TIDMRNO
RNS Number : 4432G
Renold PLC
30 May 2017
Renold plc
("Renold" or the "Group")
Preliminary results for the year ended 31 March 2017
30 May 2017
Robust performance in challenging markets; good progress on
strategic plan
Renold, a leading international supplier of industrial chains
and related power transmission products, today announces its
preliminary results for the year ended 31 March 2017, together with
an update on the progress of the Group's Strategic Plan.
Financial highlights
Year ended 31 March
2017 2016
GBPm GBPm
Revenue 183.4 165.2
Underlying[1] revenue 183.4 184.7
Adjusted[2] operating profit 14.5 14.2
Operating profit 11.0 11.1
Profit before tax 6.7 7.4
Basic earnings per share 2.1p 2.4p
Adjusted earnings per share 4.6p 4.7p
------------------------------ ---------------- ----------------
-- Underlying revenue broadly stable as Tooth Chain acquisition
largely off-set declines in Torque Transmission and Chain
operations outside Europe
-- Underlying revenue growth in the second half of 2.8% helped
to off-set a first half decline of 4.0%
-- Return on sales of 7.9% (2016: 8.6%) with reported adjusted
EBITDA increasing to GBP21.3m (2016: GBP20.1m)
-- Net debt to Adjusted EBITDA reduced to 0.8x (2016: 1.1x)
Trading and operational highlights
-- Year on year growth in order intake of 4.8% with underlying
order intake 1.9% ahead of revenue for the year;
o Second half order intake in Chain particularly strong up 11.9%
(against weaker prior year comparators) with book to bill ratio of
106%
-- Order book at 31 March 2017 up 9.0% compared with prior year
-- Increased commercial and marketing activity delivered organic
revenue growth for Chain Europe of 5.9%
-- Significant progress on restructuring activities
-- Programme to relocate Chinese manufacturing facility
commenced, with significant further investment planned for
2017/18
-- Sale of properties in France and Australia completed; net disposal proceeds GBP10.2m
1 Underlying adjusts prior year results to the current year
exchange rates to give a like for like comparison. A reconciliation
to reported results is included in Note 2.
2 "Adjusted" means excluding the impact of exceptional items,
amortisation of acquired intangible assets, pension administration
costs and any associated tax thereon. A
reconciliation to reported results is included Note 2.
Robert Purcell, Chief Executive of Renold plc, said:
"We have delivered a robust performance in challenging markets.
The impact of the market headwinds on revenue and operating profit
would have been far greater had it not been for the actions
delivered to increase operating efficiencies as part of our STEP
2020 strategy.
"Markets stabilised during the year and there was a return to
revenue growth in the second half of the year along with an
increase in order intake.
"Although there are some early indications of improvement,
macro-economic uncertainty remains and, in turbulent times, our
STEP 2020 Strategic Plan remains relevant and critical to the long
term delivery of value to all of our stakeholders. Actions already
delivered as part of the plan will combine with on-going programmes
to further improve the efficiency and effectiveness of our
operations. The Group is positioned for organic growth and we
continue to believe that mid-teens operating margins, and
sustainable gains in adjusted earnings per share, can be delivered
when volumes improve through organic growth and targeted
acquisitions."
ENQUIRIES:
Renold plc Tel: 0161 498 4500
Robert Purcell, Chief Executive
Ian Scapens, Group Finance
Director
Arden Partners (Broker) Tel: 020 7614 5917
Chris Hardie
Instinctif Partners (Public Tel: 020 7457 2020
Relations)
Mark Garraway
Helen Tarbet
Rosie Driscoll
ANALYSTS AND INVESTORS
A meeting for investors and analysts will be held on 30 May 2017
at 9.30 am at Instinctif, 65 Gresham Street, London, EC2V 7NQ. For
those unable to attend, a conference call facility is available as
follows:
Dial in: UK Freephone Dial-In: 08006940257
Standard International Dial-In Number: +44 (0) 1452 555566
United Kingdom, LocalCall: 08444933800
Conference ID: 21587843
NOTES FOR EDITORS
Renold is a global leader in the manufacture of industrial
chains and also manufactures a range of torque transmission
products which are sold throughout the world to a broad range of
original equipment manufacturers and distributors. The Company has
a reputation for quality that is recognised worldwide. Its products
are used in a wide variety of industries including manufacturing,
transportation, energy, metals and mining.
Further information about Renold can be found on their website
at: www.renold.com.
Chairman's Letter
"We continue to deliver key elements of our STEP 2020 Strategic
Plan, invest in our future and produce encouraging results in
volatile market conditions."
Overview
Renold has performed robustly this year against a backdrop of
challenging markets. A first half decline in revenues was followed
by a return to underlying growth in the second half. Further
self-help measures have been delivered this year which reflect our
ongoing commitment to the core objectives of our STEP 2020
Strategic Plan.
These include the completion of two consolidation projects, the
sale of two major properties in France and Australia and the
successful integration of the Tooth Chain acquisition, which
continues to trade ahead of expectations. We believe this sets a
template for further successful acquisitions in the remaining years
of the plan.
Our Markets
Renold's global presence and extensive product offering result
in a broad spread of end-customer industries. Customers are served
either directly, or through distribution partners, and our products
are used to satisfy maintenance and repair requirements in addition
to supporting the manufacture of new equipment. Our end-customers
generally operate in industrial markets which have continued to be
impacted by broader macroeconomic factors and geopolitical
uncertainty.
During the year, market conditions proved particularly
challenging in North America, impacting upon both Chain and Torque
Transmission operations in the region and resulting in a combined
8% decline in regional revenue. Europe and China experienced
growth, and in flat markets, we believe this is a result of
improving market share arising from the various actions implemented
in our STEP 2020 Strategic Plan.
Conditions in certain sectors demonstrated early signs of
improvement towards the end of the financial year. It is too early
to determine whether this is a sustained improvement in market
conditions, or whether this is another phase of volatility in the
cycle. Whatever the case, our focus on delivering the underlying
improvements required to deliver sustainable progress in operating
margins continues.
Trading Performance
Revenue grew by 11.0% in the year, benefiting from foreign
exchange tailwinds and continued strong performance of the Tooth
Chain business acquired in January 2016. On an underlying basis,
and excluding the impact of acquisitions, revenue declined by 3.6%
in the year. This decline reflects the continuation into the
current year of the challenging market conditions which impacted
performance in the second half of the prior year.
This underlying reduction in revenue resulted in a decline in
our adjusted underlying operating margin in the year which fell to
7.9% from 8.6% in the prior year.
Whilst this is disappointing, it is reflective of external
market factors and our decision to make revenue investments to
increase our sales and marketing activities. We continue to focus
attention on delivering actions that will provide sustainable
improvements in operating margins and have made good progress in
these areas during the year.
The year to March 2017 is the fourth year of our STEP 2020
Strategic Plan. The Group has come a long way and delivered a great
deal over these four years. The full benefit of the actions
delivered to date have been diluted by challenging conditions in
our end-user markets over the last two years. In spite of this, we
remain confident that we can deliver sustainable mid-teens margins,
the exact timing of which will be determined by a recovery in
volumes.
STEP 2020 Strategic Plan
Further key projects have been successfully delivered as part of
our STEP 2020 Strategic Plan. These include the consolidation of
the European Distribution Centre with the sister facility in
Germany and the successful transfer of all UK Couplings
manufacturing and associated processing into our existing Cardiff
site.
Furthermore, we have commenced a programme to relocate our Chain
China manufacturing facilities from Hangzhou to a purpose built
facility near Changzhou in Jiangsu province. This is a multi-year
project which will see the construction of the new facility
commence during the year ending March 2018, with the factory
relocation expected to occur in the following year.
We have continued to invest in the commercial and marketing
activities which we believe will drive organic growth. We are
starting to see the benefit of these actions with underlying
revenue growth in Chain Europe (excluding acquisitions) of
5.9%.
A number of important health and safety initiatives have
continued through the year and I am very pleased that we have again
seen further improvements in our health and safety culture and
performance. Health and safety rightly remains the number one
priority for the Board and the Group. Ongoing and new initiatives
in this area will continue to drive further improvements.
Board and People
This year saw the appointment of Ian Scapens as Group Finance
Director after Brian Tenner left in order to pursue other
opportunities.
Ian Scapens brings extensive experience in all aspects of
financial leadership in large complex organisations. He joined
Renold from Keepmoat Group, the UK's leading national provider of
social housing refurbishment and regeneration services and a
developer of low-cost, affordable housing, where he was Deputy
Chief Financial Officer.
Also during the year we welcomed David Landless as Non-Executive
Director. He has significant experience at senior levels of
international manufacturing businesses. Most recently, he was Group
Finance Director of Bodycote plc from 1999 until his retirement
earlier this year. David will take over the Chairmanship of the
Audit Committee from John Allkins at the completion of the 2017
AGM. John will continue as a Non-Executive Director until his
retirement from the Board after the 2018 AGM.
I am delighted that both Ian and David have joined the Board.
They bring a wealth of relevant experience which will stand the
Board in good stead as we continue to implement our STEP 2020
Strategic Plan. I would also like to take the opportunity to thank
Brian Tenner for his substantial contribution to Renold over the
years.
The Board continues to support the Executive team in reviewing
and monitoring all activities under STEP 2020. The Board remains
closely involved in the oversight of the major project
deliverables. All Board members have continued to give additional
time and support on a wide range of issues during the year.
On behalf of the whole Board, I would like to express my
gratitude and thanks to all our employees for their continued hard
work during the year. The contribution of each employee is valued
and appreciated.
Pensions
The Group's gross retirement benefit obligations increased to
GBP102.0m (2016: GBP82.9m), with the largest element of the
increase relating to changes in the discount rates and inflation
rates applied as assumptions to assess future liabilities of the UK
scheme. This is a reduction of GBP10.4m from the position at 30
September 2016.
The Group remains committed to progressively de-risking this
position over time through a combination of agreed contributions to
the schemes and specific de-risking projects as they become
viable.
Dividend
The Board has decided not to recommend the payment of a
dividend. Whilst the Board fully recognises the importance of
dividends to shareholders, it believes that the investment
opportunities available to the Group continue to provide the
optimal route to increasing shareholder value. This approach will
remain under active review for future periods.
Summary
Market conditions remained volatile in the year. Trading
conditions, particularly in North America and South-East Asia,
remained challenging. Early signs of recovery are evident and are
supporting growth in order intake, but it is too soon for these to
be considered sustainable or market wide.
We have not allowed a challenging market to stand in the way of
delivery of the STEP 2020 Strategic Plan and have delivered
significant business change in the year. We are making good
progress and continue to believe that mid-teens operating margins
can be delivered, supported by volume increases.
Mark Harper
Chairman
30 May 2017
Chief Executive's Review
"We continue to make strong progress against our STEP 2020
Strategic Plan. Challenging market conditions have impacted upon
trading performance during the year, particularly in our Torque
Transmission and Chain Americas businesses. We have not allowed
these challenges to delay or obstruct our strategic progress and
continue to take the actions required to position the Group well
for when markets recover."
A major milestone in our STEP 2020 programme will be the
delivery of sustainable mid-teens margins. We remain confident that
the business can meet this objective and, whilst the challenging
market environment has, as reported, slowed the rate of EPS
progression over the last two years, we are pleased with the
overall progress with, and benefits of, STEP 2020 which is
alleviating the impact of reduced levels of demand. We are putting
in place a number of additional self-help initiatives to mitigate
the ongoing challenging environment and to maintain progress.
Operating Performance
Underlying revenue declined only slightly in the year as
increases in the full-year revenue from the acquired Tooth Chain
business helped to offset a small reduction in other underlying
Chain revenues and a larger reduction in underlying Torque
Transmission revenues. These revenue reductions largely reflect
challenging market conditions experienced by our customers reducing
overall demand for Renold's products. The North American and
South-East Asian markets were particularly difficult, across both
Chain and Torque Transmission divisions. In contrast to this, the
European Chain operations delivered organic growth to supplement
the growth from the acquired Tooth Chain business.
On a reported basis, adjusted operating profit increased to
GBP14.5m (2016: GBP14.2m). However, this benefits from the foreign
exchange movements in the year. Underlying adjusted operating
profit reduced by GBP2.3m, of which GBP2.1m occurred in the first
half of the year.
Excluding the impact of the acquisition, the underlying revenue
decline of GBP6.7m resulted in a GBP3.3m reduction in underlying
adjusted operating profit as the revenue reduction experienced was
not matched by a corresponding reduction in non-variable overhead
costs. This was particularly marked in Torque Transmission, but
also in the North American and South-East Asian Chain
operations.
Order intake improved through the year, with total orders 1.9%
ahead of revenue for the year as a whole. In the later part of the
year, there were very early indications of improving conditions in
certain end-user markets. This helped contribute towards the
improving underlying book to bill ratio for the second half of the
year of 103% and an underlying 9.0% year on year increase in the
closing order book at 31 March 2017.
STEP 2020 Strategic Plan - Update on progress
During the year, we have made progress on all three phases of
the STEP 2020 Strategic Plan.
Phase I - restructuring
Very significant progress has been made during the year to
relocate and reposition manufacturing and distribution facilities
across the Group.
In the Chain division, the European Distribution Centre (EDC)
was relocated during the year and the Malaysian manufacturing
facility moved to new larger premises in Kuala Lumpur. Relocating
the EDC from France to Germany, close to our main European Chain
manufacturing site, reduces the costs of handling finished products
and improves speed of response and customer service. It also
created the opportunity to sell our premises in Seclin, France. In
Malaysia, the decision to move was taken to increase the capacity
of the site. Market conditions have been weak during the year, and
this permitted the site to relocate with minimum disruption. As
markets recover, the site now has a greater potential for future
growth.
During the year, we took advantage of the opportunity to sell
the premises at the Mulgrave site in Melbourne, Australia. The site
is too large for our ongoing requirements and the leaseback period
of three years provides sufficient time to find alternative
premises and to relocate in a controlled manner. Net proceeds of
the sale were GBP9.3m and have reduced net debt at the end of the
year to GBP17.4m (2016: GBP23.5m).
In Torque Transmission, the UK Couplings manufacturing
facilities were consolidated to a single facility in Cardiff.
Following a period of investment in the Cardiff infrastructure and
the commissioning of new equipment, all manufacturing was moved
from the Halifax site during March 2017. This creates a single,
focused UK Couplings manufacturing facility where the volume of
production justifies investment in efficient manufacturing
equipment that would otherwise be underutilised. We also commenced
the process of closing our Chinese Couplings manufacturing facility
in the year; final closure completed in May 2017. The closure
removes a small underinvested manufacturing facility from the
Group, but without loss of revenue as the products can now be
manufactured in Cardiff and South Africa. This reduces cost and
avoids future capital investment. These changes, which generally
completed in the latter part of the financial year, build the
platform for more efficient manufacturing and distribution in the
future.
Overlaying these infrastructure changes is the programme to
optimise business processes. The most significant element is the
implementation of the Group's ERP system across all sites. This has
been successfully implemented at our Cardiff, Halifax and Gronau
sites, and was instrumental in permitting the consolidation of the
UK Couplings operations and the removal of reliance on vendor
support in the acquired Tooth Chain business. The process of
roll-out continues and FY18 will see the roll-out progress to
further business units, including the first of the major Chain
manufacturing sites.
Phase II - organic growth
Market conditions have limited the amount of organic growth
delivered in the period. However, we continue to take action to
establish an effective commercial team, introduce product
development programmes and support our existing brands and
customers through focused marketing. This has included extensive
training of our teams, distributors and agents along with building
sustainable customer relationships though the new Spain, Thailand
and Indonesia offices opened during 2016. We have seen early signs
of progress in Europe and are replicating these processes and
procedures across North America, China and South-East Asia. As
markets recover, we expect to see the benefit of these actions.
During the year, we commenced a programme to relocate our Chain
manufacturing facility in China. This is a significant factory move
which will take around 18 months to two years to complete as we are
constructing a purpose built facility. This will be the final step
in delivering the Strategic Objective of operating all major
manufacturing facilities from owned premises, reducing the risk of
uncontrolled relocations in the future and providing the basis for
long term investment in core manufacturing locations. When
complete, this facility will increase capacity and permit greater
levels of manufacturing efficiency. This is critical in targeting
growth in the developing domestic Chinese market, where product
quality is becoming a more important factor in purchasing
decisions, along with supporting growth in the sale of our
Chinese-manufactured chain through overseas markets using the
Group's extensive geographic reach. The overall programme cost is
expected to be GBP16m over 8 years, with GBP6m of construction
costs deferred for five to eight years, and will be funded from
existing Group facilities.
Phase III - acquisitions
The programme to integrate the acquired Tooth Chain business
into the wider Renold Group completed in the year. Following the
successful roll-out of the Group's ERP system, we were able to
remove all dependence from the vendor for back office and systems
support. Tooth Chain is now a core part of the Group's product
offering and the greater strength in depth of Renold's commercial
teams across the world provide the potential for further future
growth in this product category. Performance in the period has
exceeded original expectations, resulting in the payment of the
first element of the deferred consideration in April 2017.
This acquisition was the first step in what we believe will be a
programme of value adding acquisitions in the future, targeting
opportunities that generate new product or new geographical
opportunities, or opportunities to improve manufacturing
effectiveness, e.g. through consolidation.
Delivering our Strategic Objectives
We continue to make good progress in improving our health and
safety performance. Fewer accidents and a greater focus on
identifying and reducing risk in order to avoid accidents is
indicative of the progress being made and the behavioural change
that we are seeking across the Group's global operations.
Our objective of delivering growth in operating profit margins
has been impacted by short-term trading conditions in the year.
However, a number of other KPI measures provide evidence that
continued progress on restructuring will deliver improvement in
operating profit margins when market conditions improve. Average
employee numbers during the year have reduced by 2.2%, improving
sales per employee to GBP84.0k (2016: GBP74.0k; 2016 underlying:
GBP82.7k). This reduction derives from the restructuring activities
delivered, combining with a general focus on business
efficiency.
The underlying breakeven revenue (adjusted for acquisitions) has
remained relatively unchanged in the year at GBP12.5m per month.
This reflects an underlying decrease following the restructuring
elements of the Strategic Plan, but offset by additional overheads
for marketing, product management and commercial support which have
been added to support the organic growth activities.
Developing our people remains a core part of improving the
future prospects of the Group and we have made progress across all
levels of the businesses. A number of new senior managers have been
recruited in the year adding to the wider leadership team,
including a Managing Director for the consolidated UK Couplings
business, a General Manager for the Chain Europe manufacturing
facility in Einbeck, Germany and a Regional MD for our South-East
Asian businesses with the objective of increasing our presence in
these growing markets. We also continued with our Future Leaders
programme, welcoming six new graduates.
Macroeconomic landscape and Brexit
There are a number of well-publicised macroeconomic risks on the
horizon. We continue to deliver our strategy, cognisant of the
risks, but similarly very aware that the impact of these risks is
uncertain and should not delay our progress.
The vote for Brexit had a significant impact on the value of
Sterling and the foreign exchange movements have impacted our
reported trading position. However, this is largely a
presentational issue as our results are reported in Sterling. Our
revenue in the UK is limited, representing 8% of the Group's
revenue, whilst we retain manufacturing facilities that supply
product to our other global operations. These products have become
more competitive in overseas markets as a result of the currency
movements.
There are certain product categories which we import to the UK,
particularly chain manufactured in our European facilities. Whilst
this has become more expensive as a result of the foreign exchange
movements, the majority of competitor products are sourced from
Europe and the Far-East and are exposed to similar inflationary
pressure.
Overall, we do not believe that Brexit significantly impacts on
our competitive positioning. The major risk factor to the Group
from Brexit, other Eurozone and US macroeconomic risks is the
impact on the timing of recovery of industrial production in
general. We will continue to monitor this and take action as
required.
Chain Performance Review
Underlying revenue of GBP146.1m was GBP3.1m (2.2%) ahead of the
prior year. Underlying external revenues excluding acquisitions
were GBP2.3m (1.6%) behind prior year reflecting a backdrop of
difficult macroeconomic conditions in many of the territories in
which we operate. However, regional performance was mixed and there
were some encouraging performances, particularly in Europe,
Australia and India.
Underlying European revenue increased by GBP8.3m (16.3%) in the
period (GBP2.9m (5.9%) excluding acquisitions) with organic growth
delivered in most of our major European markets, in addition to
growth from the full year impact of the acquisition of the Tooth
Chain business.
Revenue in the Americas finished GBP4.4m (7.3%) down on an
underlying basis, with continued soft demand in the US from major
distributors and larger OEM accounts. Disappointingly, this was
compounded by production issues during the final quarter of the
year as orders started to recover. These issues are short-term in
nature and are being resolved. After a slow start, our Canadian
business recovered in the second half to deliver underlying year on
year growth of 3.4%.
Domestic sales in India and China grew by GBP0.5m (7.9%) and
GBP0.4m (12.0%) respectively. However, the overall performance of
both businesses was depressed by lower demand in export markets.
Underlying revenue in Australasia was down by GBP0.8m (3.9%),
primarily due to continued weakness in palm oil markets in
South-East Asia, being partially offset by growth in Australia of
4.9% where sales to the mining and agriculture sectors started to
recover.
Order intake of GBP149.2m was up by GBP11.4m (8.2%) on the
previous year. At a regional level, European underlying order
intake was up by GBP10.7m (21.1%) against a decline of GBP0.5m
(0.9%) in the Americas. Order intake in Australasia was down
GBP0.1m (0.4%) but up in India and China by 6.8% and 19.3%
respectively. Order intake accelerated in the second half of the
year with growth of 11.9% (compared to growth of 4.6% in the first
half of the year) as end-user markets started to demonstrate signs
of recovery. Orders for the year finished GBP4.1m (5.7%) ahead of
sales.
Contribution margins, the margin after all variable production
costs, remained flat. This was achieved despite increases in raw
material costs in the second half of the year and reflects the
continued focus on cost reductions, improved product quality and
enriched business mix.
Overheads increased year on year with the addition of the Tooth
Chain business, continued upgrading of talent and investments in
marketing and sales development programmes.
Underlying adjusted operating profit finished at GBP16.6m
compared to GBP17.8m last year. Return on sales of 11.4% (2016:
12.4%) was particularly impacted by the disappointing performance
in the US during the year.
Renold Tooth Chain (acquired in January 2016) continues to trade
ahead of expectations, delivering underlying organic growth in both
orders and sales against the last comparable period under prior
ownership. The business has been fully rebranded and customers
transferred into the Renold commercial network with no business
loss. In December, the final part of the integration process, the
transfer onto the new Group ERP system, was successfully completed
and Tooth Chain is now well positioned for further development in
the global commercial and distribution footprint as part of the
Renold Group.
Commercial talent continues to be steadily upgraded in all
regions and the team has been further strengthened with senior
commercial resource added in the US, Australia, and India. A new
Managing Director for the businesses in South-East Asia has also
been appointed for the first time, bringing a single point of focus
to our activities within that important growth region.
Service improvements remain key
A key element of the growth strategy continues to centre on
improvements to our operational effectiveness and customer service.
A number of initiatives have been successfully completed during the
year which will enable increased production output, shorter lead
times, better inventory efficiency and improved levels of customer
service.
The largest single investment in new productive capability, the
rotary machining centre (GBP2.5m), was successfully commissioned in
February and is already boosting output in the US facility. This
machine dramatically reduces production lead times on complex
components whilst at the same time improving quality and removing
up to ten separate manufacturing operations. Machine investments in
other regions were similarly targeted on harnessing the latest
technology in order to boost productive capacity and reduce lead
times.
During the year, the European distribution centre was relocated
from France to be close to the main manufacturing facility in
Einbeck, Germany. The prime drivers behind this move were to reduce
lead times, improve stock efficiency and enhance overall customer
service. The project was successfully delivered during November and
also resulted in reduced headcount and the sale of the previous
distribution centre in Seclin, France, resulting in proceeds from
the sale of GBP0.9m.
The Malaysian factory was successfully relocated during
December. The new facility will allow up to four times more
productive capability whilst enabling inventory management to be
improved and response times reduced. It is also an enabler for the
introduction of a rapid response cell for customised transmission
chains, following a similar addition in China during this year.
Last year, we highlighted the successful introduction of
strategic inventory on core product lines. This has been enhanced
and developed during the year, in support of our service commitment
for 24, 48 and 72 hour response times on standard and configured
chains. Where appropriate, targeted holdings of components have
also been introduced in order to facilitate the rapid assembly of
product variants within particular chain product families. This has
been achieved with a marginal increase in net inventories.
As we head into the new financial year, we have commenced the
next significant phase in our manufacturing strategy. Using the end
of the building lease of our existing Chinese factory as the
trigger point for change, we have commenced a programme to relocate
the business to a purpose-built facility near Changzhou in Jiangsu
province. This strategy incorporates twin objectives of providing a
platform for organic growth in the domestic Chinese market along
with developing a leading manufacturing facility which can
effectively supply Renold's distribution infrastructure with
certain standard product ranges.
Torque Transmission Performance Review
Underlying external revenue of GBP37.3m was GBP4.4m (10.6%)
below the prior year primarily reflecting the annualised effect of
the market headwinds that were initially experienced during the
second half of 2015/16. These headwinds were reduced demand,
particularly in the Americas region, in the oil and gas, raw
material extraction and steel industries. This annualising effect
impacted upon the first half of 2016/17 and saw revenues decline by
22.6% when compared with the same period in the prior year. During
the second half of the year, underlying external revenue of
GBP19.5m was GBP0.8m (4.3%) ahead of the prior year, benefiting
from large orders for escalator drives in the London and New York
undergrounds.
Underlying order intake was GBP3.0m (7.4%) below the prior year.
Order intake was 9.6% ahead of revenue in the first half of
2016/17. Due to the longer lead times in the Torque Transmission
division, these orders during the first half of the year delivered
revenue growth during the second half of the year. Order intake for
the second half of the year was 7.7% below revenue for the same
period.
Contribution margins, the margin after all variable production
costs, improved by 3 percentage points during the year with
exchange rate movements benefiting margins for UK manufactured
products, although this was largely offset by direct labour costs
not reducing in line with the revenue.
Underlying net overheads in the division decreased. The savings
arising from the self-help measures implemented have been
reinvested in commercial activities including expansion of the
sales force in order to target non-traditional end-user
sectors.
Underlying adjusted operating profit finished at GBP3.9m, a
decrease of GBP1.3m from the prior year, with a decrease of GBP2.8m
for the first half of the year, offset by a recovery of GBP1.5m for
the second half of the year. The division's Return on Sales fell
from 12.5% to 10.5%, largely reflecting the revenue decline in the
period. As with revenue and adjusted operating profit, the
performance in the second half of the year improved when compared
to the first. Return on Sales for the first half of 2016/17 was
6.7%, increasing to 13.8% for the second half.
Strategic actions
When the STEP 2020 Strategic Plan was originally implemented,
the initial actions focused on the Chain division as this was
significantly underperforming. At the time, the Torque Transmission
division delivered strong margins. However, the decline in revenue
experienced during 2015/16 and 2016/17 impacted significantly upon
profitability, as the protective actions were not sufficiently
developed to mitigate the margin impact.
Following the CEO taking direct day-to-day responsibility for
the division, acting as Divisional Managing Director, greater focus
has been given to the elements of the STEP 2020 Strategic Plan
which impact on the Torque Transmission division, and a number of
actions were delivered during the year.
As part of Phase I - Restructuring, the coupling manufacturing
locations in the UK, Halifax and Cardiff, were consolidated into
the Cardiff facility. This process completed in April 2017, but was
the culmination of a number of project streams that upgraded the
ERP systems of the businesses to the same platform, invested in
capital equipment to increase capacity and trained the teams to
ensure manufacturing 'knowhow' was transferred. The one-off cost of
the transfer was GBP2.9m (see Note 3) and benefits are expected to
be realised during the next financial year.
In addition to the consolidation of the UK Coupling locations,
the manufacture of couplings in Beicai, China, was transferred to
Cardiff and South Africa, with this project completing in May 2017.
Again, the one-off costs of transfer were incurred in 2016/17 (see
Note 3) with the benefits expected to be realised in 2017/18.
As part of Phase II - Organic Growth, the division has
re-established its focus on new product development, product
marketing and commercial capability. This, along with a
reinvigorated focus on customer service is expected to deliver
growth, particularly in non-traditional sectors.
Outlook
We have delivered a robust performance in challenging markets.
The impact of the market headwinds on revenue and operating profit
would have been far greater had it not been for the actions
delivered to increase operating efficiencies as part of our Step
2020 strategy.
Markets stabilised during the year and there was a return to
revenue growth in the second half of the year along with an
increase in order intake.
Although there are some early indications of improvement,
macro-economic uncertainty remains and, in turbulent times, our
STEP 2020 Strategic Plan remains relevant and critical to the long
term delivery of value to all of our stakeholders. Actions already
delivered as part of the plan will combine with on-going programmes
to further improve the efficiency and effectiveness of our
operations. The Group is positioned for organic growth and we
continue to believe that mid-teens operating margins, and
sustainable gains in adjusted earnings per share, can be delivered
when volumes improve through organic growth and acquisitions.
Robert Purcell
Chief Executive
30 May 2017
Finance Director's Review
"We have taken a cautious approach to managing the business in
the current volatile market conditions. Whilst operating margins
have reduced in the year, this is largely due to market conditions.
The self-help actions delivered in the year provide the basis for a
stronger recovery when market conditions improve."
Overview
Challenging market conditions, first experienced in the second
half of the prior year, continued into the year under review,
resulting in reduced revenue and profit in the first half. Relative
performance improved through the year as trading in Torque
Transmission stabilised and organic growth in Chain Europe was
delivered. This helped to recover some of the declines from the
first half. Positive indications from order intake during the
latter part of the year suggest some early signs of improving
end-customer markets as we move into the new financial period.
Orders and revenue
2017 2016
Reconciliation to reported Operating Operating
results Order intake Revenue profit Order intake Revenue profit
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- ------------ ------- --------- ------------ ------- ---------
As reported 186.8 183.4 11.0 159.7 165.2 11.1
Impact of foreign exchange - - - 18.8 19.5 2.6
Pension administration
costs - - 0.7 - - 0.7
Exceptional items - - 1.7 - - 2.2
Amortisation of acquired
intangible assets - - 1.1 - - 0.2
--------------------------- ------------ ------- --------- ------------ ------- ---------
Underlying adjusted 186.8 183.4 14.5 178.5 184.7 16.8
--------------------------- ------------ ------- --------- ------------ ------- ---------
Order intake in the Chain division was higher than revenue with
the underlying ratio of orders to revenue (book to bill) being
102.2% in the year (2016: 96.4%). All Chain regions had book to
bill ratios greater than 100% for the year. Underlying order intake
demonstrated good progress in the year with growth in the second
half of 11.9% over the second half of the prior year. This compared
to growth of 4.6% for the first half, and together resulted in
growth for the full year of 8.2%.
In Torque Transmission, the weaker demand from commodity related
and capital goods markets experienced in the second half of the
prior year continued into the first half of the current year.
Underlying order intake in the first half of the year declined by
13.4% when compared to the same period in the prior year. Whilst
underlying order intake in the second half of the year grew by
0.2%, this is growth over the weaker second half of the previous
year. The book to bill ratio for the division was 100.8% (2016:
97.4%).
Group revenue for the year increased by GBP18.2m (11.0%) to
GBP183.4m, benefiting from foreign exchange tailwinds and continued
strong performance of the Tooth Chain business acquired in January
2016.
Underlying revenue for the year was broadly unchanged with the
small decline of GBP1.3m representing a 0.7% reduction. This
includes the full-year benefit of the Tooth Chain acquisition.
Excluding the effect of this acquisition, underlying revenue
declined by GBP6.7m (3.6%). The reduction in underlying revenue was
concentrated in the first half of the year with a year-on-year
decline of 4.0%, reflecting a continuation of the weak end-customer
markets experienced in the second half of the prior year. The Group
returned to growth for the second half of the year with revenue
2.8% ahead.
On a divisional basis, the Chain division saw underlying revenue
increase by 2.1% with Torque Transmission weaker, 10.5% down.
Operating profit
The Group generated GBP7.0m of adjusted operating profit in the
first half (2016: GBP7.9m), GBP7.5m in the second half (2016:
GBP6.3m) and a full year result of GBP14.5m (2016: GBP14.2m).
At the half-year, we reported underlying adjusted operating
profit down by GBP2.0m, which increased to GBP2.1m incorporating
the mix effect of changing foreign exchange rates to March 2017.
This shortfall significantly reduced during the second half of the
year with underlying adjusted operating profit down by GBP0.2m,
resulting in a full year shortfall of GBP2.3m.
Underlying adjusted operating margins fell during the year to
7.9% (2016: 9.1%). The Tooth Chain acquisition generated underlying
revenue growth of GBP5.4m, delivering an incremental underlying
adjusted operating profit of GBP1.6m. Excluding the impact of the
acquisition, underlying revenue declined by GBP6.7m with a
corresponding reduction in underlying adjusted operating profit of
GBP3.3m. The combined effect of these elements is a small reduction
to revenue with a reduction to the operating margin delivered in
the year.
Although not readily transparent from the consolidated Group
results, we continue to remain focused on improving the overhead
efficiency of the Group. The monthly breakeven revenue has
increased to GBP12.8m (2016: GBP11.3m; GBP12.4m on an underlying
basis). The Tooth Chain acquisition introduces a monthly revenue
requirement of GBP0.3m to breakeven. On an underlying basis,
excluding the acquisition, the monthly breakeven revenue has
increased by GBP0.2m (1.6%). This reflects the fact that we are
spending more on marketing and commercial headcount in order to
support the organic growth phase of the STEP 2020 Strategic
Plan.
Foreign exchange rates
Foreign exchange rates have been extremely volatile during the
year, reflecting the decline in the value of Sterling following the
UK's Brexit vote in June 2016. The value of Sterling fell
significantly in June, with an impact on the weighted average
exchange rates used to convert the Group's results to Sterling in
the first half. This fall was largely sustained throughout the
second half of the year, compounding the impact on the weighted
average rates.
The natural hedge normally provided by the Group's diverse
operating territories and currencies therefore did not operate in
the year as Sterling weakened against almost all global currencies
at the same time.
FX Rates (% of Group sales) Mar 16 Sep 16 Sep 16 Mar 17 Mar 17
FX rate FX rate Var % FX rate Var %
---------------------------- -------- -------- ------ -------- ------
GBPGBP / Euro (30%) 1.26 1.16 (8%) 1.17 (7%)
GBPGBP / US$ (33%) 1.44 1.30 (10%) 1.25 (13%)
GBPGBP / C$ (4%) 1.86 1.70 (9%) 1.67 (10%)
GBPGBP / A$ (5%) 1.87 1.69 (10%) 1.64 (12%)
---------------------------- -------- -------- ------ -------- ------
If the year end exchange rates had applied throughout the year,
there would be an estimated increase of GBP5.6m to revenue and
GBP0.4m to operating profit.
Exceptional items
Net exceptional charges of GBP1.7m were GBP0.5m lower than the
prior year figure. Gross charges of GBP4.6m (2016: GBP3.4m) related
to various restructuring and redundancy costs incurred as part of
STEP 2020 (GBP4.3m) and costs of integrating the Tooth Chain
acquisition (GBP0.3m). The more significant restructuring and
redundancy costs were incurred in consolidating the UK Couplings
manufacturing to Cardiff, relocating the European distribution
facility to Uslar, Germany, and commencing the programme to
relocate our Chain China manufacturing facility to a new purpose
built facility.
Offsetting these gross exceptional costs is a net gain of
GBP2.9m made on the sale and short-term leaseback of the Mulgrave
manufacturing facility in Australia. For more details please see
Note 3.
Other adjusting items
Other adjusting items include legacy pension scheme
administration costs of GBP0.7m (2016: GBP0.7m) and amortisation of
acquired intangible assets of GBP1.1m (2016: GBP0.2m).
Financing costs
External net interest costs in the year were GBP1.7m (2016:
GBP1.5m). The annual charge includes GBP0.2m (2016: GBP0.2m charge)
in respect of amortisation of the residual refinancing costs paid
in 2012 and 2015. Financing costs also include GBP0.1m of unwinding
discounts on onerous lease provisions established for the Bredbury
factory site.
Certain elements of the Group's debt facilities are drawn in
non-sterling currencies and the foreign exchange factors which
impact upon revenue and operating profit also impact upon financing
costs. The movement in foreign exchange rates in the year have the
effect of increasing the external net interest cost by GBP0.1m in
the year.
The net IAS 19 finance charge (which is a non-cash item) is
GBP2.5m (2016: GBP2.0m). In the current year, the actual return on
assets was GBP11.3m higher than the return used in the interest
calculation as specified in IAS 19 due primarily to stronger equity
markets and the offsetting impact of higher corporate bond yields
on the value of corporate bond portfolios.
Result before tax
Profit before tax was GBP6.7m (2016: GBP7.4m). Adjusted profit
before tax, which excludes exceptional items, IAS 19 financing
costs amortisation of acquired intangible assets and legacy pension
scheme costs, was GBP12.8m (2016: GBP12.7m).
Taxation
The current year tax charge of GBP1.9m (2016: charge of GBP2.0m)
is made up of a current tax charge of GBP2.9m (2016: charge of
GBP1.5m) and a deferred tax credit of GBP1.0m (2016: charge of
GBP0.5m). The Group cash tax paid was much lower at GBP1.0m (2016:
GBP1.0m). The difference between tax charges and cash tax paid is
due to the utilisation of tax losses and other tax assets in
various parts of the Group. The last of our historical tax losses
in Germany were utilised in the year. The effect of this will be to
increase tax payments in future years in this profitable territory,
with a double impact in the year ended 31 March 2018 as payments on
account become more significant.
Group results for the financial period
Profit for the financial year ended 31 March 2017 was GBP4.8m
(2016: GBP5.4m). The basic and diluted adjusted earnings per share
were both 4.6p (2016: earnings of 4.7p and 4.6p respectively).
Balance sheet
Net assets at 31 March 2017 were GBP7.8m (2016: GBP10.5m). The
fall was driven by the increase in the net pension deficit as lower
discount rates and increasing inflation rates result in increased
liabilities. This has only been partially offset by outperformance
of asset returns in the period.
The net liability for pension benefit obligations was GBP84.8m
(2016: GBP68.1m) after allowing for a net deferred tax asset of
GBP17.2m (2016: GBP14.8m). Overseas schemes now account for
GBP25.0m (29.0%) of the post tax pension deficits and GBP26.2m of
this is in respect of the German scheme which is not required to be
prefunded.
Cash flow and borrowings
Cash generated from operations was GBP7.4m (2016: GBP10.8m).
Gross capital expenditure was up in the year at GBP9.6m (2016:
GBP9.5m). This investment was partially funded through the disposal
proceeds from the sale of properties in the year of GBP10.2m (2016:
GBPnil).
Capital expenditure in the new financial year is expected to
exceed GBP13.0m. A number of major projects totalling approximately
GBP7.8m are already committed as at the date of this report
including GBP6.0m for the relocation of our Chinese Chain
manufacturing facility and GBP1.2m in respect of the roll out of
our global IT system.
Investments were also made in a number of stock lines to support
new sales initiatives and new product launches. This in part
explains the small rise in our working capital KPI (average working
capital as a ratio of rolling 12 month sales) from 20.3% to 22.2%
which was also adversely impacted by the slow down in demand. The
absolute level of working capital was GBP3.4m higher than in the
prior year.
Group net borrowings at 31 March 2017 of GBP17.4m were GBP6.1m
lower than the opening position of GBP23.5m comprising cash and
cash equivalents of GBP16.4m (2016: GBP13.5m) and borrowings of
GBP33.8m (2016: GBP37.0m). The decrease in net debt is almost
wholly explained by the proceeds received for the sale of
properties in the year.
Debt facility and capital structure
The Group's core banking facilities are unchanged in the year
and remain a committed GBP41.0m Multi-Currency Revolving Credit
Facility (MCRF), with a GBP20.0m accordion. The facility matures in
May 2020.
The Group continues to operate comfortably within covenant
limits. The Net Debt/Adjusted EBITDA ratio as at 31 March 2017 is
0.82 times (covenant requirement: 2.5 times; 2016: 1.1 times),
based on the reported figures for the period as adjusted for the
banking agreement. The Adjusted EBITDA/interest cover as at 31
March 2017 is 12.1 times (covenant requirement: 4.0 times; 2016:
13.6 times), again on a banking basis.
At 31 March 2017, the Group had unused credit facilities
totalling GBP5.3m and cash balances of GBP16.4m. Total Group credit
facilities amounted to GBP43.3m, all of which were committed.
Treasury and financial instruments
The Group's treasury policy, approved by the Board, is to manage
its funding requirements and treasury risks without undertaking any
speculative risks.
To manage foreign currency exchange risk on the translation of
net investments, certain 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 2017 this hedge
was fully effective. The carrying value of these borrowings at 31
March 2017 was GBP6.9m (2016: GBP6.1m).
At 31 March 2017, the Group had 1% (2016: 1%) 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%) defined benefit pension obligations as shown
below.
2017 2016
Assets Liabilities Deficit Assets Liabilities Deficit
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ------ ----------- ------- ------ ----------- -------
Defined benefit schemes
UK funded 146.4 (218.4) (72.0) 137.7 (191.3) (53.6)
Overseas funded 14.2 (18.0) (3.8) 11.4 (16.2) (4.8)
Overseas unfunded - (26.2) (26.2) - (24.5) (24.5)
------------------------ ------ ----------- ------- ------ ----------- -------
160.6 (262.6) (102.0) 149.1 (232.0) (82.9)
Deferred tax asset 17.2 14.8
------------------------ ------ ----------- ------- ------ ----------- -------
Net deficit (84.8) (68.1)
------------------------ ------ ----------- ------- ------ ----------- -------
The Group's retirement benefit obligations increased from
GBP82.9m (GBP68.1m net of deferred tax) at 31 March 2016 to
GBP102.0m (GBP84.8m net of deferred tax) at 31 March 2017. The
largest element of the increase relates to the UK scheme where the
deficit increased from GBP53.6m to GBP72.0m. The increase in the
deficit of the overseas schemes of GBP0.7m arises from an
underlying reduction in the deficit of GBP1.9m, offset by a GBP2.6m
increase arising from foreign exchange movements in the year.
UK funded scheme
The major reason for the increase in the deficit of the UK
funded scheme is the impact of the actuarial assumptions on the
value of liabilities. Reductions to discount rates have combined
with increasing inflation assumptions to increase the value of
liabilities by GBP35.8m. However, this increase was offset by
experience gains (the difference between assumptions previously
made and experience of real events) and asset returns delivered
above assumed levels, which together generated gains of GBP15.3m to
offset the deficit increase.
Overseas funded schemes
The overseas funded schemes comprise a number of smaller schemes
around the world. Deficits on these schemes reduced in the year by
GBP1.0m, despite a GBP0.7m increase in net liability due to the
movement in foreign exchange rates. Experience gains, asset
outperformance and contributions to the schemes combined to reduce
the underlying deficits in aggregate by GBP1.7m.
Overseas unfunded schemes
This category largely relates to the unfunded German schemes.
The deficit increased in the year as foreign exchange movements
increased the liability by GBP1.9m. The underlying deficit reduced
by GBP0.2m as increases arising from actuarial assumptions were
offset by payments of benefits in the year.
The aggregate expense of administering the pension schemes was
GBP0.7m (2016: GBP0.7m) and is included in operating costs but is
excluded in arriving at adjusted operating profit.
The latest triennial actuarial valuation of the UK Scheme, with
an effective date of 5 April 2016, was recently agreed. This
process concluded that contributions to the UK Scheme should
continue unchanged and no additional contributions in excess of the
previously agreed asset backed funding structure were deemed
necessary. The next triennial valuation date will be 5 April
2019.
Total cash costs for UK deficit repair payments and UK
administrative expenses in the period were GBP3.9m (2016: GBP3.4m)
which includes GBP0.7m (2016: GBP0.7m) in administration costs. The
increase in UK deficit repair payments in the year of GBP0.5m
reflects a one-off additional contribution as part of the medically
underwritten buy-ins which completed in the prior year.
Total cash costs for the overseas pension schemes increased in
the period to GBP2.1m (2016: GBP1.9m) as a result of foreign
exchange differences.
Ian Scapens
Finance Director
30 May 2017
Principal risks and uncertainties
Risk is inherent in our business activities. We take steps at
both a Group and subsidiary level to understand and evaluate
potential risks and uncertainties which could have a material
impact on our performance in order to mitigate them. Accordingly, a
risk aware environment is promoted and encouraged throughout the
Group. Details of the principal risks and uncertainties are
summarised below and set out in more detail in the Annual
Report.
Potential impact Strategy for mitigation
---------------------------------------------------------- ----------------------------------------------------------
Macro-Economic and Political Volatility
----------------------------------------------------------------------------------------------------------------------
Commodity price increases have a negative impact on Our diversified geographic footprint inherently exposes
demand in the whole supply chain. us to more countries where risks arise
Foreign exchange volatility can impact customer buying but conversely provides some degree of resilience.
patterns, leading to lower demand or Actions to lower the Group's overall breakeven point also
the need to rapidly switch supply chains. serve to reduce the impact of any
The political issues affecting the UK and Europe are also global economic slowdown.
impacting business performance and Multi-currency banking facilities and cash flow hedging
confidence. strategy.
---------------------------------------------------------- ----------------------------------------------------------
Strategy Execution
----------------------------------------------------------------------------------------------------------------------
Whilst these projects are designed to deliver targeted Major projects are all managed in accordance with best
benefits, if not appropriately managed, practice project management techniques
they have the potential to negatively impact the Group's with at least one member of the Executive team on the
operations. relevant Steering Committees.
---------------------------------------------------------- ----------------------------------------------------------
Acquisitions Risk
----------------------------------------------------------------------------------------------------------------------
Any acquisition involves risks at various stages of the Monitoring of specific acquisition targets; Business
project life cycle. Acquisition Process incorporating Concept
During the Acquisitions phase, value can be lost through Evaluation, Business Case, Indicative Offer/Heads of
over-paying, missing key issues in Terms, Due Diligence (covering a range
due diligence or potential value leakage through poor of criteria), Integration Planning and Execution and Post
contract negotiation. Value can also Integration Appraisal which in turn
be lost through a poorly planned or executed integration feeds back to the Business Acquisition Process.
phase. Finally, failure to deliver Use of third party specialists to address risks specific
anticipated benefits during the 'business as usual' phase to each acquisition.
can also lead to a loss of value. Formation of top-down cross functional business
integration project teams and plans.
Deployment of detailed benefits realisation plans.
---------------------------------------------------------- ----------------------------------------------------------
Health and Safety in the Workplace
----------------------------------------------------------------------------------------------------------------------
Accidents caused by a lack of robust safety procedures Group policies and a groupwide management system known as
could result in life changing impacts the Framework, to set control expectations,
for employees, visitors or contractors. This will always with a support training programme for all managers.
be unacceptable. In addition, accidents The Group operates a rolling programme of Internal Audits
could result in civil or criminal liability for both the to assess compliance against the
Group and the Directors and officers Framework.
of the Group and Group companies with reputational Continual hazard assessments to ensure awareness of
damage. risks.
---------------------------------------------------------- ----------------------------------------------------------
Effective Deployment and Utilisation of Information Technology Systems
----------------------------------------------------------------------------------------------------------------------
Interruption or failure of IT systems would negatively Short term stabilisation of existing hardware and legacy
impact or indeed prevent some business software platforms.
activities from occurring. If the interruption was long Governance and control arrangement operating over the
lasting, significant damage could Group's ERP implementation programme.
be done to the business. Use of specialist external consultants and recruitment of
It is essential that we are able to rely on the data experienced personnel.
derived from our business system to feed Phased implementation rather than 'big bang'.
routine but fundamental business performance monitoring. Project assurance and lessons learned reviews to
An unsuccessful implementation of the global ERP system continuously improve the quality of successive
has the potential to materially impact roll outs.
that site's and possibly the Group's performance. Template blueprint agreed to form the basis of the
The risk is assessed as stable as we have already implementations.
successfully implemented the ERP at two Steering Committee in operation with cascading project
locations. management disciplines.
A range of preventative and detective controls to manage
the risk of a cyber-attack.
---------------------------------------------------------- ----------------------------------------------------------
Prolonged Loss of a Manufacturing Site
----------------------------------------------------------------------------------------------------------------------
In the short or long term, a related risk event could Preventative maintenance programmes and new investments
adversely affect the Group's ability to reduce risk of interruption of
to meet the demands of its customers. manufacturing.
Specifically, this could entail significant repair costs A Group Fire Safety Policy, mandating preventive,
or costs of alternate supply while detective and containment controls.
repairs are made. A significant proportion of the Group's Alternate manufacturing capacity exists for a substantial
revenue is on relatively short lead portion of the Group's product range.
times and a break in our supply chain could result in Inventory maintained to absorb and flatten out raw
loss of revenue. All of this translates material supply and production volatility.
into lower sales and profits. The Group has comprehensive insurance policies to
mitigate the impact of a number of these
risks.
---------------------------------------------------------- ----------------------------------------------------------
People and Change
----------------------------------------------------------------------------------------------------------------------
Failure to retain, attract or motivate the required Competitive reward programmes, focused training and
calibre of employees will negatively impact development, and a talent retention programme.
business performance. The delivery of the STEP 2020 Ongoing reviews of succession plans based on business
Strategic Plan and our strategic goals needs.
may also be delayed. Performance management introduced and training
programmes, both being extended in the new
financial year. Formal personal development review
process to be rolled out in the new financial
year.
---------------------------------------------------------- ----------------------------------------------------------
Liquidity, Foreign Exchange and Banking Arrangements
----------------------------------------------------------------------------------------------------------------------
Potentially cause under investment and sub-optimal short The Group's primary banking facility expires in May 2020
term decision making. and is fully available given current
Limiting investment could prevent efficiency savings and levels of profitability.
reduce competitiveness. The facility includes additional draw down capability,
In an extreme situation, the Group's ability to operate accessible as long as financial covenants
as a Going Concern could also be jeopardised. are complied with.
Six quarters of rolling forward FX cover.
---------------------------------------------------------- ----------------------------------------------------------
Pensions Deficit Volatility
----------------------------------------------------------------------------------------------------------------------
Given the Group's cash needs to invest in the business, The major UK pension cash flows (50% of all defined
the pace of performance improvement benefit pension cash costs) are stable
could be slowed if cash has to be diverted to the pension under the 25 year asset backed funding scheme put in
schemes. place during 2013. A further 25% of the
The balance sheet pension deficit and its volatility annual cash flows are pensions in payment in Germany in a
could act as a disincentive to potential mature scheme that has passed its
investors and could reduce the Group's ability to raise peak funding requirement.
new equity or debt financing.
---------------------------------------------------------- ----------------------------------------------------------
Regulatory and Legal Compliance
----------------------------------------------------------------------------------------------------------------------
Failure by the Group or its representatives to abide by Communication of a clear compliance culture.
applicable laws and regulations could Risk assessments and ongoing compliance reviews at least
result in: annually at all major locations.
* Administrative, civil or criminal liability. Published up to date policies and procedures with clear
guidance and training issued to all
employees.
* Significant fines and penalties. Monitoring of compliance with nominated accountable
managers in each business unit.
* Suspension of the Group from trading.
* Reputational damage.
---------------------------------------------------------- ----------------------------------------------------------
Responsibility statement of the Directors on the annual report
and financial statements
The responsibility statement below has been prepared in
connection with the company's full annual report for the year
ending 31 March 2017. Certain parts thereof are not included within
this announcement.
We confirm to the best of our knowledge:
-- the financial statements, prepared in accordance with
International Financial Reporting Standards as adopted by the EU,
give a true and fair view of the assets, liabilities, financial
position and profit or loss of the company and the undertakings
included in the consolidation taken as a whole;
-- the strategic report includes a fair review of the
development and performance of the business and the position of the
company and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties they face; and
-- the annual report and financial statements, taken as a whole,
are fair, balanced and understandable and provide the information
necessary for shareholders to assess the company's performance,
business model and strategy.
Consolidated Statement of Comprehensive Income
for the year ended 31 March 2017
2017 2017 2016 2016
Statutory 2017 Adjustments Adjusted(1) Statutory 2016 Adjustments Adjusted(1)
Note GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ---- ---------- ---------------- ------------ ---------- ---------------- ------------
Revenue 2 183.4 - 183.4 165.2 - 165.2
Operating costs (172.4) 3.5 (168.9) (154.1) 3.1 (151.0)
------------------------ ---- ---------- ---------------- ------------ ---------- ---------------- ------------
Operating profit 11.0 3.5 14.5 11.1 3.1 14.2
------------------------ ---- ---------- ---------------- ------------ ---------- ---------------- ------------
Operating profit is
analysed as: 3
Before adjusting items 11.0 - 11.0 11.1 - 11.1
Exceptional costs - 1.7 1.7 - 2.2 2.2
Amortisation of acquired
intangible assets - 1.1 1.1 - 0.2 0.2
Pension administration
costs - 0.7 0.7 - 0.7 0.7
------------------------ ---- ---------- ---------------- ------------ ---------- ---------------- ------------
Operating profit 11.0 3.5 14.5 11.1 3.1 14.2
------------------------ ---- ---------- ---------------- ------------ ---------- ---------------- ------------
Financial costs (1.7) - (1.7) (1.5) - (1.5)
Net IAS 19 financing
costs (2.5) 2.5 - (2.0) 2.0 -
Discount on provisions (0.1) 0.1 - (0.2) 0.2 -
------------------------ ---- ---------- ---------------- ------------ ---------- ---------------- ------------
Net financing costs 4 (4.3) 2.6 (1.7) (3.7) 2.2 (1.5)
------------------------ ---- ---------- ---------------- ------------ ---------- ---------------- ------------
Profit before tax 6.7 6.1 12.8 7.4 5.3 12.7
Taxation 5 (1.9) (0.4) (2.3) (2.0) (0.2) (2.2)
------------------------ ---- ---------- ---------------- ------------ ---------- ---------------- ------------
Profit for the financial
year 4.8 5.7 10.5 5.4 5.1 10.5
------------------------ ---- ---------- ---------------- ------------ ---------- ---------------- ------------
Other comprehensive income/(expense):
Items that may be reclassified
to the income statement
in subsequent periods:
Foreign exchange translation
differences 9.8 - 9.8 1.2 - 1.2
Foreign exchange differences
on loans hedging the
net investment in foreign
operations (0.9) - (0.9) (0.2) - (0.2)
------------------------------- ------ ---- ------ ----- ---- -----
8.9 - 8.9 1.0 - 1.0
Items not to be reclassified
to the income statement
in subsequent periods:
Remeasurement losses
on retirement benefit
obligations (19.0) - (19.0) (8.1) - (8.1)
Tax on remeasurement
losses on retirement
benefit obligations 2.1 - 2.1 (0.5) - (0.5)
------------------------------- ------ ---- ------ ----- ---- -----
(16.9) - (16.9) (8.6) - (8.6)
------------------------------- ------ ---- ------ ----- ---- -----
Other comprehensive
income/(expense) for
the year, net of tax (8.0) - (8.0) (7.6) - (7.6)
------------------------------- ------ ---- ------ ----- ---- -----
Total comprehensive
income/(expense) for
the year, net of tax (3.2) 5.7 2.5 (2.2) 5.1 2.9
------------------------------- ------ ---- ------ ----- ---- -----
Attributable to:
Owners of the parent (3.2) 5.7 2.5 (2.3) 5.1 2.8
Non-controlling interest - - - 0.1 - 0.1
------------------------------- ------ ---- ------ ----- ---- -----
(3.2) 5.7 2.5 (2.2) 5.1 2.9
------------------------------- ------ ---- ------ ----- ---- -----
Earnings per share 6
Basic earnings per
share 2.1p 2.5p 4.6p 2.4p 2.3p 4.7p
Diluted earnings per
share 2.1p 2.5p 4.6p 2.3p 2.3p 4.6p
------------------------------- ------ ---- ------ ----- ---- -----
1 Adjusted for the after tax effects of pension administration
costs, exceptional items, changes in the provision discounts, IAS
19 financing costs, and amortisation of acquired intangible
assets.
Consolidated Balance Sheet
as at 31 March 2017
2017 2016
Note GBPm GBPm
---------------------------------------------------- ---- ------- -------
ASSETS
Non-current assets
Goodwill 8 26.4 22.7
Other intangible assets 9 9.7 10.3
Property, plant and equipment 10 47.2 44.4
Deferred tax assets 20.9 17.0
104.2 94.4
---------------------------------------------------- ---- ------- -------
Current assets
Inventories 12 40.4 36.3
Trade and other receivables 13 36.8 30.5
Cash and cash equivalents 14 16.4 13.5
---------------------------------------------------- ---- ------- -------
93.6 80.3
Non-current asset classified as held for sale 11 0.3 1.0
---------------------------------------------------- ---- ------- -------
93.9 81.3
---------------------------------------------------- ---- ------- -------
TOTAL ASSETS 198.1 175.7
---------------------------------------------------- ---- ------- -------
LIABILITIES
Current liabilities
Borrowings 15 (0.8) (0.9)
Trade and other payables 16 (41.9) (36.2)
Current tax (4.2) (2.2)
Derivative financial instruments (0.1) (0.1)
Provisions 17 (3.6) (1.7)
---------------------------------------------------- ---- ------- -------
(50.6) (41.1)
---------------------------------------------------- ---- ------- -------
NET CURRENT ASSETS 43.3 40.2
---------------------------------------------------- ---- ------- -------
Non-current liabilities
Borrowings 15 (32.5) (35.6)
Preference stock 15 (0.5) (0.5)
Trade and other payables 16 (0.3) (0.3)
Deferred tax liabilities (0.3) (0.3)
Retirement benefit obligations (102.0) (82.9)
Provisions 17 (4.1) (4.5)
---------------------------------------------------- ---- ------- -------
(139.7) (124.1)
---------------------------------------------------- ---- ------- -------
TOTAL LIABILITIES (190.3) (165.2)
---------------------------------------------------- ---- ------- -------
NET ASSETS 7.8 10.5
---------------------------------------------------- ---- ------- -------
EQUITY
Issued share capital 26.7 26.6
Share premium account 30.1 29.9
Currency translation reserve 12.2 3.3
Other reserves 1.0 1.0
Retained earnings (64.9) (53.0)
---------------------------------------------------- ---- ------- -------
Equity attributable to equity holders of the parent 5.1 7.8
Non-controlling interests 2.7 2.7
---------------------------------------------------- ---- ------- -------
TOTAL SHAREHOLDERS' EQUITY 7.8 10.5
---------------------------------------------------- ---- ------- -------
Approved by the Board on 30 May 2017 and signed on its behalf
by:
Robert Purcell Ian Scapens
Chief Executive Finance Director
Consolidated Statement of Changes in Equity
for the year ended 31 March 2017
Share Currency Attributable Non-
Share premium Retained translation Other to owners controlling Total
capital account earnings reserve reserves of parent interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ -------- -------- --------- ------------ --------- ------------ ------------ -------
At 31 March 2015 26.6 29.9 (50.8) 2.3 1.0 9.0 2.6 11.6
Profit for the year - - 5.3 - - 5.3 0.1 5.4
Other comprehensive
income/(expense) - - (8.6) 1.0 - (7.6) - (7.6)
------------------------ -------- -------- --------- ------------ --------- ------------ ------------ -------
Total comprehensive
income/(expense) for
the year - - (3.3) 1.0 - (2.3) 0.1 (2.2)
Employee share options:
- value of employee
services - - 1.1 - - 1.1 - 1.1
------------------------ -------- -------- --------- ------------ --------- ------------ ------------ -------
At 31 March 2016 26.6 29.9 (53.0) 3.3 1.0 7.8 2.7 10.5
Profit for the year - - 4.8 - - 4.8 - 4.8
Other comprehensive
income/(expense) - - (16.9) 8.9 - (8.0) - (8.0)
------------------------ -------- -------- --------- ------------ --------- ------------ ------------ -------
Total comprehensive
income/(expense) for
the year - - (12.1) 8.9 - (3.2) - (3.2)
Proceeds from share
issue 0.1 0.2 - - - 0.3 - 0.3
Employee share options:
- value of employee
services - - 0.2 - - 0.2 - 0.2
------------------------ -------- -------- --------- ------------ --------- ------------ ------------ -------
At 31 March 2017 26.7 30.1 (64.9) 12.2 1.0 5.1 2.7 7.8
------------------------ -------- -------- --------- ------------ --------- ------------ ------------ -------
Consolidated Statement of Cash Flows
for the year ended 31 March 2017
2017 2016
GBPm GBPm
----------------------------------------------------- ----- ------
Cash flows from operating activities (Note 18)
Cash generated from operations 8.4 11.8
Income taxes paid (1.0) (1.0)
----------------------------------------------------- ----- ------
Net cash from operating activities 7.4 10.8
----------------------------------------------------- ----- ------
Cash flows from investing activities
Proceeds from property disposals 10.2 -
Purchase of property, plant and equipment (8.4) (7.9)
Purchase of intangible assets (1.2) (1.6)
Consideration paid for acquisition - (3.7)
----------------------------------------------------- ----- ------
Net cash from investing activities 0.6 (13.2)
----------------------------------------------------- ----- ------
Cash flows from financing activities
Financing costs paid (1.5) (1.8)
Proceeds from share issue 0.2 -
Proceeds from borrowings - 4.5
Repayment of borrowings (4.5) (0.5)
----------------------------------------------------- ----- ------
Net cash from financing activities (5.8) 2.2
----------------------------------------------------- ----- ------
Net increase/(decrease) in cash and cash equivalents 2.2 (0.2)
Net cash and cash equivalents at beginning of year 12.4 12.2
Effects of exchange rate changes 0.8 0.4
----------------------------------------------------- ----- ------
Net cash and cash equivalents at end of year (Note
14) 15.4 12.4
----------------------------------------------------- ----- ------
Notes to the Financial Information
1. Basis of preparation
The preliminary statement was approved by the Board on 30 May
2017. The preliminary statement does not represent the full
consolidated financial statements of Renold plc and its
subsidiaries which will be delivered to the Registrar of Companies
following the Annual General Meeting. The audited consolidated
financial statements of Renold plc for the year ended 31 March 2017
have been prepared in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union.
While the financial information included in this preliminary
announcement has been prepared in accordance with the recognition
and measurement criteria of International Financial Reporting
Standards (IFRSs), this announcement does not itself contain
sufficient information to comply with IFRSs. The Company expects to
publish full financial statements that comply with IFRSs in June
2017.
The preliminary statement has been prepared on a consistent
basis using the accounting policies set out in the Renold plc
annual report for the year ended 31 March 2016. The financial
information set out above does not constitute the company's
statutory accounts for the years ended 31 March 2016 or 2017, but
is derived from those accounts. Statutory accounts for 2016 have
been delivered to the Registrar of Companies and those for 2017
will be delivered following the company's Annual General Meeting.
The auditors have reported on those accounts: their reports were
unqualified, did not draw attention to any matters by way of
emphasis and did not contain statements under s498(2) or (3) of the
Companies Act 2006.
Changes in accounting policies and disclosures
The Group has adopted all applicable amendments to standards
with an effective date from 1 April 2016. Adoption of these
standards did not have any material impact on financial performance
or position of the Group.
Going Concern
The financial statements have been prepared on a going concern
basis. In determining the appropriate basis of preparation of the
financial statements, the Directors are required to consider
whether the Group can continue in operational existence for the
foreseeable future.
The Directors have assessed the future funding requirements of
the Group and the Company and compared them to the level of
available borrowing facilities. The assessment included a detailed
review of financial and cash flow forecasts, financial instruments
and hedging arrangements for at least the twelve month period from
the date of signing the Annual Report and Accounts. The Directors
consider a range of potential scenarios within the key markets the
Group serves and how these might impact on the Group's cash flow,
facility headroom and banking covenants. The Directors also
considered what mitigating actions the Group could take to limit
any adverse consequences. The Group's forecasts and projections,
taking account of reasonably possible scenarios show that the Group
should be able to operate within the level of its borrowing
facilities and covenants.
Having undertaken this work, the Directors are of the opinion
that the Company and the Group have adequate resources to continue
in operational existence for the foreseeable future. Accordingly
they continue to adopt the going concern basis in preparing the
consolidated financial statements.
2. 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 not been included in respect of the operating assets of each
segment as they are not reported to the CODM on a regular basis.
However, Group net financing 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.
Head office
costs
Torque and
Chain(2) Transmission eliminations Consolidated
Year ended 31 March 2017 GBPm GBPm GBPm GBPm
------------------------------------ -------- ------------- ------------- ------------
Revenue
External customer 146.1 37.3 - 183.4
Inter-segment(1) 0.3 4.1 (4.4) -
------------------------------------ -------- ------------- ------------- ------------
Total revenue 146.4 41.4 (4.4) 183.4
------------------------------------ -------- ------------- ------------- ------------
Adjusted operating profit/(loss) 16.6 3.9 (6.0) 14.5
Pension administration costs - - (0.7) (0.7)
Exceptional items 1.5 (3.1) (0.1) (1.7)
Amortisation of acquired intangible
assets (1.1) - - (1.1)
------------------------------------ -------- ------------- ------------- ------------
Operating profit/(loss) 17.0 0.8 (6.8) 11.0
Net financing costs (4.3)
------------------------------------ -------- ------------- ------------- ------------
Profit before tax 6.7
------------------------------------ -------- ------------- ------------- ------------
Other disclosures
Working capital(3) 26.5 10.0 (1.5) 35.0
Capital expenditure(4) 5.8 4.0 1.1 10.9
Depreciation and amortisation 4.9 1.2 1.8 7.9
------------------------------------ -------- ------------- ------------- ------------
Head office
Torque costs and
Chain(2) Transmission eliminations Consolidated
Year ended 31 March 2016 GBPm GBPm GBPm GBPm
------------------------------------ -------- ------------- ------------- ------------
Revenue
External customer 126.8 38.4 - 165.2
Inter-segment(1) - 2.7 (2.7) -
------------------------------------ -------- ------------- ------------- ------------
Total revenue 126.8 41.1 (2.7) 165.2
------------------------------------ -------- ------------- ------------- ------------
Adjusted operating profit/(loss) 15.4 5.0 (6.2) 14.2
Pension administration costs - - (0.7) (0.7)
Exceptional items (0.4) (1.2) (0.6) (2.2)
Amortisation of acquired intangible
assets (0.2) - - (0.2)
------------------------------------ -------- ------------- ------------- ------------
Operating profit/(loss) 14.8 3.8 (7.5) 11.1
Net financing costs (3.7)
------------------------------------ -------- ------------- ------------- ------------
Profit before tax 7.4
------------------------------------ -------- ------------- ------------- ------------
Other disclosures
Working capital(3) 23.7 8.8 (2.2) 30.3
Capital expenditure(4) 5.1 1.9 1.8 8.8
Depreciation and amortisation 3.5 1.1 1.4 6.0
------------------------------------ -------- ------------- ------------- ------------
2. Segmental information (continued)
The Group uses a variety of alternative performance measures,
which are non-IFRS, to assess the performance of its operations.
The Group considers these performance measures to provide useful
historical financial information to help investors evaluate the
underlying performance of the business by adjusting for volatility
created by one-off items and non-trading performance related costs
such as amortisation and legacy pension costs.
The two consistently applied performance measures which are
disclosed are adjusted results and underlying results.
Adjusted results exclude the impact of exceptional items,
pension financing charges, pension administration costs and the
amortisation of acquired intangible assets and the tax thereon. A
reconciliation of these results is shown on the face of the
consolidated statement of comprehensive income and in the tables
above. Adjusted operating profit of GBP14.5m is derived from the
statutory operating profit of GBP11.0m.
Underlying results are retranslated to current year exchange
rates and therefore only prior year comparatives would be deemed an
alternative measure. A reconciliation is provided below.
Head office
costs and
Chain(2) Torque Transmission eliminations Consolidated
Year ended 31 March 2016 GBPm GBPm GBPm GBPm
-------------------------------------------- -------- ------------------- ------------- ------------
Revenue
External customer 126.8 38.4 - 165.2
Foreign exchange 16.2 3.3 - 19.5
-------------------------------------------- -------- ------------------- ------------- ------------
Underlying external sales 143.0 41.7 - 184.7
-------------------------------------------- -------- ------------------- ------------- ------------
Adjusted operating profit/(loss) 15.4 5.0 (6.2) 14.2
Foreign exchange 2.4 0.2 - 2.6
-------------------------------------------- -------- ------------------- ------------- ------------
Underlying adjusted operating profit/(loss) 17.8 5.2 (6.2) 16.8
-------------------------------------------- -------- ------------------- ------------- ------------
(1) Inter-segment revenues are eliminated on consolidation.
(2) Included in Chain external sales is GBP4.7m (2016: GBP3.8m)
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.
The UK is the home country of the parent company, Renold plc.
The principal operating territories, the proportions of Group
external revenue generated in each (customer location), external
revenues, non-current assets (asset location) and average employee
numbers in each are as follows:
Non-current
Revenue ratio External revenues assets Employee numbers
2017 2016 2017 2016 2017 2016
% % GBPm GBPm GBPm GBPm 2017 2016
-------------- ------------- ------------ -------------- ------------- ---------- ---------- -------- --------
United Kingdom 7.5 9.1 13.8 15.0 14.8 14.0 364 364
Rest of Europe 31.0 27.3 56.9 45.2 18.8 17.6 576 523
North America 37.0 38.8 67.9 64.2 37.2 30.5 327 341
Australasia 10.0 10.2 18.3 16.8 3.0 6.6 133 144
China 3.9 4.4 7.1 7.3 3.1 3.0 293 342
India 4.2 3.8 7.7 6.2 5.7 5.1 425 459
Other
countries 6.4 6.4 11.7 10.5 0.7 0.6 65 59
-------------- ------------- ------------ -------------- ------------- ---------- ---------- -------- --------
100.0 100.0 183.4 165.2 83.3 77.4 2,183 2,232
-------------- ------------- ------------ -------------- ------------- ---------- ---------- -------- --------
All revenue relates to the sale of goods and services. No
individual customer, or group of customers, represents more than
10% of Group revenue (2016: none).
Non-current assets consist of goodwill, other intangible assets,
property, plant and equipment and investment property. Other
non-current assets and deferred tax assets are not included
above.
3. Adjusting and exceptional items
2017 2016
GBPm GBPm
---------------------------------------------------- ----- -----
Included in operating costs
Acquisition costs - Renold Tooth Chain 0.3 0.4
STEP 2020 restructuring costs 4.3 2.5
Net gain on sale of Australian property (2.9) -
Net pension settlement gains - (1.2)
Property impairments - 0.5
---------------------------------------------------- ----- -----
Exceptional items 1.7 2.2
Pension administration costs 0.7 0.7
Amortisation of acquired intangible assets (Note 9) 1.1 0.2
Adjusting items 3.5 3.1
---------------------------------------------------- ----- -----
2017 2016
GBPm GBPm
------------------------------------------- ----- -----
Included in net financing costs
Discount unwind on onerous lease provision 0.1 0.2
Net IAS 19 financing costs 2.5 2.0
------------------------------------------- ----- -----
2.6 2.2
------------------------------------------- ----- -----
As part of the acquisition of the Renold Tooth Chain business
completed in the prior year, the Group was obliged to pay for some
transitional services provided by the seller's group until the
business migrated to Renold's IT systems. Costs of GBP0.3m were
incurred until migration was completed in December 2016 and have
now ceased.
Various restructuring costs were incurred in the year as part of
the STEP 2020 Strategic Plan. The European distribution and sales
operations were relocated with the sales functions transferred to a
nearby rented office in Lille, France and the European distribution
operations moved to a new warehouse in Uslar, Germany located close
to the Einbeck Chain manufacturing factory. These moves resulted in
redundancy and restructuring costs of GBP0.6m. The former European
distribution site at Seclin, France was sold for GBP1.0m resulting
in no gain or loss on disposal following the GBP0.5m impairment
charge incurred in the prior year.
Also in the year, redundancy and restructuring costs of GBP2.5m
were incurred transferring the HiTec Couplings business, located in
Halifax, to our existing Couplings facility in Cardiff. As a result
of this transfer, the Halifax property is now held for sale at a
value of GBP0.3m (sold on 15 May 2017 - See Note 11). The increased
manufacturing capability at the Cardiff site permitted the closure
of the China Couplings facility with manufacturing moving to
Cardiff and South Africa. This incurred redundancy and
restructuring costs of GBP0.6m in the year.
A further restructuring cost of GBP0.4m was incurred in the year
as we commenced a multi-year project to transfer the China Chain
manufacturing facility from leased premises in Hangzhou to a
purpose-built facility near Changzhou in the Jiangsu province.
Other restructuring costs included GBP0.1m incurred following the
relocation of the Malaysian manufacturing facility into larger
premises and GBP0.1m of other STEP 2020 restructuring costs
incurred in the year.
In March 2017, the Mulgrave manufacturing facility in Australia
was sold realising net proceeds of GBP9.3m resulting in a gain on
disposal net of associated costs of GBP2.9m. As part of the sale
agreement, Renold can remain as a tenant and retain full use of the
property for three years until March 2020 at which point the
property must be vacated.
Prior year restructuring costs included GBP0.5m incurred at the
Milnrow facility, where the business was downsized following the
end of a long term supply agreement (offshored by the customer),
GBP0.6m of costs related to the relocation of the head office and
GBP1.4m of other STEP 2020 restructuring costs incurred in the
year.
Also in the prior year, a past service credit of GBP1.3m arose
in Germany following the confirmation that the pension scheme was
properly closed to future accrual with effect from 2014. This was
offset by a GBP0.1m settlement loss relating to the liquidation of
the Australian pension scheme.
4. Net financing costs
2017 2016
GBPm GBPm
---------------------------------------------- ----- -----
Financing costs:
Interest payable on bank loans and overdrafts (1.5) (1.3)
Amortised financing costs (0.2) (0.2)
---------------------------------------------- ----- -----
Total financing costs (1.7) (1.5)
---------------------------------------------- ----- -----
Net IAS 19 financing costs (2.5) (2.0)
---------------------------------------------- ----- -----
Discount unwind on provisions (0.1) (0.2)
---------------------------------------------- ----- -----
Net financing costs (4.3) (3.7)
---------------------------------------------- ----- -----
5. Taxation
Analysis of tax charge in the year:
2017 2016
GBPm GBPm
------------------------------------------------------------- ----- -----
United Kingdom
UK corporation tax at 20% (2016: 20%) - -
Overseas taxes
Corporation taxes 2.8 1.4
Withholding taxes 0.1 0.1
------------------------------------------------------------- ----- -----
Current income tax charge 2.9 1.5
------------------------------------------------------------- ----- -----
Deferred tax
UK - origination and reversal of temporary differences (0.3) (0.3)
Overseas - origination and reversal of temporary differences (0.7) 0.8
------------------------------------------------------------- ----- -----
Total deferred tax (credit)/charge (1.0) 0.5
------------------------------------------------------------- ----- -----
Tax charge on profit on ordinary activities 1.9 2.0
------------------------------------------------------------- ----- -----
2017 2016
GBPm GBPm
----------------------------------------------------------- ----- -----
Tax on items taken to other comprehensive income
Deferred tax on changes in net pension deficits (2.1) 0.5
----------------------------------------------------------- ----- -----
Tax (credit)charge in the statement of other comprehensive
income (2.1) 0.5
----------------------------------------------------------- ----- -----
Factors affecting the Group tax charge for the year
The UK Government announced that it intends to reduce the main
rate of corporation tax to 17% with effect from 1 April 2020. This
change was substantively enacted in September 2016. Accordingly,
deferred tax balances have been revalued to the lower rate of 17%
in these financial statements which has resulted in a GBP0.5m
deferred tax charge to the statement of other comprehensive
income.
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.
5. Taxation (continued)
The actual tax on the Group's profit before tax differs from the
theoretical amount using the UK corporation tax rate as
follows:
2017 2016
GBPm GBPm
------------------------------------------ ----- -----
Profit on ordinary activities before tax 6.7 7.4
------------------------------------------ ----- -----
Theoretical tax charge at 20% (2016: 20%) 1.3 1.5
Effects of:
Permanent differences 0.5 0.9
Overseas tax rate differences - 0.7
Prior year adjustments 1.5 0.2
Deferred tax utilised (1.4) (1.3)
------------------------------------------ ----- -----
Total tax charge 1.9 2.0
------------------------------------------ ----- -----
Tax payments
Cash tax paid in the year of GBP1.0m (2016: GBP1.0m) is lower
than the total tax charge due to the utilisation of tax losses in
various jurisdictions.
Effective tax rate
The effective tax rate of 28% (2016: 27%) is higher than the UK
tax rate of 20% (2016: 20%) due to the following factors:
-- Permanent differences including items that are disallowed
from a tax perspective such as entertaining and certain employee
costs;
-- Prior year adjustments arising as tax submissions are
finalised and agreed in specific jurisdictions; and
-- Differences in overseas tax rates, typically being higher than the rates in the UK.
6. 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:
2017 2016
Per share Per share
Earnings Shares amount Earnings Shares amount
GBPm (thousands) (pence) GBPm (thousands) (pence)
----------------------- -------- ------------ --------- -------- ------------ ---------
Basic EPS
Profit attributed to
ordinary shareholders 4.8 224,830 2.1 5.3 223,065 2.4
----------------------- -------- ------------ --------- -------- ------------ ---------
Basic EPS 4.8 224,830 2.1 5.3 223,065 2.4
----------------------- -------- ------------ --------- -------- ------------ ---------
2017 2016
Per share Per share
Earnings Shares amount Earnings Shares amount
GBPm (thousands) (pence) GBPm (thousands) (pence)
------------------------------- -------- ------------ --------- -------- ------------ ---------
Adjusted EPS
Basic EPS 4.8 224,830 2.1 5.3 223,065 2.4
Effect of adjusting items,
after tax:
Exceptional items in
operating costs 2.3 1.0 2.5 1.1
Pension administration
costs included in operating
costs 0.6 0.3 0.7 0.3
Discount unwind on exceptional
items 0.1 - 0.2 0.1
Amortisation of acquired
intangible assets 0.7 0.3 0.2 0.1
Net pension financing
costs 2.0 0.9 1.5 0.7
------------------------------- -------- ------------ --------- -------- ------------ ---------
Adjusted EPS 10.5 224,830 4.6 10.4 223,065 4.7
------------------------------- -------- ------------ --------- -------- ------------ ---------
Inclusion of the dilutive securities, comprising 3,293,000
(2016: 4,097,000) additional shares due to share options in the
calculation of basic and adjusted EPS does not change the amounts
shown above (2016: 2.3p and 4.6p respectively).
The adjusted EPS numbers have been provided in order to give a
useful indication of underlying performance by the exclusion of
exceptional items. Due to the existence of unrecognised deferred
tax assets, there was no associated tax credit on some of the
exceptional charges and in these instances exceptional costs are
added back in full.
7. Dividends
No ordinary dividend payments were paid or proposed in either
the current or prior year.
8. Goodwill
Goodwill
GBPm
-------------------------------------------------------------- --------
Cost
At 1 April 2015 23.3
Exchange adjustment 0.6
Arising on acquisition of Tooth Chain business 0.2
-------------------------------------------------------------- --------
At 1 April 2016 24.1
Exchange adjustment 3.4
Fair value adjustment arising on the acquisition of the Tooth
Chain business 0.3
At 31 March 2017 27.8
-------------------------------------------------------------- --------
Accumulated amortisation and impairment
At 1 April 2015 1.4
-------------------------------------------------------------- --------
At 1 April 2016 1.4
At 31 March 2017 1.4
-------------------------------------------------------------- --------
Net book amount at 31 March 2017 26.4
-------------------------------------------------------------- --------
Net book amount at 31 March 2016 22.7
-------------------------------------------------------------- --------
Net book amount at 31 March 2015 21.9
-------------------------------------------------------------- --------
The Group performed its annual impairment test of goodwill at 31
March 2017 which compares the current book value to the recoverable
amount from the continued use or sale of the related business. No
impairment charge has been recognised in the period.
The recoverable amount of each Cash Generating Unit (CGU) has
been determined on a value in use basis. Value in use is calculated
as the net present value of cash flows derived from detailed
financial plans for the next two financial years as approved by the
Board. Cash flows beyond this are extrapolated using the long term
country growth rates disclosed below:
CGU discount
Growth rates rates Carrying values
---------------------------- --------------------------- -------------------------- -----------------------------
2017 2016 2017 2016 2017 2016
% % % % GBPm GBPm
---------------------------- ------------- ------------ ------------ ------------ -------------- -------------
Jeffrey Chain, USA 1.6 2.1 16.2 12.4 23.2 20.2
Ace Chains, Australia 2.8 2.9 10.3 13.2 0.5 0.5
Renold Chain, India 8.1 7.7 30.1 30.5 2.2 1.8
Renold Tooth Chain, Germany 1.2 - 12.8 - 0.5 0.2
---------------------------- ------------- ------------ ------------ ------------ -------------- -------------
26.4 22.7
---------------------------- ------------- ------------ ------------ ------------ -------------- -------------
Key assumptions used in the value in use calculations:
Sales volumes, selling prices and cost changes
The Group prepares cash flow forecasts based on the latest
management estimates for the next two financial years. The expected
sales prices and volumes reflect management's experience of how
sales will develop at this point of the economic cycle. The
expected profit margin reflects management's experience of each
CGU's profitability at the forecast level of sales and incorporates
the impact of any restructuring that took place during the year
ended 31 March 2017.
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).
8. Goodwill (continued)
Management believe that no reasonably possible change in any of
the key assumptions would cause the carrying values to materially
exceed each CGU's recoverable amount.
Provisional fair value adjustment - Renold Tooth Chain
During the year, the provisional fair values calculated at the
Tooth Chain acquisition date have been reassessed, resulting in an
adjustment to the provisional fair values of inventories (GBP0.2m
reduction) and provisions (GBP0.2m increase) calculated at the date
of acquisition. Furthermore, the contingent consideration paid in
the year was lower than the provisional amount anticipated at the
acquisition date (GBP0.1m). These adjustments have been reflected
in goodwill arising upon acquisition resulting in a GBP0.3m
increase.
9. Intangible assets
Customer Customer Technical Computer
orderbook lists Know-how software Total
GBPm GBPm GBPm GBPm GBPm
--------------------------------- ---------- -------- --------- --------- -----
Cost
At 1 April 2015 - - - 12.7 12.7
Exchange adjustment - 0.4 - - 0.4
Additions - - - 1.6 1.6
Arising on acquisition of Tooth
Chain business 0.3 3.5 0.2 - 4.0
Disposals - - - (0.4) (0.4)
--------------------------------- ---------- -------- --------- --------- -----
At 1 April 2016 0.3 3.9 0.2 13.9 18.3
Exchange adjustment - 0.1 - 0.3 0.4
Additions - - - 1.2 1.2
Disposals - - - (0.4) (0.4)
--------------------------------- ---------- -------- --------- --------- -----
At 31 March 2017 0.3 4.0 0.2 15.0 19.5
--------------------------------- ---------- -------- --------- --------- -----
Accumulated amortisation and
impairment
At 1 April 2015 - - - 6.6 6.6
Amortisation charge - 0.2 - 1.6 1.8
Disposals - - - (0.4) (0.4)
At 1 April 2016 - 0.2 - 7.8 8.0
Exchange adjustment - - - (0.8) (0.8)
Amortisation charge 0.3 0.8 - 1.9 3.0
Disposals - - - (0.4) (0.4)
--------------------------------- ---------- -------- --------- --------- -----
At 31 March 2017 0.3 1.0 - 8.5 9.8
--------------------------------- ---------- -------- --------- --------- -----
Net book amount at 31 March 2017 - 3.0 0.2 6.5 9.7
--------------------------------- ---------- -------- --------- --------- -----
Net book amount at 31 March 2016 0.3 3.7 0.2 6.1 10.3
--------------------------------- ---------- -------- --------- --------- -----
Net book amount at 31 March 2015 - - - 6.1 6.1
--------------------------------- ---------- -------- --------- --------- -----
The acquisition of the Tooth Chain business in January 2016
brought significant benefit to the Group in terms of new customers,
relationships and technical 'know-how'. These benefits have been
valued under IFRS 3 using estimates of useful lives and discounted
cash flows of expected income. The values are being amortised as
follows:
Customer orderbook
Customer orderbook is amortised when the orderbook at the date
of acquisition has been fulfilled. This is now fully amortised.
Customer lists and technical know-how
Customer lists and technical know-how are being amortised over
five years as the benefits are likely to crystallise over a longer
period.
No brand names were acquired as part of the acquisition.
10. Property, plant and equipment
Land and Plant and
buildings equipment Total
GBPm GBPm GBPm
----------------------------------------------- ---------- ---------- ------
Cost
At 1 April 2015 18.7 105.1 123.8
Exchange adjustment 1.1 3.6 4.7
Additions 1.6 5.6 7.2
Arising on acquisition of Tooth Chain business 0.1 0.4 0.5
Disposals (0.4) (4.1) (4.5)
----------------------------------------------- ---------- ---------- ------
At 1 April 2016 21.1 110.6 131.7
Exchange adjustment 1.8 9.4 11.2
Additions 0.6 9.1 9.7
Transfer to assets held for sale (Note 11) (0.4) - (0.4)
Disposals (5.0) (12.4) (17.4)
----------------------------------------------- ---------- ---------- ------
At 31 March 2017 18.1 116.7 134.8
----------------------------------------------- ---------- ---------- ------
Accumulated depreciation and impairment
At 1 April 2015 3.5 80.6 84.1
Exchange adjustment 0.1 3.3 3.4
Charge for the year 0.5 3.7 4.2
Disposals (0.4) (4.0) (4.4)
----------------------------------------------- ---------- ---------- ------
At 1 April 2016 3.7 83.6 87.3
Exchange adjustment 0.4 7.7 8.1
Transfer to assets held for sale (Note 11) (0.1) - (0.1)
Charge for the year 0.3 4.6 4.9
Disposals (0.8) (11.8) (12.6)
----------------------------------------------- ---------- ---------- ------
At 31 March 2017 3.5 84.1 87.6
----------------------------------------------- ---------- ---------- ------
Net book amount at 31 March 2017 14.6 32.6 47.2
----------------------------------------------- ---------- ---------- ------
Net book amount at 31 March 2016 17.4 27.0 44.4
----------------------------------------------- ---------- ---------- ------
Net book amount at 31 March 2015 15.2 24.5 39.7
----------------------------------------------- ---------- ---------- ------
Future capital expenditure
At 31 March 2017 capital expenditure contracted for but not
provided for in these accounts amounted to GBP2.6m (2016:
GBP2.0m).
Asset held for sale
In the current year the former HiTec Couplings manufacturing
site located in Halifax, UK was reclassified as an asset held for
sale (see Note 11).
11. Asset Held for Sale
2017 2016
GBPm GBPm
----------------------------------------------------- ----- -----
At 1 April 1.0 1.4
Exchange adjustment - 0.1
Disposal (1.0) -
Transferred from tangible fixed assets (see Note 10) 0.3 -
Impairment charge - (0.5)
----------------------------------------------------- ----- -----
At 31 March 0.3 1.0
----------------------------------------------------- ----- -----
In October 2016, the asset held for sale, the former Chain
manufacturing facility located in Seclin, France was sold for
GBP1.0m. Proceeds of GBP0.9m have been received to date with a
further GBP0.1m receivable subject to environmental tests due to be
completed in December 2017.
During the year, the HiTec Couplings business was transferred
from the manufacturing facility based in Halifax to the existing UK
Couplings facility in Cardiff. The Halifax site was sold on 15 May
2017 for net proceeds of GBP0.5m realising a gain of GBP0.2m to be
recognised in the first half of the next financial year.
12. Inventories
2017 2016
GBPm GBPm
----------------------------------------- ----- -----
Raw materials 5.9 6.0
Work in progress 4.6 4.0
Finished products and production tooling 29.9 26.3
----------------------------------------- ----- -----
40.4 36.3
----------------------------------------- ----- -----
Inventories pledged as security for liabilities amounted to
GBP32.8m (2016: GBP30.2m).
13. Trade and other receivables
2017 2017 2016 2016
Current Non-current Current Non-current
GBPm GBPm GBPm GBPm
--------------------------- -------- ------------ -------- ------------
Trade receivables(1) 31.2 - 26.9 -
Less: impairment provision (0.3) - (0.4) -
--------------------------- -------- ------------ -------- ------------
Trade receivables: net 30.9 - 26.5 -
Other receivables(1) 2.6 - 1.5 -
Prepayments 3.3 - 2.5 -
--------------------------- -------- ------------ -------- ------------
36.8 - 30.5 -
--------------------------- -------- ------------ -------- ------------
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.
Trade receivables are non-interest bearing and are generally on
30-90 days terms. As at 31 March, the ageing analysis of trade
receivables is as follows:
Past due but not impaired
---------
Neither
past
due nor
Total impaired <30 days 30-60 days 60-90 days >90 days
GBPm GBPm GBPm GBPm GBPm GBPm
----- ----- --------- -------- ---------- ---------- --------
2017 31.2 26.7 3.1 0.4 0.3 0.7
2016 26.9 22.0 3.4 0.7 0.2 0.6
----- ----- --------- -------- ---------- ---------- --------
2017 2016
GBPm GBPm
-------------------------------------------- ----- -----
Movement on impairment provision
Opening provision 0.4 0.5
Net charge to income statement - 0.1
Utilised in year through assets written off (0.1) (0.2)
-------------------------------------------- ----- -----
Closing provision 0.3 0.4
-------------------------------------------- ----- -----
14. Cash and cash equivalents
In the Group cash flow statement, net cash and cash equivalents
are shown after deducting bank overdrafts as follows:
2017 2016
GBPm GBPm
------------------------------ ----- -----
Cash and cash equivalents 16.4 13.5
Less: Overdrafts (Note 15) (1.0) (1.1)
------------------------------ ----- -----
Net cash and cash equivalents 15.4 12.4
------------------------------ ----- -----
15. Borrowings
2017 2016
GBPm GBPm
---------------------------------------------- ----- -----
Amounts falling due within one year:
---------------------------------------------- ----- -----
Overdrafts 1.0 1.1
Capitalised costs (0.2) (0.2)
---------------------------------------------- ----- -----
0.8 0.9
---------------------------------------------- ----- -----
Amounts falling due after more than one year:
---------------------------------------------- ----- -----
Bank loans 32.9 36.1
Capitalised costs (0.4) (0.5)
Preference Stock 0.5 0.5
---------------------------------------------- ----- -----
33.0 36.1
---------------------------------------------- ----- -----
Total borrowings 33.8 37.0
---------------------------------------------- ----- -----
All financial liabilities above are carried at amortised
cost.
Core banking facilities
On 13 May 2015 the Group agreed a revision to its existing
banking facilities with its current banking partners, Svenska
Handelsbanken AB and Lloyds Bank plc. The revised facility
replicates the previous GBP41m Multi-Currency Revolving Facility
(MCRF) but also adds a GBP20m accordion feature that can be
accessed by the Group to fund investment or acquisition
opportunities. The revised facility has been extended to mature in
May 2020 whereas the original maturity was in October 2016. The
MCRF is fully committed and available until maturity.
At the year end the undrawn facility was GBP5.3m (2016:
GBP3.4m). The Group pays interest at LIBOR plus a variable margin
in respect of this facility. The average rate of interest paid in
the year was LIBOR plus 1.91% for Sterling denominated facility and
LIBOR plus 1.82% for the Euro and US Dollar denominated facility
(2016: LIBOR plus 1.79% for Sterling denominated facility and LIBOR
plus 1.81% for the Euro and US Dollar denominated facility). This
facility has two primary financial covenants which are tested on a
six monthly basis. The first is net debt as a ratio of rolling
annual EBITDA with a maximum ratio of 2.5 times. The second is
interest cover with a minimum ratio of 4.0 times (rolling annual
EBITDA divided by net financial interest cost). The Group also
benefits from a number of overseas facilities totalling
GBP2.2m.
Secured borrowings
Included in Group borrowings are secured borrowings of GBP32.3m
(2016: GBP35.0m). Security is provided by fixed and floating
charges over assets (including certain property, plant and
equipment and inventory) primarily in the UK, USA, France, Germany
and Australia.
Finance leases
The Group has no obligations under finance leases.
15. Borrowings (continued)
Preference Stock
At 31 March 2017 there were 580,482 units of Preference Stock in
issue (2016: 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.
16. Trade and other payables
2017 2017 2016 2016
Current Non-current Current Non-current
GBPm GBPm GBPm GBPm
------------------------------ -------- ------------ -------- ------------
Trade payables(1) 23.6 - 18.5 -
Other tax and social security 2.1 - 2.1 -
Other payables(1) 1.9 - 1.6 -
Accruals(1) 14.3 0.3 14.0 0.3
------------------------------ -------- ------------ -------- ------------
41.9 0.3 36.2 0.3
------------------------------ -------- ------------ -------- ------------
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.
17. Provisions
Business Onerous Contingent Total
restructuring lease consideration provisions
GBPm GBPm GBPm GBPm
----------------------------- -------------- ------- -------------- -----------
At 1 April 2016 0.3 4.0 1.9 6.2
Exchange - - 0.2 0.2
Arising during the year 3.2 1.6 - 4.8
Utilised in the year (2.1) (0.9) (0.6) (3.6)
Discount unwind on provision - 0.1 - 0.1
----------------------------- -------------- ------- -------------- -----------
At 31 March 2017 1.4 4.8 1.5 7.7
----------------------------- -------------- ------- -------------- -----------
2017 2016
Allocated as: GBPm GBPm
----------------------- ----- -----
Current provisions 3.6 1.7
Non-current provisions 4.1 4.5
----------------------- ----- -----
7.7 6.2
----------------------- ----- -----
Business restructuring
This provision relates to the reorganisation and restructuring
of various parts of the business: GBP0.6m relates to the Chinese
Torque Transmission facility closure initiated in March 2017 and
GBP0.8m relates to the remaining UK HiTec Couplings redundancy
costs due to be paid in the first half of the next financial year.
See Note 3 on exceptional charges for more details.
17. Provisions (continued)
Onerous lease
This provision relates to onerous lease costs in respect of the
lease of the Bredbury plant in the UK and the Mulgrave facility in
Australia. The Bredbury lease expires in May 2030. A lease was
agreed in August 2016 to sublet a significant part of the property
for a five year term for an annual rent of GBP0.6m. GBP0.9m of the
provision was utilised in the year leaving a provision of GBP3.2m
in respect of this lease.
In addition, as part of the sale agreement of the Mulgrave
facility in Australia completed in March 2017, it was agreed that
the business could remain in the property for a maximum of three
additional years for an annual rent of GBP0.5m. This lease was
deemed to be onerous and as a result a provision was established in
relation to the total lease cost of GBP1.6m. This charge was
included in the net exceptional gain on the sale of the property of
GBP2.9m (see Note 3).
Contingent consideration
Renold (Hangzhou) Co Limited: China
A provision of GBP0.8m (2016: GBP0.7m) was established for the
purchase of the outstanding 10% of the equity following the
acquisition of 90% of the equity interest in Renold (Hangzhou) Co
Limited in the period ended 31 March 2008 and is due to be paid at
the latest by 15 June 2017.
Renold Tooth Chain, Germany
A provision of GBP1.1m was established on the acquisition of the
Tooth Chain business in January 2016. The contingent consideration
is expected to be paid over the first two years based upon
achieving certain sales targets (up to a maximum of EUR1.5m). The
first year target resulted in consideration of GBP0.5m (EUR0.6m)
becoming payable. This was paid in April 2017. The reduction has
been adjusted though goodwill (see Note 8). Management expect that
the second year target will be met and therefore the amount has
been provided in full.
18. Additional cash flow information
Reconciliation of operating profit to net cash flows from
operations:
2017 2016
GBPm GBPm
------------------------------------------------ ----- -----
Cash generated from operations:
Operating profit 11.0 11.1
Depreciation and amortisation 7.9 6.0
Loss on disposals of plant and equipment 0.3 -
Exceptional gain on sale of Australian property (2.9) -
Property impairment - 0.5
Equity share plans 0.2 1.1
(Increase)/decrease in inventories (0.4) 1.7
(Increase)/decrease in receivables (3.4) 0.7
Increase/(decrease) in payables 1.3 (2.1)
Decrease in provisions (0.5) (1.6)
Past service credit - German pension scheme - (1.3)
Movement on pension plans (5.1) (4.3)
Cash generated from operations 8.4 11.8
------------------------------------------------ ----- -----
18. Additional cash flow information (continued)
Reconciliation of net change in cash and cash equivalents to
movement in net debt:
2017 2016
GBPm GBPm
------------------------------------------------------ ------ ------
Increase/(decrease) in cash and cash equivalents 2.2 (0.2)
Change in net debt resulting from cash flows 4.5 (4.0)
Foreign currency translation differences (0.4) (0.1)
Non-cash movement - refinancing cost capitalised - 0.5
Non-cash movement - amortisation of refinancing costs (0.2) (0.2)
------------------------------------------------------ ------ ------
Change in net debt during the period 6.1 (4.0)
Net debt at start of year (23.5) (19.5)
------------------------------------------------------ ------ ------
Net debt at end of year (17.4) (23.5)
------------------------------------------------------ ------ ------
Net debt comprises:
Cash and cash equivalents (Note 14) 16.4 13.5
Total borrowings (Note 15) (33.8) (37.0)
------------------------------------------------------ ------ ------
(17.4) (23.5)
------------------------------------------------------ ------ ------
19. Post balance sheet events
There were no significant post balance sheet events to
report.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SEMFMMFWSEDI
(END) Dow Jones Newswires
May 30, 2017 02:01 ET (06:01 GMT)
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