Renault Annual Report 1999

Plain-text annual report

cover_new 30/6/99 1:18 pm Page 2 A n n u a l R e p o r t 1 9 9 9 55643PRE 30/6/99 10:52 am Page i Contents Financial Summary Directors and Ofﬁcers Chairman’s Statement Chief Executive’s Review Financial Review Report of the Directors Corporate Governance Remuneration Report Statement of Directors’ Responsibilities Report of the Auditors 1 2 4 6 11 13 16 18 21 21 Accounting Policies Group Proﬁt and Loss Account Balance Sheets Group Cash Flow Statement Other Group Statements Notes on the Accounts Principal Subsidiary Companies Group Five Year Financial Review Notice of Meeting Financial Calendar 22 24 25 26 27 28 41 42 43 45 Renold manufacturing operations Renold sales locations Renold overseas distributors Principal Activities Renold plc is an international engineering group, producing a wide range of precision engineering products, and owning manufacturing and merchanting operations in seventeen countries. The Group’s principal products include transmission and conveyor chains; gearboxes and mechanical variable speed drives; clutches, couplings and spindles; specialist machine tools and compressor rotors. 55643PRE 30/6/99 10:52 am Page 1 Financial Summary for the ﬁnancial year ended 3 April 1999 Turnover Trading proﬁt before exceptional redundancy and restructuring costs Proﬁt before tax and before exceptional redundancy and restructuring costs Proﬁt before tax Adjusted earnings per share Basic earnings per share Dividends per ordinary share, paid or proposed Capital expenditure Net cash 1999 £m 1998 £m 171·6 183·6 14·0 14·2 12·4 13·5p 11·1p 9·25p 11·3 10·8 22·4 22·5 22·5 25·7p 25·7p 9·0p 9·6 22·3 Turnover £ m Profit before tax £m Basic earnings / dividends Pence per share 25 20 15 10 5 0 22.5 21.5 18.7 Basic earnings Dividends 30 25 20 25.7 22.7 20.8 11.6 12.4 15 13.6 10 5 0 11.1 9.0 9.25 8.0 7.0 4.5 95 96 97 98 99 95 96 97 98 99 200 150 148.7 179.3 180.3 183.6 171.6 95 96 97 98 99 100 50 0 1 55643PRE 30/6/99 10:52 am Page 2 Directors for the ﬁnancial year ended 29 March 1997 Standing (l to r): Tim Fortune, Ronnie Kershaw, Mark Smith, Ian Trotter. Seated (l to r): John Allan, Roger Leverton, David Cotterill Roger Leverton (age 60) Chairman was appointed a non-executive Director in October 1998 and became Chairman in December 1998. He is also Chairman of engineering group Haden MacLellan Holdings plc, Chairman of Betts Group Holdings Limited, a non-executive Director of Smiths Industries plc and was previously Group Chief Executive of Pilkington plc from 1992 to 1997. Tim Fortune (age 60) Non-Executive Director was appointed to the Board in 1997. He is also Chairman and was formerly Chief Executive of Spirax-Sarco Engineering plc. Mark Smith (age 60) Non-Executive Director was appointed to the Board in 1994. He is also a Director of The Laird Group PLC, the Bradford & Bingley Building Society and was formerly a Director and Vice Chairman of S G Warburg & Co Ltd. David Cotterill (age 56) Chief Executive joined the Group and was appointed Chief Executive in 1992. An MBA, he was previously an executive Director of Fenner PLC and Senior Engineering plc. He is a non-executive Director of British Vita PLC. John Allan (age 58) Finance Director joined the Group and was appointed a Director in 1987. A chartered accountant, he was previously Finance Director of Mardon Packaging International Limited, an operating group of B.A.T Industries plc. Ronnie Kershaw (age 53) Managing Director – Engineering Products Businesses joined the Group in 1962 and was appointed a Director in 1997. A chartered engineer, he has held a number of senior management positions within the Group including the post of Managing Director of the Holroyd Machine Tool business 1982- 1997. Ian Trotter (age 55) Managing Director – Chain Businesses joined the Group and was appointed a Director in 1991. A chartered engineer, he had previously held senior management positions within ACI Limited and Trinova/Vickers Systems Limited. 2 55643PRE 30/6/99 10:52 am Page 3 Directors and Ofﬁcers for the ﬁnancial year ended 29 March 1997 Chairman R F Leverton (appointed a Director 19 October 1998 and Chairman 4 December 1998) Executive Directors D Cotterill Chief Executive J H B Allan Finance Director R B Kershaw I R Trotter Non-Executive Directors T B Fortune M A Smith Composition of Board Committees Nomination Committee R F Leverton (Chairman) D Cotterill T B Fortune M A Smith Remuneration Committee R F Leverton (Chairman) T B Fortune M A Smith Merchant Bankers J Henry Schroder & Co Limited Stockbrokers Warburg Dillon Read Registrar Northern Registrars Limited Northern House Penistone Road Fenay Bridge Huddersﬁeld HD8 OLA Telephone: +44 (0)1484 606664 Audit Committee M A Smith (Chairman) T B Fortune R F Leverton Company Secretary G R Newton Registered ofﬁce Renold House Styal Road Wythenshawe Manchester M22 5WL Registered No. 249688 Telephone: +44 (0)161 437 5221 Fax: +44 (0)161 437 7782 E-mail: enquiry@renold.com Website: www.renold.com Auditors PricewaterhouseCoopers, Manchester 3 55643PRE 30/6/99 10:52 am Page 4 Chairman’s Statement for the ﬁnancial year ended 29 March 1997 This is my ﬁrst report to shareholders since I became Chairman of Renold last December. It has been a challenging year for the Group, with market conditions more difﬁcult than have been experienced for several years, and this has led to lower results in line with market expectations. Proﬁt before tax (and before redundancy and restructuring costs of £1·8 million) was £14·2 million (1997/8 - £22·5 million) on a turnover of £171·6 million (1997/8 - £183·6 million). Adjusted earnings per share were 13·5 pence (1997/8 - 25·7 pence), after a higher tax charge than last year. The Board is recommending the payment of a ﬁnal dividend of 6·15 pence per share, up from 5·9 pence per share last year. Together with the interim dividend of 3·1 pence per share paid on 29 January 1999 as a Foreign Income Dividend (“FID”), this gives total dividends for the year of 9·25 pence per share which represent an increase of 2·8% compared with dividends of 9·0 pence per share paid last year. The total dividend is covered 1·5 times by adjusted earnings. The Group’s effective tax rate has increased from 22% last year to 38% this year. Last year’s tax rate beneﬁted from a credit of £0·8 million relating to the 1996/7 ﬁnal dividend, and from payment of both interim and ﬁnal dividends for 1997/8 as FIDs, and without these beneﬁts the rate would have been 32%. This year the rate has increased mainly due to accelerating UK taxable income into 1998/9 to utilise surplus Advance Corporation Tax prior to its abolition on 6 April 1999. This will beneﬁt future years, and it is expected that the underlying tax rate for the current year will fall to around 30%. The Group’s strategy is to develop a number of related businesses producing a wide range of precision engineered products, which have a strong international market share and technological leadership, where the barriers of entry are high for potential competitors and where there is price leadership in the market. Emphasis on developing these businesses in growth markets and 4 with growth customers is key to the success of the Group. Investment will be focused continually to reduce costs and improve products in order to strengthen proﬁt growth, and we shall search for new businesses to acquire which have similar product technology and market characteristics to our own. In line with this strategy, the Group purchased Jones & Shipman p.l.c. on 31 December 1998 for £12·1 million including acquired borrowings. Jones & Shipman designs and manufactures a wide range of precision grinding and superabrasive machine tools for customers in the aerospace, automotive, defence and many other industries. It complements our existing machine tool business, Holroyd, which supplies sophisticated milling and thread grinding machines principally into the screw compressor market. The combined product range of Jones & Shipman and Holroyd provides a comprehensive portfolio of world class grinding machines and an international customer service network, which will allow the Group to target a much larger market for machine tool sales. Performance in our main geographical regions was mixed. In the UK, trading conditions were weak throughout most of the year, with demand depressed by the continued strength of the pound and the impact of economic weakness in South East Asia. Prompt action was taken to address all areas of cost, including reductions in the UK workforce, mainly in the Engineering Products businesses. Demand was particularly weak in the third quarter exacerbated by customer destocking, but since the turn of the year the UK businesses have shown some signs of recovery. Despite the general buoyancy of the American economy, sales to our customers in the USA suffered from the “knock-on” effects of the problems in South East Asia. In contrast, our important businesses in mainland Europe performed well and achieved sound growth supported by healthy order books. The Chain businesses achieved encouraging sales and proﬁt growth in the operations in mainland Europe. Demand for automotive cam drive systems for new engine models increased rapidly, and will continue to rise this year, with a new system for a world engine for a major US customer entering production. Substantial investment is being made in additional production capacity at Calais to satisfy this demand. The German business achieved record sales and proﬁts, with exports particularly buoyant, and the merchanting businesses 55643PRE 30/6/99 10:52 am Page 5 Chairman’s Statement for the ﬁnancial year ended 29 March 1997 throughout Europe performed well, with Benelux and Switzerland outstanding. In contrast, the UK market was depressed, as the strength of the pound and weak economic conditions in the Far East reduced export prospects and led to lower domestic demand. Despite this, the UK chain business earned sound, although lower, proﬁts. The Engineering Products businesses, which are predominantly UK based, were particularly affected by the slowdown in both home and export markets. Rapid action was taken to reduce costs signiﬁcantly. The Holroyd machine tool and rotor business experienced a shortage of new major customer projects until, in March 1999, Holroyd won its largest ever order for a machine tool package, for a North American airconditioning manufacturer. Immediately following their acquisition, and in line with our initial plans, the Jones & Shipman businesses were restructured and their cost base substantially reduced, at a cost of £0·7 million. Since acquisition, orders have been won for the new Dominator grinding machines for the UK aerospace industry. The Milnrow gear box business also suffered from the lack of large capital projects, but the UK coupling businesses had a satisfactory year, with Hi-Tec Couplings in Halifax again achieving higher sales and proﬁts. In North America, the distribution businesses performed well, but the large couplings manufacturing business, after a strong ﬁrst half, suffered from a downturn in demand from the US steel industry. Elsewhere the businesses in Australasia, the Far East and South Africa continued to be affected by weak economic conditions. However, during the latter part of the year, orders for several large projects were taken in Australia and New Zealand, and these will beneﬁt the current year. Capital spending at £11·3 million was 18% up on last year. This included additional production capacity for the automotive systems business and further investment at Holroyd in the dedicated rotor manufacturing cell for a major US customer, as well as the continual updating of production facilities in other businesses. Operating cash ﬂow remained healthy at £23.8 million and, despite this substantial capital investment and the purchase of Jones & Shipman in the year, the Group balance sheet continues to be strong, with net cash of £10·8 million at the year end. 5 The Group’s stand at Hannover Messe 1999 – an important meeting place for customers from around the world Directors I was appointed to the Board on 19 October 1998 and became Chairman on 4 December 1998, following the retirement of Peter Frost. Peter, who had been a non- executive director of Renold since 1984 and Chairman since 1986, took over the chairmanship at a time when the Group was in serious difﬁculties, and made a signiﬁcant contribution to the resurgence of Renold as a leading precision engineering group. Rab Telfer, who was also appointed a non-executive director in 1984, retired on 20 November 1998. Rab always provided the Board with sound advice and guidance, and made a valuable contribution to the progress of the Group. Employees During my visits to a number of the Group’s businesses in the UK and Europe, I have been impressed by the commitment and dedication of employees at all levels. This has been a difﬁcult year for many of them, and their response has been admirable. Prospects Trading conditions continue to be mixed. Whilst the UK market is still depressed by the strength of sterling against the Euro, our businesses in mainland Europe remain robust. In the current year exports to North America are growing and there are the ﬁrst signs of recovery in Australasia and the Far East. With beneﬁts from the Group’s lower cost base and a clear indication of a bottoming out in order intake, we expect to see a steady improvement in performance as the year progresses. Roger Leverton 55643PRE 30/6/99 10:52 am Page 6 Chief Executive’s Review for the ﬁnancial year ended 29 March 1997 What a tough year! Although total sales fell by 9% on a direct comparison with the 1997/8 ﬁnancial year, sales by the UK businesses dropped by 20%. Unfortunately this led to over 200 employees being made redundant in the UK, 14% of the workforce. The UK manufacturing operations felt the full impact of the strength of the pound. In addition we underestimated the consequences of the turmoil in the Far East economies to ourselves and also to large customers in the UK and the USA. One by one customers cut forward order schedules from normal to zero whilst they re-balanced inventories or readjusted to the fall in demand. The fall in demand was particularly noticeable in the second and third quarters of the year and UK orders fell year on year by over 25% for three consecutive months. Happily, in the last quarter, there was some recovery in orders and rebuilding of the order book. On the credit side, prompt action was taken to address the situation. Cut backs were instigated quickly and inventories reduced in proportion to the fall in sales. Some customers attempted to stretch their payment timings, but overall working capital fell more than the drop in sales and cash management systems once again proved resilient to market ﬂuctuations. Despite the increase in capital expenditure to £11·3 million in the year and the purchase of the Jones & Shipman businesses, year end net cash was nearly £11 million. The highlight of the year was an excellent performance from the German chain business. Whilst domestic sales were never buoyant, exports rose signiﬁcantly, helped by the weakness of the deutschmark, and beneﬁts were realised from recent investment in new automatic process, heat treatment and assembly equipment, as well as from better work ﬂows. The net result has been an encouraging increase in factory efﬁciency and more improvements are planned this year, the ninetieth anniversary of the operation. Proﬁts were well ahead and the return on trading assets was above 25%. The Calais plant celebrated its centenary last year and, one hundred years after Arthur Brampton, a Birmingham engineer, established a cycle chain factory in Calais, he would have been proud to have seen the display of modern cars and automotive engines which 6 are now synchronised by sophisticated Renold Automotive timing systems. He would have taken great satisfaction from seeing the design engineering and engine test facilities, as well as witnessing the skills of enthusiastic engineers at the open day which formed the centre piece of the celebrations. As luck would have it the celebrations came at a time of peak demand on the factory. Sales of automotive systems increased by almost 40% to record levels during the year and the manufacture of chain for the industrial market was switched to other plants to relieve the extreme pressure on the Calais facility. Actual demand from automotive customers was some 50% higher than the forward projections on which our investment plans had been based. As a consequence proﬁtability suffered from excess overtime at weekends and through the holidays, and from increased machine breakdowns. Although investment plans were accelerated, the lead time for new equipment is on average six months. Nearly £3 million of new equipment was installed during the year, but proﬁts only started to beneﬁt from this investment during the last quarter. Further investment in new heat treatment, bush curling and assembly equipment is being made in the current year, some of which is being built in other Group factories. This should lead to greater production efﬁciencies and increased proﬁtability. The other much smaller “Brampton” factory at Seclin had a more stable year. Demand for its heavy duty conveyor chain was not strong and proﬁts suffered Fully automated handling systems rely on Renold chains 55643PRE 30/6/99 10:52 am Page 7 Chief Executive’s Review slightly. Orders for industrial chain in the French market were static, although there were one or two successes in new market areas. Orders for chain in the UK fell by more than 20% during the year but, like our other UK businesses, the greatest fall was in the second and third quarters of the year and the order position had improved by the year end. The factories were cushioned from the worst of the fall in UK orders by demand from overseas, particularly for Europe. Nevertheless employee numbers had to be cut back to maintain efﬁciency. Whilst the fall in proﬁtability was signiﬁcant, proﬁt remained at a healthy level. This was not the case in our other power transmission manufacturing plants in the UK. The Halifax Hi-Tec coupling plant was the exception, enjoying another excellent year following large orders won in the previous year. £1 million has been spent on two large machining centres which greatly improved manufacturing efﬁciency. Order intake was more modest but should lead to another satisfactory performance this year, albeit lower than last year’s record level. The other UK manufacturing businesses had a torrid time. The economic problems in the Far East hit Holroyd and the Gears businesses directly, and Holroyd’s air conditioning OEM customers in the USA were also severely affected by the cutback in new construction in their Asian markets. Both Gears and Manifold suffered from the strength of the pound in sales to “Euroland” where either margins had to be sacriﬁced or business was lost. In addition UK customers’ own activity suffered as exporters were squeezed by the pound’s strength, whilst distributors destocked as the UK manufacturing economy hit the doldrums. Following the compulsory purchase of its leased site, Manifold is being relocated to a modern new factory at Loughton, Essex. The Cardiff couplings business and the Bradford hydraulics and variators business had similar tales of woe. In total UK proﬁts fell £8·4 million compared with the previous ﬁnancial year. Despite the setback in demand capital investment continued in the UK businesses and plans are in place for further investment in the current year to improve the quality speciﬁcation of our products, and to further improve manufacturing efﬁciency. The small European resale businesses had a very satisfactory year. In by no means buoyant market conditions a modest increase in sales produced a 22% increase in proﬁts. The Austrian, Benelux and Swiss businesses were the star performers but once again more than useful proﬁts were generated by the Danish and Swedish businesses. 7 A 25-tonne Renold Hi-Tec coupling being installed at Mannesmann’s steel works in Germany Sales in North America fell in the year, and a signiﬁcant drop in demand in the third quarter affected second half results. The biggest fall in orders came from steel manufacturing customers where the impact of the collapse of the value of Asian currencies led to greater competition from Asian steel mills, and then to a temporary standstill in orders. The situation eased considerably in the fourth quarter with orders 10% higher than in the same quarter last year. Renold Power Transmission Corporation, the resale business for the USA based in Cincinnati, made good inroads into the US escalator and elevator market and, after its rapid growth over the past four years, is being relocated into larger premises. The Renold Ajax coupling factory at Westﬁeld, upper New York State, has been modernised with virtually all its machine tools either new or refurbished during the past four years. In the ﬁrst half of the year large sales were made to the steel industry and in the second half orders were won for couplings for mass transit railway systems. The Canadian resale business produced another solid performance to mark the retirement of the MD, Keith Bank, after 43 years’ service with the Group. In his ﬁve year stint as MD he produced record sales and proﬁts, and Renold Canada won our “Top Business of the Year” award in two of those years. We thank Keith for his signiﬁcant contribution to the Group. For most of the year the Australian, New Zealand, Malaysian, Singaporean and the South African businesses had a tough time. Orders and sales fell from the lows of the previous year and much of the year was spent in cost cutting and retrenchment. However, there was an upturn in orders in Australia and New Zealand in the 55643PRE 30/6/99 10:52 am Page 8 Chief Executive’s Review continued second half which started to ﬂow through into proﬁts by the ﬁnal month of the year. Both businesses ended the year with much healthier order books than the previous year. There were encouraging signs, also, in Malaysia and Singapore which produced good results in the difﬁcult trading environment. In South Africa, there has been a major restructuring of the business, consolidating operations in the facility in Johannesburg with a 40% reduction in employee numbers. The acquisition of Jones & Shipman p.l.c. and its ﬁt with Holroyd The Holroyd machine tool business is a great strength within the Renold Group. Holroyd has consistently produced excellent results even when other core businesses were struggling. Although Holroyd had a difﬁcult year we believe that this is an exception. It is a niche business specialising in machine tools for volume production of helical forms with consistent high accuracy. Its markets are very focused - screws for pumps for air conditioning, chilling, vacuums, and superchargers. It has developed from high speed milling to high speed grinding, but has not yet been able to expand its customer base successfully into other end use markets. Jones & Shipman manufacture a wide range of cylindrical and creepfeed grinding machines Jones & Shipman, which was acquired on 31 December 1998, produces high speed grinding machines for volume production of specialist components for specialist markets - turbine blades, medical instruments, high accuracy automotive components. Holroyd’s machine tools can also be sold 8 Edgetek Machine Corporation manufacture a range of superabrasive machining and turning systems to Jones & Shipman’s customers, and Jones & Shipman’s machines can be sold to Holroyd’s customer base. The two businesses also complement each other geographically, Holroyd is strong in the Far East whereas Jones & Shipman is stronger in Europe - each business has its own selling organisation in these areas. Both have in-house sales and service facilities in the USA. Virtually every Jones & Shipman and Holroyd machine tool in the current range has been developed in the past ﬁve years. Jones & Shipman has world class products in cylindrical, surface and superabrasive grinding. Jones & Shipman is a strong brand, with technical leadership and a high market share in the markets in which it operates. Its focus on aerospace and industrial turbine rotor manufacturing ﬁts the Renold strategy of focusing products on growth customers in growth markets. 55643PRE 30/6/99 10:52 am Page 9 Chief Executive’s Review of introducing these new systems speedily. Since then everyone caught the train, enjoyed their ﬁrst journey, and today Renold has an impressive Group-wide Intranet communication system, as well as a growing reputation for an effective position on the Internet. The Group can now communicate speedily and exploit an ever growing amount of database information around the world. In this respect I mentioned last year that the Bredbury chain factory was quoted as a reference by IBM/Lotus for the use of Lotus Notes® in a manufacturing environment. The use of this electronic network system is now being exploited in all areas of the business for sharing technical information, product development, customer trends, health and safety issues, as well as important ﬁnancial data. During the year we received our ﬁrst orders through the Internet via our website www.renold.com and we are committed as an organisation to develop such facilities to the ‘outside world’, as well as to customers and suppliers. Two major preoccupations during the year have been the introduction of the ‘Euro’ (and making sure systems could cope) and dealing with problems associated with the year 2000 - the so-called millennium bug. The introduction of the Euro has caused no real problems. Many of our larger customers have already insisted that they are invoiced in and pay in Euro. In addition, beneﬁts have been realised from our ability to use the Euro for intra Group ﬁnancing without any currency risk exposure. Most of the new computer systems to replace non-compliant year 2000 systems are up and running. The remainder are due to be in place over the next few months. As a result of all the effort to overcome the impact of the “bug” we are beneﬁting from the introduction of new state of the art computer systems in various operations. www.renold.com – the Group’s internet website home page Holroyd’s new TG150E thread grinding machine with a fully automated component loading system Last year, Jones & Shipman experienced a downturn in orders which exposed its fragile cash resources after a period of heavy R&D expenditure and product launch costs, and this presented Renold with the acquisition opportunity. Jones & Shipman had bought a superabrasive machine tool business, Edgetek Machine Corporation, in the USA during a period of market strength in the previous year, and also has an interesting operation in Goodwin Electronics, which will strengthen the control system technology available to the machine tool businesses. Following acquisition the cost base of the Jones & Shipman businesses was reduced, resulting in 20% of the workforce being made redundant. By the end of the year the Jones & Shipman International operation based at Leicester had made good progress, but the smaller Edgetek operation continues to require considerable management attention. With only a gentle upturn in machine tool orders the Jones & Shipman businesses should make a signiﬁcant contribution to Group proﬁts. “E” and “I” Communication Until a year ago Renold’s approach to electronic communications was fragmented. Only two or three of our businesses had developed electronic network communications systems, following the installation of new computer systems. Two years ago senior executives attended courses of telecommunications providers and were impressed by the speed of growth of such systems. It was clear that Renold, as a total organisation, had to be on the “E” (electronic) and “I” (Internet and Intranet) trains quickly. Some changes were made in the organisation to reﬂect the importance 9 55643PRE 30/6/99 10:52 am Page 10 Chief Executive’s Review continued Installation of Renolube chain on one of Merseyrail’s public escalators It is disappointing to have had to make such a large number of employees redundant during a year when trading conditions have been so difﬁcult. Nevertheless at the same time a great deal of investment has been made in people, whether it be in training or in making the working environment a better and safer place. Health and safety issues have moved up the agenda over the past two years, not just because of legislation, but because of the serious commitment of employers to a safe and healthy working environment. Capital expenditure has underwritten this commitment. On the training front two UK factories are being assessed for Investors in People accreditation over the next few months. Links have been strengthened with local schools and colleges, and we continue to support research programmes at a number of universities. The investment in product development continues. A new specialised thread grinding machine is being developed by Holroyd. The Gears business is introducing a new range of gearboxes. Hi-Tec Couplings has introduced a new range of rubber to metal bonded 10 couplings for use with large diesel engines. Two new exciting chain derivatives are currently under test. The automotive systems business is constantly working on new system designs for the world’s auto makers. Jones & Shipman has just completed a massive upgrade of its total product range and, with the superabrasive techniques from Edgetek, offers to customers in the aerospace, medical and automotive industries up to tenfold productivity gains in the precision production machining of components. Has the strategy failed? A 9% drop in sales would suggest so. Unfortunately recent successful growth market sectors such as information systems, ﬁnancial services and medical care do not consume many chains or other power transmission products. Other growth areas like pharmaceuticals and oil which do use Renold products have been subject to consolidation and plant closures. Only the automotive industry has provided signiﬁcant growth opportunities, from which we have beneﬁted with new product launches by particular target customers. Other target areas such as escalator, elevators, mass transit railway systems, fork lift trucks, automatic warehousing, packaging equipment, theme leisure park equipment and particularly air conditioning and chilling all suffered pauses and declines from their strong growth patterns of the previous ﬁve years. Much of the decline can be attributed to the problems in the Far Eastern economies. Indeed sales to the palm oil processing market remained at the same level as the previous year after ﬁve years of 20% compound growth. After the gloom of the year under review there is more optimism running through the organisation. The ﬁrst half of last year was notable for its lack of project orders whereas towards the end of the year signiﬁcant orders were received for new steriliser installations, major escalator projects, and a major order for a manufacturing cell for a US air conditioning OEM. At the same time the pace of orders is increasing from the Far East and Australasia. The beneﬁt of this increase in orders should start to be felt by the second quarter of the current year. The strategy is intact. The growth customers have paused and consolidated, but their long term growth will endure, as will that of the Renold Group. David Cotterill 55643PRE 30/6/99 10:52 am Page 11 Financial Review Proﬁt and loss account Sales turnover was £171·6 million compared with £183·6 million last year. Excluding the contribution from the Jones & Shipman businesses, which were acquired on 31 December 1998, this was 9% lower than the previous year. In difﬁcult market conditions lower sales by our UK businesses, and by the operations in Australasia and the Far East, were partly offset by the signiﬁcant growth of the Automotive Systems business in Calais, and by a good performance from the Group’s other European businesses. In North America, after a strong ﬁrst half, demand turned down as the US steel industry suffered from import penetration by Asian manufacturers. Trading proﬁt before exceptional redundancy and restructuring costs was £14·0 million, compared with £22·4 million in 1997/8, including a loss of £0·3 million by the Jones & Shipman businesses following acquisition. Operating margins, for the ongoing businesses, were 8·5%, compared with 12·2% last year. The trading proﬁt by geographical region of operation, shown in Note 1 to the Accounts, shows the impact on UK proﬁts of the weakness in UK domestic and export markets; demand in the third quarter was particularly weak, but was followed by an encouraging improvement in the ﬁnal quarter. In Germany proﬁts rose to a new record level, and there were gains in France and in the rest of Europe. North America was below last year’s good performance, and proﬁts in the rest of the world (Australasia, Far East and South Africa) were adversely affected by the economic conditions. Exceptional redundancy costs of £1·1 million were incurred in the ongoing businesses, largely in the UK, as prompt action was taken to reduce employment levels in line with demand. Immediately following the acquisition of Jones & Shipman, £0·7 million was spent restructuring the organisation and reducing the size of the workforce. The Group’s return on average trading assets remained healthy at 17·1%, although this was down on the record level of 27·9% achieved last year. Net interest receivable was £0·2 million, up from £0·1 million in 1997/8. Proﬁt before tax for the year, before the redundancy and restructuring costs, was £14·2 million compared with £22·5 million last year. The taxation charge amounted to £4·7 million, representing an effective rate of 38%, compared with 22% in the previous year. Last year’s tax rate beneﬁted from a credit of £0·8 million relating to the 1996/7 ﬁnal dividend, and from payment of both interim and ﬁnal 11 dividends for 1997/8 as FIDs, and without these beneﬁts the rate would have been 32%. This year the rate has increased mainly due to the decision to accelerate UK taxable income into 1998/9 to utilise surplus Advance Corporation Tax prior to its abolition on 6 April 1999. This decision will beneﬁt the tax rate in future years, and it is expected that the underlying tax rate for the current year will fall to around 30%. Reported proﬁt after tax was £7·7 million compared with £17·6 million last year. Adjusted for the exceptional redundancy and restructuring costs, this represents earnings per share of 13·5 pence, compared with 25·7 pence earnings per share last year. The total dividends paid and proposed of 9·25 pence per share represent an increase of 2·8% over the dividends paid last year, and are 1·5 times covered by adjusted earnings. The world’s leading material handling specialists rely on Renold fork lift truck chains The principal funding for the Group in the UK is through unsecured term loans and overdraft facilities with our clearing banks, whilst overseas subsidiaries have borrowing facilities with their local banks. The undrawn committed borrowing facilities are more than adequate to meet the foreseeable requirements of the Group. The exposure to interest rate ﬂuctuations on the UK term loans of £5·7 million has been managed by using interest rate swaps. The weighted average interest rate at 3 April 1999 on these loans, after taking account of interest rate swaps arranged in May 1995, was 9·2% per annum. Whilst the swaps were ﬁxed when interest rates were substantially higher than at the present time, these ﬁxed rates have a weighted average period in excess of a further seven years. Cash deposits are placed short term with banks where security and liquidity are the primary objectives. A major exposure of the Group relates to currency risk on its sales and purchases made in foreign (non- functional) currencies, and to reduce such risks these transactions are covered, as commitments are made, primarily by forward foreign exchange contracts. Such commitments generally do not extend much further than two to three months beyond the balance sheet date, although exceptions can occur in the machine tool businesses and elsewhere where longer term projects are entered into. John Allan 55643PRE 30/6/99 10:52 am Page 12 Financial Review continued Balance sheet Goodwill of £2·9 million arose on the acquisition of Jones & Shipman p.l.c.; in accordance with Financial Reporting Standard (FRS) 10, this has been capitalised and will be amortised over a 20 year period. Group Trading Assets at year end were £89·7 million, up £10·8 million from the previous year, mainly due to the acquisition of Jones & Shipman. Fixed assets were £7·8 million higher; capital expenditure of £11·3 million was some 1·5 times depreciation of £7·5 million and £3·3 million of assets were acquired with Jones & Shipman. Shareholders’ funds increased from £86·0 million to £88·7 million, due to retained proﬁt of £1·3 million and new share issues of £0·7 million, and a £0·7 million gain on exchange translation of the net assets of the overseas subsidiaries. Cash ﬂow and borrowings Cash ﬂow from operating activities remained strong at £23·8 million, compared with £29·2 million in the previous year. Tight control was maintained on working capital which was £3·8 million down, broadly in line with the lower level of activity. Payments for ﬁxed assets amounted to £11·5 million, whilst tax and dividends cost £12·7 million. The Jones & Shipman group was purchased for £5·7 million, ﬁnanced from the Group’s cash resources; in addition we assumed £6·4 million of Jones & Shipman’s own borrowings. After these substantial investments, the Group’s balance sheet still remained healthy, with cash, net of borrowings and ﬁnance lease liabilities, of £10·8 million at the year end, although down on last year’s level of £22·3 million. Treasury and ﬁnancial instruments The Company has adopted FRS 13 – Derivatives and Other Financial Instruments, for 1998/9. Numerical disclosures, in accordance with that standard, are set out in Note 25 on pages 39 and 40. Additional commentary concerned with these disclosures is made below. The Group Treasury policy, approved by the directors, is to manage its funding requirements and treasury risks without undertaking any speculative risks. The Group does not use ﬁnancial derivatives to hedge currency translation exposure on its investments in overseas subsidiaries. Except for the arrangements referred to below for the management of foreign currency and interest rate risks, the Group has not made use of ﬁnancial derivatives. 12 55643PRE 30/6/99 10:52 am Page 13 Report of the Directors for the ﬁnancial year ended 3 April 1999 To be presented to the sixty-ninth Annual General Meeting of Renold plc to be held at Renold House, Styal Road, Wythenshawe, Manchester M22 5WL on Friday, 23 July 1999 at 2.30 p.m. The Notice of Meeting is included on pages 43 and 44. Group results The proﬁt for the year on ordinary activities before tax was £12·4 million compared with £22·5 million for the previous year. After taxation, the proﬁt attributable to ordinary shareholders was £7·7 million compared with £17·6 million last year. There was a retained proﬁt of £1·3 million after charging the cost of dividends of £6·4 million. Last year there was a retained proﬁt of £11·4 million after dividends of £6·2 million. The principal activities of the Group are set out on the inside front cover and a review of the development of the business is contained in the Chief Executive’s Review on pages 6 to 10. An indication of future developments is also given in those pages and in the Chairman’s Statement on pages 4 and 5. In the opinion of the directors, the activities of the Group are almost wholly within the power transmission sector of the engineering industry and therefore the results are disclosed as one class of business. Dividends An interim dividend of 3·1 pence per ordinary share was paid as a Foreign Income Dividend on 29 January 1999. A ﬁnal dividend of 6·15 pence per ordinary share is now recommended which would bring the total payment for the year to 9·25 pence per share compared with 9·0 pence per share for the year 1997/8. If approved, the ﬁnal dividend will be paid on 5 August 1999 to members appearing on the register on 25 June 1999. Preference dividend payments were made on 1 July 1998 and 1 January 1999. Acquisition On 31 December 1998, the Group acquired the whole of the ordinary shares of Jones & Shipman p.l.c. for a cash consideration, including costs, of £5·6 million. Subsequently, the Group has acquired the whole of the preference shares of Jones & Shipman p.l.c. for £0·1 million in cash. Details of the acquisition are given on page 38. Directors The present constitution of the Board and of the Audit, Nomination and Remuneration Committees at the date of this Report is set out on page 3. Dr R G J Telfer resigned as a director on 20 November 1998 and Mr J P Frost resigned as Chairman and as a director on 3 December 1998. Mr R F Leverton was appointed a director on 19 October 1998 and as Chairman on 4 December 1998. Having been appointed since the last Annual General Meeting and, being eligible, he offers himself for election at the Annual General Meeting. He does not have a service contract with the Company. Mr D Cotterill and Mr J H B Allan retire by rotation and, being eligible, offer themselves for re-election. Mr Cotterill has a service contract which can be terminated by the Company giving three years’ notice, and Mr Allan has a service contract which can be terminated by the Company giving two years’ notice Biographical details of the directors are on page 2. Directors’ interests The interests of the directors and their families in the ordinary shares of Renold plc and in options held under share option schemes are given in the Remuneration Report on pages 18 to 20. No director had any interests in contracts of signiﬁcance in relation to the Company’s business during the year. 13 55643PRE 30/6/99 10:52 am Page 14 Report of the Directors continued Special business – Annual General Meeting Amendment to Articles – Variation to 6% cumulative preference stock of 580,482 £1 units At the forthcoming Annual General Meeting the directors will propose an amendment to the Company’s Articles of Association which refer to payment of the dividend on the 6% cumulative preference stock at a rate of 4·2% pursuant to provisions of the Finance Acts 1972 and 1976. Following the abolition of advance corporation tax from 6 April 1999, holders of the cumulative preference stock will be paid dividends at the rate of 6% per annum. Power to allot shares and disapplication of pre-emption rights The directors consider it desirable to renew the general authorities granted at the last Annual General Meeting with regard to the allotment of shares in the Company and which will lapse on the date of the next Annual General Meeting or 22 October 2000, whichever is the earlier. Firstly, the general authority, pursuant to Section 80 of the Companies Act 1985, enabling the directors to allot unissued ordinary shares up to a nominal amount of £5,765,995 representing 33·33% of the current issued ordinary share capital of the Company. Secondly, the authority to disapply Section 89(1) of the said Act, which gives pre-emption rights to shareholders, to the allotment of shares for cash in connection with a rights issue, the Company’s share schemes (under the limits of the above general authority) and otherwise up to a nominal amount of £864,899 representing 5% of the current issued ordinary share capital of the Company. Except for the issue of shares pursuant to the Company’s employee share schemes the directors have no present intention of issuing any part of the unissued share capital. Resolutions 7 and 8 will be proposed to give effect to these measures. Share capital Changes in share capital during the year are set out in Note 15 to the Accounts on page 35. As at 4 June 1999, the Company had been notiﬁed, pursuant to the Companies Act 1985, as amended, of the following interests in its issued ordinary share capital: (i) (ii) Interests equal to or more than 10% (which may include "material interests" notiﬁed to the Company under (ii) below) Prudential Corporation plc "Material interests" equal to or more than 3% The Equitable Life Assurance Society Britannic Assurance plc Scottish Equitable plc % 24·60 5·28 4·80 3·62 Employee share schemes The proﬁt sharing allocation of £340,000 set aside out of the proﬁt on ordinary activities attributable to the UK companies for 1997/8 was utilised to issue 185,058 ordinary shares under the Renold Employee Share Scheme. Each of 1,341 eligible participants was allocated 138 ordinary shares in August 1998 at an initial market value of 183·1 pence per share. The number of shares reserved for issue under the three employee share schemes is currently 6,919,195 being such number of ordinary shares of 25 pence each as represents 10% of the ordinary share capital in issue from time to time. Employment policies Arrangements for consulting and involving employees on matters affecting their interests at work, and informing them of the performance of their employing business and the Group, are developed in ways appropriate to each business. A variety of approaches is adopted aimed at encouraging the involvement of employees in effective communication and consultation, and the contribution of productive ideas at all levels. The policy of the Company and its UK subsidiaries is to ensure that disabled applicants for employment are given full and fair consideration, and that existing disabled employees are given equal access to training, career development and promotion opportunities. In the event of employees becoming disabled whilst in the employment of the Company, all reasonable means are explored to achieve retention in employment in the same or an alternative capacity. 14 55643PRE 30/6/99 10:52 am Page 15 Report of the Directors Employees At 3 April 1999 the Renold Group employed 2,881 people, including 1,551 in the UK and 839 in the rest of Europe. Research and development The research and development activities of the Group continue to be principally directed towards the development of new products and manufacturing methods, and the improvement of performance and cost effectiveness of existing products. Expenditure on research and development in the year 1998/9 amounted to £1·9 million. Policy on payment of suppliers Individual operating businesses are responsible for agreeing the terms and conditions under which transactions with their suppliers are conducted, including the terms of payment. It is the Group’s policy that payments to suppliers are made in accordance with these terms, provided that the supplier complies with all relevant terms and conditions. At 3 April 1999 trade creditors of the Group’s businesses in the UK and overseas represented 67 days’ purchases, compared with 72 last year. Donations During the year contributions to UK organisations for charitable purposes amounted to £500 (1997/8 - £7,500). There were no contributions made to political parties. Auditors Following the merger of Price Waterhouse and Coopers & Lybrand on 1 July 1998, Price Waterhouse resigned as auditors in favour of the new ﬁrm, PricewaterhouseCoopers, and the directors appointed PricewaterhouseCoopers to ﬁll the casual vacancy created by the resignation. A resolution to reappoint PricewaterhouseCoopers as auditors of the Company will be proposed at the Annual General Meeting. Year 2000 The Group’s programme to address the Year 2000 issue has continued throughout the year. Considerable progress has been made in replacing non-compliant computer systems and in verifying the compliance of machinery and other equipment which could potentially be at risk. Communications are being maintained with key suppliers and customers to assess their Year 2000 capability. A limited amount of work remains to be done and it is intended that the Group will complete this in good time to achieve an acceptable state of readiness. However, given the complex and pervasive nature of the problem, it is not possible for any organisation to guarantee that no Year 2000 problems will occur. The capital cost of new computer hardware and software purchased during the year to replace non-compliant systems was £1·5 million, bringing the total over the last two years to £2·5 million; a further £0·3 million is budgeted for 1999/2000. Other work to implement action plans is, in the main, being carried out by in-house personnel, the cost of which is not separately identiﬁable. By order of the Board G R Newton Secretary 14 June 1999 15 55643PRE 30/6/99 10:52 am Page 16 Corporate Governance for the ﬁnancial year ended 28 March 1998 The Combined Code The Principles of Good Governance and Code of Best Practice prepared by the Hampel Committee (the "Combined Code") was issued in June 1998 and has been appended to the Listing Rules of the London Stock Exchange ("the Listing Rules"). The Company is required, under the Listing Rules, to include in its accounts statements as to how it has applied the principles set out in the Combined Code and whether or not it has complied with the Code provisions throughout the accounting year. The ways in which the Company applies relevant principles of corporate governance contained in the Combined Code are described below and in the appropriate parts of this report. Statement of Compliance The Company has complied throughout the year ended 3 April 1999 with the provisions set out in Section 1 of the Combined Code, with the following exceptions: – the appointment of Mr M A Smith as senior independent director was made on 12 November 1998; – the Remuneration Report on pages 18 to 20 draws attention to executive directors’ service contracts which are subject to two years’ notice by either party and the service contract of Mr D Cotterill, Chief Executive, which is subject to three years’ notice. Board The Board comprises a non-executive Chairman, two other independent non-executive directors and four executive directors. The roles of Chairman and Chief Executive are held by separate directors. Biographies of the directors appear on page 2. The Board meets on a regular basis (eleven times in the last ﬁnancial year) with an agenda and necessary papers for discussion distributed in advance of each meeting. The Board believes that the non-executive directors are independent and free from any business or other relationship that could interfere with the exercise of their independent judgement. Board members are able to seek independent legal or other professional advice in respect of their duties as they may require at the Company’s expense and have access to the advice and services of the Company Secretary. All directors are subject to election by shareholders at the ﬁrst Annual General Meeting following their appointment and to re-election thereafter at intervals of no more than three years. Audit Committee The Audit Committee is a committee of the Board comprised of the non-executive directors. The Committee is chaired by Mr M A Smith and meets three times a year. The Chief Executive and Finance Director attend meetings at the request of the Committee. Its terms of reference include the review of the Group’s ﬁnancial statements, the review of internal control systems and the conduct of the external audit. Nomination Committee The Nomination Committee is a committee of the Board comprised of the non-executive directors and the Chief Executive, chaired by the Chairman of the Board, Mr R F Leverton. The Committee meets as required and its terms of reference are to select and recommend any new appointments of either executive or non-executive directors to the Board. Remuneration Committee The Remuneration Committee is a committee of the Board comprised of the non-executive directors and is chaired by the Chairman of the Board, Mr R F Leverton. The Chief Executive attends meetings at the request of the Committee. This Committee determines the terms and conditions of employment including remuneration of the executive directors. The Remuneration Report is set out on pages 18 to 20. 16 55643PRE 30/6/99 10:52 am Page 17 Corporate Governance for the ﬁnancial year ended 28 March 1998 Internal ﬁnancial controls The Combined Code has introduced a requirement that the Directors review the effectiveness of the Group’s systems of internal controls. However, formal guidance as to the review of non-ﬁnancial internal controls has yet to be published and we will report on this next year on the basis of that guidance. In the meantime, as allowed by the London Stock Exchange, we continue to report solely on our review of internal ﬁnancial controls. The Group’s system of internal ﬁnancial controls, for which the directors have overall responsibility, is designed to safeguard the Group’s assets against unauthorised use or disposition, to ensure the maintenance of proper accounting records and the reliability of ﬁnancial information used within the business and for publication. These systems, by their nature, can provide only reasonable, not absolute, assurance against material misstatement or loss. The key features and procedures of the system of internal ﬁnancial controls are as follows: l l l l an organisation structure which supports clear lines of communication and tiered levels of authority; a schedule of matters reserved for the Board’s approval to ensure it maintains control over appropriate strategic, ﬁnancial, organisational and compliance issues; the preparation of detailed annual budgets covering proﬁt and cash ﬂow, which are approved by the Board; the review of monthly detailed reports comparing actual performance with budget, and of updated ﬁnancial forecasts; procedures for the appraisal, approval and control of capital investment proposals including acquisitions and disposals; l monitoring procedures which include a system of key controls questionnaires supported by internal audit reviews. The results of this work are reported to the Audit Committee. The directors conﬁrm that they have reviewed the effectiveness of the Group’s system of internal ﬁnancial controls. UK pension schemes The UK pension schemes are deﬁned beneﬁts type schemes with assets held separately from those of the Group in trustee administered funds, managed by independent managers. Under the terms of their management agreements the investment managers of the schemes’ assets are not permitted to invest in the securities of Renold plc. The Boards of Trustees of the principal schemes include employee representatives. Neither the Chairman nor the Chief Executive is a Trustee. Going concern After making enquiries, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the accounts. Relations with shareholders Meetings between directors of the Company and major institutional shareholders and fund managers are held at regular intervals. The Chairman of the Board and of the Audit, Remuneration and Nomination Committees, together with the executive directors, are available at the Annual General Meeting to answer questions. The Company has an Internet website on which it presents information about the Group. 17 55643PRE 30/6/99 10:52 am Page 18 Remuneration Report continued Remuneration Committee The Remuneration Committee is comprised of the non-executive directors and is chaired by the Chairman of the Board. The Chief Executive attends meetings at the request of the Chairman but does not take part in the Committee’s deliberations or recommendations on his own remuneration. The non-executive directors do not have service agreements and have no automatic right of re-appointment. They do not participate in the Company pension or share option schemes and apart from their fees and expenses do not receive any beneﬁts from the Company. The Committee determines the terms and conditions of employment including remuneration for the executive directors. The Committee is also responsible for the allocation of options under the Company’s Executive Share Option Scheme. The determination of the remuneration of non-executive directors is the responsibility of the whole Board. Remuneration policy Remuneration The aim of the Committee is to ensure that the remuneration package for directors is competitive and will attract and retain directors of the right calibre and qualiﬁcations to meet the requirements of the Company. The basic salary of each executive director is determined by taking into account the responsibilities and performance of the individual and having regard to the external market. Included within each salary are payments under the Company's Inland Revenue approved Proﬁt Related Pay Scheme. In addition, the Company operates a performance related annual bonus scheme for the executive directors based upon the achievement of the budgeted annual group proﬁt before tax and exceptional items. The total potential bonus payment is capped at 40% of basic salary but nevertheless forms a signiﬁcant proportion of the total remuneration package. Beneﬁts in kind incorporate all assessable tax beneﬁts from each director's employment and comprise mainly the provision of a company car, fuel for private use and private medical insurance. Neither the beneﬁts in kind nor bonus payments are pensionable. In assessing all aspects of pay and beneﬁts the Remuneration Committee compares the packages offered by similar companies in the engineering sector as provided by an independent sector survey. Details of emoluments of the executive directors, and fees payable to non-executive directors are set out below. Directors’ emoluments Executive directors D Cotterill J H B Allan R B Kershaw I R Trotter R L Burdett (to 9 June 1997) Annual Bonus £000 Salaries & Fees £000 166 117 117 117 Payments to former directors £000 1999 Beneﬁts £000 10 9 12 9 –––––– 517 –––––– –––––– 40 –––––– Non-executive directors Chairman R F Leverton (from 4 December 1998) J P Frost (to 3 December 1998) 24 42 T B Fortune M A Smith R G J Telfer (to 20 November 1998) 17 18 12 –––––– 630 –––––– –––––– –––––– –––––– 40 –––––– 30 19 –––––– 49 –––––– 1998 Total £000 200 143 132 141 22 –––––– 638 63 10 17 19 –––––– 747 –––––– Total £000 176 126 129 126 –––––– 557 24 72 17 18 31 –––––– 719 –––––– Mr R F Leverton’s director’s fees are from 19 October 1998, the date of his appointment as a non-executive director. Mr T B Fortune’s director’s fees of £8,500 up to 1 November 1998 were paid to Spirax-Sarco Engineering plc. The payments to former directors were made in recognition of their valuable contribution to the Group. Note: During the year, executive directors realised gains on exercise of share options under the Savings Related Scheme totalling £19,310. Details are given in the table of Share Options. 18 55643PRE 30/6/99 10:52 am Page 19 Remuneration Report Directors’ pensions The executive directors participate in the Renold Supplementary Pension Scheme 1967, which is a contributory deﬁned beneﬁts plan. This provides for a pension at age 62 of two-thirds of pensionable salary after 20 years’ service. On death in retirement, a dependant’s pension of two-thirds of the member’s pension is payable and, on death in service, a dependant’s pension of 50% of the member’s potential pension is payable together with a lump sum of four times salary. Early retirement can be taken from age 50 onwards but is subject to Company consent and actuarial adjustment where appropriate. Pensions in payment are guaranteed to increase by the lesser of 5% per annum and the rate of increase in the Retail Price Index. In addition, where Inland Revenue limits apply, 25% of the shortfall between pensionable salary and the earnings cap is accumulated by the Company and will be paid from its own resources on retirement. No element of remuneration other than salary is pensionable. Details of pension beneﬁts earned by directors under the deﬁned beneﬁts scheme, and the cost to the Company of amounts in respect of unfunded pension obligations provided for but not paid, are set out below: Deﬁned Beneﬁts Scheme Age at year end 56 58 52 55 Years’ service at year end 7 11 36 8 Directors’ contributions in the year £000 6 7 7 6 Increase in accrued pension during the year £000 3 4 2 3 Accumulated total accrued pension at year end £000 20 45 71 23 Amounts provided in the year but not paid in respect of unfunded obligations £000 31 10 Name of director D Cotterill J H B Allan R B Kershaw I R Trotter The increase in accrued pension during the year excludes any increase for inﬂation. Share option schemes The Remuneration Committee believes that share options are an important motivational aspect of remuneration for executive directors and senior executives who are encouraged to build up a holding of shares in the Company. The Committee considers whether to invite executive directors and other senior executives to apply for executive share options which are exercisable after the third anniversary of the date of grant. Options granted under the Renold (1995) Executive Share Option Scheme are only exercisable if the performance condition, set by the Committee at the time of grant, is met. This performance condition is reviewed from time to time by the Committee and currently requires the Group's earnings per share to grow from the year preceding the date of grant, over three or more ﬁnancial years, at a rate greater than 1.5 times the percentage increase in the UK Retail Prices Index over the same period. During the ﬁnancial year executive directors and other senior executives were granted options under this scheme. In 1998, the rules of the scheme were amended to extend the ﬁnal exercisable period for unapproved options granted to an employee or director after 5 April 1998 from seven to ten years after the date of grant, in line with approved options. This reﬂects the change introduced in the Finance Act 1998. Options are also granted to the executive directors under the Renold (1995) Savings Related Share Option Scheme which scheme is open to all UK employees who are eligible to participate in accordance with the scheme rules. Those options granted prior to 1996 were exercisable on completion of savings under a ﬁve-year SAYE contract. In 1996, the rules of the scheme were amended to allow future options granted to be exercisable on completion of either a three- year or ﬁve-year savings contract. Details of directors’ interests in shares including options granted to executive directors under the 1985 and 1995 Executive Share Option Schemes and the 1985 and 1995 Savings Related Share Option Schemes are set out below. Directors’ interests The beneﬁcial interests of the directors in the ordinary shares of the Company, as appearing in the Register of Directors’ Interests maintained under the Companies Act 1985, were as follows: R F Leverton D Cotterill J H B Allan T B Fortune R B Kershaw M A Smith I R Trotter 19 3 April 1999 28 March 1998 Shares – 233,183 151,456 2,000 21,473 5,000 108,170 Options – 75,000 116,650 – 125,721 – 116,204 Shares – 215,328 144,231 2,000 19,918 5,000 99,528 Options – 72,717 103,737 – 107,138 – 104,708 55643PRE 30/6/99 10:52 am Page 20 Remuneration Report continued The only non-beneﬁcial interest in the ordinary shares of Renold plc at the end of the year was 415,501 shares (28 March 1998 - 305,400 shares) held by Mr D Cotterill and Mr J H B Allan as trustees of the Renold Employee Share Scheme. At 4 June 1999 the number of shares held by the trustees of the scheme was 414,209. At 3 April 1999 the only interest of the directors in the share capital of the Company was in the ordinary shares as stated above. There have been no other changes in the interests of directors in the share capital of the Company between the end of the ﬁnancial year and 4 June 1999. Share options D Cotterill Executive scheme Savings related scheme J H B Allan Executive scheme Savings related scheme R B Kershaw Executive scheme Savings related scheme At 28.3.98 20,000 35,000 17,717 20,000 25,000 50,000 7,087 1,650 40,000 15,000 20,000 30,000 1,417 721 Number of share options Granted Exercised At 3.4.99 Option price (pence per share) Date from which exercisable Gains on exercise £ 20,000 20,000 20,000 20,000 (a) 237·33 20,000 (a) 242·67 35,000 (a) 293·83 97·36 17.7.01 18.7.00 16.7.99 1.2.99 17,717 20,000 (a) 237·33 20,000 (a) 242·67 25,000 (a) 293·83 120·3 50,000 97·36 200·8 1,650 20,000 (a) 237·33 40,000 (a) 242·67 15,000 (a) 293·83 120·3 20,000 52·5 30,000 97·36 200·8 721 17.7.01 18.7.00 16.7.99 30.11.96 1.2.99 1.2.00 17.7.01 18.7.00 16.7.99 30.11.96 24.11.95 1.2.99 1.2.02 7,087 1,417 8,883 3,553 994 Expiry date 16.7.08 17.7.04 15.7.03 31.7.99 16.7.08 17.7.04 15.7.03 29.11.03 31.7.99 31.7.00 16.7.08 17.7.04 15.7.03 29.11.03 23.11.02 31.7.99 31.7.02 I R Trotter Executive scheme 20,000 16.7.08 17.7.04 15.7.03 29.11.03 31.7.99 31.7.00 (a) only exercisable if the performance condition approved by the shareholders at the 1995 AGM and set at the time of grant is met. 20,000 (a) 237·33 20,000 (a) 242·67 25,000 (a) 293·83 120·3 50,000 97·36 200·8 17.7.01 18.7.00 16.7.99 30.11.96 1.2.99 1.2.00 20,000 25,000 50,000 8,504 1,204 Savings related scheme 8,504 5,880 1,204 The middle market price of ordinary shares at 3 April 1999 was 170.5 pence and the range of prices during the year was 138.5 pence to 290.5 pence. Service contracts Mr J H B Allan, Mr R B Kershaw and Mr I R Trotter have service contracts which are subject to two years’ notice and Mr D Cotterill, Chief Executive, has a service contract subject to three years’ notice. The Committee believes it is appropriate to retain these notice periods for the executive directors, being the established practice at the date of their appointment. As a result of a speciﬁc review, the Committee, recognising the subsequent change in practice, has determined that in normal circumstances future appointments of executive directors will be on a twelve months’ notice basis. In determining the amount of compensation payable on termination of a service contract, it is the Committee’s policy to apply normal principles of mitigation. In these circumstances, steps would be taken to ensure that poor performance was not rewarded. 20 55643PRE 30/6/99 10:52 am Page 21 Statement of Directors’ Responsibilities for the ﬁnancial year ended 28 March 1998 The following statement, which should be read in conjunction with the Auditors’ Report, is made with a view to distinguishing for shareholders the respective responsibilities of the directors and of the auditors in relation to the accounts. The directors are required by the Companies Act 1985 to prepare accounts for each ﬁnancial year which give a true and fair view of the state of affairs of the Company and the Group as at the end of the ﬁnancial year and of the proﬁt or loss for the ﬁnancial year. The directors consider that, in preparing the accounts on pages 22 to 40, the Company has used appropriate accounting policies, consistently applied and supported by reasonable and prudent judgements and estimates, and that all applicable Accounting Standards have been followed. The directors have responsibility for ensuring that the Company keeps accounting records which disclose with reasonable accuracy the ﬁnancial position of the Company and which enable them to ensure that the accounts comply with the Companies Act 1985. The directors have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities. Report of the Auditors To the members of Renold plc We have audited the accounts on pages 22 to 40 which have been prepared under the historical cost convention as modiﬁed by the revaluation of certain ﬁxed assets and the accounting policies set out on pages 22 and 23. Respective responsibilities of directors and auditors The directors are responsible for preparing the Annual Report, including as described above, the accounts. Our responsibilities, as independent auditors, are established by statute, the Auditing Practices Board, the Listing Rules of the London Stock Exchange and our profession’s ethical guidance. We report to you our opinion as to whether the accounts give a true and fair view and are properly prepared in accordance with the Companies Act. We also report to you if, in our opinion, the directors’ report is not consistent with the accounts, if the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information speciﬁed by law or the Listing Rules regarding directors’ remuneration and transactions is not disclosed. We read the other information contained in the Annual Report and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the accounts. We review whether the statements on pages 16 and 17 reﬂect the Company’s compliance with those provisions of the Combined Code speciﬁed for our review by the London Stock Exchange, and we report if they do not. We are not required to form an opinion on the effectiveness of the Company’s or Group’s corporate governance procedures or its internal controls. Basis of audit opinion We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the accounts. It also includes an assessment of the signiﬁcant estimates and judgements made by the directors in the preparation of the accounts, and of whether the accounting policies are appropriate to the Company and the Group’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufﬁcient evidence to give reasonable assurance that the accounts are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the accounts. Opinion In our opinion the accounts give a true and fair view of the state of affairs of the Company and the Group at 3 April 1999 and of the proﬁt and cash ﬂows of the Group for the year then ended and have been properly prepared in accordance with the Companies Act 1985. 101 Barbirolli Square Manchester M2 3PW 14 June 1999 21 PricewaterhouseCoopers Chartered Accountants and Registered Auditors 55643PRE 30/6/99 10:52 am Page 22 Accounting Policies continued A summary of the principal Group accounting policies is set out below. These have been applied on a consistent basis apart from the treatment of goodwill on acquisitions where the requirements of Financial Reporting Standard (FRS)10 "Goodwill and Intangible Assets" have been adopted, with effect from 29 March 1998, as explained below. Basis of consolidation – The Group accounts set out on pages 22 to 40, which comprise a consolidation of the Parent Company and all its subsidiaries, have been prepared in compliance with the Companies Act 1985 and in accordance with applicable accounting standards. They have been prepared under the historical cost convention, but include some past revaluations of properties and equipment. As permitted by Section 230 of the Companies Act 1985 the Parent Company has not presented its own proﬁt and loss account. Acquisitions and goodwill – The results of businesses acquired and disposed of during the year are included in Group proﬁts from/to the effective date of acquisition or disposal. The net assets of businesses acquired are incorporated in the Group accounts at their fair value to the Group, after making adjustments to reﬂect the alignment of the accounting policies of the acquired businesses to those of the Group. Acquisitions are accounted for using the acquisition method of accounting. Goodwill arising on acquisitions prior to 29 March 1998 was eliminated against reserves in accordance with the previous policy and has not been reinstated on implementation of FRS 10. Goodwill arising on acquisitions since 29 March 1998 is capitalised, classiﬁed as an asset on the balance sheet, and amortised on a straight line basis over its useful economic life up to a presumed maximum of 20 years. On disposal of a previously acquired business any goodwill arising on acquisition that was eliminated against reserves or that has not been amortised through the proﬁt and loss account is taken into account in determining the proﬁt or loss on disposal. Overseas currencies – Assets and liabilities of overseas subsidiaries are translated into sterling at the exchange rates ruling at the end of the ﬁnancial year. Trading results are translated at the appropriate average rates of exchange for the year. Differences on exchange arising on the retranslation of net assets at the beginning of the year and from the translation of the results at average rates are taken direct to reserves. Tangible assets represented by properties and equipment are stated at cost or valuation, less depreciation. Where revaluations are included the valuation of properties is based on the advice of professional valuers having regard to estimated realisable values and the valuation of equipment is based on replacement costs and the remaining estimated useful lives of the relevant assets. Depreciation is calculated by reference to original cost or valuation at ﬁxed percentages assuming effective useful lives as follows:- Freehold properties – 80 years; land is not depreciated Leasehold properties – 80 years or the period of the lease if less Equipment (including plant and machinery) – 5 to 25 years according to type of asset Motor vehicles – 25% per annum for 3 years leaving 25% residual value Tangible assets ﬁnanced by leasing agreements that give rights approximating to ownership (ﬁnance leases) are treated as if they had been purchased outright and the corresponding liability to the leasing company is included as an obligation under ﬁnance leases in creditors. Finance lease costs are charged as interest based on a constant periodic rate as applied to the outstanding liabilities. Depreciation on leased assets is charged to the proﬁt and loss account on the same basis as shown above. Annual rentals in respect of operating leases are charged against the proﬁt of the year in which they are incurred. 22 55643PRE 30/6/99 10:52 am Page 23 Accounting Policies Government grants in respect of capital expenditure are treated as deferred credits in the balance sheet. An annual transfer is made to proﬁt and loss account reﬂecting the beneﬁt over the expected useful lives of the assets concerned. Stocks are stated at the lower of cost, including full manufacturing overheads, and estimated net realisable value. Long term contract work in progress is valued at cost, less amounts transferred to cost of sales and provisions for foreseeable losses. In the Group accounts, unrealised proﬁt on sales within the Group is deducted from stocks. Deferred taxation – Provision is not made for deferred taxation unless there is a reasonable probability that a liability will arise within the foreseeable future. Advance corporation tax on dividends paid and proposed, where applicable, is charged in the Group proﬁt and loss account except to the extent that it can be recovered against current taxation. Turnover comprises the invoiced value of goods and services on ordinary activities after deducting value added tax or other sales related taxes, trade discounts and transactions between Group companies. Also included in turnover is the value of work done on long term contracts which are substantially completed by the balance sheet date and for which the outcome can be assessed with reasonable certainty. An appropriate portion of the anticipated contract proﬁt is recognised in the proﬁt and loss account. The amount by which recorded turnover exceeds payments received on account is classiﬁed separately as contract debtors. Pensions – The costs of providing pensions for employees are charged in the proﬁt and loss account over the average working life of employees in accordance with the recommendations of qualiﬁed actuaries. Funding surpluses or deﬁcits that may arise from time to time are amortised over the average remaining working life of employees. Research and development – Expenditure other than that on tangible assets is charged against the proﬁt of the year in which it is incurred. 23 55643PRE 30/6/99 10:52 am Page 24 Group Proﬁt and Loss Account for the ﬁnancial year ended 3 April 1999 Turnover Trading costs - normal operating costs - exceptional redundancy and - restructuring costs Trading proﬁt Interest receivable Proﬁt on ordinary activities before tax Taxation Proﬁt for the ﬁnancial year Dividends (including non-equity) Note 1 2 3 4 5 Retained proﬁt for the year 16 Adjusted earnings per share Basic earnings per share Diluted earnings per share 6 6 6 1999 Continuing Operations Acquisition £m Ongoing £m 167·4 153·1 1·1 ––––– 154·2 ––––– 13·2 ––––– 4·2 4·5 0·7 ––––– 5·2 ––––– (1·0) ––––– 1998 £m 183·6 £m 171·6 157·6 161·2 1·8 ––––– 159·4 ––––– 12·2 0·2 ––––– 12·4 4·7 ––––– 7·7 6·4 ––––– 1·3 ––––– 13·5p 11·1p 11·1p ––––– 161·2 ––––– 22·4 0·1 ––––– 22·5 4·9 ––––– 17·6 6·2 ––––– 11·4 ––––– 25·7p 25·7p 25·5p The proﬁt and loss account should be read in conjunction with the notes on pages 28 to 40. 24 55643PRE 30/6/99 10:52 am Page 25 Balance Sheets as at 3 April 1999 Fixed assets Intangible asset - goodwill Tangible assets Investments Current assets Stocks Debtors Cash and short term deposits Note 8 9 10 11 12 13 12 13 14 15 16 16 16 16 Creditors – amounts falling due within one year Loans and overdrafts Other creditors Net current assets Total assets less current liabilities Creditors – amounts falling due after more than one year Loans Other creditors Provisions for pensions Net assets Capital and reserves (including non-equity interests) Called up share capital Share premium Revaluation reserve Other reserves Proﬁt and loss account Shareholders’ funds Group Renold plc 1999 £m 2·9 53·6 ––––– 56·5 ––––– 46·6 36·7 22·6 ––––– 105·9 (5·8) (49·0) ––––– 51·1 ––––– 107·6 (5·5) (0·8) (12·6) ––––– 88·7 ––––– 17·9 5·9 6·3 1·3 57·3 ––––– 88·7 ––––– 1998 £m 45·8 ––––– 45·8 ––––– 39·8 36·3 32·7 ––––– 108·8 (3·9) (46·3) ––––– 58·6 ––––– 104·4 (5·8) (0·9) (11·7) ––––– 86·0 ––––– 17·7 5·4 5·0 1·8 56·1 ––––– 86·0 ––––– 1999 £m 0·3 89·1 ––––– 89·4 ––––– 8·9 4·3 ––––– 13·2 (0·2) (5·7) ––––– 7·3 ––––– 96·7 (5·5) (2·5) ––––– 88·7 ––––– 17·9 5·9 21·5 43·4 ––––– 88·7 ––––– 1998 £m 0·2 75·5 ––––– 75·7 ––––– 11·4 13·4 ––––– 24·8 (0·2) (6·1) ––––– 18·5 ––––– 94·2 (5·8) (2·4) ––––– 86·0 ––––– 17·7 5·4 19·7 43·2 ––––– 86·0 ––––– Approved by the Board on 14 June 1999 and signed on its behalf by: Roger Leverton David Cotterill } Directors The balance sheets should be read in conjunction with the notes on pages 28 to 40. 25 55643PRE 30/6/99 10:52 am Page 26 Group Cash Flow Statement for the ﬁnancial year ended 3 April 1999 Note £m 1999 21 22 Cash ﬂow from operating activities Servicing of ﬁnance Taxation Capital expenditure - purchase of tangible ﬁxed assets Acquisition - purchase consideration including costs - net overdrafts acquired with subsidiary Equity dividends paid Cash (outﬂow)/inﬂow before use of liquid resources and ﬁnancing Management of liquid resources Transfers from/(to) short term deposits Financing Issue of shares Decrease in debt and lease ﬁnancing 22 Decrease in cash in the year Reconciliation of net cash ﬂow to movement in net funds 23 Decrease in cash in the year Cash outﬂow from decrease in debt and lease ﬁnancing Cash ﬂow from (decrease)/increase in liquid resources Change in net funds resulting from cash ﬂows Loans and ﬁnance leases acquired with subsidiary Exchange translation difference Movement in net funds in the year Net funds at beginning of year Net funds at end of year (5·7) (1·7) ––––– 0·7 (5·6) ––––– (1·5) 5·6 (11·2) ––––– £m 23·8 (6·5) (11·5) (7·4) (6·2) ––––– (7·8) 11·2 (4·9) ––––– (1·5) ––––– (7·1) (4·7) 0·3 ––––– (11·5) 22·3 ––––– 10·8 ––––– 1998 £m 0·4 (0·6) ––––– (6·1) 0·6 15·8 ––––– £m 29·2 0·3 (5·5) (8·4) (5·7) ––––– 9·9 (15·8) (0·2) ––––– (6·1) ––––– 10·3 (0·8) ––––– 9·5 12·8 ––––– 22·3 ––––– The cash ﬂow statement should be read in conjunction with the notes on page 37. 26 55643PRE 30/6/99 10:52 am Page 27 Other Group Statements for the ﬁnancial year ended 3 April 1999 Statement of total recognised gains and losses Proﬁt for the ﬁnancial year Exchange translation differences on net assets of overseas subsidiaries Total recognised gains relating to the ﬁnancial year Reconciliation of movements in shareholders’ funds Proﬁt for the ﬁnancial year Dividends Retained proﬁt for the year Issue of ordinary shares Exchange translation differences on net assets of overseas subsidiaries Goodwill arising on acquisition Net addition to shareholders’ funds Opening shareholders’ funds Closing shareholders’ funds 1999 £m 7·7 0·7 ––––– 8·4 ––––– 1999 £m 7·7 (6·4) ––––– 1·3 0·7 0·7 ––––– 2·7 86·0 ––––– 88·7 ––––– 1998 £m 17·6 (3·4) ––––– 14·2 ––––– 1998 £m 17·6 (6·2) ––––– 11·4 0·4 (3·4) 0·1 ––––– 8·5 77·5 ––––– 86·0 ––––– Historical cost proﬁts and losses There is no material difference between the result as disclosed in the proﬁt and loss account and the result on an unmodiﬁed historical cost basis. 27 55643NOTES 30/6/99 10:54 am Page 28 Notes on the Accounts for the ﬁnancial year ended 28 March 1999 1. Analysis of activities Activities classiﬁed by geographical region of operation: United Kingdom Germany France Rest of Europe North America Other countries Less: Intra Group sales Less: Exceptional redundancy and restructuring costs Turnover £m 81·4 36·7 31·0 17·9 30·7 16·1 ––––––– 213·8 42·2 ––––––– 171·6 ––––––– 1999 Trading proﬁt £m 4·8 3·7 2·0 1·7 1·7 0·1 ––––––– 14·0 1·8 ––––––– 12·2 ––––––– Trading assets £m 52·3 10·9 7·5 4·1 9·5 5·4 ––––––– 89·7 ––––––– 89·7 ––––––– Turnover £m 96·4 35·9 24·9 17·1 32·0 22·0 ––––––– 228·3 44·7 ––––––– 183·6 ––––––– 1998 Trading proﬁt £m 13·2 2·8 1·6 1·4 2·7 0·7 ––––––– 22·4 Trading assets £m 43·7 10·9 6·4 3·7 8·0 6·2 ––––––– 78·9 ––––––– 22·4 ––––––– ––––––– 78·9 ––––––– Turnover by geographical region includes intra group sales as follows: United Kingdom £28·2 million (1997/8 - £30·1 million), Germany £9·8 million (1997/8 - £9·6 million) and France £3·3 million (1997/8 - £4·1 million). Trading assets comprise ﬁxed assets, current assets less creditors but exclude goodwill, cash, property held for sale, borrowings, dividends, corporate tax, ﬁnance lease obligations and provisions for pensions. Geographical analysis of external turnover by market area: United Kingdom Germany Rest of Europe North and South America Other countries 1999 £m 35·3 30·1 44·7 40·2 21·3 ––––––– 171·6 ––––––– 1998 £m 40·7 26·9 41·4 44·3 30·3 ––––––– 183·6 ––––––– In the opinion of the directors, the activities of the Group are almost wholly within the power transmission sector of the engineering industry and therefore the results are disclosed as one class of business. 28 55643NOTES 30/6/99 10:54 am Page 29 Notes on the Accounts for the ﬁnancial year ended 28 March 1999 2. Trading costs Change in stocks of ﬁnished goods and work in progress Raw materials and consumables Own work capitalised Staff costs Gross wages and salaries Social security costs Other pension costs (Note 14) Redundancy costs Depreciation Owned assets Assets acquired under ﬁnance leases Operating lease rentals Equipment Other Remuneration of auditors for audit work Other external charges Other operating income 1999 £m 56·1 7·5 3·1 ––––––– 7·3 0·2 ––––––– 0·5 1·1 ––––––– £m 1·0 57·1 (1·4) 66·7 1·8 7·5 £m 64·3 (0·9) 66·6 6·5 1998 £m 56·5 7·3 2·8 ––––––– 6·2 0·3 ––––––– 0·5 1·1 ––––––– 1·6 0·4 27·4 (2·7) ––––––– 159·4 ––––––– 1·6 0·4 25·3 (2·6) ––––––– 161·2 ––––––– Trading costs for 1998/9 include £5·2 million for Jones & Shipman p.l.c. and subsidiary companies comprising raw materials and consumables costs £2·2 million, staff costs £1·7 million, depreciation £0·1 million, other external charges £0·8 million and exceptional redundancy and restructuring costs £0·7 million, offset by change in stocks of ﬁnished goods and work in progress £0·3 million. The remuneration of the auditors for the parent company was £24,000 (1997/8 - £32,000). Remuneration of the auditors for non-audit work amounted to £87,000 (1997/8 - £111,000) of which £38,000 (1997/8 - £73,000) related to the UK. Expenditure on research and development charged against trading proﬁt amounted to £1·9 million (1997/8 - £1·6 million). The average number of persons employed by the Group during the year was: United Kingdom Germany France Rest of Europe North America Other countries 3. Interest receivable/(payable) Interest receivable Less: interest payable: Less: On loans and overdrafts Less: On ﬁnance leases 29 1999 1,489 415 326 91 195 302 ––––––– 2,818 ––––––– 1998 1,528 436 328 90 175 337 ––––––– 2,894 ––––––– £m (1·2) ––––––– 1999 £m 1·4 1998 £m £m 1·1 (0·9) (0·1) ––––––– (1·2) ––––––– 0·2 ––––––– (1·0) ––––––– 0·1 ––––––– 55643NOTES 30/6/99 10:54 am Page 30 Notes on the Accounts continued 4. Taxation 1999 1998 £m £m £m £m UK corporation tax based on proﬁt of the year at the rate of 31% (1997/8 - 31%) Less: double taxation relief Advance corporation tax recovered 7·6 (2·3) ––––––– 5·3 (3·5) ––––––– Overseas taxes 5. Dividends Ordinary shares Interim dividend paid of 3·1p (1997/8 - 3·1p) Final dividend proposed 6·15p (1997/8 - 5·9p) 1·8 2·9 ––––––– 4·7 ––––––– 5·8 (2·0) ––––––– 3·8 (3·2) ––––––– 1999 £m 2·1 4·3 ––––––– 6·4 ––––––– 0·6 4·3 ––––––– 4·9 ––––––– 1998 £m 2·1 4·1 ––––––– 6·2 ––––––– The interim dividend of 3·1 pence (1997/8 - 3·1 pence) was paid as a Foreign Income Dividend. Last year the interim and ﬁnal dividends were paid as Foreign Income Dividends. Dividends on the cumulative preference stock amounted to £27,000 (1997/8 - £24,000). 6. Earnings per share Earnings per share is calculated by reference to the earnings for the year and the weighted average number of shares in issue during the year as follows: 1999 £m 1998 £m Basic and diluted earnings Adjustment for exceptional redundancy and restructuring costs after tax relief Adjusted earnings Weighted average number of shares in issue - basic and adjusted Dilutive potential of employee share options Weighted average number of shares in issue - diluted 7. Directors’ emoluments Aggregate emoluments Gains made on exercise of share options Amounts provided but not paid in respect of unfunded pension obligations Payments to former directors During the year, retirement beneﬁts accrued to four directors (1997/8 - ﬁve) under a deﬁned beneﬁts scheme and to two directors (1997/8 - three) under unfunded obligations in respect of salary in excess of the earnings cap. Highest paid director Aggregate emoluments Gains made on exercise of share options Aggregate emoluments, including gains made on exercise of share options Amounts provided but not paid in respect of unfunded pension obligations Accrued pension at end of year under deﬁned beneﬁts pension scheme 7·7 1·6 ––––––– 9·3 ––––––– Thousands 68,889 292 ––––––– 69,181 ––––––– 1999 £000 670 19 41 49 17·6 ––––––– 17·6 ––––––– Thousands 68,581 503 ––––––– 69,084 ––––––– 1998 £000 747 40 176 9 ––––––– 185 ––––––– 31 20 200 ––––––– 200 ––––––– 27 17 The amounts included above in respect of gains made on exercise of share options take no account of whether or not the directors concerned immediately sold the shares; the gains would be reduced by taxation and expenses. Further details are given under the headings ‘Directors Emoluments’ and ‘Directors’ Pensions’ in the Remuneration Report on pages 18 to 20. 30 55643NOTES 30/6/99 10:54 am Page 31 Notes on the Accounts for the ﬁnancial year ended 28 March 1999 8. Intangible asset - goodwill Arising on the acquisition of Jones & Shipman p.l.c. (see Note 24) Properties £m Group Equipment £m Total £m Properties £m 9. Tangible assets Cost or valuation At beginning of year Exchange adjustment Additions at cost Acquisition of subsidiary Disposals At end of year Analysis of cost or valuation Valuation made in: 1971 1974 Assets at cost Depreciation At beginning of year Exchange adjustment Depreciation for the year Disposals At end of year Net book value at end of year Net book value at beginning of year 17·1 0·3 0·3 2·4 ––––––– 20·1 ––––––– 4·0 16·1 ––––––– 20·1 ––––––– 6·6 0·2 0·4 ––––––– 7·2 ––––––– 12·9 ––––––– 10·5 ––––––– 87·4 1·7 11·0 0·9 (0·9) ––––––– 100·1 ––––––– 4·7 95·4 ––––––– 100·1 ––––––– 52·1 1·1 7·1 (0·9) ––––––– 59·4 ––––––– 40·7 ––––––– 35·3 ––––––– 104·5 2·0 11·3 3·3 (0·9) ––––––– 120·2 ––––––– 4·0 4·7 111·5 ––––––– 120·2 ––––––– 58·7 1·3 7·5 (0·9) ––––––– 66·6 ––––––– 53·6 ––––––– 45·8 ––––––– 1999 £m 2·9 ––––––– Total £m 0·6 0·2 Renold plc Equipment £m 0·6 0·1 0·1 ––––––– 0·1 ––––––– ––––––– 0·7 ––––––– ––––––– 0·8 ––––––– 0·1 ––––––– 0·1 ––––––– ––––––– ––––––– 0·1 ––––––– ––––––– 0·7 ––––––– 0·7 ––––––– 0·4 0·1 ––––––– 0·5 ––––––– 0·2 ––––––– 0·2 ––––––– 0·8 ––––––– 0·8 ––––––– 0·4 0·1 ––––––– 0·5 ––––––– 0·3 ––––––– 0·2 ––––––– Net book value at the end of the year includes £4·5 million (1997/8 - £4·8 million) in respect of leased assets (land and buildings £3·7 million (1997/8 - £3·7 million), equipment £0·8 million (1997/8 - £1·1 million)). The total cost or valuation of properties at 3 April 1999 comprises £14·4 million (1997/8 - £11·7 million) for freehold land and buildings and £5·7million (1997/8 - £5·4 million) for leasehold land and buildings which relates to short term leases where the period unexpired is less than 50 years. If all tangible assets had been determined under the historical cost convention, the values would not have been materially different from the ﬁgures shown above. Future capital expenditure At 3 April 1999 capital expenditure contracted for but not provided for in these accounts amounted to £2·3 million (1997/8 - £2·3 million). 31 55643NOTES 30/6/99 10:54 am Page 32 Notes on the Accounts continued 10. Investments Renold plc Subsidiary companies Cost or valuation At beginning of year Net advances Acquisition of Jones & Shipman p.l.c. Surplus on revaluation At end of year Shares £m Advances £m Total £m 53·5 5·7 1·8 ––––––– 61·0 ––––––– 22·0 6·1 ––––––– 28·1 ––––––– 75·5 6·1 5·7 1·8 ––––––– 89·1 ––––––– Shares in subsidiary companies are stated at their net asset value at the end of the year. The directors have adopted this basis because they consider that it more fairly represents the investment of Renold plc in subsidiary companies. The principal subsidiary companies of Renold plc at 3 April 1999 are set out on page 41. 11. Current assets Stocks Materials Work in progress Finished products Debtors Trade debtors Amounts owed by group subsidiaries Corporate tax recoverable Other debtors Property held for sale Prepayments and accrued income Cash and short term deposits Cash at bank Short term deposits Group Renold plc 1999 £m 8·9 12·9 24·8 ––––––– 46·6 ––––––– 1998 £m 6·9 10·7 22·2 ––––––– 39·8 ––––––– 28·3 27·6 2·3 5·0 1·1 ––––––– 36·7 ––––––– 5·4 17·2 ––––––– 22·6 ––––––– 105·9 ––––––– 2·5 5·0 1·2 ––––––– 36·3 ––––––– 4·7 28·0 ––––––– 32·7 ––––––– 108·8 ––––––– 1999 £m 1998 £m 7·7 1·0 10·5 0·7 0·2 ––––––– 8·9 ––––––– 4·3 ––––––– 4·3 ––––––– 13·2 ––––––– 0·2 ––––––– 11·4 ––––––– 13·4 ––––––– 13·4 ––––––– 24·8 ––––––– The Group ﬁgures for other debtors include £0·9 million (1997/8 - £0·7 million) of amounts falling due after more than one year. 32 55643NOTES 30/6/99 10:54 am Page 33 Notes on the Accounts for the ﬁnancial year ended 28 March 1999 12. Loans and overdrafts Total borrowings Less: repayable within one year or on demand Amounts falling due after more than one year Repayable: In more than one year but not more than two years In more than two years but not more than ﬁve years In more than ﬁve years Loans comprise: UK term loans 1998-2006 Sterling loan 1998 - UK Bank loans - overseas Less: repayable within one year Group Renold plc 1999 £m 11·3 5·8 ––––––– 5·5 ––––––– 0·2 4·0 1·3 ––––––– 5·5 ––––––– 5·7 ––––––– 5·7 0·2 ––––––– 5·5 ––––––– 1998 £m 9·7 3·9 ––––––– 5·8 ––––––– 0·2 3·9 1·7 ––––––– 5·8 ––––––– 6·0 0·3 0·1 ––––––– 6·4 0·6 ––––––– 5·8 ––––––– 1999 £m 5·7 0·2 ––––––– 5·5 ––––––– 0·2 4·0 1·3 ––––––– 5·5 ––––––– 1998 £m 6·0 0·2 ––––––– 5·8 ––––––– 0·2 3·9 1·7 ––––––– 5·8 ––––––– 5·7 6·0 ––––––– 5·7 0·2 ––––––– 5·5 ––––––– ––––––– 6·0 0·2 ––––––– 5·8 ––––––– Included in Group borrowings are secured borrowings of £3·1 million (1997/8 - £2·0 million). Security is provided on the assets of certain overseas subsidiaries. Renold plc borrowings are unsecured. Group Renold plc 1999 £m 0·5 4·3 0·1 0·2 0·6 1998 £m 0·4 4·1 0·2 0·2 1·2 ––––––– 5·7 ––––––– ––––––– 6·1 ––––––– 1999 £m 23·3 4·3 2·8 3·9 1·5 4·8 8·2 0·2 ––––––– 49·0 ––––––– 0·3 0·5 ––––––– 0·8 ––––––– 1998 £m 22·6 4·1 4·4 3·5 3·0 8·3 0·4 ––––––– 46·3 ––––––– 0·3 0·6 ––––––– 0·9 ––––––– 13. Creditors Amounts falling due within one year Trade creditors Dividends payable Corporate taxes Other taxation and social security Advance payments from customers Other creditors Accruals Finance lease obligations Amounts falling due after more than one year Finance lease obligations Between one and ﬁve years Other creditors 33 55643NOTES 30/6/99 10:54 am Page 34 Notes on the Accounts continued 14. Provisions for pensions The Group operates a number of pension schemes throughout the world. In the UK, the schemes are deﬁned beneﬁts type schemes with assets held in trustee administered funds. Overseas employees participate in a variety of different pension arrangements of the deﬁned contribution or deﬁned beneﬁts type funded in accordance with local practice. There is no material surplus or deﬁcit in any of the overseas schemes and actuarial valuations of these schemes are carried out at least every three years. The total pension costs for the Group were as follows: UK Overseas 1999 £m 1·3 1·8 ––––––– 3·1 ––––––– 1998 £m 1·0 1·8 ––––––– 2·8 ––––––– The UK cost for 1998/9 reﬂects the regular contribution rate less £0·9 million (1997/8 - £0·8 million) in respect of the actuarial surplus, calculated on an SSAP 24 basis, which is being recognised over the average expected remaining service life of active scheme members of approximately 15 years from 5 April 1998. The majority of UK employees are eligible to join one of two schemes, the Renold Group Pension Scheme and the Renold Supplementary Scheme 1997. The pension costs relating to these schemes are assessed in accordance with the advice of William M Mercer Limited, the Group’s consulting actuaries, using the projected unit method. The last actuarial valuations of these schemes were carried out as at 5 April 1998. The assumptions which have the most signiﬁcant effect on the results of the valuations are those relating to the rate of return on investments and the rates of increase in salaries and pensions. It has been assumed that the investment return will be 8·5% per annum, that salary increases will average 6·0% per annum and that present and future pensions will increase at rates of 3% or 4% per annum. At the date of the 1998 valuations the actuarial value of the assets of these schemes totalled £84·3 million which represented 103% of the liabilities in respect of beneﬁts accrued to members, allowing for expected future increases in earnings. Separate pension arrangements are operated by Jones & Shipman p.l.c., which was acquired with effect from 31 December 1998, including a deﬁned beneﬁt scheme for UK employees. At the time of the last actuarial valuation in April 1997 the actuarial value of the assets of this scheme was £22·2 million which represented 100% of the liabilities in respect of beneﬁts accrued to members. Overseas pension costs include £1·0 million (1997/8 - £1·0 million) in respect of Germany and Australia where the charge is determined in accordance with SSAP 24. For other overseas countries, no adjustment has been made to the local pension costs, since any differences from a charge calculated in accordance with SSAP 24 are not considered to be material. A provision is included in respect of the excess of the accumulated pension cost over the amount externally funded as follows: UK schemes Overseas schemes The movement in the year was as follows: At beginning of year Exchange translation differences Proﬁt and loss account Utilised At end of year 1998 £m 2·4 9·3 ––––––– 11·7 ––––––– 1999 £m 2·5 10·1 ––––––– 12·6 ––––––– £m 11·7 0·6 3·1 (2·8) ––––––– 12·6 ––––––– 34 55643NOTES 30/6/99 10:54 am Page 35 Notes on the Accounts for the ﬁnancial year ended 28 March 1999 15. Called up share capital Equity interests Ordinary shares of 25p each Non-equity interests 6% Cumulative Preference Stock (£1 units) Authorised Issued 1999 £m 23·1 0·6 ––––––– 23·7 ––––––– 1998 £m 23·1 0·6 ––––––– 23·7 ––––––– 1999 £m 17·3 0·6 ––––––– 17·9 ––––––– 1998 £m 17·1 0·6 ––––––– 17·7 ––––––– The Company issued 481,743 ordinary shares of 25p each for a cash consideration of £634,658 during the year by the exercise of options under the 1985 Renold Executive Share Option Scheme, the 1985 Renold Savings Related Share Option Scheme and in respect of the Renold Employee Share Scheme. At 3 April 1999 the issued Ordinary Share Capital comprised 69,191,950 ordinary shares of 25p each. The preference shares, which comprise the only non-equity interest in shareholders’ funds, have the following rights: (i) (ii) (iii) a ﬁxed cumulative preferential dividend at the rate of 6% (for dividends payable prior to 6 April 1999 - 4·2% plus tax credit) per annum payable half yearly on 1 January and 1 July in each year; they rank both with regard to dividend (including any arrears to the commencement of a winding up) and return of capital in priority to all other stock or shares of the Company but with no further right to participate in proﬁts or assets; there is 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 arrear for six calendar months; (iv) there is no redemption entitlement. 16. Reserves Group At beginning of year Exchange translation differences on net assets of overseas subsidiaries Share premium Retained proﬁt for the year Reclassiﬁcation of reserves At end of year Renold plc At beginning of year Share premium Retained proﬁt for the year Surplus on revaluation of shares in subsidiaries At end of year Share premium account £m 5·4 0·5 ––––––– 5·9 ––––––– 5·4 0·5 ––––––– 5·9 ––––––– Revaluation reserve £m Other reserves £m 5·0 1·8 (0·5) ––––––– 1·3 ––––––– 1·3 ––––––– 6·3 ––––––– 19·7 1·8 ––––––– 21·5 ––––––– Proﬁt and loss account £m 56·1 0·7 1·3 (0·8) ––––––– 57·3 ––––––– 43·2 0·2 ––––––– 43·4 ––––––– Total reserves £m 68·3 0·7 0·5 1·3 ––––––– 70·8 ––––––– 68·3 0·5 0·2 1·8 ––––––– 70·8 ––––––– The consolidated proﬁt for the ﬁnancial year includes a proﬁt of £6·6 million (1997/8 - £10·3 million) which is dealt with in the accounts of the parent company. Cumulative goodwill written off to Group reserves at 3 April 1999, subsequent to the capital reorganisation in January 1985, amounted to £3·6 million (1997/8 - £3·6 million). 35 55643NOTES 30/6/99 10:54 am Page 36 Notes on the Accounts continued 17. Deferred taxation No provision has been made for deferred taxation. At 3 April 1999, there were UK ﬁxed asset and other timing differences, at the corporate tax rate, as follows: 1999 £m 1998 £m Fixed assets Other (0·4) (1·6) ––––––– (2·0) ––––––– 3·4 (1·5) ––––––– 1·9 ––––––– In addition, there are tax losses in certain UK subsidiaries amounting to £2·2 million. Surplus advance corporation tax written off amounts to £2·1 million (1997/8 - £5·6 million) which is available for future relief, subject to the new shadow ACT rules. Overseas timing differences amounted, at the relevant corporation tax rates, to £2·9 million (1997/8 - £2·5 million) which relate principally to ﬁxed asset revaluations. Distributions by overseas companies would in most cases be subject to additional taxation. 18. Operating lease obligations At the end of the year there were annual commitments under non-cancellable operating leases as follows: Leases expiring: Within one year Between two and ﬁve years Over ﬁve years Total annual commitments 19. Contingent liabilities 1999 1998 Properties £m Equipment £m Properties £m Equipment £m 0·1 0·2 1·0 ––––––– 1·3 ––––––– 0·2 0·6 ––––––– 0·8 ––––––– 0·1 0·4 0·8 ––––––– 1·3 ––––––– 0·2 0·5 ––––––– 0·7 ––––––– Contingent liabilities at 3 April 1999 in respect of guarantees amounted to £1·4 million (1997/8 - £1·5 million) for the Group. In addition Renold plc had guaranteed bank and other borrowings by subsidiaries which amounted to £Nil (1997/8 - £0·1 million). 20. Share options Share options have been granted under the Executive Share Option Schemes and the Savings Related Share Option Schemes. At 3 April 1999 unexercised options for ordinary shares amounted to 1,829,871 (1997/8 - 1,858,162) made up as follows: Date normally exercisable Executive Share Option Schemes Within seven years from: 24 November 1995 30 November 1996 1 December 1997 16 July 1999 (1995 Scheme) 18 July 2000 (1995 Scheme) 17 July 2001 (1995 Scheme) Within four years from: 16 July 1999 (1995 Scheme) 18 July 2000 (1995 Scheme) Savings Related Share Option Schemes Within six months from: 1 February 1999 1 February 2000 (1995 Scheme) 1 February 2002 (1995 Scheme) 36 Option price (pence per share) Number of shares 1999 Number of shares 1998 52·5 120·3 184·3 293·83 242·67 237·33 293·83 242·67 97·36 200·8 200·8 40,000 240,000 85,000 91,511 45,647 330,000 50,000 250,000 95,000 91,511 50,647 323,489 249,353 ––––––––– 1,405,000 ––––––––– 323,489 249,353 ––––––––– 1,110,000 ––––––––– 99,921 107,796 217,154 ––––––––– 424,871 ––––––––– 374,910 130,136 243,116 ––––––––– 748,162 ––––––––– 55643NOTES 30/6/99 10:54 am Page 37 Notes on the Accounts for the ﬁnancial year ended 28 March 1999 21. Reconciliation of trading proﬁt to operating cash ﬂows Trading proﬁt Depreciation charges Pension costs provision Decrease/(increase) in stocks Decrease in debtors (Decrease)/increase in creditors Net cash inﬂow from operating activities 1999 £m 12·2 7·5 0·3 2·4 4·1 (2·7) ––––––– 23·8 ––––––– 1998 £m 22·4 6·5 (0·6) 0·6 0·3 ––––––– 29·2 ––––––– Net cash ﬂow from operating activities includes an outﬂow of £1·6 million which relates to exceptional redundancy and restructuring costs; an amount of £0·2 million was retained in creditors. 22. Analysis of cash ﬂows for headings netted in the Cash Flow Statement 1999 £m 1998 £m Servicing of ﬁnance Interest received Interest paid Interest element of ﬁnance lease rental payments Net cash inﬂow for servicing of ﬁnance Financing Issue of ordinary share capital Debt due within a year: (decrease)/increase in short-term borrowings Debt due beyond a year: repayment of loans Capital element of ﬁnance lease rental payments Net cash outﬂow from ﬁnancing 23. Analysis of net funds At beginning of year £m 4·7 (3·3) ––––––– 1·4 ––––––– (5·8) (0·6) (0·7) ––––––– (7·1) ––––––– 28·0 ––––––– 22·3 ––––––– Acquisition (excluding cash and overdrafts) £m ––––––– ––––––– (1·0) (3·5) (0·2) ––––––– (4·7) ––––––– ––––––– (4·7) ––––––– Cash ﬂow £m 0·7 (2·2) ––––––– (1·5) ––––––– 1·3 3·9 0·4 ––––––– 5·6 ––––––– (11·2) ––––––– (7·1) ––––––– Cash in hand, at bank Overdrafts Debt due after one year Debt due within one year Finance leases Short term deposits Total 37 1·5 (1·4) (0·1) ––––––– – ––––––– 0·7 (3·9) (1·3) (0·4) ––––––– (4·9) ––––––– Exchange movement £m (0·1) ––––––– (0·1) ––––––– ––––––– ––––––– 0·4 ––––––– 0·3 ––––––– 1·1 (0·7) (0·1) ––––––– 0·3 ––––––– 0·4 0·5 (0·6) (0·5) ––––––– (0·2) ––––––– At end of year £m 5·4 (5·6) ––––––– (0·2) ––––––– (5·5) (0·2) (0·5) ––––––– (6·2) ––––––– 17·2 ––––––– 10·8 ––––––– 55643NOTES 30/6/99 10:54 am Page 38 Notes on the Accounts continued 24. Acquisition of subsidiary The effect of the acquisition of Jones & Shipman p.l.c. at 31 December 1998 was as follows: Intangible asset – goodwill Fixed assets Stocks Debtors Creditors Loans Finance leases Net overdrafts Goodwill Consideration – cash paid including costs Book value £m 1·7 3·5 9·2 4·1 (6·5) (4·5) (0·2) (1·7) ––––––– 5·6 ––––––– Accounting policy adjustment £m Fair value adjustment £m Provisional fair value to the Group £m 0·2 (0·4) (0·2) (1·7) (0·4) (0·3) ––––––– (0·4) ––––––– ––––––– (2·4) ––––––– 3·3 8·8 4·1 (7·0) (4·5) (0·2) (1·7) ––––––– 2·8 2·9 ––––––– 5·7 ––––––– Adjustments have been made to align net assets with Renold Group accounting policies; these adjustments relate mainly to machines transferred to ﬁxed assets from stocks and to additional stock and warranty provisions. Intangible assets acquired have been written off, properties have been revalued to reﬂect current market value, and pre-acquisition liabilities which had not been provided for have been recognised. Pension fund liabilities have not been revalued in arriving at the provisional fair value. Cash paid including costs Net overdrafts acquired Cash outﬂow on acquisition Loans and ﬁnance leases acquired Cash outﬂow and borrowings acquired £m 5·7 1·7 ––––––– 7·4 4·7 ––––––– 12·1 ––––––– Jones & Shipman p.l.c. made a loss after taxation of £3·9 million in the period from 1 April 1998 to the date of acquisition 31 December 1998 (year to 31 March 1998 proﬁt £0·2 million). Jones & Shipman p.l.c. contributed a net cash outﬂow of £1·5 million to the Group’s net cash inﬂow from operating activities, and paid £0·1 million for servicing of ﬁnance. 38 55643NOTES 30/6/99 10:54 am Page 39 Notes on the Accounts for the ﬁnancial year ended 28 March 1999 25. Financial instruments These notes should be read in conjunction with the narrative disclosures in the Financial Review on page 12. (a) The Group does not trade in ﬁnancial instruments. (b) Short term debtors and creditors Short term debtors and creditors have been excluded from all the following disclosures, other than the currency risk disclosures. (c) Currency and interest rate proﬁle of ﬁnancial liabilities at 3 April 1999 Currency Sterling – Financial liabilities – Preference shares US Dollar Euro Other Weighted average interest rate % Weighted average period for which rate is ﬁxed Years 9·2 6·0 7·4 * Fixed rate £m 5·9 0·6 0·1 0·3 ––––––– 6·9 ––––––– Floating rate £m 2·6 2·5 0·4 ––––––– 5·5 ––––––– Total £m 5·9 0·6 2·7 2·8 0·4 ––––––– 12·4 ––––––– *Preference shares have no ﬁxed repayment date. The sterling ﬁxed rate ﬁnancial liabilities take into account interest rate swaps. Floating rate ﬁnancial liabilities bear interest at rates, based on relevant national base rate equivalents, which can ﬂuctuate on a daily basis. (d) Currency and interest rate proﬁle of ﬁnancial assets Currency Sterling Euro Other Cash at bank and in hand £m Short term deposits £m 2·0 1·5 1·9 ––––––– 5·4 ––––––– 10·1 6·8 0·3 ––––––– 17·2 ––––––– Total £m 12·1 8·3 2·2 ––––––– 22·6 ––––––– Cash balances and short-term deposits are held with the Group’s bankers. The short-term deposits are held largely in the UK and Germany and earn interest at bank deposit interest rates for periods of up to three months. (e) Maturity of ﬁnancial liabilities The maturity proﬁle of the carrying amount of the Group’s ﬁnancial liabilities, other than short-term creditors such as trade creditors and accruals, was as follows: In one year or less, or on demand In more than one year but not more than two years In more than two years but not more than ﬁve years In more than ﬁve years Debt £m 5·8 0·2 4·0 1·9 ––––––– 11·9 ––––––– Finance leases £m 0·2 0·1 0·2 ––––––– 0·5 ––––––– Total £m 6·0 0·3 4·2 1·9 ––––––– 12·4 ––––––– Debt due in more than ﬁve years includes £0·6 million (1997/8 - £0·6 million) in respect of Renold plc’s preference shares. 39 55643NOTES 30/6/99 10:54 am Page 40 Notes on the Accounts continued 25. Financial instruments (continued) (f) Borrowing facilities The Group has the following undrawn committed borrowing facilities available at 3 April 1999 which are at ﬂoating rates of interest. Expiring within one year or less, or on demand Expiring in more than one year but not more than two years Expiring in more than two years £m 21·4 0·3 6·2 ––––––– 27·9 ––––––– The facilities expiring in one year or less, or on demand, are annual facilities subject to review at various dates during 1999/2000. Renold plc has a loan facility which is repayable within twelve months of the balance sheet date but, since the amount is drawn under a committed revolving loan facility, it is classiﬁed in the table above as expiring in more than two years on the basis of the expiry date of the facility in September 2002. (g) Fair values of ﬁnancial assets and ﬁnancial liabilities Primary ﬁnancial instruments held or issued to ﬁnance the Group’s operations: Short-term borrowings (up to one year) Long-term borrowings Preference shares Short-term deposits Cash at bank and in hand Book value £m Fair value £m (6·1) (5·7) (0·6) (6·1) (5·7) (0·5) 17·2 5·4 ––––––– 17·2 5·4 ––––––– Derivative ﬁnancial instruments held to manage the interest rate and currency proﬁle: Interest rate swaps (0·7) Under the Group’s accounting policy, foreign currency assets and liabilities that are hedged using forward foreign exchange contracts are translated at the forward rate inherent in the contracts. Consequently, the book value of the relevant asset or liability effectively is the fair value of the forward foreign exchange contract. Fair values of the preference shares and interest rate swaps are based on market values at the balance sheet date. There is no signiﬁcant difference between the book and fair value of forward foreign exchange contracts held or issued to hedge currency exposures on expected future transactions. (h) Currency exposures The analysis below shows the net monetary assets/liabilities of companies in the Group that are not denominated in their functional currency. Exchange differences on these exposures will be recognised in the proﬁt and loss account. Functional currency of companies Sterling US dollars Euro Other currencies Sterling £m US dollars £m (1·0) (1·2) (0·4) ––––––– (2·6) ––––––– (0·8) 0·7 ––––––– (0·1) ––––––– Euro £m 0·3 Other £m 0·4 (0·1) ––––––– 0·2 ––––––– ––––––– 0·4 ––––––– Total £m (0·1) (1·0) (0·5) (0·5) ––––––– (2·1) ––––––– (i) Gains and losses on instruments used for hedging There were no signiﬁcant unrecognised or deferred gains and losses on hedges at 3 April 1999 and at 28 March 1998. 40 55643NOTES 30/6/99 10:54 am Page 41 Principal Subsidiary Companies as at 3 April 1999 UNITED KINGDOM Renold Power Transmission Limited* FACTORIES: BRADFORD, BREDBURY, BURTON, CARDIFF, HALIFAX, LONDON, MILNROW Renold International Holdings Limited* Jones & Shipman p.l.c.* FACTORY: LEICESTER – Goodwin Electronics Limited FACTORY: BROMBOROUGH REST OF EUROPE Austria Belgium Renold GmbH Renold Continental Limited (incorporated in the United Kingdom) Denmark Renold A/S France Germany Holland Sweden Brampton Renold SA FACTORIES: CALAIS, LILLE Manifold Indexing SARL Jones & Shipman SARL Renold (Deutschland) GmbH – Arnold & Stolzenberg GmbH FACTORY: EINBECK – Renold Manifold GmbH Renold Continental Limited (incorporated in the United Kingdom) Renold Transmission AB Switzerland Renold (Switzerland) GmbH NORTH AMERICA Canada USA Renold Canada Limited Renold Holdings Inc – Renold Inc FACTORY: WESTFIELD, NY – Renold Power Transmission Corporation Jones & Shipman Inc Edgetek Machine Corporation (80%) FACTORY: MERIDEN, CT OTHER COUNTRIES Australia Renold Australia Proprietary Limited FACTORY: MELBOURNE Malaysia Renold (Malaysia) Sdn Bhd New Zealand Renold Christian Limited FACTORY: AUCKLAND Singapore Renold Overseas Limited (incorporated in the United Kingdom) South Africa Renold Crofts (Pty) Limited FACTORY: BENONI *Direct subsidiary of Renold plc Subsidiary companies listed above are those which, in the opinion of the directors, principally contributed to the results and assets of the Group. Companies of minor importance are omitted by virtue of Section 231 and Schedule 5 of the Companies Act 1985. All companies are direct or indirect wholly owned subsidiaries of Renold plc except where otherwise indicated. Renold Power Transmission Limited and Renold International Holdings Limited are registered in England and Wales. Overseas companies are incorporated in the countries in which they operate except where otherwise stated. 41 55643NOTES 30/6/99 10:54 am Page 42 Group Five Year Financial Review for the ﬁnancial year ended 28 March 1998 Proﬁt and loss account £m Turnover Trading proﬁt before exceptional redundancy and restructuring costs Proﬁt on ordinary activities before tax Proﬁt after tax for ordinary shareholders Balance sheet £m Fixed assets Stocks Debtors Creditors Trading assets Goodwill Properties held for sale Cash (net of borrowings including ﬁnance leases) Dividends and tax Provisions for pensions Net assets Key data Trading return on average trading assets 1 2 Trading proﬁt on turnover 1 Capital expenditure Basic earnings per share Dividends per ordinary share Employees at year end % % £m p p 1999 171·6 ––––– 14·0 ––––– 12·4 7·7 1999 53·6 46·6 31·7 (42·2) ––––– 89·7 2·9 5·0 10·8 (7·1) (12·6) ––––– 88·7 ––––– 1999 17·1 8·2 11·3 11·1 9·25 2,881 1998 183·6 ––––– 22·4 ––––– 22·5 17·6 1998 45·8 39·8 31·3 (38·0) ––––– 78·9 5·0 22·3 (8·5) (11·7) ––––– 86·0 ––––– 1998 27·9 12·2 9·6 25·7 9·0 2,912 1997 180·3 ––––– 22·0 ––––– 21·5 15·5 1997 44·4 41·8 34·0 (38·5) ––––– 81·7 5·0 12·8 (9·0) (13·0) ––––– 77·5 ––––– 1997 26·9 12·2 7·4 22·7 8·0 2,825 1996 179·3 ––––– 19·9 ––––– 18·7 14·0 1996 45·7 44·6 33·3 (41·9) ––––– 81·7 5·0 10·4 (8·6) (14·8) ––––– 73·7 ––––– 1996 25·6 11·1 9·7 20·8 7·0 2,848 1995 148·7 ––––– 13·3 ––––– 11·6 9·0 1995 41·7 38·6 29·7 (36·5) ––––– 73·5 5·6 4·4 (5·1) (14·4) ––––– 64·0 ––––– 1995 18·5 8·9 7·8 13·6 4·5 2,751 1 Based on trading proﬁt before exceptional redundancy and restructuring costs. 2 Average trading assets are the average of opening and closing trading assets; for 1999 the average includes the assets of Jones & Shipman p.l.c. for the period since acquisition. 42 55643NOTES 30/6/99 10:54 am Page 43 Notice of Meeting for the ﬁnancial year ended 28 March 1998 Notice is hereby given that the sixty-ninth Annual General Meeting of Renold plc will be held at Renold House, Styal Road, Wythenshawe, Manchester M22 5WL on Friday 23 July 1999 at 2.30 pm for the following purposes: As Ordinary Business 1. To receive and to consider the Accounts and the Reports of the Directors and of the Auditors in respect of the ﬁnancial year ended 3 April 1999. 2. 3. 4. 5. 6. To declare a ﬁnal dividend on the issued ordinary shares. To elect Mr R F Leverton as a director. To re-elect Mr D Cotterill as a director. To re-elect Mr J H B Allan as a director. Special notice having been given of the intention to propose the resolution as an ordinary resolution: to re-appoint PricewaterhouseCoopers as auditors of the Company (having previously been appointed by the Board to ﬁll the casual vacancy arising by reason of the resignation of Price Waterhouse), to hold ofﬁce until the conclusion of the next general meeting at which accounts are laid before the Company and to authorise the directors to ﬁx their remuneration. As Special Business To consider and, if thought ﬁt, pass the following resolutions of which Resolution 7 will be proposed as an Ordinary Resolution and Resolutions 8 and 9 as Special Resolutions:- THAT the directors be and they are hereby generally and unconditionally authorised to exercise all powers of the Company to allot relevant securities (within the meaning of Section 80 of the Companies Act 1985) up to an aggregate nominal amount of £5,765,995 provided that this authority shall expire on 22 October 2000 or, if earlier, on the date of the next Annual General Meeting of the Company after the passing of this resolution save that the Company may, before such expiry, make an offer or agreement which would or might require relevant securities to be allotted after such expiry and the directors may allot relevant securities in pursuance of such offer or agreement as if the authority conferred hereby had not expired. THAT subject to the passing of the Ordinary Resolution numbered 7 above, the directors be and they are hereby empowered pursuant to Section 95 of the Companies Act 1985 to allot equity securities (within the meaning of Section 94 of that Act) pursuant to the authority conferred by the said Ordinary Resolution as if sub-section (1) of Section 89 of that Act did not apply to any such allotment provided that this power shall be limited to: (a) (b) (c) the allotment of equity securities in connection with or pursuant to an offer by way of rights to ordinary shareholders and other persons entitled to participate therein, in proportion as nearly as may be to their holdings of such shares (or, as appropriate, to the number of ordinary shares which such other persons are for these purposes deemed to hold) subject only to such exclusions or other arrangements as the directors may feel necessary or expedient to deal with fractional entitlements or legal or practical problems under the laws of, or the requirements of any recognised regulatory body in any territory; the allotment of equity securities under the Renold Employee Share Scheme, the Renold (1995) Executive Share Option Scheme and the Renold (1995) Savings Related Share Option Scheme; and the allotment of equity securities (otherwise than pursuant to paragraphs (a) and (b) above) up to an aggregate nominal amount of £864,899 (being equal to approximately 5% of the aggregate nominal amount of the Company’s ordinary share capital currently in issue at the date of passing this resolution) and shall expire on 22 October 2000 or, if earlier, on the date of the next Annual General Meeting of the Company after the passing of this resolution save that the Company may before such expiry make an offer or agreement which would or might require equity securities to be allotted after such expiry and the directors may allot equity securities in pursuance of such offer or agreement as if the power conferred hereby had not expired. 7. 8. 43 55643NOTES 30/6/99 10:54 am Page 44 Notice of Meeting for the ﬁnancial year ended 28 March 1998 9. THAT the Articles of Association set out in the document produced to the meeting (and signed by the Chairman for the purpose of identiﬁcation) be hereby amended by the deletion of the words “(by virtue of the Finance Acts 1972 and 1976 dividends payable on or after 6 April 1973 are payable at the rate of 4.2% per annum without any tax deduction).” from the second paragraph of Article 7.1 of the Articles of Association. By Order of the Board G R Newton Secretary 23 June 1999 Registered Ofﬁce: Renold House Styal Road Wythenshawe Manchester M22 5WL Only the holders of ordinary shares are entitled as members to attend or be represented at the meeting. To be entitled to attend and vote at the meeting (and for the purpose of the determination by the Company of the number of votes they may cast), members must be entered on the Company’s register of members at close of business on 21 July 1999 ("the speciﬁed time"). If the meeting is adjourned to a time not more than 48 hours after the speciﬁed time applicable to the original meeting, that time will also apply for the purpose of determining the entitlement of members to attend and vote (and for the purpose of determining the number of votes they may cast) at the adjourned meeting. If however the meeting is adjourned for a longer period then, to be so entitled, members must be entered on the Company’s register of members at the time which is 48 hours before the time ﬁxed for the adjourned meeting or, if the Company gives notice of the adjourned meeting, at the time speciﬁed in that notice. A member entitled to attend and vote may appoint one or more proxies, who need not be members, to attend and vote instead of such member. A proxy may vote only on a poll. To be valid the instrument appointing a proxy must be duly executed and deposited at the Registrars of the Company not later than 48 hours before the due time of the meeting. The dividend recommended, if approved, will be paid on 5 August 1999 to members appearing on the register on 25 June 1999. Copies of contracts of service of directors of the Company, other than contracts expiring, or determinable by the Company without payment of compensation, within one year, together with the existing Articles of Association and the amended Articles of Association, will be available for inspection at the Company’s registered ofﬁce and at the ofﬁces of Eversheds, Senator House, 85 Queen Victoria Street, London EC4V 4JL during the usual business hours on any weekday (Saturdays, Sundays and public holidays excluded) from the date of this notice until the date of the Annual General Meeting, and will be available for inspection at the place of the Annual General Meeting from 2.15 pm until close of meeting. 44 55643NOTES 30/6/99 10:54 am Page 45 Financial Calendar for the ﬁnancial year ended 28 March 1999 Annual General Meeting Final ordinary dividend for 1998/9 - payment date Half year end 1999/00 Half year 1999/00 results published Interim ordinary dividend for 1999/00 payable Year end 1999/00 Preliminary announcement of annual results 1999/00 Other dividend payments Preference dividends: 1999 23 July 5 August 2 October mid November 2000 end January 1 April early June 1 July and 1 January 45 cover_new 30/6/99 1:17 pm Page 1 Renold plc, Renold House, Styal Road, Wythenshawe, Manchester M22 5WL, England. Telephone: + 44 (0) 161 437 5221 Fax: + 44 (0) 161 437 7782 www.renold.com e-mail: enquiry@renold.com

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