Renold plc
Renold House
Styal Road
Wythenshawe
Manchester M22 5WL
Telephone: +44 (0)161 498 4500
Fax: +44 (0)161 437 7782
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Annual Report and
Accounts 2009
Delivering
performance
in a challenging
environment
www.renold.com
www.renold.com
In this very tough environment
we have delivered a robust set
of results for 2008/09 despite
signifi cant challenges. We are
well prepared and focused on
what needs to be delivered
whilst proactively managing
our costs to ensure Renold is
fi t for the environment today
and tomorrow...
Financial highlights
Sales
(£million)
Operating Profit
(£million)
Return on Sales
(%)
Return on Capital
Employed (%)
08/09
07/08
06/07
05/06
08/09
07/08
06/07
05/06
08/09
07/08
06/07
05/06
08/09
07/08
06/07
05/06
194.7
172.6
159.3
155.0
10.0
9.8
12.0
Continuing operations:
Turnover
Operating profi t
Operating profi t before exceptional items
Profi t before tax and exceptional items
Profi t before tax
Discontinued operations:
Profi t for the year from
discontinued operations
5.1
7.0
6.2
6.8
4.4
11.6
17.4
14.9
7.7
Other information:
Basic profi t per share – Group
Basic earnings per share
– continuing operations
Adjusted earnings per share (adjusting for
the after-tax effects of exceptional items)
– continuing operations
Capital expenditure
Net debt
2009
£m
2008
£m
194.7
7.6
10.0
5.3
2.9
172.6
12.2
12.0
9.1
9.3
–
1.5
2.8p
11.0p
2.8p
8.9p
7.3p
5.8
37.2
8.5p
8.2
23.9
Principal subsidiary companies as at 31 March 200928
Principal subsidiary companies 77
United Kingdom
Renold Power Transmission Limited (held directly by Renold plc)
Europe
(other than the United Kingdom)
Austria
Belgium
Denmark
France
Germany
Holland
Poland
Russia
Sweden
Switzerland Renold (Switzerland) GmbH
Renold GmbH
Renold Continental Limited (incorporated in the United Kingdom)
Renold A/S
Brampton Renold SA
Renold GmbH
Renold Continental Limited (incorporated in the United Kingdom)
Renold Polska sp. z o.o
Renold Russia (Obshchestvo s Ogranichennoj Otvetstvennost’u)
Renold Transmission AB
North America
Canada
USA
Renold Canada Limited
Renold Inc
Jeffrey Chain LP
Other countries
Australia
Renold Australia Proprietary Limited
China
Renold Transmission (Shanghai) Company Limited
Renold Technologies (Shanghai) Company Limited
Renold (Hangzhou) Co Ltd
India
Renold Chain India Private Limited
Malaysia
Renold (Malaysia) Sdn Bhd
New Zealand Renold New Zealand Limited
Singapore
Renold Transmission Limited
(incorporated in the United Kingdom)
South Africa Renold Crofts (Pty) Limited
The subsidiary companies listed above are those which, in our opinion, 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 of our companies other than Renold (Hangzhou) Co Ltd and Renold Chain India Private Limited (in which we hold majority stakes29)
are direct or indirect subsidiaries of Renold plc, a company incorporated in England and Wales, which ultimately holds a 100% interest
in the equity shares and voting rights. Renold Power Transmission Limited and Renold Continental Limited are registered in England
and Wales. Our overseas companies are incorporated in the countries in which they operate except where otherwise stated.
28 All companies held indirectly unless otherwise stated.
29 See Note 26 to the consolidated fi nancial statements for information on % shareholding in Renold (Hangzhou) Co Ltd and Renold Chain India Private Limited.
This report has been printed in the UK, our printers are
Environmental Management System ISO 14001 accredited
and Forest Stewardship Council (FSC) chain of custody certifi ed.
All inks are vegetable based.
Designed and produced by The College www.thecollege.uk.com
Annual Report and Accounts 2009 Renold plc
Overview 01
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Contents
Overview
This section provides an overview of
our financial highlights and a summary
of who we are and what we do. Our
Chairman, Matthew Peacock, gives his
views on the year and the progress made.
IFC Financial highlights
02 At a glance
04 Chairman’s letter
Business review
Our strategy
We outline our strategy and how
we are taking the business forward.
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Our performance
This section gives details of our operational
and financial performance across the Group.
Responsibilities
Here we outline our approach to corporate
responsibility and talk about our people
and why they are important to us.
Governance
This section explains our corporate
governance, our directors’ report
and our directors’ remuneration.
09 Chief Executive’s and Finance Director’s review
Chief Executive’s review
09 Overview
09 Going forward
Finance Director’s review
11 Our performance
13
Principal risks and uncertainties and
key performance indicators
14 Responsibilities
16 Board of directors
17 Corporate governance
20 Directors’ remuneration report
25 Statement of directors’ responsibilities
26 Statutory information
Financial statements
This section contains all the detailed
financial statements for the Group
and the Company.
29 Report of the independent auditors
30 Accounting policies
36 Consolidated income statement
37 Consolidated balance sheet
38 Consolidated cash flow statement
39 Consolidated statement of recognised income and expense
40 Notes to the consolidated financial statements
66 Group five-year financial review
67 Report of the independent auditors
68 Accounting policies
70 Company balance sheet
71 Company statement of total recognised gains and losses
72 Notes to the Company financial statements
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Annual Report and Accounts 2009 Renold plc
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02 Overview
At a glance
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Renold plc is an international engineering
group, producing a wide range of high-quality
engineering products and application solutions,
operating in 20 countries worldwide. The principal
activities of the Group are the manufacture and
sale of industrial chains and related power
transmission products.
Renold Chain
Operating in diverse sectors
> Basic industries – mining, oil, cement, steel
> Construction – off-road vehicles, lumber
> Infrastructure – waste water plants, escalators,
underground systems, power generation
> Food – palm oil, confectionery, beverages
> Manufacturing – OEMs, printing
> Transport – shipping, freight handling,
aerospace
> Leisure – theme parks
Renold plc Annual Report and Accounts 2009
Renold manufactures chain for many applications.
Heavy duty, high precision, indoor or outdoor, clean or
contaminated, high or low temperature environments,
these are all in a day’s work.
The vast range of roller chains means that for most
requirements there is a Renold solution. Our premier
brand, Renold Synergy, offers unbeatable wear and fatigue
performance, whilst the all-purpose range of standard
chain provides affordable reliability.
Continuous research, development, innovation and ingenuity
has led to the production of more specialised solutions such
as Hydro-Service with its superior corrosion-resistant coating
and the Syno range which sets a new benchmark for chains
requiring little or no lubrication. In addition to a broad range
of chains involving different materials and platings, there is
also a comprehensive range of attachment chains.
Conveying applications including theme park rides, water
treatment plants, cement mills, agricultural machinery,
mining and sugar production all rely on high-specification
materials and treatment processes used in Renold conveyor
chains. Lifting chain from Renold also features on one in
three fork lift trucks produced worldwide.
Behind every conceivable industry Renold is working hard at
delivering performance and increasing productivity.
Overview 03
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Sales – Geography
Turnover analysis – continuing operations
Renold has sales in 105 countries
> Europe
43%
> Americas
35%
> China
3%
> India*
2%
> Rest of World
17%
* Six months’ ownership
Renold Gears
Renold Couplings
Renold Gears, also at the leading edge of technology in the
power transmission industry, is world renowned for its
innovative products. A comprehensive range of right angle
gear units offers ultimate versatility and durability, with
robust construction for arduous applications.
The SMXtra range of shaft-mounted helical gear units
with the unique Renold quick release bush enables simple
installation, whilst other gear hydrostatic variable speed
drive units have a proven reliability in hazardous
environments, with high speed-holding accuracies.
Renold is an influential innovator providing bespoke gear
solutions across the globe on escalators and lifts, in power
generation, security and steel, and offering unique design
and manufacturing capability.
It is also worth mentioning that Renold Gears manufactures
not only small units but also very large gearboxes that can
weigh well over ten tonnes and be taller than an average
human being. They often have to operate in extreme
conditions and total reliability is essential.
This part of the Company has earned itself a very good
reputation for finding new solutions when refurbishing
or upgrading gearboxes and it prides itself on its standards
of after-sales service.
Renold Couplings offers the widest range of coupling
solutions in the world. Products ranging from sprag clutches
to fluid couplings are all designed and manufactured to the
very highest of international standards.
Custom gear spindles and gear couplings are supplied to the
primary metals industry, with innovations such as circulating
oil lubrication, roll end piloting, and compound tooth
curvature keeping Renold at the forefront of the market.
The rubber in compression design of torsionally flexible
couplings remains a great success in the diesel engine market,
with Hi-Tec Couplings serving demanding applications from
steel-making to mining and power generation.
A key to the success of the Couplings business is its ability
to be innovative and harness this to high levels of technical
excellence and reliability. Renold Couplings supplies some
very famous names in key industries and many of these
customers are very longstanding clients.
By way of example, this part of the Company has supplied
couplings to the large diesel marine market for some years.
These are used in a ship’s propulsion system and must be
utterly reliable because if, for instance, a tanker carrying crude
oil loses its propulsion it can rapidly become not only a safety
hazard but also an environmental disaster.
The supply of couplings for the mass transit subway systems
market is now a core activity.
Annual Report and Accounts 2009 Renold plc
04 Overview
Chairman’s letter
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Matthew Peacock
Chairman
Renold re-positioned to take
advantage of recovery
Overview
In this, my third year as Chairman of your Board, I am again pleased
to report that Renold has delivered a good set of results in what,
towards the end of the year, proved to be a very challenging
environment. We have delivered revenue growth of 13% and an
operating profit of £10.0 million before tax and exceptional items
(2008 – £12.0 million).
The Group exceeded management expectations in the first half of
the financial year with a 36% increase in the order book and a 33%
increase in operating profit. This was a significant improvement
over the first half of the year in 2007/08. The Group was in line to
meet City expectations of operating profit for 2008/09, however,
since the third quarter most parts of the Group have experienced
major reductions in orders and sales as a result of the global
economic climate. Whilst we appear to be fairing better than our
competition and we have satisfied ourselves that current issues are
as a result of the general economy, we are far from complacent or
satisfied with where we find ourselves. Consequently, Renold has
aggressively cut costs to ensure it can continue to develop profitably
and take advantage of the global recovery, when it arrives.
At the period end, 59% of our direct labour was in low-cost
countries compared to zero in 2005 and to the original target of
40% by March 2009. This deserves particular comment as a major
development alongside improved profitability over the period.
Strategy
We have strengthened the business over the last year, primarily
via delivering cost reductions according to plan and by improved
access to low-cost manufacturing facilities. Cost savings, cash
generation and capital expenditure targets have been achieved.
Risk reduction actions on exchange rate exposure and energy
prices were also concluded.
Continued good progress was made on tax efficiency, pension
funding and unlocking freehold property value. Perhaps most
significantly, the integration of our September 2008 acquisition of
a 75% interest in the industrial chain business of L.G. Balakrishnan
& Bros Ltd (“LGB”) has been successful. This has enabled Renold to
promote its existing product range within India’s growing market
place as well as exploit new product, market and export
opportunities. Renold is now the market leader in India for
industrial steel chain.
Following the acquisitions in China and India, we initiated the
closure of our Polish facility, which will be completed in 2009/10.
So, in terms of the execution of the targets we set ourselves and
the improvement in profitability over the last few years, I am
satisfied we accomplished most of what we had hoped. However,
the current climate means we have a renewed challenge. We must
reset a firm platform from which Renold can continue to grow
profitably, despite the uncertainties of the interim and also take
advantage of any recovery in the global economy. We as a Board
are committed to this goal.
Looking forward, we will continue to focus on cost reduction and
on expanding geographically. Thus far, the emphasis has been on
moving the appropriate manufacturing capacity to low-cost
countries – a strategy which will continue to yield growth in our
core developed market territories. In addition, now that we are
physically present in these low-cost markets, we are in an excellent
position to expand our highly regarded product range into them.
We estimate that an annual industrial chain market of circa
£400 million1 exists in new territories where we have a current
market share of less than 1%.
Financing
In July 2009 we reached agreement (subject to full documentation)
to enter into a facility with The Royal Bank of Scotland plc and
Fortis Bank S.A./N.V. The credit and ancillary facilities provided are
similar in size to the previous facility. The term is for three years expiring
at the end of June 2012. Interest rates are in line with market rates
with covenants set to reflect the volatile industrial environment
with flexibility for currency movements. Warrants have been
granted over 3,500,000 ordinary shares of the Company (circa
4.3% of existing ordinary share capital), reflecting the short-term
outlook. This renewed facility provides a good base to implement
our strategy, providing flexibility through this period of uncertainty.
Your Board
I would particularly like to thank the Board for their support and
contribution this year. For the Non-Executive Directors, it has
required a considerable commitment of time. For the Executive
Directors, it has required a single-minded commitment to rapid
and difficult changes. The Board members have been constant this
year and are unanimous in their backing of the strategy. Rod Powell
will retire from the Board at the Annual General Meeting and I
thank him for all his efforts on behalf of Renold, in particular for
his input into manufacturing strategy and as Chairman of the
Remuneration Committee.
Outlook
The significant downturn in sales last year has continued into this
financial year with the first quarter showing a 25% year on year
decrease. We have entered our next financial year with caution
regarding the outlook for the global economy, notwithstanding
that we operate in many diverse geographies and sectors which
are somewhat uncorrelated with each other. As a consequence, the
Board has decided to recommend that no dividend be paid, but it
will consider future dividend policy in the light of results from the
business going forward.
We are competitive in all segments of the price/performance
pyramid which together with our manufacturing capability,
the diverse geography and market sectors we serve, ensures
that Renold is well placed for when the global economic
climate recovers.
We recognise that the prime focus for 2009/10 is on financial
stability and cash management. The Board and executive team are
proactive in these areas as well as the continuing identification of
cost reductions.
Matthew Peacock
Chairman
Renold plc Annual Report and Accounts 2009
1 Source: management estimate.
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Investing
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Special feature
IN DIA
Major acquisition completed
On 29 September 2008, we completed the
acquisition of a 75% interest in the industrial chain
business of L.G. Balakrishnan & Bros. Ltd (“LGB”).
£5m New revenue for Renold
– sales in first six months
The business, based in Tamil Nadu,
is already the market leader for
the production and distribution of
industrial chains in India, and will
provide an established manufacturing
base and sales distribution network.
This network enables us to promote
our existing product range into India’s
rapidly growing marketplace as well
as to exploit new product, market
and export opportunities.
Investing for growth and stability
Investing for growth is fundamental to our long-term
strategy and our acquisition gives us entry into India,
demonstrating our commitment to growth in
emerging markets. It will also assist in the overall
financial stabilisation of the Group. India has achieved
substantial growth over the past decade and we are
now well positioned to benefit from opportunities in
this region.
We established a new entity called Renold Chain
India Private Limited (“Renold Chain India”), which
has acquired all of the manufacturing assets and
the distribution channels of the industrial chain
business of LGB. Renold Chain India is 75% owned
by Renold, with 25% retained by LGB, which continues
to provide benefit to Renold. The strong working
relationship established during negotiations is
already bearing fruit in our initial development of the
business, which currently employs around 500 people
in the manufacture of a broad range of transmission
and conveyor engineered chain.
“ I am very pleased with our new operation in India.
We are the market leader in the domestic transmission
chain market and are very well respected for our
quality. In conveyor chain, we have launched the
Renold range of products, which is being widely
welcomed. Process industries such as cement and
fertilisers require high-quality, high-performance
conveyor chain to keep their plants running effi ciently
24/7 and so there is signifi cant interest in the chain
technology that Renold is bringing to India. I am
confi dent that Renold will soon be the sought after
conveyor chain supplier in India.”
“ To succeed in any business you need a good team.
The Indian team has been running a successful
business for some years. However, I have been
particularly impressed with how our team have
embraced all the new technology, product design
and systems Renold has brought to the table.
I am very excited at the growth opportunities
for Renold in India.”
Tony Pace, who is Senior Vice
President of Renold Chain India,
was previously Sales Manager,
Renold Australia.
Market leader in India
The acquired business, already the market leader for
the production and distribution of industrial chains
in India, has provided an established manufacturing
base and sales distribution network. This network
enables us to promote our existing product range
into India’s rapidly growing marketplace. The two
big markets in this region include the textile and
railway industries.
Indian Railways has one of the largest and busiest
rail networks in the world, transporting over 18
million passengers and more than 2 million tonnes
of freight daily. The Railway Wheel Factory (“RWF”)
is part of Indian Railways and currently produces
200,000 railway wheels per year, casting 650 tonnes
of steel a day. RWF is one of our leading customers,
purchasing both transmission and conveyor chains
for use in its production line.
The textile industry is also one of our largest market
segments for chain in India. Our chains are used
extensively on textile machinery.
Growth and cost reduction opportunities
The successful completion of this transaction has also
had an impact on our KPIs. 59% of the chain direct
labour force is in low-cost countries. Our growth
opportunities include:
• pulling existing products through newly acquired
channels to market
• sourcing of low-cost products not currently in
the portfolio
• transfer of products with demands for higher
quality steel than that available in China.
Sales distribution network
Having effective channels to market is important for
any business. In India, we are fortunate in having an
established network of distributors and dealers, with
some of these distributors being second-generation
family members who have grown up “selling chain”.
These distributors are somewhat unique, with many
of them working out of small local shop outlets with
a computer and a telephone and an endless stream
of customers calling into the shops to negotiate the
best price deal.
Special feature
IN DIA
1.
Providing global market access
to our new Indian facility
Renold has acquired a modern and
sophisticated manufacturing capability
which has successfully produced
advanced industrial chains for many
years. Integrating this capability into
the Group’s extensive sales channels has
already started to generate significant
growth opportunities. Specific
opportunities to expand our presence in
technically differentiated markets with
price-competitive products are already
progressing ahead of expectations.
2.
Significant presence in the
rapidly growing Indian market
Renold’s market share in India has been
transformed from minimal level to market
leadership, via our inheritance of the sales
branch structure and distribution network
built up by LGB over several decades. We
will continue to market the locally-made
product under the Renold Rolon brand,
which enjoys an excellent level of
recognition and leadership status in this
market consistent with the standing of
the Renold brand in the major economies
of the world.
Opportunities for
growth
in India
4.
Exploiting strong links
to Middle East
India has strong cultural and economic
ties to important markets in the Middle
East and Africa, and our new team in
Gudalur brings a wealth of personal
knowledge and relationships in these
markets to the Group. Renold will leverage
these commercial links to provide access
to all of the Group’s products to these
rapidly developing markets.
3.
Instant market access
for Renold products
Renold’s broader range of chain products
complements and substantially extends
the local scope of supply, providing our
Indian sales channels with the ability
to accelerate market share growth in
a rapidly developing market. Renold’s
global leadership in advanced solutions
chains is already generating an
enthusiastic response from this market,
which has not previously enjoyed
widespread access to these products.
Pull-through of the Group’s non-chain
products is also being rolled out into
this market.
Chief Executive’s review
Directors’ report – Business review 09
Second half
We believed some reduction in demand was likely during the
second half and therefore started to reduce costs from October
onwards. By the end of December, it became clear that there had
been a dramatic change in demand from our customers with a
significant reduction in orders from most markets and territories.
This reduction continued for the remainder of the year and
was particularly severe due to destocking by both the original
equipment manufacturers and our distributors. Cost reduction
became the prime focus of the second half.
Reduced hours of working were implemented in most facilities
and agreement was reached to implement a 10% reduction in pay
for all members of the Board, the senior management team and
most staff with effect from 1 April 2009.
The reduction in demand resulted in surplus manufacturing
capacity in the Group and, towards the end of the financial year,
it was decided to close our manufacturing facility in Poland with
production ceasing at the end of June 2009. This facility had
played a part in reducing manufacturing costs, but following the
recent acquisitions of businesses in China and India, it was no
longer considered a low-cost location.
In Europe, the sales organisation’s office in Brussels was sold and
the business relocated to Ghent, Belgium. In North America, fixed
costs will continue to be reduced through the appointment of an
agent for part of our Canadian operation.
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Capital expenditure was constrained during the second half of
the year. This will continue except for essential maintenance,
health and safety and environmental requirements.
These actions give us a significant reduction in our cost base,
which together with an improved contribution margin, partially
mitigates the impact of the reduced contribution resulting from
lower sales revenues.
I am very proud that all at Renold understood the need to support
these actions and responded positively. Our employees deserve
recognition and thanks for so doing. I have every confidence that
Renold is well positioned to take advantage of recovery when
markets stabilise.
Going forward
The clear focus on industrial power transmission and the strategy
to extend our manufacturing footprint to lower cost regions of
the world remain. This has delivered cost reductions, but
equally importantly, has allowed us access to a far wider range
of markets.
Manufacturing footprint
The acquisition in China has allowed Renold to be cost-
competitive with other manufacturers in the region. Subsequent
investments have improved capabilities and raised quality
standards to those expected of a Renold facility. These
investments have also increased capacity to the extent that the
tonnage of chain that can be delivered from our Chinese facility
is in line with the output from our two major European facilities.
Customer reaction to the new facility has been positive, with a
number of formal approvals being granted. In addition, there are
products which we had ceased producing, some in prior periods,
that can now be re-introduced into the Renold portfolio at a
competitive cost. The full benefits of this facility have yet to
be realised.
Annual Report and Accounts 2009 Renold plc
Robert Davies
Chief Executive
Renold has a 130-year
history of organic and
acquisitive growth in the
industrial chain market
and serves a wide range
of markets and countries
Overview
This was a year of two distinct halves. During the first half we
delivered on challenging targets and made good progress on
our longer term strategic ambitions. Renold was set to achieve
expectations for the year. However, the second half was
characterised by a significant downturn in orders and sales, as
a result of the global economic downturn as well as destocking
by customers. During the third quarter, we took decisive action
to resize the business to the anticipated new demand levels.
First half
A good set of results were delivered at the end of the first half
of the year, which were in line with management expectations.
The growth in sales of 16% and the implementation of our
manufacturing strategy fed through to an operating profit
increase of 33% and a doubling of profit after tax. The order book
ended the half 36% higher than the same period of the previous
year, which did not include the benefits brought by the Indian
acquisition. We were consequently well positioned to meet our
expectation of full-year sales and profit growth.
India
In September 2008, Renold acquired a 75% interest in the
industrial chain business of an Indian quoted group, LGB. The
acquisition gives Renold a market leading position in India and
opportunities for further development and cost reduction.
The primary strategy is to sell the current range of products
manufactured in India through our existing global distribution
network. Renold Chain India Private Limited is complementary
to the manufacturing business in China both in terms of the
product range and the markets served.
10 Directors’ report – Business review
Chief Executive’s review
continued
Market Penetration
The acquisition in India has extended the scope of products that
can now be produced in low-cost countries. As with China, good
progress has been made, but much more benefit will come as the
cycle of development, customer approval and testing completes.
Renold’s manufacturing footprint has improved significantly
in the last three years to become a leader in the field of
transmission chain.
Technical differentiation
Renold has always had a reputation for innovation and we intend
to continue to build on this in order to maintain and increase
our advantage in application solutions. This is where the “added
value” lies in our industry. At the same time, we intend to
maintain and build on our technological leadership, which is
well recognised by customers. In the current economic climate,
it is more important than ever to have technical leadership and
solutions that add value. The desire and energy to be at the
forefront in this area has built strong relationships with both
original equipment manufacturers and end users.
Service
The world is becoming a smaller place and increasingly
competitive, so Renold has a product offering covering the
spectrum of needs from Solution products at one end to more
utility products, for less exacting applications, at the other.
The goals of effectively managing on-time delivery, quality
and cost continue to be key objectives. Our organisation has
been changed to meet not only our growth ambitions, but
also to improve our service level.
Our customer service organisation in the USA has again been
recognised by a major customer. Renold was announced as
“Supplier of the Year” by the IDC based in Indianapolis, Indiana.
This award is recognition of the strength of all the elements of
the Renold team including engineering, manufacturing, quality,
sales and customer service. This award follows a similar recent
recognition by AIT, one of the largest distributors in the USA.
Gears and Couplings
The Gears and Couplings product lines delivered good sales and
profit growth. The award of another major contract for a mass
transit application was particularly welcomed. This $18 million
contract will be delivered over the next two years. These multi-
year contracts, with local governments as the end users, have
made these product lines more resilient to the recession than
Chain. Similarly, the operation in South Africa was not adversely
impacted as the major mining customers held up well throughout
the year. The capabilities and range of products produced in the
Gears and Couplings facility in Beicai, near Shanghai, was
increased during the year.
Gears and Couplings are not totally immune to the recession, with
a number of large infrastructure projects, particularly in China,
being delayed. These projects have not been lost to competition,
however, and are expected to return as government stimulus
money works it way through the system.
2009/10
The results of the changes made to our business model in recent
years allow us to better weather the current storm. The financial
year 2009/10 will be one of focusing on cost reduction, financial
stability and cash management which we are well placed to do.
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Renold in action
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Cloned wormwheel is British
firm’s largest
New drive solution enables
high-efficiency wind power
Renold Gears has manufactured the
largest wormwheel in the company’s
history. The phosphor-bronze wheel is
2.4 metres in diameter and weighs in
at just over four tonnes.
It’s an example of British engineering
at its best and shows that the world’s
blue chip companies are still turning
to the UK when they require high
degrees of engineering skill
and accuracy.
Renold Couplings, of Cardiff, has
helped to design a revolutionary new
transmission system for wind power
turbines that makes them lighter and
more efficient in operation. Renold’s
team modified an overrunning sprag
clutch and vee pulley assembly
connected to a gearbox via a Renoldflex
torsionally rigid coupling. The gearbox
is able to change the pitch angle of
the turbine’s rotors in different
wind conditions.
Solutions campaign
Renold successfully launched a
campaign to raise awareness of
selecting the right chain for the right
job. This campaign focused on the
comprehensive range of Solution
Chains available only from Renold.
These products represent the greatest
weapon for maintenance engineers
tackling the challenges of lubrication,
corrosion, abrasion, wear and fatigue,
demonstrating that industry can partner
with Renold to solve their chain and
power transmission problems.
Following an initial launch in the UK,
this promotion and its associated direct
marketing campaign was rolled out
across continental Europe.
Renold plc Annual Report and Accounts 2009
Finance Director’s review
Directors’ report – Business review 11
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Taxation
The tax charge on continuing operations of £0.8 million (2008 –
£3.1 million) represented an effective rate of approximately
28%, 5% less than that reported in 2007/08 and a continuation
of the downward trend.
Group results for the financial period
The profit for the financial year was £2.1 million compared with
£7.7 million last year; the basic earnings per share was 2.8p (2008
– 11.0p) and the diluted earnings per share was 2.8p (2008 – 10.8p).
The basic adjusted earnings per share (from continuing
operations before exceptional items) was 7.3p (2008 – 8.5p).
Balance sheet
Net assets at 31 March 2009 were £40.1 million (2008 – £41.0 million).
The liability for retirement benefit obligations was £55.1 million
(2008 – £31.2 million) before allowing for a net deferred tax asset
of £11.0 million (2008 – £4.8 million). Of the £55.1 million obligation,
£22.0 million arises in respect of non-UK unfunded schemes, which
are not required to be prefunded (see pensions on page 12).
Cash flow and borrowings
Operating cash inflow from continuing operations was £1.1 million
(2008 – £4.5 million). Payment for purchase of property, plant
and equipment was £5.5 million (2008 – £7.5 million). Group net
borrowings at 31 March 2009 were £37.2 million (2008 – £23.9
million) comprising cash and cash equivalents of £11.3 million
(2008 – £15.5 million) and borrowings, including preference shares,
of £48.5 million (2008 – £39.4 million).
Net borrowings at 31 March 2009 were impacted by the weaker
value of sterling, increasing the translated value of foreign
currency borrowings by £5.6 million compared to 31 March 2008.
Working capital balances at 31 March 2009 were also higher by
£1.2 million as a result of the increased steel prices experienced
during the period.
Acquisition
On 29 September 2008, the Group acquired a 75% interest in the
industrial chains business of LGB, in India. Initial consideration was
£5.0 million with a further £1.7 million (£0.9 million contingent and
£0.8 million deferred), to be paid in the financial year 2009/10 (see
Note 26). The assets acquired comprised goodwill of £2.1 million,
property, plant and equipment of £4.5 million, and inventories of
£1.7 million.
Renold Chain India is now a market leader for the production
of industrial chains in India and provides an established
manufacturing base and sales distribution network which will
enable Renold to promote its existing product range into India’s
rapidly growing marketplace.
Treasury and financial instruments
The Group treasury policy, approved by the directors, is to manage
its funding requirements and treasury risks without undertaking
any speculative risks. Note 25 to the financial statements provides
details of financial instruments. Note 27 sets out details of the
agreement of the new bank facility (subject to the completion
of full documentation) after the balance sheet date. The Group
maintains a mix of short- and medium-term facilities to ensure
that it has sufficient available funds for ongoing operations.
A major exposure of the Group earnings and cash flows relates
to currency risk on its sales and purchases made in foreign
(non-functional) currencies. To reduce such risks, these
transactions are covered primarily by forward foreign exchange
Annual Report and Accounts 2009 Renold plc
Peter Bream
Finance Director
Our performance
Overview
The financial statements of the Group have been prepared in
accordance with International Financial Reporting Standards
(IFRS) as adopted by the European Union. The financial
statements of the parent company, Renold plc, have been
prepared under UK Generally Accepted Accounting Principles
(UK GAAP) and are included on pages 68 to 75.
Revenue
Revenue increased by 13% to £194.7 million. Sales in the second
half-year, at £99.5 million, were 5% higher than in the first
half-year. At constant exchange rates, sales for the full year
were up 1% and sales in the second half-year were down 6%
on the same period last year.
Operating profit
Operating profit before exceptional items was £10.0 million,
down 17% on 2007/08. Return on sales2 for continuing operations
for the year before exceptionals was 5.1% compared with 7.0%
for last year. This deterioration was the result of lower sales.
Exceptional items resulted in a £2.4 million charge, compared
with a £0.2 million credit in 2007/08. £2.4 million redundancy
and restructuring costs were incurred to accommodate the
lower activity levels resulting from the global recession.
Further details of the exceptional items are given in Note 2(c)
to the financial statements.
Financing costs
Total net financing costs increased to £4.7 million (2008 –
£2.9 million). Net bank interest cost rose to £2.7 million (2008 –
£2.6 million) due to the increased levels of net debt in the period.
Amortisation of costs associated with the re-banking in February
2007 was £0.2 million (2008 – £0.2 million). The net interest cost
on pension plan balances and the expected return on pension
plan assets was a charge of £1.8 million (2008 – £0.1 million).
Profit before tax
Profit before tax and before exceptional items was £5.3 million
compared with £9.1 million last year. Profit before tax after exceptional
items was £2.9 million compared to £9.3 million in 2007/08.
2 Being operating profit before exceptional items on revenue from
continuing operations.
12 Directors’ report – Business review
Finance Director’s review
continued
contracts. Such commitments generally do not extend more than
12 months beyond the balance sheet date, although exceptions
can occur where longer term projects are entered into. To
manage foreign currency exchange risk on the translation of net
investments, certain Dollar-denominated borrowings taken out in
the UK to finance USA acquisitions have been designated as a
hedge of the net investment in USA subsidiaries.
Pensions
The management of Renold’s UK pension schemes continued to
be a focus and action was taken. All schemes were closed to new
entrants in 2002. However, the continued growth of the deficit
due to longevity and the performance of the financial markets
required action to limit our future anticipated risk. Pensions will
continue to be an area of pro-active management.
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The carrying value of these borrowings at 31 March 2009 was
£9.1 million (2008 – £6.5 million). Borrowings issued at variable rates
expose the Group to cash flow interest rate risk and borrowings
issued at fixed rates expose the Group to fair value interest rate risk.
The Group reviews the mix of fixed and floating debt and, during
the year, had interest rate swaps to manage part of this exposure.
At 31 March 2009, the Group had 3% (2008 – 20%) of its gross
debt at fixed interest rates. Cash deposits are placed short-term
with banks where security and liquidity are the primary objectives.
The Group has no significant concentrations of credit risk
with sales made to a wide spread of customers, industries
and geographies. Policies are in place to ensure that credit
risk on individual customers is kept to a minimum.
New bank facility
On 13 July 2009 the Group reached agreement (subject to the
completion of full documentation) to enter into a three year bank
facility with the existing syndicate members led by The Royal Bank
of Scotland plc, with Fortis Bank S.A./N.V. as a participant. This
agreement is in the form of agreed heads of terms together with a
letter of commitment and has received credit committee approval
from the banks. It is expected that full documentation will be
agreed and signed during July 2009. This facility, described more
fully in Note 27, is the Group’s principal credit facility, although it
does maintain facilities and relationships with a number of other
banks in the territories in which it operates.
Renold in action
Smartlink
Renold worked with agricultural
machinery manufacturer Vermeer
to monitor the chain drive system on
their latest hay baler, the 605 Super M,
using Renold’s innovative chain sensor,
Smartlink. This sensor system, available
only from Renold, reads load
characteristics of chain in operation
to provide information to the user on
chain performance. This test provided
information to Vermeer that the chain
drive system was operating as expected
and that the optimum size and type of
chain was being used. Smartlink provided
data that will be used by Vermeer’s
designers for the development of
new equipment in the future.
New couplings stop the hunt
A change from gear couplings to rubber-
in-compression couplings has completely
cured a problem with motor hunting on a
huge inclined conveyor at a drift mine in
Wollongong, Australia. The metre-wide
conveyor is nearly half a mile long and
transports coal downhill at a rate of
approximately 900 tonnes an hour.
To solve the problem, Renold Hi-Tec
Couplings, of Halifax, supplied a
rubber-in-compression coupling with
pre-compressed rubber blocks. This type
of coupling offers zero backlash operation
and in this application was fitted to the
head shaft of the conveyor and driven by
the motor through a reduction gearbox.
The new coupling has completely cured
the problem of hunting and the motor
control system is able to drive and stop
the conveyor smoothly.
Renold plc Annual Report and Accounts 2009
Accordingly, we closed the Renold Supplementary Pension
Scheme and the Jones and Shipman Scheme to future accrual
from 1 August 2008. After a full consultation process, the main
pension scheme, the Renold Group Pension Scheme, was also
closed to future accrual on 1 June 2009. The new arrangement
is the Renold Personal Pension Plan, a defined contribution plan
which is administered by Fidelity International.
Information on the Group’s pension schemes is set out in Note 18
to the financial statements, including the key assumptions used
by the actuary in arriving at the IAS 19 funding position. The gross
pension assets and liabilities and resulting gross and net deficits
are as follows:
2009
Assets Liabilities Deficit
£m
£m
£m
2008
Assets Liabilities Deficit
£m
£m
£m
UK schemes
– funded
Overseas schemes
– funded
– unfunded
Deferred tax asset
Net
130.7
(157.8)
(27.1)
158.5
(168.0)
(9.5)
15.6
–
146.3
(6.0)
(21.6)
(22.0) (22.0)
(55.1)
(201.4)
11.0
(44.1)
15.2
–
173.7
(17.1)
(19.8)
(204.9)
(1.9)
(19.8)
(31.2)
4.8
(26.4)
During the year, the assets of the funded schemes fell by £27.4
million, which was only partly offset by a reduction in funded
liabilities of £5.7 million, resulting in an increased deficit in the
funded schemes of £21.7 million.
The overseas deficit comprises £6.0 million (2008 – £1.9 million)
in respect of funded defined benefit schemes, and £22.0 million
(2008 – £19.8 million) relating principally to the unfunded German
scheme which, as is common in Germany, is a “pay as you go”
scheme which is not required to be prefunded. There is no
obligation for deficit funding payments for this type of scheme.
The increase in the deficit is largely caused by exchange
rate movements.
There are three UK defined benefit pension schemes: (i) the main
scheme, which is the Renold Group Pension Scheme (RGPS);
(ii) the Renold Supplementary Pension Scheme (RSPS); and (iii) the
Jones & Shipman plc Retirement Benefit Plan (J&S). The status
of these schemes at 31 March 2009 is summarised below:
RGPS
£m
As at 31 March 2009
(103.8)
IAS 19 liabilities
Market value of assets
80.7
Deficit/surplus on IAS 19 basis (23.1)
Annual deficit reduction
payment (based on
funding valuations)
Total members (approx)
1.5
4,975
RSPS
£m
(27.2)
20.2
(7.0)
J&S
£m
(26.8)
29.8
3.0
Total
£m
(157.8)
130.7
(27.1)
0.5
115
–
1,014
2.0
6,104
Directors’ report – Business review 13
The assets and liabilities in the balance sheet include a net £nil
(2008 – £nil) balance in respect of a closed South African defined
benefit pension scheme. The Group has not recognised that
element of the pension surplus within that scheme of £1.1 million
(2008 – £1.1 million), which it expects to remain surplus after
expected additional payments to pensioner members are taken
into account. The Company is undertaking a review of local
regulations to clarify if the surplus can be repaid to the Group.
Further details on the Group’s pension schemes are given in
Note 18 to the financial statements.
Financial
Liquidity
In the present economic climate, all companies face risk in relation
to the availability of debt to fund their ongoing operations. In
order to manage this risk, the Group maintains a mix of short-
and medium-term facilities to ensure that it has sufficient funds
available. The Group has recently entered into a new facility with
its main lenders which is described elsewhere in this report. Cash
deposits are placed short term with banks where security and
liquidity are the primary objectives.
Foreign exchange risk
The Group has operations in 20 countries and sells into many
more with the result that two forms of currency risk, transactional
and translational exposure, arise.
• Transactional exposure: A major exposure of the Group
earnings and cash flows relates to currency risk on its sales and
purchases made in foreign (non-functional) currencies. To
reduce such risks, these transactions are covered primarily by
forward foreign exchange contracts or cash flow hedges. Such
commitments generally do not extend more than 12 months
beyond the balance sheet date, although exceptions can occur
where longer-term projects are entered into.
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• Translational exposure: Translational exposure arises due to
exchange rate fluctuations in the translation of the results
of overseas subsidiaries into sterling. To manage foreign
exchange currency risk on the translation of net investments,
certain Dollar-denominated borrowings taken out in the UK to
finance USA acquisitions have been designated as a hedge of
the net investment in USA subsidiaries.
Interest rates
Borrowings issued at variable rates expose the Group to cash flow
interest rate risk, and borrowings issued at fixed rates expose the
Group to fair value interest rate risk. The Group reviews the mix of
fixed and floating debt and has interest rate swaps to manage
part of this exposure.
Pensions
Estimates of the amount and timing of future funding obligations
for the Group’s pension plans are based upon a number of
assumptions including future long-term corporate bond yields,
the actual and projected performance of the pension plan assets,
legislative requirements and increased longevity of members. In
the last year, increased bond yields have reduced the deficit. The
Group continually reviews risks in relation to the Group’s pensions
and takes action to mitigate them where possible. While the
Group is consulted by the trustees on the investment strategies
of its pension plans, the Group does not have direct control over
these matters, as trustees are responsible for the pension strategy.
Key performance indicators
The Group’s key performance indicators are set out in the Statutory
Information section of the Directors’ report on page 26.
Principal risks and uncertainties
Risk is inherent in our business activities. We take steps at both a
Group and subsidiary level to understand and evaluate potential
risks and uncertainties which could have a material impact on our
performance in order to mitigate them. Accordingly, a risk-aware
environment is promoted and encouraged throughout the Group.
Details of the principal risks and uncertainties are set out below.
External market
Economic and political risks
We operate in 20 countries and sell to customers in many more.
While benefiting from the opportunities and growth in these
diverse territories, we are necessarily exposed to the economic,
political and business risks associated with international
operations such as a global recession, sudden changes in
regulation, imposition of trade barriers and wage controls,
security risk, limits on the export of currency and volatility of
prices, taxes and currencies. Our diversified geographic footprint
mitigates against exposure within any one country in which
we operate, although we are still exposed to global events.
In particular, the present risk from global recession is significant.
The recession has resulted in both lower orders and less forward
visibility of, and greater volatility in, future orders as industries react
to the global downturn by destocking and reducing output. We
take actions with the objective of reducing costs and cash outflow
whilst maintaining flexibility. Like many other companies despite
these actions the financial performance and position of the Group
will be adversely affected. The severity of the impact will depend
upon the depth and duration of the downturn.
Raw material prices
This year has seen volatility to the price of raw steel. Movements
in steel prices are driven by global market conditions outside the
control of the Group. Where contractually possible, we pass price
increases onto our customers. This action could potentially
impact customer retention.
Operational
Health, safety and the environment
Revision of environmental legislation in various countries takes
time and we monitor this at a local level in order to anticipate the
effect on our businesses and customers. Unforeseen legislative
changes may increase manufacturing costs, but we believe that
they can also drive change to make operations more efficient.
Product liability and warranty claims
As a result of the nature of the products manufactured, we face the
inherent business risk of exposure to product failure and warranty
claims in the event that a product fails. In order to mitigate these
risks, where possible, we maintain product liability and product
recall insurance. In order to mitigate the risk of warranty claims
for property damage or consequential losses, we have adopted a
policy of contractually limiting liability, where possible.
Annual Report and Accounts 2009 Renold plc
14 Directors’ report – Business review
Responsibilities
We believe that consideration of corporate social responsibility
is integral to ensuring the protection of the long-term interests
of our shareholders.
Our employees are required neither to offer nor to accept
improper gifts, hospitality or payments.
The Board has overall responsibility for corporate social
responsibility, including environmental policy and health and
safety matters, with the Chief Executive taking leadership
responsibility with direct lines of reporting from operational
heads and the Director of Global Supply Chain,3 who is responsible
for the management of Group health and safety.
Ethics
Within the dynamic global business environment, we expect
our employees and business operations to conduct themselves
ethically, and to be honest, fair and courteous in their dealings.
We expect staff to be treated equally regardless of age, race,
religion, sex or sexuality.
It is our policy not to engage in unethical conduct, bribery or
corrupt practices. Renold will respect the culture of the countries
within which it operates and will operate in accordance with
the best practice of those countries.
In conducting its business, integrity underlies all Company
relationships, including those with customers, suppliers and
communities and among employees.
The highest standards of ethical business conduct are
required of our employees in the performance of their company
responsibilities. Employees may not engage in conduct or
activity that may raise questions as to the Company’s honesty,
impartiality, reputation or otherwise cause embarrassment
to the Company.
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Every Renold employee has the responsibility to ask questions,
seek guidance and report suspected violations of this
ethics statement.
Employees
We rely on the motivation and dynamism of our employees to
drive forward our business. Talent is key to our success and we
therefore aim to attract and retain motivated, effective people.
This year has been a tough year for the global economy. Against
this backdrop, however, the following activities have been
progressed across the Group:
Developing capability
Although we have cut back on formal training, we still believe
it essential to maintain our skill pool. A good example of this
in the UK is apprentice training. At our Milnrow factory we
have an apprentice training school with a range of plant and
equipment for practical training. At the time of this report,
we had 25 individuals in the UK at various stages of apprentice
training. We also participate in other youth programmes, such
as work experience and work shadowing, and liaise closely with
various universities which conduct relevant research.
Developing our people
We have a formal process of succession and talent planning
which operates across the Group. This is not only time and
cost-effective, but also motivational for our people. In addition,
it helps with employee retention. A good example of this working
in practice is the appointment and promotion of our Australian
Sales Manager to Senior Vice President of our acquired
Indian business.
3 Prior to 1 April 2009, the Group Supply Chain and IT Director was responsible
for the management of Group health and safety.
Our investment in people
Chris Booth, Apprentice at the Bredbury site, has achieved
the award of “Maintenance Apprentice of the Year”
from Stockport Engineering Training Association (SETA).
Chris started his apprenticeship as a Maintenance Engineer
with Renold in September 2008. He has been carrying out
his basic training at SETA and will start work and further
training at the Bredbury site from early summer 2009.
Working for Renold runs in the Booth family as Chris’
grandfather, Geoff Booth, used to work in the Renold
Research & Development Department.
Renold plc Annual Report and Accounts 2009
Directors’ report – Business review 15
Engaging our people
We have placed a strong emphasis on employee communications
and two-way feedback and have developed our intranet system
internally. To support the principle of two-way feedback, we have
launched on online appraisal system which has both an employee
and a manager focus.
Health and safety
As a global group operating in 20 countries, we have a high
level of concern for the health and safety of our employees,
contractors, customers and neighbours. As a result, we actively
work with local management to identify areas where
improvements and efficiencies can be made.
In addition, to ensure a Group dynamic and to aid internal
communications across the Group, we produce a newsletter
for our employees, Renold LINK, and have bulletin boards for
the electronic sharing of knowledge and information across
the world.
Environment
We are committed to managing our activities to provide
proper levels of care and safety for the environment and for our
customers and employees. In particular, we seek to develop and
manufacture products to minimise their environmental impact
as far as practicable, to co-operate with industry, government
bodies, suppliers and customers to develop and achieve improved
standards of environmental care, and to conduct our operations
in compliance with relevant statutory provisions concerning
environmental matters.
In line with this policy, local management is responsible for
ensuring that appropriate systems are implemented, maintained
and monitored in the areas for which they are responsible.
Each business has issued a local environmental statement which
complies with Group policy and local legislation. The case study
below shows one way in which local management has progressed
environmental initiatives.
The Board regularly reviews health and safety performance
and ensures that, where any issues are identified, they are
promptly addressed.
Research and development
Innovation is key to the future success of our Group and to the
delivery of long-term value for our shareholders. Our research
and development activities continue to be principally directed
towards the development of new products and manufacturing
methods, together with the improvement of performance and
cost-effectiveness of our existing products.
Community
We seek to be a part of the communities in which we work and,
as such, seek to assist projects and provide support where no
financial aid is required. We encourage volunteering and working
with local educational institutions in the promotion and raising
of awareness of engineering and manufacturing.
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Our commitment to reducing
energy consumption
Renold is committed to reducing energy consumption.
In South Africa, Renold has installed a meter which monitors
the power used at half-hourly intervals and gives vital feedback
information about the site’s energy use and waste. This will
allow us to target areas of high use and look for ways to reduce
energy usage.
In Cardiff, our people have undertaken training on the control
of the lighting, heating and ventilation systems, which now use
light sensors and timers. This has resulted in a more efficient
and cost-effective use of energy.
Renold is not stopping here and plans to complete the roll-out
of a Group energy saving database in the coming year, which
will allow sites to share best practice with a view to reducing
energy usage and therefore operating costs.
Annual Report and Accounts 2009 Renold plc
16 Directors’ report – Governance
Board of directors
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Renold plc Annual Report and Accounts 2009
Matthew Peacock
Chairman
Matthew, aged 47, was appointed to the Board and became
Chairman in September 2006. He is the founding partner
of Hanover Investors, a specialist turnaround investment firm
based in London. Matthew has led investments for over 18 years
in, amongst other sectors, manufacturing, outsourced business
services, chemicals, financial services, textiles and logistics.
Prior to this, he ran the International M&A team in London at
BZW, having started his career at Credit Suisse First Boston, in
New York. He holds a Masters degree in Law from Cambridge
University. Matthew is also Chairman of Fairpoint plc and Singer
Capital Markets, a London stockbroking and corporate advisory
firm, and a non-executive director of STV Group plc.
Robert Davies
Chief Executive
Robert, aged 55, joined the Group in March 2004 and was
appointed Chief Executive in April 2004. A Member of the
Institute of Electronic Engineers and a non-executive director
of Economic Solutions Limited, he was previously Chief Executive
of GE Druck Holdings Limited, formerly known as Druck Holdings
plc. Prior to that, he held a number of senior management
positions in the Lucas Group and at General Electric, in both
the UK and USA.
Peter Bream
Finance Director
Peter, aged 42, joined the Group in July 2006 and was appointed
Finance Director in September 2006. He was Finance Director
of Provalis plc, a UK listed company, for three years until March
2006. Prior to joining Provalis, Peter was a Divisional Finance
Director for API Group plc. Peter is a chartered accountant
and has an engineering degree from Cambridge University.
Rod Powell
Non-Executive Director
Rod, aged 61, was appointed to the Board in September 2006.
A chartered management accountant, a chartered engineer and
partner in R J Investments, Rod was formerly Chief Executive of
the Control Systems Division of Invensys. Rod is also a director
of Hanover I Fund (a Cayman Islands-based fund) and Dust
Networks Inc. (a privately held USA company).
David Shearer
Senior Independent Non-Executive Director
A corporate financier and a former senior partner in Deloitte LLP
where he was a UK Executive Board member, David, aged 50, was
appointed to the Board in May 2007 as the Senior Independent
Non-Executive Director. He recently stood down as Chairman of
Crest Nicholson plc having led the successful debt reconstruction
of that business. He is Deputy Chairman of Aberdeen New Dawn
Investment Trust plc, Senior Independent Director of STV Group
plc and Superglass Holdings plc, a non-executive director of
Mithras Investment Trust plc, Martin Currie Holdings Limited
and Scottish Financial Enterprise and a Governor of The Glasgow
School of Art. He was until early 2007 a non-executive director
of HBOS plc.
John Allkins
Non-Executive Director
John, aged 59, was appointed to the Board and to the chair of the
Audit Committee in April 2008. He is also a non-executive director
of Intec Telecom Systems plc, Fairpoint Group plc and Molins plc
and was previously Group Finance Director of MyTravel Group plc.
Prior to that, he held a number of finance director roles in BT.
Corporate governance
Directors’ report – Governance 17
We are committed to high standards of corporate governance
and our Board acknowledges its contribution to achieving
management accountability, improving risk management
and ultimately to creating shareholder value.
This statement describes how we have applied the principles
of corporate governance contained in the Combined Code
issued by the Financial Reporting Council in June 2006
(the “Combined Code”).
Compliance with the Combined Code
Our Board considers that the Company has complied with the
provisions of Section one of the Combined Code throughout the
year ended 31 March 2009 except where highlighted below.
The Board
Composition
Our Board presently comprises a Non-Executive Chairman, three
Non-Executive Directors and two Executive Directors. The roles of
Chairman and Chief Executive are separated with a clear division
of responsibilities agreed by the Board. The Chairman’s primary
role is to ensure the effectiveness of the Board in setting the
direction of the Company. The Chief Executive has the responsibility
for managing the business and implementing the strategy agreed
by the Board. Biographical details of the directors appear on
page 16.
Board operation
The Board has approved a schedule of matters reserved for
decision by the Board to ensure that the Board takes all major
strategy, policy and investment decisions affecting the Group.
In addition, it is responsible for business planning and risk
management policies and the development of Group policies
for areas such as health, safety and environmental issues,
directors’ and senior managers’ remuneration and ethical issues.
The executive directors have authority to deal with all other
matters affecting the Group.
New directors are provided with an appropriate induction
programme. This does not necessarily require the new director
to meet the Company’s major shareholders.
Board evaluation
Our Board is supportive of the principle of evaluation of the
Board, as set out in the Combined Code. A formal process for
evaluating the performance of the Board and its members, and
its committees, is conducted annually. This process gives our
directors the opportunity to identify areas for improvement both
jointly and individually through the use of questionnaires and/or
open discussion. An evaluation of the Chairman is also carried
out annually, led by the Senior Independent Director. Both an
evaluation of the Board and an evaluation of the Chairman
were carried out in 2008/09.
Board independence
Matthew Peacock acted as the interim Chairman of the Audit
Committee until 17 April 2008, when he was replaced by John
Allkins. As a result, for a limited time, the Company was not
compliant with paragraph C.3.1 of the Combined Code which
states that all members of the Audit Committee should be
independent non-executive directors.
The Chairman, Matthew Peacock, is a principal of a significant
shareholder, Hanover, which as at 10 July 2009 holds 16.79% of the
ordinary share capital of the Company. Our Board considers that,
whilst the Company is not in compliance with paragraph A.2.2
of the Combined Code (which states that the Chairman should on
appointment meet the independence criteria set out in paragraph
A.3.1 of the Combined Code) nor with paragraph C.3.1 of the
Combined Code (as stated above), Matthew Peacock acts with
complete independence of character and judgement.
Matthew Peacock is the Chairman of the Company’s broker and
financial adviser, Singer Capital Markets Limited. The Board has
discussed and approved this appointment and has agreed that he
will not be involved in any discussions relating to the evaluation
of Singer’s performance, fee negotiations, termination of the
relationship with Singer, or where Singer acts as a broker and
there is an offer to acquire all or part of Renold plc.
Rod Powell is associated with Hanover. We consider that, whilst
Rod Powell does not meet the independence criteria set out in
paragraph A.3.1 of the Combined Code, he also acts with complete
independence of character and judgement.
Our Board considers that each of the other non-executive
directors is independent and free from any business or other
relationship which could affect their 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.
We initially appoint all new directors upon recommendation from
the Nomination Committee. 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.
Our Board meets on a regular basis with an agenda and necessary
papers for discussion distributed in advance of each meeting.
The following table shows the number of meetings of the Board
and its committees during the year and individual attendance by
Board and committee members at those meetings.
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Number attended
Number held
Matthew Peacock
Robert Davies
John Allkins
Barbara Beckett4
Peter Bream
Rod Powell
David Shearer
Board
13
13
13
13
4
13
13
11
Nomin- Remun-
ation eration
2
2
–
1
1
–
2
1
–
–
–
–
–
–
–
–
Audit
3
2
3
3
1
3
3
3
Risk
2
–
2
–
–
2
–
–
4 Barbara Beckett resigned on 30 July 2008.
Board committees
Our Board has delegated authority to a number of committees
to deal with specific aspects of the management and control
of the Group. The Company Secretary, Lindsay Beardsell, acts as
secretary to all of these committees except the Remuneration
Committee, for which Maggie Hurt (the Group Human Resources
Director) acts as secretary. The terms of reference for each of
these committees are available on the Company’s website. The
terms of reference for the Board and each of the committees have
been reviewed and updated during the year as part of a wider
corporate governance review.
Annual Report and Accounts 2009 Renold plc
18 Directors’ report – Governance
Corporate governance
continued
Composition5
Role
Activities
John Allkins6
(Chairman)
Rod Powell7
David Shearer
The review of the Group’s
financial statements, internal
financial control systems,
the whistleblowing policy,
internal audit reports and the
appointment/reappointment
of the external auditors and
conduct of the external audit.
e
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Matthew Peacock
(Chairman)
John Allkins
Rod Powell
David Shearer
To select and recommend to
the Board new appointments
of executive and non-executive
directors.
The Committee meets as
required.
n
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N
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t
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m
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e
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C
n
o
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a
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n
u
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R
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n
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o
M
k
s
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Rod Powell8
(Chairman)
John Allkins
David Shearer
This Committee determines
the terms and conditions of
employment including
remuneration and benefits of
the executive directors as well
as performance-related bonus
schemes and pension rights.
The main Board determines the
remuneration of the non-
executive directors and individual
non-executive directors are not
present when their own
remuneration is being discussed.
Robert Davies
(Chairman)
To evaluate and manage the
risks to the Group.
Lindsay Beardsell
Peter Bream
Colin Gibson9
Maggie Hurt
The Audit Committee is a committee of the Board which was, until 17 April 2008, comprised of
Matthew Peacock, the Chairman of the Committee, together with the non-executive directors.
On 17 April 2008, Matthew Peacock stepped down as Chairman of the Committee and was
replaced by John Allkins, an independent non-executive director. Robert Davies and Peter
Bream attend meetings from time to time at the invitation of the Committee.
The Committee normally meets three times a year. Our Board is satisfied that, as well as the
Chairman of the Committee, at least one other member of the Audit Committee has recent
and relevant financial experience.
The Chairman, Chief Executive, Finance Director and other managers (including the internal
audit function) attend meetings from time to time at the invitation of the Committee. The
external auditors, who attend by invitation, are invited by the Committee to advise it of any
matters which they consider should be brought to the Committee’s attention without the
executive management present.
A formal process for evaluating the independence of the external auditors and the
performance of the Committee and the internal audit function is conducted annually. The
Board reviews the outcome. Additionally, to safeguard the independence and objectivity of
the auditors, the Committee has approved a policy on non-audit services provided by the
auditors in line with professional practice. This is in compliance with the Auditing Practices
Board ethical standards.
The Committee has met three times during the year. In the course of these meetings, the
Committee considered matters which included the following:
• Internal controls: Reports from the internal audit function summarising work planned and
undertaken, recommending improvements and describing actions taken by management.
The Committee also sought the views of the external auditors in making its assessment of
the internal control environment including all material controls, including financial,
operational and compliance controls and risk management systems.
• Internal audit function: The Committee evaluated the performance of the internal audit
function and assessed the work planned and undertaken through the completion of a
questionnaire provided by Ernst & Young, which was used to facilitate a discussion of
performance.
• Financial reporting: The Committee reviewed draft annual and interim reports before
recommending their publication to the Board. The Committee discussed with the
Chief Executive, Finance Director and external auditors the significant accounting policies,
estimates and judgements applied in preparing these reports.
No new appointments were made to the Board in the year other than John Allkins (who was
appointed to the Board on 17 April 2008). He did not meet with all major shareholders as part
of his induction, as this was not appropriate at the time.
During the year, one member of the Board, John Allkins, was appointed following an evaluation
of a number of candidates. No open advertising was used for his appointment.
The Company is not fully compliant with paragraph A.4.1 of the Combined Code, which requires
that a majority of the members should be independent, as two of the four members are not
considered to be fully independent non-executive directors.
The Remuneration Committee is currently chaired by Rod Powell. In addition to Rod Powell,
it comprises John Allkins and David Shearer, both of whom are non-executive directors.
Robert Davies and Matthew Peacock attend meetings from time to time at the invitation
of the Committee.
The Directors’ Remuneration Report is set out on pages 20 to 24.
The Risk Monitoring Committee is chaired by the Chief Executive and is comprised of the
executive directors, the Company Secretary, the Group Human Resources Director and the
Director of Global Supply Chain.
It meets and reports to the Board at least twice each year.
5 Barbara Beckett was also a member of the Audit Committee, Nomination Committee and Remuneration Committee until her resignation on 30 July 2008.
6 John Allkins was appointed to the Board as Chairman of the Audit Committee on 17 April 2008. Prior to this, Matthew Peacock acted as interim Chairman.
7 Para C.3.1 of the Combined Code provides that all members of the Audit Committee should be independent non-executive directors. Whilst the appropriate number of independent
non-executive directors has been appointed, the third member, Rod Powell, does not meet the independence criteria set out in para A.3.1 of the Combined Code, but is considered to
act with complete independence of character and judgement.
8 Rod Powell replaced Barbara Beckett as Chair of the Remuneration Committee following her resignation on 30 July 2008.
9 Colin Gibson replaced Peter Logue as a member of the Risk Monitoring Committee following the Risk Monitoring Committee meeting held on 15 April 2009.
Renold plc Annual Report and Accounts 2009
Directors’ report – Governance 19
Internal controls
The directors have overall responsibility for the Group’s system of
internal control and for reviewing internal control effectiveness.
The executive team is accountable to the directors for implementing
Board policies on risk and control and for monitoring and reporting
to the Board that it has done so. The ongoing process of review of
the system of internal controls by the directors has been in place
for the year ended 31 March 2009 and up to the date of approval
of the Annual Report and financial statements. This process
complies with the FRC’s “Internal Control: Revised Guidance
for Directors on the Combined Code (revised October 2005)”.
Internal controls are reviewed on a regular basis by the Risk
Monitoring Committee.
Our internal controls are designed to mitigate rather than
eliminate the risks identified and can provide only reasonable and
not absolute assurance against material misstatement or loss.
The key features of our internal control system are:
• a Risk Monitoring Committee which ensures, on behalf of the
Board, that appropriate policies are implemented to identify
and evaluate risks, and to design, operate and monitor a suitable
system of internal control;
• an Internal Audit function which assists management and the
Audit Committee in the fulfilment of the Board’s responsibility
for ensuring that the Group’s financial and accounting systems
provide accurate and up-to-date information about its current
financial position;
• risk assessments completed by senior management at each
operating unit as part of a continuous process and reporting
of these which is reviewed by the Risk Monitoring Committee;
• an organisational 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 financial plans covering profit
and cash flow, which are approved by the Board; the review of
detailed regular reports comparing actual performance with
plans, and of updated financial forecasts;
• procedures for the appraisal, approval and control of capital
investment proposals including acquisitions and disposals;
• monitoring procedures which include a system of key financial
controls questionnaires supported by internal audit reviews.
The results of this work are reported to the Audit Committee.
The Company has carried out a full review of its corporate
governance policies. As a result, the Board has approved a
Corporate Governance Compliance Statement which contains
revised terms of reference for the Board and each of the Board
committees. Internal controls are in place at both a local and
Group level. In addition, the Company is in the process of
consolidating its Group policy in relation to internal controls
with a view to producing a Renold Internal Control Statement.
This has been significantly progressed and several sections have
been implemented. It is expected that full implementation will
be completed in the coming year.
The Risk Monitoring Committee reports to the Audit Committee
and, ultimately, to the Board, which is responsible for the Group’s
internal controls including financial, operational and compliance
controls and risk management systems.
Communications with shareholders
Communications with our shareholders are given high priority.
The Board is accountable to our shareholders and, as such, it
is important for the Board to appreciate the requirements of
shareholders and equally that shareholders understand how the
actions of the Board and short-term financial performance relate
to the achievement of our longer term goals.
Our reporting calendar is driven by the publication of interim and
final results each year, in which the Board reports to shareholders
on its management of the Company. Comments on our financial
performance in the context of the business risks faced and
objectives and plans for the future are set out in the Business
Review on pages 9 to 15.
At other times during the year, we make presentations to
analysts and provide updates to the London Stock Exchange
and shareholders via the Company’s website. In addition, our
Chairman, Chief Executive and Finance Director meet with
major shareholders to discuss governance and Group strategy.
Our largest shareholder has a representative on the Board. The
Senior Independent Director does not generally attend meetings
with shareholders.
The Chairman ensures that the Chief Executive and Finance
Director provide feedback to the Board following presentations
to investors and meetings with shareholders in order to ensure
that Board members, and in particular non-executive directors,
develop an understanding of the views of major shareholders
about their Company.
Our Annual General Meeting provides an opportunity for
communication with our private and institutional investors
and we encourage shareholders to attend and welcome
their participation.
At our Annual General Meeting, the Chairman of the Board
and the Chairmen of the Audit, Remuneration, Nomination
and Risk Monitoring Committees, together with the executive
directors, will be available to answer questions. Notice of our
Annual General Meeting is sent to shareholders at least 20
working days before the meeting. Details of the proxy votes
lodged on each resolution are made available to shareholders,
who are invited to talk informally to the directors after the
formal proceedings.
The Company’s website at www.renold.com presents additional
information about us, is regularly updated and includes the
posting of the interim and final preliminary results and interim
management statements, on the day they are announced.
If you wish to advise a change of name, address, or dividend
mandate, please contact our registrar, Capita Registrars, whose
contact details appear on page 76. Alternatively, you can view
up-to-date information and manage your shareholding through
the registrar’s share portal where you will be able to access and
maintain your holding at your own convenience. You will require
your unique investor code, which can be found on your share
certificate. The URL for the portal is www.capitashareportal.com.
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Annual Report and Accounts 2009 Renold plc
20 Directors’ report – Governance
Directors’ remuneration report
This Remuneration Report has been prepared on behalf of
the Board and is subject to the approval of shareholders at
the Annual General Meeting on 21 September 2009.
Remuneration Committee and advisers
The Company’s Remuneration Committee determines on behalf
of the Board, and within agreed terms of reference set by the
Board, the overall remuneration packages for the executive
directors and the Chairman. The members of the Committee
currently comprise the non-executive directors, Rod Powell
(Chairman), John Allkins and David Shearer, none of whom
has any personal financial interest other than as a shareholder,
in the matters to be decided.
The Chief Executive and the Chairman attend meetings of the
Committee by invitation, but do not take part in the Committee’s
recommendations on their own remuneration. No director is
involved in deciding his own remuneration, whether determined
by the Committee or, in the case of the non-executives,
by the Board.
During the year, the Remuneration Committee received
specialist remuneration advice from the Hay Group and
PricewaterhouseCoopers.
The Committee meets as often as necessary to discharge
its duties, which during 2008/09 was on two occasions.
The terms of reference of the Committee are available
on the Company’s website.
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Executive directors
Policy
The Company’s executive director remuneration policy is to
provide compensation packages at market rates which reward
successful performance and attract, retain and motivate the
directors reflecting their individual contribution and value to the
Company. The remuneration packages offered by the Company
are comparable to other UK-based companies of similar size
and nature.
The remuneration policy places a lot of emphasis on ensuring
that the executive directors’ incentive arrangements have the
potential to provide a greater reward than base salary. Combined
with an approach that requires incentive arrangements to be
linked directly to business-specific measures, this ensures that
rewards will be based on the continued creation of shareholder
value and that the senior management team remain incentivised
to remain with the Company and deliver outstanding returns
to shareholders.
In fixing remuneration packages, the Committee has regard to
the compensation commitments that would result in the event
of early termination.
The remuneration policy is expected to be applied in respect
of the forthcoming and subsequent years.
Remuneration package
Base salary
Base salaries are reviewed annually and reflect the level of
responsibility of the executive director, his market value and
individual performance. The Committee’s objective is to offer
base salaries around the market median level. Above median
levels of pay may be agreed for outstanding performance or to
attract executives of the right calibre. In reviewing base salaries,
the Committee has regard to comparable jobs in manufacturing
companies of a similar size and reach.
The Committee recently reviewed the base salaries of the
executive directors. The current contractual salary levels as
at 10 July 2009 are set out below (the figures in brackets reflect
salary levels effective as at 25 June 2008):
Robert Davies
£285,000 (£285,000 in 2007/08)
Peter Bream
£180,000 (£180,000 in 2007/08).
However, with effect from 1 April 2009, both Robert Davies and
Peter Bream agreed to temporarily reduce their salaries by 10%
in recognition of the difficult economic trading environment.
Benefits in kind
Benefits consist of a fully expensed company car (or cash
equivalent) and private medical insurance, in addition to life
assurance. The value of benefits is not pensionable.
Pensions
The executive directors are not members of the Company pension
scheme and they have their own pension arrangements into
which the Company made contributions of £42,750 in 2008/09
(£40,500 in 2007/08) for Robert Davies and £27,000 in 2008/09
(£24,919 in 2007/08) for Peter Bream (being 15% of base salary for
both). The Company has no pension liability beyond making these
annual contributions. On death, a lump sum death-in-service
benefit of four times base salary is payable.
Annual bonus
The maximum annual bonus potential for Peter Bream for
2008/09 was 60% (£108,000) of base salary with the approval
of the Remuneration Committee. For Robert Davies, the
maximum bonus opportunity for 2008/09 was 130% (£370,500).
For 2008/09, whilst a bonus was triggered under the scheme
rules due to the good first half-year results, the executive
directors elected not to take a bonus award given the current
economic climate. Bonus payments are based on Group financial
targets and a personal objective for each executive director, set
by the Chief Executive or, in the case of the Chief Executive, the
Chairman. Maximum bonus payments are made only upon
the achievement of outstanding performance. Bonuses are
not pensionable.
Renold plc Annual Report and Accounts 2009
Directors’ report – Governance 21
Long-term incentive arrangements
2004 Option Plans
In 2007, the Committee carried out a review of the Company’s
senior executive remuneration policy, with a particular focus
on the long-term incentive provision afforded to the executive
directors and other key personnel. The main conclusion of that
review was that the Renold plc 2004 Inland Revenue Approved
Company Share Option Plan and the Renold plc 2004 Non-Inland
Revenue Approved Company Share Option Plan (together the
“2004 Option Plans”) would be the sole long-term incentive
arrangements for executive directors and senior management.
In a General Meeting of the Company on 27 March 2008,
shareholders approved various amendments to the 2004 Option
Plans necessary to give effect to the conclusions contained within
the aforementioned review. The key features of the 2004 Option
Plans are therefore as follows:
• market value share options will become exercisable on the third
anniversary of the grant date provided that: (a) the participant
is still employed by the Company; and (b) the performance
conditions (see below) have been satisfied over a fixed three-
year performance period;
• the maximum annual option grant limit is 200% of base salary
(with no scope to exceed this limit) and (in line with market
practice) “base salary” is base salary during a financial year of
the Company;
• commitments to issue new shares under all share plans
operated by the Company (including executive share plans)
are subject to a maximum of 10% of the Company’s issued
share capital in any ten year period.
To ensure that the amended 2004 Option Plans had an immediate
and motivational impact, initial awards following the General
Meeting were made to the Chief Executive, the Finance Director
and the executive team. It is the Committee’s intention that
annual award levels will normally be no higher than 100%
of base salary.
The performance conditions attaching to options granted under
the 2004 Option Plans are considerably more challenging than
those used by other comparable companies. In 2008/09 there
were two performance conditions, operating independently of
each other. Approximately two-thirds of an option grant was
subject to an earnings per share (“EPS”) performance condition
based on annualised compound growth in the Company’s adjusted
EPS10 in excess of inflation (RPI) over a fixed three-year performance
period (the “performance period”). The number of shares under
option that vest in respect of this portion were as follows:
Annualised compound
growth in adjusted EPS
Less than RPI + 5% p.a.
RPI + 5% p.a.
Between RPI + 5% p.a.
and RPI + 17% p.a.
RPI + 17% p.a. or more
Percentage of two-thirds
of the shares under
option that vest
Nil
25%
On a straight-line basis
between 25% and 100%
100%
Adjusted EPS has been used because it is a key internal
measure of long-term Company performance.
The remaining one-third was subject to an absolute total
shareholder return (TSR) performance condition measured over
the performance period. No part of an option subject to the
TSR performance condition vested unless the Committee was
satisfied that, over the performance period, the Company’s
underlying financial position was satisfactory.
To the extent that the performance conditions were not met,
in whole or in part at the end of the performance period, the
options lapsed. The introduction of a TSR element to the
Company’s remuneration policy was a fundamental shift from
the existing policy that had been exclusively based on earnings
per share. The number of shares under option that vest in respect
of this portion was as follows:
Growth in the Company’s TSR
over the performance period
Less than 80%
80%
Between 80% and 200%
200% or more
Percentage of one-third
of the shares under
option that vest
Nil
25%
On a straight-line basis
between 25% and 100%
100%
The Committee will always review the performance
conditions prior to options being granted to ensure that they
remain appropriate given the Company’s expectations of
future performance.
Other long-term incentive plans
Executive directors have historically been eligible to participate
in the Renold Performance Share Plan (the “PSP”) and the Renold
Deferred Annual Bonus Scheme (the “DABS”). No awards have
ever been granted under these incentive arrangements.
In relation to the DABS, in the event that the executive directors
decide to defer all or part of any annual bonus they might
receive in the acquisition of deferred shares, the Company
may, at its discretion, grant a conditional award of matching
shares up to a maximum matching ratio of 1.5:1 (matching
shares to deferred shares). Matching shares only vest if certain
performance conditions are met. The performance conditions
require growth in the Company’s adjusted EPS over a fixed
three-year performance period (from the commencement of
the financial year in which a matching award is made) to exceed
the percentage growth in the Consumer Price Index (“CPI”) over
the same period, by a minimum of 3% per annum compounded,
which will trigger 40% of the matching shares comprised in the
award to vest and increasing to 100% vesting (on a straight-line
basis) if the percentage growth in the CPI is exceeded by 6% per
annum compounded. No matching awards have ever been made.
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1o Being basic EPS from continuing operations less exceptional items after tax.
Annual Report and Accounts 2009 Renold plc
22 Directors’ report – Governance
Directors’ remuneration report
continued
In addition, the Company operates a savings-related Share Option
Scheme (“SAYE Scheme”) in which the executive directors are
eligible to participate on the same terms as all UK employees.
Options granted under this scheme have been exercisable on
completion of either a three-year or five-year savings contract.
No options were granted during the year under the SAYE Scheme.
Details of the market price at the end of the year, and the
highest and lowest market price, are set out in Note 20 to the
Financial Statements.
Participants in employee share schemes have no voting or other
rights in respect of the shares subject to those awards until the
allocations are exercised, at which time the shares rank pari passu
in all respects with shares already in issue. No such schemes have
any rights with regard to control of the Company.
Directors’ service contracts
Each of the executive directors, in line with the Committee’s
policy, has a contract with a 12 month notice period. As a matter
of policy, in the event of new external appointments, the length
of service contracts would be determined by the Committee
in light of the then prevailing market practice. Details of the
directors’ terms of appointment and notice periods are as follows:
Expiry date of current
term/Notice period
Robert Davies 2 March 2004 Terminable on 12 months’ notice
29 June 2006 Terminable on 12 months’ notice
Peter Bream
Date of
contract
Other than normal payments due during the notice period, there
are no express provisions for compensation payable upon early
termination of the executive directors’ contracts. In the event
of early termination, the Company’s policy is to act fairly in all
circumstances. The Remuneration Committee has noted the
ABI/NAPF joint statement on Executive Contracts and Severance.
Neither of the contracts provides for compensation to be paid
in the event of a change of control of the Company. Copies of
the two service contracts will be available for inspection by
shareholders at the Annual General Meeting.
The letters of appointment of the non-executive directors
confirm that the appointment in each case is for a specified
term and that reappointment is not automatic.
External non-executive directorships
The Board encourages executive directors to broaden their
experience outside the Company by taking up non-executive
appointments. During the year, Robert Davies was appointed
as non-executive director of Manchester Solutions (Economic
Solutions Limited). This role is not remunerated.
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Non-executive directors
Policy
The Company’s policy in respect of non-executive directors’
remuneration is managed by the Board. Remuneration for
non-executive directors is confined to fees alone, without a
performance-related element. Each of the non-executive
directors is entitled to reimbursement of reasonable
expenses incurred in the course of their duties.
Chairman’s and non-executive directors’ fees
The contractual fee levels paid to the Chairman and non-
executive directors as at 31 March 2009 are set out below.
Matthew Peacock
John Allkins
Rod Powell
David Shearer
£50,000
£35,000
£30,000
£35,000
Appointment details
The dates of the Chairman’s and current non-executive directors’
appointments are as follows:
Non-executive
Matthew Peacock
John Allkins
Rod Powell
David Shearer
appointment
21 September 2006
17 April 2008
21 September 2006
1 May 2007
Date of Date of election/
last re-election
26 July 2007
30 July 2008
26 July 2007
26 July 2007
When making a decision on reappointment, the Board reviews
the non-executive director’s attendance and performance at
meetings and the composition and skill of the Board as a whole.
Each non-executive director is appointed for an initial period
of three years, subject to earlier termination by either party.
Thereafter, their appointment may be renewed, provided
that both the non-executive director and the Board agree.
Their letter of appointment contains no provision for payment
or compensation on early termination. Copies of the individual
contracts of appointment are available for inspection by
shareholders at the Annual General Meeting.
Renold plc Annual Report and Accounts 2009
Directors’ report – Governance 23
Individual directors’ remuneration (audited information)
The remuneration for each of the directors for the year ended 31 March 2009 is as set out below:
Executive directors
Robert Davies
Peter Bream
Non-executive directors
Matthew Peacock
Barbara Beckett11
Rod Powell 12
David Shearer
John Allkins13
Salaries
and fees
£000
Annual
bonus
£000
2009
Benefits
Cash Non-cash
£000
£000
285
180
465
50
10
30
35
33
623
–
–
–
–
–
–
–
–
–
–
11
11
–
–
–
–
–
11
33
1
34
–
–
–
–
–
34
2008
Total
£000
504
224
728
25
30
55
32
870
Total
£000
318
192
510
50
10
30
35
33 –
668
11 Barbara Beckett resigned from the Board on 30 July 2008.
12 Rod Powell was paid additional fees for the first year of his appointment, as he committed additional time to the role.
13 John Allkins was appointed to the Board on 17 April 2008 and therefore did not receive fees for the full year.
The Company has provided pension contributions of £42,750 in 2008/09 (£40,500 in 2007/08) for Robert Davies and £27,000
in 2008/09 (£24,919 in 2007/08) for Peter Bream.
Robert Davies received a non-cash benefit of £33,000 for his company car and private healthcare. Peter Bream received a cash
benefit of £11,000 for his company car and a non-cash benefit of £1,000 for private healthcare.
Directors’ beneficial interests in shares (unaudited information)
The beneficial interests of the directors who held office at 31 March 2009 in the ordinary shares of the Company, as appearing in the
register of directors’ interests maintained under the Companies Act 2006, were as follows:
Director
Matthew Peacock
Robert Davies
John Allkins
Peter Bream
Rod Powell
David Shearer
31 March
2009
Shares
31 March
2008
Shares
12,937,50014 12,937,500
194,000
nil
27,500
62,012
30,000
254,000
nil
27,500
62,012
30,000
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14 Matthew Peacock was indirectly interested in all of these shares through Hanover I Master Fund LP/Vidacos Nominees Limited.
No directors held non-beneficial interests in the ordinary shares of Renold plc at the end of the year or at the date of this report.
As at 31 March 2009, 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 the date of this report.
Directors’ share options as at 31 March 2009 (audited information)
Robert Davies
Scheme
Executive Scheme
Total
SAYE
Total
No. of share options
At
31.03.08
125,000
475,000
100,000
100,000
150,000
568,083
–
1,518,083
10,744
10,744
Granted
–
–
–
–
–
–
180,292
180,292
–
–
Lapsed
–
–
–
–
–
–
–
–
–
–
At
31.03.09
125,000
475,000
100,000
100,000
150,000
568,083
180,292
1,698,375
10,744
10,744
price
Option Date from
which
in pence exercisable
11.03.07
02.09.07
26.07.09
02.01.10
27.11.10
31.03.11
01.04.11
76.5
88.0
61.6
114.2
92.55
75.9
77.0
Expiry
date
10.03.14
01.09.14
25.07.16
01.01.17
26.11.17
30.03.18
31.03.18
54.3
01.03.09
31.08.09
Annual Report and Accounts 2009 Renold plc
24 Directors’ report – Governance
Directors’ remuneration report
continued
Peter Bream
Scheme
Total
SAYE
Total
No. of share options
At
31.03.08
150,000
60,000
100,000
237,154
547,154
–
–
Granted
–
–
–
–
–
–
–
Lapsed
–
–
–
–
–
–
–
At
31.03.09
150,000
60,000
100,000
237,154
547,154
–
–
price
Option Date from
which
in pence exercisable
26.07.09
02.01.10
27.11.10
31.03.11
61.6
114.2
92.55
75.9
Expiry
date
25.07.16
01.01.17
26.11.17
30.03.18
–
–
–
The performance conditions disclosed on page 21 are included in this audited information section by reference.
The market value of shares at 31 March 2009, and the highest and lowest values, have been disclosed in Note 20 to the
financial statements.
Performance graph
The graph below shows the Company’s total shareholder return (share price growth plus dividends reinvested where applicable) for
each of the last five financial years of a holding of Company shares against a hypothetical holding of shares in the FTSE Engineering
and Machinery index. This index was selected because it is a broad equity index of which the Company is a constituent.
Rebased to 100 on 31 March 2004
300
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250
200
150
100
50
0
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Renold plc
FTSE All Share Engineering
Approved by the Board
Lindsay Beardsell
Company Secretary
13 July 2009
Renold plc Annual Report and Accounts 2009
Statement of directors’ responsibilities
Directors’ report – Governance 25
The following statement, which should be read in conjunction
with the Report of the Independent Auditors, shown on page 29
is made with a view to distinguishing for shareholders the
respective responsibilities of the directors and of the auditors
in relation to the financial statements of both the Group and
the Company.
The directors are responsible for preparing the Annual Report
and the Group financial statements in accordance with applicable
UK law and those International Financial Reporting Standards as
adopted by the European Union.
The directors are required to prepare Group and Company
financial statements for each financial year. The Group financial
statements are required to be prepared in accordance with
IFRSs as adopted by the European Union and also to present
fairly the financial position and performance of the Group.
The directors have elected to prepare the Company financial
statements in accordance with UK Accounting Standards and,
under the Companies Act 1985, these statements are required
to give a true and fair view of the state of affairs of the Company.
In preparing the Group and Company financial statements,
the directors are required to:
(1) select appropriate accounting policies and apply
them consistently;
(2) make judgements and estimates that are reasonable
and prudent;
(3) present information, including accounting policies, in
a manner that provides relevant, reliable, comparable and
understandable information;
(4) provide additional disclosures when compliance with the
specific requirements in IFRS is insufficient to enable users to
understand the impact of particular transactions, other events
and conditions on the Group’s financial position and financial
performance;
(5) for the Group financial statements, state whether they have
been prepared in accordance with IFRSs as adopted by the
European Union subject to any material departures disclosed
and explained in the financial statements; and
(6) for the Company financial statements, state whether
applicable UK Accounting Standards have been followed,
subject to any material departures disclosed and explained
in the Company financial statements.
The directors are responsible for ensuring that proper accounting
records are maintained which disclose with reasonable accuracy
at any time the financial position of the Company and of the
Group and to enable them to ensure that the financial statements
comply with the Companies Act 1985 and Article 4 of the IAS
Regulation. They are also responsible for taking reasonable steps
to safeguard the assets of the Company and the Group and, in
that context, to have proper regard to the establishment of the
appropriate systems of internal control with a view to the
prevention and detection of fraud and other irregularities.
Those directors who were members of the Board at the time
of approving the Directors’ Report are listed on page 16. Having
made enquiries of the Company’s auditors, each of the directors
confirms that:
• to the best of their knowledge and belief, there is no information
relevant to the preparation of the reports of which our auditors
are unaware; and
• they have taken all the steps that a director might reasonably
be expected to have taken to be aware of the relevant audit
information and to establish that the auditors are aware of
that information.
The directors intend to publish the financial statements on the
Group’s website, www.renold.com. The directors are responsible
for the maintenance and integrity of the website in accordance
with UK legislation governing the preparation and dissemination
of financial statements. Access to the website is available from
outside the UK, where comparable legislation may be different.
Each of the directors confirms that to the best of his or
her knowledge:
• the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss of the
Group and the undertakings included in the consolidation taken
as a whole; and
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• the Directors’ Report includes a fair review of the development
and performance of the business and the position of the Group
and the undertakings included in the consolidation taken as a
whole, together with a description of the principal risks and
uncertainties that they face.
On behalf of the Board:
The directors confirm that they have complied with the above
requirements in preparing the financial statements.
Robert Davies
Chief Executive
Peter Bream
Finance Director
Annual Report and Accounts 2009 Renold plc
26 Directors’ report – Governance
Statutory information
Group
Renold plc (the “Company”) and its subsidiaries (together the
“Group”) is an international engineering group, producing a
wide range of high-quality engineering products, operating
in 20 countries worldwide.
The Group’s principal activities are the manufacture and sale
of industrial chains and related power transmission products.
Under the terms of reference of the Nomination Committee,
appointments to the Board of the Company are recommended
by the Nomination Committee for approval by the Board.
Shareholders may also appoint a director by ordinary resolution.
Further information on the Company’s internal procedures for
the appointment and replacement of directors is given in the
Corporate Governance section on pages 17 to 19.
Business review and future developments
A review of the business and future developments of the Group,
together with a description of the principal risks and uncertainties
affecting the business, is set out in the Business Review contained
in the Directors’ Report on pages 9 to 15.
Results
Our profit for the year before tax from continuing operations was
£2.9 million compared with a profit of £9.3 million for the previous
year. The profit for the year, taking into account discontinued
operations, is £2.1 million (2008 – a profit of £7.7 million).
KPIs
Performance in the current and prior years is summarised as follows:
Operating profit before exceptional items
Return on sales
Average working capital as a
percentage of sales15
Low-cost countries’ direct labour
Adjusted EPS16
2009
£10.0m
5.1%
20%
59%
7.3p
2008
£12.0m
7.0%
17%
46%
8.5p
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15 Working capital being the sum of inventories, trade and other receivables and
trade and other payables.
16 This is basic EPS from continuing operations before exceptional items after tax.
The Group monitors the performance of its business through
detailed monthly operational and financial reporting, with
comparisons to budgets and updated forecasts being routinely
made. In addition, the Group maintains regular reviews and
dialogue with the management of each of the Group’s businesses.
The Company’s Articles of Association require that one-third of
directors retire by rotation each year and that each director must
retire where he or she has not been elected or re-elected at either
of the two preceding annual general meetings. At the 2009
Annual General Meeting, Rod Powell will retire, and Matthew
Peacock and David Shearer will retire and offer themselves for
re-election by shareholders in accordance with the Company’s
Articles of Association.
Directors’ interests
Details of the interests of our directors and their connected
persons in our share capital and in options held under share option
schemes, along with any changes in such interests since the end
of the year, are detailed in the Directors’ Remuneration Report
on pages 23 to 24. No director had any interests in contracts of
significance in relation to the Company’s business during the year.
Directors’ and officers liability insurance
We maintained liability insurance for our directors and officers
throughout the year.
No qualifying third-party indemnity provision or qualifying
pension scheme indemnity provision was in force when this
Directors’ Report was approved or was in force during the year.
Going concern
After making enquiries, we, the directors, have a reasonable
expectation that the Group has adequate resources to continue
in operational existence for the foreseeable future. We therefore
continue to adopt the going concern basis in preparing the
financial statements.
At Board level, the most important key performance measures are:
The basis on which this conclusion has been reached is set out
on page 30.
• operating profit before exceptional items;
• return on sales, being operating profit before exceptional
items as a percentage of sales;
• working capital as a percentage of sales, being net working
capital as a percentage of sales;
• low-cost country direct labour, being a percentage of direct
employees in low-cost countries; and
• adjusted EPS, being basic EPS adjusted for the after-tax effects
of exceptional items.
Directors
The directors’ biographical details can be found on page 16.
All directors were directors throughout the year.17
The Company’s Articles of Association give power to the Board
to appoint directors to fill a vacancy or as additional directors, but
also require directors to retire and submit themselves for election
at the first Annual General Meeting following their appointment.
17 With the exception of John Allkins, who was appointed to the Board and to the
Audit Committee on 17 April 2008.
Renold plc Annual Report and Accounts 2009
Directors’ statement as to disclosure of information to auditors
Please refer to page 25 for the statement as to disclosure of
information to auditors.
Employees
As at 31 March 2009, the Group employed 2,301 people, including
650 in the UK.
Employment policies
Arrangements for consulting and involving our 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.
Directors’ report – Governance 27
Our employment policies are designed to provide equal
opportunities irrespective of race, caste, national origin, religion,
age, disability, gender, marital status, sexual orientation or
political affiliation.
Our policy 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 existing employees
becoming disabled, we would explore all reasonable means
to achieve retention in employment in the same or an
alternative capacity.
UK pension schemes
Our UK pension schemes are largely defined-benefit-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.
In April 2002, the Renold Group Pension Scheme and the Jones
& Shipman plc Retirement Benefits Plan (1971) were closed to
new entrants subject to appropriate transitional arrangements
for existing eligible employees being put in place, and a defined
contribution scheme was established as from that date.
Neither our Chairman nor our Chief Executive is a trustee
of the defined benefit or the defined contribution schemes. An
independent trustee company has been appointed to provide
an individual to act as Chairman of the board of trustees of the
principal schemes.
Renold has reviewed its UK pension position, along with its other
pension provisions around the world. Following consultation
in the UK, the defined benefit schemes were closed to future
accrual from 1 June 2009 and the Renold Personal Pension Plan,
a defined contribution plan, which is not trust-based and
is contracted in, has been offered to employees.
Shares
Share capital
As at 31 March 2009, the authorised share capital of the Company
was £23,715,373.75 divided into 92,539,567 ordinary shares of 25p
each, of which 77,064,703 were in issue (representing 97.08% of the
Company’s issued share capital) and 580,482 units of 6%
cumulative preference stock of £1 each, of which 580,482 were in
issue (representing 2.92% of the Company’s issued share capital).
The Company obtained shareholder authority at the last Annual
General Meeting held on 30 July 2008 to make market purchases
of up to 7,004,296 ordinary shares, which remains outstanding
until the conclusion of the next Annual General Meeting on
21 September 2009. The minimum price which must be paid for
such shares is 25p and the maximum price payable is an amount
equal to 105% of the average of the middle market quotations
of the Company’s ordinary shares as derived from the London
Stock Exchange’s Daily Official List for the five business days
immediately preceding the date on which the share is contracted
to be purchased. As at 10 July 2009 (being the latest practicable
date prior to publication of this report), the Company had not
purchased any of its own ordinary shares in the market pursuant
to such authority. The directors will seek authority from
shareholders at the forthcoming Annual General Meeting
for the Company to purchase, in the market, up to 7,706,470 of
its own ordinary shares either to be cancelled or retained as
treasury shares.
Details of our share capital and any changes during the year are
set out in Note 19 to the financial statements on page 56.
The rights and obligations attaching to the Company’s shares
are contained in the Articles of Association, a copy of which is
available at www.renold.com or can be obtained upon request to
the Company Secretary. The Articles of Association may only be
changed by a special resolution passed at a general meeting of
the Company.
Voting rights
The directors confirm that no person has any special rights of
control over the Company’s share capital and that no shares have
been issued that carry any special rights with regard to control of
the Company.
No member shall, unless the directors otherwise determine, be
entitled to vote at a general meeting either personally or by proxy,
or to exercise any other right conferred by membership in relation
to meetings of the Company, if any call or other sum presently
payable by him to the Company in respect of such shares remains
unpaid. The directors also have powers to suspend voting rights
in certain limited circumstances when a shareholder has failed to
comply with a Section 793 notice.
Full details of the deadlines for exercising voting rights and
appointing a proxy or proxies in respect of the resolutions to
be considered at the Annual General Meeting to be held on
21 September 2009 are set out in the Notice of Annual
General Meeting.
Major shareholdings
As at 10 July 2009 (being the latest practicable date prior to
the publication of this report), the Company’s register of major
shareholdings showed the following interests in the voting rights
attached to shares or financial instruments under Disclosure and
Transparency Rule 5:
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Shareholder
Hanover I Master Fund LP
Prudential plc
SVG Investment Managers Limited
Henderson Global Investors
Lowland Investment Company plc
Paul Anthony Bell
% of total
Number
number
of voting of voting
rights
16.79
14.72
9.20
6.55
6.03
3.00
rights
12,937,500
11,345,240
7,090,511
5,050,000
4,650,000
2,315,000
No major shareholder had any interest in derivatives or financial
instruments relating to shares carrying voting rights that are
linked to the Company’s shares.
Dividends
Details about our dividend policy are set out on page 35.
Preference dividend payments were made on 1 July 2008 and
1 January 2009.
Annual Report and Accounts 2009 Renold plc
28 Directors’ report – Governance
Statutory information
continued
Directors’ rights in respect of shares
The Board, which is responsible for the management of the
business, may exercise all the powers of the Company subject
to the provisions of relevant legislation and the Company’s
Memorandum and Articles of Association. The powers of the
directors set out in the Articles of Association include those in
relation to the issue and buyback of shares.
Issue of shares
The directors are authorised to issue equity securities for cash
either by way of rights issue or in any other way, provided that
the shares issued other than by way of rights issue, open offer
or other pre-emptive offer or under the various share and share
option schemes of the Company, be limited to shares with
a nominal value of £875,537, being equal to 5% of the aggregate
nominal amount of the Company’s ordinary share capital
currently in issue. The authority will expire at the next Annual
General Meeting on 21 September 2009.
In addition, the directors have authority to allot shares up
to a maximum nominal amount of £5,624,151.75 representing
approximately one-third of the issued share capital at the date
of passing of the relevant resolution. This authority will expire
on 21 September 2009. The directors will seek authority from
shareholders at the forthcoming Annual General Meeting to
allot shares up to a maximum nominal amount of £12,831,273
representing approximately 66.6% of the issued share capital
at the date of passing of the relevant resolution.
Transfer of shares
The registration of transfers may be suspended at such times
and for such periods as the directors may determine. The directors
may refuse to register the transfer of any share which is not
a fully-paid-up share and may refuse to register any transfer
in favour of more than four persons jointly. The directors may
also refuse to recognise any instrument of transfer unless it is
in respect of any one class of share, is lodged at the requisite
place and, where appropriate, is accompanied by any relevant
share certificates and such other evidence as the directors may
reasonably require to show the right of the transferor to make
the transfer.
The directors may suspend transfers where a shareholder
has failed to comply with a Section 793 notice, or where the
shareholder is precluded from exercising voting rights by the
FSA’s listing rules, the City Code on Takeovers and Mergers or
other applicable legislation.
The directors are not aware of any agreements between holders
of securities which may result in restrictions on the transfer of
securities or voting rights.
Finance
Financial instruments
Our financial risk management objectives and policies, and
our exposure to risk (including credit risk) are discussed in the
Performance section of the Business Review on page 13, in the
Directors’ Report and in the Notes to the financial statements
on pages 60 and 63. Information on the post balance sheet
agreement of a new three year syndicated bank facility is set
out in Note 27.
Policy on payment of suppliers
Under the supervision of the head office, individual operating
businesses are responsible for agreeing the terms and conditions
under which transactions with their suppliers are undertaken,
including the terms of payment. It is our Group policy that
payments to suppliers are made in accordance with these terms,
provided that the supplier complies with all relevant terms
and conditions.
As at 31 March 2009, trade creditors of our businesses in the
UK and overseas represented 97 days’ purchases, compared
with 117 last year.
Donations
During the year, we made no contributions to UK organisations
for charitable purposes nor any political donations.
Post-balance sheet events
Post-balance sheet events regarding the closure of the Polish
facility, the closure of pension plans and the agreement of the
Group’s new banking facility (subject to the completion of full
documentation) are detailed in Note 27.
Contracts
Change of control provisions
The Company’s main UK facilities agreement with The Royal Bank
of Scotland and Fortis Bank S.A./N.V. contains a change of control
provision. This requires the Company to provide notification to
the agent in the event of a change of control. The banks may then
demand cancellation and repayment of the commitments and
the loans.
The Share Subscription and Shareholders’ Agreement between
LGB, Renold International Holdings Limited and Renold Chain
India dated 24 June 2008 contains certain change of control
provisions. On the change of control of a shareholder (being one
of the parties to the agreement), the other shareholders have
a right to terminate the agreement and/or to require the
shareholder suffering the change of control to sell, at a fair
price, all of its equity shares to the terminating shareholder
or a nominee of such shareholder.
No other material contracts contain change of control provisions.
There are no agreements between the Company and its directors
or employees providing for compensation for loss of office or
employment (whether through resignation, purported redundancy
or otherwise) that occurs because of a takeover bid.
Contractual or other arrangements essential to the business
There are no contractual or other arrangements essential to the
business that require disclosure under the enhanced Business
Review requirements of the Companies Act 2006.
By order of the Board
Lindsay Beardsell
Company Secretary
13 July 2009
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Renold plc Annual Report and Accounts 2009
Report of the independent auditors
Financial statements 29
To the members of Renold plc
We have audited the Consolidated financial statements of
Renold plc for the year ended 31 March 2009 which comprise
the Consolidated Income Statement, the Consolidated Balance
Sheet, the Consolidated Cash Flow Statement, the Accounting
Policies, the Consolidated Statement of Recognised Income and
Expense and the related Notes 1 to 27. These Group financial
statements have been prepared under the accounting policies
set out therein.
We have reported separately on the Company financial statements
of Renold plc for the year ended 31 March 2009, and on the
information in the Directors’ Remuneration Report that is
described as having been audited.
This report is made solely to the Company’s members, as a
body, in accordance with Section 235 of the Companies Act 1985.
Our audit work has been undertaken so that we might state to
the Company’s members those matters we are required to state
to them in an auditors’ report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the
Company’s members as a body, for our audit work, for this
report, or for the opinions we have formed.
Respective responsibilities of Directors and auditors
The directors’ responsibilities for preparing the Annual Report
and the Group financial statements in accordance with applicable
United Kingdom law and “IFRSs” as adopted by the European
Union are set out in the Statement of Directors’ Responsibilities.
Our responsibility is to audit the Group financial statements in
accordance with relevant legal and regulatory requirements and
International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the Group financial
statements give a true and fair view and whether the Group
financial statements have been properly prepared in accordance
with the Companies Act 1985 and Article 4 of the IAS Regulation.
We also report to you whether in our opinion the information
given in the Directors’ Report is consistent with the financial
statements. The information given in the Directors’ Report
includes that specific information presented in the Business
Review that is cross-referred from the Group results section
of the Directors’ Report.
We read other information contained in the Annual Report
and consider whether it is consistent with the audited Group
financial statements. The other information comprises only
the Overview, the Business Review, the Responsibilities and
Governance sections of the Directors’ Report, the Directors’
Remuneration Report and the Group Five-Year Financial Review.
We consider the implications for our report if we become aware
of any apparent misstatements or material inconsistencies with
the Group financial statements. Our responsibilities do not
extend to any other information.
Basis of audit opinion
We conducted our audit in accordance with International
Standards on Auditing (UK and Ireland) issued by the Auditing
Practices Board. An audit includes examination, on a test basis,
of evidence relevant to the amounts and disclosures in the
Group financial statements. It also includes an assessment of
the significant estimates and judgements made by the directors
in the preparation of the Group financial statements, and of
whether the accounting policies are appropriate to 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 Group financial statements 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 Group
financial statements.
Opinion
In our opinion:
• the Group financial statements give a true and fair view, in
accordance with IFRSs as adopted by the European Union, of the
state of the Group’s affairs as at 31 March 2009 and of its profit
for the year then ended;
• the Group financial statements have been properly prepared
in accordance with the Companies Act 1985 and Article 4 of the
IAS Regulation; and
• the information given in the Directors’ Report is consistent with
the Group financial statements.
In addition we report to you if, in our opinion, we have not
received all the information and explanations we require for
our audit, or if information specified by law regarding directors’
remuneration and other transactions is not disclosed.
Ernst & Young LLP
Registered Auditor
Manchester
13 July 2009
We review whether the Corporate Governance Statement
reflects the Company’s compliance with the nine provisions of
the Combined Code specified for our review by the Listing Rules
of the Financial Services Authority, and we report if it does not.
We are not required to consider whether the Board’s statements
on internal control cover all risks and controls, or form an opinion
on the effectiveness of the Group’s corporate governance
procedures or its risk and control procedures.
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Annual Report and Accounts 2009 Renold plc
30 Financial statements
Accounting policies
Basis of preparation
The consolidated financial statements for the year ended
31 March 2009 have been prepared in accordance with IFRS,
and International Financial Reporting Interpretations Committee
(“IFRIC”) interpretations as adopted by the European Union.
In addition, the financial statements have been prepared in
accordance with those parts of the Companies Act 1985
applicable to groups reporting under IFRS.
projections, taking account of reasonably possible scenarios shows
that the Group should be able to operate within the level of its
borrowing facilities and covenants.
Having undertaken this work, the directors are of the opinion that
the Company and the Group have adequate resources to continue
in operational existence for the foreseeable future. Accordingly
they continue to adopt the going concern basis in preparing the
annual report and accounts.
Going concern
The consolidated financial statements have been prepared on
a going concern basis. In determining the appropriate basis of
preparation of the financial statements, the directors are required
to consider whether the Group can continue in operational
existence for the foreseeable future.
Further information in relation to the Group’s business activities,
together with the factors likely to affect its future development,
performance and position is set out in the Directors Report –
Business Review on pages 9 to 15.
The financial position of the Group, its cash flows, liquidity position
and borrowing facilities are described in the Operational and
Business Review. In addition Note 25 to the financial statements
includes the Group’s objectives, policies and processes for
managing its capital, its financial risk management objectives,
details of its financial instruments and hedging activities and its
exposure to foreign exchange, credit and interest rate risk. Further
details of the Group’s cash balances and borrowings are included
in Notes 13, 14 and 25 of the financial statements.
On 13 July 2009, the Group reached agreement (subject to the
completion of full documentation) to enter into a three year bank
facility with the existing syndicate members led by The Royal Bank
of Scotland plc, with Fortis Bank S.A./N.V. as a participant. Key
terms for the new facility are described in Note 27. The agreement
is in the form of agreed heads of terms together with a letter of
commitment and has received credit committee approval from the
banks. It is expected that full documentation based on these heads
of terms will be agreed and signed during July 2009.
Changes in accounting policy and disclosures
The accounting policies adopted are consistent with those of the
previous year except as follows:
The Group has adopted the following new and amended IFRS
and IFRIC interpretations during the year. Adoption of these revised
standards and interpretations did not have any effect
on the financial performance or position of the Group.
IFRIC 14 –
IAS 19 “The Limit on a Defined Benefit Asset,
Minimum Funding Requirements and their
Interaction”
The Group has not adopted the following pronouncements, which
have been issued by the IASB but have not yet been endorsed for
use in the EU:
IAS 1
IAS 23
IAS 27
–
–
–
Presentation of Financial Statements (revised)
Borrowing Costs (revised)
Consolidated and Separate Financial
Statements (revised)
IAS 32 & IAS 1 –
Financial Instruments Puttable at Fair Value and
Obligations arising on Liquidation (amendment)
IAS 39
–
Recognition and Measurement –
Eligible Hedged Items
IFRS 1 & IAS 27 –
Cost of an Investment in a Subsidiary, Jointly
Controlled Entity or Associate (amended)
In the event that full banking documentation is not completed on
the terms currently agreed the Group will continue discussion with
its bank lenders with a view to agreeing alternative banking terms,
but the directors cannot determine at this stage whether, or on
what basis, alternative terms would be agreed.
In the event that the full banking documentation is not completed
on the terms currently agreed the Group’s ability to continue
operating as a going concern would be dependent, therefore,
on the outcome of these discussions with its lending banks.
IFRS 2
IFRS 3
IFRS 7
IFRS 8
–
–
–
–
IFRIC 16 –
Share-based Payments (amended)
Revised Business Combinations
Financial Instruments: Disclosures (amendment)
Operating Segments
Hedges of a Net Investment in a Foreign
Operation
The directors have assessed the future funding requirements of
the Group and the Company and compared them to the level of
available borrowing facilities including the proposed facility
referred to above. The assessment included a detailed review of
financial forecasts, financial instruments, financial covenants and
hedging arrangements for at least the twelve month period from
the date of signing the accounts and a review of cash flow
projections. Recognising the impact of the global recession, the
directors considered a range of potential scenarios within the key
markets the Group serves and how these might impact on the
Group’s cash flow, facility headroom and banking covenants. The
directors also considered what mitigating actions the Group could
take to limit any adverse consequences. The Group’s forecasts and
IFRIC 17 –
Distributions of Non-Cash Assets to Owners
IFRIC 18 –
Transfers of Assets from Customers
–
Improvements to IFRS.
Management does not expect that these standards and
interpretations will have a material impact on the Group’s results
or financial position but IAS 1, IAS 23 and IFRS 8 may give rise to
additional disclosures or changes to disclosures in the Group’s
financial statements.
Basis of consolidation – The consolidated financial statements
incorporate the financial statements of the Company and
enterprises controlled by the Company (its “subsidiaries”).
Renold plc Annual Report and Accounts 2009
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Its subsidiaries, which are those entities in which the Group has
an interest of more than one-half of the voting rights or otherwise
has power to govern the financial and operating policies, are
consolidated. Under the transitional options of IFRS 1, business
combinations that occurred prior to the transition date have not
been restated.
Subsidiaries are consolidated from the date on which control
is transferred to the Group and are no longer consolidated from
the date that control ceases. The purchase method of accounting
is used to account for the acquisition of subsidiaries by the Group.
The cost of an acquisition is measured as the fair value of the assets
given up, shares issued or liabilities undertaken at the date of
acquisition plus costs directly attributable to the acquisition.
The excess of the cost of acquisition over the fair value of the
net assets of the subsidiary acquired is recorded as goodwill.
Inter-company transactions, balances and unrealised gains
on transactions between Group companies are eliminated;
unrealised losses are also eliminated unless the cost cannot
be recovered.
Foreign currency translation – Items included in the financial
statements of each entity in the Group are measured using
the currency that best reflects the economic substance of the
underlying events and circumstances relevant to that entity
(the “functional currency”). The consolidated financial statements
are presented in Sterling, which is the functional and presentation
currency of the parent.
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the date of
the transaction or average rates where applicable. Foreign
exchange gains and losses resulting from the settlement of
such transactions and from the translation at year-end exchange
rates of monetary assets and liabilities denominated in foreign
currencies, are recognised in the income statement, except for
monetary items that form part of the net investment in foreign
operations, which are taken to equity.
Assets and liabilities of overseas subsidiaries are translated into
Sterling at the exchange rates ruling at the end of the financial
year. Income statements and cash flows are translated at the
appropriate average rates of exchange for the year. Differences
on exchange arising on the retranslation of net assets in overseas
subsidiaries at the beginning of the year, borrowings used to
finance or provide a hedge against those investments and from the
translation of the results at average rates are taken directly
to reserves. When a foreign entity is sold, related exchange
differences previously taken to reserves are recognised in the
income statement as part of the gain or loss on sale.
Intangible assets
(a) Goodwill
Goodwill represents the excess of the cost of an acquired entity
over the fair value of the Group’s share of the net identifiable
assets, liabilities and contingent liabilities of the acquired entity at
the date of acquisition. Goodwill arising on the acquisition of an
entity is included as an intangible asset. Goodwill is not amortised
but is tested at least annually for impairment and carried at cost
less accumulated impairment losses. Any impairment charge is
recognised immediately in the income statement.
In circumstances where the fair value of the interest acquired in
an entity’s assets, liabilities and contingent liabilities exceeds the
consideration paid (“negative goodwill”), the excess is recognised
immediately as a gain in the income statement.
As permitted by IFRS 1, the Group elected not to apply IFRS 3
“Business Combinations” to business acquisitions that occurred
before 4 April 2004. Therefore, the carrying amount of goodwill
(being cost less accumulated amortisation) included under UK
GAAP forms the “cost” of goodwill recognised under IFRS at the
date of transition. Goodwill that was written off directly to
reserves under former UK GAAP will not be taken into account
when determining the gain or loss on disposal of previously
acquired businesses after 4 April 2004.
(b) Computer software
Computer software that is not integral to an item of plant
and equipment is recognised separately as an intangible asset.
Amortisation is charged on a straight-line basis so as to charge
the cost of software to the income statement over its expected
useful life, which is between three and five years. Costs associated
with developing or maintaining computer software programmes
are recognised as an expense as incurred.
(c) Research and development
Research expenditure is recognised as an expense as incurred.
Costs incurred on development projects (relating to the design
and testing of new or improved products) are only recognised
as intangible assets in circumstances where certain strict criteria
are satisfied. These include the expectation that it is probable
that the project will be a success, considering its commercial
and technological feasibility, and that all associated costs can
be measured reliably. Otherwise development expenditure is
recognised as an expense as incurred. Development costs
previously recognised as an expense are not recognised as
an asset in a subsequent period. Development costs that have
been capitalised are amortised from the commencement of the
commercial production of the product on a straight-line basis
over the period of its expected benefit, not exceeding five years.
Property, plant and equipment – Property, plant and equipment
are stated at cost, being purchase cost plus any incidental costs
of acquisition, less accumulated depreciation.
Depreciation is calculated on a straight-line basis so as to charge
the depreciable amount of the respective asset to the income
statement over its expected useful life. The useful lives of assets
are as follows:
Freehold buildings – 50 years
Leasehold properties – 50 years or the period of the lease if less
Plant and equipment – various according to type of asset, the
principal categories being:
General plant and equipment
Fixtures
Precision cutting and grinding machines
Motor vehicles
Years
15
15
10
3
Useful lives and residual values are reviewed annually and where
adjustments are required these are made prospectively.
During the year ended 31 March 2009, the Group has revised the
useful lives of assets as follows: General plant and equipment are
depreciated over 15 years (2008 – 10 years), Fixtures over 15 years
(2008 – 10 years) and Precision cutting and grinding machines
over 10 years (2008 – 7 years).
Annual Report and Accounts 2009 Renold plc
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32 Financial statements
Accounting policies
continued
The change in the useful lives reduced the depreciation charge
recorded in the income statement for the year ended 31 March
2009 by £1.0 million.
Where the carrying amount of an asset is greater than its
estimated recoverable amount, it is written down immediately
to its recoverable amount.
Gains and losses on disposals are determined by comparing
proceeds with carrying amount and are included in
operating profit.
As permitted by IFRS 1, at 4 April 2004, the Group has measured
its freehold properties on a fair value basis and used that value
as deemed cost at the transition date.
Asset impairment – Intangible assets and property, plant and
equipment are reviewed, at least annually, to ensure that assets
are not carried above their recoverable amounts. Where some
indication of impairment exists, calculations are made of the
discounted cash flows resulting from continued use of the assets
(value in use) or from their disposal (fair value less costs to sell).
Where these values are less than the carrying amount of the
assets, an impairment loss is charged to the income statement.
Leases – Tangible assets held under finance leases, which are those
where substantially all the risks and rewards of ownership of the
asset have passed to the Group, are capitalised in the balance sheet
at the lower of the fair value of the leased asset or the present
value of the minimum lease payments. Assets acquired under
finance leases are depreciated over the shorter of the useful life
of the asset or the lease term. The corresponding liability to the
leasing company, net of finance charges, is included as an
obligation under finance leases in creditors. The interest element
of the lease payment is charged to the income statement on a
basis which produces a constant rate of charge over the period
of the liability.
Leases where a significant portion of the risk and reward of
ownership is retained by the lessor are classified as operating
leases. Payments made under operating leases (net of any
incentives received from the lessor) are charged to the income
statement on a straight-line basis over the period of the lease.
Investment property – One of the Group’s properties is classified as
an investment property on the basis that it will be held for the long
term, earning a rental income. This is a contractual arrangement
arising from the disposal of a former business segment.
The investment property was previously a manufacturing facility
of the Group but owner-occupation ceased upon disposal of
the Automotive business. On the date of disposal a transfer was
made from property to investment property. The cost model
has been applied since that date and depreciation charged at
2% on a straight-line basis.
Inventories – Inventories are stated at the lower of cost and
estimated net realisable value, after due allowance for obsolete
or slow-moving items. Cost includes all direct expenditure and
attributable overhead expenditure incurred in bringing goods to
their current state under normal operating conditions. The first
in, first out method of valuation is used. Net realisable value is
the estimated selling price in the ordinary course of business,
less the costs of completion and selling expenses. In the Group
accounts, unrealised profit on sales within the Group is deducted
from inventories.
Renold plc Annual Report and Accounts 2009
Taxation – The tax charge comprises current tax payable and
deferred tax.
The Group is subject to taxes in numerous jurisdictions.
The current tax charge represents an estimate of the amounts
payable to tax authorities in respect of taxable profits. It is based
on tax rates and laws that have been enacted, or substantively
enacted, by the balance sheet date.
Deferred income tax is provided in full, using the liability method,
on temporary differences arising between the tax bases of assets
and liabilities and their carrying amounts in the consolidated
financial statements. Currently enacted, or substantively enacted,
tax rates as at the balance sheet date are used in the determination
of deferred income tax.
Deferred income tax assets are recognised to the extent that it is
probable that future taxable profit will be available against which
the temporary differences can be utilised or taxable profit will be
available against which unused tax losses can be utilised before
they expire.
Deferred income tax is provided on temporary differences arising
on investments in subsidiaries except where the timing of the
reversal of the temporary difference can be controlled by the Group
and it is probable that the temporary difference will not reverse in
the foreseeable future.
The carrying amount of deferred income tax assets is reviewed
at each balance sheet date and reduced to the extent that it is
no longer probable that sufficient taxable profit will be available to
allow all or part of the deferred income tax asset to be utilised.
Unrecognised deferred income tax assets are reassessed at each
balance sheet date and are recognised to the extent that it has
become probable that future taxable profit will allow the deferred
tax asset to be recovered.
Deferred income tax relating to items recognised directly in
equity is recognised in equity and not the income statement.
Deferred income tax assets and deferred income tax liabilities
are offset, if a legally enforceable right exists to set off current
income tax assets against current income tax liabilities and the
deferred income taxes relate to the same taxable authority and
taxable entity or, where deferred tax relates to different taxable
entities, the tax authority permits the Group to make a single
net payment.
Revenue – Revenue comprises the fair value of goods provided to
external customers after deducting value-added tax or other sales
related taxes and trade discounts. Revenue from the sale of goods
is recognised when the significant risks and rewards of ownership
of goods are transferred to the buyer, which is normally the point
of despatch.
Trade receivables – Trade receivables are recognised and carried
at the original invoice amount less an allowance for any identified
impairment. The impairment allowance is established when there
is objective evidence that the Group will not collect all amounts
due under the original terms of the transaction. The impairment is
charged to the income statement and represents the difference
between the carrying amount and the recoverable amount.
Balances are written off when the probability of recovery is
assessed as remote.
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Financial statements 33
Financial assets and liabilities
(a) Financial assets
Financial assets are recognised when the Group becomes party
to the contracts that give rise to them and they are classified as
financial assets at fair value through the income statement
or loans and receivables, as appropriate. The Group determines
the classification of its financial assets at initial recognition and,
where allowed and appropriate, re-evaluates this designation
at each financial year end. When financial assets are recognised
initially, they are measured at fair value, being the transaction
price plus, in the case of financial assets not at fair value through
the income statement, directly attributable transaction costs.
The Group considers whether a contract contains an embedded
derivative when the entity first becomes a party to it. The
embedded derivatives are separated from the host contract if
it is not measured at fair value through the income statement
and when the economic characteristics and risks are not closely
related to those of the host contract. Reassessment only occurs
if there is a change in the terms of the contract that significantly
modifies the cash flows that would otherwise be required.
All standard purchases and sales of financial assets are recognised
on the trade date, being the date that the Group commits
to purchase or sell the asset. Standard transactions require delivery
of assets within the timeframe generally established by regulation
or convention in the marketplace. The subsequent measurement
of financial assets depends on their classification, as follows:
(i) Financial assets at fair value through the income statement –
Financial assets classified as held for trading and other assets
designated as such on inception are included in this category.
Financial assets are classified as held for trading if they are
acquired for sale in the short term. Derivatives, including separated
embedded derivatives, are also classified as held for trading unless
they are designated as effective hedging instruments or as
financial guarantee contracts. Assets are carried in the balance
sheet at fair value with gains or losses recognised in the
income statement.
Financial assets may be designated at initial recognition as at
fair value through the income statement if the following criteria
are met: (i) the designation eliminates or significantly reduces
the inconsistent treatment that would otherwise arise from
measuring the assets or recognising gains or losses on them on
a different basis; or (ii) the assets are part of a group of financial
assets which are managed and their performance evaluated
on a fair value basis in accordance with a documented risk
management strategy; or (iii) the financial asset contains an
embedded derivative that would need to be separately recorded.
(ii) Loans and receivables – Loans and receivables are non-derivative
financial assets with fixed or determinable payments that are not
quoted in an active market, do not qualify as trading assets and
have not been designated as either fair value through the income
statement or available for sale. Such assets are carried at amortised
cost using the effective interest method if the time value of
money is significant. Gains and losses are recognised in the income
statement when the loans and receivables are derecognised
or impaired, as well as through the amortisation process.
(b) Impairment of financial assets
The Group assesses at each balance sheet date whether
a financial asset or group of financial assets is impaired.
(i) Assets carried at amortised cost – If there is objective evidence
that an impairment loss on assets carried at amortised cost has
been incurred, the amount of the loss is measured as the difference
between the asset’s carrying amount and the present value of
estimated future cash flows (excluding future credit losses that
have not been incurred) discounted at the financial asset’s original
effective interest rate (i.e. the effective interest rate computed at
initial recognition). The carrying amount of the asset is reduced,
through the use of an allowance account. The amount of the loss
shall be recognised in administration costs.
If, in a subsequent period, the amount of the impairment loss
decreases and the decrease can be related objectively to an event
occurring after the impairment was recognised, the previously
recognised impairment loss is reversed. Any subsequent reversal
of an impairment loss is recognised in the income statement, to
the extent that the carrying value of the asset does not exceed its
amortised cost at the reversal date.
In relation to trade receivables, a provision for impairment is
made when there is objective evidence (such as the probability
of insolvency or significant financial difficulties of the debtor)
that the Group will not be able to collect all of the amounts due
under the original terms of the invoice. The carrying amount of
the receivable is reduced through use of an allowance account.
Impaired debts are derecognised when they are assessed
as irrecoverable.
(ii) Assets carried at cost – If there is objective evidence that
an impairment loss on an unquoted equity instrument that is
not carried at fair value because its fair value cannot be reliably
measured, or on a derivative asset that is linked to and must
be settled by delivery of such an unquoted equity instrument,
has been incurred, the amount of the loss is measured as the
difference between the asset’s carrying amount and the present
value of estimated future cash flows discounted at the current
market rate of return for a similar financial asset.
(c) Interest-bearing loans and borrowings
Obligations for loans and borrowings are recognised when the
Group becomes party to the related contracts and are measured
initially at the fair value of consideration received less directly
attributable transaction costs. After initial recognition, interest-
bearing loans and borrowings are subsequently measured
at amortised cost using the effective interest method. Gains
and losses arising on the repurchase, settlement or otherwise
cancellation of liabilities are recognised respectively in finance
revenue and finance cost.
(d) Financial liabilities at fair value through the income statement
Financial liabilities at fair value through the income statement
include financial liabilities held for trading and financial liabilities
designated upon initial recognition as at fair value through the
income statement.
Financial liabilities are classified as held for trading if they are
acquired for the purpose of selling in the near term. Derivatives,
including separated embedded derivatives are also classified as
held for trading unless they are designated as effective hedging
instruments. Gains or losses on liabilities held for trading are
recognised in the income statement.
Exceptional items – Exceptional items are items in the profit
from operations which individually or, if of a similar type, in
aggregate, are relevant to an understanding of the Group’s
financial performance. These items are separately disclosed
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34 Financial statements
Accounting policies
continued
as memorandum information on the face of the income
statement with additional information provided in the
Notes to the financial statements.
Employee benefits
(a) Pension obligations
Group companies have various pensions plan arrangements
matching the local conditions and practices in the countries
in which they operate.
The Group operates a number of defined benefit plans around
the world. The cost is calculated by independent actuaries using
the projected unit credit method. Any past service costs resulting
from enhanced benefits are recognised immediately in income,
unless the changes are conditional on the employees remaining in
service for a specified period of time (the “vesting period”). In this
case, the past service costs are amortised on a straight-line basis
over the vesting period.
Material administrative costs of running the plans including
the Pension Protection Fund levy are treated as a deduction
in the expected return on plan assets.
Actuarial gains and losses, which represent differences between
the expected and actual returns on plan assets and the effect
of changes in actuarial assumptions, are recognised in the
Statement of Recognised Income and Expense in the period
in which they occur.
The defined benefit liability or asset recognised in the balance
sheet represents the net total for each plan of the present value
of the benefit obligation at the balance sheet date, less any past
service costs not yet recognised, less the fair value of plan assets
(for funded schemes) at the balance sheet date. If a plan records
a surplus, the asset recognised is limited to the amount of any
unrecognised past service cost and the present value of any
amount expected to be recoverable by the Group by way of
refunds or reduction in future contributions.
For defined contribution plans, the Group’s contributions are
charged to the income statement in the period in which they fall
due. Once the contributions have been paid the Group has no
further payment obligation.
(b) Share-based compensation
The Group operates equity-settled, share-based compensation
plans. The fair value of the employee services received in exchange
for the grant of the options is recognised as an expense in the
income statement, with the corresponding amount being
recognised in equity. The total amount to be expensed over the
vesting period is determined by reference to the fair value of the
options granted, excluding the impact of any non-market vesting
conditions, using a Black-Scholes pricing model. Non-market
vesting conditions are included in assumptions about the number
of options that are expected to become exercisable. At each
balance sheet date, the Group revises its estimates of the number
of options that are expected to become exercisable. It recognises
the impact of the revision of original estimates, if any, in the
income statement, and a corresponding adjustment to equity
over the remaining vesting period. The Black-Scholes pricing model
is adjusted as necessary for market-based vesting conditions.
As permitted by IFRS 1 the Group has applied IFRS 2 “Share-based
Payment” only to equity-settled awards granted after 7 November
2002 and which vested on or after 1 January 2005.
Renold plc Annual Report and Accounts 2009
Financial instruments
The Group uses derivative financial instruments such as forward
currency contracts and interest rate swaps to hedge its risks
associated with foreign currency and interest rate fluctuations.
Since 1 April 2005, such derivative financial instruments have been
initially recognised at fair value on the date on which a derivative
contract is entered into and are subsequently remeasured at
fair value. Derivatives are carried as assets when the fair value
is positive and as liabilities when the fair value is negative.
The fair value of forward currency contracts is calculated by
reference to current forward exchange rates for contracts with
similar maturity profiles. The fair value of interest rate swap
contracts is determined by reference to market values for
similar instruments.
For those derivatives designated as hedges and for which hedge
accounting is desired, the hedging relationship is formally
designated and documented at its inception. This documentation
identifies the risk management objective and strategy for
undertaking the hedge, the hedging instrument, the hedged
item or transaction, the nature of the risk being hedged and
how effectiveness will be measured throughout its duration.
Such hedges are expected at inception to be highly effective in
offsetting changes in fair value or cash flows and are assessed on
an ongoing basis to determine that they actually have been highly
effective throughout the reporting period for which they
were designated.
For the purpose of hedge accounting, hedges are classified as:
• cash flow hedges when hedging exposure to variability in cash
flows that is either attributable to a particular risk associated
with a recognised asset or liability or a highly probable forecast
transaction; or
• hedges of a net investment in a foreign operation.
There are no fair value hedges.
Any gains or losses arising from changes in the fair value of
derivatives that do not qualify for hedge accounting are taken to
the income statement. The treatment of gains and losses arising
from revaluing derivatives designated as hedging instruments
depends on the nature of the hedging relationship, as follows:
(a) Cash flow hedges
For cash flow hedges, the effective portion of the gain or loss
on the hedging instrument is recognised directly in equity, while
the ineffective portion is recognised in the income statement.
Amounts taken to equity are transferred to the income statement
when the hedged transaction affects the income statement, such
as when a forecast sale or purchase occurs.
If a forecast transaction is no longer expected to occur,
amounts previously recognised in equity are transferred to the
income statement. If the hedging instrument expires or is sold,
terminated or exercised without replacement or rollover, or if its
designation as a hedge is revoked, amounts previously recognised
in equity remain in equity until the forecast transaction occurs and
are transferred to the income statement or to the initial carrying
amount of a non-financial asset or liability as above. If the related
transaction is not expected to occur, the amount is taken to the
income statement.
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(b) Hedges of a net investment
Hedges of a net investment in a foreign operation, including
a hedge of a monetary item that is accounted for as part of the
net investment, are accounted for in a way similar to cash flow
hedges. Gains or losses relating to the effective portion are
recognised directly in equity while any gains or losses relating to
the ineffective portion are recognised in the income statement.
On disposal of the foreign operation, the cumulative value of any
such gains or losses recognised directly in equity is transferred to
the income statement.
restated on a comparable basis. In the balance sheet, the assets
relevant to the disposal group are reported as a separate line item
after current assets; liabilities associated with the disposal group
are similarly disclosed as a line item below current liabilities.
Comparative balance sheet amounts are not restated.
Dividend distribution – Dividend distribution to the Company’s
shareholders is recognised as a liability in the Group’s financial
statements in the period in which the dividends are paid or
approved by the Company’s shareholders.
Derivatives embedded in other financial instruments or other host
contracts are treated as separate derivatives when their risks and
characteristics are not closely related to those of the host contract
and the host contract is not stated at its fair value with changes
in its fair value recognised in the income statement.
From 1 April 2005, the Group’s preference shares have been
classified as liabilities. Dividends payable on the preference
shares are included within net finance costs.
Cash and cash equivalents – Cash and cash equivalents are carried
in the balance sheet at cost. For the purposes of the cash flow
statement, cash and cash equivalents comprise cash on hand,
deposits held at call with banks, other short-term highly liquid
investments with original maturities of three months or less, and
bank overdrafts. Bank overdrafts are included within borrowings
in current liabilities on the balance sheet to the extent that there
is no right of offset nor intention to settle net, with cash balances.
Borrowing costs – Borrowing costs are recognised in the income
statement in the period in which they are incurred.
Provisions – Provisions are recognised when the Group: (i) has a
present legal or constructive obligation as a result of past events;
(ii) it is more likely than not that an outflow of resources will be
required to settle the obligation; and (iii) a reliable estimate of
the amount can be made. Where the Group expects a provision
to be reimbursed, for example under an insurance contract,
the reimbursement is recognised as a separate asset but only
when the reimbursement is virtually certain.
Costs related to ongoing activities of the Group are not provided
in advance.
Assets held for sale and discontinued operations – In accordance
with IFRS 5, assets are classified as held for sale if their carrying
amount will be recovered by sale rather than by continuing use
in the business and where the sale is highly probable. For this
to be the case, the asset must be available for immediate sale in
its present condition, and management must be committed to
and have initiated a plan to sell the asset which, when initiated,
is expected to result in a completed sale within a year. Assets that
are classified as held for sale are measured at the lower of their
carrying amount or fair value less costs to sell. No depreciation
is charged on items of property, plant and equipment held
for sale.
A discontinued operation is a component of the business that has
either been disposed of, or satisfies the criteria to be classified as
held for sale, and represents a separate major line of business or
geographical area of operations (“disposal group”) or is part of a
single co-ordinated plan to achieve such a disposal. The post-tax
profit or loss on a discontinued operation is shown as a single
amount on the face of the Group income statement, separate
from the continuing results of the Group; prior year amounts are
Significant accounting judgements, estimates
and assumptions
The preparation of financial statements in conformity with
generally accepted accounting principles requires the use of
estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period.
Although these estimates are based on management’s best
knowledge of current events and actions, actual results ultimately
may differ from those estimates.
However, uncertainty about these assumptions and estimates
could result in outcomes that could require a material adjustment
to the carrying value of the Group’s assets or liabilities in the future.
The key sources of estimation uncertainty that have a potential risk
of causing material adjustment to the carrying amounts of assets
and liabilities within the next financial year are as follows:
a) Impairment of non-financial assets
The Group assesses whether there are any indicators of
impairment for all non-financial assets at each reporting date.
Goodwill is tested for impairment annually and at other times
when such indicators exist.
When value in use calculations are undertaken, management
must estimate the expected future cash flows from the asset or
cash-generating unit and choose a suitable discount rate in order
to calculate the net present value of those cash flows. Further
details are included in Note 8.
b) Deferred tax assets
Deferred tax assets are recognised for all unused tax losses to
the extent that it is probable that taxable profit will be available
against which the losses can be utilised. Significant management
adjustment judgement is required to determine the amount of
deferred tax assets that can be recognised, based upon the likely
timing and level of future taxable profits together with the future
tax planning strategies. Actual outcomes may vary and could
require a material adjustment to the carrying amounts. Further
details are contained in Note 17.
c) Retirement benefit obligations
The costs of the Group’s defined benefit plans are determined by
using actuarial valuations. The actuarial valuation involves making
assumptions about discount rates, expected rates of return on
assets, future salary increases, mortality rates and future pension
increases. Due to the long-term nature of these plans, such
estimates are subject to significant uncertainty. Further details
are given in Note 18.
Annual Report and Accounts 2009 Renold plc
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36 Financial statements
Consolidated income statement
for the year ended 31 March 2009
Continuing operations:
Revenue
Operating costs
Operating profit
Operating profit before exceptional items
Exceptional items
Operating profit
Financial costs
Financial revenue
Net financing costs
Profit before tax
Taxation
Profit for the financial year from continuing operations
Discontinued operations:
Profit for the financial year from discontinued operations
Profit for the financial year
Attributable to:
Equity holders of the parent
Minority interests
Earnings per share
Basic earnings per share
Diluted earnings per share
Basic earnings per share from continuing operations
Diluted earnings per share from continuing operations
Adjusted earnings per share from continuing operations19
Diluted adjusted earnings per share from continuing operations19
19 Adjusted for the after tax effects of exceptional items and the IAS 19 finance charge.
Note
1
2
2
3
4
5
6
2009
£m
194.7
(187.1)
7.6
10.0
(2.4)
7.6
(16.0)
11.3
(4.7)
2.9
(0.8)
2.1
–
2.1
2.1
– –
2.1
2.8p
2.8p
2.8p
2.8p
7.3p
7.3p
2008
£m
172.6
(160.4)
12.2
12.0
0.2
12.2
(14.7)
11.8
(2.9)
9.3
(3.1)
6.2
1.5
7.7
7.7
7.7
11.0p
10.8p
8.9p
8.7p
8.5p
8.3p
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Renold plc Annual Report and Accounts 2009
Consolidated balance sheet
as at 31 March 2009
ASSETS
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Investment property
Other non-current assets
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Current tax asset
Cash and cash equivalents
TOTAL ASSETS
LIABILITIES
Current liabilities
Borrowings
Trade and other payables
Derivative financial instruments
Provisions
NET CURRENT ASSETS
Non-current liabilities
Borrowings
Provisions
Preference shares
Trade and other payables
Deferred tax liabilities
Retirement benefit obligations
TOTAL LIABILITIES
NET ASSETS
EQUITY
Issued share capital
Share premium account
Currency translation reserve
Other reserves
Retained earnings
Equity attributable to equity holders of the parent
Minority interests
TOTAL SHAREHOLDERS’ EQUITY
Approved by the Board on 13 July 2009 and signed on its behalf by:
Matthew Peacock
Chairman
Robert Davies
Director
Financial statements 37
Note
2009
£m
2008
£m
8
8
9
10
12
17
11
12
25
13
14
15
25
16
14
16
14
15
17
18
19
21
21
21
21
24.5
1.1
51.1
2.2
0.4
14.2
93.5
46.4
37.1
–
0.7
11.3
95.5
189.0
(44.4)
(37.6)
(2.9)
(2.9)
(87.8)
7.7
(3.6)
(0.5)
(0.5)
(0.5)
(0.9)
(55.1)
(61.1)
(148.9)
16.3
1.2
39.5
1.9
0.3
9.9
69.1
41.0
35.2
0.1
0.1
15.5
91.9
161.0
(8.3)
(41.8)
(0.9)
(3.9)
(54.9)
37.0
(30.6)
(0.5)
(0.5)
(0.7)
(1.6)
(31.2)
(65.1)
(120.0)
40.1
41.0
19.3
9.6
7.6
(1.9)
3.9
38.5
1.6 –
40.1
17.5
6.3
(1.3)
(0.6)
19.1
41.0
41.0
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Annual Report and Accounts 2009 Renold plc
38 Financial statements
Consolidated cash flow statement
for the year ended 31 March 2009
Cash flows from operating activities (Note 24)
Cash generated from operations – continuing
Cash generated/(absorbed) by operations – discontinued
Income taxes paid
Net cash from operating activities
Cash flows from investing activities
Acquisition of subsidiary undertaking (Note 26)
Proceeds from disposal of businesses (net of cash transferred)
Purchase of property, plant and equipment
Purchase of intangible assets
Proceeds on disposal of property, plant and equipment
Proceeds on disposal of assets held for sale
Interest received
Net cash from investing activities
Cash flows from financing activities
Financing costs paid
Proceeds from borrowings
Repayment of borrowings
Issue of ordinary shares
Payment of finance lease liabilities
Net cash from financing activities
Net decrease in cash and cash equivalents
Net cash and cash equivalents at beginning of year
Effects of exchange rate changes
Net cash and cash equivalents at end of year (Note 13)
2009
£m
2008
£m
1.1
– –
1.1
(1.7)
(0.6)
(5.6)
–
(5.5)
(0.3)
1.7
–
0.1
(9.6)
(2.5)
4.8
(4.6)
5.1
(0.1)
2.7
(7.5)
14.2
1.9
8.6
4.5
4.5
(2.3)
2.2
(2.4)
0.2
(7.5)
(0.7)
1.1
6.0
0.1
(3.2)
(2.8)
7.1
(5.8)
0.3
(0.1)
(1.3)
(2.3)
15.4
1.1
14.2
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Renold plc Annual Report and Accounts 2009
Consolidated statement of recognised income and expense
for the year ended 31 March 2009
Financial statements 39
Profit for the year
Net income/(expense) recognised directly in equity:
Recycling of losses on cash flow hedges to the income statement
Net losses on cash flow hedges taken to equity
Foreign exchange translation differences
Gains on fair value of hedging net investments in foreign operations
Actuarial (losses)/gains on retirement benefit obligations
Tax on items taken directly to equity
Total (expense)/income recognised directly in equity
Total recognised income and (expense) for the year
Attributable to:
Equity shareholders of the Company
Minority interest
2009
£m
2.1
0.5
(1.8)
3.4
5.5
(22.3)
4.6
(10.1)
(8.0)
(8.0)
– –
(8.0)
2008
£m
7.7
0.2
(0.8)
(0.7)
0.6
16.0
(6.3)
9.0
16.7
16.7
16.7
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Annual Report and Accounts 2009 Renold plc
40 Financial statements
Notes to the consolidated financial statements
1. Segmental information
Primary reporting format – business segment
The Group’s continuing activities are in one class of business, Industrial Power Transmission. The consolidated income statement for
continuing operations therefore relates wholly to the Industrial Power Transmission business.
Segment assets and liabilities
Shown below is a summary of the assets and liabilities of Industrial Power Transmission:
Assets
Industrial Power Transmission
Unallocated assets (see below)
Total assets
Liabilities
Industrial Power Transmission
Borrowings (Note 14)
Derivative financial instruments
Current and deferred tax
Total liabilities
2009
£m
160.6
28.4
189.0
2008
£m
133.6
27.4
161.0
(96.6)
(78.1)
(48.5)
(2.9)
(0.9)
(148.9)
(39.4)
(0.9)
(1.6)
(120.0)
Secondary reporting format – geographical segments
The operations of the Group are based in four main geographical areas. The UK is the home country of the parent company, Renold plc.
The main operations in the principal territories are as follows:
• United Kingdom
• Rest of Europe
• United States and Canada
• Other countries.
The sales analysis in the table below is based on the location of the customer; the analysis of assets and capital expenditure is based on
the location of the assets:
Revenue (continuing)
2008
£m
20.0
56.1
57.6
38.9
172.6
2009
£m
19.9
63.9
67.8
43.1
194.7
–
194.7
–
172.6
Capital expenditure
2008
£m
2.4
2.6
0.8
2.4
8.2
2009
£m
1.7
0.7
1.2
2.2
5.8
– –
5.8
8.2
Assets
2009
£m
29.1
37.0
53.6
40.9
160.6
28.4
189.0
14.9
11.3
2.2
28.4
2008
£m
30.7
38.8
40.1
24.0
133.6
27.4
161.0
10.0
15.5
1.9
27.4
United Kingdom
Rest of Europe
North America
Other countries
Unallocated assets
Unallocated assets comprise:
Current and deferred tax assets
Cash and cash equivalents
Investment property
All revenue relates to the sale of goods.
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Renold plc Annual Report and Accounts 2009
2. Operating costs and exceptional items (continuing operations)
(a) Operating profit is stated after charging/(crediting):
Change in inventory of finished goods and work in progress
Own work capitalised
Other operating income
Raw materials and consumables
Other external charges
Employee costs
Gross wages and salaries
Social security costs
Pension costs – Defined benefit
Cost of share-based incentive plans
– Defined contribution
Depreciation of property, plant and equipment
– owned assets
– leased assets
Amortisation of intangible assets
Operating leases – minimum lease payments
– plant and machinery
– property
Profit on disposal of property, plant and equipment
Research and development expenditure
Auditors’ remuneration (Note 2(b))
Trade receivables impairment charge
Foreign exchange
Exceptional items (Note 2(c))
(b) Auditors’ remuneration
2009
£m
54.1
8.6
1.1
0.7
0.4
0.4
1.9
£m
0.6
–
(2.3)
86.5
25.8
64.9
4.3
0.1
0.3
2.3
(0.7)
0.4
0.6
0.2
1.7
2.4
187.1
Fees payable to the Company’s auditors for the audit of the Group’s annual financial statements
Fees payable to the Company’s auditors and their associates for other services:
Audit of the Company’s subsidiaries pursuant to legislation
Taxation services
Corporate finance services
All other services
Total fees
Financial statements 41
2008
£m
52.8
8.0
1.8
0.8
0.1
0.4
1.7
2009
£000
Total
68
253
321
96
29
142
588
£m
(4.0)
(0.1)
(2.3)
72.3
24.1
63.5
4.8
0.1
0.2
2.1
(0.4)
0.4
0.3
0.1
(0.5)
(0.2)
160.4
2008
£000
Total
79
216
295
161
72
12
540
In 2008/09, the Group auditor also received fees of £30,000 for audit services provided to Group pension schemes (2008 – £35,000).
These were the only services provided to the pension schemes.
(c) Exceptional items
Profit on disposal of asset held for sale (Burton factory)
Reorganisation and redundancy costs
2009
£m
–
2.4
2.4
2008
£m
(2.6)
2.4
(0.2)
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Exceptional costs associated with the restructuring of the continuing Group’s manufacturing and distribution facilities have originated
as follows: UK £0.5 million (2008 – £0.5 million), Germany £0.6 million (2008 – £1.6 million), Poland £0.6 million (2008 – £nil) and other
countries £0.7 million (2008 – £0.3 million).
Annual Report and Accounts 2009 Renold plc
42 Financial statements
Notes to the consolidated financial statements
continued
2. Operating costs and exceptional items (continuing operations) (continued)
(d) Employees and key management compensation
Employee costs, including directors, are set out in Note 2(a) above. Key management personnel are represented by the Board and their
aggregate emoluments were as follows:
Short-term employee benefits
Post-employment benefits
Share-based payments
2009
£000
668
70
162
900
2008
£000
870
65
68
1,003
Further details of the remuneration of directors are provided in the auditable part of the Directors’ Remuneration Report on page 20
under the heading “Remuneration Package”.
The average monthly number of persons employed by the Group during the year was:
2008
729
612
408
728
2,477
2008
£m
2009
700
604
381
945
2,630
£m
(2.7)
(0.2)
(2.9)
(11.8)
(14.7)
0.1
11.7
11.8
(2.9)
United Kingdom
Rest of Europe
North America
Other countries
3. Net financing costs
Financial costs:
Interest payable on bank loans and overdrafts
Costs associated with refinancing
Interest cost on financial liabilities not at fair value through the income statement
Interest cost on pension plan balances
Total financial costs
Financial revenue:
2009
£m
£m
(2.8)
(0.2)
(3.0)
(13.0)
(16.0)
Interest receivable on bank deposits and cash equivalents
Interest income on financial assets not at fair value through the income statement
Expected return on pension plan assets
Total financial revenue
Net financing costs
0.1
0.1
0.1
11.2
11.3
(4.7)
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Renold plc Annual Report and Accounts 2009
4. Taxation
Analysis of tax charge in the year
United Kingdom
UK corporation tax at 28% (2008 – 30%)
Less: double taxation relief
Overseas taxes
Corporation taxes
Amount underprovided in previous years
Current income tax charge
Deferred tax
United Kingdom – origination and reversal of temporary differences
Impact of change in tax rate on deferred tax
Overseas – origination and reversal of temporary differences
Total deferred tax
Tax charge on profit on ordinary activities
Analysed as:
Continuing
Discontinued
Tax on items taken directly to equity
Deferred tax on pension plan balances
Impact of change in tax rate on deferred tax on pension plan balances
Deferred tax on other direct movements on reserves
Financial statements 43
2009
£m
0.2
(0.2)
– –
0.9
–
0.9
0.2
–
(0.3)
(0.1)
0.8
0.8
– –
0.8
2008
£m
0.2
(0.2)
1.2
0.4
1.6
0.5
0.4
0.6
1.5
3.1
3.1
3.1
2009
£m
2008
£m
5.5
–
(0.9) –
4.6
(5.7)
(0.6)
(6.3)
Factors affecting the Group tax charge for the year
The Group’s tax charge in future years will be affected by the profit mix, effective tax rates in the different countries where the Group
operates and utilisation of tax losses. No deferred tax is recognised on the unremitted earnings of overseas subsidiaries.
The tax assessed for the year is the same as (2008 – lower than) the standard rate of corporation tax in the UK of 28% (2008 – 30%).
The differences are explained below:
Profit on ordinary activities before tax
Continuing operations
Discontinued operations
Tax on ordinary activities at 28% (2008 – 30%)
Effects of:
Permanent differences
Non-taxable gain on disposal of asset held for sale
Overseas tax rate differences
Utilisation of brought-forward unrecognised tax losses
Other temporary differences
Effects of changes in tax rates
Adjustments in respect of prior periods
Total tax charge
2009
£m
2008
£m
2.9
–
2.9
0.8
0.2
–
0.4
(0.6)
0.2
–
(0.2)
0.8
9.3
1.5
10.8
3.2
0.4
(0.8)
0.2
(0.5)
(0.2)
0.4
0.4
3.1
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Annual Report and Accounts 2009 Renold plc
44 Financial statements
Notes to the consolidated financial statements
continued
5. Discontinued operations
The results attributable to the discontinued operations are set out below:
Adjustments to fair value less costs to sell and losses on disposal
Profit for the year on discontinued operations
2009
Total
2008
Total
discontinued discontinued
£m
1.5
1.5
£m
–
–
The sale and purchase agreement for the divestment of the Machine Tools business in December 2006 included £1.5 million of deferred
consideration, the payment of which was contingent on certain conditions. Following a period of extended negotiations, agreement
was reached with the purchaser to replace the deferred consideration with loan notes to the value of £0.7 million. This asset has not
been recognised in these financial statements and will only be recognised when there is greater certainty of recovery.
6. Earnings per share
Earnings per share are calculated by reference to the earnings for the year and the weighted average number of shares in issue during
the year as follows:
Basic EPS
Earnings attributed to ordinary shareholders
Effect of dilutive securities:
Employee share options
Diluted EPS
Earnings per share from continuing operations
Basic EPS
Adjustments to fair value less costs to sell
and losses on disposal (Note 5)
Basic EPS from continuing operations
2009
Weighted
average
number
of shares
£m Thousands
Earnings
2.1
74,363
–
2.1
2.1
–
2.1
17
74,380
74,363
74,363
2008
Weighted
average
number of
shares
£m Thousands
Earnings
Per-share
amount
Pence
Per-share
amount
Pence
2.8
–
2.8
2.8
–
2.8
7.7
69,807
11.0
–
7.7
1,589
71,396
7.7
69,807
(1.5)
6.2
69,807
(0.2)
10.8
11.0
(2.1)
8.9
Inclusion of the dilutive securities, shown above, in the calculation of basic EPS from continuing operations changes the amount shown
to 2.8p (2008 – 8.7p).
Earnings per share from discontinued operations
Basic EPS
Post-tax profit from discontinued operations (Note 5)
Basic EPS from discontinued operations
–
–
74,363
74,363
–
–
1.5
1.5
69,807
69,807
2.1
2.1
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Inclusion of the dilutive securities changes the amount shown for basic EPS for discontinued operations to nil (2008 – 2.1p).
Adjusted EPS for continuing activities
Basic EPS from continuing operations
Effect of exceptional items, after tax:
Redundancy and restructuring
Net finance costs arising on pension plan assets
Adjusted EPS
2.1
2.0
1.3
5.4
74,363
74,363
2.8
2.7
1.8
7.3
6.2
69,807
(0.3)
–
5.9
69,807
8.9
(0.4)
–
8.5
Inclusion of the dilutive securities, shown above, in the calculation of adjusted EPS changes the amount shown to 7.3p (2008 – 8.3p).
The adjusted earnings per share numbers have been provided in order to give a useful indication of underlying performance by the
exclusion of exceptional items.
7. Dividends
No ordinary dividend payments were paid or proposed in either the current or prior year.
Renold plc Annual Report and Accounts 2009
8. Intangible assets
Cost
At 1 April 2008
Exchange adjustment
Additions
At 31 March 2009
Accumulated amortisation and impairment
At 1 April 2008
Exchange adjustment
Amortisation charge
At 31 March 2009
Net book amount at 31 March 2009
Net book amount at 31 March 2008
Cost
At 1 April 2007
Exchange adjustment
Additions
At 31 March 2008
Accumulated amortisation and impairment
At 1 April 2007
Exchange adjustment
Amortisation charge
At 31 March 2008
Net book amount at 31 March 2008
Net book amount at 31 March 2007
Financial statements 45
Goodwill
£m
Computer
software
£m
16.3
6.1
2.1
24.5
–
–
–
–
24.5
16.3
3.3
0.1
0.3
3.7
2.1
0.2
0.3
2.6
1.1
1.2
Goodwill
£m
Computer
software
£m
15.2
(0.1)
1.2
16.3
–
–
–
–
16.3
15.2
2.2
0.4
0.7
3.3
1.6
0.3
0.2
2.1
1.2
0.6
Total
£m
19.6
6.2
2.4
28.2
2.1
0.2
0.3
2.6
25.6
17.5
Total
£m
17.4
0.3
1.9
19.6
1.6
0.3
0.2
2.1
17.5
15.8
Goodwill is tested for impairment at least annually and following that exercise in 2009 no impairment charge has been recognised in
the period (2008 – £nil).
For the purposes of impairment testing of goodwill, these businesses are defined as cash-generating units (“CGUs”).
The carrying amounts of goodwill allocated to CGUs are as follows:
Jeffrey Chain, USA
Renold Hangzhou, China
Ace Chains, Australia
Renold Chain India
2009
£m
20.4
1.5
0.4
2.2 –
24.5
2008
£m
14.7
1.2
0.4
16.3
The recoverable amount of each CGU has been determined on a value-in-use basis. Value-in-use is calculated as the net present value
of cash flows derived from detailed financial plans for the next two financial periods as approved by the Board. Cash flows beyond the
two-year plans are extrapolated using the long-term country growth rates disclosed below.
Key assumptions used in the value-in-use calculations:
Sales volume, selling prices and cost changes
The Group prepares cash flow forecasts based on the latest management estimates for the next two financial years. The expected sales
prices and volumes reflect management’s experience of how sales will develop at this point of the economic cycle. The expected profit
margin reflects management’s experience of each CGU’s profitability at the level of sales and incorporates the impact of restructuring
that took place during the year ended 31 March 2009.
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Notes to the consolidated financial statements
continued
8. Intangible assets (continued)
Growth rates
Cash flows beyond the period of projections are extrapolated using the long-term growth rate published by the OECD for the territory
in which the CGU is based.
Growth rate
Jeffrey Chain, USA
Renold Hangzhou, China
Ace Chains, Australia
Renold Chain India
2009
2008
% %
3.1
8.1
3.7
7.0 –
3.1
8.1
3.6
Discount rates
Discount rates applied to the cash flow forecasts reflect the current market assessment of the risks specific to each CGU. The discount
rates used are as follows:
Discount rate
Jeffrey Chain, USA
Renold Hangzhou, China
Ace Chains, Australia
Renold Chain India
2009
%
13.4
14.6
11.4
23.5
In 2008, a blended Group discount rate of 9% was used to represent the Group’s estimated weighted average cost of capital.
The discount rates applied to the cash flows of each of the CGUs is based on the risk-free rate for long-term bonds (typically ten years)
issued by the government in the respective market, adjusted for a risk premium to reflect both the increased risk of investing in equities
and the systematic risk of the specific CGU. In making this adjustment, inputs required are the equity market risk premium (that is the
required increased return over and above a risk-free rate by an investor who is investing in the market as a whole) and the risk
adjustment (“beta”) applied to reflect the risk of the CGU relative to the market as a whole.
In determining the risk-adjusted discount rate, management has applied an adjustment for the systematic risk to each of the CGUs
determined using an average of the betas of comparable companies.
Sensitivity to the changes in assumptions
Management believes that no reasonably possible change in any of the key assumptions would cause the carrying value of Renold
Hangzhou, Ace Chains and Renold Chain India to materially exceed each CGU’s recoverable amount.
With regard to Jeffrey Chain it is reasonably possible that a change to one of the key assumptions could cause the carrying value of the
CGU to exceed its recoverable amount. The actual recoverable amount for Jeffrey Chain exceeds its carrying value by US$5.6 million.
Management has considered the possibility of a greater than budgeted discount rate. The effect of a one percentage point increase in
the discount rate would give a value in use equal to the carrying value of the CGU.
9. Property, plant and equipment
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Cost
At 1 April 2008
Exchange adjustment
Acquisitions
Additions
Disposals
At 31 March 2009
Aggregate depreciation
At 1 April 2008
Exchange adjustment
Charge for the year
Disposals
At 31 March 2009
Net book amount at 31 March 2009
Net book amount at 31 March 2008
Renold plc Annual Report and Accounts 2009
Land and
Plant and
buildings equipment
£m
£m
19.9
2.4
0.5
0.3
(0.9)
22.2
2.4
0.1
0.3
–
2.8
19.4
17.5
101.7
14.0
4.0
5.2
(1.4)
123.5
79.7
9.3
4.1
(1.3)
91.8
31.7
22.0
Total
£m
121.6
16.4
4.5
5.5
(2.3)
145.7
82.1
9.4
4.4
(1.3)
94.6
51.1
39.5
9. Property, plant and equipment (continued)
Cost
At 1 April 2007
Exchange adjustment
Acquisitions
Additions
Disposals
At 31 March 2008
Aggregate depreciation
At 1 April 2007
Exchange adjustment
Charge for the year
Disposals
At 31 March 2008
Net book amount at 31 March 2008
Net book amount at 31 March 2007
Financial statements 47
Land and
Plant and
buildings equipment
£m
£m
18.8
1.5
–
0.1
(0.5)
19.9
2.0
0.1
0.3
–
2.4
17.5
16.8
88.5
5.8
1.2
7.4
(1.2)
101.7
71.3
4.6
4.6
(0.8)
79.7
22.0
17.2
Total
£m
107.3
7.3
1.2
7.5
(1.7)
121.6
73.3
4.7
4.9
(0.8)
82.1
39.5
34.0
Net book amount for plant and equipment includes £0.3 million (2008 – £0.3 million) in respect of assets acquired under finance leases.
Future capital expenditure
At 31 March 2009 capital expenditure contracted for but not provided for in these accounts amounted to £0.8 million (2008 – £1.3 million).
10. Investment property
Cost
At 1 April 2008
Exchange adjustment
As at 31 March 2009
Aggregate depreciation
At 1 April 2008
Charge for the year
At 31 March 2009
Net book amount at 31 March 2009
Net book amount at 31 March 2008
Cost
At 1 April 2007
Exchange adjustment
At 31 March 2008
Aggregate depreciation
At 1 April 2007
Charge for the year
At 31 March 2008
Net book amount at 31 March 2008
Net book amount at 31 March 2007
£m
2.0
0.3
2.3
0.1
–
0.1
2.2
1.9
1.7
0.3
2.0
0.1
–
0.1
1.9
1.6
The present lease of the Calais property commenced on 3 August 2007 for a period of nine years. This agreement is terminable by the
tenant at the end of each three-year period. The rental income recognised in the period was £0.3 million (2008 – £0.3 million). The total
future minimum lease payments under the non-cancellable term amount to £0.3 million (2008 – £0.5 million) and of this £0.2 million
(2008 – £0.3 million) is due in the next financial year and £0.1 million (2008 – £0.2 million) is due in the period after one year but not
later than five years from the balance sheet date.
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48 Financial statements
Notes to the consolidated financial statements
continued
10. Investment property (continued)
The property has been accounted for on a cost model basis. The most recent valuation of the Calais property was conducted in
November 2008 by Foncier Expertise, French Chartered Surveyors and Property Consultants. At that date, the fair value of the
property was assessed at £2.2 million. The fair value of the property was determined from the market value based upon transactions
of similar properties in the area at that time. The directors are not aware of any circumstances that have arisen to materially alter that
external valuation.
11. Inventories
Materials
Work in progress
Finished products
Inventories pledged as security for liabilities amounted to £22.7 million (2008 – £23.0 million).
Write-offs taken to the income statement amount to £0.7 million (2008 – £0.3 million).
12. Trade and other receivables
2009
£m
7.6
9.1
29.7
46.4
2008
£m
7.1
9.3
24.6
41.0
Trade receivables20
Less: provision for impairment of receivables
Trade receivables – net
Other receivables
Prepayments and accrued income
20 Financial assets.
2009
Current
£m
33.8
(0.7)
33.1
2.0
2.0
37.1
2009
Non-
current
£m
–
–
–
0.3
0.1
0.4
2008
Current
£m
31.4
(0.6)
30.8
2.4
2.0
35.2
2008
Non-
current
£m
–
–
–
0.2
0.1
0.3
The Group has recognised a loss of £0.2 million (2008 – loss of £0.1 million) for the impairment of its trade receivables during the year.
The Group has no significant concentration of credit risk.
The Group has a concentration of translational and transactional foreign exchange risk in both US Dollars and Euros. However, the
Group hedges against these risks.
Trade receivables are non-interest-bearing and are generally on 30-90 days’ terms. See Note 25(e) for credit risk policy.
As at 31 March, the ageing analysis of trade receivables is as follows:
Neither past
due nor
impaired
£m
28.4
27.2
Total
£m
33.1
30.8
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2008
Movement on impairment provision
Opening provision
Exchange adjustment
Net charge to income statement
Utilised in year through assets written off
Closing provision
Renold plc Annual Report and Accounts 2009
Past due but not impaired
<30 days 30-60 days 60-90 days
£m
0.3
0.3
£m
0.9
0.5
£m
3.1
2.6
>90 days
£m
0.4
0.2
2009
£m
2008
£m
0.6
0.1
0.2
(0.2)
0.7
0.5
0.1
0.2
(0.2)
0.6
13. Cash and cash equivalents
Cash at bank and in hand
Short-term bank deposits
Cash and cash equivalents
2009
£m
9.3
2.0
11.3
In the Group cash flow statement, net cash and cash equivalents are shown after deducting bank overdrafts, as follows:
Cash and cash equivalents (as shown above)
Less: Overdrafts (Note 14)
Net cash and cash equivalents
14. Borrowings
Amounts falling due within one year:
Overdrafts
Bank loans
Obligations under finance leases
Amounts falling due after more than one year:
Bank loans
Obligations under finance leases
Preference shares
Total borrowings (Note 25(e))
Financial statements 49
2008
£m
8.1
7.4
15.5
2008
£m
15.5
(1.3)
14.2
2009
£m
11.3
(2.7)
8.6
2009
£m
2008
£m
2.7
41.6
0.1
44.4
3.5
0.1
3.6
0.5
4.1
48.5
1.3
6.9
0.1
8.3
30.5
0.1
30.6
0.5
31.1
39.4
All financial liabilities, excluding finance lease obligations above, are carried at amortised cost.
Secured borrowings
Included in Group borrowings are secured borrowings of £40.5 million (2008 – £34.7 million). Security is provided by fixed and floating
charges over UK assets (including certain property, plant and equipment) and the assets of certain overseas subsidiaries.
Finance leases
The Group has finance leases for various items of plant and machinery. These leases have terms of renewal but no purchase options
or escalation clauses.
Obligations under finance leases
Minimum payments under finance leases are as follows:
Amounts payable within one year
Amounts payable between two and five years
Total gross payments
Less: Finance charges allocated to future periods
Allocated as:
Current obligations
Non-current obligations
2009
£m
2008
£m
0.1
0.1
0.2
– –
0.2
0.1
0.1
0.2
0.1
0.1
0.2
0.2
0.1
0.1
0.2
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Preference shares
All payments of dividends on the 6% cumulative preference stock have been paid on the due dates. The preference stock has the
following rights:
Annual Report and Accounts 2009 Renold plc
50 Financial statements
Notes to the consolidated financial statements
continued
14. Borrowings (continued)
(i) a fixed cumulative preferential dividend at the rate of 6% per annum payable half yearly on 1 January and 1 July in each year;
(ii) 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;
(iii) 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 6% cumulative preference stock is in arrears for six calendar months; and
(iv) there is no redemption entitlement.
There is no significant difference between the carrying value of financial liabilities and their equivalent fair value.
15. Trade and other payables
Trade payables21
Other tax and social security
Other payables
Accruals and deferred income
21 Financial liabilities carried at cost.
2009
Current
£m
22.9
2.3
1.4
11.0
37.6
2009
Non-
current
£m
–
–
–
0.5
0.5
2008
Current
£m
23.2
3.7
2.4
12.5
41.8
2008
Non-
current
£m
–
–
–
0.7
0.7
Trade payables are non-interest-bearing and are normally settled within 60-day terms. The Group does have a concentration of
translational foreign exchange risk in both US Dollars and Euros. However, the Group hedges against this risk.
16. Provisions
At 1 April 2008
Exchange adjustment
Arising during the year
Utilised in year
At 31 March 2009
Allocated as:
Current provisions
Non-current provisions
PACE
restructuring
Business Contingent
initiative restructuring consideration
£m
0.5
0.1
0.9
–
1.5
£m
2.6
0.2
–
(2.8)
–
£m
0.6
0.2
1.0
(0.1)
1.7
Other
provisions
£m
0.7
0.1
–
(0.6)
0.2
Total
provisions
£m
4.4
0.6
1.9
(3.5)
3.4
2009
£m
2.9
0.5
3.4
2008
£m
3.9
0.5
4.4
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Business restructuring
This provision relates to the reorganisation and restructuring of European-based businesses and will be completed within the next
financial year.
Contingent consideration
Renold Chain India Private Limited – India
A provision has been established following the 75% equity investment in Renold Chain India. See Note 26 for details.
Renold Hangzhou – China
A provision was established following the acquisition of 90% of the equity interest in Hangzhou Shanshui Industrial Co Limited (“HZSS”)
in the period ended 31 March 2008. See Note 26 for details.
Other provisions
Provisions have been retained in respect of former discontinued operations. It is anticipated that the provisions will be utilised within
the following year.
Renold plc Annual Report and Accounts 2009
Financial statements 51
17. Deferred tax
Accelerated capital allowances
Pension plans
Tax losses
Other temporary differences
Tax asset/(liabilities)
Net off (liabilities)/assets
Net deferred tax assets
Assets
Liabilities
Net
2009
£m
1.4
10.7
4.6
(2.5)
14.2
(0.9)
13.3
2008
£m
3.0
4.7
2.5
(0.3)
9.9
(1.6)
8.3
2009
£m
(1.5)
0.3
–
0.3
(0.9)
0.9
–
2008
£m
(2.2)
0.1
0.3
0.2
(1.6)
1.6
–
2009
£m
(0.1)
11.0
4.6
(2.2)
13.3
– –
13.3
2008
£m
0.8
4.8
2.8
(0.1)
8.3
8.3
The net deferred tax asset recoverable after more than one year is £13.3 million (2008 – £8.3 million).
The movement in the net deferred tax balance relating to assets is as follows:
2009
Accelerated capital allowances
Pension plans
Tax losses
Other temporary differences
2008
Accelerated capital allowances
Pension plans
Tax losses
Other temporary differences
Opening
Exchange
balance adjustments
£m
(0.5)
0.5
0.6
(0.5)
0.1
£m
3.0
4.7
2.5
(0.3)
9.9
Recognised Recognised
directly
in equity
£m
–
5.5
–
(1.2)
4.3
in income
statement
£m
(1.1)
–
1.5
(0.5)
(0.1)
Opening
Exchange
balance adjustments
£m
(0.2)
0.2
0.1
–
0.1
£m
2.8
11.0
3.8
(0.2)
17.4
Recognised Recognised
directly
in equity
£m
–
(6.3)
–
–
(6.3)
in income
statement
£m
0.4
(0.2)
(1.4)
(0.1)
(1.3)
The movement in the net deferred tax balance relating to liabilities in the year is as follows:
2009
Accelerated capital allowances
Pension plans
Tax losses
Other temporary differences
2008
Accelerated capital allowances
Pension plans
Tax losses
Other temporary differences
Opening
Exchange
balance adjustments
£m
0.2
–
–
–
0.2
£m
(2.2)
0.1
0.3
0.2
(1.6)
Recognised Recognised
directly
in equity
£m
–
–
–
0.3
0.3
in income
statement
£m
0.5
0.2
(0.3)
(0.2)
0.2
Opening
Exchange
balance adjustments
£m
(0.1)
–
–
–
(0.1)
£m
(1.8)
0.1
0.2
0.2
(1.3)
Recognised Recognised
directly
in equity
£m
–
–
–
–
–
in income
statement
£m
(0.3)
–
0.1
–
(0.2)
Closing
balance
£m
1.4
10.7
4.6
(2.5)
14.2
Closing
balance
£m
3.0
4.7
2.5
(0.3)
9.9
Closing
balance
£m
(1.5)
0.3
–
0.3
(0.9)
Closing
balance
£m
(2.2)
0.1
0.3
0.2
(1.6)
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Annual Report and Accounts 2009 Renold plc
52 Financial statements
Notes to the consolidated financial statements
continued
17. Deferred tax (continued)
During the year the Group has reported an operating profit of £10.0 million, before exceptional items, from continuing operations. The
businesses in all jurisdictions where deferred tax assets have been recognised will, more likely than not, generate suitable profits based
on approved management forecasts from which the future reversal of the underlying timing differences can be deducted.
A deferred tax asset amounting to £17.0 million (2008 – £13.0 million) has not been recognised in respect of losses in certain subsidiaries
where, based on available evidence, it is considered unlikely that the losses will be recovered within the foreseeable future. Materially all
of these losses are not subject to time limits.
18. Pensions
The Group operates a number of pension plans throughout the world covering many of its employees. The principal funds are those
in the United Kingdom: (i) the Renold Group Pension Scheme (“RGPS”); (ii) the Jones & Shipman plc Retirement Benefits Plan (1971) (“J&S
RBP”); and (iii) the Renold Supplementary Pension Scheme 1967 (“RSPS”). These three plans are funded plans of the defined benefit type
with assets held in separate trustee-administered funds. Future accrual to the J&S RBP and RSPS ceased in August 2008 and ceased for
RGPS in June 2009.
The Renold Group Money Purchase Pension Scheme (“RGMPS”) is a defined-contribution-type plan. Future contributions to the RGMPS
ceased in April 2009. All current and future UK employees have the opportunity to join the Renold Personal Pension Plan which is a
contract-based defined contribution scheme.
Overseas employees participate in a variety of different pension arrangements of the defined contribution or defined benefit type,
funded in accordance with local practice.
The most recent actuarial valuations of the RGPS and the RSPS were at 5 April 2007. The valuations of both plans used the projected unit
method and were carried out by Barnett Waddingham, professionally qualified actuaries. The last valuation of the J&S RBP was at April
2006, also carried out by Barnett Waddingham. These valuations are updated as of the balance sheet date for financial reporting purposes.
For all defined benefit plans operated by the Group the disclosures in the accounts are based on the most recent actuarial valuations.
Where material, these have been updated to the balance sheet date by qualified independent actuaries. The disclosures provided below
are presented on a weighted average basis where appropriate.
The principal financial assumptions used to calculate plan liabilities as at 31 March 2009 are presented below. The assumptions adopted
by the plans’ actuaries represent the best estimates chosen from a range of possible actuarial assumptions which, due to the timescale
covered, may not necessarily be borne out in practice.
Rate of increase in pensionable salaries
Rate of increase in pensions in payment and deferred pensions
Discount rate
Inflation assumption
Expected return on plan assets
2009
3.5%
3.0%
6.9%
3.0%
6.8%
UK
Overseas
2008
3.9%
3.3%
6.6%
3.4%
6.5%
2009
2.8%
2.8%
6.2%
2.8%
7.6%
2008
3.8%
2.5%
6.1%
2.7%
8.0%
Plan assets are stated at their market values at the respective balance sheet dates and overall expected rates of return are established
by applying published brokers’ forecasts to each category of plan assets.
The predominant defined benefit obligation for funded plans within the Group resides in the UK (£157.8 million of the £179.4 million
Group obligation for funded plans). In addition to the assumptions shown above, mortality assumptions have a significant bearing on
the calculated obligation. The assumed life expectations for the RGPS on retirement at age 65 are as follows (different rates apply for
the RSPS and the J&S RBP).
Retiring today
Males
Females
Retiring in 20 years
Males
Females
2009
2008
19.5
22.3
20.7
23.4
19.5
22.2
20.7
23.3
The post-retirement mortality tables used for the plan are the PA92 series tables published by the UK actuarial profession. The mortality
rates for the RGPS (which represents approximately two-thirds of the UK defined benefit obligation) are based on average year of birth
for both non-pensioners and pensioners with an allowance for the medium cohort projection. An uplift of 40% has been applied to the
standard rates. The effect of this adjustment is to reduce life expectancy. The assumed life expectancy is longer for the other two UK
defined benefit plans.
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Financial statements 53
18. Pensions (continued)
Sensitivity analysis:
Assumption
Discount rate
Rate of inflation22
Rate of salary growth
Rate of mortality
Change in assumption
Increase/decrease by 0.5%
Increase/decrease by 0.5%
Increase/decrease by 0.5%
Increase by 1 year23
Impact on plan liabilities
Decrease/increase by 6.0%
Increase/decrease by 4.0%
Increase/decrease by 1.0%
Increase by 3.0%
22 Assuming assumption for real salary growth unchanged.
23 Calculated using a reduction to assumed mortality rates of 12.5% at all ages. This is broadly equivalent to an increase in life expectancy of one year at age 65.
The expected long-term rates of return and market values of assets of the principal defined benefit plans of the Group, together with
the present value of plan liabilities, are shown below. It should be noted that the market values of the plans’ assets are stated as at the
Group’s year end. It is not intended to realise the assets in the short term and the value may therefore be subject to significant change
before being realised. The present values of the plans’ liabilities are derived from cash flow projections over long periods and are thus
inherently uncertain.
The fair values of plan assets were:
Equities
Bonds
Other
Total market value of assets
Present value of plan liabilities
Deficits in plans
UK
Overseas
Total
2009
£m
67.8
62.0
0.9
130.7
(157.8)
(27.1)
2008
£m
82.4
74.4
1.7
158.5
(168.0)
(9.5)
2009
£m
5.3
4.3
6.0
15.6
(43.6)
(28.0)
2008
£m
6.6
3.6
5.0
15.2
2009
£m
73.1
66.3
6.9
146.3
2008
£m
89.0
78.0
6.7
173.7
(36.9)
(21.7)
(201.4)
(55.1)
(204.9)
(31.2)
“Equities” includes investments in quoted equities, funds of hedge funds and property investment vehicles.
Pension commitments
Pension obligations
The movement in the present value of the defined benefit obligation is as follows:
Opening obligation
Current service cost
Interest cost
Contributions by plan participants
Actuarial gains and losses
Gains on curtailments
Benefits paid
Exchange adjustment
Closing obligation
The total defined benefit obligation can be analysed
as follows:
Obligations related to funded pension plans
Obligations related to unfunded pension plans
UK
£m
(168.0)
(1.0)
(10.8)
(0.5)
12.5
0.4
9.6
–
(157.8)
2009
Overseas
£m
(36.9)
(0.5)
(2.2)
–
0.4
–
2.3
(6.7)
(43.6)
Total
£m
(204.9)
(1.5)
(13.0)
(0.5)
12.9
0.4
11.9
(6.7)
(201.4)
UK
£m
(192.5)
(1.6)
(10.2)
(0.5)
26.8
–
10.0
–
(168.0)
2008
Overseas
£m
(35.0)
(0.7)
(1.6)
(0.2)
1.1
0.5
1.8
(2.8)
(36.9)
Total
£m
(227.5)
(2.3)
(11.8)
(0.7)
27.9
0.5
11.8
(2.8)
(204.9)
(157.8)
–
(157.8)
(21.6)
(22.0)
(43.6)
(179.4)
(22.0)
(201.4)
(168.0)
–
(168.0)
(17.1)
(19.8)
(36.9)
(185.1)
(19.8)
(204.9)
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Annual Report and Accounts 2009 Renold plc
54 Financial statements
Notes to the consolidated financial statements
continued
18. Pensions (continued)
Pension assets
The movement in the present value of the defined benefit plan assets is as follows:
Opening assets
Expected return on plan assets
Actuarial gains and losses
Contributions by the employer
Contributions by plan participants
Benefits paid
Exchange adjustment
Closing assets
Balance sheet reconciliation:
Plan obligations
Plan assets
Retirement benefit obligation
UK
£m
158.5
9.9
(31.5)
2.9
0.5
(9.6)
–
130.7
(157.8)
130.7
(27.1)
2009
Overseas
£m
15.2
1.3
(3.7)
1.1
–
(1.1)
2.8
15.6
Total
£m
173.7
11.2
(35.2)
4.0
0.5
(10.7)
2.8
146.3
UK
£m
164.4
10.5
(11.0)
4.1
0.5
(10.0)
–
158.5
2008
Overseas
£m
15.1
1.2
(0.9)
0.8
0.2
(0.9)
(0.3)
15.2
Total
£m
179.5
11.7
(11.9)
4.9
0.7
(10.9)
(0.3)
173.7
(43.6)
15.6
(28.0)
(201.4)
146.3
(55.1)
(168.0)
158.5
(9.5)
(36.9)
15.2
(21.7)
(204.9)
173.7
(31.2)
The net amount of actuarial gains and losses taken to the statement of recognised income and expense is as follows:
Actuarial gains arising on plan obligations
Actuarial losses arising on plan assets
Net actuarial gains and losses
The actual loss on plan assets was £24.0 million (2008 – loss of £0.2 million).
An analysis of amounts charged to operating costs is set out below:
Operating costs – continuing
Current service cost
Gains on curtailments
2009
£m
12.9
(35.2)
(22.3)
2008
£m
27.9
(11.9)
16.0
2009
£m
2008
£m
(1.5)
0.4
(1.1)
(2.3)
0.5
(1.8)
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Renold plc Annual Report and Accounts 2009
Financial statements 55
18. Pensions (continued)
History of experience gains and losses
Experience adjustments arising on plan assets
Amount (£m)
Percentage of plan assets
Experience adjustments arising on plan liabilities
Amount (£m)
Percentage of present value of plan liabilities
2009
2008
(31.5)
24.1%
(11.0)
6.9%
12.5
7.9%
26.8
16.0%
UK
2007
(3.5)
2.1%
4.5
2.3%
2006
2005
14.5
8.9%
3.3
2.3%
(15.2)
7.8%
(20.4)
11.5%
Present value of plan liabilities (£m)
(157.8)
(168.0)
(192.5)
(195.6)
(177.2)
Fair value of plan assets (£m)
Deficit (£m)
Experience adjustments arising on plan assets
Amount (£m)
Percentage of plan assets
Experience adjustments arising on plan liabilities
Amount (£m)
Percentage of present value of plan liabilities
130.7
(27.1)
158.5
164.4
162.7
142.4
(9.5)
(28.1)
(32.9)
(34.8)
2009
2008
Overseas
2007
2006
2005
(3.7)
23.7%
0.4
0.9%
(0.9)
5.9%
0.8
5.3%
1.1
3.0%
(0.9)
2.6%
1.7
11.0%
(6.3)
17.3%
1.2
9.7%
–
–
Present value of plan liabilities (£m)
(43.6)
(36.9)
(35.0)
(36.5)
(30.8)
Fair value of plan assets (£m)
Deficit (£m)
Experience adjustments arising on plan assets
Amount (£m)
Percentage of plan assets
Experience adjustments arising on plan liabilities
Amount (£m)
Percentage of present value of plan liabilities
15.6
(28.0)
15.2
(21.7)
15.1
15.5
12.4
(19.9)
(21.0)
(18.4)
2009
2008
(35.2)
24.1%
12.9
6.4%
(11.9)
6.9%
27.9
13.6%
Total
2007
(2.7)
1.5%
3.6
1.6%
2006
2005
16.2
9.1%
4.5
2.9%
(21.5)
9.3%
(20.4)
9.8%
Present value of plan liabilities (£m)
(201.4)
(204.9)
(227.5)
(232.1)
(208.0)
Fair value of plan assets (£m)
146.3
173.7
179.5
178.2
154.8
Deficit (£m)
(55.1)
(31.2)
(48.0)
(53.9)
(53.2)
The cumulative amount of actuarial losses recognised in equity since 4 April 2004 was £26.6 million (2008 – £4.3 million). The Group
expects to contribute approximately £3.5 million (2008 – £4.8 million) to defined benefit plans in the year to 31 March 2010.
As a result of the deficits in the main UK plans, it has been agreed with the actuaries and trustees that, under existing arrangements, annual
lump sum payments commencing at £1.5 million will be paid to the RGPS plan and £0.5 million to the RSPS plan over a 12 year period.
The Group operates a number of defined contribution plans. The cost for the period was £0.7 million (2008 – £0.8 million). There were
outstanding contributions in creditors of £nil (2008 – £nil) at the balance sheet date.
The assets and liabilities shown above include a net £nil (2008 – £nil) balance in respect of a closed South African defined benefit
pension scheme. The Group has not recognised that element of the pension surplus within that scheme of £1.1 million (2008 –
£1.1 million), which it expects to remain surplus after expected additional payments to pensioner members are taken into account.
The Company is undertaking a review of local regulations to clarify whether the surplus can be repaid to the Group.
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Annual Report and Accounts 2009 Renold plc
56 Financial statements
Notes to the consolidated financial statements
continued
19. Called-up share capital
Equity interests
Ordinary shares of 25p each
Authorised
Issued
2009
£m
2008
£m
2009
£m
2008
£m
23.1
23.1
19.3
17.5
At 31 March 2009, the issued ordinary share capital comprised 77,064,703 (2008 – 70,022,194) ordinary shares of 25p each.
In August 2008, 7,000,000 new ordinary shares were placed at 76p each, raising £5.3 million gross (£5.1 million after transaction
expenses). The new shares rank pari passu with the existing ordinary shares.
During the year the Company issued 42,509 (2008 – 362,387) ordinary shares of 25p each for a cash consideration of £23,319 (2008 –
£246,570) by the exercise of options under the Savings Related Share Option Schemes.
20. Share-based payments
Details of the share-based payment arrangements are provided in the Directors’ Remuneration Report on pages 20 to 24.
Share options have been granted under the Executive Share Option Schemes and the Savings Related Share Option Scheme.
At 31 March 2009, unexercised options for ordinary shares amounted to 5,197,809 (2008 – 5,224,805).
The fair value per option granted in the period and the assumptions used in the calculation are as follows:
Grant date
Share price at date of grant
Exercise price
Number of employees
Shares under option
Vesting period (years)
Expected volatility
Option life (years)
Expected life (years)
Risk-free interest rate
Assumed dividends expressed as a dividend yield
Possibility of ceasing employment before vesting
Fair value per option
Probability of meeting market-based vesting conditions
1
2009
Executive Share
Option Scheme
2008
Executive Share
Option Scheme
25.11.08
36.5p
37p
1
54,054
3
33.6%
10
6
2.3%
Zero
Zero
13.3p
60%
1.4.08
79p
77p
180,292
3
30.8%
10
6
3.9%
Zero
Zero
30.7p
60%
31.3.08
79p
75.9p
9
1,576,690
3
32.1%
10
6
3.9%
Zero
Zero
31.9p
60%
27.11.07
92.5p
92.55p
11
660,000
3
32.5%
10
6
4.5%
Zero
Zero
37.5p
n/a
The expected volatility is based on historical volatility over the last three years. The expected life is the average expected period to
exercise based on historical data. The risk-free rate of return is the yield on zero-coupon UK government bonds of a term consistent with
the assumed option life. Dividend yields indicated above are an expression of assumed dividends over the respective periods included in
the calculation. These assumptions may not be borne out in practice. A reconciliation of option movements over the year to 31 March
2009 is shown on the opposite page:
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Renold plc Annual Report and Accounts 2009
Financial statements 57
20. Share-based payments (continued)
Executive share option schemes
Outstanding at 1 April
Granted
Lapsed
Forfeited
Exercised
Outstanding at 31 March
Exercisable at 31 March
Savings related share option scheme
Outstanding at 1 April
Lapsed
Forfeited
Exercised
Outstanding at 31 March
Exercisable at 31 March
Executive share option scheme
2009
Weighted
average
exercise
Number
price
85.8p
2,831,542
67.8p 2,236,690
(174,042)
157.8p
(91,000)
–
(240,500)
–
82.1p 4,562,690
2008
Weighted
average
exercise
price
93.8p
80.8p
159.3p
102.7p
74.7p
85.8p
Number
4,562,690
234,346
(178,000)
–
–
4,619,036
911,000
80.9p
1,009,000
82.1p
2009
Weighted
average
exercise
price
54.3p
54.4p
54.4p
54.9p
54.3p
Number
662,115
(32,841)
(7,992)
(42,509)
578,773
2008
Weighted
average
exercise
price
54.4p
54.3p
54.3p
54.9p
54.3p
Number
867,220
(3,856)
(79,362)
(121,887)
662,115
578,773
54.3p
48,908
54.9p
2009
2008
Range of exercise prices
37.0p to 74.3p
75.9p to 94.5p
100.1p to 120.0p
137.83p to 242.67p
Weighted
average
exercise Number of
shares
902,054
3,116,982
525,000
75,000
price
62.0p
81.6p
111.3p
137.8p
Weighted average
remaining life
Expected Contractual
6.2
8.1
7.2
0.3
2.4
4.0
3.4
–
Weighted
average
exercise
price
63.6p
81.8p
111.4p
189.1p
Savings related share option scheme
2009
Range of exercise prices
54.3p to 55.08p
Weighted
average
exercise Number of
shares
578,773
price
54.3p
Weighted average
remaining life
Expected Contractual
0.2
–
Weighted
average
exercise
price
54.3p
Weighted average
remaining life
Expected Contractual
7.0
9.0
8.1
0.7
3.0
5.0
4.3
–
Number
of shares
856,000
3,011,690
530,000
165,000
2008
Weighted average
remaining life
Expected Contractual
1.2
0.9
Number
of shares
662,115
The weighted average share price during the period for options exercised over the year was 75.6p (2008 – 104.7p). The total charge
for the year relating to employee share-based payment plans was £368,000 (2008 – £142,000), all of which related to equity-settled
share-based transactions. After deferred tax, the total charge was £269,000 (2008 – £142,000).
The middle-market price of ordinary shares at 31 March 2009 was 16p and the range of prices during the year was 16p to 89.5p.
Annual Report and Accounts 2009 Renold plc
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58 Financial statements
Notes to the consolidated financial statements
continued
21. Analysis of changes in shareholders’ equity
At 1 April 2007
Profit for the year
Recycling of losses on cash flow hedges
to the income statement
Net losses on cash flow hedges taken to equity
Foreign exchange difference
Actuarial gains and losses
Gains on fair value of hedging net investments
in foreign operations
Tax on items recognised directly in equity
Share premium
Employee share options:
– value of employee services
– proceeds from shares issued
At 31 March 2008
Profit for the year
Recycling of losses on cash flow hedges
to the income statement
Net losses on cash flow hedges taken to equity
Foreign exchange translation difference
Actuarial gains and losses
Gains on fair value of hedging net investments
in foreign operations
Tax on items recognised directly in equity
Proceeds from share placing
Associated costs of placing
Employee share options:
– value of employee services
Minority interest arising on acquisition
At 31 March 2009
Share
capital
£m
17.4
–
Share
premium
account
£m
6.1
–
Retained
earnings
£m
1.6
7.7
Currency
translation
reserve
£m
(1.2)
–
Other
reserves
£m
–
–
Minority
interest
£m
–
–
Total
equity
£m
23.9
7.7
–
–
–
–
–
–
–
–
0.1
17.5
–
–
–
–
–
–
–
1.8
–
–
–
19.3
–
–
–
–
–
–
0.2
–
–
6.3
–
–
–
–
–
–
–
3.5
(0.2)
–
–
9.6
–
–
–
16.0
–
(6.3)
–
0.1
–
19.1
2.1
–
–
–
(22.3)
–
4.6
–
–
0.4
–
3.9
–
–
(0.7)
–
0.6
–
–
–
–
(1.3)
–
–
–
3.4
–
5.5
–
–
–
–
–
7.6
0.2
(0.8)
–
–
–
–
–
–
–
(0.6)
–
0.5
(1.8)
–
–
–
–
–
–
–
–
(1.9)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1.6
1.6
0.2
(0.8)
(0.7)
16.0
0.6
(6.3)
0.2
0.1
0.1
41.0
2.1
0.5
(1.8)
3.4
(22.3)
5.5
4.6
5.3
(0.2)
0.4
1.6
40.1
The currency translation reserve is used to record exchange differences arising from the translation of financial statements of foreign
operations and the proportion of the gains or losses on hedging instruments used to hedge against movements in net investments in
foreign operations that are determined to be effective.
Other reserves records the portion of the gain or loss on a hedging instrument in a cash flow hedge that is determined to be an
effective hedge.
Cumulative goodwill written off directly to Group reserves at 31 March 2009, subsequent to the capital reorganisation in January 1985,
amounted to £2.0 million (2008 – £2.0 million).
Included in retained earnings is an amount of £7.1 million (net of tax) (2008 – £7.4 million) relating to the revaluation of freehold
property that was undertaken at the date of IFRS adoption. The amount is not distributable until it is realised.
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Renold plc Annual Report and Accounts 2009
Financial statements 59
22. Operating lease obligations
The Group has entered into commercial leases on commercial properties and plant and equipment.
At the end of the year there were the following minimum rental commitments under non-cancellable operating leases:
Within one year
Between two and five years
Over five years
2009
Properties Equipment
£m
0.5
0.4
–
0.9
£m
2.1
7.4
13.9
23.4
2008
Properties Equipment
£m
0.4
0.5
–
0.9
£m
2.1
6.6
15.7
24.4
Certain of the leased properties have been sublet and the future minimum sublease payments expected to be received under
non-cancellable sublease agreements is £1.2 million (2008 – £0.3 million).
23. Contingent liabilities
Performance guarantees given to third parties in respect of Group companies were £3.9 million (2008 – £3.7 million).
24. Additional cash flow information
Reconciliation of profit before tax to net cash flows from operations:
Cash generated from operations:
Continuing operations:
Profit before taxation
Depreciation and amortisation
Profit on plant and equipment disposals
Equity share plans
Net finance costs
Decrease/(increase) in inventories
Decrease/(increase) in receivables
(Decrease)/increase in payables
Decrease in provisions
Movement on pension plans
Movement in derivative financial instruments
Cash generated from continuing operations
Discontinued operations
Profit before taxation
Decrease in provisions
Offset of proceeds from disposal of businesses
Cash generated/(absorbed) by discontinued operations
Cash generated from operations
Reconciliation of net increase/(decrease) in cash and cash equivalents to movement in net debt:
Decrease in cash and cash equivalents
Change in net debt resulting from cash flows
Foreign currency translation differences
Change in net debt during the period
Net debt at start of year
Net debt at end of year
Net debt comprises:
Cash and cash equivalents (Note 13)
Total borrowings (Note 14)
2009
£m
2008
£m
2.9
4.7
(0.7)
0.4
4.7
3.4
3.8
(13.0)
(2.0)
(3.9)
0.8 –
1.1
–
–
–
– –
1.1
2009
£m
(7.5)
(0.2)
(5.6)
(13.3)
(23.9)
(37.2)
11.3
(48.5)
(37.2)
9.3
5.1
(3.0)
0.1
2.9
(5.0)
(3.0)
2.4
(0.3)
(4.0)
4.5
1.5
(1.3)
(0.2)
4.5
2008
£m
(2.3)
(1.3)
(0.9)
(4.5)
(19.4)
(23.9)
15.5
(39.4)
(23.9)
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Annual Report and Accounts 2009 Renold plc
60 Financial statements
Notes to the consolidated financial statements
continued
25. Financial instruments
These notes should be read in conjunction with the narrative disclosures in the Finance Directors’ Review on pages 11 to 13.
Exchange rate sensitivity
The following table demonstrates the sensitivity to a reasonably possible change in the US Dollar and Euro exchange rates, with all
other variables held constant, of the Group’s profit before tax (due to changes in the fair value of monetary assets and liabilities) and
the Group’s equity (due to changes in the fair value of forward exchange contracts and the effect of hedging borrowings in reserves).
The impact of translating the net assets of foreign operations into Sterling is included in the following sensitivity analysis:
2009
2009
Effect
on profit
Increase/
(decrease) before tax
£m
in US$ rate
Effect
on equity
£m
25%
(10%)
0.2
(0.1)
3.9
(2.1)
Effect
Increase/
on profit
(decrease) before tax
£m
in Euro rate
Effect
on equity
£m
25%
(10%)
0.3
(0.2)
0.8
(0.5)
Interest rate sensitivity
The following table demonstrates the sensitivity to a reasonably possible change in the basis points of the Group’s floating interest rates:
2009
Sterling
US Dollar
Euro
Other
Effect on
profit
basis points before tax
Increase in
+150
+150
+150
+150
(0.1)
(0.2)
(0.2)
(0.2)
(0.7)
In the prior year, exchange rate and interest rate sensitivity analysis had been performed. However, the results of this analysis were
proven to be sufficiently immaterial to disclose.
(a) The balance sheet position on financial instruments is set out below:
Current assets:
Forward foreign currency contracts – cash flow hedge
Current liabilities:
Forward foreign currency contracts – cash flow hedge
Non-current liabilities:
Interest rate swaps
2009
£m
2008
£m
–
0.1
(2.9)
(0.9)
– –
The cash flow hedges of the expected future transactions in Euros and US Dollars were assessed to be highly effective. A net unrealised loss
of £0.8 million in respect of Euro contracts and an unrealised loss of £2.1 million in respect of US Dollar contracts was included in equity as at
31 March 2009. A loss of £0.5 million was transferred to operating costs in the income statement in the period.
(b) Short-term receivables and payables
The carrying amount of short-term receivables and payables (being those with a remaining life of less than one year) is deemed to
approximate to their fair value.
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Renold plc Annual Report and Accounts 2009
Financial statements 61
25. Financial instruments (continued)
(c) Interest rate swap
The notional principal amount of the outstanding interest rate swap contracts at 31 March 2009 was $nil million (2008 – $4.4 million).
The interest rate swap terminated on 30 March 2009.
At 31 March 2009 the fixed interest rate was nil% (2008 – 6.9%) and the floating rate was nil% (2008 – 6.4% US LIBOR plus
100 base points). At 31 March 2009 the fair value of the swap was £nil (2008 – immaterial).
(d) Hedge of net investment in foreign entity
The Group has US Dollar-denominated borrowings which it has designated as a hedge of the net investment in its subsidiaries in the
USA. The carrying value of the US Dollar borrowings at 31 March 2009 was £9.1 million (1 April 2008 – £6.5 million). A foreign exchange
loss of £2.6 million (2008 – gain of £0.1 million) on translation of the borrowings into Sterling is included as a part of the hedging reserve
movement. Gains or losses on the retranslation of this borrowing are transferred to equity to offset any gains or losses on translation of
the net investment in the USA subsidiaries.
(e) Currency and interest rate profile of financial liabilities of the Group
Currency
2009
Sterling
– Financial liabilities
– Preference shares24
US Dollar
Euro
Other
2008
Sterling
– Financial liabilities
– Preference shares24
US Dollar
Euro
Other
Weighted
average
Weighted
average
period for
interest which rate
is fixed
Years
rate
%
Fixed
rate
£m
Floating
rate
£m
Total
£m
7.1
6.0
6.9
–
–
7.1
6.0
6.9
–
–
2.0
–
–
–
–
3.0
–
1.8
–
–
0.2
0.5
–
–
0.6
1.3
0.2
0.5
6.5
–
0.5
7.7
10.6
–
11.6
13.0
12.0
47.2
13.0
–
2.7
10.8
5.2
31.7
10.8
0.5
11.6
13.0
12.6
48.5
13.2
0.5
9.2
10.8
5.7
39.4
24 Preference shares have no fixed repayment date.
The Sterling and US Dollar fixed rate financial liabilities take into account interest rate swaps in 2008. The interest rate swap had
terminated on 30 March 2009.
Floating rate financial liabilities bear interest at rates based on relevant national base rate equivalents, which can fluctuate
on a daily basis.
The other financial instruments of the Group that are not included in the above tables are non-interest-bearing and are therefore not
subject to interest risk.
Interest rate risk
The Group’s exposure to the risk of changes in market interest rates relate primarily to the Group’s Sterling, US Dollar and Euro
debt obligations.
Foreign currency risk
As a result of the significant investment operations in the USA and Europe, the Group’s balance sheet can be affected significantly
by movements in the US Dollar/£ Sterling and Euro/£ Sterling exchange rates.
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Annual Report and Accounts 2009 Renold plc
62 Financial statements
Notes to the consolidated financial statements
continued
25. Financial instruments (continued)
Credit risk
The Group trades only with recognised, credit-worthy third parties. It is the Group’s policy that all customers who wish to trade on credit
terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis with the result
that the Group’s exposure to bad debts is not significant. The maximum exposure is the carrying amount as disclosed in Note 12. There
are no significant concentrations of credit risk within the Group.
With respect to credit risk arising from other financial assets of the Group, which comprise cash and cash equivalents and certain
derivative instruments, the Group’s exposure to credit risk has a maximum exposure equal to the carrying value of these instruments.
(f) Currency and interest rate profile of financial assets at 31 March 2009
Currency
Sterling
Euro
Other
2009
Cash at
bank and Short-term
deposits
£m
–
1.3
0.7
2.0
in hand
£m
0.6
3.6
5.1
9.3
2008
Cash at
bank and Short-term
deposits
£m
5.0
2.1
0.3
7.4
in hand
£m
1.0
1.9
5.2
8.1
Total
£m
0.6
4.9
5.8
11.3
Total
£m
6.0
4.0
5.5
15.5
Cash balances and short-term deposits are held with the Group’s bankers. These deposits are held largely in Germany and South Africa
and earn interest at bank deposit interest rates for periods of up to three months.
(g) Maturity of financial liabilities
The maturity profile of the contracted amount of the Group’s financial liabilities was as follows:
2009
Interest-bearing loans and borrowings
Leases
Trade payables
Foreign exchange forward contracts – outflow
Preference shares25
1 year or
less or on
demand
£m
46.2
0.1
22.9
14.3
–
83.5
1 to 2
years
£m
1.8
0.1
–
–
–
1.9
2 to 5
years
£m
1.1
–
–
–
–
1.1
More
than
5 years
£m
0.7
–
–
–
0.5
1.2
Total
£m
49.8
0.2
22.9
14.3
0.5
87.7
Interest bearing loans and borrowings maturing in one year or less on demand of £46.2 million include an amount of £3.6 million drawn
from ABN Amro (a subsidiary of The Royal Bank of Scotland plc) in India at 31 March 2009. Although the financial covenants were not
met on this facility at 31 March 2009, the Company is taking action to resolve this position and the bank has indicated the continuing
availability of the facility. As a consequence, £2.4 million of the loan has been reclassified from long term to current.
2008
Interest-bearing loans and borrowings
Leases
Trade payables
Preference shares25
25 No fixed repayment date.
1 year or
less or on
demand
£m
8.7
0.1
23.2
–
32.0
1 to 2
years
£m
30.5
0.1
–
–
30.6
2 to 5
years
£m
0.9
–
–
–
0.9
More
than 5
years
£m
0.7
–
–
0.5
1.2
Total
£m
40.8
0.2
23.2
0.5
64.7
The Group has contracted forward contracts consisting of Euro forward contracts of £5.0 million (2008 – £7.9 million) and US Dollar
forward contracts of £9.3 million (2008 – £8.6 million) due within one year.
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Renold plc Annual Report and Accounts 2009
Financial statements 63
25. Financial instruments (continued)
(h) Borrowing facilities
The Group has the following undrawn committed borrowing facilities available at the year-end date in respect of which all conditions
precedent had been met at that date:
Expiring within one year or less, or on demand
2009
£m
18.6
2008
£m
12.0
The facilities expiring in one year or less, or on demand, are primarily annual facilities subject to review at various dates during the year
ending 31 March 2010.
After the balance sheet date, the Group reached agreement (subject to the completion of full documentation) to enter into a three year
syndicated bank facility led by The Royal Bank of Scotland plc, with Fortis Bank S.A./N.V. as a participant. Further information can be
found in Note 27.
(i) Fair values
Set out below is a comparison by category of the carrying amounts and fair values of the Group’s financial instruments excluding
derivatives, short-term trade payables and short-term trade receivables which are already carried at fair value:
Financial assets
Cash
Financial liabilities
Bank overdraft (floating rate borrowing)
Interest-bearing loans and borrowings
Floating rate borrowing
Fixed rate borrowing
Preference shares
Carrying value
Fair value
2009
£m
2008
£m
2009
£m
2008
£m
11.3
2.7
44.5
0.8
0.5
15.5
1.3
30.4
7.2
0.5
11.3
2.7
44.5
0.8
0.5
15.5
1.3
30.4
7.2
0.5
The fair value of derivatives and borrowings has been calculated by discounting the expected future cash flows at prevailing interest rates.
(j) Capital management
The primary objective of the Group’s capital management is to ensure that it maintains a satisfactory credit rating and capital ratios in
order to support its business and maximise shareholder value.
The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust
the capital structure, the Group may adjust the dividend payment to shareholders, return capital to the shareholders or issue new
shares. No changes were made in the objectives, policies or processes during the years ended 31 March 2009 and 31 March 2008.
The Group monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt.
Net debt (Note 24)
Preference shares
Equity
Total capital
Capital and net debt
Gearing ratio
2009
£m
37.2
0.5
38.5
39.0
76.2
49%
2008
£m
23.9
0.5
41.0
41.5
65.4
37%
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As set out in Note 25(h), the Group reached agreement (subject to the completion of full documentation) to enter into a three year
syndicated facility after the balance sheet date. Further information can be found in Note 27.
Annual Report and Accounts 2009 Renold plc
64 Financial statements
Notes to the consolidated financial statements
continued
26. Business combinations
Acquisition made in the year ended 31 March 2009
On 29 September 2008 the Group acquired an interest in the assets forming the industrial chain business of LGB, located in India.
The acquisition has been accounted for using the purchase method of accounting.
Renold’s interest is represented by a 75% equity investment in Renold Chain India, the vehicle used to acquire the respective trade and
business assets of LGB. The Agreement contains a call option allowing Renold International Holdings Limited the right to acquire the
remaining 25% equity interest from LGB at any time after 29 September 2010. The fair value of the call option at the balance sheet date is
not material. In addition, the Agreement also includes a put option that sets out certain circumstances in which the minority interest could
acquire the Group’s 75% interest. The exercise of this option is within the Group’s control. The fair value of the put option is not material.
The purchase consideration is summarised as follows:
Cash consideration
Deferred consideration
Working capital adjustment
Contingent consideration
Direct costs relating to the acquisition
Total purchase consideration
Fair value of net identifiable assets acquired
Goodwill
£m
5.0
0.8
(0.6)
0.9
0.6
6.7
(4.6)
2.1
Deferred consideration, which is calculated based on the minimum amount of total consideration payable under the terms of the Sale
and Purchase Agreement, is payable in financial year 2009/10. Contingent consideration is based on the directors’ best estimate of
future obligations, which are dependent on the adjusted audited results of the acquired business for the year ended 31 March 2009
and subject to agreement with the vendor of the business. The maximum amount payable, at year-end exchange rates, is £2.3 million.
Contingent consideration is payable in financial year 2009/10. The working capital adjustment arises as a result of the agreed position
with respect to the completion accounts and represents consideration repaid by the vendor of the business.
The goodwill resulting from the acquisition is attributable to certain intangible assets that cannot be individually separated and reliably
measured due to their nature. These include the synergies expected to result from combining Renold Chain India within the Renold
Group and the acquisition of an assembled workforce.
The assets and liabilities arising from the acquisition are as follows:
Property, plant and equipment
Inventories
Net assets
Minority interests (25%)
Net assets acquired
Cash outflow on acquisition:
Purchase consideration settled in cash
Direct costs relating to the acquisition
Cash outflow on acquisition
Provisional
fair
values
£m
4.5
1.7
6.2
Book
value
£m
1.3
1.9
3.2
(1.6)
4.6
£m
5.0
0.6
5.6
From the date of acquisition of 29 September 2008, Renold Chain India has incurred a loss of £0.1 million.
It is not practicable to provide pro-forma data as if Renold Chain India had been owned by the Group since 1 April 2008, as separable and
reliable data for the trading operation is not available for the period prior to acquisition and due to the planned changes in operational
activities following the acquisition by Renold.
25% of the equity interest in Renold Chain India is owned by LGB and results in a minority interest of £1.6 million in the Group
balance sheet.
Renold plc Annual Report and Accounts 2009
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Financial statements 65
26. Business combinations (continued)
Acquisition made in the year ended 31 March 2008
On 16 June 2007, the Group acquired an interest in the plant, equipment, inventory and existing workforce of the chain manufacturing
business of HZSS, located in China.
Renold’s interest is represented by a 90% equity interest in Renold (Hangzhou) Co Limited (“RHZ”), the vehicle used to acquire the
respective trade and business assets of HZSS. The contract establishing RHZ contains both a put and a call option allowing either party
to enforce the right of Renold to acquire the remaining 10% equity interest from HZSS at a date ten years after the acquisition (or by
mutual agreement at any time between three and ten years from acquisition). As a consequence of this arrangement, the investment
has been accounted for as a 100% subsidiary. The Group has recognised the fair value of the related contingent consideration to acquire
the remaining 10% interest in RHZ as a provision in the Group’s balance sheet and as part of the purchase consideration. This is based on
a formula relative to the reported earnings of the acquired business.
Book and fair values of net assets at the date of acquisition were as follows:
Property, plant and equipment
Inventories
Onerous contracts
Net assets
Goodwill arising on acquisition
Consideration
Discharged by:
Cash (£2.0 million paid; £0.5 million deferred)
Costs associated with the acquisition, settled in cash
Total consideration
Final fair
Book value to the
Group
value
£m
£m
1.1
1.1
0.7
1.1
(0.1)
–
1.7
2.2
1.2
2.9
2.5
0.4
2.9
Included in the £1.2 million of goodwill recognised above are certain intangible assets that cannot be individually separated and reliably
measured from the acquiree due to their nature. These items include the expected synergies expected to arise from combining HZSS
within the Group and the acquisition of an assembled workforce.
The onerous contracts provision was fully utilised in 2007/08.
27. Events after the balance sheet date
Closure of the Polish factory
On 1 April 2009, it was announced that the factory located in Goleniow, Poland is to close. Work is underway to transfer assets and
activities to other Renold facilities. The impact of this event on the Group financial statements is unknown at present but management
anticipate that the impact will be immaterial.
Closure of pension plans
Future accrual to the RGMPS defined-contribution-type fund and the RGPS defined-benefit-type fund has ceased in April 2009 and May
2009 respectively. This is anticipated to reduce the IAS 19 pension obligation by approximately £1.0 million.
From 6 April 2009 all current and future employees have the opportunity to join the Renold Personal Pension Plan which is a contract-
based defined benefit scheme.
Funding
On 13 July 2009, the Group reached agreement (subject to the completion of full documentation) to enter a three year bank facility
with the existing syndicate members led by The Royal Bank of Scotland plc, with Fortis Bank S.A./N.V. as a participant. This facility
is the Group’s principal credit facility and is for the same amount as the facility it replaces. The agreement is in the form of agreed
heads of terms together with a letter of commitment and has received credit committee approval from the banks. It is expected that
full documentation will be agreed and signed during July 2009. The key terms of the new agreement are as follows:
– Total facilities of £31 million, including Multicurrency Revolving Credit Facility (“MRCF”) maturing on 30 June 2012 of £20 million
and a Multicurrency Term-Loan Facility (“MLTF”) maturing on 30 June 2012 of £11 million;
– Margin on the MRCF a maximum of 4.5% above LIBOR, subject to a reducing margin ratchet down to 2.5% based on leverage;
– Cash margin of 6% above LIBOR and a PIK margin commencing at 7.5% and increasing by 0.5% every six months on the MLTF;
– Leverage, interest cover and operating cash flow covenants tested quarterly;
– Capital expenditure covenant tested annually; and
– Warrants over 3,500,000 ordinary shares of the Company, approximately 4.3% of the fully diluted share capital as at the closing date.
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Annual Report and Accounts 2009 Renold plc
66 Financial statements
Group five-year financial review (unaudited)
Group revenue
Less discontinued operations
Revenue from continuing operations
Operating profit before exceptional items
(and goodwill amortisation under UK GAAP) – continuing
Operating profit
Profit/(loss) before tax
Taxation
Discontinued operations:
Profit/(loss) from discontinued operations
Profit/(loss) for the year
Net assets employed
Property, plant and equipment, intangible software
and investment property
Working capital and other net assets
Operating assets
Assets of discontinued operations
Liabilities of discontinued operations
Properties held for sale
Goodwill
Net debt
Deferred and current taxation
Provisions
Net assets excluding pension obligations
Pension obligations
Total net assets
Other data and ratios
Operating return on average operating assets26 %
Operating profit on turnover27
%
£m
Capital expenditure
p
Basic earnings/(loss) per share
Dividends per ordinary share
p
Employees at year end (continuing)
26 Being operating profit before exceptional items divided by average operating assets.
27 Based on operating profit before exceptional items.
2009
£m
194.7
–
194.7
10.0
7.6
2.9
(0.8)
2.1
–
2.1
54.4
42.9
97.3
–
–
–
24.5
(37.2)
14.0
(3.4)
95.2
(55.1)
40.1
11.6
5.1
5.8
2.8
–
2,301
2008
£m
172.6
–
172.6
12.0
12.2
9.3
(3.1)
6.2
1.5
7.7
42.6
33.2
75.8
–
–
–
16.3
(23.9)
8.4
(4.4)
72.2
(31.2)
41.0
17.4
7.0
8.2
11.0
–
2,536
2007
£m
188.4
(29.1)
159.3
9.8
3.9
1.4
(0.6)
0.8
(13.5)
(12.7)
36.2
26.2
62.4
–
–
3.4
15.2
(19.4)
15.5
(5.2)
71.9
(48.0)
23.9
14.9
6.2
5.8
(18.3)
–
2,041
2006
£m
225.1
(70.1)
155.0
6.8
5.4
1.8
(1.5)
0.3
(13.9)
(13.6)
38.4
30.7
69.1
37.1
(28.1)
3.4
17.1
(20.7)
17.0
(0.4)
94.5
(53.9)
40.6
7.7
4.4
6.6
(19.6)
–
2,008
2005
£m
197.0
(53.8)
143.2
4.6
0.4
(1.8)
1.5
(0.3)
0.2
(0.1)
64.7
43.0
107.7
–
–
–
15.7
(17.0)
14.6
(11.7)
109.3
(53.2)
56.1
4.7
3.2
7.6
(0.1)
4.5
2,015
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Renold plc Annual Report and Accounts 2009
Report of the independent auditors
Financial statements 67
To the members of Renold plc
We have audited the Company financial statements of Renold plc
for the year ended 31 March 2009 which comprise the Company
Balance Sheet, the Company Statement of Total Recognised
Gains and Losses, the Accounting Policies and the related notes
(i) to (xii). These Company financial statements have been
prepared under the accounting policies set out therein. We have
also audited the information in the Directors’ Remuneration
Report that is described as having been audited.
We have reported separately on the Group financial statements
of Renold plc for the year ended 31 March 2009.
This report is made solely to the Company’s members, as a body,
in accordance with Section 235 of the Companies Act 1985. Our
audit work has been undertaken so that we might state to the
Company’s members those matters we are required to state
to them in an auditors’ report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the
Company’s members as a body, for our audit work, for this
report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
The directors’ responsibilities for preparing the Annual Report,
including the Directors’ Remuneration Report and the Company
financial statements in accordance with applicable United
Kingdom law and Accounting Standards (United Kingdom
Generally Accepted Accounting Practice) are set out in the
Statement of Directors’ Responsibilities.
Our responsibility is to audit the Company financial statements
and the part of the Directors’ Remuneration Report to be audited
in accordance with relevant legal and regulatory requirements
and International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the Company
financial statements give a true and fair view and whether
the Company financial statements and the part of the
Directors’ Remuneration Report to be audited have been
properly prepared in accordance with the Companies Act 1985.
We also report to you whether in our opinion the information
given in the Directors’ Report is consistent with the Company
financial statements. The information given in the Directors’
Report includes that specific information presented in the
Business Review that is cross-referred from the Group results
section of the Directors’ Report.
In addition we report to you if, in our opinion, 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 regarding directors’ remuneration
and other transactions is not disclosed.
We read other information contained in the Annual Report and
consider whether it is consistent with the audited Company
financial statements. The other information comprises only
the Overview and the Business Review, the Responsibilities and
Governance sections of the Directors’ Report, the Directors’
Remuneration Report and the Group Five-Year Financial Review.
We consider the implications for our report if we become aware
of any apparent misstatements or material inconsistencies with
the Company financial statements. Our responsibilities do not
extend to any other information.
Basis of audit opinion
We conducted our audit in accordance with International
Standards on Auditing (UK and Ireland) issued by the Auditing
Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the Company
financial statements and the part of the Directors’ Remuneration
Report to be audited. It also includes an assessment of the
significant estimates and judgements made by the directors
in the preparation of the Company financial statements, and of
whether the accounting policies are appropriate to the Company’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 Company financial statements and the part
of the Directors’ Remuneration Report to be audited 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
Company financial statements and the part of the Directors’
Remuneration Report to be audited.
Opinion
In our opinion:
• the Company financial statements give a true and fair view,
in accordance with United Kingdom Generally Accepted
Accounting Practice, of the state of the Company’s affairs
as at 31 March 2009;
• the Company financial statements and the part of the Directors’
Remuneration Report to be audited have been properly prepared
in accordance with the Companies Act 1985; and
• the information given in the Directors’ Report is consistent
with the Company financial statements.
Ernst & Young LLP
Registered Auditor
Manchester
13 July 2009
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Annual Report and Accounts 2009 Renold plc
68 Financial statements
Accounting policies
A summary of the principal Company accounting policies is set
out below. These have been applied on a consistent basis unless
otherwise indicated.
As permitted by Section 230 of the Companies Act 1985 the
Company has not presented its own profit and loss account.
Basis of accounting – The accounts have been prepared in
compliance with the Companies Act 1985 and in accordance
with UK Generally Accepted Accounting Principles (UK GAAP).
They have been prepared under the historical cost convention.
Foreign currencies – Foreign currency transactions are translated
into the functional currency using the exchange rates prevailing
at the date of the transaction. Foreign exchange gains and losses
resulting from the settlement of such transactions and from the
translation at year-end exchange rates of monetary assets and
liabilities denominated in foreign currencies are recognised in the
income statement.
Financial instruments and risk management – The accounting
policies of the Company in respect of financial instruments are
consistent with those of the Group, and are detailed in the
consolidated financial statements. In accordance with paragraph
3(c) of FRS 25, the Company is exempt from the disclosure
requirements of paragraphs 51 to 95 of FRS 25. The Company’s
financial instruments are consolidated with those of the Group
and are incorporated into the disclosures in Note 25.
Tangible fixed assets – Tangible fixed assets represented by
properties and equipment are stated at cost, being purchase
cost plus any incidental costs of acquisition, less accumulated
depreciation. The book values of certain assets which were the
subject of past revaluations have been retained as permitted by
the transitional arrangements of FRS 15 “Tangible Fixed Assets”.
Depreciation is calculated by reference to original cost at fixed
percentages assuming effective useful lives as follows:
• leasehold properties – the period of the lease
• equipment and fixtures – 10 to 15 years
• motor vehicles – 25% per annum for 3 years leaving
25% residual value.
Where appropriate, adjustments are made to the remaining
effective useful lives of assets to reflect changes in circumstances
to those envisaged when the asset was brought into use.
Leases – Annual rentals in respect of operating leases are
charged against the profit of the year on a straight-line basis
over the lease term.
Investments – Investments in subsidiary companies are
accounted for at cost and are reviewed for impairment on an
annual basis. Where indicators of impairment are present, the
cash flows of the underlying entities are reviewed to determine
whether the investment value is recoverable.
Derivative financial instruments – The Company uses derivative
financial instruments to hedge the Group’s exposure to foreign
exchange and interest rate risks arising from operating and
financing activities. In accordance with its treasury policy, it does
not hold or use derivative financial instruments for trading or
speculative purposes.
Deferred tax – Deferred tax is recognised on all timing differences
that have originated but not reversed at the balance sheet date,
where transactions or events that result in an obligation to pay
more, or a right to pay less, tax in the future have occurred at the
balance sheet date, with the following exceptions:
• provision is not made for tax that would arise on the
remittance of retained earnings of overseas subsidiaries unless
the dividends have been accrued as receivable at the balance
sheet date; and
• deferred tax assets are recognised only to the extent that, based
on all available evidence, it is considered more likely than not
that there will be suitable taxable profits from which the future
reversal of the underlying timing differences can be deducted.
Deferred tax is measured on a non-discounted basis at the tax
rates that are expected to apply in the periods in which the timing
differences are expected to reverse, based on tax rates and laws
enacted or substantively enacted by the balance sheet date.
Pension costs – Employees of the Company participate in the
pension plans operated by the Group in the UK. These include
pension plans of the defined benefit and defined contribution
types. However, the contributions paid by the Company are
accounted for as defined contribution plans in all cases. This
is because the Company is unable to identify its share of the
underlying assets and liabilities in the respective plans, as
required by FRS 17 “Retirement Benefits”. Therefore, contributions
paid to the respective pension plans are charged to the profit
and loss account as incurred. Disclosures associated with the
Group defined benefit plans are provided in the Group
financial statements.
Share-based compensation – The Company operates equity-
settled share-based compensation plans as detailed in the
Group financial statements. The fair value of Company employee
services received in exchange for the grant of the options is
recognised as an expense in the income statement, with the
corresponding amount being recognised in equity. The total
amount to be expensed over the vesting period is determined
by reference to the fair value of the options granted, excluding
the impact of any non-market vesting conditions, using a
Black-Scholes pricing model. The model is adjusted as
necessary for market-based vesting conditions.
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Non-market vesting conditions are included in assumptions
about the number of options that are expected to become
exercisable. At each balance sheet date, an update is made of the
estimates of the number of options that are expected to become
exercisable. The impact of the revision of original estimates, if
any, is recognised in the income statement, and a corresponding
adjustment made to equity over the remaining vesting period.
The model is adjusted as necessary for market-based
vesting conditions.
As permitted under the transitional provisions of FRS 20, the
Company has applied the standard only to equity-settled awards
granted after 7 November 2002 and which vested on or after 1
January 2005.
Interest-bearing loans and borrowings – All interest-bearing loans
and borrowings are initially recognised at net proceeds. After
initial recognition, debt is subsequently measured at amortised
cost using the effective interest method.
Dividends – Final dividend distributions to the Company’s
shareholders are recognised as a liability in the financial
statements in the period in which the dividends are approved by
the Company’s shareholders, while interim dividend distributions
are recognised in the period in which the dividends are declared
and paid. Dividends receivable from subsidiary undertakings are
similarly recognised on this basis.
Cash flow statement – As permitted by FRS 1, “Cash Flow
Statements (revised 1996)”, the financial statements do not
contain a cash flow statement as the financial statements
of the Group, which are publicly available, contain a cash
flow statement.
Related party transactions – The Company has taken advantage
of the exemption not to disclose related party transactions
with other members of the Group under FRS 8, “Related Party
Disclosures” because the parent’s financial statements are
presented with its consolidated financial statements and because
these transactions are fully eliminated on consolidation.
Accounting policy on derivatives – Financial assets and financial
liabilities are disclosed in the Group accounts.
Financial statements 69
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Note
i
ii
iii
iv
v
v
v
vi
viii
ix
ix
2009
£m
0.4
66.1
66.5
4.7
13.0
17.7
(1.8)
(19.7)
(3.8)
62.7
–
(0.5)
(2.8)
59.4
19.3
9.6
30.5
59.4
2008
£m
0.3
54.7
55.0
2.9
19.9
22.8
(4.0)
(3.0)
15.8
70.8
(17.8)
(0.5)
(0.9)
51.6
17.5
6.3
27.8
51.6
70 Financial statements
Company balance sheet
as at 31 March 2009
Fixed assets
Tangible assets
Investments in subsidiary undertakings
Current assets
Debtors
Cash and short-term deposits
Creditors – amounts falling due within one year
Other creditors
Bank borrowings
Net current (liabilities)/assets
Total assets less current liabilities
Creditors – amounts falling due after more than one year
Bank borrowings
Preference shares
Derivative financial instruments
Net assets
Capital and reserves
Called-up share capital
Share premium account
Profit and loss account
Shareholders’ funds
Approved by the Board on 13 July 2009 and signed on its behalf by:
Matthew Peacock
Chairman
Robert Davies
Director
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Renold plc Annual Report and Accounts 2009
Company statement of total recognised gains and losses
for the year ended 31 March 2009
Financial statements 71
Profit for the year
Total recognised gains and (losses) for the year
Attributable to:
Equity shareholders of the Company
2009
£m
2.3
2.3
2008
£m
14.3
14.3
2.3
14.3
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72 Financial statements
Notes to the Company financial statements
Properties Equipment
£m
£m
Total
£m
0.2
0.2
0.4
0.1
0.1
0.2
0.2
0.1
1.0
–
1.0
0.8
–
0.8
0.2
0.2
1.2
0.2
1.4
0.9
0.1
1.0
0.4
0.3
Shares
£m
Advances
£m
Total
£m
22.6
–
22.6
32.1
11.4
43.5
54.7
11.4
66.1
2009
£m
4.2
0.1
0.2
0.2
4.7
2008
£m
2.1
0.2
0.4
0.2
2.9
2009
£m
2008
£m
0.1
–
0.1
0.1
0.1
0.2
(i) Tangible assets
Cost
At beginning of year
Additions at cost
At end of year
Depreciation
At beginning of year
Depreciation for the year
At end of year
Net book value at end of year
Net book value at beginning of year
(ii) Investments in subsidiary undertakings
Subsidiary companies
Cost or valuation
At beginning of year
Advances
At end of year
The principal subsidiary companies of Renold plc at 31 March 2009 are set out on page 77.
(iii) Debtors
Amounts owed by Group undertakings
Deferred tax asset
Other debtors
Prepayments and accrued income
The analysis of the deferred tax asset is as follows:
All amounts falling due after more than one year:
Decelerated capital allowances
Other temporary differences
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(iv) Other creditors
Amounts falling due within one year:
Trade creditors
Amounts owed by Group undertakings
Other taxation and social security
Other creditors
Accruals
(v) Borrowings
Amounts falling due within one year:
Bank overdrafts
Bank loans
Amounts falling due after one year:
Bank loans
Repayable:
In more than one year but not more than two years
Summary of total borrowings:
Bank overdrafts
Total bank loans
Preference shares
Total borrowings
Financial statements 73
2009
£m
2008
£m
0.7
0.4
0.3
–
0.4
1.8
2009
£m
1.0
18.7
19.7
–
–
–
1.0
18.7
0.5
20.2
0.9
0.2
0.3
2.2
0.4
4.0
2008
£m
1.2
1.8
3.0
17.8
17.8
17.8
1.2
19.6
0.5
21.3
Bank borrowings are secured by fixed and floating charges over the assets of UK subsidiaries.
All payments of dividends on the 6% cumulative preference stock have been paid on the due dates. The preference shares have the
following rights:
(i) a fixed cumulative preferential dividend at the rate of 6% per annum payable half yearly on 1 January and 1 July in each year;
(ii) they rank both with regard to dividend (including any arrears prior 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;
(iii) 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 arrears for six calendar months; and
(iv) there is no redemption entitlement.
(vi) Derivative financial instruments
Forward foreign currency contracts – cash flow hedge
2009
£m
(2.8)
2008
£m
(0.9)
The cash flow hedges of the expected future transactions in Euros and US Dollars were assessed to be highly effective. A net unrealised loss of
£0.8 million in respect of Euro contracts and a loss of £2.0 million in respect of US Dollar contracts were included in equity as at 31 March 2009.
A loss of £0.5 million was transferred to operating costs in the income statement in the period.
The Group has contracted forward contracts to sell foreign currency consisting of Euro forward contracts of £5.0 million and US Dollar
forward contracts of £9.3 million due within one year.
Annual Report and Accounts 2009 Renold plc
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74 Financial statements
Notes to the Company financial statements
continued
(vii) Pensions
Employees of Renold plc include members of the principal UK defined benefit schemes. However, the contributions paid by the
Company are accounted for as a defined contribution scheme, as the Company is unable to identify its share of the underlying assets
and liabilities in the respective schemes. This is due to the fact that the Company cannot attribute the members of the schemes to
the individual sponsoring employer company. As a consequence, the deficit in the UK defined benefit schemes is only recognised as
a liability in the Group balance sheet. The basis used to determine the deficit in the schemes is disclosed in Note 18 in the consolidated
financial statements. No contributions are outstanding at the year end.
(viii) Called-up share capital
Ordinary shares of 25p each
6% cumulative preference stock
Total
Authorised
(nominal value)
Issued
2009
£m
23.1
0.6
23.7
2008
£m
23.1
0.6
23.7
2009
£m
19.3
0.5
19.8
2008
£m
17.5
0.5
18.0
At 31 March 2009, the issued ordinary share capital comprised 77,064,703 (2008 – 70,022,194) ordinary shares of 25p each.
In August 2008, 7,000,000 new ordinary shares were placed at 76p each, raising £5.3 million gross (£5.1 million after transaction
expenses). The new shares rank pari passu with the existing ordinary shares.
During the year the Company issued 42,509 (2008 – 362,387) ordinary shares of 25p each for a cash consideration of £23,320
(2008 – £246,570) by the exercise of options under the Executive and the Savings Related Share Option Schemes.
Details of the preference shares are set out in Note (v).
Disclosures in respect of capital management can be found in Note 25 of the consolidated financial statements.
Share options have been granted under the Executive Share Option Schemes and the Savings Related Share Option Schemes.
At 31 March 2009, unexercised options for ordinary shares amounted to 5,197,809 (2008 – 5,224,805) made up as follows:
Date normally exercisable
Executive Share Option Schemes
Within seven years from:
17 July 2001 (1995 Scheme)
16 July 2002 (1995 Scheme)
19 July 2003 (1995 Scheme)
28 November 2004 (1995 Scheme)
27 November 2005 (1995 Scheme)
28 July 2006 (1995 Scheme)
27 November 2006 (1995 Scheme)
11 March 2007 (1995 Scheme)
2 September 2007 (2004 Scheme)
22 November 2007 (2004 Scheme)
26 July 2009 (2004 Scheme)
30 November 2009 (2004 Scheme)
2 January 2010 (2004 Scheme)
27 November 2010 (2004 Scheme)
31 March 2011 (2004 Scheme)
1 April 2011 (2004 Scheme)
25 November 2011 (2004 Scheme)
Savings Related Share Option Schemes
Within six months from:
1 February 2008 (1995 Scheme)
1 March 2009 (2004 Scheme)
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Option price
(pence
per share)
Number
of shares
2009
Number
of shares
2008
237.33
137.83
118.50
67.34
58.50
80.84
83.50
76.50
88.00
74.30
61.60
100.10
114.20
92.55
75.90
77.00
37.00
–
75,000
45,000
122,000
106,000
–
100,000
125,000
475,000
105,000
515,000
120,000
360,000
660,000
1,576,690
180,292 –
54,054 –
4,619,036
85,000
80,000
50,000
127,000
109,000
50,000
125,000
125,000
475,000
105,000
515,000
120,000
360,000
660,000
1,576,690
4,562,690
55.08
54.30
–
578,773
578,773
38,164
623,951
662,115
Further details of share-based payment schemes operated by the Company are provided in the Directors’ Remuneration Report and
Note 20 of the consolidated financial statements.
Renold plc Annual Report and Accounts 2009
(ix) Reserves
At beginning of year
Profit for the year
Employee share option schemes – value of employee services
Share premium
At end of year
Financial statements 75
Profit
and loss
account
£m
27.8
2.3
0.4
–
30.5
Share
premium
£m
6.3
–
–
3.3
9.6
Total
reserves
£m
34.1
2.3
0.4
3.3
40.1
As permitted by Section 230 of the Companies Act 1985, no profit and loss account is presented in these financial statements.
The Company’s profit for the financial year was £2.3 million (2008 – profit £14.3 million).
Total fees payable by the Company to Ernst & Young LLP for work in respect of the audit of the Company were £31,000 (2008 – £31,000).
Fees paid to the Company auditors for non-audit services to the Company are not disclosed in these accounts because the Company’s
consolidated financial statements are required to disclose such fees on a consolidated basis.
(x) Operating lease obligations
At the end of the year there were annual commitments under non-cancellable operating leases in relation to a property as follows:
Leases expiring:
– within one year
– between two and five years
– over five years
2009
£m
2008
£m
– –
199 –
–
199
199
199
(xi) Contingent liabilities
The Company has guaranteed borrowings by subsidiary undertakings of £23.6 million (2008 – £14.8 million). Performance guarantees
given to third parties in respect of Group companies were £3.8 million (2008 – £3.4 million). No material loss is expected to arise as a
result of these contingent liabilities.
(xii) Events after the balance sheet date
See Note 27 of the consolidated financial statements for disclosures in respect of post-balance sheet funding arrangements.
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Annual Report and Accounts 2009 Renold plc
76 Corporate details
Corporate details
Corporate calendar
Annual General Meeting
Interim Management Statement (first)
Half-year end 2009/10
Announcement of half-year 2009/10 results
Interim Management Statement (second)
Year end 2009/10
Announcement of annual results 2009/10
Payment of preference dividends
21 September 2009
Between 11 June 2009 and 18 August 2009
30 September 2009
November 2009
Between 11 December 2009 and 16 February 2010
31 March 2010
June 2010
Between 1 July 2009 and 1 January 2010
Company details
Registered Office
Renold House
Styal Road
Wythenshawe
Manchester M22 5WL
Registered No. 249688
Telephone: +44 (0)161 498 4500
Fax: +44 (0)161 437 7782
Email: enquiry@renold.com
Website: www.renold.com
Company Secretary
Lindsay Beardsell
Auditors
Ernst & Young LLP
Manchester
Broker and financial adviser
Singer Capital Markets Limited
Financial PR consultants
College Hill Associates Limited
Registrar
Capita Registrars
Northern House
Woodsome Park
Fenay Bridge
Huddersfield HD8 0LA
Telephone: 0871 664 0300
Email: shareholder.services@capitaregistrars.com
Website: www.capitaregistrars.com
Registrar’s Share Portal: www.capitashareportal.com
Renold plc Annual Report and Accounts 2009
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In this very tough environment
we have delivered a robust set
of results for 2008/09 despite
signifi cant challenges. We are
well prepared and focused on
what needs to be delivered
whilst proactively managing
our costs to ensure Renold is
fi t for the environment today
and tomorrow...
Financial highlights
Sales
(£million)
Operating Profit
(£million)
Return on Sales
(%)
Return on Capital
Employed (%)
08/09
07/08
06/07
05/06
08/09
07/08
06/07
05/06
08/09
07/08
06/07
05/06
08/09
07/08
06/07
05/06
194.7
172.6
159.3
155.0
10.0
9.8
12.0
Continuing operations:
Turnover
Operating profi t
Operating profi t before exceptional items
Profi t before tax and exceptional items
Profi t before tax
Discontinued operations:
Profi t for the year from
discontinued operations
5.1
7.0
6.2
6.8
4.4
11.6
17.4
14.9
7.7
Other information:
Basic profi t per share – Group
Basic earnings per share
– continuing operations
Adjusted earnings per share (adjusting for
the after-tax effects of exceptional items)
– continuing operations
Capital expenditure
Net debt
2009
£m
2008
£m
194.7
7.6
10.0
5.3
2.9
172.6
12.2
12.0
9.1
9.3
–
1.5
2.8p
11.0p
2.8p
8.9p
7.3p
5.8
37.2
8.5p
8.2
23.9
Principal subsidiary companies as at 31 March 200928
Principal subsidiary companies 77
United Kingdom
Renold Power Transmission Limited (held directly by Renold plc)
Europe
(other than the United Kingdom)
Austria
Belgium
Denmark
France
Germany
Holland
Poland
Russia
Sweden
Switzerland Renold (Switzerland) GmbH
Renold GmbH
Renold Continental Limited (incorporated in the United Kingdom)
Renold A/S
Brampton Renold SA
Renold GmbH
Renold Continental Limited (incorporated in the United Kingdom)
Renold Polska sp. z o.o
Renold Russia (Obshchestvo s Ogranichennoj Otvetstvennost’u)
Renold Transmission AB
North America
Canada
USA
Renold Canada Limited
Renold Inc
Jeffrey Chain LP
Other countries
Australia
Renold Australia Proprietary Limited
China
Renold Transmission (Shanghai) Company Limited
Renold Technologies (Shanghai) Company Limited
Renold (Hangzhou) Co Ltd
India
Renold Chain India Private Limited
Malaysia
Renold (Malaysia) Sdn Bhd
New Zealand Renold New Zealand Limited
Singapore
Renold Transmission Limited
(incorporated in the United Kingdom)
South Africa Renold Crofts (Pty) Limited
The subsidiary companies listed above are those which, in our opinion, 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 of our companies other than Renold (Hangzhou) Co Ltd and Renold Chain India Private Limited (in which we hold majority stakes29)
are direct or indirect subsidiaries of Renold plc, a company incorporated in England and Wales, which ultimately holds a 100% interest
in the equity shares and voting rights. Renold Power Transmission Limited and Renold Continental Limited are registered in England
and Wales. Our overseas companies are incorporated in the countries in which they operate except where otherwise stated.
28 All companies held indirectly unless otherwise stated.
29 See Note 26 to the consolidated fi nancial statements for information on % shareholding in Renold (Hangzhou) Co Ltd and Renold Chain India Private Limited.
This report has been printed in the UK, our printers are
Environmental Management System ISO 14001 accredited
and Forest Stewardship Council (FSC) chain of custody certifi ed.
All inks are vegetable based.
Designed and produced by The College www.thecollege.uk.com
Annual Report and Accounts 2009 Renold plc
Renold plc
Renold House
Styal Road
Wythenshawe
Manchester M22 5WL
Telephone: +44 (0)161 498 4500
Fax: +44 (0)161 437 7782
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Delivering
performance
in a challenging
environment
www.renold.com
www.renold.com