TIDMRNO
RNS Number : 4354F
Renold PLC
16 July 2021
Renold plc
Final results for the year ended 31 March 2021
("Renold", the "Company" or, together with its subsidiaries, the
"Group")
Resilient performance, strong cash generation and significant
net debt reduction
Renold (AIM: RNO), a leading international supplier of
industrial chains and related power transmission products,
announces its results for the year ended 31 March 2021.
Financial highlights
Adjusted results at constant exchange rates(1) 2021 2020
----------------------------------------------------- ---------- ----------
Revenue at constant exchange rates GBP165.3m GBP187.6m
----------------------------------------------------- ---------- ----------
Adjusted operating profit at constant exchange
rates GBP11.2m GBP13.1m
----------------------------------------------------- ---------- ----------
Return on sales(2) at constant exchange rates 6.8% 7.0%
----------------------------------------------------- ---------- ----------
Adjusted earnings per share 2.0p 2.9p
----------------------------------------------------- ---------- ----------
Net debt(3) GBP18.4m GBP36.6m
----------------------------------------------------- ---------- ----------
Results at actual exchange rates
----------------------------------------------------- ---------- ----------
Revenue GBP165.3m GBP189.4m
----------------------------------------------------- ---------- ----------
Adjusted operating profit GBP11.2m GBP13.4m
----------------------------------------------------- ---------- ----------
Return on sales(2) 6.8% 7.1%
----------------------------------------------------- ---------- ----------
Operating profit GBP10.5m GBP10.1m
----------------------------------------------------- ---------- ----------
Profit before tax GBP5.9m GBP4.9m
----------------------------------------------------- ---------- ----------
Basic earnings per share from continuing operations 1.7p 1.5p
----------------------------------------------------- ---------- ----------
-- Strong cash generation, with net debt reducing by c.50% to GBP18.4m
(2020: GBP36.6m)
-- Resilient return on sales 6.8% (2020: 7.1%) despite a reduction in
revenues
-- Adjusted operating profit of GBP11.2m (2020: GBP13.4m); operating
profit of GBP10.5m (2020: GBP10.1m)
-- Order intake improving, with closing order book c.10% ahead of 31
March 2020
-- Adjusted EPS of 2.0p (2020: 2.9p); Basic EPS from continuing operations
1.7p (2020: 1.5p)
-- Revenue down 12.7% (11.9% at constant exchange rates), impacted by
Covid-19 pandemic
Business highlights
-- An effective strategy and responsible management have created an increasingly
flexible Group, able to deliver a resilient performance through the
pandemic and positioned to capitalise on the anticipated economic
recovery
-- Covid-19 situation mixed; Europe, Americas and China recovering strongly,
whilst India and SE Asia impacted by new variants in H2
-- Swift decision making and cost discipline mitigated sales reduction,
despite significant material cost pressures and supply chain disruption
-- New Chinese factory continuing to progress well
-- Leverage remains low, increased cash generation facilitates bolt-on
acquisitions and strategic capital investment
-- Major restructuring complete and with the reduction in leverage, together
with increased cash generation, acquisitions and strategic growth
investment opportunities are now being actively explored
-- Post year end, on 8 April 2021, Renold completed the bolt-on acquisition
of the conveyor chain business of Brooks Ltd
(1) See below for reconciliation of actual rate, constant
exchange rate and adjusted figures
(2) Adjusted operating profit divided by revenue
(3) See Note 13 for a reconciliation of net debt which excludes
lease liabilities
Robert Purcell, Chief Executive, commented:
"I am pleased with the Group's robust performance through the
pandemic which reflected the benefits of the strategic development
completed over prior years. In particular, our employees around the
world have responded excellently to the challenges we have faced
and I thank them for their dedication and commitment to the Company
and our customers.
"Throughout the year the business performance has been on an
improving trend and I am pleased to report that our order books
have continued to grow in the early part of the new financial year.
Whilst there remain considerable Covid-19-related challenges in
some parts of the world, with supply chain issues and rising costs,
we are well placed to deal with these and our performance over the
last 12 months gives me confidence that we will return to growth in
the new financial year."
Meeting for analysts and institutional investors
A virtual meeting for institutional investors and analysts will
be held today at 9.00am BST. If you wish to attend this meeting
please contact renold@investor-focus.co.uk or call Tim Metcalfe of
IFC Advisory Limited (020 3934 6632) before 8.45am to be provided
with access details.
Retail Investor presentation and Q&A session
Renold management will be hosting an online presentation and
Q&A session at 5.30pm BST on Monday 19 July 2021. This session
is open to all existing and prospective shareholders. Those who
wish to attend should email renold@investor-focus.co.uk and they
will be provided with access details. Participants will have the
opportunity to submit questions during the session, but questions
are welcomed in advance and may be submitted to:
renold@investor-focus.co.uk.
Reconciliation of reported and adjusted results
Revenue Operating profit Earnings per
share
-------------- ------------------- ----------------
2021 2020 2021 2020 2021 2020
GBPm GBPm GBPm GBPm pence pence
------------------------------------- ------ ------ --------- -------- ------- -------
From continuing operations 165.3 189.4 10.5 10.1 1.7 1.5
Restructuring costs and other
adjusting items - - - 2.4 - 1.1
Amortisation of acquired intangible
assets - - 0.7 0.9 0.3 0.3
------------------------------------- ------ ------ --------- -------- ------- -------
Continuing adjusted 165.3 189.4 11.2 13.4 2.0 2.9
Exchange impact - (1.8) - (0.3) - -
------------------------------------- ------ ------ --------- -------- ------- -------
Continuing adjusted at constant
exchange rates 165.3 187.6 11.2 13.1 2.0 2.9
------------------------------------- ------ ------ --------- -------- ------- -------
Enquiries:
Renold plc Peel Hunt LLP IFC Advisory Limited
Robert Purcell, Chief Mike Bell Tim Metcalfe
Executive
Jim Haughey, Group Finance Ed Allsopp Graham Herring
Director
renold@investor-focus.co.uk
0161 498 4500 020 7418 8900 020 3934 6630
Cautionary statement regarding forward-looking statements
Some of the information in this document may contain projections
or other forward-looking statements regarding future events or the
future financial performance of Renold plc and its subsidiaries
(the Group). You can identify forward-looking statements by terms
such as "expect", "believe", "anticipate", "estimate", "intend",
"will", "could", "may" or "might", the negative of such terms or
other similar expressions. Renold plc (the Company) wishes to
caution you that these statements are only predictions and that
actual events or results may differ materially. The Company does
not intend to update these statements to reflect events and
circumstances occurring after the date hereof or to reflect the
occurrence of unanticipated events. Many factors could cause the
actual results to differ materially from those contained in
projections or forward-looking statements of the Group, including
among others, general economic conditions, the competitive
environment as well as many other risks specifically related to the
Group and its operations. Past performance of the Group cannot be
relied on as a guide to future performance.
NOTES FOR EDITORS
Renold is a global leader in the manufacture of industrial
chains and also manufactures a range of torque transmission
products which are sold throughout the world to a broad range of
original equipment manufacturers and distributors. The Company has
a reputation for quality that is recognised worldwide. Its products
are used in a wide variety of industries including manufacturing,
transportation, energy, metals and mining.
Further information about Renold can be found on our website at:
www.renold.com
Chairman's Statement
This will be my final Annual Report as Chairman of Renold as, at
the end of this year's Annual General Meeting, I intend to step
down from the Board and hand over the reins to my successor, David
Landless. Accordingly, it is probably a good time to reflect on
some of the strategic progress and changes that have been made over
the last nine years whilst I have been Chairman.
The business back then was faced with many challenges including
an inflexible cost base, where both the costs and the breakeven
point were too high, the lack of a service ethos and a
significantly underinvested manufacturing base. Despite possessing
a portfolio of market leading products, these fundamental
weaknesses led to a lack of both profitability and cash generation.
Over the period of my tenure as Chairman, the Board has committed
total expenditure of GBP31.5m in restructuring costs and GBP58.6m
in capital expenditure which has contributed to addressing these
weaknesses.
Due to the diligence of the executive team, our employees around
the world, and the Board, the business is in a much better place
than when I arrived as clearly illustrated by this year's results;
delivered in an economic and social environment, unparalleled in
living memory, due to the Covid-19 pandemic. The Group is now
capable of generating higher profits at much lower volumes, has
strong cash generation, a comfortable level of liquidity, and again
as this year demonstrates, has a much more flexible workforce who
are service orientated. Over my tenure difficult decisions had to
be made, especially concerning the closure of production facilities
in the UK, the opening of a new factory in China and a complete
shift in the Group's IT strategy. Now that the period of
substantial restructuring has come to a close, the Group will be
able to commit higher levels of resources to develop at a faster
rate, both organically and via strategically sound
acquisitions.
It is pleasing to see the strategic progress that has been made
over the past years, deliver a business which has the resilience to
weather these storms, and any future economic shocks. This is true,
both in terms of financial performance but also true for the
flexibility and adaptability of our people across the world, who
have continued to deliver an outstanding result for the Group in
this unprecedented and difficult global environment.
Reaction to the Covid-19 pandemic
In the Chief Executive's Review, Robert outlines the impact of
the Covid-19 pandemic on Renold and the actions we have delivered
to ensure the safety of our employees and continuity of supply to
customers plus the cost and cash measures implemented to protect
the financial strength of the Group.
With our manufacturing facilities in China, we gained early
exposure to the operational changes required to ensure the safety
of our employees in a Covid-19 environment. As Covid-19 spread
across the world, particularly to Europe and America, we were
well-placed to share best-practice and quickly implemented safe
working environments in our other locations. Consequently, the
temporary closure of a number of facilities, in particular in
India, which has once again been closed in the new financial year
due to the impact of the new variant, caused limited disruption to
trading in the year. The welfare and safety of our employees have
remained of paramount importance throughout the current crisis.
One of the key strengths of Renold is the significant
geographic, customer and sector diversification, together with a
broad spread of end-use applications for our products. Throughout
the various geographic lockdowns across the world, we have sought,
where appropriate and safe to do so, to keep our manufacturing
operations open in support of various industries that are essential
to the functioning of the global economy. Whether the end
application is in agriculture, food processing, energy or a myriad
of other essential industries (including internet-based and
technology industries' use of automated warehousing), Renold plays
its part in ensuring our customers can continue to operate.
The Covid-19-related changes that we have implemented can only
be successful with the support of our employees across the world.
Their willingness to adapt and adopt new working practices,
including where these incur personal hardships, has highlighted
their commitment and loyalty to Renold. Whether that is changing
shift patterns, reducing working hours or accepting temporary pay
reductions, all of our employees have stepped forward to support us
in addressing the current challenges.
Our markets and trading performance
At the half year we reported a pandemic related 17% reduction in
revenue compared to the equivalent prior year period, highlighting
the tougher market conditions, particularly in the European and US
chain markets. As expected, these conditions continued but were
less extreme in the second half of the year, where revenue was 8.1%
lower compared to the prior year. The speed of recovery of revenue
in the second half was constrained by the global supply chain
difficulties emerging from the pandemic, and, to a lesser extent,
the short-term impact of Brexit related import delays.
Over the year as a whole, Group revenue from continuing
operations declined by 12.7% and adjusted operating profit reduced
by 16.4%, reflecting the weakened market conditions. Encouragingly,
Group order intake in Q4 was 10.0% ahead of the equivalent prior
year period, and the order book at 31 March 2021 of GBP53.6m was
3.6% ahead of the prior year figure (9.2% at constant exchange
rates).
The Chain division's revenue from continuing operations declined
by 12.8% (12.0% at constant exchange rates) as the Covid-19
pandemic-related demand reduction impacted the division. Adjusted
return on sales increased in the year to 10.2% (2020: 9.3%)
reflecting the impact of significant productivity gains achieved in
the New Chinese Chain factory, which offset the negative margin
impact of lower sales seen in other geographic regions.
The volatile market conditions impacted most acutely on the
Torque Transmission (TT) division which experienced a revenue
decline of 15.2% (14.3% at constant exchange rates) over the full
year. In the second half of the year, a reduction in activity was
expected and planned due to variation in demand for a significant
long-term defence supply contract. Unsurprisingly, this revenue
decline reduced profitability, but a strong improvement in returns
from the Gears unit, and increased government support in terms of
US PPP loan forgiveness, bolstered adjusted return on sales for the
division to 12.8% (2020: 11.5%). TT is generally considered to be a
later cycle business than the Chain division, which together with
the lengthier order book means that we should see a continued
strengthening of the division's performance as the new financial
year progresses.
During the year, cash generation outperformed initial
expectations, as a strong focus on cash management resulted in a
c.50% reduction of net debt to GBP18.4m (31 March 2020:
GBP36.6m).
Strategic Developments
During the year, Renold made good progress in continuing to
deliver strategic change across the Group.
The recently completed Chinese factory continued to make
significant progress in terms of increased efficiency and
productivity. This is clearly illustrated by a c.24% reduction in
head count, from when the plant was originally opened back in March
2019, which has resulted in a step change in profitability of the
Chinese business year-on-year.
A review of manufacturing capabilities is currently underway,
which has identified opportunities for the upgrade of existing
manufacturing processes in India and China to create higher
specification, higher quality products. This review of supply chain
optimisation will facilitate the incorporation of standardised
manufacturing capabilities across all product lines and sizes
which, in turn, will enable us to benefit from significant
efficiencies and economies of scale. Furthermore, geographic
diversification will allow flexibility between manufacturing
locations, especially in light of customer supply chain
diversification, and a changing tariff environment.
The completion of the major restructuring initiatives, together
with the low level of financial leverage, puts the Group in an
ideal position to capitalise on meaningful bolt-on acquisitions
that augment our existing operations. This will allow us to
accelerate the growth in revenue, including for our existing
products into adjacent sectors, allow entry into new
under-represented sectors and geographies and, most importantly,
allow us to benefit from significant production synergies from
acquired businesses.
On the 8 April 2021, the Group acquired the conveyor chain
business of Brooks Limited, headquartered in Manchester, UK. This
small bolt-on acquisition will augment our existing UK
business.
Finally, I am pleased to announce that the Group is embracing a
sustainability strategy, whereby Renold will make Sustainability
one of its guiding principles. Over a period of time our new leader
for Sustainability will help the Board to develop policies and
strategies in this area.
The Board
Consistent with the cost actions being delivered across the
Group, the Board elected to take a temporary reduction in
fees/salary of 20% for Non-Executive Directors and 25% for
Executive Directors during the year. These pay reductions lasted
for a period of four months and commenced on 1 April 2020.
I would like to welcome Jim Haughey to the Board as Group
Finance Director. Jim joined us in October 2020 and brings with him
extensive experience in the engineering sector, having been Group
Finance Director at Mpac Group plc, and holding senior finance
roles at Bodycote plc, FKI plc and Bridon Group. I would also like
to take this opportunity to thank Ian Scapens, who left the Board
in June 2020 for the contributions made during his tenure.
In addition, I would like to welcome Andrew Magson to the Board
as a Non-Executive Director. Andrew has career-long experience
working in international industrial and manufacturing businesses
and was previously Group Finance Director of The Alumasc Group plc,
and prior to that he held senior finance roles at BPB plc.
As previously reported, at the conclusion of this year's Annual
General Meeting I will step down from the Board, retire as Chairman
of the Company and as Chairman of the Nominations Committee, and
David Landless will take over these responsibilities. Accordingly,
David Landless will retire as Audit Committee Chairman and Senior
Independent Director, with Andrew Magson taking on the
responsibilities as Audit Committee Chairman and Tim Cooper, the
Chair of the Remuneration Committee, taking on the responsibilities
of Senior Independent Director.
We continually monitor the composition of the Board with the
objective of maintaining, and broadening the range of expertise,
experience and diversity. The Board continues to ensure that
effective succession plans are in place.
Pensions
The latest triennial actuarial valuation of the UK pension
scheme, with an effective date of 5 April 2019, was agreed in March
2020, and reported to The Pensions Regulator in June 2020, with no
change to the contribution arrangements. This valuation assessed
the deficit at 5 April 2019 to be GBP9.1m, with the shortfall to be
recovered from expected asset outperformance.
The Group's net retirement benefit obligations as determined by
IAS 19R increased in the year to GBP102.4m (31 March 2020:
GBP97.6m) due primarily to a reduction in bond yields offset by the
recovery in asset prices during the year. At the last triennial
pension valuation the technical provisions deficit of the UK
scheme, which is how the trustees and regulator view the scheme,
was only GBP9.1m. This compares to the IAS 19R deficit for the UK
pension fund of GBP77.5m. The difference represents the valuation
of the capital asset reserve (CAR), currently GBP50.8m, being a
guaranteed set of future discounted cash contributions to the
scheme for a fixed period of 25 years commencing in 2013. Cashflows
under the CAR provide for long-term, predictable and sustainable
funding to the UK scheme. The Group remains committed to
progressively de-risking this position over time through a
combination of agreed contributions to the schemes, the benefit of
investment returns over time and other actions as they become
viable.
At the start of the financial year, and due to the uncertainty
in short-term outlook caused by the Covid-19 pandemic, Renold
approached the Trustees of the Pension scheme with a request to
defer GBP2.8m of contributions to the UK scheme for a 12 month
period to 31 March 2021. The Trustees supported this proposal and
it was agreed that the deferred contributions will be repaid over a
five-year period commencing on 1 April 2022.
Dividend
The Board fully recognises the importance of dividends to
shareholders. However, given the volatile operating environment
created by the Covid-19 pandemic and with the corresponding impact
on market demand, the Board has decided not to recommend the
payment of a dividend on ordinary shares for the year ended 31
March 2021. This approach will remain under active review for
future periods.
Summary
The Group has performed well in the face of the unprecedented
economic and social turmoil created by the Covid-19 pandemic. Both
divisions have performed with great credit in light of the demand
reductions. Rapid management action to contain costs, governmental
support and the benefits of previous restructuring, combined to
substantially mitigate the impact of the revenue decline. Supply
chain disruption and cost inflation will undoubtedly be key
challenges in the new financial year but the strong financial
performance this year, combined with the end of our strategic
restructuring programme, has generated the financial freedom to
exploit future organic and acquisition-related growth
opportunities. I would like to thank all our employees around the
world for their diligence and commitment in supporting the delivery
of resilient results in the face of unprecedented adversity.
MARK HARPER
CHAIRMAN
16 July 2021
Chief Executive's Review
The year ended 31 March 2021 proved to be a challenging one,
with the impact of the Covid-19 pandemic seeing Group revenue
reduce by some GBP24.1m (12.7%) year-on-year. However, the
strategic efforts undertaken over many years to make the cost base
of the Company more flexible, together with various short term cost
actions, and government support initiatives, has resulted in a
resilient adjusted operating profit performance of GBP11.2m, a
GBP2.2m (16.4%) reduction on the prior year level. The operating
profit gearing(1) on the reduced sales being a creditable 9%.
Statutory operating profit of GBP10.5m (2020: GBP10.1m) was GBP0.4m
ahead of the prior year, reflecting the significant reduction in
restructuring costs, with all major restructuring projects
complete.
More challenging market conditions, particularly in our key
European and US markets, adversely impacted demand. However, the
more streamlined and flexible operating model developed through
many years of strategic change has proved robust and has been
reflected in the overall resilience of the operating margin.
Group order intake in the year fell to GBP170.0m, down 7.4%
compared to the prior year. At constant exchange rates the
reduction was 6.5%. Encouragingly, Group order intake recovered
strongly and consistently through the second half with the final
quarter 10.0% ahead of the equivalent prior year period. The order
book at 31 March 2021 of GBP53.6m was 3.6% ahead of the prior year
figure (9.2% ahead at constant exchange rates).
During the year, cash generation outperformed initial
expectations, as a strong focus on cash management resulted in a
c.50% reduction of net debt to GBP18.4m (31 March 2020:
GBP36.6m).
This year, Renold advanced its roadmap for a more sustainable
future, preparing to build the foundations upon which a
sustainability strategy can be developed. Moving forward Renold
will make Sustainability a guiding principle. We will strive to act
responsibly, balancing the expectations of all our stakeholders
whilst reducing our impact on the environment and increasing our
contribution to the communities we operate within. Over the coming
months and years, we plan to formulate specific plans and deliver
outcomes which will ensure that Renold plays its part in creating a
sustainable future for all.
Activity within the Chain division recovered more quickly as the
year progressed with the second half of the year showing a rebound
in revenue, with growth of GBP3.4m (5.4%) recorded over the levels
seen in the first half. The disciplined action on costs led to a
creditable GBP1.9m sequential increase in adjusted operating
profit, from H1 to H2, with operating profit gearing(1) on the
increased sales of 56%. Overall, year-on-year operating margins
within the Chain division increased 90 basis points to 10.2%, aided
by a significant increase in productivity and resultant
profitability within the Chinese Chain business.
The TT division is generally a longer lead time, later cycle
business. The relatively larger order book on hand at the start of
the year supported revenue in the first half, while slower order
intake during the first half of the year led to revenue levels in
the second half of the year being some GBP2.1m lower than the first
half. Adjusted operating profit remained flat from H1 to H2, due in
part to a GBP0.8m reduction in underlying trading operating profit,
being offset by an increase in the level of US government PPP
support utilised by the business. The closing order book in the TT
division finished the year GBP1.3m (7.2%) below the prior year
level at constant exchange rates. On a positive note, order intake
in the final quarter was ahead of the levels seen in Q2 and Q3,
indicating that the recovery in this later cycle, business has
commenced.
Looking forward the Group is well positioned to capitalise on
the recovery from the Covid-19 pandemic.
(1) Operating profit gearing is defined as the year on year
change in adjusted operating profit, divided by the year-on-year
change in revenue
Covid-19 - Impact on operations and Renold's response
The first impact of the Covid-19 pandemic occurred at the end of
the last financial year, affecting the Group's Chinese operations.
The government enforced lockdown resulted in approximately four
weeks of additional shut down following the Chinese New Year.
Activity in China recovered fairly quickly so that business
returned to more normal levels as the current financial year
commenced.
Disrupted Chinese supply chains have continued to be an issue at
various times during the current financial year, due in part to the
availability of shipping containers, which has disrupted supply of
product both to external customers and also to Group companies in
Australasia, Europe and the US.
As the Covid-19 pandemic spread around the world, governments
took different approaches resulting in inconsistent impacts in
different parts of the world. New Zealand, Malaysia and India were
subject to a complete lockdown, including the requirement for
complete closure of factories, especially earlier on in the
year.
Across Europe, our manufacturing sites remained open but with
increased levels of absence due to the follow-on impacts of school
closures and strict self-isolation procedures being observed.
Our US sites followed local requirements, which again were
inconsistent between states. Our Chain factory in Tennessee
remained open, while our Torque Transmission manufacturing site in
New York state closed temporarily. Both facilities were ultimately
designated essential businesses and subsequently remained open for
the duration of the financial year.
As the year closed, the emergence of a new strain of the virus
in India has caused a significant increase in cases, leading to
another temporary enforced closure of our production facilities in
the new financial year. Supply chain disruption, shortage of
materials, and significant material price inflation have been a
constant challenge to our Indian factory management over more
recent months.
Throughout this year, our highest priority has been the safety
and welfare of our employees. Each location has established a
Covid-19 operational planning team with best practice and learning
being shared across the different geographic teams. The solutions
implemented differ by location, but include working from home for
employees not required in our factories, changes to shift patterns
to reduce the number of individuals on site at any point in time,
changes to operational processes to ensure social distancing is
enforced and strict approaches to self-isolation for individuals
who are at risk of having been exposed to anybody showing symptoms
or having been diagnosed as having the virus.
In anticipation of falling demand, at the start of the year, a
number of actions were implemented to reduce costs and preserve
cash flow, these actions were gradually eased as the year
progressed. These included:
-- suspending all discretionary spend and restricting non-committed capital
expenditure;
-- flexing working hours or operational headcount to match labour to
demand;
-- rephasing or renegotiating payments on leased properties, direct and
indirect tax payments and recovery of over-estimated corporate taxes
where paid on account;
-- agreeing with the scheme Trustee a deferral of contributions to the
UK pension fund for 12 months;
-- implementing temporary pay reductions for indirect employees, including
a 25% reduction for the Executive Directors and 20% for the Non-Executive
Directors;
-- re-negotiation of the Group borrowing facilities, and a precautionary,
temporary relaxation of the Group's borrowing covenants; and
-- utilising government support packages in order to reduce potential
redundancies and maintain the significant industry knowledge and high
skill base that our employees offer.
As a result of the above actions, combined with the resilient
trading performance of the business the Group's net debt position
of GBP18.4m at the year end, (31 March 2020: GBP36.6m) was
considerably improved and we retain significant headroom of
GBP27.7m under the Group's GBP61.5m revised committed banking
facilities. Throughout the year, the Group operated comfortably
within both the original and revised banking covenants and
delivered a significantly stronger result than modelled in the
plausible downside scenarios as prepared for the 2020 Annual Report
and Accounts.
All sites around the Group are currently open but, at the end of
the year, a surge of cases within India and continued high levels
of infection within parts of Europe, mean that the risk of further
lockdowns and temporary site closures cannot be eliminated.
Disruption to supply chains is causing shortages of materials and
significant inflationary pressure on the price of those materials
which are available. The Group has implemented a series of price
increases throughout the business aimed at fully recovering
inflationary cost increases.
Chain performance review
The impact of the Covid-19 pandemic resulted in revenue at
constant exchange rates 12.0% below the prior year. Despite the
drop in revenues, adjusted operating margins increased by 90 basis
points during the year to 10.2% (2020: 9.3%). The operational
gearing(1) on the reduced activity was a creditable 3%, as the
impact of significant operational efficiency gains, especially in
the Group's Chinese operations, were realised which, together with
cost cutting measures and government support packages, mitigated
the volume related shortfalls. Statutory operating profit was
GBP12.6m (2020: GBP11.0m), GBP1.6m higher than the prior year,
following the completion of all major restructuring programs and
the significant reduction in restructuring costs.
2020
(re-presented(2)
2021 )
GBPm GBPm
----------------------------------------------------- ----- -----------------
External revenue 128.9 147.9
Inter-segment revenue 1.1 1.1
----------------------------------------------------- ----- -----------------
Total revenue 130.0 149.0
Foreign exchange - (1.3)
----------------------------------------------------- ----- -----------------
Revenue at constant exchange rates 130.0 147.7
Adjusted operating profit 13.3 13.8
Foreign exchange - (0.2)
----------------------------------------------------- ----- -----------------
Adjusted operating profit at constant exchange rates 13.3 13.6
Statutory operating profit 12.6 11.0
----------------------------------------------------- ----- -----------------
(2) The results for the year ended 31 March 2020 have been
re-presented following the reclassification of one business unit
from the Chain division to the TT division
Across the Chain division order intake for the year dropped 8.7%
to GBP136.6m (2020: GBP148.3m), or 7.9% at constant exchange rates,
as the impact of the Covid-19 pandemic spread through the global
economy. The most significant reduction in order intake was
experienced within the first quarter of the year, where constant
exchange rate order intake was some 34.6% below the 2020
comparative. Since that point, order intake has recovered
sequentially quarter on quarter, with quarter four order intake
being some 16.9% ahead of the equivalent prior year period, with
the closing order book at GBP39.2m some 19.4% ahead of last year at
constant exchange rates.
Revenue was similarly reduced due to the pandemic and at
constant exchange rates reduced by 12.0%, to GBP130.0m (2020:
GBP147.7m). On a statutory basis, revenue decreased 12.8%. The
first quarter of the year, was supported by the opening order book
but quarter two revenue was 19.4% below the prior year comparator
at constant exchange rates. Since the half year, the strengthening
order intake has generated sequential increases in revenue, despite
short-term constraints in global supply chains subduing activity in
the final quarter of the year.
Chain Europe, which represents our largest Chain business, saw
the steepest decline in constant exchange rate revenues of 16.6%.
Revenue strengthened significantly in the final quarter, but
continued to trail the prior year average by 7.8%, as the recovery
in activity was curtailed by short term logistics problems,
resulting from the global shortage of containers and the impact of
the third lockdown in mainland Europe which caused a temporary
shortfall in book and ship orders.
In the Americas, the market decline experienced in the first
three quarters of the year was more pronounced with the shortfall,
especially in large OEM orders, resulting in a decline in constant
exchange rate revenue of 13.9%. Activity in the final quarter
recovered sharply, being 22.2% ahead of the average over the first
three quarters, as both the results of the US presidential election
and the strong roll out of the US vaccine program saw confidence in
the US economy grow significantly.
In Australasia, activity was mixed, but broadly positive across
the region. Revenue at constant exchange rates grew by 4.6%
year-on-year. Australia itself had a good year with revenue at
constant exchange rates 12.8% higher than the prior year, due in
part to customers changing buying patterns to source more
domestically produced goods as a result of continued supply chain
disruption of imported materials. Malaysia, Thailand, and New
Zealand encountered reductions in activity in excess of 10%. The
highlight of the region was Indonesia where activity bucked the
global trend and grew 38%, albeit from a low base.
Domestic revenues in India also suffered in the year with
constant exchange rate revenue 15.3% lower driven by a government
enforced shutdown and subdued activity in the first half of the
year. This was followed by a significant recovery in demand being
curtailed by short term material supply issues as domestic steel
production was reduced or didn't recover sufficiently quickly. The
more recent spread of the new Covid-19 variant saw a further
temporary cessation of production in May 2021.
Chinese revenues, which were the first to be impacted by the
global pandemic in the final quarter of 2020, remained subdued
throughout the year. Significant productivity improvements occurred
as the previous year's c.20% reduction in head count was followed
by a further 6% reduction in the current year, which along with
many additional operational projects improved the profitability of
the business substantially.
Despite the drop in revenues, the adjusted operating profit
margin for Chain increased by 90 basis points during the year to
10.2% (2020: 9.3%), which places the Group in a strong position to
capitalise as the global economy recovers.
(1) Operating profit gearing is defined as the year-on-year
change in adjusted operating profit, divided by the year-on-year
change in revenue
Torque Transmission performance review
Torque Transmission also experienced challenging market
conditions due to the Covid-19 pandemic. This, combined with the
expected fall in revenue from a major Couplings defence project,
resulted in constant exchange rate revenues declining by 14.3%. On
a statutory basis, revenue decreased 15.2%. The adjusted operating
profit margin from continuing operations increased by 130 basis
points during the year to 12.8% (2020: 11.5%) with the impact of
the declining revenue being more than offset by efficiency gains,
cost reductions and a one off GBP0.8m receipt of US government
support. Statutory operating profit was GBP5.0m (2020:
GBP4.9m).
2020
(re-presented(1)
2021 )
GBPm GBPm
-------------------------------------------------------- ----- -----------------
External revenue from continuing operations 36.4 41.5
Inter-segment revenue 2.7 4.6
-------------------------------------------------------- ----- -----------------
Total revenue from continuing operations 39.1 46.1
Foreign exchange - (0.5)
-------------------------------------------------------- ----- -----------------
Revenue from continuing operations at constant exchange
rates 39.1 45.6
Adjusted operating profit 5.0 5.3
Foreign exchange - (0.1)
-------------------------------------------------------- ----- -----------------
Adjusted operating profit from continuing operations
at constant exchange rates 5.0 5.2
Statutory operating profit from continuing operations 5.0 4.9
-------------------------------------------------------- ----- -----------------
(1) The results for the year ended 31 March 2020 have been
re-presented following the reclassification of one business unit
from the Chain division to the TT division
In a similar pattern to the Chain division, order intake for the
year dropped 4.6% to GBP37.4m (2020: GBP39.2m), 3.4% at constant
exchange rates, again as the impact of the Covid-19 pandemic became
widespread through the global economy. Due to the longer lead times
within the Torque Transmission division, the most significant
reduction in order intake was experienced within the second quarter
of the year when order intake at constant exchange rates was some
18.7% below the 2020 comparative. Since that point order intake has
recovered such that, by quarter four, order intake was marginally
ahead of the prior year average. The Torque Transmission division
has a longer sales cycle than Chain and therefore the full recovery
from Covid-19 is likely to take place in the coming months.
The Torque Transmission division experienced more challenging
market conditions as the year progressed. The longer sales cycle
and order book initially sheltered the division from some of the
impact of Covid-19 in the first quarter. Most of the individual
business units saw a decline in revenue as a result of the
pandemic. Demand in many geographic markets declined during the
year, although this was partially offset by growth of 25% in China.
The Chinese growth was in part due to the pandemic hitting China in
the latter part of the previous year, so the economy was further
along the path to recovery, but also due to the demand from our
largest customer for air preheaters continuing to grow. Within the
Couplings business, the challenging market conditions combined with
the revenue phasing of the large multi-year defence contract
resulted in an overall revenue decline.
The Gears business continued to make good progress both in terms
of margin improvements and cost reductions. Despite the difficult
market conditions, the Gears unit delivered an increased operating
profit margin at constant exchange rates. Order intake in the Gears
business unit was GBP1.8m (26.5%) higher than sales for the year
primarily as a result of a large order to supply escalator gear
units for the Budapest metro upgrade which will predominantly be
delivered in the next financial year. Demand from the OEM sector,
particularly for larger projects within the US and UK our key
geographic markets, reduced during the second quarter and took
until the final quarter to fully recover.
Although order intake and revenues were subdued within the
Couplings business, demand has started to return particularly as a
result of improved customer service levels. Targeted marketing
campaigns have so far proved successful with an increased interest
from customers in the RBI product which offers users a number of
advantages over other products available in the market. The
business expects to be awarded an additional large major contract
as a follow on to the current defence projects that are currently
being manufactured. Terms are likely to be agreed during the next
financial year and an announcement will be made if appropriate.
With the exception of our manufacturing site in New York state,
which closed temporarily, all Torque Transmission factories have
remained open throughout the pandemic with individual sites being
quick to implement safe working practices. Working patterns were
initially changed to keep teams segregated and ensure continuity of
production at all times.
As a result of the largest two manufacturing sites being based
in the UK, the division as a whole experienced some initial
disruption from Brexit both in terms of inbound and outbound
transport. The initial disruption appears to have largely subsided
and to date the division has not suffered any adverse financial
impact from Brexit.
Despite order intake and revenues being adversely impacted by
the pandemic, the division as a whole has seen a pick-up in
activity during the last quarter of the financial year. The Torque
Transmission division has a longer sales cycle than Chain and
therefore, the full recovery from Covid-19 is likely to be
delivered over the coming months.
Strategic Plan - update on progress
Renold is committed to initiatives towards a sustainable future,
building the foundations upon which a long-term sustainability
strategy can be developed. Moving forward Renold will make
Sustainability a guiding principle. We will strive to act
responsibly balancing the expectations of all our stakeholders
whilst reducing our impact on the environment and increasing our
contribution to the communities we operate within. Over the coming
months and years, we plan to formulate specific plans and deliver
outcomes which will ensure that Renold plays its part in creating a
sustainable future for all.
We have appointed a Sustainability program leader, who, working
with the Board, has commenced the formulation of a sustainability
strategy. The strategy will embrace the Group's future actions in
terms of:
-- Environment. Reducing the use of energy, carbon emissions, waste,
consumption and use of hazardous materials, travel and transportation,
and the optimisation of supply chains.
-- Workforce. Addressing engagement and wellbeing, workplace culture,
talent attraction, succession planning, together with existing work
concerning health and safety, diversity and equality, training learning
and development.
-- Communities. Encouraging greater links with the communities in which
we operate, charitable activities, CSR policy and practice, and supporting
employee involvement.
-- Governance. Continuing to develop transparent and compliant reporting,
risk management , certification, policies and procedures, and embedding
our values behaviours and ethics.
-- Customers. Supporting our customers in achieving their own sustainability
goals through the development and supply of high specification, durable,
environmentally responsible products which use less lubrication, reduce
customers' energy usage and need replacement less frequently, and
therefore minimise the impact on the environment.
-- Economics. Enabling a predictable and sustainable financial performance
from the Group, benefiting from our sustainability focus and balancing
this with the need to deliver stakeholder expectations and financial
prudence.
As previously outlined, the relocation of the Chinese factory
was a major project, upgrading the infrastructure and capability of
our business there. Having opened the new Jintan factory and
completed the transfer from the old factory by 31 March 2019,
operational productivity took some time to return to historical
levels during the year ended 31 March 2020. This was as expected
following the recruitment and training of an almost completely new
workforce. During the 2021 financial year significant productivity
improvements have been realised, including a further 6% reduction
in headcount, following the 20% reduction achieved during the prior
year. Adjusted operating profit for the Jintan factory in the year
improved significantly, despite the Chinese business overall seeing
a pandemic related GBP2.8m reduction in revenue. Whilst the factory
move has attracted most of the attention within this project, the
facility also benefitted from installation of our new ERP system.
Our new capabilities to run the site and business are substantially
better than before and the insight and analysis available underpins
our belief that the Chinese business can continue to improve
further.
Following the decision taken last year to acquire 100% ownership
of our Indian business, efforts continue to fully integrate the
business into the Group supply chain. Investments in production
capabilities, including improvements in the product quality and
uniformity, are both underway. India offers a very attractive
market in its own right and an interesting and effective
alternative to our Chinese Chain manufacturing site. India provides
the Group with an alternate supply base as customers' supply chains
flex, driven by an awakening of concern about tariffs and the
concentration of supply from a single region.
These projects highlight an intentional trend within our capital
allocation decisions for the Group. With the large infrastructure
projects complete, capital allocation decisions are now less
frequently limited purely by a site's domestic requirements but are
focused on customer service and optimising profitability for the
Group. For the Chain division especially, this allows us to access
economies of scale and offer a truly global service with increasing
relevance to large OEM customers. Renold is increasingly being seen
as an integrated international supplier and less as a series of
regional businesses.
Having created a stronger operational platform for the Group and
with the significant strengthening of our financial position, we
have increased our focus on how we can accelerate performance
through value-enhancing acquisitions. As a result, we have begun
developing a pipeline of acquisition opportunities which we believe
have the ability to meet our strict financial and operational
criteria. In line with this approach, the Group completed the
acquisition of the conveyor chain business of Brooks Limited, in
Manchester, UK on 8 April 2021. The business operates within the
conveyor chain market and is expected to generate additional sales
for the Group of c.GBP1.0m and add c.GBP0.2m to Group operating
profit for the year ending 31 March 2022. The business is currently
being integrated into the Renold UK Service Centre. Whilst this
acquisition is only small it will hopefully be the first of a
number of bolt-on acquisitions for the Group which will allow us to
expand our product offering and customer base, further expand our
already diverse product portfolio into adjacent market sectors and
allow us to capitalise on our ability to provide customers with
extremely high specification products with real benefit to their
own business performance.
The strategic progress made by the Group over recent years has
been significant. Investments in both our production capabilities
and our IT environment have resulted in significant benefits
with:
-- improvements in productivity and operational efficiency as evidenced
(pre-Covid) by growing sales per employee;
-- improvements in levels of customer service being delivered through
the Group's, Step 2 Service, programme; and
-- greater flexibility in the cost base as we start to reduce the correlation
between revenue and direct labour.
While revenue needs to recover to fully realise the financial
benefits of these improvements, the significant investment in
infrastructure and cost to change is largely at an end. As markets
recover, cash generated from trading will no longer be required to
support investment in substantial change programmes creating more
flexibility in capital allocation decisions.
In the near-term, market demand will continue to improve as the
world recovers from the impact of the Covid-19 pandemic. The
benefits of the strategic programme already delivered have left
Renold well positioned to capitalise on this recovery in the years
ahead.
Macroeconomic landscape and business positioning
With the Covid-19 pandemic resulting in continuing short-term
uncertainty, it is necessary to look at the underlying fundamentals
of the Group and the markets we serve to understand why Renold
continues to develop as a business. Many of these intrinsic values
have remained consistent over time but are continually being
enhanced and increased. They include:
-- Valued and recognised brand with considerable engineering expertise
The Renold brand has been built up over our 150-year history and is
trusted by customers to deliver exceptional products.
-- Global market position and unique geographical manufacturing capability
The global market position of Renold has existed for many years but
following significant strategic restructuring in the Chain division,
the geographic manufacturing footprint is unique permitting us to
service customer demand with increasing levels of flexibility - a
critical factor in a rapidly changing market environment.
-- Relatively low cost, but business critical products
Chain and Torque Transmission products are fundamental elements of
systems into which they are incorporated. Our products are often a
small proportion of the cost of the entire system, but are critical
to its operation.
-- Broad base of customers and end-user markets
Renold products are used in an extremely diverse range of end applications
and geographies resulting in a huge spread of customers and markets
served. Markets and applications will change and vary in the current
dynamically changing environment but with its wide spread of products,
geographies , applications and customers, Renold is well positioned
to cope.
-- High specification products delivering environmental benefits for
our customers
Renold products have always been high specification, premium products
which deliver exceptional benefits to customers. Whether through greater
efficiency than competitors' products leading to lower power usage,
longer life providing lower lifetime usage of materials and energy
in their manufacture, or lower lubrication requirements, Renold products
are well placed for an increasingly environmentally aware marketplace.
Our products are capable of helping our customers meet their sustainability
objectives whilst saving them money.
Outlook
I am pleased with the Group's robust performance through the
pandemic, which reflected the benefits of the strategic development
completed over prior years. Our employees around the world have
responded excellently to the challenges we have faced and I thank
them for their dedication and commitment to the Company and our
customers.
Throughout the year, the business performance has been on an
improving trend and I am pleased to report that our order books
have continued to grow in the early part of the new financial year.
Whilst there remains considerable Covid-19-related challenges in
some parts of the world, with supply chain issues and rising costs,
we are well placed to deal with these and our performance over the
last 12 months gives me confidence that we will return to growth in
the new financial year.
Robert Purcell
Chief Executive
16 July 2021
Finance Director's Review
Renold delivered a resilient performance during the year, even
though the Group's markets were significantly impacted by the
Covid-19 pandemic. Despite the reduction in revenue, the business
produced an adjusted operating margin of 6.8% (2020: 7.1%) and
achieved a significant reduction in net debt of GBP18.2m to
GBP18.4m (31 March 2020: 36.6m).
Orders and revenue
2021 2020
--------------------------- ---------------------------
Order Operating Order Operating
intake Revenue profit intake Revenue profit
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- ------- ------- --------- ------- ------- ---------
Continuing operations 170.0 165.3 10.5 183.6 189.4 10.1
Restructuring costs - - - - - 2.4
Amortisation of acquired
intangible assets - - 0.7 - - 0.9
----------------------------- ------- ------- --------- ------- ------- ---------
Adjusted 170.0 165.3 11.2 183.6 189.4 13.4
Impact of foreign exchange - - - (1.8) (1.8) (0.3)
----------------------------- ------- ------- --------- ------- ------- ---------
Adjusted revenue at constant
exchange rates 170.0 165.3 11.2 181.8 187.6 13.1
----------------------------- ------- ------- --------- ------- ------- ---------
Across the Group, order intake for the year dropped 7.4% to
GBP170.0m (2020: GBP183.6m), or 6.5% at constant exchange rates, as
the impact of the Covid-19 pandemic was reflected through the wider
economy.
Group revenue from continuing operations reduced by GBP24.1m
(12.7%) to GBP165.3m. Revenue at constant exchange rates decreased
similarly by GBP22.3m (11.9%). Activity throughout the first three
quarters of the year was remarkably consistent, as the production
plants trimmed production and operating expenditure in line with
the lower order intake levels. Activity in quarter four started to
recover, increasing by c.10% in response to the increased order
book, with activity held back in the short term by constraints on
global supply chains emerging from the pandemic.
On a divisional basis, the Chain division saw revenue from
continuing operations and at constant exchange rates decrease by
12.0% while Torque Transmission decreased by 14.3%.
Operating profit
The Group generated an adjusted operating profit from continuing
operations for the year of GBP11.2m (2020: GBP13.4m). Reported
operating profit from continuing operations after adjusting items
was GBP10.5m (2020: GBP10.1m).
Despite a 12.7% reduction in revenue from continuing operations,
adjusted operating margins fell by only 30 basis points during the
year to 6.8% (2020: 7.1%). The operating profit gearing(1) on the
reduced activity was a creditable 9%, as the impact of the Group's
ongoing focus on lowering the cost base, and GBP4.0m utilisation of
government support programs, together with short term operational
efficiency and productivity improvements were realised.
(1) Operating profit gearing is defined as the year-on-year
change in adjusted operating profit, divided by the year-on-year
change in revenue
Foreign exchange rates
Foreign exchange rates have remained volatile during the year,
with an overall strengthening of Sterling against a number of
currencies through the year. The most significant movement for
Renold has been the 11% depreciation of the US Dollar against
Sterling between March 2020 and March 2021. The Sterling to Euro
rate has experienced similar volatility, with Sterling ending the
year 4% stronger at 31 March 2021 when compared to 31 March
2020.
Phasing of movements over the current and prior year mean the
weighted average exchange rate used to translate the Euro and US
Dollar trading results is less volatile. The impact on the weighted
average exchange rate used to translate US Dollar reflected only a
3% depreciation of the US Dollar based on a weighted average rate
of 1.31 for the year ended 31 March 2021 (2020: 1.27). The Euro
strengthened by 2% based on a rate of 1.12 for the year ended 31
March 2021 (2020: 1.14).
31 Mar 31 Mar 31 Mar
20 21 21 2020 Average 2021 Average 2021
FX Rates (% of Group sales) FX rate FX rate Var % FX rate FX rate Var %
---------------------------- -------- -------- ------ ------------ ------------ ------
GBPGBP/Euro (28%) 1.13 1.17 4% 1.14 1.12 -2%
GBPGBP/US$ (35%) 1.24 1.38 11% 1.27 1.31 3%
GBPGBP/C$ (5%) 1.77 1.73 -2% 1.69 1.73 2%
GBPGBP/A$ (7%) 2.03 1.81 -11% 1.87 1.82 -3%
---------------------------- -------- -------- ------ ------------ ------------ ------
If the year-end exchange rates had applied throughout the year,
there would be an estimated decrease of GBP5.5m to revenue and
GBP0.5m to operating profit.
Adjusting items
Adjusting items for the year ended 31 March 2021 comprise
acquisition related intangible asset amortisation costs of GBP0.7m
(2020: GBP0.9m). No restructuring or adjusting charges were
incurred in the year ended 31 March 2021, representing an
improvement in the underlying quality of earnings of the Group.
In the prior year, restructuring costs of GBP2.4m were incurred
primarily as part of the Strategic Plan, including redundancy costs
associated with headcount reductions and various other smaller
costs associated with restructuring.
In the prior year costs of GBP1.5m, disclosed as a loss from
discontinued operations, related to the disposal of the South
African Torque Transmission business unit.
Financing costs
Total interest costs in the year were GBP4.6m (2020:
GBP5.2m).
Total loan financing costs include external interest on bank
loans and overdrafts of GBP1.6m (2020: GBP2.1m), amortisation of
arrangement fees and costs of refinancing, including the additional
costs from the refinancing completed in March 2019, of GBP0.2m
(2020: GBP0.2m) and GBP0.5m (2020: GBP0.5m) of interest expense on
lease liabilities. The reduction in interest payable on external
bank loans and overdrafts was driven by the significant repayments
of borrowings made during the year ended 31 March 2021.
The net IAS 19R finance charge (which is a non-cash item) was
consistent with the prior year at GBP2.2m (2020: GBP2.2m).
Financing costs also include GBP0.1m (2020: GBP0.2m) resulting
from the unwinding of discounts on the deferred build costs of the
Chinese factory, classified as non-current trade and other
payables.
Profit before tax
Profit before tax was GBP5.9m (2020: GBP4.9m), 20% higher than
the prior year, driven by the increased operating profit and
reduction in net financing costs.
Taxation
The current year tax charge of GBP2.1m (2020: GBP1.5m) is made
up of a current tax charge of GBP2.2m (2020: GBP0.6m) and a
deferred tax credit of GBP0.1m (2020: GBP0.9m charge). The increase
in the current tax charge is driven by an increase in the provision
for open tax matters which are yet to be agreed with the relevant
tax authorities across the Group's geographies, reflecting the best
estimate of amounts expected to be paid in settling these
inquiries, for further details see Note 4.
The effective tax rate for the year was 36% (2020: 31%).
EARNINGS PER SHARE
A profit after tax of GBP3.8m was achieved for the financial
year ended 31 March 2021 (2020: GBP3.4m). Adjusted earnings per
share were 2.0p (2020: 2.9p).
The quality of the Group's earnings improved during the year,
driven by the significant reduction in restructuring costs,
resulting in basic earnings per share from continuing operations of
1.7p compared to 1.5p for the year ended 31 March 2020.
2021 2020
GBPm GBPm
---------------------------------------------------------- ----- -----
Adjusted profit after taxation from continuing operations 4.5 6.7
Effect of adjusting items, after tax:
- Amortisation of acquired intangible assets (0.7) (0.9)
- Restructuring costs - (2.4)
---------------------------------------------------------- ----- -----
Profit after taxation from continuing operations 3.8 3.4
---------------------------------------------------------- ----- -----
Attributable to:
- Owners of the parent 3.8 3.3
- Non-controlling interest - 0.1
---------------------------------------------------------- ----- -----
Basic adjusted earnings per share 2.0p 2.9p
Basic earnings per share from continuing operations 1.7p 1.5p
---------------------------------------------------------- ----- -----
Balance sheet
Net liabilities at 31 March 2021 were GBP6.1m (31 March 2020:
net liabilities GBP0.4m). Although net profit of GBP3.8m was
delivered for the year, the impact of the valuation of the Group's
pension liabilities and the retranslation of overseas operations
resulted in an increase in net liabilities.
The pension deficit, on an IAS 19R basis, increased to GBP102.4m
(31 March 2020: GBP97.6m). The net liability for pension benefit
obligations was GBP84.0m (2020: GBP80.2m) after allowing for a net
deferred tax asset of GBP18.4m (31 March 2020: GBP17.4m). At the
last triennial pension valuation the technical provisions deficit
of the UK scheme, which is how the trustees and regulator view the
scheme, was only GBP9.1m. This compares to the IAS 19R deficit for
the UK pension fund of GBP77.5m. The difference represents the
valuation of the capital asset reserve (CAR), currently GBP50.8m,
being a guaranteed set of future discounted cash contributions to
the scheme for a fixed period of 25 years commencing in 2013.
Overseas schemes now account for GBP24.9m (24%) of the net
pension deficits and GBP22.9m of this is in respect of the German
scheme which is unfunded.
As part of its long-term financial planning the Company is
reorganising its balance sheet and reserves through the
cancellation of the entire amount of its share premium account and
capital redemption reserve. The share premium account and capital
redemption reserve are non-distributable reserves and accordingly,
the purposes for which they can be used are restricted. The
reduction of capital creates sufficient distributable reserves to
provide the Board with greater flexibility with regard to how it
manages its capital resources. An order of the High Court
confirming the above described capital reduction became effective
on 27 May 2021, increasing distributable reserves by GBP45.5m and,
if applied to the Group consolidated balance sheet at 31 March
2021, would decrease the consolidated retained earnings deficit
from GBP69.3m to GBP23.8m.
Cash flow and NET DEBT
2021 2020
GBPm GBPm
----------------------------------------------- ------ ------
Adjusted operating profit 11.2 13.4
Add back depreciation and amortisation 10.2 10.5
----------------------------------------------- ------ ------
Adjusted EBITDA(1) 21.4 23.9
Movement in working capital 6.4 (5.3)
Net capital expenditure (2.9) (9.1)
----------------------------------------------- ------ ------
Operating cash flow(1) 24.9 9.5
Income taxes 0.7 (1.6)
Pensions cash costs (2.1) (4.4)
Restructuring spend (0.2) (0.9)
Repayment of principal under lease liabilities (3.2) (3.3)
Financing costs paid (2.2) (2.9)
Purchase of minority interest - (1.8)
Other movements including share-based payments 0.3 (0.9)
----------------------------------------------- ------ ------
Change in net debt 18.2 (6.3)
----------------------------------------------- ------ ------
Closing net debt (18.4) (36.6)
----------------------------------------------- ------ ------
(1) Adjusted EBITDA and operating cash flow are alternative
performance measures as defined in Note 19.
Cash generation in the year was very strong, with net debt
reducing by GBP18.2m from the position at 31 March 2020, to
GBP18.4m. Net debt at 31 March 2021 comprised cash and cash
equivalents of GBP19.9m (31 March 2020: GBP15.6m) and borrowings of
GBP38.3m (31 March 2020: GBP52.2m).
Most of the GBP6.4m improvement in working capital was delivered
in inventory, where measures were taken to improve the cash
position in the short term. Specific and measured increases in
inventory are planned for the new financial year in order to
maintain customer service levels as demand returns. Receivables and
payables moved broadly in line with activity levels in the
period.
Net capital expenditure at GBP2.9m was tightly controlled and
reduced by GBP6.2m compared to the prior period. The reduction in
spend to maintenance levels was possible due to initiatives in
recent years to invest in the production capabilities of our
plants. Strategic investments in improved heat treatment facilities
and the standardised IT system for the Group continued, but at a
slower pace. Looking ahead, the Group continues to invest in its
manufacturing operations and IT/IS systems and it is the intention
now to increase capital expenditure again to more normal
levels.
Pension cash costs of GBP2.1m were lower than the prior year
equivalent of GBP4.4m. The decrease in contributions is due to an
agreement reached with the UK Pension Trustee in April 2020,
whereby GBP2.8m of contributions due to be paid to the UK scheme in
FY 2021, were deferred to be paid over a five year period
commencing 1 April 2022, in light of the potential impact of the
Covid-19 pandemic. This agreement demonstrates the strong alignment
between the Group and the Pension Trustee.
Corporation tax cash received was GBP0.7m (2020: GBP1.6m paid).
The net inflow for the current year is driven by a review of
payments on account across the Group, with revised payment profiles
leading to a recovery of GBP1.3m of prior year contributions.
On a statutory basis, net cash flow from operating activities
increased to GBP26.7m (2020: GBP10.9m).
Debt facility and capital structure
The Group's committed multi-currency revolving credit facility
(MRCF) totals GBP61.5m, with an additional GBP20.5m accordion
facility providing a route to additional funding if required,
although this element is not committed. The facility matures in
March 2024.
At 31 March 2021, the Group had unused credit facilities
totalling GBP28.7m and cash balances of GBP19.9m. Total Group
credit facilities amounted to GBP67.0m, all of which were
committed.
The Group has operated well within the revised and original
covenant levels throughout the year ended 31 March 2021 (see
further detail in the Going Concern section below) and expects to
continue to operate comfortably within covenant limits going
forward.
The net debt/adjusted EBITDA ratio as at 31 March 2020 was 1.0
times (covenant: up to 3.5 times; 31 March 2020: 1.7 times),
calculated in accordance with the banking agreement. The adjusted
EBITDA/interest cover as at 31 March 2021 was 10.9 times (covenant:
greater than 3.0 times; 2020: 9.0 times), again calculated in
accordance with the banking agreement.
Going concern
The financial statements have been prepared on a going concern
basis. In determining the appropriate basis of preparation of the
financial statements, the Directors are required to consider
whether the Group can continue in operational existence for the
foreseeable future.
Further information in relation to the Group's business
activities, together with the factors likely to affect its future
development, performance and financial position, liquidity, cash
balances and borrowing facilities is set out in the Chairman's
Statement, the Chief Executive's Review, the Finance Director's
Review and the Principal Risks and Uncertainties. Additional
details of the Group's cash balances and borrowings and facility
are included in Notes 13, 14 and 17.
The key covenants attached to the Group's GBP61.5m
multi-currency revolving credit facility relate to leverage (net
debt to EBITDA) and interest cover, which are measured on a
pre-IFRS 16 basis. While liquidity remained sufficient under the
bank facility, the economic uncertainty arising from the Covid-19
pandemic resulted in the Group negotiating, in May 2020, to amend
the covenant structure over the period to September 2021. The
revised structure replaced the net debt to EBITDA and EBITDA to net
financing charge tests with minimum rolling 12-month EBITDA and
minimum available liquidity tests at quarterly test dates, creating
additional flexibility in uncertain operating conditions. The Group
has achieved a significant reduction in net debt during the current
financial year, with net debt reducing by GBP18.2m to GBP18.4m (31
March 2020: GBP36.6m). Accordingly, the Group has remained within
the revised and original borrowing covenant levels throughout the
year ended 31 March 2021.
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 Directors have also considered
the actual impact that the pandemic has had on the business since
the beginning of the outbreak and the related decline in revenues,
and the plausible future impact of Covid-19 on the Group's
activities and performance, in preparing their going concern
assessment.
Whilst the situation remains uncertain the impact on trading was
significantly less severe than the downside scenario modelled in
the prior year. Going forward the Group has modelled further
potential severe but plausible impacts on revenues, profits and
cash flows. In the severe but plausible downside scenario (Group
revenue being more than 25% below revenues for the year ended 31
March 2019; the last period which was not impacted by the Covid-19
pandemic), the Group continues to maintain sufficient liquidity and
meets its leverage and interest cover covenants (which revert to
the original covenant tests from September 2021) without using the
full extent of mitigating actions that would be available in the
event of such a severe and extended decline.
Following this assessment, the Directors have formed a
judgement, at the time of approving the financial statements, that
there are no material uncertainties that cast doubt on the Group's
going concern status and that it is a reasonable expectation that
the Group has adequate resources to continue in operational
existence for at least the next 12 months. For this reason, the
Directors continue to adopt the going concern basis in preparing
the consolidated financial statements.
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. Treasury and financing matters are assessed
further in the section on Principal Risks and Uncertainties.
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 2021 this hedge
was fully effective. The carrying value of these borrowings at 31
March 2021 was GBP6.5m (31 March 2020: GBP7.3m).
At 31 March 2021, the Group had 1% (31 March 2020: 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 (84% of gross liabilities) and
overseas (16%) defined benefit pension obligations as shown
below.
2021 2020
---------------------------- ----------------------------
Assets Liabilities Deficit Assets Liabilities Deficit
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ------ ----------- ------- ------ ----------- -------
Defined benefit schemes
UK scheme 136.3 (213.8) (77.5) 128.9 (196.9) (68.0)
Overseas schemes 14.9 (39.8) (24.9) 12.8 (42.4) (29.6)
------------------------ ------ ----------- ------- ------ ----------- -------
151.2 (253.6) (102.4) 141.7 (239.3) (97.6)
Deferred tax asset 18.4 17.4
------------------------ ------ ----------- ------- ------ ----------- -------
Net deficit (84.0) (80.2)
------------------------ ------ ----------- ------- ------ ----------- -------
The Group's retirement benefit obligations increased from
GBP97.6m (GBP80.2m net of deferred tax) at 31 March 2020 to
GBP102.4m (GBP84.0m net of deferred tax) at 31 March 2021. The
largest element of the increase relates to the UK scheme where the
deficit increased from GBP68.0m to GBP77.5m due to a reduction in
AA corporate bond yields, which increases the present value of
gross liabilities under IAS 19R . The deficit of the overseas
schemes decreased by GBP4.7m to GBP24.9m reflecting changes in
assumptions for discount and inflation rates. All defined benefit
schemes, with the exception of one scheme for blue-collar workers
in the US, are closed for future accrual.
UK funded scheme
The deficit of the UK scheme increased in the year to GBP77.5m
(31 March 2020: GBP68.0m) reflecting a number of changes in
assumptions and factors.
The increase in gross liabilities of GBP16.9m arose primarily
from a combination of an increase in the inflation assumption (CPI
of 2.7% compared with 2.0% in the prior year) and a decrease in the
rate used to discount the scheme's liabilities (discount rate of
2.0% compared with 2.4% in the prior year).
Partially offsetting the increase in liabilities was an increase
in the value of the scheme's assets, which recovered strongly
following the impact on equity markets of the Covid-19 pandemic in
the prior year.
The latest triennial actuarial valuation of the UK Scheme, with
an effective date of 5 April 2019, was agreed in March 2020 and
identified a deficit of GBP9.1m. This is significantly lower than
the IAS 19R deficit, largely as the triennial valuation places a
value on the Group's future cash payments to the scheme under the
central asset reserve structure established in June 2013. It is
expected that the triennial valuation deficit of GBP9.1m can be
recovered through asset outperformance, above the prudent levels
assumed in the valuation, over the remaining life of the scheme. As
a result, there are no changes to the long-term contribution
arrangements.
Contributions in the year ended 31 March 2021 were GBP0.6m
(2020: GBP3.1m). The decrease in contributions compared to the
prior year follows an agreement reached with the Trustee in April
2020 such that GBP2.8m of contributions due to the UK scheme were
deferred for the 12-month period to 31 March 2021 in light of the
potential impact of the Covid-19 pandemic. The deferred
contributions will be repaid over the five-year period commencing
on 1 April 2022. The underlying level of contributions to the UK
scheme continue to increase annually by RPI plus 1.5% (capped at
5%).
Additional contributions will be due to the scheme in future
based on 50% of any dividend paid (until such time that the
deferred GBP2.8m of contributions is repaid; returning to 25%
thereafter) or GBP1.0m per annum if the Group delivers adjusted
operating profit of over GBP16.0m. The next triennial valuation
date will be as at 5 April 2022.
Overseas schemes
The largest element of the overseas schemes is the German
unfunded scheme, with a total deficit of GBP22.9m (31 March 2020:
GBP23.9m). Other overseas funded schemes comprise a number of
smaller schemes around the world, with a combined deficit of
GBP2.0m (31 March 2020: GBP5.7m). The combined deficits of all the
overseas schemes decreased by GBP4.7m. These changes were most
significantly a reduction in the liability of the funded US schemes
due to strong increases in the schemes' asset values.
For overseas pension schemes, the Company contributions in the
year were GBP1.5m (2020: GBP1.3m).
JIM HAUGHEY
GROUP Finance Director
16 July 2021
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.
In addition to the principal risks and uncertainties below, the
risk review process has highlighted an emerging risk posed by the
wider effects of climate change on the Group's business. Continued
environmental activism around climate change has started to
influence some consumers to reduce their carbon footprints. There
is the potential that this could start to impact some of the
sectors we operate in. The risks associated with climate change are
not considered principal risks at this time, particularly as Renold
supports customers in achieving their own sustainability goals
through the development and supply of high specification, durable,
environmentally responsible products which ultimately minimise the
impact on the environment. We will, however, continue to monitor
this emerging situation.
1 MACROECONOMIC AND POLITICAL VOLATILITY
-------------------------------------------------------------------------------------- ------
DETAILED RISK POTENTIAL IMPACT
Material changes in prevailing Potential touchpoints include:
macroeconomic or geopolitical -- Commodity prices which have a negative
conditions could have a detrimental impact on demand in the whole supply
impact on business performance. chain. -- Changes to tariffs and import
We operate in 17 countries and duties which can distort customer
sell to customers in over 100 buying decisions. -- Foreign exchange
and therefore we are necessarily volatility can impact customer buying
exposed to economic and geopolitical patterns, leading to lower demand
risks in these territories. or the need to rapidly switch supply
chains.
------------------------------------------ --------------------------------------------------
EXISTING MITIGATION CONTROLS
-- Our diversified geographic footprint inherently exposes us to
more countries where risks arise but conversely provides some degree
of resilience and flexibility. -- Actions to lower the Group's overall
breakeven point also serve to reduce the impact of any global economic
slowdown. -- A focus on 'predict and respond', e.g. sales forecasting
and raw material price monitoring, leading to operational change
such as sales price increases or cost reductions. -- Strong core
banking group with multi-currency debt facility.
FY21 risk trend impacted by continued geopolitical risk and restrictions
around free movement of goods, especially as a result of changes
arising as a result of the UK's exit from the EU. The macroeconomic
risk arising from the after-effects of the Covid-19 pandemic are
beginning to stabilise. Significant management actions have been
implemented in mitigation of the additional risks posed by these
factors.
----------------------------------------------------------------------------------------------
2 STRATEGY EXECUTION
------------------------------------------------------------------------------------ -----
DETAILED RISK POTENTIAL IMPACT
The Group's ongoing strategy requires While these projects are designed
the co-ordinated delivery of a to deliver targeted benefits, they
number of complex projects. have the potential to negatively impact
the Group's operations if not appropriately
managed.
------------------------------------------- ----------------------------------------------
EXISTING MITIGATION CONTROLS
-- The Strategic Plan has been developed to deliver a turnaround
in performance and to make that performance more stable and less
exposed to revenue volatility. -- The Board reviews progress against
the different strategic projects in each of its meetings. This is
based on a regularly updated report from the CEO which groups the
individual projects into themes linked directly to our Strategic
Objectives. -- Major projects are all managed in accordance with
best practice project management techniques with at least one member
of the Executive team on the relevant Steering Committees.
FY21 risk trend continues to decrease as major infrastructure changes
are complete. To support the execution of the Groups strategic objectives,
activity in the year incorporates supply chain rationalisation, including
the determination of optimal product production locations and optimising
business processes.
-------------------------------------------------------------------------------------------
3 CORPORATE TRANSACTIONS/BUSINESS DEVELOPMENT
--------------------------------------------------------------------------------------- -------
DETAILED RISK POTENTIAL IMPACT
Part of the Group's strategy is -- Any corporate transaction involves
to grow through selective acquisitions. risks at various stages of the project
Performance of acquired businesses life cycle. -- During the acquisitions
may not reach expectations, impacting phase, value can be lost through over-paying,
Group profitability and cash flows. missing key issues in due diligence
Similarly, poorly managed asset or potential value leakage through
sales may result in under-achievement poor contract negotiation. Value can
of value. also be lost through a poorly planned
or executed integration phase. Finally,
failure to deliver anticipated benefits
during the 'business as usual' phase
can also lead to a loss of value.
-- A poorly managed asset sale or
corporate disposal may realise a lower
value.
---------------------------------------- ------------------------------------------------------
EXISTING MITIGATION CONTROLS
-- Monitoring of specific acquisition targets: Business acquisition
process incorporating concept evaluation, business case, indicative
offer/heads of terms, due diligence (covering a range of criteria),
integration planning and execution and post integration appraisal
which in turn feeds back to the business acquisition process. --
Use of third-party specialists to address risks specific to each
corporate transaction. -- Formation of top-down cross-functional
project teams and plans. These specifically address any issues or
risks identified during the planning and due diligence processes.
-- Deployment of detailed benefits realisation plans.
FY21 risk trend unchanged.
------------------------------------------------------------------------------------------------
4 HEALTH AND SAFETY IN THE WORKPLACE
------------------------------------------------------------------------------ -----
DETAILED RISK POTENTIAL IMPACT
The risk of death or serious injury Accidents caused by a lack of robust
to employees or third parties safety procedures could result in
associated with Renold's worldwide life-changing impacts for employees,
operations. visitors or contractors. This will
We are proud of the progress we always be unacceptable. In addition,
have made in recent years, but accidents could result in civil or
recognise that we have more to criminal liability for both the Group
do. and the Directors and officers of
the Group and Group companies, leading
to financial loss or reputational
damage.
------------------------------------------ -----------------------------------------
EXISTING MITIGATION CONTROLS
-- Group policies and a Group-wide management system known as the
Framework, to set control expectations, with a support training programme
for all managers. -- The Group operates a rolling programme of health
and safety audits to assess compliance against the Framework. These
audits have continued, despite travel restrictions imposed during
the year, through the utilisation of alternative working methods.
-- Continual hazard assessments to ensure awareness of risks. --
Live tracking of accident rates and root cause analysis via the IRMS
plus monthly Board reporting focused on a range of KPIs. -- Specific
initiatives include the BAT (Be safe; Act safe, Think safe) safety
logo and the Annual Health and Safety Awards Scheme to recognise
success. -- Proactive identification and management of emerging risks,
for example the additional measures implemented across all operating
locations in order to mitigate the increase in risk presented by
Covid-19.
FY21 risk trend unchanged. No matter what mitigating actions are
undertaken, there remains a risk of death or serious injury. We therefore
continue to assess the risk as the highest possible impact, but through
the mitigation actions seek to reduce the likelihood. Significantly
improving our health and safety performance continues to be our number
one strategic objective.
-------------------------------------------------------------------------------------
5 EFFECTIVE DEPLOYMENT AND UTILISATION OF INFORMATION TECHNOLOGY
SYSTEMS
------------------------------------------------------------------------------------------ ------
DETAILED RISK POTENTIAL IMPACT
We seek to leverage the use of -- Interruption or failure of IT systems
IT to achieve competitive advantage. (including the impact of a cyber-attack)
The Group continues to implement would negatively impact or prevent
a global ERP system to replace some business activities from occurring.
numerous legacy systems which If the interruption was long lasting,
inherently brings with it the significant damage could be done to
risks associated with a large-scale the business -- It is essential that
change programme. we are able to rely on the data derived
from our business system to feed routine
but fundamental business performance
monitoring. -- An unsuccessful implementation
of the global ERP system has the potential
to materially impact that site's,
and possibly the Group's, performance.
------------------------------------------ ------------------------------------------------------
EXISTING MITIGATION CONTROLS
-- Short-term stabilisation of existing hardware and legacy software
platforms. -- Governance and control arrangement operating over the
Group's ERP implementation programme. -- New ERP systems are successfully
implemented at four locations. -- Use of specialist external consultants
and recruitment of experienced personnel. -- Phased implementation
rather than 'big bang', along with project assurance and 'lessons
learned' reviews to continuously improve the quality of successive
rollouts. -- Steering Committee in operation with cascading project
management disciplines. -- A range of preventative and detective
controls to manage the risk of a cyber-attack, including technical
solutions in addition to employee training programmes. -- Regular
system maintenance and upgrades, including patching, to ensure known
vulnerabilities are protected.
The overall risk for FY21 is unchanged. The increasing likelihood
of cyber-crime and cyber-fraud, particularly as businesses continue
to evolve their ways of working during the pandemic, are mitigated
by enhanced employee training, and increased detective and preventative
security controls. During the year we have effectively utilised a
number of information technology systems in order to ensure continuity
of business processes whilst remote working has increased due to
the Covid-19 pandemic.
--------------------------------------------------------------------------------------------------
6 PROLONGED LOSS OF A MANUFACTURING SITE
-------------------------------------------------------------------------------------- -----
DETAILED RISK POTENTIAL IMPACT
A catastrophic loss of the use -- In the short or long term, a related
of all or a significant portion risk event could adversely affect
of a strategic production facility. the Group's ability to meet the demands
This could result from an accident, of its customers. -- Specifically,
a strike by employees, a significant this could entail significant repair
disease outbreak, major disruption costs or costs of alternate supply.
to supply chains, fire, severe A significant proportion of the Group's
weather or other cause outside revenue is on relatively short lead
of management control. times and a break in our supply chain
could result in loss of revenue. All
of this translates into lower sales
and profits and reduced cash flow.
------------------------------------------- ------------------------------------------------
EXISTING MITIGATION CONTROLS
-- Preventative maintenance programmes and new investments to reduce
risk of interruption of manufacturing. -- A Group Fire Safety Policy
mandating preventative, detective and containment controls. -- Alternate
manufacturing capacity exists for a growing portion of the Group's
product range, with this manufacturing capability spread across geographic
territories. -- Inventory maintained to absorb and flatten out shorter-term
raw material supply and production volatility risks. -- The Group
has comprehensive insurance policies to mitigate the impact of a
number of these risks, albeit subject to carve out of cover for specific
risks (e.g. SARS and related disease outbreak) and claim limits.
-- Amendments to operational processes to permit social distancing
along with other Covid-19-related disease transmission procedures
implemented at all operational sites.
The risk trend for FY21 is categorised as unchanged, largely as a
result of already being classified at maximum risk levels. The Covid-19
pandemic has crystallised this risk at certain locations during the
year, however, this is now stabilising. We believe that the risk
of prolonged loss of a manufacturing site due to the Covid-19 pandemic
is now reducing, however, it is recognised that the Covid-19 situation
is constantly evolving and management are particularly aware of the
Covid-19 challenges currently unfolding in India. To add to this,
changes to our operating procedures and other health and safety actions
have been effectively implemented during the period in order to respond
to the pandemic.
---------------------------------------------------------------------------------------------
7 PEOPLE AND CHANGE
----------------------------------------------------------------------------------- -----
DETAILED RISK POTENTIAL IMPACT
The Group's operations are dependent Failure to retain, attract or motivate
upon the ability to attract and the required calibre of employees
retain the right people with an will negatively impact business performance.
appropriate range of skills and The delivery of the Strategic Plan
experience. and our strategic goals may also
Succession planning and the ability be delayed.
to swiftly replace staff retiring
or leaving is also critical.
----------------------------------------- -----------------------------------------------
EXISTING MITIGATION CONTROLS
-- Competitive reward programmes, focused training and development,
and a talent retention programme. -- Ongoing reviews of succession
plans based on business needs. -- Performance management and personal
development programmes introduced alongside training initiatives.
-- Management team strengthened with new capability from external
hires and internal promotions. -- The Renold Values, launched in
2015, continue to be embedded and are linked to recruitment processes
for new employees.
FY21 risk trend decreasing as key appointments in the year have
demonstrated our ability to attract high quality individuals. This
is coupled with falling employment rates which further increases
the availability of people across our operating locations
------------------------------------------------------------------------------------------
8 LIQUIDITY, FOREIGN EXCHANGE AND BANKING ARRANGEMENTS
---------------------------------------------------------------------------------- -----
DETAILED RISK POTENTIAL IMPACT
A lack of sufficient liquidity -- Potentially cause under-investment
and flexibility in banking arrangements and sub-optimal short-term decision
could inhibit the Group's ability making. -- Limiting investment could
to invest for the future or, in prevent efficiency savings and reduce
extremes, restrict day-to-day competitiveness. -- In an extreme
operations. situation, the Group's ability to
operate as a going concern could
also be jeopardised.
----------------------------------------- ----------------------------------------------
EXISTING MITIGATION CONTROLS
-- The Group's primary banking facility expires in March 2024 and
is fully available given current levels of profitability. -- The
facility includes additional drawdown capability, accessible as
long as financial covenants are complied with. -- Covenants amended
through to 30 September 2021 in response to uncertainty arising
from the Covid-19 pandemic and its global macroeconomic impact.
-- Rolling foreign exchange forward contracts covering expected
future cash flows.
FY21 risk trend decrease reflects strong cash generation across
the Group during the year, despite Covid-19 related disruption.
This is coupled with the Group remaining within our original and
amended banking covenants throughout the year, and the significant
reduction in net debt which the Group has achieved.
-----------------------------------------------------------------------------------------
9 PENSIONS DEFICIT VOLATILITY
----------------------------------------------------------------------------------------- -----
DETAILED RISK POTENTIAL IMPACT
The principal pensions risk is -- Given the Group's cash needs to
that short-term cash funding requirements invest in the business, the pace
of legacy pension schemes diverts of performance improvement could
much needed investment away from be slowed if cash has to be diverted
the Group's operations. to the pension schemes. -- The balance
Secondly, the size of the reported sheet pension deficit and its volatility
balance sheet deficit can operate could act as a disincentive to potential
as a disincentive to potential investors and could reduce the Group's
investors or other stakeholders ability to raise new equity or debt
limiting the Group's ability to financing, limiting the strategic
raise financing on capital markets. options open to the Group.
Thirdly, balance sheet deficits
can fluctuate based on market
conditions outside the control
of management.
--------------------------------------------- -------------------------------------------------
EXISTING MITIGATION CONTROLS
-- The UK triennial funding review has been updated to March 2022.
-- The major UK pension cash flows (over 50% of all defined benefit
pension cash costs) are stable under the 25-year asset-backed funding
scheme put in place during 2013. A further 25% of the annual cash
flows are pensions in payment in Germany in a mature scheme that
has passed its peak funding requirement
FY21 risk trend is unchanged as underlying factors have not significantly
changed from the prior year.
------------------------------------------------------------------------------------------------
10 REGULATORY AND LEGAL COMPLIANCE
------------------------------------------------------------------------------------------- -----
DETAILED RISK POTENTIAL IMPACT
The risk of censure, fine or business Failure by the Group or its representatives
prohibition as a result of any to abide by applicable laws and regulations
part of the Group failing to comply could result in:
with regulatory or legal obligations. -- Administrative, civil or criminal
Risks related to regulatory and liability. -- Significant fines and
legislative changes include the penalties. -- Suspension of the Group
inability of the Group to comply from trading. -- Reputational damage.
with current, changing or new
requirements.
Many of the Group's business activities
are subject to increasing regulation
and enforcement by relevant authorities.
-------------------------------------------- ----------------------------------------------------
EXISTING MITIGATION CONTROLS
-- Communication of a clear compliance culture. -- Risk assessments
and ongoing compliance reviews at least annually at all major locations.
-- Published up-to-date policies and procedures with clear guidance
and training issued to all employees. -- Monitoring of compliance
with nominated accountable managers in each business unit.
FY21 risk trend unchanged.
--------------------------------------------------------------------------------------------------
Consolidated Income Statement
for the year ended 31 March 2021
2021 2020
Note GBPm GBPm
----------------------------------------------------- ----- -------- --------
Revenue 1 165.3 189.4
Operating costs before adjusting items (154.1) (176.0)
----------------------------------------------------- ----- -------- --------
Adjusted(1) operating profit 11.2 13.4
----------------------------------------------------- ----- -------- --------
Adjusting items 2
Restructuring costs - (2.4)
Amortisation of acquired intangible assets (0.7) (0.9)
Operating profit 10.5 10.1
----- --------
Net financing costs 3 (4.6) (5.2)
----------------------------------------------------- ----- -------- --------
Profit before tax 5.9 4.9
Taxation 4 (2.1) (1.5)
----------------------------------------------------- ----- -------- --------
Profit for the period from continuing operations 3.8 3.4
Discontinued operations - (1.5)
----------------------------------------------------- ----- -------- --------
Profit for the period 3.8 1.9
----------------------------------------------------- ----- -------- --------
Attributable to:
Owners of the parent 3.8 1.8
Non-controlling interests - 0.1
----------------------------------------------------- ----- -------- --------
3.8 1.9
----------------------------------------------------- ----- -------- --------
Earnings per share from continuing operations 5
Basic 1.7p 1.5p
Diluted 1.6p 1.5p
Basic adjusted earnings per share 2.0p 2.9p
Diluted adjusted earnings per share 1.9p 2.9p
----------------------------------------------------- ----- -------- --------
Earnings per share from continuing and discontinued
operations 5
Basic 1.7p 0.8p
Diluted 1.6p 0.8p
----------------------------------------------------- ----- -------- --------
(1) Adjusted: In addition to statutory reporting, the Group
reports certain financial metrics on an adjusted basis. Definitions
of adjusted measures, and information about the differences to
statutory metrics are provided in Note 19
Consolidated Statement of Comprehensive Income
for the year ended 31 March 2021
2021 2020
GBPm GBPm
------------------------------------------------------------ ------ ------
Profit for the financial year 3.8 1.9
Other comprehensive (expense)/income:
Items that may be reclassified to the income statement
in subsequent periods:
Exchange differences on translation of foreign operations (5.8) 1.8
Loss on hedges of the net investment in foreign operations 0.7 (0.4)
Cash flow hedges:
Loss arising on cash flow hedges during the period (0.1) (0.3)
Less: Cumulative gain arising on cash flow hedges
reclassified to profit and loss 0.3 0.4
Income tax relating to items that may be reclassified
subsequently to profit or loss - 0.1
------------------------------------------------------------ ------
(4.9) 1.6
Items not to be reclassified to the income statement
in subsequent periods:
Remeasurement gains/(losses) on retirement benefit
obligations (5.6) 3.1
Tax on remeasurement gains/losses on retirement benefit
obligations - excluding impact of statutory rate change 1.0 (0.7)
Effect of changes in statutory tax rate on deferred
tax assets - 1.3
------------------------------------------------------------
(4.6) 3.7
------------------------------------------------------------ ------ ------
Other comprehensive (expense)/income for the year,
net of tax (9.5) 5.3
------------------------------------------------------------ ------ ------
Total comprehensive (expense)/income for the year,
net of tax (5.7) 7.2
------------------------------------------------------------ ------ ------
Attributable to:
Owners of the parent (5.7) 7.1
Non-controlling interest - 0.1
------------------------------------------------------------
(5.7) 7.2
------------------------------------------------------------ ------ ------
Consolidated Balance Sheet
as at 31 March 2021
2021 2020
Note GBPm GBPm
---------------------------------- ----- -------- --------
ASSETS
Non-current assets
Goodwill 7 21.7 24.0
Other intangible assets 8 6.1 8.0
Property, plant and equipment 9 47.8 53.3
Right-of-use assets 10 10.1 11.3
Deferred tax assets 21.0 20.4
106.7 117.0
---------------------------------- ----- -------- --------
Current assets
Inventories 11 37.7 46.1
Trade and other receivables 12 30.3 35.8
Current tax 0.2 1.5
Derivative financial instruments - -
Cash and cash equivalents 13 19.9 15.6
88.1 99.0
---------------------------------- ----- -------- --------
TOTAL ASSETS 194.8 216.0
---------------------------------- ----- -------- --------
LIABILITIES
Current liabilities
Borrowings 14 (2.3) (0.3)
Trade and other payables 15 (31.5) (42.1)
Lease liabilities 10 (2.5) (0.3)
Current tax (2.3) (1.0)
Derivative financial instruments (0.1) (0.3)
Provisions 16 (1.4) (0.7)
(40.1) (42.9)
---------------------------------- ----- -------- --------
NET CURRENT ASSETS 48.0 56.1
---------------------------------- ----- -------- --------
Non-current liabilities
Borrowings 14 (35.5) (51.4)
Preference stock 14 (0.5) (0.5)
Trade and other payables 15 (5.4) (5.3)
Lease liabilities 10 (12.9) (14.1)
Deferred tax liabilities (4.1) (4.6)
Retirement benefit obligations (102.4) (97.6)
Provisions - -
(160.8) (173.5)
---------------------------------- ----- -------- --------
TOTAL LIABILITIES (200.9) (216.4)
---------------------------------- ----- -------- --------
NET LIABILITIES (6.1) (0.4)
---------------------------------- ----- -------- --------
EQUITY
Issued share capital 11.3 11.3
Share premium account 30.1 30.1
Capital redemption reserve 15.4 15.4
Currency translation reserve 6.8 11.9
Other reserves (0.1) (0.3)
Retained earnings (69.6) (68.8)
---------------------------------- ----- -------- --------
TOTAL SHAREHOLDERS' DEFICIT (6.1) (0.4)
---------------------------------- ----- -------- --------
Approved by the Board on 16 July 2021 and signed on its behalf
by:
Robert Purcell Jim Haughey
CHIEF EXECUTIVE FINANCE DIRECTOR
Consolidated Statement of Changes in Equity
for the year ended 31 March 2021
Share Currency Capital Attributable Non-
Share premium Retained translation redemption Other to owners controlling Total
capital account earnings reserve reserve reserves of parent interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------- -------- -------- --------- ------------ ----------- --------- ------------- ------------ -------
At 31 March
2019 11.3 30.1 (69.9) 10.4 15.4 (0.4) (3.1) 2.2 (0.9)
Impact of
adoption
of IFRS 16 - - (4.3) - - - (4.3) - (4.3)
----------------- -------- -------- --------- ------------ ----------- --------- ------------- ------------ -------
At 1 April 2019 11.3 30.1 (74.2) 10.4 15.4 (0.4) (7.4) 2.2 (5.2)
Profit for the
year - - 1.8 - - - 1.8 0.1 1.9
Other
Comprehensive
Income - - 3.7 1.5 - 0.1 5.3 - 5.3
----------------- -------- -------- --------- ------------ ----------- --------- ------------- ------------ -------
Total
comprehensive
income for the
year - - 5.5 1.5 - 0.1 7.1 0.1 7.2
Acquisition
of
non-controlling
interest - - 0.5 - - - 0.5 (2.3) (1.8)
Share-based
payments - - (0.6) - - - (0.6) - (0.6)
----------------- -------- -------- --------- ------------ ----------- --------- ------------ -------
At 31 March
2020 11.3 30.1 (68.8) 11.9 15.4 (0.3) (0.4) - (0.4)
Profit for the
year - - 3.8 - - - 3.8 - 3.8
Other
comprehensive
income - - (4.6) (5.1) - 0.2 (9.5) - (9.5)
Total
comprehensive
income for the
year - - (0.8) (5.1) - 0.2 (5.7) - (5.7)
Share based
payments - - - - - - - - -
At 31 March
2021 11.3 30.1 (69.6) 6.8 15.4 (0.1) (6.1) - (6.1)
----------------- -------- -------- --------- ------------ ----------- --------- ------------- ------------ -------
Included in retained earnings is GBP0.8m (31 March 2020:
GBP0.8m) relating to a share option reserve.
Consolidated Statement of Cash Flows
for the year ended 31 March 2021
2021 2020
GBPm GBPm
--------------------------------------------------------- ------- -------
Cash flows from operating activities (Note 17)
Cash generated from operations 26.0 12.5
Income tax receipts/(payments) 0.7 (1.6)
Net cash flow from operating activities 26.7 10.9
--------------------------------------------------------- ------- -------
Cash flows from investing activities
Proceeds from property disposals 0.2 0.1
Purchase of property, plant and equipment (2.3) (6.7)
Purchase of intangible assets (0.8) (2.5)
Disposal of business - (0.1)
Consideration paid for acquisition of minority interest - (1.8)
Net cash flow from investing activities (2.9) (11.0)
--------------------------------------------------------- ------- -------
Cash flows from financing activities
Repayment of principal under lease liabilities (3.2) (3.3)
Financing costs paid (2.0) (2.7)
Proceeds from borrowings 2.8 7.5
Repayment of borrowings (19.9) (4.2)
Net cash flow from financing activities (22.3) (2.7)
--------------------------------------------------------- ------- -------
Net (decrease)/increase in cash and cash equivalents 1.5 (2.8)
Net cash and cash equivalents at beginning of year 15.1 17.4
Effects of exchange rate changes 0.7 0.5
--------------------------------------------------------- -------
Net cash and cash equivalents at end of year (Note
13) 17.3 15.1
--------------------------------------------------------- ------- -------
Accounting Policies
Basis of preparation
The financial information for the year ended 31 March 2021 and
the year ended 31 March 2020 does not constitute the company's
statutory accounts for those years. Statutory accounts for the year
ended 31 March 2020 have been delivered to the Registrar of
Companies. The auditor's report on those accounts was unqualified
but contained a material uncertainty paragraph in relation to going
concern (see page 101 of the consolidated financial statements for
the year ended 31 March 2020 for further detail). The auditor's
report did not contain any statement under Section 498(2) or
Section 498(3) of the Companies Act 2006
The auditor's report on the accounts for the years ended 31
March 2021 was unqualified, did not draw attention to any matters
by way of emphasis and did not contain a statement under 498(2) or
498(3) of the Companies Act 2006. The statutory accounts for the
year ended 31 March 2021 will be delivered to the Registrar of
Companies following the Company's Annual General Meeting.
The Annual Report and Accounts for the year ended 31 March 2021
are expected to be published on or before 30 July 2021.
Going concern
The financial statements have been prepared on a going concern
basis. In determining the appropriate basis of preparation of the
financial statements, the Directors are required to consider
whether the Group can continue in operational existence for the
foreseeable future.
Further information in relation to the Group's business
activities, together with the factors likely to affect its future
development, performance and financial position, liquidity, cash
balances and borrowing facilities is set out in the Chairman's
Statement, the Chief Executive's Review, the Finance Director's
Review and the Principal Risks and Uncertainties. Additional
details of the Group's cash balances and borrowings and facility
are included in Notes 13, 14 and 17.
The key covenants attached to the Group's GBP61.5m
multi-currency revolving credit facility relate to leverage (net
debt to EBITDA) and interest cover, which are measured on a
pre-IFRS 16 basis. While liquidity remained sufficient under the
bank facility, the economic uncertainty arising from the Covid-19
pandemic resulted in the Group negotiating, in May 2020, to amend
the covenant structure over the period to September 2021. The
revised structure replaced the net debt to EBITDA and EBITDA to net
financing charge tests with minimum rolling 12-month EBITDA and
minimum available liquidity tests at quarterly test dates, creating
additional flexibility in uncertain operating conditions. The Group
has achieved a significant reduction in net debt during the current
financial year, with net debt reducing by GBP18.2m to GBP18.4m (31
March 2020: GBP36.6m). Accordingly, the Group has remained within
the revised and original borrowing covenant levels throughout the
year ended 31 March 2021.
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 Directors have also considered
the actual impact that the pandemic has had on the business since
the beginning of the outbreak and the related decline in revenues,
and the plausible future impact of Covid-19 on the Group's
activities and performance, in preparing their going concern
assessment.
Whilst the situation remains uncertain the impact on trading was
significantly less severe than the downside scenario modelled in
the prior year. Going forward the Group has modelled further
potential severe but plausible impacts on revenues, profits and
cash flows. In the severe but plausible downside scenario (Group
revenue being more than 25% below revenues for the year ended 31
March 2019; the last period which was not impacted by the Covid-19
pandemic), the Group continues to maintain sufficient liquidity and
meets its leverage and interest cover covenants (which revert to
the original covenant tests from September 2021) without using the
full extent of mitigating actions that would be available in the
event of such a severe and extended decline.
Following this assessment, the Directors have formed a
judgement, at the time of approving the financial statements, that
there are no material uncertainties that cast doubt on the Group's
going concern status and that it is a reasonable expectation that
the Group has adequate resources to continue in operational
existence for at least the next 12 months. For this reason, the
Directors continue to adopt the going concern basis in preparing
the consolidated financial statements.
Notes to the Consolidated Financial Statements
1. Segmental information
For management purposes, the Group is organised into two
operating segments according to the nature of their products and
services and these are considered by the Directors to be the
reportable operating segments of Renold plc as shown below:
-- The Chain segment manufactures and sells power transmission
and conveyor chain and also includes sales of torque transmission
products through Chain National Sales Companies (NSCs); and
-- The Torque Transmission segment manufactures and sells torque
transmission products, such as gearboxes and couplings.
No operating segments have been aggregated to form the above
reportable segments.
The Chief Operating Decision Maker (CODM) for the purposes of
IFRS 8 'Operating Segments' is considered to be the Board of
Directors of Renold plc. Management monitor the results of the
separate reportable operating segments based on operating profit
and loss which is measured consistently with operating profit and
loss in the consolidated financial statements. The same segmental
basis applies to decisions about resource allocation. Disclosure
has 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
Chain costs and
(2) Torque Transmission eliminations Consolidated
Year ended 31 March 2021 GBPm GBPm GBPm GBPm
-------------------------------------- -------- -------------------- -------------- -------------
Revenue
External customer 128.9 36.4 - 165.3
Inter-segment(1) 1.1 2.7 (3.8) -
--------------------------------------
Total revenue 130.0 39.1 (3.8) 165.3
-------------------------------------- -------- -------------------- -------------- -------------
Adjusted operating profit/(loss) 13.3 5.0 (7.1) 11.2
Restructuring costs - - - -
Amortisation of acquired intangible
assets (0.7) - - (0.7)
--------------------------------------
Operating profit/(loss) 12.6 5.0 (7.1) 10.5
Net financing costs (4.6)
--------------------------------------
Profit before tax from continuing
operations 5.9
Taxation (2.1)
-------- -------------------- -------------- -------------
Profit after tax and discontinued
operations 3.8
-------------------------------------- -------- -------------------- -------------- -------------
Other disclosures
Working capital(3) 29.5 7.8 (0.8) 36.5
Capital expenditure(4) 1.7 0.7 0.6 3.0
Depreciation and amortisation
included in adjusted operating
profit/loss 6.5 1.9 1.8 10.2
Amortisation of acquired intangibles 0.7 - - 0.7
--------------------------------------
Total depreciation and amortisation 7.2 1.9 1.8 10.9
-------------------------------------- -------- -------------------- -------------- -------------
1. Segmental information (continued)
Head office
Torque costs and
Chain(2) Transmission eliminations Consolidated
Year ended 31 March 2020 (represented(5)
) GBPm GBPm GBPm GBPm
--------------------------------------------- --------- -------------- -------------- -------------
Revenue
External customer 147.9 41.5 - 189.4
Inter-segment(1) 1.1 4.6 (5.7) -
---------------------------------------------
Total revenue 149.0 46.1 (5.7) 189.4
--------------------------------------------- --------- -------------- -------------- -------------
Adjusted operating profit/(loss) 13.8 5.3 (5.7) 13.4
Restructuring costs (1.9) (0.4) (0.1) (2.4)
Amortisation of acquired intangible
assets (0.9) - - (0.9)
---------------------------------------------
Operating profit/(loss) 11.0 4.9 (5.8) 10.1
Net financing costs (5.2)
---------------------------------------------
Profit before tax from continuing
operations 4.9
Taxation (1.5)
Discontinued operations (1.5)
Profit after tax and discontinued
operations 1.9
--------------------------------------------- --------- -------------- -------------- -------------
Other disclosures
Working capital(3) 33.1 10.7 0.5 44.3
Capital expenditure(4) 6.8 1.0 1.3 9.1
Depreciation and amortisation
included in adjusted operating
profit/loss 6.8 2.0 1.7 10.5
Amortisation of acquired intangibles 0.9 - - 0.9
---------------------------------------------
Total depreciation and amortisation 7.7 2.0 1.7 11.4
--------------------------------------------- --------- -------------- -------------- -------------
1 Inter-segment revenues are eliminated on consolidation.
2 Included in Chain external sales is GBP3.6m (2020(5) : GBP3.6m) 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.
5 The segmental analysis for the year ended 31 March 2020 has been
re-presented due to the reclassification of one business unit from
Chain to Torque Transmission, resulting in GBP3.5m of revenue and
GBP0.2m of operating profit being transferred from Chain to Torque
Transmission.
In addition to statutory reporting, the Group reports certain
financial metrics on an adjusted basis (alternative performance
measures, APMs). Definitions of adjusted measures, and information
about the differences to statutory metrics are provided in Note
19.
Constant exchange rate results are retranslated to current year
exchange rates and therefore only prior year comparatives would be
deemed an alternative performance measure. A reconciliation is
provided below and in Note 19.
Head office
Torque costs and
Chain Transmission eliminations Consolidated
Year ended 31 March 2020 (re-presented(1)
) GBPm GBPm GBPm GBPm
------------------------------------------------- ------- -------------- -------------- -------------
Revenue
External revenue from continuing
operations (re-presented(1) ) 147.9 41.5 - 189.4
Inter-segment 1.1 4.6 (5.7) -
Foreign exchange retranslation (1.3) (0.5) - (1.8)
Total revenue from continuing
operations at constant exchange
rates 147.7 45.6 (5.7) 187.6
------------------------------------------------- ------- -------------- -------------- -------------
Adjusted operating profit/(loss)
from continuing operations (re-presented(1)
) 13.8 5.3 (5.7) 13.4
Foreign exchange retranslation (0.2) (0.1) - (0.3)
Adjusted operating profit/(loss)
from continuing operations at
constant exchange rates 13.6 5.2 (5.7) 13.1
------------------------------------------------- ------- -------------- -------------- -------------
1 The segmental analysis for the year ended 31 March 2020 has been re-presented
due to the reclassification of one business unit from Chain to Torque
Transmission, resulting in GBP3.5m of revenue and GBP0.2m of operating
profit being transferred from Chain to Torque Transmission.
Geographical analysis of external sales by destination,
non-current asset location and average employee numbers
The UK is the home country of the parent company, Renold plc.
The principal operating territories, the proportions of Group
external revenue generated in each (customer location), external
revenues, non-current assets (asset location) and average employee
numbers in each are as follows:
Revenue ratio External revenues Non-current assets
from continuing from continuing (excluding deferred
operations operations tax) Employee numbers
------------------- -------------------- ----------------------- -------------------
2021 2020 2021 2020 2021 2020
--------- --------
% % GBPm GBPm GBPm GBPm 2021 2020
----------------- --------- -------- --------- --------- ----------- ---------- --------- --------
United
Kingdom 7.4 8.1 12.3 15.3 16.5 18.6 288 297
Rest of
Europe 30.6 29.4 50.6 55.7 18.2 22.0 504 510
Americas 39.9 42.3 65.8 80.1 28.7 32.0 271 315
Australasia 11.7 9.6 19.4 18.1 4.3 3.9 127 135
China 4.9 4.5 8.1 8.6 13.5 14.9 229 278
India 3.5 4.3 5.8 8.1 4.5 5.2 297 372
Other countries 2.0 1.8 3.3 3.5 - - - -
----------------- --------- -------- --------- --------- ----------- ---------- --------- --------
100.0 100.0 165.3 189.4 85.7 96.6 1,716 1,907
----------------- --------- -------- --------- --------- ----------- ---------- --------- --------
All revenue relates to the sale of goods and services. No
individual customer, or group of customers, represents more than
10% of Group revenue (2020: 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.
2. Adjusting items
In addition to statutory reporting, the Group reports certain
financial metrics on an adjusted basis (alternative performance
measures, APMs). Definitions of adjusted measures, and information
about the differences to statutory metrics are provided in Note 27
to the financial statements.
2021 2020
GBPm GBPm
----------------------------------------------------- ----- -----
Included in operating costs
Strategic Plan restructuring costs - 2.0
Other - 0.4
----------------------------------------------------- ----- -----
Restructuring costs - 2.4
Amortisation of acquired intangible assets (Note 8) 0.7 0.9
Adjusting items in operating profit 0.7 3.3
----------------------------------------------------- ----- -----
Restructuring costs
In the prior year restructuring costs were incurred as part of
the Strategic Plan, including redundancy costs associated with
headcount reductions and various other smaller costs associated
with restructuring. A further GBP0.4m of other costs were incurred
in the prior year in relation to the investigation of the
historical overstatement of profit in the Gears business unit and
the purchase of the non-controlling interest in the Group's Indian
operations.
Restructuring costs are recognised as adjusting items because
they are considered material and non-recurring.
Amortisation of acquired intangible assets
Acquisition related intangible asset amortisation costs of
GBP0.7m (2020: GBP0.9m) were recognised in the current year. This
is considered to be an adjusting item on the basis that these
charges result from acquisition accounting, are non-cash and
non-recurring (there is no replacement cost upon the intangible
becoming fully amortised).
3. Net financing costs
2021 2020
GBPm GBPm
--------------------------------------------------------- ------ ------
Financing costs:
Interest payable on bank loans and overdrafts* (1.6) (2.1)
Interest expense on lease liabilities* (0.5) (0.5)
Amortised financing costs* (0.2) (0.2)
------ ------
Loan financing costs (2.3) (2.8)
Net IAS 19R financing costs (2.2) (2.2)
Discount unwind on non-current trade and other payables (0.1) (0.2)
------ ------
Net financing costs (4.6) (5.2)
--------------------------------------------------------- ------ ------
* Amounts arising on financial liabilities measured at amortised
cost.
4. Taxation
Analysis of tax charge in the year
2021 2020
GBPm GBPm
-------------------------------------------------------------- ------ ------
United Kingdom
UK corporation tax at 19% (2020: 19%) - -
Overseas taxes
Corporation taxes 0.6 0.9
Movement in uncertain tax positions 1.3 -
Adjustments in respect of prior periods (0.1) (0.5)
Withholding taxes 0.4 0.2
Current income tax charge 2.2 0.6
-------------------------------------------------------------- ------ ------
Deferred tax
UK - origination and reversal of temporary differences (0.2) 0.2
Overseas - origination and reversal of temporary differences 0.1 1.9
Effect of changes in corporate tax rates - (0.1)
Adjustments in respect of prior periods - (1.1)
Total deferred tax (credit)/charge (Note 17) (0.1) 0.9
Tax charge on profit on ordinary activities 2.1 1.5
-------------------------------------------------------------- ------ ------
2021 2020
GBPm GBPm
----------------------------------------------------- ------ ------
Tax on items taken to other comprehensive income
Deferred tax on changes in net pension deficits (1.0) 0.7
Effect of changes in statutory tax rate on deferred
tax assets - (1.3)
Tax on fair value of derivatives direct to reserves - (0.1)
Tax credit in the statement of other comprehensive
income (1.0) (0.7)
----------------------------------------------------- ------ ------
Factors affecting the Group tax charge for the year
The increase in the current tax charge is driven by an increase
in the provision for open tax matters which are yet to be agreed
with the relevant tax authorities across the Group's geographies,
reflecting the best estimate of amounts expected to be paid in
settling these inquiries. At 31 March 2021 the provision for open
tax matters totalled GBP2.3m (31 March 2020: GBP1.0m). In the prior
year the overseas deferred tax charge related to the derecognition
of certain deferred tax assets.
The Group's tax charge in future years will be affected by the
profit mix, effective tax rates in the different countries where
the Group operates and utilisation of tax losses. No deferred tax
is recognised on the unremitted earnings of overseas subsidiaries
in accordance with IAS 12.39.
4. 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:
2021 2020
GBPm GBPm
----------------------------------------------------- ------ ------
Profit on ordinary activities before tax 5.9 4.9
----------------------------------------------------- ------ ------
Theoretical tax charge at 19% (2020: 19%) 1.1 0.9
Effects of:
Permanent differences (1.8) 0.3
Movement in uncertain tax positions 1.3
Overseas tax rate differences 0.4 0.3
Effect of changes in corporate tax rates - (0.1)
Adjustments in respect of prior periods - (1.8)
Movement in unrecognised deferred tax 0.7 1.7
Withholding taxes 0.4 0.2
Total tax charge 2.1 1.5
----------------------------------------------------- ------ ------
Comprising:
Total tax charge on adjusted profit before tax 2.1 1.5
Taxation charge on adjusting items and discontinued
operations - -
----------------------------------------------------- ------ ------
Total tax charge 2.1 1.5
----------------------------------------------------- ------ ------
On 3 March 2021 the Chancellor announced an increase in the UK
corporation tax rate from 19% to 25% with effect from 1 April 2023.
As the rate change was not substantively enacted at the balance
sheet date, all deferred tax at 31 March 2021 is recognised at the
prevailing 19% rate.
Effective tax rate
The effective tax rate of 36% (2020: 31%) is higher than the UK
tax rate of 19% (2020: 19%) due to the following factors:
-- Losses in jurisdictions where, due to uncertain future
profitability, deferred tax assets are not recognised;
-- Permanent differences including items that are disallowed
from a tax perspective such as entertaining and certain employee
costs;
-- Differences in overseas tax rates, typically being higher
than the rates in the UK; offset by
-- Prior year adjustments arising as tax submissions are
finalised and agreed in specific jurisdictions.
Tax payments
Cash tax received in the year was GBP0.7m (2020: GBP1.6m paid).
The net inflow for the current year is driven by a review of
payments on account across the Group, with revised payment profiles
leading to a recovery of GBP1.3m of prior year contributions.
5. Earnings per share
Earnings per share (EPS) is calculated by reference to the
earnings for the year and the weighted average number of shares in
issue during the year as follows:
2021 2020
----------------------------------- -----------------------------------
Per share Per share
Earnings Shares amount Earnings Shares amount
-------------------------------
GBPm (thousands) (pence) GBPm (thousands) (pence)
------------------------------- --------- ------------ ---------- --------- ------------ ----------
Basic EPS from continuing
and discontinued operations
Profit attributed to
ordinary shareholders 3.8 225,418 1.7 1.8 225,418 0.8
Loss for the period
from discontinued operations - - 1.5 0.7
Basic EPS from continuing
operations 3.8 225,418 1.7 3.3 225,418 1.5
------------------------------- --------- ------------ ---------- --------- ------------ ----------
2021 2020
----------------------------------- -----------------------------------
Per share Per share
Earnings Shares amount Earnings Shares amount
GBPm (thousands) (pence) GBPm (thousands) (pence)
--------------------------- --------- ------------ ---------- --------- ------------ ----------
Adjusted EPS
Basic EPS from continuing
operations 3.8 225,418 1.7 3.3 225,418 1.5
Effect of adjusting
items, after tax:
Restructuring costs
in operating costs - - 2.4 1.1
Amortisation of acquired
intangible assets 0.7 0.3 0.9 0.3
Adjusted EPS 4.5 225,418 2.0 6.6 225,418 2.9
--------------------------- --------- ------------ ---------- --------- ------------ ----------
1. Adjusted: In addition to statutory reporting, the Group
reports certain financial metrics on an adjusted basis. Definitions
of adjusted measures, and information about the differences to
statutory metrics are provided in Note 19.
Inclusion of the dilutive securities, comprising 7,292,980
(2019: 1,944,433) additional shares due to share options, in the
calculation of basic, basic continuing and adjusted EPS changes the
amounts shown above to 1.6p, 1.6p and 1.9p respectively (2020:
basic EPS 0.8p, basic continuing EPS 1.5p, adjusted EPS 2.9p).
The adjusted EPS numbers have been provided in order to give a
useful indication of underlying performance by the exclusion of
adjusting items. Due to the existence of unrecognised deferred tax
assets there were no associated tax credits on some of the
adjusting items and in these instances adjusting items are added
back in full.
6. Dividends
No ordinary dividend payments were paid or proposed in either
the current or prior year.
7. Goodwill
2021 2020
GBPm GBPm
----------------------------------------- ------ -----
Cost
At 1 April 27.6 26.6
Exchange adjustment (2.5) 1.0
----------------------------------------- ------ -----
At 31 March 25.1 27.6
----------------------------------------- ------ -----
Accumulated amortisation and impairment
At 1 April 3.6 3.5
Exchange adjustment (0.2) 0.1
----------------------------------------- -----
At 31 March 3.4 3.6
-----------------------------------------
Carrying amount 21.7 24.0
----------------------------------------- ------ -----
Impairment testing
The Group performed its annual impairment test of goodwill at 31
March 2021 which compares the current book value to the recoverable
amount from the continued use or sale of the related business.
The recoverable amount of each Cash Generating Unit (CGU) has
been determined on a value-in-use basis, calculated as the net
present value of cash flows derived from detailed financial plans.
All business units in the Group have submitted a budget for the
financial year ending 31 March 2022 and strategic plan forecasts
for the two financial years ending 31 March 2024. The budget and
strategic forecasts, which are subject to detailed review and
challenge, were approved by the Board in February 2021. The Group
prepares cash flow forecasts based on these projections for the
first three years, with years four and five extrapolated based on
long-term growth rates, known future events, recently observable
trends and management expectations. A terminal value calculation is
used to estimate the cash flows after year five. Sensitivity
analysis has been performed including a zero revenue growth
scenario (with current year revenue modelled for all future periods
of the forecast) and an increase in the discount rates used of 100
basis points (to reflect the increased level of uncertainty). The
forecasts used for the impairment review are consistent with those
used in the Going Concern review.
The key assumptions used in the value-in-use calculations
are:
-- Sales: Forecast sales are built up with reference to expected sales
prices and volumes from individual markets and product categories based
on past performance, projections of developments in key markets and
management's judgement;
-- Margins: Forecast margins reflect historical performance and management's
experience of each CGUs profitability at the forecast level of sales
including the impact of all completed restructuring projects. The projections
do not include the impact of future restructuring projects to which
the Group is not yet committed;
-- Discount rate: Pre-tax discount rates have been calculated based on
the Group's weighted average cost of capital and risks specific to
the CGU being tested; and
-- Long-term growth rates: As required by IAS 36, cash flows beyond the
period of projections are extrapolated using long-term growth rates
published by the Organisation for Economic Co-operation and Development
for the territory in which the CGU is based. The discount rates applied
to the cash flows of each of the CGUs are based on the risk-free rate
for long-term bonds issued by the government in the respective market.
This is then adjusted to reflect both the increased risk of investing
in equities and the systematic risk of the specific CGU (using an average
of the betas of comparable companies). These rates do not reflect the
long-term assumptions used by the Group for investment planning.
Whilst the Covid-19 pandemic and its impact on the economy is
unprecedented the Directors do not consider that any reasonably
possible changes to the key assumptions would reduce the
recoverable amount to its carrying value for the Ace Chains
(Australia) and Renold Tooth Chain (Germany) CGUs. No impairment
charge has been recognised in the period for any CGU.
Long-term Discount rate
growth rate (pre-tax) Carrying value
--------------- ---------------- -----------------
2021 2020 2021 2020 2021 2020
% % % % GBPm GBPm
----------------------------- ------- ------ ------- ------- -------- -------
Jeffrey Chain, USA 1.9 1.6 12.1 10.1 19.0 21.2
Ace Chains, Australia 2.6 2.6 12.3 10.1 0.5 0.4
Renold Chain, India 7.4 7.3 19.6 21.0 1.7 1.9
Renold Tooth Chain, Germany 1.3 1.2 15.7 13.1 0.5 0.5
-----------------------------
21.7 24.0
----------------------------- ------- ------ ------- ------- -------- -------
8. Intangibles
Customer Customer Technical Computer
orderbook lists know-how software Total
GBPm GBPm GBPm GBPm GBPm
------------------------------ ----------- --------- ---------- ---------- ------
Cost
At 1 April 2019 0.3 4.2 0.2 17.2 21.9
Exchange adjustment - 0.2 - - 0.2
Additions - - - 2.5 2.5
Recategorisation (Note 9) - - - 1.3 1.3
Disposals - - - (0.1) (0.1)
Disposal of subsidiary - - - (0.1) (0.1)
------------------------------ ----------- --------- ---------- ---------- ------
At 31 March 2020 0.3 4.4 0.2 20.8 25.7
Exchange adjustment - (0.2) - (0.2) (0.4)
Additions - - - 0.8 0.8
At 31 March 2021 0.3 4.2 0.2 21.4 26.1
------------------------------ ----------- --------- ---------- ---------- ------
Accumulated amortisation and
impairment
At 1 April 2019 0.3 2.7 0.2 12.1 15.3
Exchange adjustment - 0.1 - - 0.1
Amortisation charge - 0.9 - 1.9 2.8
Recategorisation (Note 9) - - - (0.3) (0.3)
Disposals - - - (0.1) (0.1)
Disposal of subsidiary - - - (0.1) 3.1
------------------------------ ----------- --------- ---------- ---------- ------
At 31 March 2020 0.3 3.7 0.2 13.5 17.7
Exchange adjustment - (0.2) - (0.1) (0.3)
Amortisation charge - 0.7 - 1.9 2.6
At 31 March 2021 0.3 4.2 0.2 15.3 20.0
------------------------------ ----------- --------- ---------- ---------- ------
Net book amount
At 31 March 2021 - - - 6.1 6.1
------------------------------ ----------- --------- ---------- ---------- ------
At 31 March 2020 - 0.7 - 7.3 8.0
------------------------------ ----------- --------- ---------- ---------- ------
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 is 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.
9. Property, plant and equipment
Land and Plant
buildings and equipment Total
GBPm GBPm GBPm
------------------------------------------ ----------- --------------- ------
Cost
At 1 April 2019 25.2 119.9 145.1
Exchange adjustment 0.3 2.1 2.4
Additions 0.3 6.3 6.6
Disposals - (1.3) (1.3)
Recategorisation (Note 8) 0.1 (1.4) (1.3)
Adoption of IFRS 16 - Transfer (Note 10) (0.7) (0.3) (1.0)
Disposal of subsidiary (0.5) (1.3) (1.8)
------------------------------------------ ----------- --------------- ------
At 31 March 2020 24.7 124.0 148.7
Exchange adjustment (0.9) (5.3) (6.2)
Additions (0.1) 2.3 2.2
Disposals - (2.2) (2.2)
At 31 March 2021 23.9 118.6 142.5
------------------------------------------ ----------- --------------- ------
Accumulated depreciation and impairment
At 1 April 2019 4.6 85.0 89.6
Exchange adjustment 0.1 1.7 1.8
Charge for the year 0.7 5.4 6.1
Disposals - (1.2) (1.2)
Recategorisation (Note 8) 1.8 (1.5) 0.3
Adoption of IFRS 16 - Transfer (Note 10) - (0.1) (0.1)
Disposal of subsidiary (0.1) (1.0) (1.1)
------------------------------------------ ----------- --------------- ------
At 31 March 2020 7.1 88.3 95.4
Exchange adjustment (0.3) (4.0) (4.3)
Charge for the year 0.5 5.0 5.5
Disposals - (1.9) (1.9)
At 31 March 2021 7.3 87.4 94.7
------------------------------------------ ----------- --------------- ------
Net book amount
At 31 March 2021 16.6 31.2 47.8
------------------------------------------ ----------- --------------- ------
At 31 March 2020 17.6 35.7 53.3
------------------------------------------ ----------- --------------- ------
Property, plant and equipment pledged as security for
liabilities amounted to GBP31.6m (2020: GBP36.6m).
Future capital expenditure
At 31 March 2021 capital expenditure contracted for but not
provided for in these accounts amounted to GBP0.2m (2020:
GBP3.3m).
10. Leasing and right-of-use assets
Right-of-use assets
Land and Plant
buildings and equipment Total
GBPm GBPm GBPm
----------------------------------------- ----------- --------------- ------
Cost
At 1 April 2019 - - -
Adoption of IFRS 16 7.0 2.5 9.5
Adoption of IFRS 16 - Transfer 0.7 0.3 1.0
Exchange adjustment - - -
Additions 2.6 0.8 3.4
Disposals (0.1) (0.2) (0.3)
----------------------------------------- ----------- --------------- ------
At 31 March 2020 10.2 3.4 13.6
Exchange adjustment (0.1) (0.0) (0.1)
Additions 1.4 0.2 1.6
Disposals (0.3) (0.3) (0.6)
At 31 March 2021 11.2 3.3 14.5
----------------------------------------- ----------- --------------- ------
Accumulated depreciation and impairment
At 1 April 2020 - - -
Adoption of IFRS 16 - Transfer - 0.1 0.1
Exchange adjustment - - -
Charge for the year 1.3 1.2 2.5
Disposals (0.1) (0.2) (0.3)
----------------------------------------- ----------- --------------- ------
At 31 March 2020 1.2 1.1 2.3
Exchange adjustment - (0.1) (0.1)
Charge for the year 1.7 1.1 2.8
Disposals (0.3) (0.3) (0.6)
-----------------------------------------
At 31 March 2021 2.6 1.8 4.4
----------------------------------------- ----------- --------------- ------
Net book amount
At 31 March 2021 8.6 1.5 10.1
----------------------------------------- ----------- --------------- ------
At 31 March 2020 9.0 2.3 11.3
----------------------------------------- ----------- --------------- ------
An onerous lease provision of GBP2.7m, initially established in
2014 following the closure of the Bredbury manufacturing facility,
was derecognised on 1 April 2019 following the adoption of IFRS 16.
The GBP2.7m was recorded as a reduction to the opening carrying
value of the Bredbury right-of-use property. The lease expires in
May 2030 at a rental cost of GBP0.8m per annum; a significant
proportion of this site is sublet for a term of five years to 2021
for a rent of GBP0.6m per annum. While a range of possible outcomes
exist for the continuation of subletting the property, the extent
of this range is a reduction in right-of-use assets of up to
GBP2.7m (the future net book value of the Bredbury property at the
end of the existing sublet agreement).
Lease liabilities
2021 2020
GBPm GBPm
-------------------------------------------------------- ------ ------
Maturity analysis - contractual undiscounted cash
flows
Less than one year 2.8 3.0
One to two years 1.5 2.6
Two to five years 5.5 5.3
More than five years 8.9 10.6
Total undiscounted lease liabilities at 31 March 18.7 21.5
Less: Interest allocated to future periods (3.3) (4.4)
-------------------------------------------------------- ------ ------
Lease liabilities included in the Consolidated Balance
Sheet 15.4 17.1
-------------------------------------------------------- ------ ------
Current 2.5 3.0
Non-current 12.9 14.1
-------------------------------------------------------- ------ ------
10. Leasing and right-of-use assets (continued)
Amounts recognised in profit or loss
2021 2020
GBPm GBPm
--------------------------------------------------------- ------ ------
Interest on lease liabilities (0.5) (0.5)
Variable lease payments not included in the measurement
of lease liabilities - -
Income from sub-leasing right-of-use assets 0.6 0.6
Expenses relating to short-term leases and leases
of low-value assets (0.1) (0.2)
--------------------------------------------------------- ------ ------
Amounts recognised in the Consolidated Statement of Cash
Flows
2021 2020
GBPm GBPm
---------------------------------------------------- ----- -----
Repayment of principal under lease liabilities 3.2 3.3
Repayment of interest on lease liabilities 0.5 0.5
Cash outflows in relation to short-term leases and
leases of low-value assets 0.1 0.2
Total cash outflows for leases 3.8 4.0
---------------------------------------------------- ----- -----
11. Inventories
2021 2020
GBPm GBPm
------------------------------------------ ----- -----
Raw materials 5.4 6.4
Work in progress 4.0 4.6
Finished products and production tooling 28.3 35.1
37.7 46.1
------------------------------------------ ----- -----
Inventories pledged as security for liabilities amounted to
GBP28.1m (2020: GBP40.5m).
The Group expensed GBP54.8m (2020: GBP70.0m) of inventories
during the period. In the year to 31 March 2021, GBP3.1m (2020:
GBP0.9m) was charged for the write-down of inventory and GBP0.1m
(2020: GBP0.9m) was released from inventory provisions no longer
required.
12. Trade and other receivables
2021 2020
GBPm GBPm
------------------------ ------ ------
Trade receivables(1) 27.1 31.0
Less: Loss allowance (0.4) (0.5)
------------------------ ------ ------
Trade receivables: net 26.7 30.5
Other receivables(1) 2.5 3.4
Prepayments 1.1 1.9
------------------------
30.3 35.8
------------------------ ------ ------
1. Financial assets carried at amortised cost.
The Group has no significant concentration of credit risk but
does have a concentration of translational and transactional
foreign exchange risk in both US Dollars and Euros; however, the
Group hedges against these risks. The carrying amount of trade and
other receivables approximates their fair value.
Trade receivables are non-interest bearing and are generally on
30-90 days terms. The average credit period on sales of goods is 62
days (2020: 59 days).
12. Trade and other receivables (continued)
The following table details the risk profile of trade
receivables based on the Group's provision matrix. As the Group's
historical credit loss experience does not show significantly
different loss patterns for different customer segments, the
provision for loss allowance based on past due status is not
further analysed:
Trade receivables - days past due
-------------------------------------------------------
Not past 30-60 60-90
due <30 days days days >90 days Total
---------------------------- --------- --------- ------ ------ --------- ------
At 31 March 2021
Expected credit loss rate,
% 0.2% 0.1% 0.0% 0.2% 28.7% 1.3%
Estimated gross carrying
amount at default, GBPm 0.1 - - - 0.3
Lifetime expected credit
loss, GBPm 0.4
---------------------------- --------- --------- ------ ------ --------- ------
Trade receivables - days past due
-------------------------------------------------------
Not past 30-60 60-90
due <30 days days days >90 days Total
---------------------------- --------- --------- ------ ------ --------- ------
At 31 March 2020
Expected credit loss rate,
% 0.0% 0.3% 0.0% 4.6% 35.2% 1.5%
Estimated gross carrying
amount at default, GBPm - - - - 0.4
Lifetime expected credit
loss, GBPm 0.5
---------------------------- --------- --------- ------ ------ --------- ------
The following table shows the movement in the lifetime expected
credit losses; there has been no change in the estimation
techniques or significant assumptions made during the current
reporting period:
2021 2020
Loss allowance GBPm GBPm
-------------------------------------- ------ -----
At 1 April 0.5 0.5
Net remeasurement of loss allowance - -
Amounts written off as uncollectable (0.1) -
--------------------------------------
At 31 March 0.4 0.5
-------------------------------------- ------ -----
13. Cash and cash equivalents
In the Group cash flow statement, net cash and cash equivalents
are shown after deducting bank overdrafts as follows:
2021 2020
GBPm GBPm
------------------------------- ------ ------
Cash and cash equivalents 19.9 15.6
Less: Overdrafts (Note 14) (2.6) (0.5)
Net cash and cash equivalents 17.3 15.1
------------------------------- ------ ------
14. Borrowings
2021 2020
GBPm GBPm
----------------------------------------------- ------ ------
Amounts falling due within one year:
Overdrafts(1) (Note 13) 2.6 0.5
Capitalised costs (0.3) (0.2)
Current borrowings 2.3 0.3
----------------------------------------------- ------ ------
Amounts falling due after more than one year:
Bank loans(1) 35.7 51.9
Capitalised costs (0.2) (0.5)
Non-current borrowings 35.5 51.4
Preference stock(1) 0.5 0.5
36.0 51.9
----------------------------------------------- ------ ------
Total borrowings 38.3 52.2
----------------------------------------------- ------ ------
1. Gross borrowings before deducting capitalised costs
All financial liabilities above are carried at amortised
cost.
14. Borrowings (continued)
Core banking facilities
On 29 March 2019 the Group renewed its GBP61.5m Multi-Currency
Revolving Facility banking facilities with HSBC UK, Allied Irish
Bank (GB), and Citibank. The facility matures in March 2024 and is
fully committed and available until maturity.
At the year end, the undrawn core banking facility was GBP27.7m
(2020: GBP9.7m). The Group also benefits from a UK overdraft and a
number of overseas facilities totalling GBP5.5m (2020: GBP4.0m)
with availability at year end of GBP1.0m. The Group pays interest
at LIBOR plus a variable margin in respect of the core banking
facility. The average rate of interest paid in the year was LIBOR
plus 1.85% for Sterling, Euro and US Dollar denominated facilities
(2020: LIBOR plus 1.95% for Sterling, Euro and US Dollar
denominated facilities)
The core banking facility has been subject to two covenants,
which are tested semi-annually: net debt to EBITDA (leverage) and
EBITDA to net finance charges. In recognition of the current
macroeconomic uncertainty, the Group's banks have amended covenant
test structure, replacing the existing tests with minimum rolling
12-month EBITDA, tested on a quarterly basis for the period to
March 2021, and minimum available liquidity tests. From March 2021,
the tests revert to the previous net debt to EBITDA and EBITDA to
net finance charges, but with greater flexibility (i.e. 3.5 times
net debt to EBITDA versus original 2.5 times) until September 2021
when the original covenant tests resume.
Secured borrowings
Included in Group borrowings are secured borrowings of GBP38.3m
(2020: GBP52.4m). Security is provided by fixed and floating
charges over assets (including certain property, plant and
equipment and inventory) primarily in the UK, USA, Germany and
Australia. Certain Group companies have provided cross-guarantees
in respect of these borrowings.
Preference stock
At 31 March 2020, there were 580,482 units of preference stock
in issue (2020: 580,482).
All payments of dividends on the preference stock have been paid
on the due dates. The preference stock has the following
rights:
i. a fixed cumulative preferential dividend at the rate of 6%
per annum payable half yearly on 1 January and 1 July in each
year;
ii. rank both with regard to dividend (including any arrears on
the commencement of a winding up) and return of capital in priority
to all other stock or shares in the Company, but with no further
right to participate in profits or assets;
iii. no right to attend or vote, either in person or by proxy,
at any general meeting of the Company or to have notice of any such
meeting, unless the dividend on the preference stock is in arrears
for six calendar months; and
iv. no redemption entitlement and no fixed repayment date.
There is no significant difference between the carrying value of
financial liabilities and their equivalent fair value.
15. Trade and other payables
2021 2020
---------------------- ----------------------
Current Non-current Current Non-current
GBPm GBPm GBPm GBPm
---------------------------------- -------- ------------ -------- ------------
Trade payables(1) 13.2 - 18.1 -
Other tax and social security(1) 1.9 - 2.3 -
Other payables(1) 1.4 5.4 1.4 5.3
Accruals 15.0 - 15.8 -
31.5 5.4 37.6 5.3
---------------------------------- -------- ------------ -------- ------------
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. The non-current other
payable is the deferred element of the construction costs for the
new Chinese factory in Jintan.
The Group did not operate supplier financing or reverse
factoring programmes during the current or prior financial
year.
The Directors consider that the carrying amount of trade
payables approximates to their fair value.
16. Provisions
Business
restructuring Total provisions
GBPm GBPm
------------------------- --------------- -----------------
At 1 April 2020 0.7 0.7
Arising during the year 0.9 0.9
Utilised in the year (0.2) (0.2)
At 31 March 2021 1.4 1.4
------------------------- --------------- -----------------
2021 2020
Allocated as: GBPm GBPm
------------------------ ----- -----
Current provisions 1.4 0.7
Non-current provisions - -
------------------------
1.4 0.7
------------------------ ----- -----
Business restructuring
During the year ended 31 March 2021, provisions were recognised
in relation to business reorganisation and redundancies in
Switzerland and site environmental costs in France.
All restructuring provisions are expected to be utilised within
12 months.
17. Additional cash flow information
Reconciliation of operating profit to net cash flows from
operations:
2021 2020
GBPm GBPm
-------------------------------------------------------------- ------ ------
Cash generated from operations:
Operating profit from continuing and discontinued operations 10.5 9.8
Depreciation of property, plant and equipment - owned
assets 5.5 6.1
Depreciation of property, plant and equipment - right-of-use
assets 2.8 2.5
Amortisation of intangible assets 2.6 2.8
Loss on disposals of plant and equipment 0.1 -
Equity share plans - (0.6)
Decrease/(increase) in inventories 6.3 (1.7)
Decrease in receivables 4.2 1.6
Decrease in payables (5.0) (4.4)
Increase in provisions 0.7 0.6
Cash contribution to pension schemes (2.1) (4.4)
Pension current service cost (non-cash) 0.1 0.2
Pension past service credit (non-cash) 0.3 -
--------------------------------------------------------------
Cash generated from operations 26.0 12.5
-------------------------------------------------------------- ------ ------
Reconciliation of net change in cash and cash equivalents to
movement in net debt:
2021 2020
GBPm GBPm
---------------------------------------------------------------- ------- -------
Increase/(decrease) in cash and cash equivalents (Consolidated
Statement of Cash Flows) 1.5 (2.8)
---------------------------------------------------------------- ------- -------
Change in net debt resulting from cash flows
- Proceeds from borrowings (2.8) (7.5)
- Repayment of borrowings 19.9 4.2
Foreign currency translation differences (0.2) -
Non-cash movement on capitalised finance costs (0.2) (0.2)
----------------------------------------------------------------
Change in net debt during the period 18.2 (6.3)
Net debt at start of year (36.6) (30.3)
----------------------------------------------------------------
Net debt at end of year (18.4) (36.6)
---------------------------------------------------------------- ------- -------
Net debt comprises:
Cash and cash equivalents (Note 13) 19.9 15.6
Total borrowings (Note 14) (38.3) (52.2)
----------------------------------------------------------------
(18.4) (36.6)
---------------------------------------------------------------- ------- -------
17. Additional cash flow information (continued)
The table below details changes in the Group's liabilities
arising from financing activities, including both cash and non-cash
changes. Liabilities arising from financing activities are those
for which cash flows were, or future cash flows will be, classified
in the Group's consolidated cash flow statement as cash flows from
financing activities.
Financing
Opening Accrued cash Non-cash Closing
balance interest flows New leases changes(1) balance
2021 GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------------- --------- ---------- ---------- ----------- ------------ ---------
Bank loans (Note 14) 51.9 1.6 (18.6) - 0.8 35.7
Capitalised costs (Note 14) (0.7) - - - 0.2 (0.5)
Preference stock (Note 14) 0.5 - - - - 0.5
Lease liabilities (Note 10) 17.1 0.4 (3.7) 1.6 - 15.4
---------------------------------- --------- ---------- ---------- ----------- ------------ ---------
Total liabilities from financing
activities 68.8 2.0 (22.3) 1.6 1.0 51.1
Overdrafts (Note 14) 0.5 2.6
Less: Lease liabilities (Note
10) (17.1) (15.4)
---------------------------------- --------- ---------- ---------- ----------- ------------ ---------
Total borrowings (note 14) 52.2 38.3
Add: Cash and cash equivalents
(Note 14) (15.6) (19.9)
Net debt 36.6 18.4
---------------------------------- --------- ---------- ---------- ----------- ------------ ---------
Adoption Financing
Opening of IFRS Accrued cash Non-cash Closing
balance 16 interest flows New leases changes(1) balance
2020 GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- --------- --------- ---------- ---------- ----------- ------------ ---------
Bank loans (Note 14) 48.1 - 2.1 1.1 - 0.6 51.9
Capitalised costs (Note
14) (0.9) - - - - 0.2 (0.7)
Preference stock (Note
14) 0.5 - - - - - 0.5
Lease liabilities (Note
10) - 17.0 0.5 (3.8) 3.4 - 17.1
------------------------- --------- --------- ---------- ---------- ----------- ------------ ---------
Total liabilities from
financing activities 47.7 17.0 2.6 (2.7) 3.4 0.8 68.8
Overdrafts (Note 14) 0.2 0.5
Less: Lease liabilities
(Note 10) - (17.1)
------------------------- --------- --------- ---------- ---------- ----------- ------------ ---------
Total borrowings (note
14) 47.9 52.2
Add: Cash and cash
equivalents (Note 14) (17.6) (15.6)
------------------------- --------- --------- ---------- ---------- ----------- ------------ ---------
Net debt 30.3 36.6
------------------------- --------- --------- ---------- ---------- ----------- ------------ ---------
1. Non-cash changes includes the amortisation of capitalised
finance costs and foreign exchange translation.
18. Post balance sheet events
On the 8 April 2021 Renold completed the acquisition of the
conveyor chain business of Brooks Ltd in Manchester, UK, for a
total consideration of GBP0.6m, including GBP0.3m of deferred
consideration. In the current year the business is expected to
generate additional sales for the Group of c.GBP1.0m, and add
c.GBP0.2m to Group operating profit. The business will be
integrated into the Renold UK Service centre in Manchester.
As part of its long term financial planning the Company is
reorganising its balance sheet and reserves through the
cancellation of the entire amount of its share premium account and
capital redemption reserve. The share premium account and capital
redemption reserve are non-distributable reserves and accordingly,
the purposes for which the Company can use these are extremely
restricted. The reduction of capital creates sufficient
distributable reserves to provide the Board with greater
flexibility with regard to how it manages its capital resources.
This provides flexibility in such matters as making payments to the
holders of Preference Stock, commencing a share buy-back programme
consistent with the authority granted by Shareholders at the last
annual general meeting, in order to, inter alia, fund employee
share schemes, thereby avoiding dilution for existing Shareholders
or, should the Board determine it appropriate to do so in the
future, make dividend distributions to Shareholders.
The order of the High Court confirming the above described
capital reduction became effective on 27 May 2021, increasing
distributable reserves by GBP45.5m and, if applied to the Group
consolidated balance sheet at 31 March 2021, would reduce the
consolidated retained earnings deficit from GBP69.3m to
GBP23.8m.
19. Alternative performance measures
In order to provide users of the accounts with a clear and
consistent presentation of the performance of the Group's ongoing
trading activity, the Group uses various alternative performance
measures (APMs), including presenting 'Adjusted' measures
separately from statutory items on the face of the consolidated
income statement. Amortisation of acquired intangibles,
restructuring costs, discontinued operations and material one-off
items or remeasurements are included in a separate row as
management seek to present a measure of performance which is not
impacted by material non-recurring items or items considered
non-operational. See Note 2 for a breakdown and explanation of the
items excluded from adjusted profit. Performance measures for the
Group's ongoing trading activity are described as 'Adjusted' and
are used to measure and monitor performance as management believe
these measures enable users of the financial statements to better
assess the trading performance of the business. In addition, the
Group reports sales and profit measures at constant exchange rates.
Constant exchange rate metrics exclude the impact of foreign
exchange translation, by retranslating the comparative to current
year exchange rates.
The APMs used by the Group include:
APM Reference Explanation of APM
----------------------------------- ---------- --------------------------------------
-- adjusted operating profit Adjusted measures are used by
the Group as a measure of underlying
business performance, adding
back items that do not relate
A to underlying performance
--------------------------------------
-- adjusted profit before taxation B
--------------------------------------
-- adjusted EPS C
-- return on sales D
-- operating profit gearing D
----------------------------------- ---------- --------------------------------------
-- revenue at constant exchange Constant exchange rate metrics
rates adjust for constant foreign
exchange translation and are
used by the Group to better
understand year-on-year changes
E in performance
--------------------------------------
-- adjusted operating profit F
at constant exchange rates
--------------------------------------
-- adjusted operating profit G
margin at constant exchange
rates
----------------------------------- ---------- --------------------------------------
-- EBITDA EBITDA is a widely utilised
measure of profitability, adjusting
H to remove non-cash depreciation
H and amortisation charges
--------------------------------------
-- adjusted EBITDA H
--------------------------------------
-- operating cash flow H
----------------------------------- ---------- --------------------------------------
-- net debt Net debt, leverage and gearing
are used to assess the level
of borrowings within the Group
and are widely used in capital
I markets analysis
--------------------------------------
-- leverage ratio J
--------------------------------------
-- gearing ratio K
----------------------------------- ---------- --------------------------------------
-- legacy pension cash costs L The cost of legacy pensions
is used by the Group as a measure
of the cash cost of servicing
legacy pension schemes
----------------------------------- ---------- --------------------------------------
APMs are defined and reconciled to the IFRS statutory measure as
follows:
(A) Adjusted operating profit
2021 2020
GBPm GBPm
------------------------------------------------------- ----- -----
Statutory operating profit from continuing operations 10.5 10.1
Add back:
Restructuring costs - 2.4
Amortisation of acquired intangible assets 0.7 0.9
Adjusted operating profit 11.2 13.4
------------------------------------------------------- ----- -----
(B) Adjusted profit before taxation
2021 2020
GBPm GBPm
-------------------------------------------------- ----- -----
Statutory profit before taxation from continuing
operations 5.9 4.9
Add back:
Restructuring costs - 2.4
Amortisation of acquired intangible assets 0.7 0.9
Adjusted profit before taxation 6.6 8.2
-------------------------------------------------- ----- -----
19. Alternative performance measures (continued)
(C) Adjusted earnings per share
Adjusted EPS is reconciled to statutory EPS in Note 5.
(D) Return on sales and operating profit gearing
2021 2020
GBPm GBPm
--------------------------- ------ ------
Adjusted operating profit 11.2 13.4
Revenue 165.3 189.4
Return on sales % 6.8% 7.1%
--------------------------- ------ ------
Year ended 31 March 2021
-----------------------------------------------------
Head office
Torque costs and
Chain Transmission eliminations Consolidated
GBPm GBPm GBPm GBPm
---------------------------------------- ------ -------------- -------------- -------------
Adjusted operating profit 13.3 5.0 (7.1) 11.2
Total revenue (including inter-segment
sales) 130.0 39.1 (3.8) 165.3
Adjusted operating profit margin
% 10.2% 12.8% - 6.8%
---------------------------------------- ------ -------------- -------------- -------------
Year ended 31 March 2020
-----------------------------------------------------
Head office
Torque costs and
Chain Transmission eliminations Consolidated
GBPm GBPm GBPm GBPm
---------------------------------------- ------ -------------- -------------- -------------
Adjusted operating profit 13.8 5.3 (5.7) 13.4
Total revenue (including inter-segment
sales) 149.0 46.1 (5.7) 189.4
Adjusted operating profit margin
% 9.3% 11.5% - 7.1%
---------------------------------------- ------ -------------- -------------- -------------
Year ended 31 March 2021
------------------------------------------------------
Head office
Torque costs and
Chain Transmission eliminations Consolidated
GBPm GBPm GBPm GBPm
-------------------------------------- ------- -------------- -------------- -------------
Year-on-year change in adjusted
operating profit (0.5) (0.3) (1.4) (2.2)
Year-on-year change in total revenue
(including inter-segment sales) (19.0) (7.0) 1.9 (24.1)
Operating profit gearing % 3% 4% - 9%
-------------------------------------- ------- -------------- -------------- -------------
(E), (F) & (G) Revenue, adjusted operating profit and
adjusted operating profit margin at constant exchange rates
Year ended 31 March 2020
Head office
Torque costs and
Chain Transmission eliminations Consolidated
GBPm GBPm GBPm GBPm
--------------------------------------- -------- -------------- -------------- ---------------
External revenue from continuing
operations 147.9 41.5 - 189.4
Inter-segment 1.1 4.6 (5.7) -
Foreign exchange retranslation (1.3) (0.5) - (1.8)
Revenue at constant exchange rates 147.7 45.6 (5.7) 187.6
--------------------------------------- -------- -------------- -------------- ---------------
Adjusted operating profit 13.8 5.3 (5.7) 13.4
Foreign exchange retranslation (0.2) (0.1) - (0.3)
Adjusted operating profit at constant
exchange rates 13.6 5.2 (5.7) 13.1
--------------------------------------- -------- -------------- -------------- ---------------
Adjusted operating profit margin
at constant exchange rates % 9.2% 11.4% - 7.0%
--------------------------------------- -------- -------------- -------------- ---------------
19. Alternative performance measures (continued)
(H) EBITDA, adjusted EBITDA (earnings before interest, taxation,
depreciation and amortisation) and operating cash flow
2021 2020
GBPm GBPm
---------------------------------------------------------- ------ ------
Statutory operating profit from continuing operations 10.5 10.1
Depreciation and amortisation - owned assets 10.9 11.4
---------------------------------------------------------- ------
EBITDA 21.4 21.5
Add back:
Restructuring costs - 2.4
Adjusted EBITDA 21.4 23.9
Inventories (see Note 17) 6.3 (1.7)
Trade and other receivables (see Note 17) 4.2 1.6
Trade and other payables (see Note 17) (5.0) (4.4)
Provisions (see Note 17) 0.7 0.6
Less: Restructuring cash spend (Note 16 - utilisation
of restructuring provisions) 0.2 (0.9)
---------------------------------------------------------- ------ ------
Movement in working capital 6.4 (5.3)
Purchase of property, plant and equipment (Consolidated
Statement of Cash Flows) (2.3) (6.7)
Purchase of intangible assets (Consolidated Statement
of Cash Flows) (0.8) (2.5)
Proceeds from property disposals 0.2 0.1
---------------------------------------------------------- ------ ------
Net capital expenditure (2.9) (9.1)
---------------------------------------------------------- ------ ------
Operating cash flow 24.9 9.5
---------------------------------------------------------- ------ ------
(I) Net debt
Net debt is reconciled to the statutory balance sheet in Note
17.
(J) Leverage ratio
2021 2020
GBPm GBPm
------------------------ ----- -----
Net debt (see Note 17) 18.4 36.6
Adjusted EBITDA 21.4 23.9
------------------------
Leverage ratio 0.9x 1.5x
------------------------ ----- -----
(K) Gearing ratio
2021 2020
GBPm GBPm GBPm GBPm
---------------------------------------- ------ ----- ------ -----
Net debt (see Note 17) 18.4 36.6
Equity attributable to equity holders
of the parent (6.1) (0.4)
Net debt (see Note 17) 18.4 36.6
Total capital plus net debt 12.3 36.2
---------------------------------------- ------ ----- ------ -----
Gearing ratio % 150% 101%
---------------------------------------- ------ ----- ------ -----
(L) Legacy pension cash costs
2021 2020
GBPm GBPm
------------------------------------------------- ----- -----
Cash contributions to pension schemes 0.8 3.2
Pension payments in respect of unfunded schemes 1.3 1.2
Scheme administration costs 0.5 0.8
-------------------------------------------------
2.6 5.2
------------------------------------------------- ----- -----
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END
FR SFEFUIEFSELW
(END) Dow Jones Newswires
July 16, 2021 02:00 ET (06:00 GMT)
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