 2008.

3.  Segment information

The Group's continuing activities are in one class of business, Industrial Power Transmission. The consolidated income statement for continuing operations therefore relates wholly to the Industrial Power Transmission business. 

The geographical analysis of revenue by market areas is as follows:

	First half				Full year
	2008/09		2007/08		2007/08
	£m		£m		£m
United Kingdom	10.8		10.2		20
Rest of Europe	33.8		26		56.1
North America	30		27.8		57.6
China	2.7		4.9		9.6
Other countries	17.9		13.2		29.3
	95.2		82.1		172.6

4.   Exceptional items

	First half				Full year
	2008/09		2007/08		2007/08
	£m		£m		£m
Profit on disposal of asset held for sale (Burton factory)	-		-		2.6
PACE restructuring initiatives:
Reorganisation and redundancy costs	-		(0.6)		(2.4)
	-		(0.6)		0.2

5.  Net financing costs

	First half				Full year
	2008/09		2007/08		2007/08
	£m		£m		£m
Financial costs:
Interest payable on bank loans and overdrafts	(1.3)		(1.5)		(2.7)
Costs associated with refinancing	(0.1)		-		(0.2)
Interest cost of financial liabilities not at fair value through the income statement	(1.4)		(1.5)		(2.9)
Interest cost on pension plan balances	(6.4)		(6)		(11.8)
	(7.8)		(7.5)		(14.7)
Financial revenue:
Interest receivable on bank deposits	-		0.1		0.1
Interest income on financial assets not at fair value through the income statement	-		0.1		0.1
Expected return on pension plan assets	5.9		5.9		11.7
	5.9		6		11.8
Net financing costs	(1.9)		(1.5)		(2.9)

6.    Taxation

	First half				Full year
	2008/09		2007/08		2007/08
	£m		£m		£m
Current tax:
- UK	-		-		-
- Overseas	0.6		0.4		1.6
	0.6		0.4		1.6
Deferred tax:
- UK	0.4		0.4		0.9
- Overseas	0.3		0.8		0.6
	0.7		1.2		1.5
Income tax expense	1.3		1.6		3.1

7.    Earnings per share

Basic earnings per share is calculated by dividing the profit for the period by the weighted average number of shares in issue during the period. Diluted earnings per share takes into account the dilutive effect of the options and awards outstanding under the Group's employee share schemes. The calculation of earnings per share is based on the following data:

	First half				Full year
	2008/09		2007/08		2007/08
	Pence per share		Pence per share		Pence per share
Basic EPS	3.9		2.0		11.0
Diluted EPS	3.9		2.0		10.8
Basic EPS from continuing operations	3.9		2.0		8.9
Diluted EPS from continuing operations	3.9		2.0		8.7
Adjusted EPS from continuing operations	4.3		2.9		8.6
Diluted adjusted EPS from continuing operations	4.3		2.8		8.4

	£m		£m		£m
Continuing operations
Profit for the period	2.8		1.4		6.2
Discontinued operations
Profit from discontinued operations	-		-		1.5
Continuing and discontinued operations	2.8		1.4		7.7

	£m		£m		£m
Profit for calculation of adjusted EPS for continuing operations
Profit from continuing operations	2.8		1.4		6.2
Adjusted for the after tax effects of exceptional items:
Profit on disposal of asset held for sale	-		-		(2.6)
PACE restructuring initiatives	-		0.5		-
Redundancy and restructuring costs	-		-		2.3
Net financing cost arising on pension plan balances	0.3		0.1		0.1
	3.1		2.0		6.0

	Thousands		Thousands		Thousands
Weighted average number of ordinary shares
For calculating basic earnings per share	72,047		69,714		69,807
Effect of dilutive securities - employee share options	287		1,357		1,589
For calculating diluted earnings per share	72,334		71,071		71,396

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 and the non-cash IAS19 charge.

8.  Retirement benefit obligations

The Group's retirement benefit obligation is summarised as follows:

	At 30 September 2008		At 30 September 2007		At 31 March 2008
	£m		£m		£m
Funded plan obligations	(180.8)		(204.0)		(185.1)
Funded plan assets	164.0		180.2		173.7
Net funded plan obligations	(16.8)		(23.8)		(11.4)
Unfunded obligations	(19.0)		(18.6)		(19.8)
Total retirement benefit obligations	(35.8)		(42.4)		(31.2)

The increase in the Group's liability from £31.2m at 31 March 2008 to £35.8m at 30 September 2008 is primarily due to poor asset returns over the period. These asset losses have been partially offset by the increase in the discount rate assumption applied to the UK pension plans from 6.6% at 31 March 2008 to 7.0% at 30 September 2008 in line with market conditions.

9.  Reconciliation of movements in total equity

	First half				Full year
	2008/09 £m		2007/08 £m		2007/08 £m
Opening total equity	41.0		23.9		23.9
Total recognised income and expense	1.8		4.1		16.7
Share premium	3.3		-		0.2
Proceeds from shares issued	1.8		-		-
Employee share options - value of employee services	0.1		0.1		0.1
Employee share options - proceeds from shares issued	-		0.1		0.1
Minority interest on acquisition	1.6		-		-
Closing total equity	49.6		28.2		41.0

In August 2008, 7,000,000 new ordinary shares were placed at 76 pence each, raising £5.3 million gross (£5.1 million after transaction expenses). The new shares rank pari passu with the existing ordinary shares.

10.    Cash generated by operations

	First half				Full year
	2008/09 £m		2007/08 £m		2007/08 £m
Continuing operations:
Profit before taxation	4.1		3.0		9.3
Depreciation and amortisation	2.2		2.5		5.1
(Profit) on plant and equipment disposals	-		-		(3.0)
Equity share plans	0.1		0.1		0.1
Net finance costs	1.8		1.5		2.9
(Increase) in inventories	(2.5)		(0.1)		(5.0)
(Increase)/decrease in receivables	(1.1)		0.2		(3.0)
(Decrease)/increase in payables	(10.7)		(7.1)		2.4
(Decrease) in provisions	(2.1)		(1.0)		(0.3)
Movement on pension plans	(1.2)		(0.6)		(4.0)
Movement on derivative financial instruments	0.2		-		-
Cash (absorbed)/generated by continuing operations	(9.2)		(1.5)		4.5
Discontinued operations:
Profit before taxation	-		-		1.5
(Decrease) in provisions	-		-		(1.3)
Offset of proceeds from disposal of businesses	-		-		(0.2)
Cash (absorbed) by discontinued operations	-		-		-
Cash (absorbed)/generated by operations	(9.2)		(1.5)		4.5

The reconciliation of the movement in cash and cash equivalents to movement in net debt is as follows:

	At 30 September 2008		At 30 September 2007		At 31 March 2008
	£m		£m		£m
(Decrease) in cash and cash equivalents	(13.2)		(9.0)		(2.3)
Change in net debt resulting from cash flows	(1.4)		0.7		(1.3)
Finance lease inception	-		(0.1)		-
Other non-cash movements	-		(0.1)		-
Foreign currency translation differences	(1.6)		0.1		(0.9)
Change in net debt during the period	(16.2)		(8.4)		(4.5)
Net debt at start of year	(23.9)		(19.4)		(19.4)
Net debt at end of year	(40.1)		(27.8)		(23.9)

Net debt comprised:	At 30 September 2008		At 30 September 2007		At 31 March 2008
	£m		£m		£m
Cash and cash equivalents	8.4		8.3		15.5
Borrowings:
Bank overdrafts	(7.3)		(1.7)		(1.3)
Bank loans - current	(9.4)		(4.6)		(6.9)
Obligations under finance leases - current	(0.1)		(0.1)		(0.1)
Sub-total - current borrowings	(16.8)		(6.4)		(8.3)
Bank loans - non-current	(31.0)		(28.9)		(30.5)
Obligations under finance leases - non-current	(0.2)		(0.3)		(0.1)
Sub-total - non-current borrowings	(31.2)		(29.2)		(30.6)
Preference shares	(0.5)		(0.5)		(0.5)
Net debt	(40.1)		(27.8)		(23.9)

11.    Business combination

On 29 September 2008 the Group acquired an interest in the assets forming the industrial chain business of L. G. Balakrishnan & Bros Limited, ('LGB'), located in India.  The acquisition has been accounted for using the purchase method of accounting.

Renold's interest is represented by a 75% equity investment in Renold Chain India Private Limited ('RCIPL'), the vehicle used to acquire the respective trade and business assets of LGB. The Share Subscription and Shareholder Agreement contains a call option allowing Renold International Holdings Limited the right to acquire the remaining 25% equity interest from LGB at any time after 29 September 2010. The fair value of the call option at the balance sheet date is not material.

The purchase consideration is summarised as follows;

	£m
Cash consideration	5.0
Deferred consideration	0.1
Contingent consideration	2.1
Direct costs relating to the acquisition	0.7
Total purchase consideration	7.9
Fair value of net identifiable assets acquired	(4.8)
Goodwill	3.1

Deferred consideration is payable in financial year 2009/10 at the earliest. Contingent consideration is based on the directors' best estimate of future obligations, which are dependent on the future performance of the interests acquired and assume the operating company improves profits in line with the directors' estimates. Contingent consideration is payable in financial year 2009/10 at the earliest. 

The goodwill resulting from the acquisition is attributable to certain intangible assets that cannot be individually separated and reliably measured due to their nature. These include the synergies expected to result from combining RCIPL within the Renold Group and the acquisition of an assembled workforce.

At the time of publishing the interim financial statements, the Group has yet to finalise the amount of the fair value of the net identifiable assets acquired. Therefore, provisional fair values have been used in these interim financial statements. 

The assets and liabilities arising from the acquisition are as follows:

	Book value		Provisional fair values
	£m		£m
Property, plant and equipment	1.3		4.3
Intangible assets - excluding goodwill	-		0.4
Inventories	1.9		1.7
Net assets	3.2		6.4
Minority interests (25%)			(1.6)
Net assets acquired			4.8

Cash outflow on acquisition:

	£m
Purchase consideration settled in cash	5.0
Direct costs relating to the acquisition	0.7
Cash outflow on acquisition	5.7

The profit and turnover contribution of RCIPL to the Group's results for the period was not significant. It is not practicable to provide pro-forma data as if RCIPL had been owned by the Group since 1 April 2008, as separable and reliable data for the trading operation is not available for the period prior to acquisition and due to the planned changes in operational activities following the acquisition by Renold.

25% of the equity interest in RCIPL is owned by LGB and results in a minority interest of £1.6m in the Group balance sheet.

 

END

 

 

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