Results for the year ended 31 March 2023

Renold PLC

12 July 2023

 

Renold plc

Final results for the year ended 31 March 2023

("Renold", the "Company" or, together with its subsidiaries, the "Group")

Record trading performance and order book….Significant revenue and earnings growth….Successful integration of significant strategic acquisition

Renold (AIM: RNO), a leading international supplier of industrial chains and related power transmission products, is pleased to announce its audited results for the year ended 31 March 2023.

Financial highlights

£m	2023	2022	Change	Change (constant currency)1
Revenue	247.1	195.2	+26.6%	+18.8%
Adjusted operating profit2	24.2	15.3	+58.2%	+46.4%
Return on sales2	9.8%	7.8%	+200bps	+190bps
Adjusted profit before tax2	18.6	11.5	+61.7%
Net debt3	29.8	13.8
Adjusted earnings per share2	6.5p	4.3p	+51.2%
Additional statutory measures
Operating profit	22.9	16.2	+41.4%
Profit before tax	17.3	12.4	+39.5%
Basic earnings per share	5.7p	4.7p	+21.3%

•	Revenue up 26.6% to £247.1m (18.8% at constant exchange rates) (2022: £195.2m)
•	Adjusted operating profit of £24.2m (2022: £15.3m), up 58.2%; return on sales 9.8%, up 200bps
•	Reported operating profit up 41.4% to £22.9m (2022: £16.2m)
•	Net debt £29.8m, £16.0m increase in the year, facilitating successful YUK acquisition; ratio to adjusted EBITDA 0.8x (31 March 2022: 0.5x)
•	Adjusted EPS up 51.2% to 6.5p (2022: 4.3p); Basic EPS 5.7p (2022: 4.7p)

Business highlights

•	The Group delivered record results despite the difficult trading and macroeconomic backdrop, with the well-publicised inflation and global supply chain challenges
•	Order intake of £257.5m (2022: £223.9m), up 15.0%
•	Closing order book £99.5m, up 18.3% against 31 March 2022
•	Significant £8.9m long-term military contract win, following a similar contract win of £11.0m in FY22
•	Acquisition of Industrias YUK S.A. ("YUK") in August 2022, for €24m, increases the Group's access to the Iberian Chain and wider European Conveyor Chain markets. YUK is performing ahead of expectations
•	Successful capital investment; improving efficiency and capability of manufacturing locations

¹ See below for reconciliation of actual rate, constant exchange rate and adjusted figures

² See Note 21 for definitions of adjusted measures and the differences to statutory measures

³ See Note 17 for a reconciliation of net debt which excludes lease liabilities

Robert Purcell, Chief Executive, commented:

"I am delighted with the Group's robust performance during the last financial year which delivered record results and exceeded market expectations, reflecting the benefits of the strategic programmes implemented in recent years. Throughout the reported period, the business performance has been on an improving trend and our order books continue to be healthy though order patterns have been inconsistent in the early part of the new financial year. We recognise that there are still considerable economic challenges in many parts of the world; supply chain issues, although reducing in number and severity, are still prevalent and inflation and prices remain high, for both energy and materials. However, we have entered the new financial year with good momentum and confidence in the excellent fundamentals of the Renold business, although macroeconomic trends add a note of caution. Once again, Renold employees around the world have responded magnificently to the challenges we have faced and I thank them for their dedication and commitment to the Group and our customers."

Meeting for analysts and institutional investors

A virtual meeting for institutional investors and analysts will be held today at 9.30am BST. If you wish to attend this meeting please contact [e-mail] or call Tim Metcalfe of IFC Advisory Limited (020 3934 6632) before 8.45am to be provided with access details.

Retail investor presentation and Q&A session

Renold management will be hosting an online presentation and Q&A session at 5.30pm BST today, 12 July 2023. This session is open to all existing and prospective shareholders. Those who wish to attend should register via the following link and they will be provided with access details:

https://us02web.zoom.us/webinar/register/WN_eNb9SaJGRC-dlORaIZPwqg

Participants will have the opportunity to submit questions during the session, but questions are welcomed in advance and may be submitted to: [e-mail].

Reconciliation of reported and adjusted results

	Revenue		Operating profit		Earnings per share
	2023 £m	2022 £m	2023 £m	2022 £m	2023 pence	2022 pence
Statutory reported	247.1	195.2	22.9	16.2	5.7	4.7
Amortisation of acquired intangible assets	-	-	0.7	0.1	0.3	0.1
Acquisition costs	-	-	0.6	-	0.3	-
Tax adjustments relating to prior year	-	-	-	-	0.2	-
US PPP loan forgiveness	-	-	-	(1.7)	-	(0.8)
New lease arrangements on sublet properties	-	-	-	0.7	-	0.3
Adjusted	247.1	195.2	24.2	15.3	6.5	4.3
Exchange impact	(15.3)	-	(1.8)	-	(0.9)	-
Adjusted at constant exchange rates	231.8	195.2	22.4	15.3	5.6	4.3

ENQUIRIES:

Renold plc	IFC Advisory Limited
Robert Purcell, Chief Executive	Tim Metcalfe
Jim Haughey, Group Finance Director	Graham Herring
	[e-mail]
0161 498 4500	020 3934 6630

Nominated Adviser and Joint Broker	Joint Broker
Peel Hunt LLP	FinnCap Limited
Mike Bell	Ed Frisby (Corporate Finance)
Ed Allsopp	Andrew Burdis / Harriet Ward (ECM)
020 7418 8900	020 7220 0500

Cautionary statement regarding forward-looking statements

Some of the information in this document may contain projections or other forward-looking statements regarding future events or the future financial performance of Renold plc and its subsidiaries (the Group). You can identify forward-looking statements by terms such as "expect", "believe", "anticipate", "estimate", "intend", "will", "could", "may" or "might", the negative of such terms or other similar expressions. Renold plc (the Company) wishes to caution you that these statements are only predictions and that actual events or results may differ materially. The Company does not intend to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in projections or forward-looking statements of the Group, including, among others, general economic conditions, the competitive environment as well as many other risks specifically related to the Group and its operations. Past performance of the Group cannot be relied on as a guide to future performance.

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 our website at: www.renold.com

Chair's statement

I am pleased to report that 2022/23 was an excellent year for Renold in which we delivered a record financial performance and completed a significant strategic acquisition in Europe. I have also been impressed by the flexibility and adaptability of our people across the world, who have delivered an outstanding result despite the complexities resulting from the Russian invasion of Ukraine and challenging international supply chain and trading conditions.

Our turnover continued to grow strongly through the significant commercial and operational benefits delivered by the execution of our organic growth strategy, while the Group's acquisition strategy bore fruit in the year, and it is pleasing to see that our new acquisition, Industrias YUK S.A. ("YUK") performed ahead of our initial expectations.

Markets and trading performance

Over the year, Group revenue increased by 26.6% to £247.1m (2022: £195.2m), and adjusted operating profit improved by 58.2% to £24.2m (2022: £15.3m).

Return on sales improved by 200bps to 9.8% (2022: 7.8%), as the Group demonstrated its ability to successfully recover inflationary cost increases, whilst also benefiting from cost reduction and efficiency programmes, and the benefit of operational gearing.

Encouragingly, Group order intake at £257.5m was 15.0% ahead of the equivalent prior year period, and 16.8% ahead excluding the previously announced £8.9m long-term military contracts (2022: £11.0m), with YUK contributing £10.5m or 4.5% to the increase. The order book at 31 March 2023 of £99.5m was 18.3% ahead of the prior year figure.

Net debt increased during the period to £29.8m (31 March 2022: £13.8m) as the Group invested €20.0m to satisfy the initial cash consideration for the acquisition of YUK, whilst managing the impact of organic sales growth and inflation on working capital.

Strategic Developments

During the year, the Renold strategic change programmes across the Group once again delivered meaningful benefits, particularly in standardising and simplifying the business.

The completion of several major strategic restructuring initiatives, together with the relatively low level of net debt, puts the Group in a strong position to capitalise on accretive bolt-on acquisitions that augment our existing market position. This will allow us to accelerate growth in revenue, including for our existing products, adjacent sectors and by entry into under-represented applications and geographies. Most importantly, the Group will also benefit from significant production synergies by integrating acquired businesses.

The continuing review of capabilities across the Group has identified opportunities for the upgrade and development of existing manufacturing processes across our international footprint to create higher specification, higher performance products. This review will also facilitate standardisation across more product lines, which, in turn, will enable us to benefit more comprehensively from our geographic footprint and economies of scale. In addition, flexibility between manufacturing locations will aid increasing customer expectations for supply chain diversification for risk mitigation and a changing tariff environment, improving even further our value proposition.

Sustainability

During the year, the Group continued to develop a long-term sustainability strategy, including reduced energy consumption, raw material waste, packaging use and carbon dioxide emissions, whereby Renold is ensuring sustainability is one of its guiding principles. Renold is focussed on making a difference through real actions which, over a period of time, will deliver discernible benefits for the environment, our customers and the business. Our leader for sustainability is helping the Board to develop policies and strategies in this area, aimed at reducing the Group's environmental impact and enhancing social development whilst also ensuring that the Company maintains its existing commitments to its communities and stakeholders. Renold is well positioned to contribute to a more sustainable future; our technical, product development and commercial teams are actively developing a more efficient and environmentally sustainable product offering which helps customers to reduce their carbon footprint by providing highly engineered chains that give longevity and life cycle benefits, or by being cleaner through reducing the need for product lubrication.

The Board

The Chair of the Board is primarily responsible for the composition of the Board and for ensuring high standards of governance. As Chair, I place great importance on the breadth of relevant experience, diversity and complementary skills amongst the Group's Directors and management and on the continued development of the strategy for the Renold business. With this in mind, we welcomed Vicki Potter to the Board as a Non-Executive Director during the financial year. Vicki has broad operational and HR experience in multinational engineering and manufacturing companies. She is currently the Chief Human Resources Officer and Customer Services Director for Oxford Instruments plc; a global FTSE 250 technology and manufacturing business.

Going forward, the Board will continue to ensure that effective succession plans are in place.

Dividend

The Board fully recognises the importance of dividends as part of the overall value creation proposition for shareholders. However, the Board has carefully reviewed its capital allocation priorities, and believes that both organic and inorganic investment opportunities that are available to the Group will deliver higher levels of shareholder return over the medium term than the payment of dividends in the near term. The Board will continue to review this approach over the coming periods. As such, the Board is not recommending the payment of a dividend on the ordinary shares of the Company for the year ended 31 March 2023.

Summary

The Group has performed well in the face of significant economic and social turmoil and continuing inflationary pressures on materials, energy and labour that the war in Ukraine and the pandemic have caused. These pressures will undoubtedly remain in the new financial year. However, the strong financial performance for the year, combined with positive operating cash flow, has generated the freedom to exploit future organic and acquisition-related growth opportunities. I would like to thank all our employees around the world for their diligence and commitment, which have been key to delivering the strong results for the Group.

DAVID LANDLESS

CHAIR

12 July 2023

 

Chief Executive's review

The strong momentum that the Group achieved in the previous financial year continued in financial year 2023, despite the economic headwinds experienced due in part to the Russian invasion of Ukraine, the subsequent impact on European energy prices and the tail-end pandemic-related economic issues.

In August 2022, the Group acquired YUK for €24m, which increases the Group's access to the Iberian Chain and wider European Conveyor Chain markets. The business is performing ahead of the Board's expectations at the time of the acquisition.

Group order intake during the year was £257.5m, an increase of 15.0% on a reported basis and 7.8% at constant exchange rates over the prior year. Encouragingly, the Group has now seen order intake grow for each of the last six sequential half year reporting periods. Excluding the recently announced £8.9m long-term military contract, and the £11.0m military contract announced in the prior year, order intake for the year increased by 16.8%, or 9.2% at constant exchange rates. YUK contributed £10.5m (or 4.5%) of Group order intake. The resultant year end order book of £99.5m gives the Group a strong foundation upon which to build in the new financial year (31 March 2022: £84.1m).

The growth in Group revenue to £247.1m was also encouraging, representing a year-on-year increase of 26.6% on a reported basis and 18.8% at constant exchange rates. Excluding the impact of the YUK acquisition, turnover increased by 21.2%, or 13.5% at constant exchange rates. Final quarter revenues at £70.0m were particularly strong and were £17.0m (32.1%) ahead of the comparable quarter last year, with North America especially delivering a particularly strong performance.

Group adjusted operating profit¹ at £24.2m (2022: £15.3m) was 58.2% ahead of prior year on a reported basis, and 46.4% ahead on a constant currency basis. Profitability was particularly strong in the second half of the financial year, where the Group reported a return on sales of 11.2%. The incremental operating profit gearing² was a creditable 17.1%, despite the impact of the widely reported economic headwinds, impacting raw material availability and inflation. The operating profit gearing was helped significantly by the swift action to pass on cost inflation. Statutory operating profit increased to £22.9m (2022: £16.2m).

The Group continued to benefit from the impact of the significant efforts undertaken in the year, and previous years, to lower the fixed cost base, increasing flexibility and operational leverage. The Group has successfully managed a period of significant supply chain disruption to materials and transportation, in terms of availability, lead times and increased input costs. Cost increases have been successfully recovered through selling price increases as well as cost reduction, simplification and standardisation programmes. We expect cost pressure on material, labour, energy and transportation to persist in the current financial year.

Renold continues to drive increased performance through specific projects aimed at better levels of operational efficiency and productivity, through automation, improved design and standardisation of products, better utilisation of machinery and people, including more flexible working practices, and leveraging the benefits of improved procurement strategies. The Group's capital investments returned to more normal levels following a period of lower spend in the prior year as a result of the pandemic, and have concentrated on increased automation within all of our facilities. The Group's operational capabilities are steadily improving as consistent levels of investment come to fruition, and we continue to develop our in-house technologies and investments, allowing us to produce higher specification and better performing chain that maintains our market leadership.

The strong focus on cash management remains a key priority for management. Closing net debt was £29.8m (31 March 2022: £13.8m), with the increase attributable to the £17.8m of initial acquisition cash consideration paid during the year for YUK. Excluding this acquisition consideration, the level of net debt reduced during the year by £1.8m and in the second half of the year by £4.2m. The resulting net debt to EBITDA ratio of 0.8x (2022: 0.5x) affords significant headroom against the Group's banking covenants and, in turn, provides greater flexibility and funding capabilities to transact quickly on investment decisions, both organic and through acquisitions, to drive growth, efficiency and productivity.

Activity in the Chain division continues to be robust, with H2 external order intake showing a 17.4% improvement over the strong levels seen in H2 of the last financial year. Output has also continued to improve with H2 constant currency turnover increasing by 22.3% in comparison to the same period last year. In a similar vein the adjusted profitability of the Chain business in H2 has increased by 69.5% at constant rates, when again compared to the equivalent period in the last financial year, and return on sales for the year at 13.4% (2022: 11.9%) continues to show progress.

The Torque Transmission division is generally a longer lead time, later cycle business. External order intake continued to grow, with the H2 order intake some 44.7% higher than the equivalent prior year comparator. Excluding the impact of the long-term military contract of £8.9m announced in January 2023, underlying order intake improved by 14.2%. Similarly, turnover has improved, with sales in H2 30.3% up on the prior year equivalent figure, as the base load work that the military contracts provide is taken to turnover. The return on sales for the division was 11.1% (2022: 10.1%).

¹ See Note 21 for definitions of adjusted measures and the differences to statutory measures

² Operational gearing is defined as the year-on-year change in adjusted operating profit, divided by the year-on-year change in revenue.

Current operating environment

The volatile operating environment the Group has faced over recent years abated a little in financial year 2023. The effects of the Covid-19 pandemic, especially in the UK, Europe and the US, were less marked, only to be replaced with new economic uncertainties brought about by the war between Russia and Ukraine.

During the year Covid-related disruption to our Chinese facilities, located in the wider Shanghai region, delayed inventory shipments to other companies in the Group, and at times staff absenteeism in the facility approached 50% which has negatively impacted costs, productivity and service levels from the factory. At other facilities, and following government guidance, the enforcement of our Covid protocols and health measures to try to protect all our staff were relaxed.

Towards the end of the financial year, the impact of previously reported extended shipment times and increased freight costs throughout the world abated, allowing the Group to make inroads into clearing the overdue order backlog. Accordingly, the Group recorded a record turnover of some £70.0m in the final quarter of the financial year. The availability of trucks, drivers and container freight services has improved in both reliability and expense, but still remain far from pre-pandemic norms. The upward pressure on goods in transit inventory levels also abated, which together with utilisation of the buffer stocks built up in H1 ahead of potential German energy rationing, allowed the Group to achieve positive cash generation in H2 of £4.2m.

As reported in the previous financial year, whilst recognising the human tragedy unfolding during the war between Russia and Ukraine, ceasing trading with sanctioned regions has little direct impact on the Group; sales to Russia and Ukraine during FY22 were low at c.0.5% of Group turnover. The Group continued to support our agents and distributors in the non-sanctioned parts of Ukraine, but obviously maintained close scrutiny on the levels of credit risk to which the Group is exposed.

Chain performance review

Turnover grew markedly during the year, with total Chain turnover increasing 27.1% year-on-year to £202.4m; 19.3% at constant exchange rates. In August 2022 the Group acquired YUK and during the period of ownership YUK contributed turnover of £10.5m, representing 5.2% of Chain turnover at actual exchange rates and 5.4% at constant exchange rates. The final quarter of the year saw a further step-up in activity for the Chain division, with Q4 turnover some 23.5% higher than the prior year comparator at constant exchange rates, as the impact of extended shipment times abated and both the US and European businesses were able to clear order backlogs. The increased revenue resulted in return on sales improving by 150 basis points, to 13.4% (2022: 11.9%). The operational gearing¹ on the increased activity at constant exchange rates was a creditable 21.8%, as the impact of increased prices, volumes and significant operational efficiency gains fell through to the bottom line. Adjusted operating profit was £27.2m (2022: £18.9m), £8.3m higher than the prior year level.

	2023 £m	2022 £m
External revenue	201.5	158.2
Inter-segment revenue	0.9	1.0
Total revenue	202.4	159.2
Foreign exchange	(12.5)	-
Revenue at constant exchange rates	189.9	159.2
Operating profit	26.5	20.5
US PPP loan forgiveness	-	(1.7)
Amortisation of acquired intangibles	0.7	0.1
Adjusted operating profit	27.2	18.9
Foreign exchange	(1.6)	-
Adjusted operating profit at constant exchange rates	25.6	18.9

¹ Operational gearing is defined as the year-on-year change in adjusted operating profit, divided by the year-on-year change in revenue.

Order intake in the Chain division increased by 18.6% year on year, with activity in both the US (+35.8%) and Australasia (+16.2%) showing a marked increase, especially during the final quarter of the year. External order intake in Europe grew by a headline rate of 5.8%, however, this is flattered by the YUK acquisition. Excluding the impact of YUK, underlying order intake in Europe fell 8.0% year-on-year, as the economic disruption of the Ukraine / Russia conflict was felt through the broader European economy, whilst European distributors destocked. In China, despite the Covid-related disruption during the year, external order intake grew by 33.6%, albeit from a low base. Order intake in India fell year-on-year by 6.3%, following a poor year in the agricultural market, coupled with a very tough comparator period.

Closing order books for the division finished the year at £60.9m (2022: £53.9m), some 13% ahead of last year which positions the Group well for the current financial year.

Chain Europe, which is our largest Chain business, saw a sharp increase in external revenues, which increased 25.0% over the prior year. Excluding the impact of the YUK acquisition, underlying revenues increased by 9.2%. Book and ship sales were depressed in H1, but recovered through the second half of the year due to distributor restocking, with Q4 sales 28.6% above the same prior year period and 26.1% above the average of the first nine months of the year. Targeted sales activity in key sectors saw both our OEM and End User business develop strongly, growing 13.5% and 29.8% respectively, with particularly strong growth in the areas of materials handling increasing 22.4% and manufactured products up 15.3%. Revenue progressively strengthened from the outset of the year, a trend which continued throughout each subsequent quarter.

The increased activity, together with the benefit of cost reduction activities, both in the current year and in the prior year, and new commercial initiatives, resulted in a substantial increase in underlying adjusted constant currency operating profit. Plans are in place to expand the Renold Service Centre footprint through the opening of a location in Turkey, close to Istanbul. The introduction of this new stock-holding location, together with the utilisation of the newly acquired YUK warehouse, should allow reduced delivery times and increased customer service, and hence sales, throughout the southern European region.

In the Americas, activity again increased markedly. External order intake at £92.3m was a record high, exceeding the £68.0m record achieved in the previous financial year by 35.7%. Turnover at £85.5m was 35.8% higher than the prior year comparator, driven by both significant input cost recovery work and an increase in projects related to the marine, food machinery, theme parks and utilities sectors. Sales to OEM customers grew steadily, especially in the escalator and forklift truck market, while increased sales of transmission chain products sold through distributors steadily increased. New business opportunities, especially in the ethanol, grain handling and forestry markets, were enhanced by the introduction of new products. Production capabilities were continually enhanced with further investment in automated equipment and development projects, and a large infrastructure project is being undertaken to see that the Morristown facility is positioned to take advantage of future growth opportunities. Underlying constant currency operating profit increased to a new record high.

In Australasia we continued to deliver revenue growth with the region being less impacted than our other markets by the commercial impacts of the pandemic and recorded revenue growth of 20.8%. Australia itself had a good year with revenue up 19.6%, with continued improvement seen in a number of sectors including mining and sugar. The recent trend of customers increasingly buying more domestically produced goods appears to be continuing, even though ongoing supply chain disruption to imported products appears to be reducing. Customers are increasingly seeing the benefits of our product-enhancing engineering capabilities that deliver real value through better performance and longer chain life. We continue to invest in the production capabilities of our Melbourne factory, with the recent purchase of further CNC equipment. Sales in New Zealand continued to grow strongly during the year, showing a 10.4% increase. Malaysia and Indonesia reversed the decline seen in the last financial year, recording growth rates of 35.3% and 24.5% respectively. Thailand was the only country in the region which recorded a decline in activity, showing a reduction in excess of 10%. We are continuing to expand our sales into more industries in South East Asia, with an initial assessment of commercial potential in Vietnam being undertaken.

Revenue in India grew by 13.1% during the year, helped in part by the opening of the first of a series of regional distribution warehouses in Nagpur to offer our customers and distributors much better and quicker supply. Plans are in place for a further three regional distribution centres to help give significantly improved delivery times to all parts of India over the coming years. Investment plans for the Indian operation include the introduction of state-of-the-art technology used elsewhere in the Group for the manufacture of many component types and assembly. Plans are also taking major steps forward for the introduction of the Group ERP platform, M3, which is expected to provide significant operational benefits within the current year.

Revenues in China grew by 7.9% during the year, driven primarily by a significant 12.9% improvement in domestic Chinese demand. Growth in intra-group demand from Europe and the US also increased significantly in the first half of the financial year, but slowed in the latter part of the year as intra-group order patterns were adjusted to take into account the improving delivery times to Western markets. Activities to correct stock holding patterns in our European and US warehouses, and the Covid-related disruption in the Chinese factory also subdued activity in the second half of the year. Efforts and investments to continue to improve the quality and specification of products manufactured in China bore fruit during the year, as product quality in the Chinese factory improved sufficiently to allow the transfer of the manufacture of several mid-tier Renold standard products and components to China. Manufacture of premium and high specification products will continue in our US and European facilities. During the year, our Chinese team initiated a project to upgrade certain component manufacturing processes to use state-of-the-art technology, while making significant investment in automated assembly lines to facilitate high volume sales growth in both domestic and overseas markets.

The Chain division continues to develop and evolve through investment in equipment, processes, training and development of our people, engineering and sales, and this provides us with an excellent base from which to build benefits derived from the many opportunities in this market.

Torque Transmission performance review

Divisional revenues of £48.8m were £8.4m higher than in the prior year (+20.8%) due to a recovery in demand in our North American markets. Our North American manufacturing and distribution business, based in Westfield NY, saw turnover grow by 35.8% year-on-year. In January 2023, the Group announced it had secured an £8.9m long-term agreement to supply large Hi-Tec couplings for the initial phase of a military contract for the Royal Australian Navy, an agreement which followed a similar military contract to supply the second phase of a contract for the Royal Navy in FY22. Progress on both these contracts was recorded during the year, and contributed to a 7.1% increase in the Renold couplings business.

Divisional adjusted operating profit at constant exchange rates increased by 24.4% to £5.1m in the year. Return on sales for the division was 11.1% (2022: 10.1%), an increase of 100bps during the year.

Momentum in this division, which has a later trading cycle and generally larger orders than our Chain business, continues to be positive and improving.

	2023 £m	2022 £m
External revenue	45.6	37.0
Inter-segment revenue	3.2	3.4
Total revenue	48.8	40.4
Foreign exchange	(2.8)	-
Revenue at constant exchange rates	46.0	40.4
Operating profit (and adjusted operating profit)	5.4	4.1
Foreign exchange	(0.3)	-
Adjusted operating profit at constant exchange rates	5.1	4.1

Order intake for the year increased 2.1% to £53.3m (2022: £52.1m), a reduction of 3.2% at constant exchange rates. Excluding the impact of the £8.9m long-term military contract, and £11.0m military contract announced in FY22, order intake increased by 7.8% or 1.1% at constant exchange rates.

The North American business unit benefitted from a significant increase in demand for gears and couplings supplied intra group from the UK, but also experienced a significant uptick in demand for own manufactured gear spindles and shakers, both in the US domestic market and internationally. Demand for gear couplings to the US mass transit market also strengthened significantly. Demand for group-supplied products in both the Chinese and Australian distribution and service centres also grew by 44.6% and 32.5% respectively, as supply chain issues encountered in the last financial year were resolved.

The Couplings business delivered a 6.7% increase in turnover year-on-year. As expected, turnover in the marine business, which manages the long-term military contracts, increased year-on-year by £0.8m, as work commenced on the second phase of the UK military contract, as well as the initial phase of the Australian military contract. Product mix improved markedly in the second half of the year as the lower margin initial phase of the contract was completed, and the higher margin phase of the work commenced. Product development in the couplings division continued with new designs for couplings that expand the performance envelope of current products whilst adding new features and benefits, while sales of the RBI rubber in compression product continued apace.

The Gears business made good progress in order intake, turnover and margin despite facing significant material and energy cost increases. Notable product developments during the year include new products aimed at the escalator market, especially relating to metro systems, and a number of specialist niche products aimed at the water treatment market. Demand from OEM customers, particularly for larger projects in the US and UK which are our key geographic markets, remained strong during the year.

The broad strength of the Torque Transmission division sales and margin performance reflects the later cycle nature of the division in comparison to Chain.

Sustainability

Renold intensified its focus on Group projects during the year and significant efforts were made to collate energy and carbon-related statistics from throughout the Group to gain a proper base line from which to measure progress in both energy and carbon reduction projects. A full inventory of the Group's energy intensive fleet of heat treatment facilities was undertaken, and the Group's technical and operational management have started to formulate a strategy, working with the Group's equipment suppliers, to reduce the environmental footprint of our heat treatment processes as the age of equipment approaches the point where replacement is required. This exercise has already had initial success as our German facilities adopted more energy-efficient working practices during the year, which allowed the number of furnaces continually operating at the plant to be reduced by 25%.

The Group Sustainability Committee drove a packaging project which is aimed at producing new standard transmission chain packaging designs which are made from recycled material and are themselves fully recyclable. All adhesives, inks and labels used in these new designs, which will be common across the world, are also recyclable. The new designs have been produced in such a way that they have significantly reduced the amount of packaging lines that individual plants are required to keep in stock.

At a regional level, our businesses across the world have been asked to develop their own sustainability project roadmaps, seeking to ensure that our efforts are relevant to the highly diverse regions within which we operate. We will continue to build on the considerable momentum we have gained, delivering ever more local successes.

Finally, our technical, product development and commercial teams are actively developing a more efficient and environmentally sustainable product offering for our customers, whether that be in terms of product life and replacement cycle, or through being cleaner by reducing the need for product lubrication. More information on our progress and plans can be found in the Sustainability section of the Annual Report.

Strategic Plan - STEP2 progress

Having created a stronger operational platform for the Group, and with the significant strengthening of our financial position, we have increased our focus on how we can accelerate performance through value-enhancing acquisitions which will allow us to benefit from both increased geographical and product coverage, but also leverage synergies from increasing the throughput of our existing facilities. As a result, we have developed a pipeline of acquisition opportunities which we believe have the ability to meet our financial and operational criteria. Such acquisitions will allow us to expand our product and service offering as well as our customer base, further expand our already diverse product portfolio into adjacent market sectors, and allow us to capitalise on our ability to provide customers with high specification products that deliver real benefits for their own business performance.

The Board is observing disciplined criteria when executing the new acquisition strategy, ensuring that potential targets will enhance the Group's wider strategy and earnings. Additionally, the Board is mindful of retaining a conservative capital structure, especially in light of the current economic backdrop, and will ensure that the long-term net debt to EBITDA ratio is maintained at an acceptable level.

During the year, Renold took the first significant step in the acquisitive growth phase of our strategy. In August 2022, Renold acquired the business of YUK, a Valencia-based manufacturer and distributor of high quality conveyor chain ("CVC") and ancillary products. The acquisition not only provides the Group with high quality European-based CVC manufacturing capability, but also substantially increases the Group's access to the Iberian market where historically we have been under represented. The acquisition will allow Renold to leverage YUK's strong CVC market position in Spain and Portugal to expand sales of the Group's existing range of premium European transmission chain ("TRC") products, and enable sales of YUK products throughout Renold's extensive European sales network beyond Iberia.

Organic growth and business improvement is a fundamental driver in the Group strategy moving forward. Renold is consistently enhancing its operational capabilities through upgrading equipment and processes across the world. Capital expenditure was £8.4m in the period, a considerable increase on the prior year and we expect it to rise again in the new year. We have made good progress in difficult circumstances, as supply chain issues have affected our equipment suppliers as much as ourselves.

We have a clear vision of where our Chinese factory fits into our global supply chain and our expectations for growth in the Chinese market itself. External order intake in China grew by 33.6% year on year, while external sales revenue increased by 12.9%. We are constantly upgrading capabilities in the facility and we will be offering higher specification Chinese-made product into the domestic market as well as across the world.

In our Indian business, efforts continue to fully integrate the business into the Group supply chain. Investments in production capabilities, including new press equipment equivalent to the equipment available in our US and European factories, is providing improvements in product quality and uniformity. India offers a very attractive market in its own right and an interesting and effective alternative to our Chinese chain manufacturing site. India provides the Group with an alternative supply base as customers' supply chains flex, driven by an increasing level of concern about international trade tariffs and the concentration of supply from a single region.

These projects highlight the intention in our capital allocation decisions for the Group. With the large infrastructure projects complete, capital allocation decisions are now less frequently limited purely by a site's domestic requirements but are focused on customer service, upgrading product specification capabilities and optimising profitability for the Group. For the Chain division especially, this allows us to access economies of scale and offer a truly global service with increasing relevance to large OEM customers. Renold is increasingly an integrated international supplier and less a series of regional businesses.

The strategic progress made by the Group over recent years has been significant. Investments in both our production capabilities and our IT environment have resulted in significant benefits, with:

•	Improvements in productivity and operational efficiency as evidenced by growing sales per employee;
•	Greater insight into the performance and opportunities in the business due to better and more complete data;
•	Improvements in the specification and quality of products we are able to make across our multiple manufacturing sites; and
•	Greater flexibility in the cost base as we start to reduce the correlation between revenue and direct labour.

With the ongoing recovery of our markets, the financial benefits of these improvements will increasingly come to the fore. Renold is well positioned to capitalise on these developments in the years ahead.

Macroeconomic landscape and business positioning

The underlying fundamentals of the Group and the markets we serve provide confidence that Renold is well placed to continue to develop and deliver sustainable profitable growth. Many of these intrinsic qualities have remained consistent over many years but we are now proactively building on these fundamentals. They include:

•	Valued and recognised brand with well-respected engineering expertise
	The Renold brand has been built up over our 150-year history and is trusted by customers to deliver exceptional products due to our world-class engineering and product knowledge.
•	Global market position and unique geographical manufacturing capability
	The global market position of Renold has existed for many years, but following significant strategic investments in the Chain division the geographic manufacturing footprint and capabilities we have are unique, permitting us to service customer demand with increasing levels of flexibility - a critical factor in a rapidly changing market environment.
•	Relatively low cost, but business critical products
	Chain and Torque Transmission products are fundamental elements of the systems into which they are incorporated. Our products are often a small proportion of the cost of the entire system, but critical to its operation.
•	Broad base of customers and end-user markets
	Renold products are used in an extremely diverse range of end applications, sectors, markets and geographies, resulting in a huge spread of customers and industries served. Markets and applications will change and vary in the ever-altering environment we operate in but, with its wide spread of products, geographies, applications and customers, Renold is well positioned.
•	High specification products delivering environmental benefits for our customers
	Renold products have always been high specification premium products which deliver exceptional benefits to customers. Whether through greater efficiency leading to lower power usage, longer life providing lower lifetime usage of materials and energy in their manufacture and logistics, or lower lubrication requirements, Renold products are well placed for an increasingly environmentally aware marketplace. Our products are capable of helping our customers meet their sustainability objectives whilst saving them money.

Outlook

I am pleased with the Group's strong performance over the year, which reflects the benefits of the strategic developments completed over prior years and the hard work that all our employees across the world have contributed during a most difficult period. Our employees have responded excellently to the challenges we have faced, and I thank them for their dedication and commitment to the Group and our customers during these extraordinary times.

Throughout the reported period the business performance has been on an improving trend and finished particularly strongly as supply chains eased in the last quarter. We expect the current financial year to be no less challenging, but we remain vigilant in the environment within which we operate; however, we started the new financial year from a positive position with good momentum and confidence in the capabilities and fundamentals of the Renold business and the markets we serve.

Robert Purcell

Chief Executive

12 July 2023

Finance Director's review

Renold delivered a record performance during the year, with Group revenue increasing by 26.6% to £247.1m. The business produced an adjusted operating margin of 9.8% (2022: 7.8%) and, following the acquisition of YUK in August 2022 for initial cash consideration of €20.0m, achieved a significant reduction in net debt of £4.2m during the second half to end the year to £29.8m (31 March 2022: £13.8m).

Orders, revenue AND OPERATING PROFIT

	2023			2022
Reconciliation of reported to adjusted results	Order intake	Revenue	Operating profit	Order intake	Revenue	Operating profit
	£m	£m	£m	£m	£m	£m
Reported	257.5	247.1	22.9	223.9	195.2	16.2
US PPP loan forgiveness	-	-	-	-	-	(1.7)
New lease arrangements on sublet properties	-	-	-	-	-	0.7
Amortisation of acquired intangible assets	-	-	0.7	-	-	0.1
Acquisition costs	-	-	0.6	-	-	-
Adjusted	257.5	247.1	24.2	223.9	195.2	15.3
Impact of foreign exchange	(16.1)	(15.3)	(1.8)	-	-	-
Adjusted at constant exchange rates	241.4	231.8	22.4	223.9	195.2	15.3

Group order intake for the year increased by 15.0% to £257.5m (2022: £223.9m), or 7.8% at constant exchange rates, and included an £8.9m long-term military contract win, following a similar contract win of £11.0m in FY22.

Group revenue increased by £51.9m (26.6%) to £247.1m, or £36.6m (18.8%) at constant exchange rates. Activity steadily increased throughout the year as manufacturing facilities ramped up production in response to the increased order intake levels. The activity in quarter four was some 32% higher than prior year as the Group's US operations shipped some significant orders which repeat on a four-year cycle, and better lead times on the supply of Group product from China resulted in a reduction in overdue order backlog. Both divisions saw an increase in turnover, with the Chain division recording an increase at constant exchange rates of 19.3%, while the Torque Transmission division, which is a larger order and longer cycle business, increased by 13.9%.

The Group generated an adjusted operating profit for the year of £24.2m (2022: £15.3m), excluding the impact of adjusting items as detailed below. Reported operating profit for the year was £22.9m (2022: £16.2m). Operating profit margin, calculated on a statutory basis, was 9.3% (2022: 8.3%) and return on sales increased by 200 bps during the year to 9.8% (2022: 7.8%).

Adjusting items

Adjusting items for the year ended 31 March 2023 comprise acquisition-related intangible asset amortisation of £0.7m (2022: £0.1m), acquisition costs of £0.6m (2022: nil) and re-evaluation of prior year tax positions across the Group of £0.4m (2022: nil). Prior year adjusting items, which have not been repeated in the current year, include a £1.7m gain from the forgiveness of US Covid-related loans and a £0.7m charge from new lease arrangements at previously closed sites, including adjustments relating to the sublease of the closed Bredbury facility and the termination of a lease at a site in Rainham, Essex.

Foreign exchange rates

The majority of Renold's business is denominated in US Dollars and Euro's. The impact of the strengthening of these currencies against Sterling was to benefit Group revenues, profits and net assets in FY23 when translated back into Sterling in the consolidated financial statements.

Foreign exchange rates have remained volatile, with a 3% weakening of Sterling against the Euro and 6% weakening of Sterling against the US Dollar between March 2022 and March 2023.

Phasing of movements over the current and prior year mean the weighted average exchange rate used to translate the Euro and US Dollar varies to the movement in the closing rates. The weighted average exchange rates were 1.20 for the US Dollar and 1.15 for the Euro for the year ended 31 March 2023 (2022: 1.36 and 1.17 respectively).

FX rates (% of Group sales)	31 Mar 22 FX rate	31 Mar 23 FX rate	31 Mar 23 Var %	2022 Average FX rate	2023 Average FX rate	2023 Var %
GBP/Euro (30%)	1.18	1.14	-3%	1.17	1.15	-2%
GBP/US$ (37%)	1.32	1.24	-6%	1.36	1.20	-12%
GBP/C$ (5%)	1.64	1.67	2%	1.71	1.60	-6%
GBP/A$ (5%)	1.75	1.85	6%	1.84	1.77	-4%

If the year-end exchange rates had applied throughout the year, there would be an estimated increase of £3.4m to revenue and £0.4m to operating profit.

FinancE costs

Total finance costs in the year were £5.6m (2022: £3.8m).

Total loan finance costs include external interest on bank loans and overdrafts of £2.3m (2022: £1.1m), amortisation of arrangement fees and costs of refinancing and the transition of banking arrangements from LIBOR to SONIA during FY22, of £0.3m (2022: £0.3m), and £0.7m (2022: £0.5m) of interest expense on lease liabilities.

The increase in interest payable on external bank loans and overdrafts was driven by the acquisition of YUK for €24.0m during August 2023 (cash of €20.0m paid in the year), together with the impact of successive increases in the UK base rate during the second half of the financial year.

The net IAS 19 finance charge, which is a non-cash item, was £2.1m (2022: £1.8m).

Finance costs also include £0.2m (2022: £0.1m), resulting from the unwind of discounts on the deferred build costs of the Chinese factory.

During May 2023, the Group announced that it had reached agreement with its banking syndicate for the extension of its core banking facilities that were due to mature in March 2024, initially for a three-year term to May 2026 but with an option to extend the term for a further two years. The new £85.0m multi-currency revolving credit facility is increased from the previous level of £61.5m. There is an additional £20.0m accordion option which will allow the Company to access additional funding, subject to further bank/credit approval, in support of its acquisition programme; a key part of the Group's STEP2 strategy. Within the principal facility term the net debt/EBITDA covenant is improved from the previous level of 2.5x EBITDA to 3.0x EBITDA, with other key terms remaining unchanged.

Profit before tax

Profit before tax was £17.3m (2022: £12.4m).

Taxation

The total tax charge in the year of £5.5m (2022: £2.2m) is made up of a current tax charge of £4.2m (2022: £2.0m) and a deferred tax charge of £1.3m (2022: £0.2m). The increase in the current tax charge is attributable to an increase in Group profit generated in higher tax jurisdictions together with various adjustments to build the Group provision held for uncertain tax matters which reflects a best estimate of amounts to be paid in future tax years. For further details see Note 4.

The increase in the deferred tax charge is primarily attributable to accelerated tax loss utilisation and tax depreciation in excess of book in overseas jurisdictions.

During the year we have re-evaluated various tax positions across the Group for transfer pricing and deferred tax, relating to earlier years, and details of which can be found in Note 4.

The effective tax rate for the year was 32% (2022: 18%), with the increase attributable to the items set out above, coupled with the impact of non-recurring items which reduce profit but are non-taxable items. Excluding the non-recurring items, the effective tax rate on adjusted earnings was 27% (2022: 19%).

EARNINGS PER SHARE

Profit after tax of £11.8m was achieved for the financial year ended 31 March 2023 (2022: £10.2m). Adjusted earnings per share were 6.5p (2022: 4.3p), which excludes one-off items in the year noted above. Basic earnings per share were 5.7p compared to 4.7p for the year ended 31 March 2022.

	2023	2022
	£m	£m
Adjusted profit after taxation	13.5	9.3
Effect of adjusting items, after tax:
- US PPP loan forgiveness	-	1.7
- New lease arrangements on sublet properties	-	(0.7)
- Amortisation of acquired intangible assets	(0.7)	(0.1)
- Acquisition costs	(0.6)	-
- Tax adjustments relating to prior year	(0.4)	-
Profit after taxation	11.8	10.2
Basic adjusted earnings per share	6.5p	4.3p
Basic earnings per share	5.7p	4.7p

Balance sheet

Net assets at 31 March 2023 were £39.1m (31 March 2022: £7.0m). A net profit of £11.8m was delivered for the year which, together with the impact of the favourable valuation of the Group's pension liabilities and the retranslation of overseas operations, resulted in an increase in net assets of £32.1m.

The pension deficit, on an IAS 19 basis, decreased to £62.2m (31 March 2022: £87.1m). The net liability for pension benefit obligations was £57.1m (2022: £76.1m) after allowing for a net deferred tax asset of £5.1m (31 March 2022: £11.0m), largely reflecting the significantly increased yields on corporate bonds during the year which are used to discount future pension liabilities to present values. At the last triennial pension valuation, at 31 March 2022, the technical provisions deficit of the UK scheme, which is how the trustees and regulator evaluate the scheme, was only £5.9m; an improvement between triennial valuations of £3.2m. This compares to the IAS 19 deficit for the UK pension fund at the date of the triennial valuation of £64.1m. The difference primarily represents the valuation of the capital asset reserve (CAR), currently £44.0m, being the discounted value of guaranteed future cash contributions to the scheme for a fixed period of 25 years commencing in 2013.

Overseas schemes now account for £18.0m (28.9%) of the IAS 19 pension deficits and £17.7m of this is in respect of the German scheme, which is unfunded, with payments made as pensions fall due.

During the prior year, and as part of its long-term financial planning, the Company reorganised its balance sheet and reserves through the cancellation of the entire amount of its share premium account and capital redemption reserve. The share premium account and capital redemption reserve are non-distributable reserves and, accordingly, the purposes for which they can be used are restricted. The reduction of capital creates sufficient distributable reserves to provide the Board with greater flexibility with regard to how it manages its capital resources. An order of the High Court confirming the capital reduction became effective on 27 May 2021, increasing distributable reserves by £45.5m in FY22.

 

CASH FLOW AND NET DEBT

	FY23	FY22
	£m	£m
Adjusted operating profit	24.2	15.3
Add back depreciation and amortisation	10.4	9.4
Add back loss on disposal of property, plant and equipment	0.3	-
Add back share-based payments	1.3	1.1
Adjusted EBITDA1	36.2	25.8
Movement in working capital	(10.5)	(0.2)
Net capital expenditure	(8.4)	(5.1)
Operating cash flow1	17.3	20.5
Income taxes	(2.7)	(1.7)
Pensions cash costs	(5.8)	(4.8)
Repayment of principal under lease liabilities	(2.9)	(4.2)
Finance costs paid	(3.3)	(1.8)
Consideration paid for acquisition	(18.0)	(0.5)
Own shares purchased	-	(4.9)
US PPP loan forgiveness	-	1.7
Other movements	(0.6)	0.3
Change in net debt	(16.0)	4.6
Closing net debt1	29.8	13.8
1 Adjusted EBITDA and operating cash flow are alternative performance measures as defined in Note 21.

In the financial year the Group invested £18.0m in acquisitions, primarily YUK. When the acquisition consideration is excluded, the Group generated £2.0m of net cash during the year, of which a reduction of £4.2m occurred in the second half of the financial year. Closing net debt is £29.8m (31 March 2022: £13.8m). Net debt at 31 March 2023 comprised cash and cash equivalents of £19.3m (31 March 2022: £10.5m) and borrowings of £49.1m (31 March 2022: £24.3m).

Within the balance sheet working capital movement, inventory levels increased by £4.5m (2022: £9.5m). The increase was attributable to the Group replenishing stock levels to ensure increased levels of customer service despite supply chain difficulties. Receivables also increased by £2.8m (2022: £4.5m), in line with the increased level of turnover. Careful overall working capital management mitigated these increases.

Net capital expenditure of £8.4m (2022: £5.1m) was increased during the financial year, as the Group's strategic investment programmes gathered pace. The Group sees investments in support of our strategy, aimed at improving heat treatment facilities, broadening manufacturing capabilities, and product assembly automation, especially in our Indian and Chinese facilities, gathering pace in the coming year. Additionally, the installation of the standardised Group IT system continued as planned.

In August 2022 the Group acquired the entire share capital of YUK, a conveyor chain manufacturer based in Valencia, Spain. The total consideration was €24.0m, of which €4.0m is deferred and to be paid in two tranches of €2.0m each, payable 12 and 24 months following completion of the acquisition. Professional fees associated with the acquisition amounted to £0.6m. During the prior financial year, the Group acquired the conveyor chain business of Brooks Ltd, based in Manchester, UK, for a total consideration of £0.7m, of which £0.5m was paid during FY22, and the remaining £0.2m paid in the financial year.

Pension deficit recovery plan cash costs of £5.8m were higher than the prior year equivalent of £4.8m. The increase in contributions is a result of the agreement reached with the UK Pension Trustee in April 2020, whereby £2.8m of FY21 contributions due to be paid to the UK scheme were deferred in light of the potential impact of the Covid-19 pandemic. The deferred contributions are being repaid over the five-year period which commenced on 1 April 2022. In addition, the Group took the opportunity to close the Renold New Zealand pension scheme during the year, which resulted in a one-off pension payment of £0.3m. Going forward, the Group had previously agreed to increase pension contributions to the UK pension scheme by £1.0m per annum once Group adjusted operating profit exceeded £16.0m; additional contributions to the UK pension scheme commenced from 1 April 2023.

Corporation tax cash paid was £2.7m (2022: £1.7m), and was paid in accordance with normal payment on account rules in the countries where the Group has operations.

Net cash flow from operating activities, shown in a statutory format, was £16.7m (2022: £19.3m).

Debt facility and capital structure

During May 2023, the Group announced that it had reached agreement with its banking syndicate for the extension of its core banking facilities that were due to mature in March 2024 initially for a three-year term, to May 2026, with an option to extend the term for a further two years. The new, £85.0m multi-currency revolving credit facility will be increased from the previous level of £61.5m. Additionally, there is a £20.0m accordion option which will allow the Company to access additional funding in support of its acquisition programme as part of the Group's STEP2 strategy. The principal facility term, the net debt/EBITDA covenant, will be improved from the previous level of 2.5 times EBITDA to 3.0 times EBITDA, with other key terms remaining unchanged.

At 31 March 2023, the Group had unused credit facilities totalling £17.3m (31 March 2022: £40.1m) and cash balances of £19.3m (31 March 2022: £10.5m). Total Group credit facilities amounted to £65.9m (31 March 2022: £64.2m), all of which were committed. In May 2023, following the increase in facilities under the new banking arrangements, total committed facilities were £89.7m.

The Group has operated well within agreed covenant levels throughout the year ended 31 March 2023 and expects to continue to operate comfortably within covenant limits going forward.

The net debt/adjusted EBITDA ratio as at 31 March 2023 was 0.9x (31 March 2022: 0.6x), calculated in accordance with the old banking agreement. The adjusted EBITDA/interest cover as at 31 March 2023 was 13.7x (2022: 19.6x), again calculated in accordance with the banking agreement.

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.

Further information in relation to the Group's business activities, together with the factors likely to affect its future development, performance and financial position, liquidity, cash balances and borrowing facilities is set out in the Chair's statement, the Chief Executive's review, the Finance Director's review and in the section on principal risks and uncertainties. Additional details of the Group's cash balances and borrowings and facility are included in Notes 13, 14 and 17.

The key covenants attached to the Group's multi-currency revolving credit facility at year end relate to leverage, net debt to EBITDA, maximum 2.5x, and, following agreement of new borrowing covenants by the Group in May 2023, net debt to EBITDA, maximum 3.0x, and interest cover (minimum 4.0x). The Group regularly monitors its financial position to ensure that it remains within the terms of its banking covenants, and has remained within those covenants for the whole of the financial year.

Given the current level of macroeconomic uncertainty stemming from inflation, global supply chain difficulties and geopolitical risks, and being also mindful of the risks discussed in the section on principal risks and uncertainties, the Group has performed financial modelling of future cash flows. The Board has reviewed the cash flow forecasts which cover a period of 12 months from the approval of the 2023 Annual Report, and which reflect forecast changes in revenue across the Group's business units. A reverse stress test has been performed on the forecasts to determine the extent of a downturn which would result in a breach of covenants. Revenue would have to reduce by approximately 28% over the period under review for the Group to be likely to breach the leverage covenant under the terms of its borrowing facility. The reverse stress test does not take into account further mitigating actions which the Group would implement in the event of a severe and extended revenue decline, such as reducing discretionary spend and capital expenditure. This assessment indicates that the Group can operate within the level of its current increased facilities, as set out above, without the need to obtain any new facilities for a period of not less than 12 months from the date of this report.

Following this assessment, the Board of Directors are satisfied that the Group has sufficient resources to continue in operation for a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in relation to this conclusion and preparing the consolidated financial statements. There are no key sensitivities identified in relation to this conclusion.

Treasury and financial instruments

The Group's treasury policy, approved by the Board, is to manage its funding requirements and treasury risks without taking any speculative risks. Treasury and financing matters are assessed further in the section on principal risks and uncertainties.

To manage foreign currency exchange impact on the translation of net investments, certain US Dollar denominated borrowings taken out in the UK to finance US acquisitions are designated as a hedge of the net investment in US subsidiaries. At 31 March 2023 this hedge was fully effective. The carrying value of these borrowings at 31 March 2023 was £7.3m (31 March 2022: £6.8m).

At 31 March 2023, the Group had £0.5m (31 March 2022: £0.5m) 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.

Pension assets and liabilities

The Group has a mix of UK (83% of gross liabilities) and overseas (17% of gross liabilities) defined benefit pension obligations as shown below.

	2023			2022
	Assets £m	Liabilities £m	Deficit £m	Assets £m	Liabilities £m	Deficit £m
UK scheme	101.6	(145.8)	(44.2)	134.4	(198.5)	(64.1)
Overseas schemes	12.9	(30.9)	(18.0)	15.4	(38.4)	(23.0)
	114.5	(176.7)	(62.2)	149.8	(236.9)	(87.1)
Deferred tax asset			5.1			11.0
Net deficit			(57.1)			(76.1)

The Group's retirement benefit obligations decreased from £87.1m (£76.1m net of deferred tax) at 31 March 2022 to £62.2m (£57.1m net of deferred tax) at 31 March 2023. The largest element of the decrease relates to the UK scheme where the deficit decreased from £64.1m to £44.2m primarily due to an increase in AA corporate bond yields, which reduces the present value of gross liabilities under IAS 19. This was partially offset by the impact of an increase in the UK inflation assumption. For the purposes of determining scheme pension payments, inflation is capped for the UK and the US schemes. The deficit of the overseas schemes decreased by £5.0m to £18.0m, reflecting increases in European interest rates, and changes in assumptions for discount and inflation rates. All defined benefit schemes, with the exception of one scheme for blue-collar workers in the US, are closed for future accrual.

UK funded scheme

The deficit of the UK scheme decreased in the year to £44.2m (31 March 2022: £64.1m), reflecting a number of changes in assumptions and factors.

The decrease in gross liabilities of £52.7m arose primarily from a combination of an increase in the rate used to discount the scheme's liabilities (discount rate of 4.85% compared with 2.75% in the prior year) and a reduction in the long-term inflation assumption (CPI of 2.85% compared with 3.25% in the prior year). Partially offsetting the reduction in liabilities was a £32.8m decrease in the value of the scheme's assets, which was primarily due to a reduction in value of the Scheme's investment in LDI.

The latest triennial actuarial valuation of the UK scheme, with an effective date of 5 April 2022, was agreed in April 2023 and identified a deficit of £5.9m; this compares favourably to the £9.1m deficit recorded at 5 April 2019. This is significantly lower than the IAS 19 deficit, largely as the actuarial valuation places a value on the Group's guaranteed future cash payments to the scheme under the central asset reserve structure established in June 2013. The Group had previously agreed to increase pension contributions to the UK pension scheme by £1.0m per annum, once Group adjusted operating profits exceeded £16.0m, additional contributions to the UK pension scheme commenced from 1 April 2023. It is expected that the actuarial valuation deficit of £5.9m can be recovered from these additional cash contributions, together with asset outperformance, above the prudent levels assumed in the valuation, over the remaining life of the scheme.

Contributions in the year ended 31 March 2023 were £4.1m (2022: £3.4m). The increase in contributions compared to the prior year follows the agreement reached with the Trustee in April 2020 such that £2.8m of the prior year contributions due to the UK scheme were deferred in light of the potential impact of the Covid-19 pandemic. The deferred contributions are being repaid over the five-year period which commenced on 1 April 2022. The underlying level of contributions to the UK scheme increases annually by RPI plus 1.5% (capped at 5%).

The next triennial valuation date will be as at 5 April 2025.

Overseas schemes

The largest element of the overseas schemes is the German unfunded scheme, with a total liability and deficit of £17.7m (31 March 2022: £22.4m). Other overseas funded schemes comprise a number of smaller arrangements around the world, with a combined deficit of £0.3m (31 March 2022: £0.6m). The combined deficits of all the overseas schemes decreased by £5.0m. During April 2022, the Board's decision to close the New Zealand defined benefit pension scheme was enacted by the scheme trustees.

For overseas pension schemes, the contributions in the year were £1.7m (2022: £1.4m).

JIM HAUGHEY

GROUP Finance Director

12 July 2023

Principal Risks and Uncertainties

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. We have promoted and encouraged a risk aware culture throughout the Group. Details of the principal risks and uncertainties are summarised below and set out in more detail in the Annual Report.

The Board continues to monitor potential emerging or evolving risks on an ongoing basis. A new principal risk has been added this year; relating to product liability. This addition reflects the result of 'bottom up' site risk register reviews, output of the Executive Risk Management and Monitoring Committee ("ERMMC") where compliance with contractual sales terms is regularly flagged as a key control, horizon scanning which identified our increasing success of obtaining large multi-year supply contracts, and benchmarking against our peer group. Whilst product liability has been added as a principal risk, we believe that we have sufficient and robust controls in place such that this risk is mitigated to an acceptable level.

In addition, we have also combined two risks that were previously reported separately: strategy execution and corporate transactions/business development. This change reflects the Groups overall strategy, of which a core element focuses on acquisitions, and also that major restructuring exercises completed in previous years have come to an end.

The effect of climate change is an area that has been subject to additional focus during the year, across all levels of the business. Renold recognises the importance of considering climate risks and opportunities in our business decisions, and we have undertaken specific projects over the last 12 months in order to better and more formally understand the extent to which climate change impacts our business. We will continue to develop these processes over time, in order to continually aim to ensure the completeness of our risk management processes and to identify those topics that are most significant for our operations, such that we prioritise our risk mitigation efforts accordingly.

Climate change truly represents both risk and opportunity for the Group. For example, continued environmental activism around climate change has started to influence some consumers to reduce their carbon footprints, and there is the potential that this could start to impact some of the sectors we operate in; however, as Renold supports customers in achieving their own sustainability goals through the development and supply of high specification, durable, environmentally responsible products which ultimately minimise the impact on the environment, this is also an opportunity for us.

We do not believe that climate change is a stand-alone principal risk, and instead believe that it should be assessed in an integrated way within our existing risk management processes. We recognise that the effect of climate change will have an impact, to a greater or lesser extent, across all of our existing principal risks; however, we do not believe this to have a material impact on our principal risk assessment at this time. As with all risks, we will continue to monitor the evolving situation over time.

1 Macroeconomic and political volatility
DETAILED RISK Material changes in prevailing macroeconomic or geopolitical conditions could have a detrimental impact on business performance. We operate in 18 countries and sell to customers in over 100, therefore we are necessarily exposed to economic and geopolitical risks in these territories.	POTENTIAL IMPACT Potential touch points include: •    Commodity prices which have a negative impact on demand in the whole supply chain. •    Changes to tariffs and import duties which can distort customer buying decisions. •    Foreign exchange volatility can impact customer buying patterns, leading to lower demand or the need to rapidly switch supply chains.
MITIGATION AND CONTROL •    Our diversified geographic footprint inherently exposes us to more countries where risks arise but conversely provides some degree of resilience and flexibility. •    Actions to lower the Group's overall break-even point also serve to reduce the impact of any global economic slowdown. •    A focus on 'predict and respond', e.g. sales forecasting and raw material price monitoring, leading to operational change such as sales price increases or cost reductions. •    Active monitoring of stock levels and customers in relevant geographies to identify any issues early. •    We have a good level of liquidity, with access to sufficient multi-currency debt facilities. The FY23 risk trend is unchanged. Renold has demonstrated the ability to manage costs in response to revenue shocks, protecting profitability and returns. Rising interest rates and inflation increase the cost of borrowing, however, this is offset with some stabilisation of the high-cost inflation previously experienced on raw material, freight and energy prices. Growth in the global economy, following stabilisation of the Covid-19 pandemic, presents opportunity though this growth may not continue. Greater geopolitical risk with the war in Ukraine, and previous supply chain disruption during the pandemic, has resulted in customers shortening their supply chains and moving supply closer to their main operating locations. Renold benefits from manufacturing locations across several continents, which are often in close proximity to our customers' locations.

2 Strategy execution
DETAILED RISK The Group's ongoing strategy requires the co-ordinated delivery of a number of complex projects. Part of the Group's strategy is to grow through selective acquisitions. Performance of acquired businesses may not reach expectations, impacting Group profitability and cash flows. Similarly, poorly managed asset sales may result in under-achievement of value.	POTENTIAL IMPACT •    While these projects are designed to deliver targeted benefits, they have the potential to negatively impact the Group's operations if not appropriately managed. •    When completing acquisitions, value can be lost through over-paying, missing key issues in due diligence or potential value leakage through poor contract negotiation. Value can also be lost through a poorly planned or executed integration phase, or failure to deliver anticipated benefits during 'business as usual'.
MITIGATION AND CONTROL •    The Strategic Plan has been developed to deliver a sustained improvement in performance and to make that performance more stable and less exposed to revenue volatility. •    The Board reviews progress against the different strategic projects in each of its meetings. This is based on a regularly updated report from the CEO, which groups the individual projects into themes linked directly to our strategic objectives.   •    Major projects are all managed in accordance with best practice project management techniques. •    External advisers are utilised where special expertise is required, where new capabilities are required, or where insufficient capacity is available 'in house'. •    Monitoring of specific acquisition targets: Business acquisition process incorporating concept evaluation, business case, indicative offer/heads of terms, due diligence (covering a range of criteria), and integration, planning, execution and post integration appraisal which in turn feeds back to the business acquisition process. The FY23 risk trend remains stable. Stable management team, with appropriate skills and experience, are in place to deliver the well-defined Group Strategy. This is supported by a long-term credit facility which was renewed in May 2023. The acquisition of YUK in August 2022 has performed ahead of expectations. This acquisition, coupled with the successful acquisition of the Brooks Conveyor Chain business in April 2021, demonstrates our ability to manage risk associated with our acquisition strategy well.

3 Product liability
DETAILED RISK A failure in one of our products results in serious injury, death, damage to property or non-compliance with product regulations. The risk that products are not manufactured to contractually agreed specification or additional customers' requirements.	POTENTIAL IMPACT •    Non-compliance with quality standards •    Financial loss •    Reputational damage
MITIGATION AND CONTROL •    Standard Terms and Conditions of Sale are utilised, which are appropriately reviewed by in house Legal Counsel and external advisers as appropriate. These cap financial exposure and exclude consequential losses. •    Non-standard Terms and Conditions of Sale must be approved by senior executives in line with the Group Authority Matrix, following thorough legal and commercial review. •    Strict quality processes are adhered to, and our manufacturing locations maintain industry-relevant accreditations. •    Potential damages resulting from this risk are fully or partially covered through the Group's various insurance policies. •    Legal self-assessment checklists are completed by all operating locations and are reviewed by in house legal counsel, in order to identify any potential non-standard terms and conditions. Product Liability has been included in our principal risks during the year. This reflects the output of our: •    'Bottom up' site risk register reviews to identify common themes. •    Output of the ERMMC review process; compliance with contractual sales terms being frequently raised as a key internal control. •    Horizon scanning, which identified our increasing success of obtaining large multi-year supply contracts which are conducted on non-standard terms of sale. •    Benchmarking of risk against peer group. Whilst the inherent impact and likelihood of this risk occurring would be high, we believe that we have sufficient and robust controls in place, such that the risk is mitigated to an acceptably low level.

4 Health and safety in the workplace
DETAILED RISK The risk of death or serious injury to employees or third parties associated with Renold's worldwide operations. We are proud of the progress we have made in recent years, but recognise that we have more to do.	POTENTIAL IMPACT Accidents caused by a lack of robust safety procedures could result in life-changing impacts for employees, visitors or contractors. This will always be unacceptable. In addition, accidents could result in civil or criminal liability for both the Group and the Directors and officers of the Group and Group companies, leading to financial loss or reputational damage.
MITIGATION AND CONTROL •    Group policies and a Group-wide management system known as the Framework, to set control expectations, with a support training programme for all managers. •    The Group operates a rolling programme of health and safety audits to assess compliance against the Framework. These audits have largely returned to 'in person' site visits, following previous Covid-19 related travel restrictions. •    Continual hazard assessments to ensure awareness of risks. •    Live tracking of accident rates and root cause analysis via our Group reporting system, plus monthly Board reporting focused on a range of KPIs. •    Specific initiatives include the BAT (Be safe; Act safe; Think safe) safety logo and the Annual Health and Safety Awards Scheme to recognise success. •    Proactive identification and management of emerging risks. The FY23 risk trend is unchanged. No matter what mitigating actions are undertaken, there remains a risk of death or serious injury. We therefore continue to assess the risk as the highest possible impact, but through the mitigation actions seek to reduce the likelihood. Significantly improving our health and safety performance continues to be our number one strategic objective.

5 Security and effective deployment and utilisation of information technology systems
DETAILED RISK We seek to leverage the use of IT to achieve competitive advantage. The Group continues to implement a global ERP system to replace numerous legacy systems which inherently brings with it the risks associated with a large-scale change programme. The threat from cyber-attacks, and therefore security of our IT systems, is constantly evolving. The frequency of attacks is increasing, and the nature of such attacks are becoming more sophisticated. The risk to our Group, our supply chains and our customers is ever present.	POTENTIAL IMPACT •    Interruption or failure of IT systems (including the impact of a cyber-attack) would negatively impact or prevent some business activities from occurring. If the interruption was long lasting, significant damage could be done to the business. •    It is essential that we are able to rely on the data derived from our business system to feed routine but fundamental business performance monitoring. •    An unsuccessful implementation of the global ERP system has the potential to materially impact that site's, and possibly the Group's, performance.
MITIGATION AND CONTROL •    Short-term maintain stability of existing hardware and legacy software platforms. •    Governance and control arrangements operating over the Group's ERP implementation programme. •    New ERP system is successfully implemented at several locations. •    Use of specialist external consultants and recruitment of experienced personnel. •    Phased implementation rather than 'big bang', along with project assurance and 'lessons learned' reviews to continuously improve the quality of successive rollouts. •    Steering Committee in operation with cascading project management disciplines. •    A range of preventative and detective controls to manage the risk of a cyber-attack, including technical solutions in addition to employee training programmes. •    Regular system maintenance and upgrades, including patching, to ensure known vulnerabilities are protected. The overall risk for FY23 is unchanged. Whilst we recognise that cyber threat is ever increasing, we have continued to invest in additional capability and controls designed to defend against such threats. There is a continued focus on managing and reducing the impact of any potential attack. We have also successfully removed another one of our legacy ERP systems during the year.

6 Prolonged loss of a major manufacturing site
DETAILED RISK A catastrophic loss of the use of all or a significant portion of a strategic production facility. The prolonged loss of certain larger plants has the ability to impact the viability of the Group. This could result from an accident, a strike by employees, a significant disease outbreak, major disruption to supply chains, fire, severe weather or other causes outside of management control.	POTENTIAL IMPACT •    In the short and long term, a related risk event could adversely affect the Group's ability to meet the demands of its customers. •    Specifically, this could entail significant repair costs or costs of alternative supply. A significant proportion of the Group's revenue is on relatively short lead times and a break in our supply chain could result in loss of revenue. All of this translates into lower sales and profits and reduced cash flow.
MITIGATION AND CONTROL •    Preventative maintenance programmes and new investments to reduce risk of interruption of manufacturing. •    A Group Fire Safety Policy mandating preventative, detective and containment controls. •    Alternative manufacturing capacity exists for a growing portion of the Group's product range, with this manufacturing capability spread across geographic territories. •    Inventory maintained to absorb and flatten out shorter-term raw material supply and production volatility risks. •    Comprehensive insurance policies to mitigate the impact of a number of these risks, albeit subject to carve-out of cover for specific risks (e.g. SARS and related disease outbreak) and claim limits. •    Amendments to operational processes, whenever and wherever required, to mitigate emerging risks and country-specific requirements. The risk trend for FY23 is unchanged, largely as a result of already being classified at maximum risk levels. We have continued to enhance the manufacturing capabilities at a number of our manufacturing locations through investment in equipment and additional training during the year, with the aim of reducing reliance on single geographical locations. This is coupled with a Group-wide programme to continually maintain, develop and enhance our business continuity plans, such that the impact of business interruption is minimised in the event it occurs.

7 People and change
DETAILED RISK The Group's operations are dependent upon the ability to attract and retain the right people with an appropriate range of skills and experience. Succession planning and the ability to swiftly replace staff retiring or leaving is also critical.	POTENTIAL IMPACT ·      Failure to retain, attract or motivate the required calibre of employees will negatively impact business performance. ·      The delivery of the Strategic Plan and our strategic goals may also be delayed.
MITIGATION AND CONTROL •    Competitive reward programmes, focused training and development, and a talent retention programme. •    Ongoing reviews of succession plans based on business needs. •    Performance management and personal development programmes introduced alongside training initiatives. •    Management team strengthened with new capability from external hires and internal promotions. •   The Renold Values, launched in 2015, continue to be embedded and are linked to recruitment processes for new employees. The FY23 risk trend is reducing. The employment market remains competitive, however, we continue to attract and retain high calibre individuals. Whilst industrial action across a range of sectors has been increasingly publicised during the year, we have tried to maintain positive relationships with our employees and have, where possible, worked in partnership to achieve mutually agreeable pay awards and working arrangements.

8 Liquidity, foreign exchange and banking arrangements
DETAILED RISK A lack of sufficient liquidity and flexibility in banking arrangements could inhibit the Group's ability to invest for the future or, in extremes, restrict day-to-day operations.	POTENTIAL IMPACT •    Potentially cause under-investment and sub-optimal short-term decision making. •    Limiting investment could prevent efficiency savings and reduce competitiveness. •    In an extreme situation, the Group's ability to operate as a going concern could also be jeopardised.
MITIGATION AND CONTROL •     The Group's primary banking facility was renewed in May 2023, with long-term financing agreed to May 2026 and an option to extend the term for a further two years. The new facility has increased to £85.0m from £61.5m, and the key net debt/EBITDA covenant was improved from 2.5x to 3.0x. The facility is fully available given current levels of profitability and we continue to maintain a positive relationship with our banking providers. •    Rolling foreign exchange forward contracts covering committed future cash flows. The Group remained, with good headroom, within banking covenants throughout the year and retains a strong cash position. The routine renewal of our committed debt facilities was successfully completed in May 2023, increasing both the amount of borrowing available and headroom on the net debt/EBITDA covenant.    As a result, the likelihood of this risk crystallising is lower and hence the FY23 risk trend is reducing.

9 Pensions deficit
DETAILED RISK The principal pensions risk is that short-term cash funding requirements of legacy pension schemes diverts much-needed investment away from the Group's operations. Secondly, the size of the reported balance sheet deficit can operate as a disincentive to potential investors or other stakeholders, limiting the Group's ability to raise financing on capital markets.	POTENTIAL IMPACT •    Given the Group's cash needs to invest in the business, the pace of performance improvement could be slowed if cash has to be diverted to the pension schemes. •    The balance sheet pension deficit could act as a disincentive to potential investors and could reduce the Group's ability to raise new equity or debt financing, limiting the strategic options open to the Group.
MITIGATION AND CONTROL •   We maintain a good relationship with pension trustees. •    Specialist professional advice is obtained to help us manage the associated liabilities and risks. •    The major UK pension cash flows (over 50% of all defined benefit pension cash costs) are stable, known and defined under the 25-year asset-backed funding scheme put in place during 2013. A further 25% of the annual cash flows are pensions in payment in Germany in a mature scheme that has passed its peak funding requirement. The size of the reported balance sheet deficit has considerably lowered in the year, whilst cash contributions have remained known and stable. As such, the FY23 risk trend is reducing.

10 Legal, financial and regulatory compliance
DETAILED RISK The risk of censure, fine or business prohibition as a result of any part of the Group failing to comply with regulatory or legal obligations. Risks related to regulatory and legislative changes include the inability of the Group to comply with current, changing or new requirements. Many of the Group's business activities are subject to increasing regulation and enforcement by relevant authorities.	POTENTIAL IMPACT Failure by the Group or its representatives to abide by applicable laws and regulations could result in: •    Administrative, civil or criminal liability. •    Significant fines and penalties. •    Suspension of the Group from trading. •    Reputational damage.
MITIGATION AND CONTROL •    Communication and management of a clear compliance culture. •    Risk assessments and ongoing compliance reviews at least annually at all major locations. •    Published up-to-date policies and procedures with clear guidance and training issued to all employees. •    Monitoring of compliance with nominated accountable managers in each business unit. •    Financial control assurance and legal compliance is obtained through internal audit and a control self-assessment process. •    Self-certification from every operating region that internal controls have been complied with and that legal compliance has been maintained and is reviewed on at least an annual basis. All units and functions in the Group are subject to internal audit on a regular risk-based cycle. Any non-compliance reported is reviewed by the Audit Committee. The FY23 risk trend is unchanged.

Consolidated Income Statement

for the year ended 31 March 2023

	Note	2023 £m	2022 £m
Revenue	1	247.1	195.2
Operating costs	2	(224.2)	(179.0)
Operating profit		22.9	16.2
Finance costs	3	(5.6)	(3.8)
Profit before tax		17.3	12.4
Taxation	4	(5.5)	(2.2)
Profit for the financial year		11.8	10.2
Earnings per share	5
Basic earnings per share		5.7p	4.7p
Diluted earnings per share		5.1p	4.4p
Basic adjusted earnings per share1		6.5p	4.3p
Diluted adjusted earnings per share1		5.9p	4.0p

¹ Definitions of adjusted measures are provided in alternative performance measures in Note 21.

All results are from continuing operations.

Consolidated Statement of Comprehensive Income

for the year ended 31 March 2023

	2023	2022
	£m	£m
Profit for the financial year	11.8	10.2
Items that may be reclassified to the income statement in subsequent years:
Exchange differences on translation of foreign operations	2.7	3.2
Loss on hedges of the net investment in foreign operations	(0.8)	(0.3)
Cash flow hedges:
Gain/(loss) arising on cash flow hedges during the year	0.3	(0.5)
Less: Cumulative gain arising on cash flow hedges reclassified to profit and loss	0.6	0.1
Income tax relating to items that may be reclassified subsequently to profit or loss	(0.2)	0.1
	2.6	2.6
Items not to be reclassified to the income statement in subsequent years:
Remeasurement gains/(losses) on retirement benefit obligations	22.2	12.3
Tax on remeasurement gains/losses on retirement benefit obligations - excluding impact of statutory rate change	(5.8)	(3.1)
Effect of changes in statutory tax rate on deferred tax assets	-	2.3
	16.4	11.5
Other comprehensive income for the year, net of tax	19.0	14.1
Total comprehensive income for the year, net of tax	30.8	24.3

Consolidated Balance Sheet

as at 31 March 2023

			Restated1
		2023	2022
	Note	£m	£m
ASSETS
Non-current assets
Goodwill	7	28.2	22.7
Intangible assets	8	10.9	5.1
Property, plant and equipment	9	56.8	49.3
Right-of-use assets	10	16.5	8.0
Deferred tax assets		11.8	17.9
		124.2	103.0
Current assets
Inventories	11	61.8	48.4
Trade and other receivables	12	43.5	35.7
Current tax		0.6	-
Derivative financial instruments		0.3	-
Cash and cash equivalents	13	19.3	10.5
		125.5	94.6
TOTAL ASSETS		249.7	197.6
LIABILITIES
Current liabilities
Borrowings	14	(47.3)	(1.0)
Trade and other payables	15	(57.2)	(48.5)
Lease liabilities	10	(2.7)	(2.8)
Current tax		(6.6)	(4.1)
Derivative financial instruments		-	(0.5)
Provisions	16	(0.9)	(0.2)
		(114.7)	(57.1)
NET CURRENT ASSETS		10.8	37.5
Non-current liabilities
Borrowings	14	(1.3)	(22.8)
Preference stock	14	(0.5)	(0.5)
Trade and other payables	15	(2.5)	(4.7)
Lease liabilities	10	(17.5)	(9.2)
Deferred tax liabilities		(7.8)	(5.4)
Retirement benefit obligations		(62.2)	(87.1)
Provisions		(4.1)	(3.8)
		(95.9)	(133.5)
TOTAL LIABILITIES		(210.6)	(190.6)
NET ASSETS		39.1	7.0
EQUITY
Issued share capital		11.3	11.3
Currency translation reserve		11.5	9.8
Other reserves		(4.5)	(5.4)
Retained earnings		20.8	(8.7)
TOTAL SHAREHOLDERS' FUNDS		39.1	7.0

¹ See Note 20 for details of prior period restatement

Approved by the Board on 12 July 2023 and signed on its behalf by:

Robert Purcell	Jim Haughey
CHIEF EXECUTIVE	FINANCE DIRECTOR

Consolidated Statement of Changes in Equity

for the year ended 31 March 2023

	Share capital	Share premium account	Restated1 Retained earnings	Currency translation reserve	Capital redemption reserve	Other reserves	Restated1 Total shareholders' funds
	£m	£m	£m	£m	£m	£m	£m
At 31 March 2021	11.3	30.1	(77.0)	6.8	15.4	(0.1)	(13.5)
Profit for the year	-	-	10.2	-	-	-	10.2
Other comprehensive income/ (expense)	-	-	11.5	3.0	-	(0.4)	14.1
Total comprehensive income/ (expense) for the year	-	-	21.7	3.0	-	(0.4)	24.3
Own shares purchased	-	-	-	-	-	(4.9)	(4.9)
Capital reorganisation	-	(30.1)	45.5	-	(15.4)	-	-
Share based payments	-	-	1.1	-	-	-	1.1
At 31 March 2022	11.3	-	(8.7)	9.8	-	(5.4)	7.0
Profit for the year	-	-	11.8	-	-	-	11.8
Other comprehensive income	-	-	16.4	1.7	-	0.9	19.0
Total comprehensive income for the year	-	-	28.2	1.7	-	0.9	30.8
Share based payments	-	-	1.3	-	-	-	1.3
At 31 March 2023	11.3	-	20.8	11.5	-	(4.5)	39.1

¹ See Note 20 for details of prior period restatement

Included in retained earnings is £2.7m (31 March 2022: £1.9m) relating to a share option reserve.                

The other reserves include Renold shares held by the Renold plc Employee Benefit Trust. The Renold Employee Benefit Trust holds Renold plc shares and satisfies awards made under various employee incentive schemes when issuance of new shares is not appropriate.

At 31 March 2023 16,888,938 (31 March 2022: 18,422,509) ordinary shares of 5p each were held by the Renold Employee Benefit Trust and, following recommendations by the employer, are provisionally allocated to satisfy awards under employee incentive schemes. The market value of these shares at 31 March 2023 was £4.3m (31 March 2022: £3.7m).          

Consolidated Statement of Cash Flows

for the year ended 31 March 2023

		2023	2022
	Note	£m	£m
Cash flows from operating activities	17
Cash generated from operations		19.4	21.0
Income taxes paid		(2.7)	(1.7)
Net cash flow from operating activities		16.7	19.3
Cash flows used in investing activities
Proceeds from property disposals		-	0.2
Purchase of property, plant and equipment		(7.0)	(4.1)
Purchase of intangible assets		(1.4)	(1.2)
Consideration paid for acquisitions net of cash acquired	19	(14.5)	(0.5)
Net cash flow used in investing activities		(22.9)	(5.6)
Cash flows from financing activities
Repayment of principal under lease liabilities		(2.9)	(4.2)
Finance costs paid		(3.0)	(1.5)
Own shares purchased		-	(4.9)
Proceeds from borrowings		28.3	4.7
Repayment of borrowings		(8.3)	(16.0)
Net cash flow from/(used in) financing activities		14.1	(21.9)
Net increase/(decrease) in cash and cash equivalents		7.9	(8.2)
Net cash and cash equivalents at beginning of year		9.5	17.3
Effects of exchange rate changes		0.1	0.4
Net cash and cash equivalents at end of year	13	17.5	9.5

Accounting Policies

Basis of preparation

The financial information for the year ended 31 March 2023 and the year ended 31 March 2022 does not constitute the Company's statutory accounts for those years but is derived from those accounts. Statutory accounts for the year ended 31 March 2022 have been delivered to the Registrar of Companies. The auditor's report on those accounts was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

The statutory accounts for the year ended 31 March 2023 have been authorised for issue and signed by the Board of Directors at the time of this announcement. They are expected to be published on or before 4 August 2022 and will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

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.

Further information in relation to the Group's business activities, together with the factors likely to affect its future development, performance and financial position, liquidity, cash balances and borrowing facilities is set out in the Strategic Report section of the Annual Report. In addition, the financial statements within the Annual Report include the Group's objectives, policies and processes for managing its capital, its financial risk management objectives, details of its financial instruments and hedging activities and its exposure to foreign exchange, credit and interest rate risk. Information relating to post balance sheet events is disclosed in Note 18.

The key covenants attached to the Group's multi-currency revolving credit facility relate to leverage (net debt to EBITDA, maximum 2.5x) and interest cover (minimum 4.0x), which are measured on a pre-IFRS 16 basis. The Group regularly monitors its financial position to ensure that it remains within the terms of its banking covenants. Following the acquisition of Industrias YUK S.A. ("YUK") on 3 August 2022, the Group's net debt increased by £16.0m to £29.8m (31 March 2022: £13.8m). The Group has accordingly remained within the borrowing covenant levels throughout the year ended 31 March 2023.

Given the current level of macroeconomic uncertainty stemming from Covid-19, inflation, the global supply chain crisis and geopolitical risks, and being also mindful of the risk matrix disclosed in the section on principal risks and uncertainties, the Group has performed financial modelling of future cash flows. The Board has reviewed the cash flow forecasts, which cover a period of 12 months from the approval of the 2023 Annual Report, and which reflect forecasted changes in revenue across the Group's business units. A reverse stress test has been performed on the forecasts to determine the extent of downturn which would result in a breach of covenants. Revenue would have to reduce by 28% over the period under review for the Group to breach the leverage covenant under the terms of its borrowing facility. The reverse stress test does not take into account further mitigating actions which the Group would implement in the event of a severe and extended revenue decline, such as reducing discretionary spend and capital expenditure. This assessment indicates that the Group can operate within the level of its current facilities, as set out above, without the need to obtain any new facilities for a period of not less than 12 months from the date of this report.

Following this assessment, the Board of Directors are satisfied that the Group has sufficient resources to continue in operation for a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in relation to this conclusion and preparing the Consolidated Financial Statements. There are no key sensitivities identified in relation to this conclusion.

Notes to the Consolidated Financial Statements

1.   Segmental information

For management purposes, the Group is organised into two operating segments according to the nature of their products and services and these are considered by the Directors to be the reportable operating segments of Renold plc as shown below:

•     The Chain segment manufactures and sells power transmission and conveyor chain and also includes sales of torque transmission products through Chain National Sales Companies (NSCs); and

•     The Torque Transmission segment manufactures and sells torque transmission products, such as gearboxes and couplings.

No operating segments have been aggregated to form the above reportable segments.

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. Management monitor the results of the separate reportable operating segments based on operating profit and loss which is measured consistently with operating profit and loss in the consolidated financial statements. The same segmental basis applies to decisions about resource allocation. Disclosure has been included in respect of working capital as opposed to operating assets of each segment as this is the measure reported to the CODM on a regular basis. However, Group finance costs, retirement benefit obligations and income taxes are managed on a Group basis and therefore 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.

	Chain2	Torque Transmission	Head office costs and eliminations	Consolidated
Year ended 31 March 2023	£m	£m	£m	£m
Revenue
External customer - transferred at a point in time	201.5	43.4	-	244.9
External customer - transferred over time	-	2.2	-	2.2
Inter-segment1	0.9	3.2	(4.1)	-
Total revenue	202.4	48.8	(4.1)	247.1
Operating profit/(loss)	26.5	5.4	(9.0)	22.9
Finance costs				(5.6)
Profit before tax				17.3
Taxation				(5.5)
Profit after tax				11.8
Other disclosures
Working capital3	44.0	10.9	(6.8)	48.1
Capital expenditure4	5.6	2.2	1.2	9.0
Total depreciation and amortisation	6.9	1.6	2.6	11.1

1.   Segmental information (continued)

		Chain2	Torque Transmission	Head office costs and eliminations	Consolidated
Year ended 31 March 2022		£m	£m	£m	£m
Revenue
External customer - transferred at a point in time		158.2	35.6	-	193.8
External customer - transferred over time		-	1.4	-	1.4
Inter-segment1		1.0	3.4	(4.4)	-
Total revenue		159.2	40.4	(4.4)	195.2
Operating profit/(loss)		20.5	4.1	(8.4)	16.2
Finance costs					(3.8)
Profit before tax					12.4
Taxation					(2.2)
Profit after tax					10.2
Other disclosures
Working capital3		30.0	9.0	(3.4)	35.6
Capital expenditure4		3.4	2.0	0.9	6.3
Total depreciation and amortisation		6.2	1.9	1.4	9.5
1	Inter-segment revenues are eliminated on consolidation.
2	Included in Chain external sales is £5.2m (2022: £4.2m) of Torque Transmission product sold through the Chain NSCs, usually in countries where Torque Transmission does not have its own presence.
3	The measure of segment assets reviewed by the CODM is total working capital, defined as inventories and trade and other receivables, less trade and other payables. Working capital is also measured as a ratio of rolling annual sales.
4	Capital expenditure consists of additions to property, plant and equipment and intangible assets.

In addition to statutory reporting, the Group reports certain financial metrics on an adjusted basis (alternative performance measures, APMs). Definitions of adjusted measures, and information about the differences to statutory metrics are provided in Note 21. Current year adjusting items include a £0.7m (2022: £0.1m) of amortisation of acquired intangibles (Chain segment) and £0.6m (2022: £nil) of acquisition costs.

Constant exchange rate results are current period results retranslated using prior year exchange rates. A reconciliation is provided below and in Note 21.

Future performance obligations

The transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at 31 March 2023 is £99.5m (2022: £84.1m). This mostly comprises of the obligation to manufacture and supply standard Group products. The majority of this revenue is recognised at a point in time.

An amount of £17.0m (2022: £11.7m) relates to revenue from a small number of large customer contracts, for which revenue is recognised over time in line with progress against performance obligations. This revenue is expected to be recognised over the next eight years (2022: over the next eight years).

	Chain	Torque Transmission	Head office costs and eliminations	Consolidated
Year ended 31 March 2023	£m	£m	£m	£m
Revenue
External customer - transferred at a point in time	201.5	43.4	-	244.9
External customer - transferred over time	-	2.2	-	2.2
Inter-segment	0.9	3.2	(4.1)	-
Foreign exchange retranslation	(12.5)	(2.8)	-	(15.3)
Total revenue at constant exchange rates	189.9	46.0	(4.1)	231.8
Operating profit/(loss)	26.5	5.4	(9.0)	22.9
Foreign exchange retranslation	(1.6)	(0.3)	0.1	(1.8)
Operating profit/(loss) at constant exchange rates	24.9	5.1	(8.9)	21.1

1.   Segmental information (continued)

Geographical analysis of external sales by destination, non-current asset location and average employee numbers

The UK is the home country of the parent company, Renold plc. The principal operating territories, the proportions of Group external revenue generated (customer location), external revenues, non-current assets (asset location) and average employee numbers in each are as follows:

	Revenue ratio		External revenues		Non-current assets		Average employee numbers
	2023	2022	2023	2022	2023	2022	2023	2022
	%	%	£m	£m	£m	£m
United Kingdom	7.7	8.4	19.1	16.4	13.3	13.9	280	282
Rest of Europe	29.6	31.2	73.2	60.9	42.1	17.2	585	499
US & Canada	42.1	39.1	103.9	76.4	33.5	30.5	282	279
Australasia	10.2	10.5	25.3	20.5	4.7	4.8	125	133
China	5.0	4.9	12.4	9.5	14.3	14.3	247	259
India	3.8	4.2	9.3	8.2	4.5	4.4	335	362
Other countries	1.6	1.7	3.9	3.3	-	-	-	-
	100.0	100.0	247.1	195.2	112.4	85.1	1,854	1,814

All revenue relates to the sale of goods and services. No individual customer, or group of customers, represents more than 10% of Group revenue (2022: None more than 10%).

Non-current assets consist of goodwill, other intangible assets and property, plant and equipment. Deferred tax assets and right-of-use assets are not included above.

Employees are categorised as direct or indirect. The split of average employee numbers are direct 1,038 (2022: 1,063) and indirect 816 (2022: 751).

2.   Operating costs

Operating profit is stated after charging/(crediting):

		2023			2022
	£m		£m	£m		£m
Change in finished goods and work in progress			(3.0)			(8.2)
Raw materials and consumables			88.3			73.6
Other external charges			44.1			32.3
Employee costs
Gross wages and salaries	67.9			60.0
Social security costs	8.8			7.3
Pension costs
- defined benefit	0.1			0.1
- defined contribution	1.2			1.1
Share-based incentive plans (including related social security costs)	1.5			1.3
			79.5			69.8
Depreciation of property, plant and equipment
- owned assets			6.1			5.3
- right-of-use assets			2.5			2.6
Amortisation of intangible assets			1.8			1.5
Amortisation of acquired intangible assets			0.7			0.1
Acquisition costs			0.6			-
Short-term leases and leases of low-value assets - plant and machinery			0.2			0.1
Income from sub-leasing right-of-use assets			-			(0.2)
Loss on disposal of owned property, plant and equipment			0.3			-
Loss on disposal of right-of-use assets			-			0.2
Research and development expenditure			0.7			0.6
Auditor's remuneration			0.8			0.8
Impairment losses and gains (including reversals of impairment losses) on financial assets
- impairment of right-of-use asset			-			1.7
- trade receivables impairment			0.4			0.2
Net foreign exchange losses			0.5			0.7
Pension administration costs			0.7			0.7
Government assistance support received			-			(1.7)
Non-recurring profit on disposal of right-of-use asset and associated lease liability			-			(1.1)
Total operating costs			224.2			179.0

3.   Finance costs

	2023	2022
	£m	£m
Finance costs:
Interest payable on bank loans and overdrafts1	2.3	1.1
Interest expense on lease liabilities1	0.7	0.5
Amortised financing costs1	0.3	0.3
Loan finance costs	3.3	1.9
Net IAS 19 finance costs	2.1	1.8
Discount unwind on non-current trade and other payables	0.2	0.1
Finance costs	5.6	3.8

¹ Amounts arising on financial liabilities measured at amortised cost.

4.   Taxation

Analysis of tax charge in the year

	2023	2022
	£m	£m
United Kingdom
UK corporation tax at 19% (2022: 19%)	(0.1)	(0.1)
Overseas taxes
Corporation taxes	2.6	1.9
Movement in uncertain tax positions	0.7	(0.3)
Adjustments in respect of prior periods	0.7	0.3
Withholding taxes	0.3	0.2
Current income tax charge	4.2	2.0
Deferred tax
UK - origination and reversal of temporary differences	0.2	0.1
Overseas - origination and reversal of temporary differences	1.5	0.1
Effect of changes in corporate tax rates	-	(0.5)
Adjustments in respect of prior periods	(0.4)	0.5
Total deferred tax charge	1.3	0.2
Tax charge on profit on ordinary activities	5.5	2.2

	2023	2022
	£m	£m
Tax on items taken to other comprehensive income
Deferred tax on changes in net pension deficits	5.8	3.1
Effect of changes in statutory tax rate on deferred tax assets	-	(2.3)
Tax on fair value of derivatives direct to reserves	0.2	(0.1)
Tax charge in the statement of other comprehensive income	6.0	0.7

Factors affecting the Group tax charge for the year

The increase in the current tax charge is attributable to increased taxable profits in jurisdictions where the headline statutory tax rate is higher than the prevailing UK tax rate. The deferred tax charge in the year primarily relates to the continued utilisation of tax losses in jurisdictions for which deferred tax is recognised. At 31 March 2023, the provision for open tax matters totalled £1.8m (31 March 2022: £1.9m). Adjustments to tax in respect of prior period profit on ordinary activities has not been restated due to the net impact on the current and deferred tax charge being not material.

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 in accordance with IAS 12.39.

The actual tax on the Group's profit before tax differs from the theoretical amount using the UK corporation tax rate as follows:

	2023	2022
	£m	£m
Profit on ordinary activities before tax	17.3	12.4
Tax charge at UK statutory rate of 19% (2022: 19%)	3.3	2.4
Effects of:
Non-taxable income	-	(1.2)
Non-deductible expenditure	0.7	0.3
Other taxable income	-	0.8
Other deductible	(0.1)	-
Movement in uncertain tax positions	0.7	(0.4)
Overseas tax rate differences	0.9	0.9
Effect of changes in corporate tax rates	-	(0.3)
Adjustments in respect of prior periods	(1.0)	0.5
Movement in unrecognised deferred tax	0.7	(1.0)
Withholding taxes	0.3	0.2
Total tax charge	5.5	2.2

4. Taxation (continued)

Effective tax rate

The effective tax rate of 32% (2022: 18%) is higher than the UK tax rate of 19% (2022: 19%) due to the following factors:

·      Permanent differences including items that are non-deductible from a tax perspective.

·      Prior year adjustments arising as tax submissions are finalised and agreed in specific jurisdictions.

·      Increased taxable profits in overseas jurisdictions for which the statutory tax rate is higher than the headline UK rate.

Tax payments

Cash tax paid in the year was £2.7m (2022: £1.7m). The year on year increase is attributable to higher taxable profits in full cash tax paying territories, including the closure of an historical tax enquiry.

5.   Earnings per share

Earnings per share (EPS) is calculated by reference to the earnings for the year and the weighted average number of shares in issue during the year as follows:

	2023			2022
	Earnings	Shares	Per share amount	Earnings	Shares	Per share amount
	£m	(thousands)	(pence)	£m	(thousands)	(pence)
Basic EPS - Profit attributed to ordinary shareholders	11.8	207,242	5.7	10.2	214,795	4.7
Effect of adjusting items, after tax:
Amortisation of acquired intangible assets	0.7		0.3	0.1		0.1
Acquisition costs	0.6		0.3	-		-
Tax adjustments relating to prior year	0.4		0.2	-		-
US PPP loan forgiveness	-		-	(1.7)		(0.8)
New lease arrangements on sublet properties	-		-	0.7		0.3
Adjusted EPS	13.5	207,242	6.5	9.3	214,795	4.3

Inclusion of the dilutive securities, comprising 23,003,207 (2022: 16,908,941) additional shares due to share options, in the calculation of basic and adjusted EPS changes the amounts shown above to 5.1p and 5.9p respectively (2022: basic EPS 4.4p, adjusted EPS 4.0p).

The adjusted EPS numbers have been provided in order to give a useful indication of underlying performance by the exclusion of adjusting items. Due to the existence of unrecognised deferred tax assets there were no associated tax credits on some of the adjusting items and in these instances adjusting items are added back in full.

6.   Dividends

No ordinary dividend payments were paid or proposed in either the current or prior year.

7.   Goodwill

	2023	2022
	£m	£m
Cost
At 1 April	26.2	25.1
Acquisition of subsidiary (Note 19)	4.2	-
Exchange adjustment	1.3	1.1
At 31 March	31.7	26.2
Accumulated amortisation and impairment
At 1 April	3.5	3.4
Exchange adjustment	-	0.1
At 31 March	3.5	3.5
Carrying amount	28.2	22.7

Impairment testing

The Group performed its annual impairment test of goodwill at 31 March 2023 which compares the current book value to the recoverable amount from the continued use or sale of the related business.

The recoverable amount of each Cash Generating Unit (CGU) has been determined on a value-in-use basis, calculated as the net present value of cash flows derived from detailed financial plans. All business units in the Group have submitted a budget for the financial year ending 31 March 2024 and strategic plan forecasts for the two financial years ending 31 March 2026. The budget and strategic forecasts, which are subject to detailed review and challenge, were approved by the Board. The Group prepares cash flow forecasts based on these projections for the first three years, with years four and five extrapolated based on known future events, recently observable trends and management expectations. A terminal value calculation is used to estimate the cash flows after year five. Sensitivity analysis has been performed including a zero revenue growth scenario (with current year revenue modelled for all future periods of the forecast) and a reverse stress test, to determine the extent of downturn which would result in a potential impairment. Revenue would have to reduce by 28% in the first year of the period under review (worse than the decline seen during the Covid pandemic) for the first CGU containing goodwill to require potential impairment. Under the reverse stress test the first CGU with headroom that eliminated was India. The forecasts used for the impairment review are consistent with those used in the Going Concern review.

The key assumptions used in the value-in-use calculations are:

•     Sales: Forecast sales are built up with reference to expected sales prices and volumes from individual markets and product categories based on past performance, projections of developments in key markets and management's judgement;

•     Margins: Forecast margins reflect historical performance and management's experience of each CGUs profitability at the forecast level of sales including the impact of all completed restructuring projects. The projections do not include the impact of future restructuring projects to which the Group is not yet committed;

•     Discount rate: Pre-tax discount rates have been calculated based on the Group's weighted average cost of capital and risks specific to the CGU being tested; and

•     Long-term growth rates: As required by IAS 36, cash flows beyond the period of projections are extrapolated using long-term growth rates published by the Organisation for Economic Co-operation and Development for the territory in which the CGU is based. The discount rates applied to the cash flows of each of the CGUs are based on the risk-free rate for long-term bonds issued by the government in the respective market. This is then adjusted to reflect both the increased risk of investing in equities and the systematic risk of the specific CGU (using an average of the betas of comparable companies). These rates do not reflect the long-term assumptions used by the Group for investment planning.

The Directors do not consider that any reasonably possible changes to the key assumptions would reduce the recoverable amount to its carrying value for any CGU. No impairment charge has been recognised in the current or prior period for any CGU.  The goodwill acquired in the year relating to YUK has been allocated to the Europe & China CGU.

7. Goodwill (continued)

	Growth rates		CGU discount rates (pre-tax)		Carrying values
	2023	2022	2023	2022	2023	2022
	%	%	%	%	£m	£m
Americas (Jeffrey Chain, USA)	2.0	1.7	15.0	16.2	21.4	20.0
Australia (Ace Chains, Australia)	2.2	2.6	12.1	12.0	0.5	0.5
India (Renold Chain, India)	6.4	6.2	20.4	20.8	1.6	1.7
Europe & China (Renold Tooth Chain, Germany & YUK)	1.7	1.1	15.5	15.5	0.5	0.5
Europe & China (YUK)	2.0	-	14.0	-	4.2	-
					28.2	22.7

8.   Intangible assets

	Customer orderbook	Customer relationships	Technical know-how	Non-compete agreements	Computer software	Total
	£m	£m	£m	£m	£m	£m
Cost
At 1 April 2021	0.3	4.2	0.2	-	19.7	24.4
Exchange adjustment	-	-	-	-	(0.1)	(0.1)
Additions	-	-	-	-	1.2	1.2
Disposals	-	-	-	-	(0.9)	(0.9)
Acquisition of subsidiary	-	0.4	-	-	-	0.4
At 31 March 2022	0.3	4.6	0.2	-	19.9	25.0
Exchange adjustment	-	0.3	-	-	0.1	0.4
Additions	-	-	-	-	1.4	1.4
Acquisition of subsidiary (Note 19)	-	5.1	-	1.8	-	6.9
At 31 March 2023	0.3	10.0	0.2	1.8	21.4	33.7
Accumulated amortisation and impairment
At 1 April 2021	0.3	4.2	0.2	-	14.8	19.5
Exchange adjustment	-	(0.1)	-	-	(0.2)	(0.3)
Amortisation charge	-	0.1	-	-	1.5	1.6
Disposals	-	-	-	-	(0.9)	(0.9)
At 31 March 2022	0.3	4.2	0.2	-	15.2	19.9
Exchange adjustment	-	0.2	-	-	0.2	0.4
Amortisation charge	-	0.5	-	0.2	1.8	2.5
At 31 March 2023	0.3	4.9	0.2	0.2	17.2	22.8
Net book amount
At 31 March 2023	-	5.1	-	1.6	4.2	10.9
At 31 March 2022	-	0.4	-	-	4.7	5.1

During the year amounts have been recognised in accordance with IFRS 3 in relation customer lists and non-compete agreements as a result of the acquisition of Industrias YUK S.A. (Note 19). The customer relationships acquired have been valued using estimates of useful lives and discounted cash flows of expected income, and the non-compete agreements have been valued using the comparative income differential method.

The prior year acquisition of the Brooks business resulted in the recognition of amounts in relation to customer relationships. The remaining amounts recognised for customer relationships, customer orderbook and technical know-how were acquired with the acquisition of the Tooth Chain (Germany) business, which are now fully depreciated.

No brand names have been acquired in the current year acquisition or previous acquisitions.

9.   Property, plant and equipment

	Land and buildings	Plant and equipment	Total
	£m	£m	£m
Cost
At 1 April 2021	23.7	119.1	142.8
Exchange adjustment	1.1	1.9	3.0
Additions	0.3	4.8	5.1
Disposals	-	(2.3)	(2.3)
Acquisition of subsidiary	-	0.1	0.1
At 31 March 2022	25.1	123.6	148.7
Exchange adjustment	0.3	3.5	3.8
Additions	0.2	7.4	7.6
Disposals	-	(1.8)	(1.8)
Recategorisation	0.3	(0.3)	-
Acquisition of subsidiary (Note 19)	-	5.4	5.4
At 31 March 2023	25.9	137.8	163.7
Accumulated depreciation and impairment
At 1 April 2021	7.3	87.4	94.7
Exchange adjustment	0.2	1.3	1.5
Charge for the year	0.6	4.7	5.3
Disposals	-	(2.1)	(2.1)
At 31 March 2022	8.1	91.3	99.4
Exchange adjustment	0.2	2.7	2.9
Charge for the year	0.6	5.5	6.1
Disposals	-	(1.5)	(1.5)
At 31 March 2023	8.9	98.0	106.9
Net book amount
At 31 March 2023	17.0	39.8	56.8
At 31 March 2022	17.0	32.3	49.3

Property, plant and equipment pledged as security for liabilities amounted to £34.5m (2022: £32.2m).

Future capital expenditure

At 31 March 2023 capital expenditure contracted for but not provided for in these accounts amounted to £2.6m (2022: £2.4m).

10. Leasing and right-of-use assets

Right-of-use assets

	Land and buildings	Plant and equipment	Total
	£m	£m	£m
Cost
At 1 April 2021	11.8	3.3	15.1
Exchange adjustment	0.2	-	0.2
Additions	1.7	0.6	2.3
Disposals	(1.1)	(1.9)	(3.0)
At 31 March 2022	12.6	2.0	14.6
Exchange adjustment	0.1	-	0.1
Acquisition of subsidiary (Note 19)	9.5	0.1	9.6
Additions	1.0	0.4	1.4
Disposals	(0.4)	(0.8)	(1.2)
At 31 March 2023	22.8	1.7	24.5
Accumulated depreciation and impairment
At 1 April 2021	2.6	1.8	4.4
Exchange adjustment	-	0.1	0.1
Charge for the year	1.6	1.0	2.6
Disposals	(0.5)	(1.7)	(2.2)
Impairment	1.7	-	1.7
At 31 March 2022	5.4	1.2	6.6
Exchange adjustment	0.1	-	0.1
Charge for the year	2.0	0.5	2.5
Disposals	(0.4)	(0.8)	(1.2)
At 31 March 2023	7.1	0.9	8.0
Net book amount
At 31 March 2023	15.7	0.8	16.5
At 31 March 2022	7.2	0.8	8.0

Lease liabilities

	2023	2022
	£m	£m
Maturity analysis - contractual undiscounted cash flows
Less than one year	3.5	3.0
One to two years	3.1	2.5
Two to five years	6.6	4.9
More than five years	14.1	3.2
Total undiscounted lease liabilities at 31 March	27.3	13.6
Less: Interest allocated to future periods	(7.1)	(1.6)
Lease liabilities included in the Consolidated Balance Sheet	20.2	12.0
Current	2.7	2.8
Non-current	17.5	9.2

Amounts recognised in profit or loss

	2023	2022
	£m	£m
Interest on lease liabilities	(0.7)	(0.5)
Non-recurring profit on disposal of right-of-use asset and associated lease liability	-	1.1
Income from sub-leasing right-of-use assets	-	0.2
Expenses relating to short-term leases and leases of low-value assets	(0.2)	(0.1)

10. Leasing and right-of-use assets (continued)

Amounts recognised in the Consolidated Statement of Cash Flows

	2023	2022
	£m	£m
Repayment of principal under lease liabilities	2.9	4.2
Repayment of interest on lease liabilities	0.7	0.5
Cash outflows in relation to short-term leases and leases of low-value assets	0.2	0.1
Total cash outflows for leases	3.8	4.8

11. Inventories

	2023	2022
	£m	£m
Raw materials	9.1	6.9
Work in progress	5.8	5.5
Finished products and production tooling	46.9	36.0
	61.8	48.4

Inventories pledged as security for liabilities amounted to £43.2m (2022: £36.9m).

The Group expensed £88.3m (2022: £73.6m) of inventories during the period. In the year to 31 March 2023, £3.5m (2022: £2.3m) was charged for the write-down of inventory and £0.2m (2022: £0.5m) was released from inventory provisions no longer required.

12. Trade and other receivables

	2023	2022
	£m	£m
Trade receivables	39.3	31.6
Less: Loss allowance	(0.8)	(0.5)
Trade receivables: net1	38.5	31.1
Other receivables	1.9	2.8
Contract assets	0.1	-
Prepayments	3.0	1.8
	43.5	35.7

¹ Financial assets carried at amortised cost.

The Group has no significant concentration of credit risk but does have a concentration of translational and transactional foreign exchange risk in both US Dollars and Euros; however, the Group hedges against these risks. The carrying amount of trade and other receivables approximates their fair value.

Trade receivables are non-interest bearing and are generally on 30-90 days terms. The average credit period on sales of goods is 49 days (2022: 51 days).

Other receivables largely relate to VAT and hence given that the counterparties are governments, no provision for loss allowance has been made.  

Contract assets relate to consideration not yet received upon the completion of the associated performance obligation. Revenue recognised in the reporting period that was included in the contract assets at beginning of the year totalled £nil (2022: £nil).

The following table details the risk profile of trade receivables based on the Group's provision matrix. As the Group's historical credit loss experience does not show significantly different loss patterns for different customer segments, the provision for loss allowance based on past due status is not further analysed:

	Trade receivables - days past due
At 31 March 2023	Not past due	<30 days	30-60 days	60-90 days	>90 days	Total
Trade receivables: gross	34.0	3.3	0.6	0.4	1.0	39.3
Expected credit loss rate, %	0.2%	0.0%	1.0%	0.1%	67.7%	2.0%
Estimated gross carrying amount at default, £m	0.1	-	-	-	0.7
Lifetime expected credit loss, £m						0.8

12. Trade and other receivables (continued)

	Trade receivables - days past due
At 31 March 2022		Not past due	<30 days	30-60 days	60-90 days	>90 days	Total
Trade receivables: gross		27.1	3.2	0.4	0.2	0.7	31.6
Expected credit loss rate, %		0.1%	2.0%	0.0%	16.2%	47.6%	1.5%
Estimated gross carrying amount at default, £m		-	0.2	-	-	0.3
Lifetime expected credit loss, £m							0.5

The following table shows the movement in the lifetime expected credit losses; there has been no change in the estimation techniques or significant assumptions made during the current reporting period:

	2023	2022
Loss allowance	£m	£m
At 1 April	0.5	0.4
Net remeasurement of loss allowance	0.4	0.1
Amounts written off as uncollectable	(0.1)	-
At 31 March	0.8	0.5

13. Cash and cash equivalents

In the Group cash flow statement, net cash and cash equivalents are shown after deducting bank overdrafts as follows:

	2023	2022
	£m	£m
Cash and cash equivalents	19.3	10.5
Less: Overdrafts (Note 14)	(1.8)	(1.0)
Net cash and cash equivalents	17.5	9.5

14. Borrowings

	2023	2022
	£m	£m
Current borrowings:
Overdrafts (Note 13)	1.8	1.0
Bank loans	45.5	-
Current borrowings	47.3	1.0
Non-current borrowings:
Bank loans	1.3	22.8
Non-current borrowings	1.3	22.8
Preference stock	0.5	0.5
	1.8	23.3
Total borrowings	49.1	24.3

The above loans form part of the Renold plc Group core banking facilities, the UK banking facility matures in March 2024, therefore is classed as current borrowings. These facilities were subsequently renewed for 4 years in May 2023. Refer to Note 18 for more details on the refinancing.

All financial liabilities above are carried at amortised cost.

Core banking facilities

On 29 March 2019 the Group renewed its £61.5m Multi-Currency Revolving Facility banking facilities with HSBC UK, Allied Irish Bank (GB), and Citibank. The facility matures in March 2024 and is fully committed and available until maturity.

At the year end, the undrawn core banking facility was £16.1m (2022: £37.8m). The Group also benefits from a UK overdraft and a number of overseas facilities totalling £4.4m (2022: £2.7m) with availability at year end of £1.2m. The Group pays interest at SONIA (or LIBOR prior to 20 December 2021) plus a variable margin in respect of the core banking facility. The average rate of interest paid in the year was SONIA (20 December 2021 onwards) or LIBOR (prior to 20 December 2021) plus 1.85% for Sterling, Euro and US Dollar denominated facilities (2022: plus 1.6% for Sterling, Euro and US Dollar denominated facilities).

14. Borrowings (continued)

The core banking facility is subject to two covenants, which are tested semi-annually: net debt to EBITDA (leverage, maximum ratio 2.5 times) and EBITDA to net finance charges (interest cover, minimum ratio 4.0 times).

Secured borrowings

Included in Group borrowings are secured borrowings of £48.6m (2022: £24.1m). Security is provided by fixed and floating charges over assets (including certain property, plant and equipment and inventory) primarily in the UK, USA, Germany and Australia. Certain Group companies have provided cross-guarantees in respect of these borrowings

Preference stock

At 31 March 2023, there were 580,482 units of preference stock in issue (2022: 580,482).

All payments of dividends on the preference stock have been paid on the due dates. The preference stock has the following rights:

i. a fixed cumulative preferential dividend at the rate of 6% per annum payable half yearly on 1 January and 1 July in each year;

ii. rank both with regard to dividend (including any arrears on the commencement of a winding up) and return of capital in priority to all other stock or shares in the Company, but with no further right to participate in profits or assets;

iii. no right to attend or vote, either in person or by proxy, at any general meeting of the Company or to have notice of any such meeting, unless the dividend on the preference stock is in arrears for six calendar months; and

iv. no redemption entitlement and no fixed repayment date.

There is no significant difference between the carrying value of financial liabilities and their equivalent fair value.

15. Trade and other payables

	2023		2022
	Current	Non-current	Current	Non-current
	£m	£m	£m	£m
Trade payables1	22.1	-	23.4	-
Other taxation and social security1	2.5	-	2.2	-
Other payables1	8.9	2.5	3.6	4.7
Contract liabilities	0.3	-	-	-
Accruals1	23.4	-	19.3	-
	57.2	2.5	48.5	4.7

¹ Financial liabilities carried at amortised cost.

Trade payables are non-interest bearing and are normally settled within 60-day terms. The Group does have a concentration of translational foreign exchange risk in both US Dollars and Euros; however, the Group hedges against this risk. The non-current other payable is the deferred element of the construction costs for the Chinese factory in Jintan.

The Group did not operate supplier financing or reverse factoring programmes during the current or prior financial year.

The Directors consider that the carrying amount of trade payables approximates to their fair value.

Contract liabilities relate to consideration received in advance of the completion of the associated performance obligation. Revenue recognised in the reporting period that was included in the contract liability at beginning of the year totalled £nil (2022: £nil).

16. Provisions

	Business Restructuring1	Dilapidations	Environmental Provisions1	Total provisions
	£m	£m	£m	£m
At 1 April 2022	-	2.8	1.2	4.0
Arising during the year	0.8	0.3	-	1.1
Utilised in the year	-	(0.1)	-	(0.1)
At 31 March 2023	0.8	3.0	1.2	5.0

	2023	2022
Allocated as:	£m	£m
Current provisions	0.9	0.2
Non-current provisions	4.1	3.8
	5.0	4.0

¹ The business restructuring and environmental provision were combined in the prior year, this year we have disaggregated the two amounts to provide greater clarity.

Business restructuring

At the year ended 31 March 2023, a provision is recognised for legal and redundancy costs in relation to the reduction of headcounts within group sites. Substantially all of the provision is recorded as current.

Environmental

At the year ended 31 March 2023, a provision continues to be recognised in relation to site environmental costs in France. Substantially all of the provision is recorded as non-current.

Dilapidations

Provisions are recognised in relation to contractual obligations to reinstate leasehold properties to the state of repair specified in the property lease. The provision includes costs, as required within the lease, to rectify or reinstate modifications to the property and to remediate general wear and tear incurred to the balance sheet date. The provision to rectify or reinstate modifications is recognised on inception, with a corresponding fixed asset that is depreciated in line with the underlying asset. The provision to rectify general wear and tear is recognised as it is incurred over the life of the lease.

The provision is assessed based on the expected cost at the balance sheet date, using recent cost estimates from suitably qualified property professionals. These estimates are adjusted to reflect the impact of inflation between the date of assessment and the expected timing of the payments, and are then discounted back to present value. A range of inflation and discount rates have been used in order to best reflect the circumstances of the lease to which the dilapidation obligation relates. The inflation rate applied ranges from 2.9% to 4.5% and the discount rate ranges from 1.6% to 5.0%. These rates are most notably impacted by the country of lease and length of lease.

The majority of the dilapidation provision relates to cash outflows which are expected to take place at the end of each respective lease term; none of which are expected to end within the next 12 months. The associated outflows are estimated to arise over a period of up to 21 years from the balance sheet date. As a result substantially all of the provision is classed as non-current (£3.1m).

17. Additional cash flow information

Reconciliation of operating profit to net cash flows from operations:

	2023	2022
	£m	£m
Cash generated from operations:
Operating profit from continuing operations	22.9	16.2
Depreciation of property, plant and equipment - owned assets	6.1	5.3
Depreciation of property, plant and equipment - right-of-use assets	2.5	2.6
Amortisation of intangible assets	2.5	1.6
Loss/(profit) on disposals of plant and equipment	0.3	(0.9)
Impairment of right-of-use asset	-	1.7
US Government assistance - PPP covid support	-	(1.7)
Equity share plans	1.3	1.1
Increase in inventories	(4.5)	(9.5)
Increase in receivables	(2.8)	(4.5)
(Decrease)/increase in payables	(4.2)	13.7
Increase in provisions	1.0	0.1
Cash contribution to pension schemes	(5.8)	(4.8)
Pension current service cost (non-cash)	0.1	0.1
Cash generated from operations	19.4	21.0

Reconciliation of net change in cash and cash equivalents to movement in net debt:

	2023	2022
	£m	£m
Increase/(decrease) in cash and cash equivalents (Consolidated Statement of Cash Flows)	7.9	(8.2)
Change in net debt resulting from cash flows
- Proceeds from borrowings	(28.3)	(4.7)
- Repayment of borrowings	8.3	16.0
US Government assistance - PPP covid support	-	1.7
Foreign currency translation differences	(0.7)	0.1
Non-cash movement on capitalised finance costs	(0.3)	(0.3)
Net debt acquired as part of the business combination	(2.9)	-
Change in net debt during the period	(16.0)	4.6
Net debt at start of year	(13.8)	(18.4)
Net debt at end of year	(29.8)	(13.8)
Net debt comprises:
Cash and cash equivalents (Note 13)	19.3	10.5
Total borrowings (Note 14)	(49.1)	(24.3)
	(29.8)	(13.8)

17. Additional cash flow information (continued)

The table below details changes in the Group's liabilities arising from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group's consolidated cash flow statement as cash flows from financing activities.

	Opening balance	Accrued interest	Financing cash flows	New leases	Lease disposal	Net debt acquired	Other non-cash changes1	Closing balance
2023	£m	£m	£m	£m	£m	£m	£m	£m
Bank loans (Note 14)	22.8	2.3	17.7	-	-	2.9	1.1	46.8
Capitalised costs (Note 14)	-	-	-	-	-	-	-	-
Preference stock (Note 14)	0.5	-	-	-	-	-	-	0.5
Lease liabilities (Note 10)	12.0	0.8	(3.6)	11.0	-	-	-	20.2
Total liabilities from financing activities	35.3	3.1	14.1	11.0	-	2.9	1.1	67.5
Overdrafts (Note 14)	1.0							1.8
Less: Lease liabilities (Note 10)	(12.0)							(20.2)
Total borrowings (Note 14)	24.3							49.1
Add: Cash and cash equivalents (Note 13)	(10.5)							(19.3)
Net debt	13.8							29.8

¹ Non-cash changes include the amortisation of capitalised finance costs and foreign exchange translation. 

	Opening balance	Accrued interest	Financing cash flows	New leases	Lease disposal	US Government assistance - PPP covid support	Other non-cash changes1		Closing balance
2022	£m	£m	£m	£m	£m	£m	£m		£m
Bank loans (Note 14)	35.7	1.1	(12.2)	-	-	(1.7)	(0.1)		22.8
Capitalised costs (Note 14)	(0.5)	-	(0.1)	-	-	-	0.6		-
Preference stock (Note 14)	0.5	-	-	-	-	-	-		0.5
Lease liabilities (Note 10)	15.4	0.5	(4.7)	2.3	(1.7)	-	0.2		12.0
Total liabilities from financing activities	51.1	1.6	(17.0)	2.3	(1.7)	(1.7)	0.7		35.3
Overdrafts (Note 14)	2.6								1.0
Less: Lease liabilities (Note 10)	(15.4)								(12.0)
Total borrowings (Note 14)	38.3								24.3
Add: Cash and cash equivalents (Note 13)	(19.9)								(10.5)
Net debt	18.4								13.8

¹ Non-cash changes includes the amortisation of capitalised finance costs and foreign exchange translation.

18. Post balance sheet events

On 9 May 2023, the Group reached an agreement to refinance its core banking facility to a £85m multi-currency revolving credit facility. Additionally there is a £20m accordion option which will allow the company to access additional funding in support of its acquisition programme. The new facility will be provided by our existing banks: HSBC UK, Allied Irish Bank (GB), Citibank and with the addition of Santander. The duration of the facility is a three year term to May 2026 (contains an option to extend the term for a further two years) and is fully committed and available until maturity.

The core banking facility is subject to two covenants, which are tested semi-annually: net debt to EBITDA (leverage, maximum ratio 3.0 times) and EBITDA to net finance charges (interest cover, minimum ratio 4.0 times).

19. Business combinations

During the year the Group completed the acquisition of 100% of the ordinary share capital of Industrias YUK S.A. for the total consideration of €24.0m (£20.8m), of which €20.0m (£17.3m) was paid on the date of the acquisition with the remaining €4.0m (£3.5m) being deferred, €2.0m (£1.8m) to be paid on 3 August 2023 and €2.0m (£1.7m) on 3 August 2024. YUK is a Valencia-based, manufacturer and distributor of high quality conveyor chain ("CVC") and ancillary products.

The transaction has been accounted for as a business combination under IFRS 3 and is summarised below:

	Recognised values on acquisition
	£m
Fair value of net assets acquired:
Intangible assets	6.9
Property, plant and equipment	5.4
Right-of-use-assets	9.6
Inventories	7.6
Trade and other receivables	4.2
Deferred tax asset	0.5
Trade and other payables	(6.4)
Lease liabilities	(9.6)
Cash and cash equivalents	3.0
Borrowings	(2.9)
Deferred tax liabilities	(1.7)
Net identifiable assets and liabilities	16.6
Goodwill	4.2
Total consideration	20.8
Consideration:
Cash consideration	17.3
Deferred consideration	3.5
Total consideration transferred/to be transferred	20.8
Net cash outflow arising on acquisition:
Cash consideration paid	(17.3)
Add: cash and cash equivalents acquired	3.0
	(14.3)
Increase in net debt arising on acquisition:
Net cash outflow arising on acquisition		(14.3)
Less: Borrowings acquired		(2.9)
Less: Acquisition costs		(0.6)
		(17.8)

Acquisition related costs amounted to £0.6m and have been included in the Income Statement.

The gross contractual value of the trade and other receivables was £4.2m. The best estimate at the acquisition date of the contractual cash flows not expected to be collected was £nil.

Deferred consideration of €4.0m is payable within 2 years.

The goodwill arising on acquisition has been allocated to the Europe and China CGU and is expected to be deductible for tax purposes. The goodwill is attributable to: 

•     the anticipated profitability of the distribution of the Group's services in new markets; and

•     the synergies that can be achieved in the business combination including management, processes and maximising site capacities.

The business was acquired on 3 August 2022 and contributed £10.5m revenue and £1.8m headline operating profit for the period between the date of acquisition and the balance sheet date.  

19. Business combinations (continued)

If the acquisition had been completed on the first day of the financial period, the acquisition would have contributed £15.9m to Group revenue, £2.7m to Group operating profit and £4.0m adjusted operating profit (after adding back £0.7m for amortisation of acquired intangibles and £0.6m acquisition costs).

During the year deferred consideration of £0.2m was also paid in relation to the acquisition of the conveyor chain business of Brooks Ltd in the prior year.

Total net cash outflow arising on acquisitions:
Industrias YUK S.A.	(14.3)
Brooks Ltd	(0.2)
	(14.5)
Total increase in net debt arising on acquisitions:
Industrias YUK S.A.	(17.8)
Brooks Ltd	(0.2)
	(18.0)

20. Prior period adjustments

Following a review of complex tax judgments looking back over a number of years, a prior year adjustment of £1.3m has been identified relating to errors in the recognition of deferred tax on certain intragroup and stock consolidation adjustments. Included in this amount is the recognition of deferred tax for losses following errors identified in the profitability forecasts for which increased deferred tax can be ascribed. The prior year adjustment to deferred tax is offset by an equal and opposite adjustment to current tax arising in respect of an error identified in the Group's historic transfer pricing calculation. A final adjustment has been identified in relation to a deferred tax asset in respect of interest restriction of £1.2m which should have been recognised historically to the extent it offsets the deferred tax liability in the respective tax jurisdiction. The adjustment recognises this deferred tax asset in the opening balance and opening reserves of the Group.

The impact, on a line-item basis for those affected, on the Consolidated Balance Sheet as at 31 March 2022 and 31 March 2021 is as follows:

	2022				2021
Consolidated Balance sheet as at 31 March	As previously reported	Deferred / Current tax recognition	2022 (restated)	As previously reported	Deferred / Current tax recognition	2021 (restated)
	£m	£m	£m	£m	£m	£m
ASSETS
Non-current assets
Deferred tax assets	15.4	2.5	17.9	15.2	2.1	17.3
	15.4	2.5	17.9	15.2	2.1	17.3
TOTAL ASSETS	195.1	2.5	197.6	188.7	2.1	190.8
LIABILITIES
Current liabilities
Current tax	(2.8)	(1.3)	(4.1)	(2.3)	(0.9)	(3.2)
	(2.8)	(1.3)	(4.1)	(2.3)	(0.9)	(3.2)
TOTAL LIABILITIES	(189.3)	(1.3)	(190.6)	(203.4)	(0.9)	(204.3)
NET ASSETS/(LIABILITIES)	5.8	1.2	7.0	(14.7)	1.2	(13.5)
EQUITY
Retained earnings	(9.9)	1.2	(8.7)	(78.2)	1.2	(77.0)
TOTAL SHAREHOLDERS' EQUITY	5.8	1.2	7.0	(14.7)	1.2	(13.5)

20. Prior period adjustments (continued)

During the year a prior adjustment was identified relating to various taxation risks and deferred tax positions. This has been analysed as follows:

	Brought forward	2020	2021	2022	Total
	£m	£m	£m	£m	£m
Corporation tax	-	0.3	0.4	0.6	1.3
Deferred tax - tax losses	-	-	(0.6)	(0.2)	(0.8)
Deferred tax - movements in provisions and accruals	-	(0.2)	(0.1)	(0.2)	(0.5)
Deferred tax - US s163(j) limitation	(1.2)	(0.1)	0.1	-	(1.2)
Retained earnings	1.2	0.1	(0.1)	-	1.2
	-	0.1	(0.3)	0.2	-

These proposed adjustments arose over a period of time and individually no year is materially impacted.

The corporation tax provision relates to transfer pricing risks.

The deferred tax balances relate to the recognition of losses in overseas jurisdictions and a movement in provisions for centrally recognised consolidation adjustments.

The US s163(j) limitation relates to an error on adoption of revised deferred tax asset recognition criteria following publication of FASB accounting standard codification (ASC) 740-10-30-2(b).

21. Alternative performance measures

In order to provide users of the accounts with a clear and consistent presentation of the performance of the Group's ongoing trading activity, the Group uses various alternative performance measures (APMs), including the presentation of the income statement in a three-column format with 'Adjusted' measures shown separately from statutory items. Amortisation of acquired intangibles, restructuring costs, discontinued operations and material one-off items or remeasurements are included in a separate column as management seek to present a measure of performance which is not impacted by material non-recurring items or items considered non-operational. Performance measures for the Group's ongoing trading activity are described as 'Adjusted' and are used to measure and monitor performance as management believe these measures enable users of the financial statements to better assess the trading performance of the business. In addition, the Group reports sales and profit measures at constant exchange rates. Constant exchange rate metrics exclude the impact of foreign exchange translation, by retranslating the comparative to current year exchange rates.

The APMs used by the Group include:

APM	Reference	Explanation of APM
• adjusted operating profit	A	Adjusted measures are used by the Group as a measure of underlying business performance, adding back items that do not relate to underlying performance
• adjusted profit before taxation	B
• adjusted EPS	C
• return on sales	D
• operating profit gearing	D
• revenue at constant exchange rates	E	Constant exchange rate metrics adjusted for constant foreign exchange translation and are used by the Group to better understand year-on-year changes in performance
• adjusted operating profit at constant exchange rates	F
• adjusted return on sales at constant exchange rates	G
• EBITDA	H H	EBITDA is a widely utilised measure of profitability, adjusting to remove non-cash depreciation and amortisation charges
• adjusted EBITDA	H
• operating cash flow	H
• net debt	I	Net debt, leverage and gearing are used to assess the level of borrowings within the Group and are widely used in capital markets analysis
• leverage ratio	J
• gearing ratio	K
• legacy pension cash costs	L	The cost of legacy pensions is used by the Group as a measure of the cash cost of servicing legacy pension schemes
• average working capital ratio	M	Working capital as a ratio of rolling 12-month revenue is used to measure cash performance and balance sheet strength

21. Alternative performance measures (continued)

APMs are defined and reconciled to the IFRS statutory measure as follows:

(A) Adjusted operating profit

	Year ended 31 March 2023
	Chain	Torque Transmission	Head office costs and eliminations	Consolidated
	£m	£m	£m	£m
Operating profit	26.5	5.4	(9.0)	22.9
Add back/(deduct):
Amortisation of acquired intangible assets	0.7	-	-	0.7
Acquisition costs	-	-	0.6	0.6
Adjusted operating profit	27.2	5.4	(8.4)	24.2

	Year ended 31 March 2022
	Chain	Torque Transmission	Head office costs and eliminations	Consolidated
	£m	£m	£m	£m
Operating profit	20.5	4.1	(8.4)	16.2
Add back/(deduct):
Amortisation of acquired intangible assets	0.1	-	-	0.1
US PPP loan forgiveness	(1.7)	-	-	(1.7)
New lease arrangements on sublet properties	-	-	0.7	0.7
Adjusted operating profit	18.9	4.1	(7.7)	15.3

(B) Adjusted profit before taxation

	2023	2022
	£m	£m
Profit before taxation	17.3	12.4
Add back/(deduct):
Amortisation of acquired intangible assets	0.7	0.1
Acquisition costs	0.6	-
US PPP loan forgiveness	-	(1.7)
New lease arrangements on sublet properties	-	0.7
Adjusted profit before taxation	18.6	11.5

(C) Adjusted earnings per share

Adjusted EPS is reconciled to statutory EPS in Note 5.

(D) Return on sales and operating profit gearing

	Year ended 31 March 2023
	Chain	Torque Transmission	Head office costs and eliminations	Consolidated
	£m	£m	£m	£m
Adjusted operating profit	27.2	5.4	(8.4)	24.2
Total revenue (including inter-segment sales)	202.4	48.8	(4.1)	247.1
Return on sales %	13.4%	11.1%	-	9.8%

	Year ended 31 March 2022
	Chain	Torque Transmission	Head office costs and eliminations	Consolidated
	£m	£m	£m	£m
Adjusted operating profit	18.9	4.1	(7.7)	15.3
Total revenue (including inter-segment sales)	159.2	40.4	(4.4)	195.2
Return on sales %	11.9%	10.1%	-	7.8%

21. Alternative performance measures (continued)	Year ended 31 March 2023
	Chain	Torque Transmission	Head office costs and eliminations	Consolidated
	£m	£m	£m	£m
Adjusted operating profit - 2023	27.2	5.4	(8.4)	24.2
Adjusted operating profit - 2022	18.9	4.1	(7.7)	15.3
Year-on-year change in adjusted operating profit (a)	8.3	1.3	(0.7)	8.9
Total revenue (including inter-segment sales) - 2023	202.4	48.8	(4.1)	247.1
Total revenue (including inter-segment sales) - 2022	159.2	40.4	(4.4)	195.2
Year-on-year change in total revenue (b)	43.2	8.4	0.3	51.9
Adjusted operating profit gearing % ((a)/(b))	19%	15%	n/a	17%

	Year ended 31 March 2022
	Chain	Torque Transmission	Head office costs and eliminations	Consolidated
	£m	£m	£m	£m
Adjusted operating profit - 2022	18.9	4.1	(7.7)	15.3
Adjusted operating profit - 2021	13.6	5.0	(7.2)	11.4
Year-on-year change in adjusted operating profit (a)	5.3	(0.9)	(0.5)	3.9
Total revenue (including inter-segment sales) - 2022	159.2	40.4	(4.4)	195.2
Total revenue (including inter-segment sales) - 2021	130.0	39.1	(3.8)	165.3
Year-on-year change in total revenue (b)	29.2	1.3	(0.6)	29.9
Adjusted operating profit gearing % ((a)/(b))	18%	-69%	n/a	13%

(E), (F) & (G) Revenue, adjusted operating profit and adjusted operating profit margin at constant exchange rates

	Year ended 31 March 2023
	Chain	Torque Transmission	Head office costs and eliminations	Consolidated
	£m	£m	£m	£m
External customer - transferred at a point in time	201.5	43.4	-	244.9
External customer - transferred over time	-	2.2	-	2.2
Inter-segment	0.9	3.2	(4.1)	-
Foreign exchange retranslation	(12.5)	(2.8)	-	(15.3)
Revenue at constant exchange rates	189.9	46.0	(4.1)	231.8
Adjusted operating profit	27.2	5.4	(8.4)	24.2
Foreign exchange retranslation	(1.6)	(0.3)	0.1	(1.8)
Adjusted operating profit at constant exchange rates	25.6	5.1	(8.3)	22.4
Return on sales at constant exchange rates %	13.5%	11.1%	-	9.7%

21. Alternative performance measures (continued)

(H) EBITDA, adjusted EBITDA (earnings before interest, taxation, depreciation and amortisation) and operating cash flow

	2023	2022
	£m	£m
Statutory operating profit from continuing operations	22.9	16.2
Depreciation and amortisation	11.1	9.5
Share-based payments	1.3	1.1
EBITDA1	35.3	26.8
Deduct:
Loss on disposals of plant & equipment	0.3	-
Acquisition Costs	0.6	-
US PPP loan forgiveness	-	(1.7)
New lease arrangements on sublet properties	-	0.7
Adjusted EBITDA1	36.2	25.8
Inventories (Note 11)	(4.5)	(9.5)
Trade and other receivables (Note 12)	(2.8)	(4.5)
Trade and other payables (Note 15)	(4.2)	13.7
Provisions (Note 16)	1.0	0.1
Movement in working capital	(10.5)	(0.2)
Purchase of property, plant and equipment (Consolidated Statement of Cash Flows)	(7.0)	(4.1)
Purchase of intangible assets (Consolidated Statement of Cash Flows)	(1.4)	(1.2)
Proceeds from property disposals	-	0.2
Net capital expenditure	(8.4)	(5.1)
Operating cash flow	17.3	19.4

¹ The calculation of EBITDA, adjusted EBITDA and operating cash flow deliberately excludes an add back for the non-cash share-based payment charge of £1.3m for the year (2022: £1.1m). This is done in order to ensure consistency with the metrics used to assess performance against the annual bonus plan targets.

(I) Net debt

Net debt is reconciled to the statutory balance sheet in Note 17.

(J) Leverage ratio

	2023	2022
	£m	£m
Net debt (Note 17)	29.8	13.8
Adjusted EBITDA	36.2	25.8
Leverage ratio	0.8 times	0.5 times

(K) Gearing ratio

	2023			Restated1 2022
	£m	£m	£m		£m
Net debt (Note 17)		29.8			13.8
Equity attributable to equity holders of the parent	39.1		7.0
Net debt (Note 17)	29.8		13.8
Total capital plus net debt		68.9			20.8
Gearing ratio %		43%			66%

¹ The results for the year ended 31 March 2022 have been restated. Refer to Note 20 for details of the restatements.

(L) Legacy pension cash costs

	2023	2022
	£m	£m
Cash contributions to pension schemes	4.6	3.7
Pension payments in respect of unfunded schemes	1.2	1.1
Scheme administration costs	0.7	0.7
	6.5	5.5

21. Alternative performance measures (continued)

(M) Average working capital ratio

	2023	2022
	£m	£m
Inventories	61.8	48.4
Trade and other receivables	43.5	35.7
Trade and other payables	(57.2)	(48.5)
Total working capital	48.1	35.6
Average working capital1 (a)	41.9	36.1
Revenue (b)	247.1	195.2
Average working capital ratio ((a)/(b))	17%	18%

¹ Calculated as a simple average of the opening and closing balance sheet working capital.

 

END