REG - Renold PLC - Results for the year ended 31 March 2023
12/07/2023 07:00
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RNS Number : 7158F Renold PLC 12 July 2023
Renold plc
Final results for the year ended 31 March 2023
("Renold", the "Company" or, together with its subsidiaries, the "Group")
Record trading performance and order book….Significant revenue and earnings
growth….Successful integration of significant strategic acquisition
Renold (AIM: RNO), a leading international supplier of industrial chains and
related power transmission products, is pleased to announce its audited
results for the year ended 31 March 2023.
Financial highlights
£m 2023 2022 Change Change (constant currency)(1)
Revenue 247.1 195.2 +26.6% +18.8%
Adjusted operating profit(2) 24.2 15.3 +58.2% +46.4%
Return on sales(2) 9.8% 7.8% +200bps +190bps
Adjusted profit before tax(2) 18.6 11.5 +61.7%
Net debt(3) 29.8 13.8
Adjusted earnings per share(2) 6.5p 4.3p +51.2%
Additional statutory measures
Operating profit 22.9 16.2 +41.4%
Profit before tax 17.3 12.4 +39.5%
Basic earnings per share 5.7p 4.7p +21.3%
• Revenue up 26.6% to £247.1m (18.8% at constant exchange rates) (2022:
£195.2m)
• Adjusted operating profit of £24.2m (2022: £15.3m), up 58.2%; return on
sales 9.8%, up 200bps
• Reported operating profit up 41.4% to £22.9m (2022: £16.2m)
• Net debt £29.8m, £16.0m increase in the year, facilitating successful YUK
acquisition; ratio to adjusted EBITDA 0.8x (31 March 2022: 0.5x)
• Adjusted EPS up 51.2% to 6.5p (2022: 4.3p); Basic EPS 5.7p (2022: 4.7p)
Business highlights
• The Group delivered record results despite the difficult trading and
macroeconomic backdrop, with the well-publicised inflation and global supply
chain challenges
• Order intake of £257.5m (2022: £223.9m), up 15.0%
• Closing order book £99.5m, up 18.3% against 31 March 2022
• Significant £8.9m long-term military contract win, following a similar
contract win of £11.0m in FY22
• Acquisition of Industrias YUK S.A. ("YUK") in August 2022, for €24m,
increases the Group's access to the Iberian Chain and wider European Conveyor
Chain markets. YUK is performing ahead of expectations
• Successful capital investment; improving efficiency and capability of
manufacturing locations
(1) See below for reconciliation of actual rate, constant exchange rate and
adjusted figures
(2) See Note 21 for definitions of adjusted measures and the differences to
statutory measures
(3) See Note 17 for a reconciliation of net debt which excludes lease
liabilities
Robert Purcell, Chief Executive, commented:
"I am delighted with the Group's robust performance during the last financial
year which delivered record results and exceeded market expectations,
reflecting the benefits of the strategic programmes implemented in recent
years. Throughout the reported period, the business performance has been on an
improving trend and our order books continue to be healthy though order
patterns have been inconsistent in the early part of the new financial year.
We recognise that there are still considerable economic challenges in many
parts of the world; supply chain issues, although reducing in number and
severity, are still prevalent and inflation and prices remain high, for both
energy and materials. However, we have entered the new financial year with
good momentum and confidence in the excellent fundamentals of the Renold
business, although macroeconomic trends add a note of caution. Once again,
Renold employees around the world have responded magnificently to the
challenges we have faced and I thank them for their dedication and commitment
to the Group and our customers."
Meeting for analysts and institutional investors
A virtual meeting for institutional investors and analysts will be held today
at 9.30am BST. If you wish to attend this meeting please contact
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 today, 12 July 2023. This session is open to all existing and
prospective shareholders. Those who wish to attend should register via the
following link and they will be provided with access details:
https://us02web.zoom.us/webinar/register/WN_eNb9SaJGRC-dlORaIZPwqg
(https://us02web.zoom.us/webinar/register/WN_eNb9SaJGRC-dlORaIZPwqg)
Participants will have the opportunity to submit questions during the session,
but questions are welcomed in advance and may be submitted to:
renold@investor-focus.co.uk.
Reconciliation of reported and adjusted results
Revenue Operating profit Earnings per share
2023 2022 2023 2022 2023 2022
£m £m £m £m pence pence
Statutory reported 247.1 195.2 22.9 16.2 5.7 4.7
Amortisation of acquired intangible assets - - 0.7 0.1 0.3 0.1
Acquisition costs - - 0.6 - 0.3 -
Tax adjustments relating to prior year - - - - 0.2 -
US PPP loan forgiveness - - - (1.7) - (0.8)
New lease arrangements on sublet properties - - - 0.7 - 0.3
Adjusted 247.1 195.2 24.2 15.3 6.5 4.3
Exchange impact (15.3) - (1.8) - (0.9) -
Adjusted at constant exchange rates 231.8 195.2 22.4 15.3 5.6 4.3
( )
ENQUIRIES:
Renold plc IFC Advisory Limited
Robert Purcell, Chief Executive Tim Metcalfe
Jim Haughey, Group Finance Director Graham Herring
renold@investor-focus.co.uk
0161 498 4500 020 3934 6630
Nominated Adviser and Joint Broker Joint Broker
Peel Hunt LLP FinnCap Limited
Mike Bell Ed Frisby (Corporate Finance)
Ed Allsopp Andrew Burdis / Harriet Ward (ECM)
020 7418 8900 020 7220 0500
Cautionary statement regarding forward-looking statements
Some of the information in this document may contain projections or other
forward-looking statements regarding future events or the future financial
performance of Renold plc and its subsidiaries (the Group). You can identify
forward-looking statements by terms such as "expect", "believe", "anticipate",
"estimate", "intend", "will", "could", "may" or "might", the negative of such
terms or other similar expressions. Renold plc (the Company) wishes to caution
you that these statements are only predictions and that actual events or
results may differ materially. The Company does not intend to update these
statements to reflect events and circumstances occurring after the date hereof
or to reflect the occurrence of unanticipated events. Many factors could cause
the actual results to differ materially from those contained in projections or
forward-looking statements of the Group, including, among others, general
economic conditions, the competitive environment as well as many other risks
specifically related to the Group and its operations. Past performance of the
Group cannot be relied on as a guide to future performance.
NOTES FOR EDITORS
Renold is a global leader in the manufacture of industrial chains and also
manufactures a range of torque transmission products which are sold throughout
the world to a broad range of original equipment manufacturers and
distributors. The Company has a reputation for quality that is recognised
worldwide. Its products are used in a wide variety of industries including
manufacturing, transportation, energy, metals and mining.
Further information about Renold can be found on our website at:
www.renold.com (http://www.renold.com)
Chair's statement
I am pleased to report that 2022/23 was an excellent year for Renold in which
we delivered a record financial performance and completed a significant
strategic acquisition in Europe. I have also been impressed by the flexibility
and adaptability of our people across the world, who have delivered an
outstanding result despite the complexities resulting from the Russian
invasion of Ukraine and challenging international supply chain and trading
conditions.
Our turnover continued to grow strongly through the significant commercial and
operational benefits delivered by the execution of our organic growth
strategy, while the Group's acquisition strategy bore fruit in the year, and
it is pleasing to see that our new acquisition, Industrias YUK S.A. ("YUK")
performed ahead of our initial expectations.
Markets and trading performance
Over the year, Group revenue increased by 26.6% to £247.1m (2022: £195.2m),
and adjusted operating profit improved by 58.2% to £24.2m (2022: £15.3m).
Return on sales improved by 200bps to 9.8% (2022: 7.8%), as the Group
demonstrated its ability to successfully recover inflationary cost increases,
whilst also benefiting from cost reduction and efficiency programmes, and the
benefit of operational gearing.
Encouragingly, Group order intake at £257.5m was 15.0% ahead of the
equivalent prior year period, and 16.8% ahead excluding the previously
announced £8.9m long-term military contracts (2022: £11.0m), with YUK
contributing £10.5m or 4.5% to the increase. The order book at 31 March 2023
of £99.5m was 18.3% ahead of the prior year figure.
Net debt increased during the period to £29.8m (31 March 2022: £13.8m) as
the Group invested €20.0m to satisfy the initial cash consideration for the
acquisition of YUK, whilst managing the impact of organic sales growth and
inflation on working capital.
Strategic Developments
During the year, the Renold strategic change programmes across the Group once
again delivered meaningful benefits, particularly in standardising and
simplifying the business.
The completion of several major strategic restructuring initiatives, together
with the relatively low level of net debt, puts the Group in a strong position
to capitalise on accretive bolt-on acquisitions that augment our existing
market position. This will allow us to accelerate growth in revenue, including
for our existing products, adjacent sectors and by entry into
under-represented applications and geographies. Most importantly, the Group
will also benefit from significant production synergies by integrating
acquired businesses.
The continuing review of capabilities across the Group has identified
opportunities for the upgrade and development of existing manufacturing
processes across our international footprint to create higher specification,
higher performance products. This review will also facilitate standardisation
across more product lines, which, in turn, will enable us to benefit more
comprehensively from our geographic footprint and economies of scale. In
addition, flexibility between manufacturing locations will aid increasing
customer expectations for supply chain diversification for risk mitigation and
a changing tariff environment, improving even further our value proposition.
Sustainability
During the year, the Group continued to develop a long-term sustainability
strategy, including reduced energy consumption, raw material waste, packaging
use and carbon dioxide emissions, whereby Renold is ensuring sustainability is
one of its guiding principles. Renold is focussed on making a difference
through real actions which, over a period of time, will deliver discernible
benefits for the environment, our customers and the business. Our leader for
sustainability is helping the Board to develop policies and strategies in this
area, aimed at reducing the Group's environmental impact and enhancing social
development whilst also ensuring that the Company maintains its existing
commitments to its communities and stakeholders. Renold is well positioned to
contribute to a more sustainable future; our technical, product development
and commercial teams are actively developing a more efficient and
environmentally sustainable product offering which helps customers to reduce
their carbon footprint by providing highly engineered chains that give
longevity and life cycle benefits, or by being cleaner through reducing the
need for product lubrication.
The Board
The Chair of the Board is primarily responsible for the composition of the
Board and for ensuring high standards of governance. As Chair, I place great
importance on the breadth of relevant experience, diversity and complementary
skills amongst the Group's Directors and management and on the continued
development of the strategy for the Renold business. With this in mind, we
welcomed Vicki Potter to the Board as a Non-Executive Director during the
financial year. Vicki has broad operational and HR experience in multinational
engineering and manufacturing companies. She is currently the Chief Human
Resources Officer and Customer Services Director for Oxford Instruments plc; a
global FTSE 250 technology and manufacturing business.
Going forward, the Board will continue to ensure that effective succession
plans are in place.
Dividend
The Board fully recognises the importance of dividends as part of the overall
value creation proposition for shareholders. However, the Board has carefully
reviewed its capital allocation priorities, and believes that both organic and
inorganic investment opportunities that are available to the Group will
deliver higher levels of shareholder return over the medium term than the
payment of dividends in the near term. The Board will continue to review this
approach over the coming periods. As such, the Board is not recommending the
payment of a dividend on the ordinary shares of the Company for the year ended
31 March 2023.
Summary
The Group has performed well in the face of significant economic and social
turmoil and continuing inflationary pressures on materials, energy and labour
that the war in Ukraine and the pandemic have caused. These pressures will
undoubtedly remain in the new financial year. However, the strong financial
performance for the year, combined with positive operating cash flow, has
generated the freedom to exploit future organic and acquisition-related growth
opportunities. I would like to thank all our employees around the world for
their diligence and commitment, which have been key to delivering the strong
results for the Group.
DAVID LANDLESS
CHAIR
12 July 2023
Chief Executive's review
The strong momentum that the Group achieved in the previous financial year
continued in financial year 2023, despite the economic headwinds experienced
due in part to the Russian invasion of Ukraine, the subsequent impact on
European energy prices and the tail-end pandemic-related economic issues.
In August 2022, the Group acquired YUK for €24m, which increases the Group's
access to the Iberian Chain and wider European Conveyor Chain markets. The
business is performing ahead of the Board's expectations at the time of the
acquisition.
Group order intake during the year was £257.5m, an increase of 15.0% on a
reported basis and 7.8% at constant exchange rates over the prior year.
Encouragingly, the Group has now seen order intake grow for each of the last
six sequential half year reporting periods. Excluding the recently announced
£8.9m long-term military contract, and the £11.0m military contract
announced in the prior year, order intake for the year increased by 16.8%, or
9.2% at constant exchange rates. YUK contributed £10.5m (or 4.5%) of Group
order intake. The resultant year end order book of £99.5m gives the Group a
strong foundation upon which to build in the new financial year (31 March
2022: £84.1m).
The growth in Group revenue to £247.1m was also encouraging, representing a
year-on-year increase of 26.6% on a reported basis and 18.8% at constant
exchange rates. Excluding the impact of the YUK acquisition, turnover
increased by 21.2%, or 13.5% at constant exchange rates. Final quarter
revenues at £70.0m were particularly strong and were £17.0m (32.1%) ahead of
the comparable quarter last year, with North America especially delivering a
particularly strong performance.
Group adjusted operating profit(1) at £24.2m (2022: £15.3m) was 58.2% ahead
of prior year on a reported basis, and 46.4% ahead on a constant currency
basis. Profitability was particularly strong in the second half of the
financial year, where the Group reported a return on sales of 11.2%. The
incremental operating profit gearing(2) was a creditable 17.1%, despite the
impact of the widely reported economic headwinds, impacting raw material
availability and inflation. The operating profit gearing was helped
significantly by the swift action to pass on cost inflation. Statutory
operating profit increased to £22.9m (2022: £16.2m).
The Group continued to benefit from the impact of the significant efforts
undertaken in the year, and previous years, to lower the fixed cost base,
increasing flexibility and operational leverage. The Group has successfully
managed a period of significant supply chain disruption to materials and
transportation, in terms of availability, lead times and increased input
costs. Cost increases have been successfully recovered through selling price
increases as well as cost reduction, simplification and standardisation
programmes. We expect cost pressure on material, labour, energy and
transportation to persist in the current financial year.
Renold continues to drive increased performance through specific projects
aimed at better levels of operational efficiency and productivity, through
automation, improved design and standardisation of products, better
utilisation of machinery and people, including more flexible working
practices, and leveraging the benefits of improved procurement strategies. The
Group's capital investments returned to more normal levels following a period
of lower spend in the prior year as a result of the pandemic, and have
concentrated on increased automation within all of our facilities. The Group's
operational capabilities are steadily improving as consistent levels of
investment come to fruition, and we continue to develop our in-house
technologies and investments, allowing us to produce higher specification and
better performing chain that maintains our market leadership.
The strong focus on cash management remains a key priority for management.
Closing net debt was £29.8m (31 March 2022: £13.8m), with the increase
attributable to the £17.8m of initial acquisition cash consideration paid
during the year for YUK. Excluding this acquisition consideration, the level
of net debt reduced during the year by £1.8m and in the second half of the
year by £4.2m. The resulting net debt to EBITDA ratio of 0.8x (2022: 0.5x)
affords significant headroom against the Group's banking covenants and, in
turn, provides greater flexibility and funding capabilities to transact
quickly on investment decisions, both organic and through acquisitions, to
drive growth, efficiency and productivity.
Activity in the Chain division continues to be robust, with H2 external order
intake showing a 17.4% improvement over the strong levels seen in H2 of the
last financial year. Output has also continued to improve with H2 constant
currency turnover increasing by 22.3% in comparison to the same period last
year. In a similar vein the adjusted profitability of the Chain business in H2
has increased by 69.5% at constant rates, when again compared to the
equivalent period in the last financial year, and return on sales for the year
at 13.4% (2022: 11.9%) continues to show progress.
The Torque Transmission division is generally a longer lead time, later cycle
business. External order intake continued to grow, with the H2 order intake
some 44.7% higher than the equivalent prior year comparator. Excluding the
impact of the long-term military contract of £8.9m announced in January 2023,
underlying order intake improved by 14.2%. Similarly, turnover has improved,
with sales in H2 30.3% up on the prior year equivalent figure, as the base
load work that the military contracts provide is taken to turnover. The return
on sales for the division was 11.1% (2022: 10.1%).
(1) See Note 21 for definitions of adjusted measures and the differences to
statutory measures
(2) Operational gearing is defined as the year-on-year change in adjusted
operating profit, divided by the year-on-year change in revenue.
Current operating environment
The volatile operating environment the Group has faced over recent years
abated a little in financial year 2023. The effects of the Covid-19 pandemic,
especially in the UK, Europe and the US, were less marked, only to be replaced
with new economic uncertainties brought about by the war between Russia and
Ukraine.
During the year Covid-related disruption to our Chinese facilities, located in
the wider Shanghai region, delayed inventory shipments to other companies in
the Group, and at times staff absenteeism in the facility approached 50% which
has negatively impacted costs, productivity and service levels from the
factory. At other facilities, and following government guidance, the
enforcement of our Covid protocols and health measures to try to protect all
our staff were relaxed.
Towards the end of the financial year, the impact of previously reported
extended shipment times and increased freight costs throughout the world
abated, allowing the Group to make inroads into clearing the overdue order
backlog. Accordingly, the Group recorded a record turnover of some £70.0m in
the final quarter of the financial year. The availability of trucks, drivers
and container freight services has improved in both reliability and expense,
but still remain far from pre-pandemic norms. The upward pressure on goods in
transit inventory levels also abated, which together with utilisation of the
buffer stocks built up in H1 ahead of potential German energy rationing,
allowed the Group to achieve positive cash generation in H2 of £4.2m.
As reported in the previous financial year, whilst recognising the human
tragedy unfolding during the war between Russia and Ukraine, ceasing trading
with sanctioned regions has little direct impact on the Group; sales to Russia
and Ukraine during FY22 were low at c.0.5% of Group turnover. The Group
continued to support our agents and distributors in the non-sanctioned parts
of Ukraine, but obviously maintained close scrutiny on the levels of credit
risk to which the Group is exposed.
Chain performance review
Turnover grew markedly during the year, with total Chain turnover increasing
27.1% year-on-year to £202.4m; 19.3% at constant exchange rates. In August
2022 the Group acquired YUK and during the period of ownership YUK contributed
turnover of £10.5m, representing 5.2% of Chain turnover at actual exchange
rates and 5.4% at constant exchange rates. The final quarter of the year saw a
further step-up in activity for the Chain division, with Q4 turnover some
23.5% higher than the prior year comparator at constant exchange rates, as the
impact of extended shipment times abated and both the US and European
businesses were able to clear order backlogs. The increased revenue resulted
in return on sales improving by 150 basis points, to 13.4% (2022: 11.9%). The
operational gearing(1) on the increased activity at constant exchange rates
was a creditable 21.8%, as the impact of increased prices, volumes and
significant operational efficiency gains fell through to the bottom line.
Adjusted operating profit was £27.2m (2022: £18.9m), £8.3m higher than the
prior year level.
2023 2022
£m £m
External revenue 201.5 158.2
Inter-segment revenue 0.9 1.0
Total revenue 202.4 159.2
Foreign exchange (12.5) -
Revenue at constant exchange rates 189.9 159.2
Operating profit 26.5 20.5
US PPP loan forgiveness - (1.7)
Amortisation of acquired intangibles 0.7 0.1
Adjusted operating profit 27.2 18.9
Foreign exchange (1.6) -
Adjusted operating profit at constant exchange rates 25.6 18.9
(1) Operational gearing is defined as the year-on-year change in adjusted
operating profit, divided by the year-on-year change in revenue.
Order intake in the Chain division increased by 18.6% year on year, with
activity in both the US (+35.8%) and Australasia (+16.2%) showing a marked
increase, especially during the final quarter of the year. External order
intake in Europe grew by a headline rate of 5.8%, however, this is flattered
by the YUK acquisition. Excluding the impact of YUK, underlying order intake
in Europe fell 8.0% year-on-year, as the economic disruption of the Ukraine /
Russia conflict was felt through the broader European economy, whilst European
distributors destocked. In China, despite the Covid-related disruption during
the year, external order intake grew by 33.6%, albeit from a low base. Order
intake in India fell year-on-year by 6.3%, following a poor year in the
agricultural market, coupled with a very tough comparator period.
Closing order books for the division finished the year at £60.9m (2022:
£53.9m), some 13% ahead of last year which positions the Group well for the
current financial year.
Chain Europe, which is our largest Chain business, saw a sharp increase in
external revenues, which increased 25.0% over the prior year. Excluding the
impact of the YUK acquisition, underlying revenues increased by 9.2%. Book and
ship sales were depressed in H1, but recovered through the second half of the
year due to distributor restocking, with Q4 sales 28.6% above the same prior
year period and 26.1% above the average of the first nine months of the year.
Targeted sales activity in key sectors saw both our OEM and End User business
develop strongly, growing 13.5% and 29.8% respectively, with particularly
strong growth in the areas of materials handling increasing 22.4% and
manufactured products up 15.3%. Revenue progressively strengthened from the
outset of the year, a trend which continued throughout each subsequent
quarter.
The increased activity, together with the benefit of cost reduction
activities, both in the current year and in the prior year, and new commercial
initiatives, resulted in a substantial increase in underlying adjusted
constant currency operating profit. Plans are in place to expand the Renold
Service Centre footprint through the opening of a location in Turkey, close to
Istanbul. The introduction of this new stock-holding location, together with
the utilisation of the newly acquired YUK warehouse, should allow reduced
delivery times and increased customer service, and hence sales, throughout the
southern European region.
In the Americas, activity again increased markedly. External order intake at
£92.3m was a record high, exceeding the £68.0m record achieved in the
previous financial year by 35.7%. Turnover at £85.5m was 35.8% higher than
the prior year comparator, driven by both significant input cost recovery work
and an increase in projects related to the marine, food machinery, theme parks
and utilities sectors. Sales to OEM customers grew steadily, especially in the
escalator and forklift truck market, while increased sales of transmission
chain products sold through distributors steadily increased. New business
opportunities, especially in the ethanol, grain handling and forestry markets,
were enhanced by the introduction of new products. Production capabilities
were continually enhanced with further investment in automated equipment and
development projects, and a large infrastructure project is being undertaken
to see that the Morristown facility is positioned to take advantage of future
growth opportunities. Underlying constant currency operating profit increased
to a new record high.
In Australasia we continued to deliver revenue growth with the region being
less impacted than our other markets by the commercial impacts of the pandemic
and recorded revenue growth of 20.8%. Australia itself had a good year with
revenue up 19.6%, with continued improvement seen in a number of sectors
including mining and sugar. The recent trend of customers increasingly buying
more domestically produced goods appears to be continuing, even though ongoing
supply chain disruption to imported products appears to be reducing. Customers
are increasingly seeing the benefits of our product-enhancing engineering
capabilities that deliver real value through better performance and longer
chain life. We continue to invest in the production capabilities of our
Melbourne factory, with the recent purchase of further CNC equipment. Sales in
New Zealand continued to grow strongly during the year, showing a 10.4%
increase. Malaysia and Indonesia reversed the decline seen in the last
financial year, recording growth rates of 35.3% and 24.5% respectively.
Thailand was the only country in the region which recorded a decline in
activity, showing a reduction in excess of 10%. We are continuing to expand
our sales into more industries in South East Asia, with an initial assessment
of commercial potential in Vietnam being undertaken.
Revenue in India grew by 13.1% during the year, helped in part by the opening
of the first of a series of regional distribution warehouses in Nagpur to
offer our customers and distributors much better and quicker supply. Plans are
in place for a further three regional distribution centres to help give
significantly improved delivery times to all parts of India over the coming
years. Investment plans for the Indian operation include the introduction of
state-of-the-art technology used elsewhere in the Group for the manufacture of
many component types and assembly. Plans are also taking major steps forward
for the introduction of the Group ERP platform, M3, which is expected to
provide significant operational benefits within the current year.
Revenues in China grew by 7.9% during the year, driven primarily by a
significant 12.9% improvement in domestic Chinese demand. Growth in
intra-group demand from Europe and the US also increased significantly in the
first half of the financial year, but slowed in the latter part of the year as
intra-group order patterns were adjusted to take into account the improving
delivery times to Western markets. Activities to correct stock holding
patterns in our European and US warehouses, and the Covid-related disruption
in the Chinese factory also subdued activity in the second half of the year.
Efforts and investments to continue to improve the quality and specification
of products manufactured in China bore fruit during the year, as product
quality in the Chinese factory improved sufficiently to allow the transfer of
the manufacture of several mid-tier Renold standard products and components to
China. Manufacture of premium and high specification products will continue in
our US and European facilities. During the year, our Chinese team initiated a
project to upgrade certain component manufacturing processes to use
state-of-the-art technology, while making significant investment in automated
assembly lines to facilitate high volume sales growth in both domestic and
overseas markets.
The Chain division continues to develop and evolve through investment in
equipment, processes, training and development of our people, engineering and
sales, and this provides us with an excellent base from which to build
benefits derived from the many opportunities in this market.
Torque Transmission performance review
Divisional revenues of £48.8m were £8.4m higher than in the prior year
(+20.8%) due to a recovery in demand in our North American markets. Our North
American manufacturing and distribution business, based in Westfield NY, saw
turnover grow by 35.8% year-on-year. In January 2023, the Group announced it
had secured an £8.9m long-term agreement to supply large Hi-Tec couplings for
the initial phase of a military contract for the Royal Australian Navy, an
agreement which followed a similar military contract to supply the second
phase of a contract for the Royal Navy in FY22. Progress on both these
contracts was recorded during the year, and contributed to a 7.1% increase in
the Renold couplings business.
Divisional adjusted operating profit at constant exchange rates increased by
24.4% to £5.1m in the year. Return on sales for the division was 11.1% (2022:
10.1%), an increase of 100bps during the year.
Momentum in this division, which has a later trading cycle and generally
larger orders than our Chain business, continues to be positive and improving.
2023 2022
£m £m
External revenue 45.6 37.0
Inter-segment revenue 3.2 3.4
Total revenue 48.8 40.4
Foreign exchange (2.8) -
Revenue at constant exchange rates 46.0 40.4
Operating profit (and adjusted operating profit) 5.4 4.1
Foreign exchange (0.3) -
Adjusted operating profit at constant exchange rates 5.1 4.1
Order intake for the year increased 2.1% to £53.3m (2022: £52.1m), a
reduction of 3.2% at constant exchange rates. Excluding the impact of the
£8.9m long-term military contract, and £11.0m military contract announced in
FY22, order intake increased by 7.8% or 1.1% at constant exchange rates.
The North American business unit benefitted from a significant increase in
demand for gears and couplings supplied intra group from the UK, but also
experienced a significant uptick in demand for own manufactured gear spindles
and shakers, both in the US domestic market and internationally. Demand for
gear couplings to the US mass transit market also strengthened significantly.
Demand for group-supplied products in both the Chinese and Australian
distribution and service centres also grew by 44.6% and 32.5% respectively, as
supply chain issues encountered in the last financial year were resolved.
The Couplings business delivered a 6.7% increase in turnover year-on-year. As
expected, turnover in the marine business, which manages the long-term
military contracts, increased year-on-year by £0.8m, as work commenced on the
second phase of the UK military contract, as well as the initial phase of the
Australian military contract. Product mix improved markedly in the second half
of the year as the lower margin initial phase of the contract was completed,
and the higher margin phase of the work commenced. Product development in the
couplings division continued with new designs for couplings that expand the
performance envelope of current products whilst adding new features and
benefits, while sales of the RBI rubber in compression product continued
apace.
The Gears business made good progress in order intake, turnover and margin
despite facing significant material and energy cost increases. Notable product
developments during the year include new products aimed at the escalator
market, especially relating to metro systems, and a number of specialist niche
products aimed at the water treatment market. Demand from OEM customers,
particularly for larger projects in the US and UK which are our key geographic
markets, remained strong during the year.
The broad strength of the Torque Transmission division sales and margin
performance reflects the later cycle nature of the division in comparison to
Chain.
Sustainability
Renold intensified its focus on Group projects during the year and significant
efforts were made to collate energy and carbon-related statistics from
throughout the Group to gain a proper base line from which to measure progress
in both energy and carbon reduction projects. A full inventory of the Group's
energy intensive fleet of heat treatment facilities was undertaken, and the
Group's technical and operational management have started to formulate a
strategy, working with the Group's equipment suppliers, to reduce the
environmental footprint of our heat treatment processes as the age of
equipment approaches the point where replacement is required. This exercise
has already had initial success as our German facilities adopted more
energy-efficient working practices during the year, which allowed the number
of furnaces continually operating at the plant to be reduced by 25%.
The Group Sustainability Committee drove a packaging project which is aimed at
producing new standard transmission chain packaging designs which are made
from recycled material and are themselves fully recyclable. All adhesives,
inks and labels used in these new designs, which will be common across the
world, are also recyclable. The new designs have been produced in such a way
that they have significantly reduced the amount of packaging lines that
individual plants are required to keep in stock.
At a regional level, our businesses across the world have been asked to
develop their own sustainability project roadmaps, seeking to ensure that our
efforts are relevant to the highly diverse regions within which we operate. We
will continue to build on the considerable momentum we have gained, delivering
ever more local successes.
Finally, our technical, product development and commercial teams are actively
developing a more efficient and environmentally sustainable product offering
for our customers, whether that be in terms of product life and replacement
cycle, or through being cleaner by reducing the need for product lubrication.
More information on our progress and plans can be found in the Sustainability
section of the Annual Report.
Strategic Plan - STEP2 progress
Having created a stronger operational platform for the Group, and with the
significant strengthening of our financial position, we have increased our
focus on how we can accelerate performance through value-enhancing
acquisitions which will allow us to benefit from both increased geographical
and product coverage, but also leverage synergies from increasing the
throughput of our existing facilities. As a result, we have developed a
pipeline of acquisition opportunities which we believe have the ability to
meet our financial and operational criteria. Such acquisitions will allow us
to expand our product and service offering as well as our customer base,
further expand our already diverse product portfolio into adjacent market
sectors, and allow us to capitalise on our ability to provide customers with
high specification products that deliver real benefits for their own business
performance.
The Board is observing disciplined criteria when executing the new acquisition
strategy, ensuring that potential targets will enhance the Group's wider
strategy and earnings. Additionally, the Board is mindful of retaining a
conservative capital structure, especially in light of the current economic
backdrop, and will ensure that the long-term net debt to EBITDA ratio is
maintained at an acceptable level.
During the year, Renold took the first significant step in the acquisitive
growth phase of our strategy. In August 2022, Renold acquired the business of
YUK, a Valencia-based manufacturer and distributor of high quality conveyor
chain ("CVC") and ancillary products. The acquisition not only provides the
Group with high quality European-based CVC manufacturing capability, but also
substantially increases the Group's access to the Iberian market where
historically we have been under represented. The acquisition will allow Renold
to leverage YUK's strong CVC market position in Spain and Portugal to expand
sales of the Group's existing range of premium European transmission chain
("TRC") products, and enable sales of YUK products throughout Renold's
extensive European sales network beyond Iberia.
Organic growth and business improvement is a fundamental driver in the Group
strategy moving forward. Renold is consistently enhancing its operational
capabilities through upgrading equipment and processes across the world.
Capital expenditure was £8.4m in the period, a considerable increase on the
prior year and we expect it to rise again in the new year. We have made good
progress in difficult circumstances, as supply chain issues have affected our
equipment suppliers as much as ourselves.
We have a clear vision of where our Chinese factory fits into our global
supply chain and our expectations for growth in the Chinese market itself.
External order intake in China grew by 33.6% year on year, while external
sales revenue increased by 12.9%. We are constantly upgrading capabilities in
the facility and we will be offering higher specification Chinese-made product
into the domestic market as well as across the world.
In our Indian business, efforts continue to fully integrate the business into
the Group supply chain. Investments in production capabilities, including new
press equipment equivalent to the equipment available in our US and European
factories, is providing improvements in product quality and uniformity. India
offers a very attractive market in its own right and an interesting and
effective alternative to our Chinese chain manufacturing site. India provides
the Group with an alternative supply base as customers' supply chains flex,
driven by an increasing level of concern about international trade tariffs and
the concentration of supply from a single region.
These projects highlight the intention in our capital allocation decisions for
the Group. With the large infrastructure projects complete, capital allocation
decisions are now less frequently limited purely by a site's domestic
requirements but are focused on customer service, upgrading product
specification capabilities and optimising profitability for the Group. For the
Chain division especially, this allows us to access economies of scale and
offer a truly global service with increasing relevance to large OEM customers.
Renold is increasingly an integrated international supplier and less a series
of regional businesses.
The strategic progress made by the Group over recent years has been
significant. Investments in both our production capabilities and our IT
environment have resulted in significant benefits, with:
• Improvements in productivity and operational efficiency as evidenced by
growing sales per employee;
• Greater insight into the performance and opportunities in the business due to
better and more complete data;
• Improvements in the specification and quality of products we are able to make
across our multiple manufacturing sites; and
• Greater flexibility in the cost base as we start to reduce the correlation
between revenue and direct labour.
With the ongoing recovery of our markets, the financial benefits of these
improvements will increasingly come to the fore. Renold is well positioned to
capitalise on these developments in the years ahead.
Macroeconomic landscape and business positioning
The underlying fundamentals of the Group and the markets we serve provide
confidence that Renold is well placed to continue to develop and deliver
sustainable profitable growth. Many of these intrinsic qualities have remained
consistent over many years but we are now proactively building on these
fundamentals. They include:
• Valued and recognised brand with well-respected engineering expertise
The Renold brand has been built up over our 150-year history and is trusted by
customers to deliver exceptional products due to our world-class engineering
and product knowledge.
• Global market position and unique geographical manufacturing capability
The global market position of Renold has existed for many years, but following
significant strategic investments in the Chain division the geographic
manufacturing footprint and capabilities we have are unique, permitting us to
service customer demand with increasing levels of flexibility - a critical
factor in a rapidly changing market environment.
• Relatively low cost, but business critical products
Chain and Torque Transmission products are fundamental elements of the systems
into which they are incorporated. Our products are often a small proportion of
the cost of the entire system, but critical to its operation.
• Broad base of customers and end-user markets
Renold products are used in an extremely diverse range of end applications,
sectors, markets and geographies, resulting in a huge spread of customers and
industries served. Markets and applications will change and vary in the
ever-altering environment we operate in but, with its wide spread of products,
geographies, applications and customers, Renold is well positioned.
• High specification products delivering environmental benefits for our
customers
Renold products have always been high specification premium products which
deliver exceptional benefits to customers. Whether through greater efficiency
leading to lower power usage, longer life providing lower lifetime usage of
materials and energy in their manufacture and logistics, or lower lubrication
requirements, Renold products are well placed for an increasingly
environmentally aware marketplace. Our products are capable of helping our
customers meet their sustainability objectives whilst saving them money.
Outlook
I am pleased with the Group's strong performance over the year, which reflects
the benefits of the strategic developments completed over prior years and the
hard work that all our employees across the world have contributed during a
most difficult period. Our employees have responded excellently to the
challenges we have faced, and I thank them for their dedication and commitment
to the Group and our customers during these extraordinary times.
Throughout the reported period the business performance has been on an
improving trend and finished particularly strongly as supply chains eased in
the last quarter. We expect the current financial year to be no less
challenging, but we remain vigilant in the environment within which we
operate; however, we started the new financial year from a positive position
with good momentum and confidence in the capabilities and fundamentals of the
Renold business and the markets we serve.
Robert Purcell
Chief Executive
12 July 2023
Finance Director's review
Renold delivered a record performance during the year, with Group revenue
increasing by 26.6% to £247.1m. The business produced an adjusted operating
margin of 9.8% (2022: 7.8%) and, following the acquisition of YUK in August
2022 for initial cash consideration of €20.0m, achieved a significant
reduction in net debt of £4.2m during the second half to end the year to
£29.8m (31 March 2022: £13.8m).
Orders, revenue AND OPERATING PROFIT
2023 2022
Reconciliation of reported to adjusted results Order intake Revenue Operating profit Order intake Revenue Operating profit
£m £m £m £m £m £m
Reported 257.5 247.1 22.9 223.9 195.2 16.2
US PPP loan forgiveness - - - - - (1.7)
New lease arrangements on sublet properties - - - - - 0.7
Amortisation of acquired intangible assets - - 0.7 - - 0.1
Acquisition costs - - 0.6 - - -
Adjusted 257.5 247.1 24.2 223.9 195.2 15.3
Impact of foreign exchange (16.1) (15.3) (1.8) - - -
Adjusted at constant exchange rates 241.4 231.8 22.4 223.9 195.2 15.3
Group order intake for the year increased by 15.0% to £257.5m (2022:
£223.9m), or 7.8% at constant exchange rates, and included an £8.9m
long-term military contract win, following a similar contract win of £11.0m
in FY22.
Group revenue increased by £51.9m (26.6%) to £247.1m, or £36.6m (18.8%) at
constant exchange rates. Activity steadily increased throughout the year as
manufacturing facilities ramped up production in response to the increased
order intake levels. The activity in quarter four was some 32% higher than
prior year as the Group's US operations shipped some significant orders which
repeat on a four-year cycle, and better lead times on the supply of Group
product from China resulted in a reduction in overdue order backlog. Both
divisions saw an increase in turnover, with the Chain division recording an
increase at constant exchange rates of 19.3%, while the Torque Transmission
division, which is a larger order and longer cycle business, increased by
13.9%.
The Group generated an adjusted operating profit for the year of £24.2m
(2022: £15.3m), excluding the impact of adjusting items as detailed below.
Reported operating profit for the year was £22.9m (2022: £16.2m). Operating
profit margin, calculated on a statutory basis, was 9.3% (2022: 8.3%) and
return on sales increased by 200 bps during the year to 9.8% (2022: 7.8%).
Adjusting items
Adjusting items for the year ended 31 March 2023 comprise acquisition-related
intangible asset amortisation of £0.7m (2022: £0.1m), acquisition costs of
£0.6m (2022: nil) and re-evaluation of prior year tax positions across the
Group of £0.4m (2022: nil). Prior year adjusting items, which have not been
repeated in the current year, include a £1.7m gain from the forgiveness of US
Covid-related loans and a £0.7m charge from new lease arrangements at
previously closed sites, including adjustments relating to the sublease of the
closed Bredbury facility and the termination of a lease at a site in Rainham,
Essex.
Foreign exchange rates
The majority of Renold's business is denominated in US Dollars and Euro's. The
impact of the strengthening of these currencies against Sterling was to
benefit Group revenues, profits and net assets in FY23 when translated back
into Sterling in the consolidated financial statements.
Foreign exchange rates have remained volatile, with a 3% weakening of Sterling
against the Euro and 6% weakening of Sterling against the US Dollar between
March 2022 and March 2023.
Phasing of movements over the current and prior year mean the weighted average
exchange rate used to translate the Euro and US Dollar varies to the movement
in the closing rates. The weighted average exchange rates were 1.20 for the US
Dollar and 1.15 for the Euro for the year ended 31 March 2023 (2022: 1.36 and
1.17 respectively).
FX rates (% of Group sales) 31 Mar 22 31 Mar 23 31 Mar 23 2022 Average 2023 Average 2023
FX rate FX rate Var % FX rate FX rate Var %
GBP/Euro (30%) 1.18 1.14 -3% 1.17 1.15 -2%
GBP/US$ (37%) 1.32 1.24 -6% 1.36 1.20 -12%
GBP/C$ (5%) 1.64 1.67 2% 1.71 1.60 -6%
GBP/A$ (5%) 1.75 1.85 6% 1.84 1.77 -4%
If the year-end exchange rates had applied throughout the year, there would be
an estimated increase of £3.4m to revenue and £0.4m to operating profit.
FinancE costs
Total finance costs in the year were £5.6m (2022: £3.8m).
Total loan finance costs include external interest on bank loans and
overdrafts of £2.3m (2022: £1.1m), amortisation of arrangement fees and
costs of refinancing and the transition of banking arrangements from LIBOR to
SONIA during FY22, of £0.3m (2022: £0.3m), and £0.7m (2022: £0.5m) of
interest expense on lease liabilities.
The increase in interest payable on external bank loans and overdrafts was
driven by the acquisition of YUK for €24.0m during August 2023 (cash of
€20.0m paid in the year), together with the impact of successive increases
in the UK base rate during the second half of the financial year.
The net IAS 19 finance charge, which is a non-cash item, was £2.1m (2022:
£1.8m).
Finance costs also include £0.2m (2022: £0.1m), resulting from the unwind of
discounts on the deferred build costs of the Chinese factory.
During May 2023, the Group announced that it had reached agreement with its
banking syndicate for the extension of its core banking facilities that were
due to mature in March 2024, initially for a three-year term to May 2026 but
with an option to extend the term for a further two years. The new £85.0m
multi-currency revolving credit facility is increased from the previous level
of £61.5m. There is an additional £20.0m accordion option which will allow
the Company to access additional funding, subject to further bank/credit
approval, in support of its acquisition programme; a key part of the Group's
STEP2 strategy. Within the principal facility term the net debt/EBITDA
covenant is improved from the previous level of 2.5x EBITDA to 3.0x EBITDA,
with other key terms remaining unchanged.
Profit before tax
Profit before tax was £17.3m (2022: £12.4m).
Taxation
The total tax charge in the year of £5.5m (2022: £2.2m) is made up of a
current tax charge of £4.2m (2022: £2.0m) and a deferred tax charge of
£1.3m (2022: £0.2m). The increase in the current tax charge is attributable
to an increase in Group profit generated in higher tax jurisdictions together
with various adjustments to build the Group provision held for uncertain tax
matters which reflects a best estimate of amounts to be paid in future tax
years. For further details see Note 4.
The increase in the deferred tax charge is primarily attributable to
accelerated tax loss utilisation and tax depreciation in excess of book in
overseas jurisdictions.
During the year we have re-evaluated various tax positions across the Group
for transfer pricing and deferred tax, relating to earlier years, and details
of which can be found in Note 4.
The effective tax rate for the year was 32% (2022: 18%), with the increase
attributable to the items set out above, coupled with the impact of
non-recurring items which reduce profit but are non-taxable items. Excluding
the non-recurring items, the effective tax rate on adjusted earnings was 27%
(2022: 19%).
EARNINGS PER SHARE
Profit after tax of £11.8m was achieved for the financial year ended 31 March
2023 (2022: £10.2m). Adjusted earnings per share were 6.5p (2022: 4.3p),
which excludes one-off items in the year noted above. Basic earnings per share
were 5.7p compared to 4.7p for the year ended 31 March 2022.
2023 2022
£m £m
Adjusted profit after taxation 13.5 9.3
Effect of adjusting items, after tax:
- US PPP loan forgiveness - 1.7
- New lease arrangements on sublet properties - (0.7)
- Amortisation of acquired intangible assets (0.7) (0.1)
- Acquisition costs (0.6) -
- Tax adjustments relating to prior year (0.4) -
Profit after taxation 11.8 10.2
Basic adjusted earnings per share 6.5p 4.3p
Basic earnings per share 5.7p 4.7p
Balance sheet
Net assets at 31 March 2023 were £39.1m (31 March 2022: £7.0m). A net profit
of £11.8m was delivered for the year which, together with the impact of the
favourable valuation of the Group's pension liabilities and the retranslation
of overseas operations, resulted in an increase in net assets of £32.1m.
The pension deficit, on an IAS 19 basis, decreased to £62.2m (31 March 2022:
£87.1m). The net liability for pension benefit obligations was £57.1m (2022:
£76.1m) after allowing for a net deferred tax asset of £5.1m (31 March 2022:
£11.0m), largely reflecting the significantly increased yields on corporate
bonds during the year which are used to discount future pension liabilities to
present values. At the last triennial pension valuation, at 31 March 2022, the
technical provisions deficit of the UK scheme, which is how the trustees and
regulator evaluate the scheme, was only £5.9m; an improvement between
triennial valuations of £3.2m. This compares to the IAS 19 deficit for the UK
pension fund at the date of the triennial valuation of £64.1m. The difference
primarily represents the valuation of the capital asset reserve (CAR),
currently £44.0m, being the discounted value of guaranteed future cash
contributions to the scheme for a fixed period of 25 years commencing in 2013.
Overseas schemes now account for £18.0m (28.9%) of the IAS 19 pension
deficits and £17.7m of this is in respect of the German scheme, which is
unfunded, with payments made as pensions fall due.
During the prior year, and as part of its long-term financial planning, the
Company reorganised its balance sheet and reserves through the cancellation of
the entire amount of its share premium account and capital redemption reserve.
The share premium account and capital redemption reserve are non-distributable
reserves and, accordingly, the purposes for which they can be used are
restricted. The reduction of capital creates sufficient distributable reserves
to provide the Board with greater flexibility with regard to how it manages
its capital resources. An order of the High Court confirming the capital
reduction became effective on 27 May 2021, increasing distributable reserves
by £45.5m in FY22.
CASH FLOW AND NET DEBT
FY23 FY22
£m £m
Adjusted operating profit 24.2 15.3
Add back depreciation and amortisation 10.4 9.4
Add back loss on disposal of property, plant and equipment 0.3 -
Add back share-based payments 1.3 1.1
Adjusted EBITDA(1) 36.2 25.8
Movement in working capital (10.5) (0.2)
Net capital expenditure (8.4) (5.1)
Operating cash flow(1) 17.3 20.5
Income taxes (2.7) (1.7)
Pensions cash costs (5.8) (4.8)
Repayment of principal under lease liabilities (2.9) (4.2)
Finance costs paid (3.3) (1.8)
Consideration paid for acquisition (18.0) (0.5)
Own shares purchased - (4.9)
US PPP loan forgiveness - 1.7
Other movements (0.6) 0.3
Change in net debt (16.0) 4.6
Closing net debt(1) 29.8 13.8
(1) Adjusted EBITDA and operating cash flow are alternative performance
measures as defined in Note 21.
In the financial year the Group invested £18.0m in acquisitions, primarily
YUK. When the acquisition consideration is excluded, the Group generated
£2.0m of net cash during the year, of which a reduction of £4.2m occurred in
the second half of the financial year. Closing net debt is £29.8m (31 March
2022: £13.8m). Net debt at 31 March 2023 comprised cash and cash equivalents
of £19.3m (31 March 2022: £10.5m) and borrowings of £49.1m (31 March 2022:
£24.3m).
Within the balance sheet working capital movement, inventory levels increased
by £4.5m (2022: £9.5m). The increase was attributable to the Group
replenishing stock levels to ensure increased levels of customer service
despite supply chain difficulties. Receivables also increased by £2.8m (2022:
£4.5m), in line with the increased level of turnover. Careful overall working
capital management mitigated these increases.
Net capital expenditure of £8.4m (2022: £5.1m) was increased during the
financial year, as the Group's strategic investment programmes gathered pace.
The Group sees investments in support of our strategy, aimed at improving heat
treatment facilities, broadening manufacturing capabilities, and product
assembly automation, especially in our Indian and Chinese facilities,
gathering pace in the coming year. Additionally, the installation of the
standardised Group IT system continued as planned.
In August 2022 the Group acquired the entire share capital of YUK, a conveyor
chain manufacturer based in Valencia, Spain. The total consideration was
€24.0m, of which €4.0m is deferred and to be paid in two tranches of
€2.0m each, payable 12 and 24 months following completion of the
acquisition. Professional fees associated with the acquisition amounted to
£0.6m. During the prior financial year, the Group acquired the conveyor chain
business of Brooks Ltd, based in Manchester, UK, for a total consideration of
£0.7m, of which £0.5m was paid during FY22, and the remaining £0.2m paid in
the financial year.
Pension deficit recovery plan cash costs of £5.8m were higher than the prior
year equivalent of £4.8m. The increase in contributions is a result of the
agreement reached with the UK Pension Trustee in April 2020, whereby £2.8m of
FY21 contributions due to be paid to the UK scheme were deferred in light of
the potential impact of the Covid-19 pandemic. The deferred contributions are
being repaid over the five-year period which commenced on 1 April 2022. In
addition, the Group took the opportunity to close the Renold New Zealand
pension scheme during the year, which resulted in a one-off pension payment of
£0.3m. Going forward, the Group had previously agreed to increase pension
contributions to the UK pension scheme by £1.0m per annum once Group adjusted
operating profit exceeded £16.0m; additional contributions to the UK pension
scheme commenced from 1 April 2023.
Corporation tax cash paid was £2.7m (2022: £1.7m), and was paid in
accordance with normal payment on account rules in the countries where the
Group has operations.
Net cash flow from operating activities, shown in a statutory format, was
£16.7m (2022: £19.3m).
Debt facility and capital structure
During May 2023, the Group announced that it had reached agreement with its
banking syndicate for the extension of its core banking facilities that were
due to mature in March 2024 initially for a three-year term, to May 2026, with
an option to extend the term for a further two years. The new, £85.0m
multi-currency revolving credit facility will be increased from the previous
level of £61.5m. Additionally, there is a £20.0m accordion option which will
allow the Company to access additional funding in support of its acquisition
programme as part of the Group's STEP2 strategy. The principal facility term,
the net debt/EBITDA covenant, will be improved from the previous level of 2.5
times EBITDA to 3.0 times EBITDA, with other key terms remaining unchanged.
At 31 March 2023, the Group had unused credit facilities totalling £17.3m (31
March 2022: £40.1m) and cash balances of £19.3m (31 March 2022: £10.5m).
Total Group credit facilities amounted to £65.9m (31 March 2022: £64.2m),
all of which were committed. In May 2023, following the increase in facilities
under the new banking arrangements, total committed facilities were £89.7m.
The Group has operated well within agreed covenant levels throughout the year
ended 31 March 2023 and expects to continue to operate comfortably within
covenant limits going forward.
The net debt/adjusted EBITDA ratio as at 31 March 2023 was 0.9x (31 March
2022: 0.6x), calculated in accordance with the old banking agreement. The
adjusted EBITDA/interest cover as at 31 March 2023 was 13.7x (2022: 19.6x),
again calculated in accordance with the banking agreement.
Going concern
The financial statements have been prepared on a going concern basis. In
determining the appropriate basis of preparation of the financial statements,
the Directors are required to consider whether the Group can continue in
operational existence for the foreseeable future.
Further information in relation to the Group's business activities, together
with the factors likely to affect its future development, performance and
financial position, liquidity, cash balances and borrowing facilities is set
out in the Chair's statement, the Chief Executive's review, the Finance
Director's review and in the section on principal risks and uncertainties.
Additional details of the Group's cash balances and borrowings and facility
are included in Notes 13, 14 and 17.
The key covenants attached to the Group's multi-currency revolving credit
facility at year end relate to leverage, net debt to EBITDA, maximum 2.5x,
and, following agreement of new borrowing covenants by the Group in May 2023,
net debt to EBITDA, maximum 3.0x, and interest cover (minimum 4.0x). The Group
regularly monitors its financial position to ensure that it remains within the
terms of its banking covenants, and has remained within those covenants for
the whole of the financial year.
Given the current level of macroeconomic uncertainty stemming from inflation,
global supply chain difficulties and geopolitical risks, and being also
mindful of the risks discussed in the section on principal risks and
uncertainties, the Group has performed financial modelling of future cash
flows. The Board has reviewed the cash flow forecasts which cover a period of
12 months from the approval of the 2023 Annual Report, and which reflect
forecast changes in revenue across the Group's business units. A reverse
stress test has been performed on the forecasts to determine the extent of a
downturn which would result in a breach of covenants. Revenue would have to
reduce by approximately 28% over the period under review for the Group to be
likely to breach the leverage covenant under the terms of its borrowing
facility. The reverse stress test does not take into account further
mitigating actions which the Group would implement in the event of a severe
and extended revenue decline, such as reducing discretionary spend and capital
expenditure. This assessment indicates that the Group can operate within the
level of its current increased facilities, as set out above, without the need
to obtain any new facilities for a period of not less than 12 months from the
date of this report.
Following this assessment, the Board of Directors are satisfied that the Group
has sufficient resources to continue in operation for a period of not less
than 12 months from the date of this report. Accordingly, they continue to
adopt the going concern basis in relation to this conclusion and preparing the
consolidated financial statements. There are no key sensitivities identified
in relation to this conclusion.
Treasury and financial instruments
The Group's treasury policy, approved by the Board, is to manage its funding
requirements and treasury risks without taking any speculative risks. Treasury
and financing matters are assessed further in the section on principal risks
and uncertainties.
To manage foreign currency exchange impact on the translation of net
investments, certain US Dollar denominated borrowings taken out in the UK to
finance US acquisitions are designated as a hedge of the net investment in US
subsidiaries. At 31 March 2023 this hedge was fully effective. The carrying
value of these borrowings at 31 March 2023 was £7.3m (31 March 2022: £6.8m).
At 31 March 2023, the Group had £0.5m (31 March 2022: £0.5m) of its gross
debt at fixed interest rates. Cash deposits are placed short-term with banks
where security and liquidity are the primary objectives. The Group has no
significant concentrations of credit risk, with sales made to a wide spread of
customers, industries and geographies. Policies are in place to ensure that
credit risk on individual customers is kept to a minimum.
Pension assets and liabilities
The Group has a mix of UK (83% of gross liabilities) and overseas (17% of
gross liabilities) defined benefit pension obligations as shown below.
2023 2022
Assets Liabilities Deficit Assets Liabilities Deficit
£m £m £m £m £m £m
UK scheme 101.6 (145.8) (44.2) 134.4 (198.5) (64.1)
Overseas schemes 12.9 (30.9) (18.0) 15.4 (38.4) (23.0)
114.5 (176.7) (62.2) 149.8 (236.9) (87.1)
Deferred tax asset 5.1 11.0
Net deficit (57.1) (76.1)
The Group's retirement benefit obligations decreased from £87.1m (£76.1m net
of deferred tax) at 31 March 2022 to £62.2m (£57.1m net of deferred tax) at
31 March 2023. The largest element of the decrease relates to the UK scheme
where the deficit decreased from £64.1m to £44.2m primarily due to an
increase in AA corporate bond yields, which reduces the present value of gross
liabilities under IAS 19. This was partially offset by the impact of an
increase in the UK inflation assumption. For the purposes of determining
scheme pension payments, inflation is capped for the UK and the US schemes.
The deficit of the overseas schemes decreased by £5.0m to £18.0m, reflecting
increases in European interest rates, and changes in assumptions for discount
and inflation rates. All defined benefit schemes, with the exception of one
scheme for blue-collar workers in the US, are closed for future accrual.
UK funded scheme
The deficit of the UK scheme decreased in the year to £44.2m (31 March 2022:
£64.1m), reflecting a number of changes in assumptions and factors.
The decrease in gross liabilities of £52.7m arose primarily from a
combination of an increase in the rate used to discount the scheme's
liabilities (discount rate of 4.85% compared with 2.75% in the prior year) and
a reduction in the long-term inflation assumption (CPI of 2.85% compared with
3.25% in the prior year). Partially offsetting the reduction in liabilities
was a £32.8m decrease in the value of the scheme's assets, which was
primarily due to a reduction in value of the Scheme's investment in LDI.
The latest triennial actuarial valuation of the UK scheme, with an effective
date of 5 April 2022, was agreed in April 2023 and identified a deficit of
£5.9m; this compares favourably to the £9.1m deficit recorded at 5 April
2019. This is significantly lower than the IAS 19 deficit, largely as the
actuarial valuation places a value on the Group's guaranteed future cash
payments to the scheme under the central asset reserve structure established
in June 2013. The Group had previously agreed to increase pension
contributions to the UK pension scheme by £1.0m per annum, once Group
adjusted operating profits exceeded £16.0m, additional contributions to the
UK pension scheme commenced from 1 April 2023. It is expected that the
actuarial valuation deficit of £5.9m can be recovered from these additional
cash contributions, together with asset outperformance, above the prudent
levels assumed in the valuation, over the remaining life of the scheme.
Contributions in the year ended 31 March 2023 were £4.1m (2022: £3.4m). The
increase in contributions compared to the prior year follows the agreement
reached with the Trustee in April 2020 such that £2.8m of the prior year
contributions due to the UK scheme were deferred in light of the potential
impact of the Covid-19 pandemic. The deferred contributions are being repaid
over the five-year period which commenced on 1 April 2022. The underlying
level of contributions to the UK scheme increases annually by RPI plus 1.5%
(capped at 5%).
The next triennial valuation date will be as at 5 April 2025.
Overseas schemes
The largest element of the overseas schemes is the German unfunded scheme,
with a total liability and deficit of £17.7m (31 March 2022: £22.4m). Other
overseas funded schemes comprise a number of smaller arrangements around the
world, with a combined deficit of £0.3m (31 March 2022: £0.6m). The combined
deficits of all the overseas schemes decreased by £5.0m. During April 2022,
the Board's decision to close the New Zealand defined benefit pension scheme
was enacted by the scheme trustees.
For overseas pension schemes, the contributions in the year were £1.7m (2022:
£1.4m).
JIM HAUGHEY
GROUP Finance Director
12 July 2023
Principal Risks and Uncertainties
We take steps at both a Group and subsidiary level to understand and evaluate
potential risks and uncertainties which could have a material impact on our
performance in order to mitigate them. We have promoted and encouraged a risk
aware culture throughout the Group. Details of the principal risks and
uncertainties are summarised below and set out in more detail in the Annual
Report.
The Board continues to monitor potential emerging or evolving risks on an
ongoing basis. A new principal risk has been added this year; relating to
product liability. This addition reflects the result of 'bottom up' site risk
register reviews, output of the Executive Risk Management and Monitoring
Committee ("ERMMC") where compliance with contractual sales terms is regularly
flagged as a key control, horizon scanning which identified our increasing
success of obtaining large multi-year supply contracts, and benchmarking
against our peer group. Whilst product liability has been added as a principal
risk, we believe that we have sufficient and robust controls in place such
that this risk is mitigated to an acceptable level.
In addition, we have also combined two risks that were previously reported
separately: strategy execution and corporate transactions/business
development. This change reflects the Groups overall strategy, of which a core
element focuses on acquisitions, and also that major restructuring exercises
completed in previous years have come to an end.
The effect of climate change is an area that has been subject to additional
focus during the year, across all levels of the business. Renold recognises
the importance of considering climate risks and opportunities in our business
decisions, and we have undertaken specific projects over the last 12 months in
order to better and more formally understand the extent to which climate
change impacts our business. We will continue to develop these processes over
time, in order to continually aim to ensure the completeness of our risk
management processes and to identify those topics that are most significant
for our operations, such that we prioritise our risk mitigation efforts
accordingly.
Climate change truly represents both risk and opportunity for the Group. For
example, continued environmental activism around climate change has started to
influence some consumers to reduce their carbon footprints, and there is the
potential that this could start to impact some of the sectors we operate in;
however, as Renold supports customers in achieving their own sustainability
goals through the development and supply of high specification, durable,
environmentally responsible products which ultimately minimise the impact on
the environment, this is also an opportunity for us.
We do not believe that climate change is a stand-alone principal risk, and
instead believe that it should be assessed in an integrated way within our
existing risk management processes. We recognise that the effect of climate
change will have an impact, to a greater or lesser extent, across all of our
existing principal risks; however, we do not believe this to have a material
impact on our principal risk assessment at this time. As with all risks, we
will continue to monitor the evolving situation over time.
1 Macroeconomic and political volatility
DETAILED RISK POTENTIAL IMPACT
Material changes in prevailing macroeconomic or geopolitical conditions could Potential touch points include:
have a detrimental impact on business performance. We operate in 18 countries
and sell to customers in over 100, therefore we are necessarily exposed to • Commodity prices which have a negative impact on demand in the whole
economic and geopolitical risks in these territories. supply chain.
• Changes to tariffs and import duties which can distort customer
buying decisions.
• Foreign exchange volatility can impact customer buying patterns,
leading to lower demand or the need to rapidly switch supply chains.
MITIGATION AND CONTROL
• Our diversified geographic footprint inherently exposes us to more
countries where risks arise but conversely provides some degree of resilience
and flexibility.
• Actions to lower the Group's overall break-even point also serve to
reduce the impact of any global economic slowdown.
• A focus on 'predict and respond', e.g. sales forecasting and raw
material price monitoring, leading to operational change such as sales price
increases or cost reductions.
• Active monitoring of stock levels and customers in relevant
geographies to identify any issues early.
• We have a good level of liquidity, with access to sufficient
multi-currency debt facilities.
The FY23 risk trend is unchanged.
Renold has demonstrated the ability to manage costs in response to revenue
shocks, protecting profitability and returns.
Rising interest rates and inflation increase the cost of borrowing, however,
this is offset with some stabilisation of the high-cost inflation previously
experienced on raw material, freight and energy prices.
Growth in the global economy, following stabilisation of the Covid-19
pandemic, presents opportunity though this growth may not continue.
Greater geopolitical risk with the war in Ukraine, and previous supply chain
disruption during the pandemic, has resulted in customers shortening their
supply chains and moving supply closer to their main operating locations.
Renold benefits from manufacturing locations across several continents, which
are often in close proximity to our customers' locations.
2 Strategy execution
DETAILED RISK POTENTIAL IMPACT
The Group's ongoing strategy requires the co-ordinated delivery of a number of • While these projects are designed to deliver targeted benefits, they
complex projects. have the potential to negatively impact the Group's operations if not
appropriately managed.
Part of the Group's strategy is to grow through selective acquisitions.
Performance of acquired businesses may not reach expectations, impacting Group • When completing acquisitions, value can be lost through over-paying,
profitability and cash flows. Similarly, poorly managed asset sales may result missing key issues in due diligence or potential value leakage through poor
in under-achievement of value. contract negotiation. Value can also be lost through a poorly planned or
executed integration phase, or failure to deliver anticipated benefits during
'business as usual'.
MITIGATION AND CONTROL
• The Strategic Plan has been developed to deliver a sustained
improvement in performance and to make that performance more stable and less
exposed to revenue volatility.
• The Board reviews progress against the different strategic projects
in each of its meetings. This is based on a regularly updated report from the
CEO, which groups the individual projects into themes linked directly to our
strategic objectives.
• Major projects are all managed in accordance with best practice
project management techniques.
• External advisers are utilised where special expertise is required,
where new capabilities are required, or where insufficient capacity is
available 'in house'.
• Monitoring of specific acquisition targets: Business acquisition
process incorporating concept evaluation, business case, indicative
offer/heads of terms, due diligence (covering a range of criteria), and
integration, planning, execution and post integration appraisal which in turn
feeds back to the business acquisition process.
The FY23 risk trend remains stable.
Stable management team, with appropriate skills and experience, are in place
to deliver the well-defined Group Strategy. This is supported by a long-term
credit facility which was renewed in May 2023.
The acquisition of YUK in August 2022 has performed ahead of expectations.
This acquisition, coupled with the successful acquisition of the Brooks
Conveyor Chain business in April 2021, demonstrates our ability to manage risk
associated with our acquisition strategy well.
3 Product liability
DETAILED RISK POTENTIAL IMPACT
A failure in one of our products results in serious injury, death, damage to • Non-compliance with quality standards
property or non-compliance with product regulations.
• Financial loss
The risk that products are not manufactured to contractually agreed
specification or additional customers' requirements. • Reputational damage
MITIGATION AND CONTROL
• Standard Terms and Conditions of Sale are utilised, which are
appropriately reviewed by in house Legal Counsel and external advisers as
appropriate. These cap financial exposure and exclude consequential losses.
• Non-standard Terms and Conditions of Sale must be approved by senior
executives in line with the Group Authority Matrix, following thorough legal
and commercial review.
• Strict quality processes are adhered to, and our manufacturing
locations maintain industry-relevant accreditations.
• Potential damages resulting from this risk are fully or partially
covered through the Group's various insurance policies.
• Legal self-assessment checklists are completed by all operating
locations and are reviewed by in house legal counsel, in order to identify any
potential non-standard terms and conditions.
Product Liability has been included in our principal risks during the year.
This reflects the output of our:
• 'Bottom up' site risk register reviews to identify common themes.
• Output of the ERMMC review process; compliance with contractual
sales terms being frequently raised as a key internal control.
• Horizon scanning, which identified our increasing success of
obtaining large multi-year supply contracts which are conducted on
non-standard terms of sale.
• Benchmarking of risk against peer group.
Whilst the inherent impact and likelihood of this risk occurring would be
high, we believe that we have sufficient and robust controls in place, such
that the risk is mitigated to an acceptably low level.
4 Health and safety in the workplace
DETAILED RISK POTENTIAL IMPACT
The risk of death or serious injury to employees or third parties associated Accidents caused by a lack of robust safety procedures could result in
with Renold's worldwide operations. life-changing impacts for employees, visitors or contractors. This will always
be unacceptable. In addition, accidents could result in civil or criminal
We are proud of the progress we have made in recent years, but recognise that liability for both the Group and the Directors and officers of the Group and
we have more to do. Group companies, leading to financial loss or reputational damage.
MITIGATION AND CONTROL
• Group policies and a Group-wide management system known as the
Framework, to set control expectations, with a support training programme for
all managers.
• The Group operates a rolling programme of health and safety audits
to assess compliance against the Framework. These audits have largely returned
to 'in person' site visits, following previous Covid-19 related travel
restrictions.
• Continual hazard assessments to ensure awareness of risks.
• Live tracking of accident rates and root cause analysis via our
Group reporting system, plus monthly Board reporting focused on a range of
KPIs.
• Specific initiatives include the BAT (Be safe; Act safe; Think safe)
safety logo and the Annual Health and Safety Awards Scheme to recognise
success.
• Proactive identification and management of emerging risks.
The FY23 risk trend is unchanged. No matter what mitigating actions are
undertaken, there remains a risk of death or serious injury. We therefore
continue to assess the risk as the highest possible impact, but through the
mitigation actions seek to reduce the likelihood. Significantly improving our
health and safety performance continues to be our number one strategic
objective.
5 Security and effective deployment and utilisation of information technology
systems
DETAILED RISK POTENTIAL IMPACT
We seek to leverage the use of IT to achieve competitive advantage. The Group • Interruption or failure of IT systems (including the impact of a
continues to implement a global ERP system to replace numerous legacy systems cyber-attack) would negatively impact or prevent some business activities from
which inherently brings with it the risks associated with a large-scale change occurring. If the interruption was long lasting, significant damage could be
programme. done to the business.
The threat from cyber-attacks, and therefore security of our IT systems, is • It is essential that we are able to rely on the data derived from
constantly evolving. The frequency of attacks is increasing, and the nature of our business system to feed routine but fundamental business performance
such attacks are becoming more sophisticated. The risk to our Group, our monitoring.
supply chains and our customers is ever present.
• An unsuccessful implementation of the global ERP system has the
potential to materially impact that site's, and possibly the Group's,
performance.
MITIGATION AND CONTROL
• Short-term maintain stability of existing hardware and legacy
software platforms.
• Governance and control arrangements operating over the Group's ERP
implementation programme.
• New ERP system is successfully implemented at several locations.
• Use of specialist external consultants and recruitment of
experienced personnel.
• Phased implementation rather than 'big bang', along with project
assurance and 'lessons learned' reviews to continuously improve the quality of
successive rollouts.
• Steering Committee in operation with cascading project management
disciplines.
• A range of preventative and detective controls to manage the risk of
a cyber-attack, including technical solutions in addition to employee training
programmes.
• Regular system maintenance and upgrades, including patching, to
ensure known vulnerabilities are protected.
The overall risk for FY23 is unchanged.
Whilst we recognise that cyber threat is ever increasing, we have continued to
invest in additional capability and controls designed to defend against such
threats. There is a continued focus on managing and reducing the impact of any
potential attack.
We have also successfully removed another one of our legacy ERP systems during
the year.
6 Prolonged loss of a major manufacturing site
DETAILED RISK POTENTIAL IMPACT
A catastrophic loss of the use of all or a significant portion of a strategic • In the short and long term, a related risk event could adversely
production facility. The prolonged loss of certain larger plants has the affect the Group's ability to meet the demands of its customers.
ability to impact the viability of the Group. This could result from an
accident, a strike by employees, a significant disease outbreak, major • Specifically, this could entail significant repair costs or costs of
disruption to supply chains, fire, severe weather or other causes outside of alternative supply. A significant proportion of the Group's revenue is on
management control. relatively short lead times and a break in our supply chain could result in
loss of revenue. All of this translates into lower sales and profits and
reduced cash flow.
MITIGATION AND CONTROL
• Preventative maintenance programmes and new investments to reduce
risk of interruption of manufacturing.
• A Group Fire Safety Policy mandating preventative, detective and
containment controls.
• Alternative manufacturing capacity exists for a growing portion of
the Group's product range, with this manufacturing capability spread across
geographic territories.
• Inventory maintained to absorb and flatten out shorter-term raw
material supply and production volatility risks.
• Comprehensive insurance policies to mitigate the impact of a number
of these risks, albeit subject to carve-out of cover for specific risks (e.g.
SARS and related disease outbreak) and claim limits.
• Amendments to operational processes, whenever and wherever required,
to mitigate emerging risks and country-specific requirements.
The risk trend for FY23 is unchanged, largely as a result of already being
classified at maximum risk levels.
We have continued to enhance the manufacturing capabilities at a number of our
manufacturing locations through investment in equipment and additional
training during the year, with the aim of reducing reliance on single
geographical locations.
This is coupled with a Group-wide programme to continually maintain, develop
and enhance our business continuity plans, such that the impact of business
interruption is minimised in the event it occurs.
7 People and change
DETAILED RISK POTENTIAL IMPACT
The Group's operations are dependent upon the ability to attract and retain · Failure to retain, attract or motivate the required calibre of
the right people with an appropriate range of skills and experience. employees will negatively impact business performance.
Succession planning and the ability to swiftly replace staff retiring or · The delivery of the Strategic Plan and our strategic goals may
leaving is also critical. also be delayed.
MITIGATION AND CONTROL
• Competitive reward programmes, focused training and development, and
a talent retention programme.
• Ongoing reviews of succession plans based on business needs.
• Performance management and personal development programmes
introduced alongside training initiatives.
• Management team strengthened with new capability from external hires
and internal promotions.
• The Renold Values, launched in 2015, continue to be embedded and are
linked to recruitment processes for new employees.
The FY23 risk trend is reducing.
The employment market remains competitive, however, we continue to attract and
retain high calibre individuals.
Whilst industrial action across a range of sectors has been increasingly
publicised during the year, we have tried to maintain positive relationships
with our employees and have, where possible, worked in partnership to achieve
mutually agreeable pay awards and working arrangements.
8 Liquidity, foreign exchange and banking arrangements
DETAILED RISK POTENTIAL IMPACT
A lack of sufficient liquidity and flexibility in banking arrangements could • Potentially cause under-investment and sub-optimal short-term
inhibit the Group's ability to invest for the future or, in extremes, restrict decision making.
day-to-day operations.
• Limiting investment could prevent efficiency savings and reduce
competitiveness.
• In an extreme situation, the Group's ability to operate as a going
concern could also be jeopardised.
MITIGATION AND CONTROL
• The Group's primary banking facility was renewed in May 2023, with
long-term financing agreed to May 2026 and an option to extend the term for a
further two years. The new facility has increased to £85.0m from £61.5m, and
the key net debt/EBITDA covenant was improved from 2.5x to 3.0x. The facility
is fully available given current levels of profitability and we continue to
maintain a positive relationship with our banking providers.
• Rolling foreign exchange forward contracts covering committed future
cash flows.
The Group remained, with good headroom, within banking covenants throughout
the year and retains a strong cash position.
The routine renewal of our committed debt facilities was successfully
completed in May 2023, increasing both the amount of borrowing available and
headroom on the net debt/EBITDA covenant.
As a result, the likelihood of this risk crystallising is lower and hence the
FY23 risk trend is reducing.
9 Pensions deficit
DETAILED RISK POTENTIAL IMPACT
The principal pensions risk is that short-term cash funding requirements of • Given the Group's cash needs to invest in the business, the pace of
legacy pension schemes diverts much-needed investment away from the Group's performance improvement could be slowed if cash has to be diverted to the
operations. pension schemes.
Secondly, the size of the reported balance sheet deficit can operate as a • The balance sheet pension deficit could act as a disincentive to
disincentive to potential investors or other stakeholders, limiting the potential investors and could reduce the Group's ability to raise new equity
Group's ability to raise financing on capital markets. or debt financing, limiting the strategic options open to the Group.
MITIGATION AND CONTROL
• We maintain a good relationship with pension trustees.
• Specialist professional advice is obtained to help us manage the
associated liabilities and risks.
• The major UK pension cash flows (over 50% of all defined benefit
pension cash costs) are stable, known and defined under the 25-year
asset-backed funding scheme put in place during 2013. A further 25% of the
annual cash flows are pensions in payment in Germany in a mature scheme that
has passed its peak funding requirement.
The size of the reported balance sheet deficit has considerably lowered in the
year, whilst cash contributions have remained known and stable. As such, the
FY23 risk trend is reducing.
10 Legal, financial and regulatory compliance
DETAILED RISK POTENTIAL IMPACT
The risk of censure, fine or business prohibition as a result of any part of Failure by the Group or its representatives to abide by applicable laws and
the Group failing to comply with regulatory or legal obligations. regulations could result in:
Risks related to regulatory and legislative changes include the inability of • Administrative, civil or criminal liability.
the Group to comply with current, changing or new requirements.
• Significant fines and penalties.
Many of the Group's business activities are subject to increasing regulation
and enforcement by relevant authorities. • Suspension of the Group from trading.
• Reputational damage.
MITIGATION AND CONTROL
• Communication and management of a clear compliance culture.
• Risk assessments and ongoing compliance reviews at least annually at
all major locations.
• Published up-to-date policies and procedures with clear guidance and
training issued to all employees.
• Monitoring of compliance with nominated accountable managers in each
business unit.
• Financial control assurance and legal compliance is obtained through
internal audit and a control self-assessment process.
• Self-certification from every operating region that internal
controls have been complied with and that legal compliance has been maintained
and is reviewed on at least an annual basis. All units and functions in the
Group are subject to internal audit on a regular risk-based cycle. Any
non-compliance reported is reviewed by the Audit Committee.
The FY23 risk trend is unchanged.
Consolidated Income Statement
for the year ended 31 March 2023
Note 2023 2022
£m £m
Revenue 1 247.1 195.2
Operating costs 2 (224.2) (179.0)
Operating profit 22.9 16.2
Finance costs 3 (5.6) (3.8)
Profit before tax 17.3 12.4
Taxation 4 (5.5) (2.2)
Profit for the financial year 11.8 10.2
Earnings per share 5
Basic earnings per share 5.7p 4.7p
Diluted earnings per share 5.1p 4.4p
Basic adjusted earnings per share(1) 6.5p 4.3p
Diluted adjusted earnings per share(1) 5.9p 4.0p
(1) Definitions of adjusted measures are provided in alternative performance
measures in Note 21.
All results are from continuing operations.
Consolidated Statement of Comprehensive Income
for the year ended 31 March 2023
2023 2022
£m £m
Profit for the financial year 11.8 10.2
Items that may be reclassified to the income statement in subsequent years:
Exchange differences on translation of foreign operations 2.7 3.2
Loss on hedges of the net investment in foreign operations (0.8) (0.3)
Cash flow hedges:
Gain/(loss) arising on cash flow hedges during the year 0.3 (0.5)
Less: Cumulative gain arising on cash flow hedges reclassified to profit and 0.6 0.1
loss
Income tax relating to items that may be reclassified subsequently to profit (0.2) 0.1
or loss
2.6 2.6
Items not to be reclassified to the income statement in subsequent years:
Remeasurement gains/(losses) on retirement benefit obligations 22.2 12.3
Tax on remeasurement gains/losses on retirement benefit obligations - (5.8) (3.1)
excluding impact of statutory rate change
Effect of changes in statutory tax rate on deferred tax assets - 2.3
16.4 11.5
Other comprehensive income for the year, net of tax 19.0 14.1
Total comprehensive income for the year, net of tax 30.8 24.3
Consolidated Balance Sheet
as at 31 March 2023
Restated(1)
2023 2022
Note £m £m
ASSETS
Non-current assets
Goodwill 7 28.2 22.7
Intangible assets 8 10.9 5.1
Property, plant and equipment 9 56.8 49.3
Right-of-use assets 10 16.5 8.0
Deferred tax assets 11.8 17.9
124.2 103.0
Current assets
Inventories 11 61.8 48.4
Trade and other receivables 12 43.5 35.7
Current tax 0.6 -
Derivative financial instruments 0.3 -
Cash and cash equivalents 13 19.3 10.5
125.5 94.6
TOTAL ASSETS 249.7 197.6
LIABILITIES
Current liabilities
Borrowings 14 (47.3) (1.0)
Trade and other payables 15 (57.2) (48.5)
Lease liabilities 10 (2.7) (2.8)
Current tax (6.6) (4.1)
Derivative financial instruments - (0.5)
Provisions 16 (0.9) (0.2)
(114.7) (57.1)
NET CURRENT ASSETS 10.8 37.5
Non-current liabilities
Borrowings 14 (1.3) (22.8)
Preference stock 14 (0.5) (0.5)
Trade and other payables 15 (2.5) (4.7)
Lease liabilities 10 (17.5) (9.2)
Deferred tax liabilities (7.8) (5.4)
Retirement benefit obligations (62.2) (87.1)
Provisions (4.1) (3.8)
(95.9) (133.5)
TOTAL LIABILITIES (210.6) (190.6)
NET ASSETS 39.1 7.0
EQUITY
Issued share capital 11.3 11.3
Currency translation reserve 11.5 9.8
Other reserves (4.5) (5.4)
Retained earnings 20.8 (8.7)
TOTAL SHAREHOLDERS' FUNDS 39.1 7.0
(1) See Note 20 for details of prior period restatement
Approved by the Board on 12 July 2023 and signed on its behalf by:
Robert Purcell Jim Haughey
CHIEF EXECUTIVE FINANCE DIRECTOR
Consolidated Statement of Changes in Equity
for the year ended 31 March 2023
Share capital Share premium account Restated(1) Currency translation reserve Capital redemption reserve Other reserves Restated(1)
Retained earnings Total shareholders' funds
£m £m £m £m £m £m £m
At 31 March 2021 11.3 30.1 (77.0) 6.8 15.4 (0.1) (13.5)
Profit for the year - - 10.2 - - - 10.2
Other comprehensive income/ (expense) - - 11.5 3.0 - (0.4) 14.1
Total comprehensive income/ (expense) for the year - - 21.7 3.0 - (0.4) 24.3
Own shares purchased - - - - - (4.9) (4.9)
Capital reorganisation - (30.1) 45.5 - (15.4) - -
Share based payments - - 1.1 - - - 1.1
At 31 March 2022 11.3 - (8.7) 9.8 - (5.4) 7.0
Profit for the year - - 11.8 - - - 11.8
Other comprehensive income - - 16.4 1.7 - 0.9 19.0
Total comprehensive income for the year - - 28.2 1.7 - 0.9 30.8
Share based payments - - 1.3 - - - 1.3
At 31 March 2023 11.3 - 20.8 11.5 - (4.5) 39.1
(1) See Note 20 for details of prior period restatement
Included in retained earnings is £2.7m (31 March 2022: £1.9m) relating to a
share option reserve.
The other reserves include Renold shares held by the Renold plc Employee
Benefit Trust. The Renold Employee Benefit Trust holds Renold plc shares and
satisfies awards made under various employee incentive schemes when issuance
of new shares is not appropriate.
At 31 March 2023 16,888,938 (31 March 2022: 18,422,509) ordinary shares of 5p
each were held by the Renold Employee Benefit Trust and, following
recommendations by the employer, are provisionally allocated to satisfy awards
under employee incentive schemes. The market value of these shares at 31 March
2023 was £4.3m (31 March 2022: £3.7m).
Consolidated Statement of Cash Flows
for the year ended 31 March 2023
2023 2022
Note £m £m
Cash flows from operating activities 17
Cash generated from operations 19.4 21.0
Income taxes paid (2.7) (1.7)
Net cash flow from operating activities 16.7 19.3
Cash flows used in investing activities
Proceeds from property disposals - 0.2
Purchase of property, plant and equipment (7.0) (4.1)
Purchase of intangible assets (1.4) (1.2)
Consideration paid for acquisitions net of cash acquired 19 (14.5) (0.5)
Net cash flow used in investing activities (22.9) (5.6)
Cash flows from financing activities
Repayment of principal under lease liabilities (2.9) (4.2)
Finance costs paid (3.0) (1.5)
Own shares purchased - (4.9)
Proceeds from borrowings 28.3 4.7
Repayment of borrowings (8.3) (16.0)
Net cash flow from/(used in) financing activities 14.1 (21.9)
Net increase/(decrease) in cash and cash equivalents 7.9 (8.2)
Net cash and cash equivalents at beginning of year 9.5 17.3
Effects of exchange rate changes 0.1 0.4
Net cash and cash equivalents at end of year 13 17.5 9.5
Accounting Policies
Basis of preparation
The financial information for the year ended 31 March 2023 and the year ended
31 March 2022 does not constitute the Company's statutory accounts for those
years but is derived from those accounts. Statutory accounts for the year
ended 31 March 2022 have been delivered to the Registrar of Companies. The
auditor's report on those accounts was unqualified, did not draw attention to
any matters by way of emphasis and did not contain a statement under section
498 (2) or (3) of the Companies Act 2006.
The statutory accounts for the year ended 31 March 2023 have been authorised
for issue and signed by the Board of Directors at the time of this
announcement. They are expected to be published on or before 4 August 2022 and
will be delivered to the Registrar of Companies following the Company's Annual
General Meeting.
Going concern
The financial statements have been prepared on a going concern basis. In
determining the appropriate basis of preparation of the financial statements,
the Directors are required to consider whether the Group can continue in
operational existence for the foreseeable future.
Further information in relation to the Group's business activities, together
with the factors likely to affect its future development, performance and
financial position, liquidity, cash balances and borrowing facilities is set
out in the Strategic Report section of the Annual Report. In addition, the
financial statements within the Annual Report include the Group's objectives,
policies and processes for managing its capital, its financial risk management
objectives, details of its financial instruments and hedging activities and
its exposure to foreign exchange, credit and interest rate risk. Information
relating to post balance sheet events is disclosed in Note 18.
The key covenants attached to the Group's multi-currency revolving credit
facility relate to leverage (net debt to EBITDA, maximum 2.5x) and interest
cover (minimum 4.0x), which are measured on a pre-IFRS 16 basis. The Group
regularly monitors its financial position to ensure that it remains within the
terms of its banking covenants. Following the acquisition of Industrias YUK
S.A. ("YUK") on 3 August 2022, the Group's net debt increased by £16.0m to
£29.8m (31 March 2022: £13.8m). The Group has accordingly remained within
the borrowing covenant levels throughout the year ended 31 March 2023.
Given the current level of macroeconomic uncertainty stemming from Covid-19,
inflation, the global supply chain crisis and geopolitical risks, and being
also mindful of the risk matrix disclosed in the section on principal risks
and uncertainties, the Group has performed financial modelling of future cash
flows. The Board has reviewed the cash flow forecasts, which cover a period of
12 months from the approval of the 2023 Annual Report, and which reflect
forecasted changes in revenue across the Group's business units. A reverse
stress test has been performed on the forecasts to determine the extent of
downturn which would result in a breach of covenants. Revenue would have to
reduce by 28% over the period under review for the Group to breach the
leverage covenant under the terms of its borrowing facility. The reverse
stress test does not take into account further mitigating actions which the
Group would implement in the event of a severe and extended revenue decline,
such as reducing discretionary spend and capital expenditure. This assessment
indicates that the Group can operate within the level of its current
facilities, as set out above, without the need to obtain any new facilities
for a period of not less than 12 months from the date of this report.
Following this assessment, the Board of Directors are satisfied that the Group
has sufficient resources to continue in operation for a period of not less
than 12 months from the date of this report. Accordingly, they continue to
adopt the going concern basis in relation to this conclusion and preparing the
Consolidated Financial Statements. There are no key sensitivities identified
in relation to this conclusion.
Notes to the Consolidated Financial Statements
1. Segmental information
For management purposes, the Group is organised into two operating segments
according to the nature of their products and services and these are
considered by the Directors to be the reportable operating segments of Renold
plc as shown below:
• The Chain segment manufactures and sells power transmission and
conveyor chain and also includes sales of torque transmission products through
Chain National Sales Companies (NSCs); and
• The Torque Transmission segment manufactures and sells torque
transmission products, such as gearboxes and couplings.
No operating segments have been aggregated to form the above reportable
segments.
The Chief Operating Decision Maker (CODM) for the purposes of IFRS 8
'Operating Segments' is considered to be the Board of Directors of Renold plc.
Management monitor the results of the separate reportable operating segments
based on operating profit and loss which is measured consistently with
operating profit and loss in the consolidated financial statements. The same
segmental basis applies to decisions about resource allocation. Disclosure has
been included in respect of working capital as opposed to operating assets of
each segment as this is the measure reported to the CODM on a regular basis.
However, Group finance costs, retirement benefit obligations and income taxes
are managed on a Group basis and therefore are not allocated to operating
segments. Transfer prices between operating segments are on an arm's length
basis in a manner similar to transactions with third parties.
Chain(2) Torque Transmission Head office costs and eliminations Consolidated
Year ended 31 March 2023 £m £m £m £m
Revenue
External customer - transferred at a point in time 201.5 43.4 - 244.9
External customer - transferred over time - 2.2 - 2.2
Inter-segment(1) 0.9 3.2 (4.1) -
Total revenue 202.4 48.8 (4.1) 247.1
Operating profit/(loss) 26.5 5.4 (9.0) 22.9
Finance costs (5.6)
Profit before tax 17.3
Taxation (5.5)
Profit after tax 11.8
Other disclosures
Working capital(3) 44.0 10.9 (6.8) 48.1
Capital expenditure(4) 5.6 2.2 1.2 9.0
Total depreciation and amortisation 6.9 1.6 2.6 11.1
1. Segmental information (continued)
Chain(2) Torque Transmission Head office costs and eliminations Consolidated
Year ended 31 March 2022 £m £m £m £m
Revenue
External customer - transferred at a point in time 158.2 35.6 - 193.8
External customer - transferred over time - 1.4 - 1.4
Inter-segment(1) 1.0 3.4 (4.4) -
Total revenue 159.2 40.4 (4.4) 195.2
Operating profit/(loss) 20.5 4.1 (8.4) 16.2
Finance costs (3.8)
Profit before tax 12.4
Taxation (2.2)
Profit after tax 10.2
Other disclosures
Working capital(3) 30.0 9.0 (3.4) 35.6
Capital expenditure(4) 3.4 2.0 0.9 6.3
Total depreciation and amortisation 6.2 1.9 1.4 9.5
1 Inter-segment revenues are eliminated on consolidation.
2 Included in Chain external sales is £5.2m (2022: £4.2m) of Torque
Transmission product sold through the Chain NSCs, usually in countries where
Torque Transmission does not have its own presence.
3 The measure of segment assets reviewed by the CODM is total working capital,
defined as inventories and trade and other receivables, less trade and other
payables. Working capital is also measured as a ratio of rolling annual sales.
4 Capital expenditure consists of additions to property, plant and equipment and
intangible assets.
In addition to statutory reporting, the Group reports certain financial
metrics on an adjusted basis (alternative performance measures, APMs).
Definitions of adjusted measures, and information about the differences to
statutory metrics are provided in Note 21. Current year adjusting items
include a £0.7m (2022: £0.1m) of amortisation of acquired intangibles (Chain
segment) and £0.6m (2022: £nil) of acquisition costs.
Constant exchange rate results are current period results retranslated using
prior year exchange rates. A reconciliation is provided below and in Note 21.
Future performance obligations
The transaction price allocated to performance obligations that are
unsatisfied or partially unsatisfied at 31 March 2023 is £99.5m (2022:
£84.1m). This mostly comprises of the obligation to manufacture and supply
standard Group products. The majority of this revenue is recognised at a point
in time.
An amount of £17.0m (2022: £11.7m) relates to revenue from a small number of
large customer contracts, for which revenue is recognised over time in line
with progress against performance obligations. This revenue is expected to be
recognised over the next eight years (2022: over the next eight years).
Chain Torque Transmission Head office costs and eliminations Consolidated
Year ended 31 March 2023 £m £m £m £m
Revenue
External customer - transferred at a point in time 201.5 43.4 - 244.9
External customer - transferred over time - 2.2 - 2.2
Inter-segment 0.9 3.2 (4.1) -
Foreign exchange retranslation (12.5) (2.8) - (15.3)
Total revenue at constant exchange rates 189.9 46.0 (4.1) 231.8
Operating profit/(loss) 26.5 5.4 (9.0) 22.9
Foreign exchange retranslation (1.6) (0.3) 0.1 (1.8)
Operating profit/(loss) at constant exchange rates 24.9 5.1 (8.9) 21.1
1. Segmental information (continued)
Geographical analysis of external sales by destination, non-current asset
location and average employee numbers
The UK is the home country of the parent company, Renold plc. The principal
operating territories, the proportions of Group external revenue generated
(customer location), external revenues, non-current assets (asset location)
and average employee numbers in each are as follows:
Revenue ratio External revenues Non-current assets Average
employee numbers
2023 2022 2023 2022 2023 2022 2023 2022
% % £m £m £m £m
United Kingdom 7.7 8.4 19.1 16.4 13.3 13.9 280 282
Rest of Europe 29.6 31.2 73.2 60.9 42.1 17.2 585 499
US & Canada 42.1 39.1 103.9 76.4 33.5 30.5 282 279
Australasia 10.2 10.5 25.3 20.5 4.7 4.8 125 133
China 5.0 4.9 12.4 9.5 14.3 14.3 247 259
India 3.8 4.2 9.3 8.2 4.5 4.4 335 362
Other countries 1.6 1.7 3.9 3.3 - - - -
100.0 100.0 247.1 195.2 112.4 85.1 1,854 1,814
All revenue relates to the sale of goods and services. No individual customer,
or group of customers, represents more than 10% of Group revenue (2022: None
more than 10%).
Non-current assets consist of goodwill, other intangible assets and property,
plant and equipment. Deferred tax assets and right-of-use assets are not
included above.
Employees are categorised as direct or indirect. The split of average employee
numbers are direct 1,038 (2022: 1,063) and indirect 816 (2022: 751).
2. Operating costs
Operating profit is stated after charging/(crediting):
2023 2022
£m £m £m £m
Change in finished goods and work in progress (3.0) (8.2)
Raw materials and consumables 88.3 73.6
Other external charges 44.1 32.3
Employee costs
Gross wages and salaries 67.9 60.0
Social security costs 8.8 7.3
Pension costs
- defined benefit 0.1 0.1
- defined contribution 1.2 1.1
Share-based incentive plans (including related social security costs) 1.5 1.3
79.5 69.8
Depreciation of property, plant and equipment
- owned assets 6.1 5.3
- right-of-use assets 2.5 2.6
Amortisation of intangible assets 1.8 1.5
Amortisation of acquired intangible assets 0.7 0.1
Acquisition costs 0.6 -
Short-term leases and leases of low-value assets - plant and machinery 0.2 0.1
Income from sub-leasing right-of-use assets - (0.2)
Loss on disposal of owned property, plant and equipment 0.3 -
Loss on disposal of right-of-use assets - 0.2
Research and development expenditure 0.7 0.6
Auditor's remuneration 0.8 0.8
Impairment losses and gains (including reversals of impairment losses) on
financial assets
- impairment of right-of-use asset - 1.7
- trade receivables impairment 0.4 0.2
Net foreign exchange losses 0.5 0.7
Pension administration costs 0.7 0.7
Government assistance support received - (1.7)
Non-recurring profit on disposal of right-of-use asset and associated lease - (1.1)
liability
Total operating costs 224.2 179.0
3. Finance costs
2023 2022
£m £m
Finance costs:
Interest payable on bank loans and overdrafts(1) 2.3 1.1
Interest expense on lease liabilities(1) 0.7 0.5
Amortised financing costs(1) 0.3 0.3
Loan finance costs 3.3 1.9
Net IAS 19 finance costs 2.1 1.8
Discount unwind on non-current trade and other payables 0.2 0.1
Finance costs 5.6 3.8
(1) Amounts arising on financial liabilities measured at amortised cost.
4. Taxation
Analysis of tax charge in the year
2023 2022
£m £m
United Kingdom
UK corporation tax at 19% (2022: 19%) (0.1) (0.1)
Overseas taxes
Corporation taxes 2.6 1.9
Movement in uncertain tax positions 0.7 (0.3)
Adjustments in respect of prior periods 0.7 0.3
Withholding taxes 0.3 0.2
Current income tax charge 4.2 2.0
Deferred tax
UK - origination and reversal of temporary differences 0.2 0.1
Overseas - origination and reversal of temporary differences 1.5 0.1
Effect of changes in corporate tax rates - (0.5)
Adjustments in respect of prior periods (0.4) 0.5
Total deferred tax charge 1.3 0.2
Tax charge on profit on ordinary activities 5.5 2.2
2023 2022
£m £m
Tax on items taken to other comprehensive income
Deferred tax on changes in net pension deficits 5.8 3.1
Effect of changes in statutory tax rate on deferred tax assets - (2.3)
Tax on fair value of derivatives direct to reserves 0.2 (0.1)
Tax charge in the statement of other comprehensive income 6.0 0.7
Factors affecting the Group tax charge for the year
The increase in the current tax charge is attributable to increased taxable
profits in jurisdictions where the headline statutory tax rate is higher than
the prevailing UK tax rate. The deferred tax charge in the year primarily
relates to the continued utilisation of tax losses in jurisdictions for which
deferred tax is recognised. At 31 March 2023, the provision for open tax
matters totalled £1.8m (31 March 2022: £1.9m). Adjustments to tax in respect
of prior period profit on ordinary activities has not been restated due to the
net impact on the current and deferred tax charge being not material.
The Group's tax charge in future years will be affected by the profit mix,
effective tax rates in the different countries where the Group operates and
utilisation of tax losses. No deferred tax is recognised on the unremitted
earnings of overseas subsidiaries in accordance with IAS 12.39.
The actual tax on the Group's profit before tax differs from the theoretical
amount using the UK corporation tax rate as follows:
2023 2022
£m £m
Profit on ordinary activities before tax 17.3 12.4
Tax charge at UK statutory rate of 19% (2022: 19%) 3.3 2.4
Effects of:
Non-taxable income - (1.2)
Non-deductible expenditure 0.7 0.3
Other taxable income - 0.8
Other deductible (0.1) -
Movement in uncertain tax positions 0.7 (0.4)
Overseas tax rate differences 0.9 0.9
Effect of changes in corporate tax rates - (0.3)
Adjustments in respect of prior periods (1.0) 0.5
Movement in unrecognised deferred tax 0.7 (1.0)
Withholding taxes 0.3 0.2
Total tax charge 5.5 2.2
4. Taxation (continued)
Effective tax rate
The effective tax rate of 32% (2022: 18%) is higher than the UK tax rate of
19% (2022: 19%) due to the following factors:
· Permanent differences including items that are non-deductible
from a tax perspective.
· Prior year adjustments arising as tax submissions are finalised
and agreed in specific jurisdictions.
· Increased taxable profits in overseas jurisdictions for which the
statutory tax rate is higher than the headline UK rate.
Tax payments
Cash tax paid in the year was £2.7m (2022: £1.7m). The year on year increase
is attributable to higher taxable profits in full cash tax paying territories,
including the closure of an historical tax enquiry.
5. Earnings per share
Earnings per share (EPS) is calculated by reference to the earnings for the
year and the weighted average number of shares in issue during the year as
follows:
2023 2022
Earnings Shares Per share amount Earnings Shares Per share amount
£m (thousands) (pence) £m (thousands) (pence)
Basic EPS - Profit attributed to ordinary shareholders 11.8 207,242 5.7 10.2 214,795 4.7
Effect of adjusting items, after tax:
Amortisation of acquired intangible assets 0.7 0.3 0.1 0.1
Acquisition costs 0.6 0.3 - -
Tax adjustments relating to prior year 0.4 0.2 - -
US PPP loan forgiveness - - (1.7) (0.8)
New lease arrangements on sublet properties - - 0.7 0.3
Adjusted EPS 13.5 207,242 6.5 9.3 214,795 4.3
Inclusion of the dilutive securities, comprising 23,003,207 (2022: 16,908,941)
additional shares due to share options, in the calculation of basic and
adjusted EPS changes the amounts shown above to 5.1p and 5.9p respectively
(2022: basic EPS 4.4p, adjusted EPS 4.0p).
The adjusted EPS numbers have been provided in order to give a useful
indication of underlying performance by the exclusion of adjusting items. Due
to the existence of unrecognised deferred tax assets there were no associated
tax credits on some of the adjusting items and in these instances adjusting
items are added back in full.
6. Dividends
No ordinary dividend payments were paid or proposed in either the current or
prior year.
7. Goodwill
2023 2022
£m £m
Cost
At 1 April 26.2 25.1
Acquisition of subsidiary (Note 19) 4.2 -
Exchange adjustment 1.3 1.1
At 31 March 31.7 26.2
Accumulated amortisation and impairment
At 1 April 3.5 3.4
Exchange adjustment - 0.1
At 31 March 3.5 3.5
Carrying amount 28.2 22.7
Impairment testing
The Group performed its annual impairment test of goodwill at 31 March 2023
which compares the current book value to the recoverable amount from the
continued use or sale of the related business.
The recoverable amount of each Cash Generating Unit (CGU) has been determined
on a value-in-use basis, calculated as the net present value of cash flows
derived from detailed financial plans. All business units in the Group have
submitted a budget for the financial year ending 31 March 2024 and strategic
plan forecasts for the two financial years ending 31 March 2026. The budget
and strategic forecasts, which are subject to detailed review and challenge,
were approved by the Board. The Group prepares cash flow forecasts based on
these projections for the first three years, with years four and five
extrapolated based on known future events, recently observable trends and
management expectations. A terminal value calculation is used to estimate the
cash flows after year five. Sensitivity analysis has been performed including
a zero revenue growth scenario (with current year revenue modelled for all
future periods of the forecast) and a reverse stress test, to determine the
extent of downturn which would result in a potential impairment. Revenue would
have to reduce by 28% in the first year of the period under review (worse than
the decline seen during the Covid pandemic) for the first CGU containing
goodwill to require potential impairment. Under the reverse stress test the
first CGU with headroom that eliminated was India. The forecasts used for the
impairment review are consistent with those used in the Going Concern review.
The key assumptions used in the value-in-use calculations are:
• Sales: Forecast sales are built up with reference to expected
sales prices and volumes from individual markets and product categories based
on past performance, projections of developments in key markets and
management's judgement;
• Margins: Forecast margins reflect historical performance and
management's experience of each CGUs profitability at the forecast level of
sales including the impact of all completed restructuring projects. The
projections do not include the impact of future restructuring projects to
which the Group is not yet committed;
• Discount rate: Pre-tax discount rates have been calculated based
on the Group's weighted average cost of capital and risks specific to the CGU
being tested; and
• Long-term growth rates: As required by IAS 36, cash flows beyond
the period of projections are extrapolated using long-term growth rates
published by the Organisation for Economic Co-operation and Development for
the territory in which the CGU is based. The discount rates applied to the
cash flows of each of the CGUs are based on the risk-free rate for long-term
bonds issued by the government in the respective market. This is then adjusted
to reflect both the increased risk of investing in equities and the systematic
risk of the specific CGU (using an average of the betas of comparable
companies). These rates do not reflect the long-term assumptions used by the
Group for investment planning.
The Directors do not consider that any reasonably possible changes to the key
assumptions would reduce the recoverable amount to its carrying value for any
CGU. No impairment charge has been recognised in the current or prior period
for any CGU. The goodwill acquired in the year relating to YUK has been
allocated to the Europe & China CGU.
7. Goodwill (continued)
Growth rates CGU discount rates Carrying values
(pre-tax)
2023 2022 2023 2022 2023 2022
% % % % £m £m
Americas (Jeffrey Chain, USA) 2.0 1.7 15.0 16.2 21.4 20.0
Australia (Ace Chains, Australia) 2.2 2.6 12.1 12.0 0.5 0.5
India (Renold Chain, India) 6.4 6.2 20.4 20.8 1.6 1.7
Europe & China (Renold Tooth Chain, Germany & YUK) 1.7 1.1 15.5 15.5 0.5 0.5
Europe & China (YUK) 2.0 - 14.0 - 4.2 -
28.2 22.7
8. Intangible assets
Customer orderbook Customer relationships Technical know-how Non-compete agreements Computer software Total
£m £m £m £m £m £m
Cost
At 1 April 2021 0.3 4.2 0.2 - 19.7 24.4
Exchange adjustment - - - - (0.1) (0.1)
Additions - - - - 1.2 1.2
Disposals - - - - (0.9) (0.9)
Acquisition of subsidiary - 0.4 - - - 0.4
At 31 March 2022 0.3 4.6 0.2 - 19.9 25.0
Exchange adjustment - 0.3 - - 0.1 0.4
Additions - - - - 1.4 1.4
Acquisition of subsidiary (Note 19) - 5.1 - 1.8 - 6.9
At 31 March 2023 0.3 10.0 0.2 1.8 21.4 33.7
Accumulated amortisation and impairment
At 1 April 2021 0.3 4.2 0.2 - 14.8 19.5
Exchange adjustment - (0.1) - - (0.2) (0.3)
Amortisation charge - 0.1 - - 1.5 1.6
Disposals - - - - (0.9) (0.9)
At 31 March 2022 0.3 4.2 0.2 - 15.2 19.9
Exchange adjustment - 0.2 - - 0.2 0.4
Amortisation charge - 0.5 - 0.2 1.8 2.5
At 31 March 2023 0.3 4.9 0.2 0.2 17.2 22.8
Net book amount
At 31 March 2023 - 5.1 - 1.6 4.2 10.9
At 31 March 2022 - 0.4 - - 4.7 5.1
During the year amounts have been recognised in accordance with IFRS 3 in
relation customer lists and non-compete agreements as a result of the
acquisition of Industrias YUK S.A. (Note 19). The customer relationships
acquired have been valued using estimates of useful lives and discounted cash
flows of expected income, and the non-compete agreements have been valued
using the comparative income differential method.
The prior year acquisition of the Brooks business resulted in the recognition
of amounts in relation to customer relationships. The remaining amounts
recognised for customer relationships, customer orderbook and technical
know-how were acquired with the acquisition of the Tooth Chain (Germany)
business, which are now fully depreciated.
No brand names have been acquired in the current year acquisition or previous
acquisitions.
9. Property, plant and equipment
Land and buildings Plant and equipment Total
£m £m £m
Cost
At 1 April 2021 23.7 119.1 142.8
Exchange adjustment 1.1 1.9 3.0
Additions 0.3 4.8 5.1
Disposals - (2.3) (2.3)
Acquisition of subsidiary - 0.1 0.1
At 31 March 2022 25.1 123.6 148.7
Exchange adjustment 0.3 3.5 3.8
Additions 0.2 7.4 7.6
Disposals - (1.8) (1.8)
Recategorisation 0.3 (0.3) -
Acquisition of subsidiary (Note 19) - 5.4 5.4
At 31 March 2023 25.9 137.8 163.7
Accumulated depreciation and impairment
At 1 April 2021 7.3 87.4 94.7
Exchange adjustment 0.2 1.3 1.5
Charge for the year 0.6 4.7 5.3
Disposals - (2.1) (2.1)
At 31 March 2022 8.1 91.3 99.4
Exchange adjustment 0.2 2.7 2.9
Charge for the year 0.6 5.5 6.1
Disposals - (1.5) (1.5)
At 31 March 2023 8.9 98.0 106.9
Net book amount
At 31 March 2023 17.0 39.8 56.8
At 31 March 2022 17.0 32.3 49.3
Property, plant and equipment pledged as security for liabilities amounted to
£34.5m (2022: £32.2m).
Future capital expenditure
At 31 March 2023 capital expenditure contracted for but not provided for in
these accounts amounted to £2.6m (2022: £2.4m).
10. Leasing and right-of-use assets
Right-of-use assets
Land and buildings Plant and equipment Total
£m £m £m
Cost
At 1 April 2021 11.8 3.3 15.1
Exchange adjustment 0.2 - 0.2
Additions 1.7 0.6 2.3
Disposals (1.1) (1.9) (3.0)
At 31 March 2022 12.6 2.0 14.6
Exchange adjustment 0.1 - 0.1
Acquisition of subsidiary (Note 19) 9.5 0.1 9.6
Additions 1.0 0.4 1.4
Disposals (0.4) (0.8) (1.2)
At 31 March 2023 22.8 1.7 24.5
Accumulated depreciation and impairment
At 1 April 2021 2.6 1.8 4.4
Exchange adjustment - 0.1 0.1
Charge for the year 1.6 1.0 2.6
Disposals (0.5) (1.7) (2.2)
Impairment 1.7 - 1.7
At 31 March 2022 5.4 1.2 6.6
Exchange adjustment 0.1 - 0.1
Charge for the year 2.0 0.5 2.5
Disposals (0.4) (0.8) (1.2)
At 31 March 2023 7.1 0.9 8.0
Net book amount
At 31 March 2023 15.7 0.8 16.5
At 31 March 2022 7.2 0.8 8.0
Lease liabilities
2023 2022
£m £m
Maturity analysis - contractual undiscounted cash flows
Less than one year 3.5 3.0
One to two years 3.1 2.5
Two to five years 6.6 4.9
More than five years 14.1 3.2
Total undiscounted lease liabilities at 31 March 27.3 13.6
Less: Interest allocated to future periods (7.1) (1.6)
Lease liabilities included in the Consolidated Balance Sheet 20.2 12.0
Current 2.7 2.8
Non-current 17.5 9.2
Amounts recognised in profit or loss
2023 2022
£m £m
Interest on lease liabilities (0.7) (0.5)
Non-recurring profit on disposal of right-of-use asset and associated lease - 1.1
liability
Income from sub-leasing right-of-use assets - 0.2
Expenses relating to short-term leases and leases of low-value assets (0.2) (0.1)
10. Leasing and right-of-use assets (continued)
Amounts recognised in the Consolidated Statement of Cash Flows
2023 2022
£m £m
Repayment of principal under lease liabilities 2.9 4.2
Repayment of interest on lease liabilities 0.7 0.5
Cash outflows in relation to short-term leases and leases of low-value assets 0.2 0.1
Total cash outflows for leases 3.8 4.8
11. Inventories
2023 2022
£m £m
Raw materials 9.1 6.9
Work in progress 5.8 5.5
Finished products and production tooling 46.9 36.0
61.8 48.4
Inventories pledged as security for liabilities amounted to £43.2m (2022:
£36.9m).
The Group expensed £88.3m (2022: £73.6m) of inventories during the period.
In the year to 31 March 2023, £3.5m (2022: £2.3m) was charged for the
write-down of inventory and £0.2m (2022: £0.5m) was released from inventory
provisions no longer required.
12. Trade and other receivables
2023 2022
£m £m
Trade receivables 39.3 31.6
Less: Loss allowance (0.8) (0.5)
Trade receivables: net(1) 38.5 31.1
Other receivables 1.9 2.8
Contract assets 0.1 -
Prepayments 3.0 1.8
43.5 35.7
(1) Financial assets carried at amortised cost.
The Group has no significant concentration of credit risk but does have a
concentration of translational and transactional foreign exchange risk in both
US Dollars and Euros; however, the Group hedges against these risks. The
carrying amount of trade and other receivables approximates their fair value.
Trade receivables are non-interest bearing and are generally on 30-90 days
terms. The average credit period on sales of goods is 49 days (2022: 51 days).
Other receivables largely relate to VAT and hence given that the
counterparties are governments, no provision for loss allowance has been
made.
Contract assets relate to consideration not yet received upon the completion
of the associated performance obligation. Revenue recognised in the reporting
period that was included in the contract assets at beginning of the year
totalled £nil (2022: £nil).
The following table details the risk profile of trade receivables based on the
Group's provision matrix. As the Group's historical credit loss experience
does not show significantly different loss patterns for different customer
segments, the provision for loss allowance based on past due status is not
further analysed:
Trade receivables - days past due
At 31 March 2023 Not past due <30 days 30-60 days 60-90 days >90 days Total
Trade receivables: gross 34.0 3.3 0.6 0.4 1.0 39.3
Expected credit loss rate, % 0.2% 0.0% 1.0% 0.1% 67.7% 2.0%
Estimated gross carrying amount at default, £m 0.1 - - - 0.7
Lifetime expected credit loss, £m 0.8
12. Trade and other receivables (continued)
Trade receivables - days past due
At 31 March 2022 Not past due <30 days 30-60 days 60-90 days >90 days Total
Trade receivables: gross 27.1 3.2 0.4 0.2 0.7 31.6
Expected credit loss rate, % 0.1% 2.0% 0.0% 16.2% 47.6% 1.5%
Estimated gross carrying amount at default, £m - 0.2 - - 0.3
Lifetime expected credit loss, £m 0.5
The following table shows the movement in the lifetime expected credit losses;
there has been no change in the estimation techniques or significant
assumptions made during the current reporting period:
2023 2022
Loss allowance £m £m
At 1 April 0.5 0.4
Net remeasurement of loss allowance 0.4 0.1
Amounts written off as uncollectable (0.1) -
At 31 March 0.8 0.5
13. Cash and cash equivalents
In the Group cash flow statement, net cash and cash equivalents are shown
after deducting bank overdrafts as follows:
2023 2022
£m £m
Cash and cash equivalents 19.3 10.5
Less: Overdrafts (Note 14) (1.8) (1.0)
Net cash and cash equivalents 17.5 9.5
14. Borrowings
2023 2022
£m £m
Current borrowings:
Overdrafts (Note 13) 1.8 1.0
Bank loans 45.5 -
Current borrowings 47.3 1.0
Non-current borrowings:
Bank loans 1.3 22.8
Non-current borrowings 1.3 22.8
Preference stock 0.5 0.5
1.8 23.3
Total borrowings 49.1 24.3
The above loans form part of the Renold plc Group core banking facilities, the
UK banking facility matures in March 2024, therefore is classed as current
borrowings. These facilities were subsequently renewed for 4 years in May
2023. Refer to Note 18 for more details on the refinancing.
All financial liabilities above are carried at amortised cost.
Core banking facilities
On 29 March 2019 the Group renewed its £61.5m Multi-Currency Revolving
Facility banking facilities with HSBC UK, Allied Irish Bank (GB), and
Citibank. The facility matures in March 2024 and is fully committed and
available until maturity.
At the year end, the undrawn core banking facility was £16.1m (2022:
£37.8m). The Group also benefits from a UK overdraft and a number of overseas
facilities totalling £4.4m (2022: £2.7m) with availability at year end of
£1.2m. The Group pays interest at SONIA (or LIBOR prior to 20 December 2021)
plus a variable margin in respect of the core banking facility. The average
rate of interest paid in the year was SONIA (20 December 2021 onwards) or
LIBOR (prior to 20 December 2021) plus 1.85% for Sterling, Euro and US Dollar
denominated facilities (2022: plus 1.6% for Sterling, Euro and US Dollar
denominated facilities).
14. Borrowings (continued)
The core banking facility is subject to two covenants, which are tested
semi-annually: net debt to EBITDA (leverage, maximum ratio 2.5 times) and
EBITDA to net finance charges (interest cover, minimum ratio 4.0 times).
Secured borrowings
Included in Group borrowings are secured borrowings of £48.6m (2022:
£24.1m). Security is provided by fixed and floating charges over assets
(including certain property, plant and equipment and inventory) primarily in
the UK, USA, Germany and Australia. Certain Group companies have provided
cross-guarantees in respect of these borrowings
Preference stock
At 31 March 2023, there were 580,482 units of preference stock in issue (2022:
580,482).
All payments of dividends on the preference stock have been paid on the due
dates. The preference stock has the following rights:
i. a fixed cumulative preferential dividend at the rate of 6% per annum
payable half yearly on 1 January and 1 July in each year;
ii. rank both with regard to dividend (including any arrears on the
commencement of a winding up) and return of capital in priority to all other
stock or shares in the Company, but with no further right to participate in
profits or assets;
iii. no right to attend or vote, either in person or by proxy, at any general
meeting of the Company or to have notice of any such meeting, unless the
dividend on the preference stock is in arrears for six calendar months; and
iv. no redemption entitlement and no fixed repayment date.
There is no significant difference between the carrying value of financial
liabilities and their equivalent fair value.
15. Trade and other payables
2023 2022
Current Non-current Current Non-current
£m £m £m £m
Trade payables(1) 22.1 - 23.4 -
Other taxation and social security(1) 2.5 - 2.2 -
Other payables(1) 8.9 2.5 3.6 4.7
Contract liabilities 0.3 - - -
Accruals(1) 23.4 - 19.3 -
57.2 2.5 48.5 4.7
(1) Financial liabilities carried at amortised cost.
Trade payables are non-interest bearing and are normally settled within 60-day
terms. The Group does have a concentration of translational foreign exchange
risk in both US Dollars and Euros; however, the Group hedges against this
risk. The non-current other payable is the deferred element of the
construction costs for the Chinese factory in Jintan.
The Group did not operate supplier financing or reverse factoring programmes
during the current or prior financial year.
The Directors consider that the carrying amount of trade payables approximates
to their fair value.
Contract liabilities relate to consideration received in advance of the
completion of the associated performance obligation. Revenue recognised in the
reporting period that was included in the contract liability at beginning of
the year totalled £nil (2022: £nil).
16. Provisions
Business Restructuring(1) Environmental Provisions(1) Total provisions
Dilapidations
£m £m £m £m
At 1 April 2022 - 2.8 1.2 4.0
Arising during the year 0.8 0.3 - 1.1
Utilised in the year - (0.1) - (0.1)
At 31 March 2023 0.8 3.0 1.2 5.0
2023 2022
Allocated as: £m £m
Current provisions 0.9 0.2
Non-current provisions 4.1 3.8
5.0 4.0
(1) The business restructuring and environmental provision were combined in
the prior year, this year we have disaggregated the two amounts to provide
greater clarity.
Business restructuring
At the year ended 31 March 2023, a provision is recognised for legal and
redundancy costs in relation to the reduction of headcounts within group
sites. Substantially all of the provision is recorded as current.
Environmental
At the year ended 31 March 2023, a provision continues to be recognised in
relation to site environmental costs in France. Substantially all of the
provision is recorded as non-current.
Dilapidations
Provisions are recognised in relation to contractual obligations to reinstate
leasehold properties to the state of repair specified in the property lease.
The provision includes costs, as required within the lease, to rectify or
reinstate modifications to the property and to remediate general wear and tear
incurred to the balance sheet date. The provision to rectify or reinstate
modifications is recognised on inception, with a corresponding fixed asset
that is depreciated in line with the underlying asset. The provision to
rectify general wear and tear is recognised as it is incurred over the life of
the lease.
The provision is assessed based on the expected cost at the balance sheet
date, using recent cost estimates from suitably qualified property
professionals. These estimates are adjusted to reflect the impact of inflation
between the date of assessment and the expected timing of the payments, and
are then discounted back to present value. A range of inflation and discount
rates have been used in order to best reflect the circumstances of the lease
to which the dilapidation obligation relates. The inflation rate applied
ranges from 2.9% to 4.5% and the discount rate ranges from 1.6% to 5.0%. These
rates are most notably impacted by the country of lease and length of lease.
The majority of the dilapidation provision relates to cash outflows which are
expected to take place at the end of each respective lease term; none of which
are expected to end within the next 12 months. The associated outflows are
estimated to arise over a period of up to 21 years from the balance sheet
date. As a result substantially all of the provision is classed as non-current
(£3.1m).
17. Additional cash flow information
Reconciliation of operating profit to net cash flows from operations:
2023 2022
£m £m
Cash generated from operations:
Operating profit from continuing operations 22.9 16.2
Depreciation of property, plant and equipment - owned assets 6.1 5.3
Depreciation of property, plant and equipment - right-of-use assets 2.5 2.6
Amortisation of intangible assets 2.5 1.6
Loss/(profit) on disposals of plant and equipment 0.3 (0.9)
Impairment of right-of-use asset - 1.7
US Government assistance - PPP covid support - (1.7)
Equity share plans 1.3 1.1
Increase in inventories (4.5) (9.5)
Increase in receivables (2.8) (4.5)
(Decrease)/increase in payables (4.2) 13.7
Increase in provisions 1.0 0.1
Cash contribution to pension schemes (5.8) (4.8)
Pension current service cost (non-cash) 0.1 0.1
Cash generated from operations 19.4 21.0
Reconciliation of net change in cash and cash equivalents to movement in net
debt:
2023 2022
£m £m
Increase/(decrease) in cash and cash equivalents (Consolidated Statement of 7.9 (8.2)
Cash Flows)
Change in net debt resulting from cash flows
- Proceeds from borrowings (28.3) (4.7)
- Repayment of borrowings 8.3 16.0
US Government assistance - PPP covid support - 1.7
Foreign currency translation differences (0.7) 0.1
Non-cash movement on capitalised finance costs (0.3) (0.3)
Net debt acquired as part of the business combination (2.9) -
Change in net debt during the period (16.0) 4.6
Net debt at start of year (13.8) (18.4)
Net debt at end of year (29.8) (13.8)
Net debt comprises:
Cash and cash equivalents (Note 13) 19.3 10.5
Total borrowings (Note 14) (49.1) (24.3)
(29.8) (13.8)
17. Additional cash flow information (continued)
The table below details changes in the Group's liabilities arising from
financing activities, including both cash and non-cash changes. Liabilities
arising from financing activities are those for which cash flows were, or
future cash flows will be, classified in the Group's consolidated cash flow
statement as cash flows from financing activities.
Opening balance Accrued interest Financing cash flows New leases Lease disposal Net debt acquired Other non-cash changes(1) Closing balance
2023 £m £m £m £m £m £m £m £m
Bank loans (Note 14) 22.8 2.3 17.7 - - 2.9 1.1 46.8
Capitalised costs (Note 14) - - - - - - - -
Preference stock (Note 14) 0.5 - - - - - - 0.5
Lease liabilities (Note 10) 12.0 0.8 (3.6) 11.0 - - - 20.2
Total liabilities from financing activities 35.3 3.1 14.1 11.0 - 2.9 1.1 67.5
Overdrafts (Note 14) 1.0 1.8
Less: Lease liabilities (Note 10) (12.0) (20.2)
Total borrowings (Note 14) 24.3 49.1
Add: Cash and cash equivalents (Note 13) (10.5) (19.3)
Net debt 13.8 29.8
(1) Non-cash changes include the amortisation of capitalised finance costs and
foreign exchange translation.
Opening balance Accrued interest Financing cash flows New leases Lease disposal US Government assistance - PPP covid support Other non-cash changes(1) Closing balance
2022 £m £m £m £m £m £m £m £m
Bank loans (Note 14) 35.7 1.1 (12.2) - - (1.7) (0.1) 22.8
Capitalised costs (Note 14) (0.5) - (0.1) - - - 0.6 -
Preference stock (Note 14) 0.5 - - - - - - 0.5
Lease liabilities (Note 10) 15.4 0.5 (4.7) 2.3 (1.7) - 0.2 12.0
Total liabilities from financing activities 51.1 1.6 (17.0) 2.3 (1.7) (1.7) 0.7 35.3
Overdrafts (Note 14) 2.6 1.0
Less: Lease liabilities (Note 10) (15.4) (12.0)
Total borrowings (Note 14) 38.3 24.3
Add: Cash and cash equivalents (Note 13) (19.9) (10.5)
Net debt 18.4 13.8
(1) Non-cash changes includes the amortisation of capitalised finance costs
and foreign exchange translation.
18. Post balance sheet events
On 9 May 2023, the Group reached an agreement to refinance its core banking
facility to a £85m multi-currency revolving credit facility. Additionally
there is a £20m accordion option which will allow the company to access
additional funding in support of its acquisition programme. The new facility
will be provided by our existing banks: HSBC UK, Allied Irish Bank (GB),
Citibank and with the addition of Santander. The duration of the facility is a
three year term to May 2026 (contains an option to extend the term for a
further two years) and is fully committed and available until maturity.
The core banking facility is subject to two covenants, which are tested
semi-annually: net debt to EBITDA (leverage, maximum ratio 3.0 times) and
EBITDA to net finance charges (interest cover, minimum ratio 4.0 times).
19. Business combinations
During the year the Group completed the acquisition of 100% of the ordinary
share capital of Industrias YUK S.A. for the total consideration of €24.0m
(£20.8m), of which €20.0m (£17.3m) was paid on the date of the acquisition
with the remaining €4.0m (£3.5m) being deferred, €2.0m (£1.8m) to be
paid on 3 August 2023 and €2.0m (£1.7m) on 3 August 2024. YUK is a
Valencia-based, manufacturer and distributor of high quality conveyor chain
("CVC") and ancillary products.
The transaction has been accounted for as a business combination under IFRS 3
and is summarised below:
Recognised values on acquisition
£m
Fair value of net assets acquired:
Intangible assets 6.9
Property, plant and equipment 5.4
Right-of-use-assets 9.6
Inventories 7.6
Trade and other receivables 4.2
Deferred tax asset 0.5
Trade and other payables (6.4)
Lease liabilities (9.6)
Cash and cash equivalents 3.0
Borrowings (2.9)
Deferred tax liabilities (1.7)
Net identifiable assets and liabilities 16.6
Goodwill 4.2
Total consideration 20.8
Consideration:
Cash consideration 17.3
Deferred consideration 3.5
Total consideration transferred/to be transferred 20.8
Net cash outflow arising on acquisition:
Cash consideration paid (17.3)
Add: cash and cash equivalents acquired 3.0
(14.3)
Increase in net debt arising on acquisition:
Net cash outflow arising on acquisition (14.3)
Less: Borrowings acquired (2.9)
Less: Acquisition costs (0.6)
(17.8)
Acquisition related costs amounted to £0.6m and have been included in the
Income Statement.
The gross contractual value of the trade and other receivables was £4.2m. The
best estimate at the acquisition date of the contractual cash flows not
expected to be collected was £nil.
Deferred consideration of €4.0m is payable within 2 years.
The goodwill arising on acquisition has been allocated to the Europe and China
CGU and is expected to be deductible for tax purposes. The goodwill is
attributable to:
• the anticipated profitability of the distribution of the Group's
services in new markets; and
• the synergies that can be achieved in the business combination
including management, processes and maximising site capacities.
The business was acquired on 3 August 2022 and contributed £10.5m revenue and
£1.8m headline operating profit for the period between the date of
acquisition and the balance sheet date.
19. Business combinations (continued)
If the acquisition had been completed on the first day of the financial
period, the acquisition would have contributed £15.9m to Group revenue,
£2.7m to Group operating profit and £4.0m adjusted operating profit (after
adding back £0.7m for amortisation of acquired intangibles and £0.6m
acquisition costs).
During the year deferred consideration of £0.2m was also paid in relation to
the acquisition of the conveyor chain business of Brooks Ltd in the prior
year.
Total net cash outflow arising on acquisitions:
Industrias YUK S.A. (14.3)
Brooks Ltd (0.2)
(14.5)
Total increase in net debt arising on acquisitions:
Industrias YUK S.A. (17.8)
Brooks Ltd (0.2)
(18.0)
20. Prior period adjustments
Following a review of complex tax judgments looking back over a number of
years, a prior year adjustment of £1.3m has been identified relating to
errors in the recognition of deferred tax on certain intragroup and stock
consolidation adjustments. Included in this amount is the recognition of
deferred tax for losses following errors identified in the profitability
forecasts for which increased deferred tax can be ascribed. The prior year
adjustment to deferred tax is offset by an equal and opposite adjustment to
current tax arising in respect of an error identified in the Group's historic
transfer pricing calculation. A final adjustment has been identified in
relation to a deferred tax asset in respect of interest restriction of £1.2m
which should have been recognised historically to the extent it offsets the
deferred tax liability in the respective tax jurisdiction. The adjustment
recognises this deferred tax asset in the opening balance and opening reserves
of the Group.
The impact, on a line-item basis for those affected, on the Consolidated
Balance Sheet as at 31 March 2022 and 31 March 2021 is as follows:
2022 2021
Consolidated Balance sheet as at 31 March As previously reported Deferred / Current tax recognition 2022 As previously reported Deferred / Current tax recognition 2021
(restated) (restated)
£m £m £m £m £m £m
ASSETS
Non-current assets
Deferred tax assets 15.4 2.5 17.9 15.2 2.1 17.3
15.4 2.5 17.9 15.2 2.1 17.3
TOTAL ASSETS 195.1 2.5 197.6 188.7 2.1 190.8
LIABILITIES
Current liabilities
Current tax (2.8) (1.3) (4.1) (2.3) (0.9) (3.2)
(2.8) (1.3) (4.1) (2.3) (0.9) (3.2)
TOTAL LIABILITIES (189.3) (1.3) (190.6) (203.4) (0.9) (204.3)
NET ASSETS/(LIABILITIES) 5.8 1.2 7.0 (14.7) 1.2 (13.5)
EQUITY
Retained earnings (9.9) 1.2 (8.7) (78.2) 1.2 (77.0)
TOTAL SHAREHOLDERS' EQUITY 5.8 1.2 7.0 (14.7) 1.2 (13.5)
20. Prior period adjustments (continued)
During the year a prior adjustment was identified relating to various taxation
risks and deferred tax positions. This has been analysed as follows:
Brought forward 2020 2021 2022 Total
£m £m £m £m £m
Corporation tax - 0.3 0.4 0.6 1.3
Deferred tax - tax losses - - (0.6) (0.2) (0.8)
Deferred tax - movements in provisions and accruals - (0.2) (0.1) (0.2) (0.5)
Deferred tax - US s163(j) limitation (1.2) (0.1) 0.1 - (1.2)
Retained earnings 1.2 0.1 (0.1) - 1.2
- 0.1 (0.3) 0.2 -
These proposed adjustments arose over a period of time and individually no
year is materially impacted.
The corporation tax provision relates to transfer pricing risks.
The deferred tax balances relate to the recognition of losses in overseas
jurisdictions and a movement in provisions for centrally recognised
consolidation adjustments.
The US s163(j) limitation relates to an error on adoption of revised deferred
tax asset recognition criteria following publication of FASB accounting
standard codification (ASC) 740-10-30-2(b).
21. Alternative performance measures
In order to provide users of the accounts with a clear and consistent
presentation of the performance of the Group's ongoing trading activity, the
Group uses various alternative performance measures (APMs), including the
presentation of the income statement in a three-column format with 'Adjusted'
measures shown separately from statutory items. Amortisation of acquired
intangibles, restructuring costs, discontinued operations and material one-off
items or remeasurements are included in a separate column as management seek
to present a measure of performance which is not impacted by material
non-recurring items or items considered non-operational. Performance measures
for the Group's ongoing trading activity are described as 'Adjusted' and are
used to measure and monitor performance as management believe these measures
enable users of the financial statements to better assess the trading
performance of the business. In addition, the Group reports sales and profit
measures at constant exchange rates. Constant exchange rate metrics exclude
the impact of foreign exchange translation, by retranslating the comparative
to current year exchange rates.
The APMs used by the Group include:
APM Reference Explanation of APM
• adjusted operating profit A Adjusted measures are used by the Group as a measure of underlying business
performance, adding back items that do not relate to underlying performance
• adjusted profit before taxation B
• adjusted EPS C
• return on sales D
• operating profit gearing D
• revenue at constant exchange rates E Constant exchange rate metrics adjusted for constant foreign exchange
translation and are used by the Group to better understand year-on-year
changes in performance
• adjusted operating profit at constant exchange rates F
• adjusted return on sales at constant exchange rates G
• EBITDA H EBITDA is a widely utilised measure of profitability, adjusting to remove
non-cash depreciation and amortisation charges
H
• adjusted EBITDA H
• operating cash flow H
• net debt I Net debt, leverage and gearing are used to assess the level of borrowings
within the Group and are widely used in capital markets analysis
• leverage ratio J
• gearing ratio K
• legacy pension cash costs L The cost of legacy pensions is used by the Group as a measure of the cash cost
of servicing legacy pension schemes
• average working capital ratio M Working capital as a ratio of rolling 12-month revenue is used to measure cash
performance and balance sheet strength
21. Alternative performance measures (continued)
APMs are defined and reconciled to the IFRS statutory measure as follows:
(A) Adjusted operating profit
Year ended 31 March 2023
Chain Torque Transmission Head office costs and eliminations Consolidated
£m £m £m £m
Operating profit 26.5 5.4 (9.0) 22.9
Add back/(deduct):
Amortisation of acquired intangible assets 0.7 - - 0.7
Acquisition costs - - 0.6 0.6
Adjusted operating profit 27.2 5.4 (8.4) 24.2
Year ended 31 March 2022
Chain Torque Transmission Head office costs and eliminations Consolidated
£m £m £m £m
Operating profit 20.5 4.1 (8.4) 16.2
Add back/(deduct):
Amortisation of acquired intangible assets 0.1 - - 0.1
US PPP loan forgiveness (1.7) - - (1.7)
New lease arrangements on sublet properties - - 0.7 0.7
Adjusted operating profit 18.9 4.1 (7.7) 15.3
(B) Adjusted profit before taxation
2023 2022
£m £m
Profit before taxation 17.3 12.4
Add back/(deduct):
Amortisation of acquired intangible assets 0.7 0.1
Acquisition costs 0.6 -
US PPP loan forgiveness - (1.7)
New lease arrangements on sublet properties - 0.7
Adjusted profit before taxation 18.6 11.5
(C) Adjusted earnings per share
Adjusted EPS is reconciled to statutory EPS in Note 5.
(D) Return on sales and operating profit gearing
Year ended 31 March 2023
Chain Torque Transmission Head office costs and eliminations Consolidated
£m £m £m £m
Adjusted operating profit 27.2 5.4 (8.4) 24.2
Total revenue (including inter-segment sales) 202.4 48.8 (4.1) 247.1
Return on sales % 13.4% 11.1% - 9.8%
Year ended 31 March 2022
Chain Torque Transmission Head office costs and eliminations Consolidated
£m £m £m £m
Adjusted operating profit 18.9 4.1 (7.7) 15.3
Total revenue (including inter-segment sales) 159.2 40.4 (4.4) 195.2
Return on sales % 11.9% 10.1% - 7.8%
21. Alternative performance measures (continued) Year ended 31 March 2023
Chain Torque Transmission Head office costs and eliminations Consolidated
£m £m £m £m
Adjusted operating profit - 2023 27.2 5.4 (8.4) 24.2
Adjusted operating profit - 2022 18.9 4.1 (7.7) 15.3
Year-on-year change in adjusted operating profit (a) 8.3 1.3 (0.7) 8.9
Total revenue (including inter-segment sales) - 2023 202.4 48.8 (4.1) 247.1
Total revenue (including inter-segment sales) - 2022 159.2 40.4 (4.4) 195.2
Year-on-year change in total revenue (b) 43.2 8.4 0.3 51.9
Adjusted operating profit gearing % ((a)/(b)) 19% 15% n/a 17%
Year ended 31 March 2022
Chain Torque Transmission Head office costs and eliminations Consolidated
£m £m £m £m
Adjusted operating profit - 2022 18.9 4.1 (7.7) 15.3
Adjusted operating profit - 2021 13.6 5.0 (7.2) 11.4
Year-on-year change in adjusted operating profit (a) 5.3 (0.9) (0.5) 3.9
Total revenue (including inter-segment sales) - 2022 159.2 40.4 (4.4) 195.2
Total revenue (including inter-segment sales) - 2021 130.0 39.1 (3.8) 165.3
Year-on-year change in total revenue (b) 29.2 1.3 (0.6) 29.9
Adjusted operating profit gearing % ((a)/(b)) 18% -69% n/a 13%
(E), (F) & (G) Revenue, adjusted operating profit and adjusted operating
profit margin at constant exchange rates
Year ended 31 March 2023
Chain Torque Transmission Head office costs and eliminations Consolidated
£m £m £m £m
External customer - transferred at a point in time 201.5 43.4 - 244.9
External customer - transferred over time - 2.2 - 2.2
Inter-segment 0.9 3.2 (4.1) -
Foreign exchange retranslation (12.5) (2.8) - (15.3)
Revenue at constant exchange rates 189.9 46.0 (4.1) 231.8
Adjusted operating profit 27.2 5.4 (8.4) 24.2
Foreign exchange retranslation (1.6) (0.3) 0.1 (1.8)
Adjusted operating profit at constant exchange rates 25.6 5.1 (8.3) 22.4
Return on sales at constant exchange rates % 13.5% 11.1% - 9.7%
21. Alternative performance measures (continued)
(H) EBITDA, adjusted EBITDA (earnings before interest, taxation, depreciation
and amortisation) and operating cash flow
2023 2022
£m £m
Statutory operating profit from continuing operations 22.9 16.2
Depreciation and amortisation 11.1 9.5
Share-based payments 1.3 1.1
EBITDA(1) 35.3 26.8
Deduct:
Loss on disposals of plant & equipment 0.3 -
Acquisition Costs 0.6 -
US PPP loan forgiveness - (1.7)
New lease arrangements on sublet properties - 0.7
Adjusted EBITDA(1) 36.2 25.8
Inventories (Note 11) (4.5) (9.5)
Trade and other receivables (Note 12) (2.8) (4.5)
Trade and other payables (Note 15) (4.2) 13.7
Provisions (Note 16) 1.0 0.1
Movement in working capital (10.5) (0.2)
Purchase of property, plant and equipment (Consolidated Statement of Cash (7.0) (4.1)
Flows)
Purchase of intangible assets (Consolidated Statement of Cash Flows) (1.4) (1.2)
Proceeds from property disposals - 0.2
Net capital expenditure (8.4) (5.1)
Operating cash flow 17.3 19.4
(1) The calculation of EBITDA, adjusted EBITDA and operating cash flow
deliberately excludes an add back for the non-cash share-based payment charge
of £1.3m for the year (2022: £1.1m). This is done in order to ensure
consistency with the metrics used to assess performance against the annual
bonus plan targets.
(I) Net debt
Net debt is reconciled to the statutory balance sheet in Note 17.
(J) Leverage ratio
2023 2022
£m £m
Net debt (Note 17) 29.8 13.8
Adjusted EBITDA 36.2 25.8
Leverage ratio 0.8 times 0.5 times
(K) Gearing ratio
2023 Restated(1)
2022
£m £m £m £m
Net debt (Note 17) 29.8 13.8
Equity attributable to equity holders of the parent 39.1 7.0
Net debt (Note 17) 29.8 13.8
Total capital plus net debt 68.9 20.8
Gearing ratio % 43% 66%
(1) The results for the year ended 31 March 2022 have been restated. Refer to
Note 20 for details of the restatements.
(L) Legacy pension cash costs
2023 2022
£m £m
Cash contributions to pension schemes 4.6 3.7
Pension payments in respect of unfunded schemes 1.2 1.1
Scheme administration costs 0.7 0.7
6.5 5.5
21. Alternative performance measures (continued)
(M) Average working capital ratio
2023 2022
£m £m
Inventories 61.8 48.4
Trade and other receivables 43.5 35.7
Trade and other payables (57.2) (48.5)
Total working capital 48.1 35.6
Average working capital(1) (a) 41.9 36.1
Revenue (b) 247.1 195.2
Average working capital ratio ((a)/(b)) 17% 18%
(1) Calculated as a simple average of the opening and closing balance sheet
working capital.
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