Annual Report and
Accounts 2010
www.renold.com
Delivering
transmission
solutions for
diverse sectors
This year has been a challenging one,
due principally to the global recession.
As a result, we have focused on cutting
costs, raising finance and reducing the
cost of borrowing. The diversity of our
geographies and markets continues
to support our strong operational base,
and we exit the downturn as a lean,
well-financed business with confidence
in our ability to grow market share.
Financial results
Turnover
Operating (loss)/profit
Operating (loss)/profit before exceptional items
(Loss)/profit before tax and exceptional items
(Loss)/profit before tax
Net debt
2010
£m
156.1
(4.8)
(2.1)
(8.1)
(13.6)
17.9
2009
£m
194.7
7.6
10.0
5.3
2.9
37.2
Contents
Overview 01
Overview
This section provides an overview of
our financial results 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 results
02 At a glance
04 Chairman’s letter
Special feature
DELIVERING TRANSmISSION
SOLuTIONS
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Business review
09 Chief Executive’s and Finance Director’s review
Our strategy
We outline our strategy and how
we are taking the business forward.
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.
Chief Executive’s review
09 Overview
10 Going forward
Finance Director’s review
11 Our performance
12
13 Key performance indicators
Principal risks and uncertainties
14 Responsibilities
16 Board of Directors
17 Corporate governance
21 Directors’ remuneration report
28 Statement of Directors’ responsibilities
29 Statutory information
Financial statements
This section contains all the detailed
financial statements for the Group
and the Company.
33 Report of the independent auditors
34 Accounting policies
41 Consolidated income statement
42 Consolidated statement of comprehensive income
43 Consolidated balance sheet
44 Consolidated statement of changes in equity
45 Consolidated statement of cash flows
46 Notes to the consolidated financial statements
74 Group five-year financial review
75 Report of the independent auditors
76 Accounting policies
78 Company balance sheet
79 Company statement of total recognised gains and losses
80 Notes to the Company financial statements
86 Corporate details
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Annual Report and Accounts 2010 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 torque transmission products.
Operating in diverse sectors
Basic
industries
Mining, oil, cement, steel
Construction
Off-road vehicles, lumber,
major projects
Leisure
Theme parks, major events
Food
Palm oil, confectionery,
beverages
manufacturing
Original Equipment
Manufacturers (OEms), printing
Transport
Shipping, freight handling,
aerospace, mass transit
Infrastructure
Waste water plants,
escalators, underground
systems, power generation
Renold plc Annual Report and Accounts 2010
Overview 03
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Sales – Geography
Renold has sales in 105 countries
> Europe
38%
> Americas
35%
> China
3%
> India
5%
> Other
19%
Renold Chain
Renold Torque
Transmission
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.
Renold Torque Transmission (TT) provides a complete range
of worm gears, helical and bevel helical drives and the
widest range of coupling solutions in the world ranging from
fluid couplings to rubber-in-compression and rubber of shear
couplings. We manufacture custom gear spindles and gear
couplings for the primary metals industry and we are
experts in providing bespoke gear solutions across industries
worldwide such as power generation, mass transit, people
movement, metals and materials handling.
Our speciality is working alongside our customers, to design
and manufacture a solution to specific application needs.
Our design capability and innovation is recognised by
customers around the world and is utilised in customising
couplings to meet customers’ specific requirements
delivering durability, reliability and long life for
demanding marine and power applications.
Also from Renold Torque Transmission is a range of
freewheel clutches featuring both sprag and roller ramp
technology. Sprag clutches are used in a wide range of
safety critical applications. Typical examples of these are
safety backstops on inclined bucket conveyor systems and
hold backs that can protect riders on some of the world’s
most thrilling roller coasters.
We have manufacturing locations in the uK, uS, South Africa
and China and world renowned brands. We operate at the
leading edge of technology, producing innovative products
designed to meet customers’ exacting standards.
Annual Report and Accounts 2010 Renold plc
04 Overview
Chairman’s letter
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Chairman
Renold agile and able
to grow
Overview
In this, my fourth year as Chairman of your Board, I report on the
year ended 31 March 2010, a period in which the global economic
crisis resulted in the Group experiencing a very challenging
business environment.
Group sales decreased by 20% to £156.1 million, with a significant
proportion of that decrease due to customer destocking. This drop
in activity levels resulted in an operating loss before exceptional
items of £2.1 million and a loss before tax of £13.6 million (2009 –
profit of £2.9 million). The second half year benefited from both
improved activity levels and the impact of the majority of the cost
cuts and this resulted in a small operating profit before exceptional
items for this six month period. We are now seeing sales and
order intake increase significantly and our current run rate gives
me grounds for optimism that as the economy recovers, we will
be a major beneficiary.
In December 2009 we strengthened the Group’s balance sheet by
raising £26.9 million net of expenses via a placing and open offer of
142.5 million shares at 20 pence per share. Subsequently the Group’s
net debt at 31 March stands at £17.9 million (2009 – £37.2 million).
The global downturn and the different phasing of sales and cost
reductions masks the progress made in reducing the cost base of
operations. A full £13 million planned reduction in these costs was
achieved by year end and this positions the Group well for the future.
Strategy
The business has emerged from the last year in a strong position.
The cost reduction targets were delivered to plan and the reduced
cost base will be maintained going forward.
in Asia and the Americas, where our businesses are less established,
offer considerable opportunities to grow market share as well
as opportunities to achieve higher rates of sales growth in these
faster growing economies. Our facilities in China and India give us
access to new regions which account for circa 30% of the global
market. 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%.
Our business covers a broad range of customers in diverse
geographies and sectors which, by reducing exposure to any
single market, normally provides for less business volatility.
Following the acquisitions in China and India, we closed our
Polish facility. This was completed in August 2009 and we
continue to evaluate and optimise our manufacturing footprint.
Financing
In July 2009 we reached agreement to enter into a new three year
credit facility with The Royal Bank of Scotland plc and Fortis Bank
S.A./N.V. Interest rates were in line with market rates at the time
of the transaction but these rates reflected comparatively higher
margins over Libor compared to historical rates. In December
2009, with the support of our major shareholders, we successfully
raised £26.9 million net of expenses through a firm placing and
placing and open offer of 142.5 million shares at 20 pence per
share. £11 million from this fund-raising was used to repay and
cancel the term loan under this facility with the remainder being
used to reduce net debt levels and increase headroom. The Group
is now well funded for the future.
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. In January 2010 we appointed Ian Griffiths
to the Board. Ian has extensive Board and operational engineering
and manufacturing experience which make him particularly well
suited and he is welcomed to the Renold team.
Subsequent to the year end, Peter Bream has advised the Board
that he intends to leave Renold in order to accept a position with
another company. I should like to thank Peter for his contribution
to the improvements over the last four years in the strategic
position and the financial performance of Renold. A process to
appoint a finance director is ongoing and an announcement will
be made in due course.
Outlook
Our brand is strong and we are competitive in all segments
of the price/performance pyramid. The prime focus for 2010/11 is to
ensure a robust return to profit and to capture and realise growth
opportunities. The final quarter of 2009/10 revealed an encouraging
trend in sales growth which has continued into 2010/11. Whilst sales
visibility is still unclear, the strong start to the year leaves the
Company well placed to deliver upon expectations.
A significant proportion of the reduction in sales was the result of
customer destocking and, as this effect is diminishing, we will see
sales reflecting underlying levels of demand in our end markets.
In our traditional markets our focus is on increasing market share
by infilling product areas in which we are under represented. Markets
matthew Peacock
Chairman
Renold plc Annual Report and Accounts 2010
1 Source: management estimate.
Section head 05
Special feature
DELIVERING TRANSmISSION
SOLuTIONS
Delivering
transmission
solutions for
diverse sectors
Annual Report and Accounts 2010 Renold plc
06 Section head
Solutions for diverse
market sectors
The resilience and robustness of Renold is derived
from the quality and superiority of our technical
products, with the expertise of our applications
and solutions and also the diverse sectors we
serve across the world. Here is a small sample
of what we do best.
Basic industries
Food
Renold’s market-leading performance
In the large and fast-moving global market sector of
canning, UK based Brooks Limited has developed a
worldwide reputation for service and reliability with
all leading sector companies, which process household
name drinks. Brooks specifies Renold chain because
of its demonstrable market-leading performance in
what is a high-temperature, high-speed, high-duty
application the world over. Advances in Renold chain
design and specification have ensured that many
Brooks’ customers are now benefiting from improved
machine efficiencies by specifying maintenance-free
Renold Syno chains.
Construction
Capital expenditure wins orders
The successful completion of an export order
destined for the new coal mine being built at Moatize,
Mozambique, by Vale of Brazil, stands as testament
to expedient capital expenditure. The order consisted
of 28 spiral bevel helical gearbox drive packs, ranging
in size from 90 Kw to 600 Kw.
These were all designed and manufactured by
Renold in South Africa. Manufacture was only made
possible by the recent installation of gear grinding
and support equipment. Increased lifting capacity
in the form of a new 25 ton overhead crane was vital
in the assembly of the larger drive packs.
In addition, the sampling plant conveyors at this
new mine are being driven by Renold e-PM gearboxes
manufactured by Renold Torque Transmission in
the UK.
A second gear grinder, capable of grinding up to
two metre diameter gears, is in the process of being
commissioned, and will greatly enhance the prospect
of Renold being able to win a significant share of the
larger capital project and gearbox refurbishment
market in Africa.
The bigger the better
Renold Chain in the US needed to think big for
a major dam construction project. Twelve gates
were needed, each gate having two chains, 80 feet
long, with eight chain assemblies for each chain.
Twelve flat bed trucks were required to ship to
the construction location. The chain also had to
pass high specifications for strength and corrosion.
Renold plc Annual Report and Accounts 2010
Section head 07
manufacturing
Transport
Strong performance in conveyor chain
O.Kay Engineering is a market leader in the supply
of high-quality conveyor machines for a variety of
market sectors, supplying primarily the recycling
and material handling sectors. In a competitive
market, O.Kay has retained a strong order book,
with Renold Chain specified by them for many years,
giving their customers performance-confidence in
the conveyor chain which forms an integral part of
their conveyor machines.
Leisure
New station links ferry, subway and
bus services
Renold TT has supplied seven TW Series assemblies
to drive all of the seven escalators in the new South
Ferry subway station in Lower Manhattan, New York
City. Various sizes were supplied varying dependent
on the rise of the escalators.
South Ferry subway station is the first subway
station to open in New York City for 20 years.
The multi million dollar project has made many
operational improvements to the existing station,
originally built in 1905. This includes multiple exits,
seven escalators, two elevators and also an expanded
platform. The new station links the ferry, subway
and bus services and is key to the redevelopment
of Lower Manhattan post 9/11.
Infrastructure
Power supply for FIFA World Cup sites
Renold Hi-Tec couplings are being used by the supplier
of temporary power for broadcast and technical
services at the FIFA World Cup in South Africa.
The couplings will be used to connect the engine to
the alternator which provides broadcasting power
in all ten World Cup stadium venues, the International
Broadcast Centre and FIFA headquarters. To ensure
the broadcasting of all 64 matches to over three billion
people worldwide is trouble free, the Renold rubber-in-
compression coupling has been chosen for these
generator sets.
The coupling is a reliable, fail-safe design which
ensures that the drive is always maintained between
the engine and the alternator and therefore that the
power supply is continuous. The RB also tunes the
torsional vibration system which ensures low vibratory
loads in the driveline and maximises the life of the
driveline components. Renold Hi-Tec has supplied
couplings to customers for various projects around
the world and so was the obvious choice for this
high profile, prestigious contract where loss
of power is not an option.
melbourne underground escalator chains
Renold Australia staff have been working with the
Melbourne Underground maintenance companies
over the past few years to evaluate and improve
escalator chain life.
As a result, Renolube escalator chains are being
progressively installed in the Melbourne Underground
Metro System which has 55 escalators after assessments
by the customer and an independent consultant have
confirmed the financial attractiveness of these chains
due to their very low maintenance requirements and
longevity. Our new wear monitor system is about to
be installed on some of the chains for those escalators.
Annual Report and Accounts 2010 Renold plc
1.
Operating in diverse sectors
Renold products can be seen in applications
as diverse as cement making to chocolate
manufacturing, stopping tidal waterways to
fork lift trucks. In fact anywhere something
needs to be lifted, moved, rotated or conveyed,
a Renold product is there to carry out the
appropriate function reliably and effectively.
Renold is known by name throughout many
sectors of industry and is the natural choice
for the customer.
2.
Geographic reach
In every corner of the globe, wherever there
is industry, Renold can be found either through
strong manufacturing presence (Americas,
Europe, China, India and Australasia) or
through its owned national sales companies
or through the hundreds of distributors
and agents willing to stock and market the
strength of the real brand.
Diverse reach
3. market access for Renold products
The wide geographic spread of the Renold
organisation puts us in a unique position
in the power transmission industry to grow
the business. The combination of low cost
standard duty products out of China, higher
specification products from India and top
of the range offerings from our traditional
US and Europe manufacturing gives the
opportunity to provide solutions for every
application and cost point in all markets.
The additional growth opportunities in the
high Chinese and Indian internal markets
add further value.
Chief Executive’s review
Directors’ report – Business review 09
Robert Davies
Chief Executive
During Renold’s 130 year
history we have weathered
a number of recessions
and believe we have
emerged from this one
in a strong position
Overview
Against the backdrop of the global economic crisis last year
the business faced many challenges but, following decisive
management actions we delivered on the restructuring targets
we set at the start of the year which meant by the second half
year we made an operating profit before exceptional items.
The first half of the year was subject to very difficult market
conditions and resulted in an operating loss before exceptional
items of £2.1 million for the full year. We aggressively cut our cost
base and achieved a 27% reduction in headcount and by the year
end we achieved ongoing savings of £13 million. As a temporary
response to reduced levels of activity 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 until February 2010.
These actions significantly reduced our cost base and,
although they only partially mitigated the impact of the
reduced contribution resulting from lower sales revenues,
resulted in a small operating profit before exceptional items
being generated in the second half year.
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Capital expenditure was constrained during the year but given
the low sales demand the need for additional expenditure was
also reduced. However, essential maintenance, health and safety
and projects with a short payback period were approved and,
following the fund-raising in December 2009, approval was given
for a Group-wide enterprise resource planning (ERP) project which
will facilitate further cost and inventory reductions.
Our belief is that the reduction in demand we experienced in the
year was the result of both reduced demand from end-customers
but also significantly the result of destocking as all businesses
responded to uncertain future demand levels and pressure on
working capital. In the second half of the year we saw a gradual
and progressive improvement in trading conditions as destocking
started to end. We are not anticipating restocking in the near
term but the end to destocking alone will have a materially
positive impact on future results.
The £26.9 million (net of expenses) fund-raising in December
2009 has significantly reduced net debt and will save £2 million
per annum in interest costs. The improved strength of the
balance sheet also means we can fund growth.
The ongoing integration of our operations in China and India
enables us to optimise low cost manufacturing opportunities
and also increases access to those markets and other lower
cost product opportunities.
Our employees deserve recognition and thanks for their
acceptance and support for the cost reduction measures which
were necessary during the year. I believe their continued efforts
and their commitment will be reflected in next year’s results.
Renold Chain
Renold Chain was severely impacted by the global recession not
only for underlying demand reduction but also by destocking by
both our distribution and OEM customers. The resultant year on
year reduction in sales was approximately 29% (28% at constant
exchange rates). We acted quickly to mitigate the financial losses.
Headcount reduction was initiated in the third quarter of
2008/09 and was largely complete by the fourth quarter of
2008/9. The Polish facility was closed down in 2009/10. In order
to further improve customer focus we realigned Chain into three
geographical regions. These are Europe, the Americas, including
India and China, and Australasia. All these regions were impacted
but specific countries including Australia, India and South Africa
suffered far less than most from the recessionary pressures.
By the summer of 2009 the sales decline had bottomed out.
A steady increase in orders started in the third quarter of 2009/10
and gathered pace in the fourth quarter and this improvement
is expected to continue in the near term. There is little evidence
of restocking but customers are reporting they are no longer
destocking or at least have a specific date when they expect
to start placing orders that matches their own demand level.
Encouragingly we believe we have been able to take market share
during this downturn. This has been apparent within the large US
distribution market and also our Chinese facility acquired in 2007
has won business from other Chinese competitors. Our Indian
business (acquired in September 2008) contributed for a full year
and benefited from the strong Indian market particularly towards
the end of the year.
Annual Report and Accounts 2010 Renold plc
10 Directors’ report – Business review
Chief Executive’s review
continued
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Market penetration
Within the chain industry Renold is recognised as a global
market leader with excellent brand recognition and a reputation
for delivering technical solutions. This is something we have
earned over the years of trading and is an invaluable asset to
achieve the growth plans for the coming year. Despite being
market leader in Europe, as well as Australasia and India, there are
areas of the European market where we are under-represented
and part of the restructuring programme this year was aimed
at being able to increase our penetration of these areas. Similarly
we are one of the top three suppliers in North America. We have
relocated manufacturing of some products into our existing
facility in Morristown, Tennessee, which is aimed at gaining
market share and a more efficient use of working capital.
Technical innovation
Despite the relative maturity of the industry, our work with
key customers has resulted in a number of new solutions
to old problems. We have developed Smart Chain technology
to measure system dynamics, enabling improvements to drive
efficiency which enables real cost reduction for our customers.
Additionally we have maintained our initiative to produce a wider
range of engineering solution products aimed at specific
applications. This includes lubrication free chains, which
contribute to both lower maintenance costs and a cleaner
environment. Our engineers use state of the art 3D design
technology connected to a global engineering system,
enabling teams to work round the clock on time critical
projects. To further increase our support of the customer,
this system is being linked to the new Group-wide ERP
system that will be introduced during this year.
Renold Torque Transmission
Renold Torque Transmission provides engineering couplings,
gearboxes and loose gears products to specific targeted markets.
Whilst some of these markets have seen a downturn this was less
marked than in the Chain Division. This is primarily because of the
lack of inventory in the system but also because of large mass
transit contracts which continued unaffected by the recession.
The routes to market for Renold Torque Transmission products
are less diverse than Chain and projects have longer cycles. This
led to the recessionary pressures not only being less severe but
impacting later in the financial year.
Power generation has continued to be a strong industry sector
over the last year. Renold Torque Transmission supplies to most
markets in the sector. For example, we supply torsionally flexible
couplings for use in variable speed fans in new power stations
built in India, and for station upgrades in the US. We also provide
gear boxes for preheaters in new stations in India and China,
as well as worm and wheel gear sets for coal pulverisers around
the world.
Temporary power is often provided using diesel generator sets
and this is a growing market. Our technology has been successful
in these applications and we now supply couplings to some of
the largest companies in the industry. The growth in this sector
is expected to continue in the coming year. Our couplings have
helped provide power to the Vancouver Winter Olympics and
will help with this summer’s FIFA World Cup in South Africa.
We also supply product into the renewable energy market
with our sprag clutches being used in wind turbines and our
gear couplings in power generating waste processing plants.
The supply of couplings and gear boxes for use in mass transmit
propulsion systems has kept the people movement sector strong
for Renold Torque Transmission this year. New contracts have
been won and the pipeline is robust. Additionally, our gears
products are used extensively in escalator drives for demanding
applications by London Underground and New York City
Transit Authority.
Investment in additional capacity and capability in South Africa
has enabled us to provide a comprehensive service to our local
customers, primarily mines, for gear boxes and couplings. This
business has been strong in the refurbishment and repair of gear
boxes and has not been impacted by the slowdown elsewhere
in the world.
Going forward, the recovery in the oil, mineral extraction and
metals processing industries should provide an increase in
demand for all Renold Torque Transmission products.
Going forward
Our torque transmission products are largely bespoke and part
of long term projects. Consequently in the downturn our Torque
Transmission business was more robust than the Chain business
because of these longer term contracts and the support of
infrastructure spending. The Chain business is a more economically
sensitive business which, despite a broad geography and wide
range of products and end markets, suffered significantly from
the move to reduce the level of inventory in the system. The Chain
business is a mix of OEM and maintenance applications which
cover both relatively competitive, high volume products and
highly specialised, high margin, lower volume products.
The financial statements include for the first time separate
reporting of these two segments which should provide additional
clarity both as to the value in our existing businesses but also the
opportunity. The financial returns from the Chain business at
the current levels are unacceptable but much has been done in
reducing the cost base. This, in conjunction with high operational
gearing, will both capture the upturn in market volumes and
allow the integration and addition of new lines within the
existing capacity and under the Renold umbrella.
Implementing the changes to our business model in the last
two years has been challenging but essential to weather the
recession. The majority of the £13 million reduction to the cost
base is expected to be retained even allowing for this year’s
sales growth. The market share gains made this year and the
opportunities provided by our relatively new Chinese and Indian
facilities position us well to take advantage of the recovery.
Renold exits the downturn with a lean, well financed business,
which will facilitate market share growth.
Renold plc Annual Report and Accounts 2010
Finance Director’s review
Directors’ report – Business review 11
Result before tax
The loss before tax and before exceptional items was £8.1 million
(2009 – profit of £5.3 million). Loss before tax after exceptional
items was £13.6 million (2009 – profit of £2.9 million).
Taxation
The tax credit of £3.9 million (2009 – charge of £0.8 million)
represented an effective rate of approximately 29% compared
to 28% for the year ended 31 March 2009.
Group results for the financial period
The loss for the financial year ended 31 March 2010 was £9.7 million
(2009 – profit £2.1 million); the basic loss per share and the
diluted loss per share was 8.0p (2009 – earnings 2.8p). The basic
adjusted loss per share and diluted adjusted loss per share
was 1.4p (2009 – earnings 7.3p).
Balance sheet
Net assets at 31 March 2010 were £44.8 million (2009 – £40.1 million).
The net liability for retirement benefit obligations was £56.8 million
(2009 – £44.1 million) after allowing for a net deferred tax asset
of £16.2 million (2009 – £11.0 million). Of the £73.0 million net
retirement benefit obligation before deferred tax, £21.2 million
arises in respect of non-UK unfunded schemes, which are not
required to be prefunded (see Pensions on page 12).
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Cash flow and borrowings
Operating cash inflow was £0.9 million (2009 – £1.1 million).
Payment for purchase of property, plant and equipment was
£3.3 million (2009 – £5.5 million). Group net borrowings at
31 March 2010 were £17.9 million (2009 – £37.2 million) comprising
cash and cash equivalents of £7.3 million (2009 – £11.3 million)
and borrowings, including preference stock, of £25.2 million
(2009 – £48.5 million).
Net borrowings at 31 March 2010 were lower than at 31 March
2009 principally as a result of the £26.9 million net inflow from
the share issue in December 2009.
Share issue
In December 2009, the Group raised £26.9 million after expenses
through the completion of a firm placing and placing and open
offer of 142,500,000 new ordinary shares at 20 pence per share
(see page 86 for further details).
Bank facility
On 13 July 2009, the Group reached agreement 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 and the key terms of this new facility were effective
from 13 August 2009. The key terms were a Multi Revolving Credit
Facility (mRCF) of £20.0 million and a Multi Currency Term-Loan
Facility (mTLF) of £11.0 million, with both facilities expiring on
30 June 2012.
This facility was amended in December 2009 following the successful
share issue (see Note 18) with the repayment and cancellation
of the £11.0 million MTLF and certain financial and non-financial
covenants were relaxed. The remaining £20.0 million MRCF is the
Group’s principal credit facility although the Group also benefits
from numerous overseas facilities. At 31 March 2010 the Group
had unused committed credit facilities totalling £20.5 million.
Annual Report and Accounts 2010 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
(IFRSs) 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 75 to 85.
Revenue
Revenue for the year ended 31 March 2010 decreased by 20%
to £156.1 million compared to the preceding year. Revenue in the
second half year, at £80.6 million, was 7% higher than in the first
half year. At constant exchange rates, sales for the full year were
down 25% on the preceding year and sales in the second half
year were down 21% on the same period for the year ended
31 March 2009.
Operating result
The operating loss before exceptional items was £2.1 million
(2009 – profit of £10.0 million). The second half year generated
an operating profit before exceptional items of £0.2 million
(2009 – second half year profit of £4.0 million). This deterioration
in the full year result was a consequence of lower sales levels.
Exceptional operating items resulted in a £2.7 million charge for
the year ended 31 March 2010 (2009 – £2.4 million). These 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 £8.8 million (2009 –
£4.7 million). Net finance costs excluding exceptional refinance
costs and IAS 19 charges fell to £2.2 million (2009 – £2.9 million).
All of the remaining costs (£0.2 million) associated with the
rebanking in February 2007 and the exceptional costs (£2.8 million)
associated with the refinancing during the year ended 31 March
2010 have been expensed. The net interest cost on pension plan
balances and the expected return on pension plan assets was
a charge of £3.8 million (2009 – £1.8 million) principally as a
consequence of the assumption of lower expected investment
returns on lower opening pension plan asset balances.
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12 Directors’ report – Business review
Finance Director’s review
continued
Contracts essential to the business of the Company
The section on Contractual or other arrangements essential
to the business in the Statutory Information section on pages 29
to 32 of the Directors’ report is incorporated by reference here.
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 24 to the financial statements provides
details of financial instruments. 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 earnings1 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. 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
US acquisitions had been designated as a hedge of the net
investment in US subsidiaries. At 31 March 2010, this hedge has
been determined to be ineffective and revised arrangements
have been put in place. The carrying value of these borrowings
at 31 March 2010 was £8.5 million (2009 – £9.1 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 rate and floating rate debt and, during the year, had interest
rate swaps to manage part of this exposure.
At 31 March 2010, the Group had 4% (2009 – 3%) of its gross debt
at fixed interest rates. However, the intention is to enter into
further interest rate swaps to increase the proportion of debt at
fixed rate. 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.
Pensions
The management of the Group’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 proactive management.
Accordingly, we closed the Renold Supplementary Pension
Scheme (RSPS) and the Jones & Shipman plc Retirement Benefit
Plan (J&S) to future accrual from 1 August 2008. After a full
consultation process, the main pension scheme, the Renold
Group Pension Scheme (RGPS), 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 17
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:
1 Being operating profit before exceptional items on revenue from
continuing operations.
Renold plc Annual Report and Accounts 2010
2010
2009
Assets Liabilities Deficit
£m
£m
£m
Assets Liabilities Deficit
£m
£m
£m
UK schemes
– funded
Overseas schemes
– funded
– unfunded
Deferred tax asset
Net deficit
147.7
(197.4)
(49.7)
130.7
(157.8)
(27.1)
17.5
–
165.2
(19.6)
(21.2)
(2.1)
(21.2)
(238.2) (73.0)
16.2
(56.8)
15.6
–
146.3
(21.6)
(22.0)
(201.4)
(6.0)
(22.0)
(55.1)
11.0
(44.1)
During the year ended 31 March 2010, the assets of the funded
schemes improved by £18.9 million, but this was more than offset
by an increase in the valuation of funded liabilities by £37.6 million
due to a reduction in the discount rate of 1.3% for the UK schemes
and 0.6% for the overseas schemes and consequently the net
deficit of the funded schemes increased by £18.7 million.
The overseas deficit comprises £2.1 million at 31 March 2010
(2009 – £6.0 million) in respect of funded defined benefit schemes
and £21.2 million (2009 – £22.0 million) relating principally to the
unfunded German scheme which, as is common in Germany, is a
“pay as you go” scheme that is not required to be prefunded. There
is no obligation for deficit funding payments for this type of scheme.
There are three UK defined benefit pension schemes: (i) the main
scheme, which is the RGPS; (ii) the RSPS; and (iii) the J&S. The
status of these schemes at 31 March 2010 is summarised below:
As at 31 March 2010
IAS 19 liabilities
Market value of assets
Deficit/surplus on IAS 19 basis
Annual deficit reduction payment
(based on funding valuations)
1.6
Total members (approximately) 4,852
RGPS
£m
(129.5)
92.2
(37.3)
RSPS
£m
(33.8)
24.1
(9.7)
J&S
£m
Total
£m
(34.1) (197.4)
31.4
147.7
(2.7)
(49.7)
0.5
113
–
2.1
998 5,963
The assets and liabilities in the balance sheet include a net
£1.5 million asset at 31 March 2010 (2009 – £nil) in respect of a
closed South African defined benefit pension scheme. The Group
has recognised that element of the pension surplus within that
scheme which it expects to be repaid to the Group after expected
additional payments to pensioner members are taken into
account. Further details on the Group’s pension schemes are
given in Note 17 to the financial statements.
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
Directors’ report – Business review 13
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footprint mitigates against exposure within any one country in
which we operate, although we are still exposed to global events.
In particular, as we have recently experienced, the 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 has been adversely
affected. The Group is now better positioned in the event of a
second global recession but would not be immune to the effect.
Raw material prices
The Group’s profit and cash flows are impacted by the price
of its principal raw material, steel, which in recent years has seen
considerable price volatility driven by global market conditions
outside the control of the Group. Where contractually possible,
we pass price increases on to our customers but this ability is, to
some extent, dependent upon market conditions. There may be
periods of time in which the Group is not fully able to recover
increases in the cost of raw materials due to the weakness in
demand for its products or the action of its competitors. During
periods in which prices of raw materials fall, the Group may face
demands from its customers to reduce its prices or experience
a fall in demand for its products whilst customers delay orders
in anticipation of price reductions. All of these factors could
have a material adverse effect on the Group’s business, financial
condition, prospects, customer retention and results of operations.
Operational
Operational problems
The Group’s profits and cash flows are dependent on the
continued use of its various facilities. Operational risks include
equipment failure, failure to comply with applicable regulations
and standards, raw materials supply disruptions, labour force
shortages, events impeding or increasing the cost of transporting
the Group’s products and natural disasters. Any disruption of the
manufacturing processes can result in delivery delays, interrupt
production or even lead to a full cessation of production. If
production is interrupted, customers may decide to purchase
products from other suppliers. The Group has insurance cover
to mitigate the impact of a number of these risks.
ERP system implementation
The Group is presently implementing a global ERP system to
replace numerous legacy systems. This change is expected to
improve customer service and to facilitate further cost and
inventory reduction. However, an unsuccessful implementation
could seriously impede the Group’s operations with results which
could have a material adverse effect on the Group’s business,
financial condition, prospects, customer retention and results
of operations. To mitigate this risk the Group is making extensive
use of external consultants, the implementation is taking place
in phases and a thorough project plan is in place with agreed
milestones reviewed by the Board.
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
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.
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. During the year ended 31 March 2010 the Group entered
into a new facility with its main lenders which is described under
the Bank facility section on page 11 of this report. This facility
was amended following the successful share issue which raised
£26.9 million net of expenses in December 2009. 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.
• 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
US acquisitions had been designated as a hedge of the net
investment in US subsidiaries. These have been determined as
ineffective at 31 March 2010 and revised arrangements have
been put in place.
Interest rates
Borrowings at variable rates expose the Group to cash flow
interest rate risk and borrowings at fixed rates expose the Group
to fair value interest rate risk. The Group reviews the mix of fixed
and floating debt and intends to use 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 year ended 31 March 2010, decreased bond yields have
increased the deficit. The Group continually reviews risks in
relation to the Group’s pension schemes 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 29
and are incorporated by reference here.
Annual Report and Accounts 2010 Renold plc
14 Directors’ report – Business review
Responsibilities
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We believe that consideration of corporate social responsibility
is integral to ensuring the protection of the long term interests
of our shareholders.
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 Head of Operations Europe, 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 Renold
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 responsibilities.
Employees may not engage in conduct or activity that may raise
questions as to Renold’s honesty, impartiality, reputation or
otherwise cause embarrassment to the Group.
Our employees are required to neither offer nor accept
improper gifts, hospitality or payments.
Every Renold employee has the responsibility to ask questions,
seek guidance and report suspected violations of this
ethics statement.
From April 2010, a free of charge, independent whistleblowing
hotline has been available to all employees across the Group
enabling them to report any concerns about theft, fraud and
other malpractice in the workplace.
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. 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.
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 an online appraisal system which has both an employee
and a manager focus.
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 2001 we introduced an ISO 14001 certified environmental
management system at our main chain production site in the
UK which recently received a further recertification. Additionally,
we are in the process of introducing a similar system at our UK
manufacturing sites which we hope will receive full certification
during the year ended 31 March 2011.
The Group is striving to reduce its energy costs and the impact
on the environment. With this aim in mind, there have been
a number of energy saving initiatives during the year ended
31 March 2010 and we are in the process of developing a Group
energy saving database to allow sites to exchange ideas and
spread best practice.
Many of our sites have programmes in place to replace old
inefficient switch start lighting with the latest high frequency
lighting and monitoring equipment, both lux and occupancy
sensors, to ensure that lighting illuminates areas only
when required.
Renold plc Annual Report and Accounts 2010
A key project at one site was to update the lighting/heating
management control system to a user friendly PC based system.
These facilities are therefore being used more intelligently and
energy consumption is reduced as a consequence.
Another site is to implement a ducting system from air
compressors enabling the heat to be transferred into the factory
which previously had been exhausted to the atmosphere.
Potential for improvements remain and we will continue to
explore further energy saving and environmental projects in
the future.
Health and safety
Renold continues to place a very significant priority on its
responsibility for health and safety and the environment (HSE)
and is committed to providing a safe workplace for all its
employees and those affected by its activities.
The Group aims to achieve zero accident and incident levels by
identifying and eliminating occupational health hazards and
raising awareness at all levels. We also work closely with our
insurers and communicate major incidents and any consequent
improvements implemented across the Group to help promote
best practice standards.
During the year ended 31 March 2010, we have seen a positive
trend in our accident statistics with a general reduction in the
average reportable index rate within the Group. We believe
that a good part of this improvement is down to the proactive
measures that have been taking place within the sites such as
additional training and communication.
Sites that had a higher number of reportable incidents were
tasked to provide specific HSE plans to highlight areas which
require particular attention so that resources could therefore be
directed accordingly. The sites are using these plans to improve
HSE standards within their organisations and are monitored on
a regular basis.
The Board regularly reviews health and safety performance
and ensures that, where any issues are identified, they are
promptly addressed.
Research and development
The Group has taken a leading role in the industry for more than
a century and chairs the ISO Committee for chain as well as
being active on other standards committees such as BSI and DIN.
Renold invented the bush roller chain, inverted tooth chain and
the modern sprocket tooth form which was freely given to the
chain industry in order to ensure standardisation.
Community
We aim to be a part of the communities in which we work and,
as such, seek to assist projects by providing non-financial support.
We encourage volunteering and working with local educational
institutions in the promotion and raising of awareness of
engineering and manufacturing.
Directors’ report – Business review 15
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Quality recognition
Renold is delighted that its facility in India
which was acquired in 2008 has successfully
renewed its American Petroleum Institute (API)
accreditation for the next three years. API
accreditation is a prerequisite for supplying
product to the global oil and gas industry.
At the same time their quality system has been
upgraded from ISO9001:2000 to ISO9001:2008
and they also achieved accreditation for
ISO/TS2900. This is a great achievement and
we congratulate all the team in India on these
excellent results.
Annual Report and Accounts 2010 Renold plc
16 Directors’ report – Governance
Board of Directors
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Renold plc Annual Report and Accounts 2010
matthew Peacock
Chairman
Matthew, aged 48, 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 19 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 Limited, a London stockbroking and corporate
advisory firm, and a Non-Executive Director of STV Group plc.
Robert Davies
Chief Executive
Robert, aged 56, joined the Group in March 2004 and was
appointed Chief Executive in April 2004. He is a member of the
Institution of Engineering and Technology and a Non-Executive
Director of Economic Solutions Limited. His previous experience
includes his appointment as Chief Executive of GE Druck Holdings
Limited, formerly known as Druck Holdings plc. Prior to that, he
held a number of leadership roles at TRW, Lucas and General
Electric, including several years spent in the US.
Peter Bream
Finance Director
Peter, aged 43, 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.
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 51, 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 60, 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.
Ian Griffiths
Non-Executive Director
Ian, aged 59, was appointed to the Board on 13 January 2010. He is
currently a Non-Executive Director of Ultra Electronics Holdings
plc, an appointment which he has held since April 2003. He was
previously Managing Director of Royal Mail Letters and a Director
of Royal Mail Holdings plc, prior to which he was an Executive
Director of GKN plc and GKN Holdings plc where he was Group
Managing Director, GKN Automotive, having been a member
of the GKN Driveline senior management team since 1990.
Corporate governance
Directors’ report – Governance 17
The Group is committed to high standards of corporate
governance and your Board acknowledges its contribution to
achieving management accountability, improving risk management
and ultimately to creating shareholder value. This statement
describes how the principles of corporate governance contained
in the Combined Code issued by the Financial Reporting Council
in June 2008 (the Combined Code) have been applied.
The disclosures required by the Financial Services Authority’s
Disclosure and Transparency Rule 7.2.6 have been included in
the Statutory information section of the Directors’ report on
pages 29 to 32 and are incorporated here by reference.
Compliance with the Combined Code
The Board considers that the Company has complied with the
provisions of section 1 of the Combined Code throughout the
year ended 31 March 2010 except where highlighted below.
The Board
Composition
The 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 and Ian Griffiths, who
joined the Board on 13 January 2010, did not meet with all major
shareholders as part of his induction. Whilst the Company is not in
compliance with paragraph A.5.1 of the Combined Code, 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.
Board evaluation
The 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, its members and its committees
is conducted annually. This process gives the 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 Non-Executive Director.
Both an evaluation of the Board and its committees and an
evaluation of the Chairman were carried out in May 2010.
It is the intention of the Board to continue to review its
performance and that of its Directors annually.
Board independence
The Chairman, Matthew Peacock, is a principal of a significant share-
holder, Hanover Investors Limited, which as at the date of this report
holds 11.24% of the ordinary share capital of the Company. The 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), Matthew Peacock acts
with complete independence of character and judgement in this respect.
Matthew Peacock is and has been throughout the year ended
31 March 2010 the Chairman of the Company’s broker and financial
adviser, Singer Capital Markets Limited (Singer). 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 the Company.
David Shearer is, and has been throughout the year ended
31 March 2010, a director of STV Group plc, a company of which
Matthew Peacock is also a director. The Board is satisfied that
both Matthew Peacock and David Shearer act with complete
independence of character and judgement in this respect.
John Allkins is, and has been throughout the year ended
31 March 2010, a director of Fairpoint Group plc, a company of
which Matthew Peacock is also a director. The Board is satisfied
that both Matthew Peacock and John Allkins act with complete
independence of character and judgement in this respect.
The 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.
All new Directors are initially appointed upon recommendation
from the Nomination Committee. All Directors are subject to
election by shareholders at the first annual general meeting of
the Company following their appointment and to re-election
thereafter at intervals of no more than three years.
The 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.
Number attended
Board
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n
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Usual monthly Additional
Board
Board
meetings meetings
6
9
8
9
7
9
6
9
8
9
–
3
–
3
Matthew Peacock
Robert Davies
Peter Bream
David Shearer
John Allkins
Ian Griffiths1
Rod Powell2
Nomin- Remun-
ation eration
–
–
–
5
5
2
1
1
–
–
2
2
–
–
Audit
–
–
–
5
5
1
2
Risk
–
2
2
–
–
–
–
1 Ian Griffiths was appointed with effect from 13 January 2010.
2 Rod Powell resigned with effect from 21 September 2009.
Board committees
The 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, Hannah Woodcock, 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 at www.renold.com.
Annual Report and Accounts 2010 Renold plc
18 Directors’ report – Governance
Corporate governance
continued
Composition1
Role
Activities
John Allkins
(Chairman)
David Shearer
Ian Griffiths
The review of the Group’s
financial statements, internal
financial control systems, the
ethics policy, internal audit
reports and the appointment/
reappointment and
independence of the external
auditors and conduct of the
external audit.
e
e
t
t
i
m
m
o
C
t
i
d
u
A
Matthew Peacock
(Chairman)
David Shearer
John Allkins
Ian Griffiths
To select and recommend
to the Board new appointments
of Executive and Non-Executive
Directors.
The Nomination Committee
meets as required.
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e
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t
t
i
m
m
o
C
n
o
i
t
a
n
m
o
N
i
To determine the terms and
conditions of employment
including remuneration and
benefits of the Chairman and the
Executive Directors as well as
performance-related bonus
schemes and pension rights.
The main Board determines
the remuneration of the
Non-Executive Directors
(other than the Chairman)
and individual Non-Executive
Directors are not present when
their own remuneration is
being discussed.
To evaluate and manage
the risks to the Group.
David Shearer
(Chairman)
John Allkins
Ian Griffiths
e
e
t
t
i
m
m
o
C
n
o
i
t
a
r
e
n
u
m
e
R
g
n
i
r
o
t
i
n
o
M
k
s
i
R
e
e
t
t
i
m
m
o
C
Robert Davies
(Chairman)
Peter Bream
Hannah Woodcock
Maggie Hurt
Mike Christmas
Colin Gibson
The Audit Committee normally meets four times a year. The Board is satisfied that, as well as
the Chairman of the Audit 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 Audit Committee.
The external auditors, who attend by invitation, are invited by the Audit Committee to advise
it of any matters which they consider should be brought to the Audit Committee’s attention
without the Executive Directors present.
A formal process for evaluating the independence of the external auditors and the
performance of the Audit 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 Audit 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 Audit Committee has met five times during the year ended 31 March 2010. In the course
of these meetings, the Audit 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 Audit Committee also sought the views of the external auditors in making its assessment
of the internal control environment including all material controls, financial, operational and
compliance controls and risk management systems.
• Internal audit function: The Audit 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 LLP, which was used to facilitate a discussion
of performance.
• Financial reporting: The Audit Committee reviewed draft annual and interim reports before
recommending their publication to the Board. The Audit Committee discussed with the
Chief Executive, Finance Director and external auditors the significant accounting policies,
estimates and judgements applied in preparing these reports and reviewed data provided
in accordance with policies which aim to provide assurance that transactions are recorded
properly to permit the preparation of financial statements in accordance with IFRSs.
• Risk monitoring: The Risk Monitoring Committee reported the results of its discussions
to the Audit Committee.
No new appointments were made to the Board in the year ended 31 March 2010 other than
Ian Griffiths (who was appointed to the Board on 13 January 2010).
Ian Griffiths was appointed following an evaluation of a number of candidates. The Company
was not fully compliant with paragraph A.4.6 of the Combined Code as no external search
consultancy or open advertising was used for his appointment as this was not considered to
be necessary at the time due to a number of the Board members already being familiar with
Ian Griffiths. Additionally, his expertise was felt to complement the balance of skills of existing
Non-Executive Directors. Ian Griffiths’ appointment was made on merit and against objective
criteria and the process for his appointment was led by the Nomination Committee, which
recommended the appointment to the Board.
The Company was not fully compliant with paragraph A.4.1 of the Combined Code throughout
the year ended 31 March 2010, which requires that a majority of the members should be
independent, as, during the period to 21 September 2009 when Rod Powell resigned, two
of the four members were not considered to be fully independent Non-Executive Directors.
The Remuneration Committee is currently chaired by David Shearer2. In addition, it comprises
John Allkins and Ian Griffiths, both of whom are Non-Executive Directors.
Robert Davies and Matthew Peacock attend meetings from time to time at the invitation
of the Remuneration Committee.
The Directors’ remuneration report is set out on pages 21 to 27.
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,
the Group Engineering Director and the Head of Operations Europe.
The Risk Monitoring Committee meets and reports to the Audit Committee at least twice
each year.
1 Rod Powell was also a member of the Audit and Nomination Committees and Chairman of the Remuneration Committee until his resignation on 21 September 2009.
Ian Griffiths was appointed as a member of the Audit, Nomination and Remuneration Committees on his appointment to the Board on 13 January 2010.
2 Rod Powell chaired the Remuneration Committee until his resignation on 21 September 2009.
Renold plc Annual Report and Accounts 2010
Directors’ report – Governance 19
Review of the work of the external auditors
Subject to the annual appointment of the external auditors
by shareholders, the Audit Committee regularly reviews the
relationship between the Group and the external auditors.
This review includes an assessment of their performance,
cost-effectiveness, objectivity and independence.
The Audit Committee is responsible for ensuring that an
appropriate relationship is maintained between the Group and
the external auditors. The Group has implemented a policy of
controlling the provision of non audit services by the external
auditors in order to ensure that their objectivity and independence
are safeguarded. This control is exercised by ensuring that all
non audit services where fees exceed an agreed limit are subject
to the prior approval of the Audit Committee. During the year
ended 31 March 2010, the Audit Committee continued with the
appointment of other accountancy firms to provide non audit
services to the Group and anticipates that this will continue
during the year ended 31 March 2011.
The Audit Committee, having considered the external auditors’
performance during their period in office, recommends their
reappointment. A full breakdown of the audit and non audit
related fees is set out in Note 2(b) to the financial statements on
page 48. The Audit Committee discussed the level of fees and
considered them appropriate given the current size of the Group.
The Audit Committee is satisfied that the level and scope of non
audit services undertaken by the external auditors does not
impair their independence or objectivity.
Conflicts of interest
The Company’s articles of association were amended at the 2008
annual general meeting, in line with the Companies Act 2006,
to allow the Board to authorise potential conflicts of interest of
Directors on such terms (if any) as they think fit when giving any
authorisation. Any decision of the Board to authorise a conflict
of interest is only effective if it is agreed without the conflicted
Directors voting or without their votes being counted and, in
making such a decision, the Directors must act in a way they
consider in good faith will be most likely to promote the success
of the Company. The Company has established a procedure for
the appropriate authorisation to be sought prior to appointment
of any new Director or prior to a new conflict arising and for the
regular review of actual or potential conflicts of interest. During
the year ended 31 March 2010, this procedure was adhered to and
operated effectively.
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 2010
and up to the date of approval of this report and the financial
statements. This process complies with the Financial Reporting
Council’s “Internal Control: Revised Guidance for Directors on the
Combined Code (October 2005)”. Internal controls are reviewed
on a regular basis by the Risk Monitoring Committee.
Group 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 the Group’s internal control systems and risk
management are:
• a Risk Monitoring Committee which oversees, 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;
• access for all Group employees to a free of charge, independent
whistleblowing hotline enabling them to report any concerns
about theft, fraud and other malpractice in the workplace;
• 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 whilst also permitting the accurate
preparation of financial statements;
• 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; and
• 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.
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The Board has approved a Corporate Governance Compliance
Statement which contains terms of reference for the Board
and each of the Board committees. The terms of reference are
available on the Company’s website at www.renold.com. Internal
controls are in place at both local and Group level. In addition, the
Company has consolidated its Group policy in relation to internal
controls into a Renold Internal Control Statement which contains
details of such things as Group signing authorities, contracting
principles and an ethics statement to ensure that all Group
employees conduct business on behalf of the Group on the same
basis and in accordance with approved policies and procedures.
This has been approved by the Board and it is expected that full
implementation will be completed during the year ended
31 March 2011.
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.
Annual Report and Accounts 2010 Renold plc
20 Directors’ report – Governance
Corporate governance
continued
Communications with shareholders
Communications with shareholders are given high priority.
The Board is accountable to 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 longer term goals.
The 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 Group
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, the Group makes presentations
to analysts and provide updates to the London Stock Exchange
and shareholders via the Company’s website at www.renold.com.
In addition, the Chairman, Chief Executive and Finance Director
meet with major shareholders to discuss governance and Group
strategy. The largest shareholder has a representative on
the Board.
The Senior Independent Non-Executive Director does not
generally attend meetings with shareholders although makes
himself available to attend meetings with shareholders if and
when required. Whilst the Company is not in compliance with
paragraph D.1.1 of the Combined Code, 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.
The annual general meeting on 15 July 2010 (Annual General
Meeting) provides an opportunity for communication with
private and institutional investors and shareholders are
encouraged to attend and we welcome their participation.
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At the 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
and the other Non-Executive Directors, will be available to answer
questions. Notice of the Annual General Meeting is sent to
shareholders at least 20 business days before the meeting. Details
of the proxy votes lodged on each resolution are made available
to shareholders and shareholders are invited to talk informally to
the Directors after the formal proceedings.
The Company’s website at www.renold.com presents additional
information about the Group, 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 the Company’s registrar, Capita Registrars,
whose contact details appear on page 86. Alternatively, you can
view up-to-date information and manage your shareholding
through Capita’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.
Renold plc Annual Report and Accounts 2010
Directors’ remuneration report
Directors’ report – Governance 21
This Director’s remuneration report has been prepared on behalf
of the Board and is subject to the approval of shareholders at the
Annual General Meeting.
In fixing remuneration packages, the Remuneration Committee
has regard to the compensation commitments that would result
in the event of early termination.
In line with the Association of British Insurers’ (ABIs) Guidelines
on Responsible Investment Disclosure, the Remuneration
Committee ensures that the incentive structure for the Executive
Directors will not raise environmental, social or governance (ESG)
risks by inadvertently motivating irresponsible behaviour. The
Remuneration Committee has discretion to consider corporate
performance on ESG issues when setting the remuneration
of the Executive Directors.
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 Remuneration 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 Remuneration Committee has regard to comparable
jobs in manufacturing companies of a similar size and reach.
The Remuneration Committee has recently reviewed the base
salaries of the Executive Directors in the context of the overall
business performance. In agreement with the Executive Directors,
base salary was yet again not increased during the year ended
31 March 2010. Variable pay incentivisation has been modified to
be further aligned to improvements in business performance.
The current contractual salary levels as at the date of this report
are set out below (the figures in brackets reflect salary levels
effective as at 10 July 2009):
Robert Davies £285,000 (£285,000)
Peter Bream £180,000 (£180,000)
However, with effect from 1 April 2009, in line with most other
Group employees, both Robert Davies and Peter Bream agreed
to temporarily reduce their salaries by 10% in recognition of the
difficult economic trading environment. Again, in line with most
other Group employees, Robert Davies’ and Peter Bream’s full
base salaries were reinstated with effect from 1 February 2010.
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.
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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. Details of those who were members
of the Remuneration Committee during the year ended 31 March
2010 are contained in the Corporate governance section of the
Directors’ report on pages 17 to 20 which is included in this
Directors’ remuneration report by reference. The members of the
Remuneration Committee currently comprise the Non-Executive
Directors (other than the Chairman), David Shearer (Chairman),
John Allkins and Ian Griffiths, 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
Remuneration Committee by invitation, but do not take part
in the Remuneration Committee’s recommendations on their
own remuneration. No Director is involved in deciding his own
remuneration, whether determined by the Remuneration
Committee or, in the case of the Non-Executive Directors,
by the Board.
During the year, the Remuneration Committee appointed and
received specialist remuneration advice from the Hay Group and
PricewaterhouseCoopers, both of whom provided independent
advice. Neither Hay Group nor PricewaterhouseCoopers have
any other connection or relationship with the Group nor did they
provide any other services to the Group during the year ended
31 March 2010.
The Remuneration Committee meets as often as necessary to
discharge its duties, which during the year ended 31 March 2010
was on five occasions. The terms of reference of the Remuneration
Committee are available on the Company’s website at
www.renold.com.
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 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.
Annual Report and Accounts 2010 Renold plc
22 Directors’ report – Governance
Directors’ remuneration report
continued
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 during
the year ended 31 March 2010 (£42,750 during the year ended
31 March 2009) for Robert Davies and £27,000 during the year
ended 31 March 2010 (£27,000 during the year ended 31 March
2009) 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
For the year ended 31 March 2010, no bonus was triggered under
the scheme rules. Bonus payments are based on Group financial
targets and personal objectives 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. For Robert Davies, the maximum annual bonus
during the year ended 31 March 2010 was 130% (£370,500). The
maximum annual bonus for Peter Bream during the year ended
31 March 2010 was 60% (£108,000) of base salary.
A decision was taken in principle during the year ended 31 March
2010 to change the criteria for the short term bonus scheme for
Executive Directors to more closely align it with shareholders’
interests. During the year ended 31 March 2011 and in future years,
a significant portion of short term bonus will be paid in Company
shares with a requirement that those shares be held for a minimum
period of three years. The detailed criteria are in the process of
being prepared in conjunction with the Company’s advisers.
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Long term incentive arrangements
2004 Option Plans
In 2007, the Remuneration 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 (subject to the discretion of the
Remuneration Committee); 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; and
• 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.
The performance conditions attaching to options granted under
the 2004 Option Plans are considerably more challenging than
those used by other comparable companies. For awards made
prior to the year ended 31 March 2010, there are two performance
conditions, operating independently of each other. Approximately
two-thirds of an option grant is subject to an earnings per share
(EPS) performance condition based on annualised compound
growth in the Company’s adjusted EPS1 in excess of the rate of
inflation as measured by the retail price index (RPI) over a fixed
three-year performance period (the performance period). The
number of shares under option that vest in respect of this portion
are 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
% of two-thirds
of the shares under
option that vest
Nil
25%
On a straight-line basis between
25% and 100%
100%
Adjusted EPS is used because it is a key internal measure of long
term Company performance.
The remaining one-third is 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 vests unless the Remuneration
Committee is satisfied that, over the performance period, the
Company’s underlying financial position is satisfactory.
To the extent that the performance conditions are not met,
in whole or in part at the end of the performance period,
the options lapse. The introduction of a TSR element to the
Company’s remuneration policy was a fundamental shift from
the previous policy that had been exclusively based on EPS.
The number of shares under option that vest in respect of this
portion is as follows:
Growth in the Company’s TSR
over the performance period
Less than 80%
80%
Between 80% and 200%
200% or more
% of one-third
of the shares under
option that vest
Nil
25%
On a straight-line basis
between 25% and 100%
100%
Renold plc Annual Report and Accounts 2010
1 Being basic EPS from continuing operations less exceptional items after tax.
Directors’ report – Governance 23
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
and all options previously granted under the SAYE Scheme have
now lapsed.
Details of the market price at the end of the year and the
highest and lowest market price, are set out in Note 19 to the
financial statements.
Capital reorganisation and share issue
Following the capital reorganisation and share issue which was
completed during December 2009, the Committee reviewed, in
accordance with the rules of each of the Company’s executive
share option plans, the appropriate adjustments to be made to
reflect the dilutive effect of both transactions. The calculations
were made in accordance with a standard formula (explained
below) and, in the case of options which have been granted under
schemes approved by HM Revenue and Customs (HMRC), HMRC
approved the calculations.
After the nominal value of the shares under the outstanding
options was changed from 25 pence to 5 pence to reflect the
capital reorganisation, a further adjustment was made using
the theoretical ex-rights price calculation (TERP) as agreed with
HMRC. The number of shares under each outstanding option
made under the Company’s executive share option plans was
multiplied by a TERP factor of 1.17439 and the respective option
price was multiplied by a factor of 0.85151. These adjustments
were designed to minimise the effect of the share issue upon
outstanding options and, subject to rounding, ensured that
the overall value of outstanding options was the same after
adjustment. The adjustments made to the share options
outstanding at the time of the share issue (and which
remained outstanding at the time of adjustment) are
shown on the next page.
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For options granted during the year ended 31 March 2010, the
performance condition is based on a varying percentage of the
shares under option becoming exercisable depending on the
Company’s share price on the date three years following the
date of the grant of the option as follows:
Share price (p)
30
40
50
60
% of option that becomes exercisable
(with the corresponding number
of shares being rounded
down to the nearest whole number)
25
50
75
100
Under the 2004 Option Plans, the Remuneration Committee is
to impose an appropriate performance target subject to which
option grants are made. At the date of grant of the share options
during the year ended 31 March 2010, EPS and TSR targets were
considered not to be the best measure of Company performance
because of the turbulence in the financial markets which is more
as a result of external factors than management action. The
Remuneration Committee’s objective was to fully align business
performance with that of rebuilding shareholder value and
therefore aligning the performance condition to improvements
in share price, on the basis set out above, was believed to best
fulfil this objective.
The Remuneration 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 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.
Annual Report and Accounts 2010 Renold plc
24 Directors’ report – Governance
Directors’ remuneration report
continued
Original
number Original
option
price (p)
of options
granted
Number
of adjusted
options
(outstanding
in December
2009)
Adjusted
option
price (p)
45,000
122,000
106,000
90,000
125,000
475,000
105,000
495,000
120,000
360,000
560,000
1,493,687
180,292
54,054
118.50
67.34
58.50
83.50
76.50
88.00
74.30
61.60
100.10
114.20
92.55
75.90
77.00
37.00
52,848
143,276
124,485
105,695
146,799
557,835
123,312
581,325
140,926
422,782
657,662
1,754,171
211,733
63,481
100.90
57.34
49.81
71.10
65.14
74.93
63.27
52.45
85.24
97.24
78.81
64.63
65.57
31.51
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 2010 are set out below:
Matthew Peacock
David Shearer
John Allkins
Ian Griffiths
£50,000
£37,500
£35,000
£30,000
Date of grant
The Renold plc (1995) Executive Share Option Scheme
19 July 2000
28 November 2001
27 November 2002
27 November 2003
11 March 2004
The Renold plc 2004 Company Share Option Plan
2 September 2004
22 November 2004
26 July 2006
30 November 2006
2 January 2007
27 November 2007
31 March 2008
1 April 2008
25 November 2008
Executive Directors’ service contracts
Each of the Executive Directors, in line with the Remuneration
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
Remuneration Committee in light of the then prevailing market
practice. Details of the Executive Directors’ terms of appointment
and notice periods are as follows:
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Robert Davies
Peter Bream
Date of contract
2 March 2004
29 June 2006
Expiry date of current term/
notice period
No specified term/
terminable on 12 months’ notice
No specified term/
terminable on 12 months’ notice
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/National Association of Pension Funds 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.
External non-executive directorships
The Board encourages Executive Directors to broaden their
experience outside the Company by taking up non-executive
directorships.
Renold plc Annual Report and Accounts 2010
Directors’ report – Governance 25
Appointment details
The dates of the Chairman’s and Non-Executive Directors’ appointments who have served during the year ended 31 March 2010 are
as follows:
Matthew Peacock
David Shearer
John Allkins
Ian Griffiths
Rod Powell
Date of
appointment
21 September 2006
1 May 2007
17 April 2008
13 January 2010
21 September 2006
Unexpired
term
(approximate
months
from
31 May 2010)
28
35
11
Date of election/
last re-election
21 September 2009
21 September 2009
30 July 2008 (to be proposed for
re-election at the Annual General Meeting)
31 To be proposed for election at the Annual General Meeting
Retired on 21 September 2009
–
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.
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.
Directors’ remuneration (audited information)
The remuneration for each of the Directors for the year ended 31 March 2010 is as set out below:
Executive Directors
Robert Davies
Peter Bream
Non-Executive Directors
Matthew Peacock
David Shearer
John Allkins
Rod Powell1
Ian Griffiths2
Barbara Beckett3
Year ended 31 March 2010
Salaries
and fees
(£000)
Annual
bonus
(£000)
Benefits
Cash
(£000)
Non-
cash
(£000)
261
165
426
46
33
32
13
7
–
557
–
–
–
–
–
–
–
–
–
–
–
11
11
–
–
–
–
–
–
11
33
1
34
–
–
–
–
–
–
34
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Year
ended
31 March
2009
Total
(£000)
Total
(£000)
294
177
471
46
33
32
13
7 –
–
602
318
192
510
50
35
33
30
10
668
1 Rod Powell retired from the Board on 21 September 2009.
2 Ian Griffiths was appointed to the Board on 13 January 2010 and therefore did not receive fees for the full year.
3 Barbara Beckett retired from the Board on 30 July 2008.
The Company has provided pension contributions of £42,750 during the year ended 31 March 2010 (£42,750 during the year ended
31 March 2009) for Robert Davies and £27,000 during the year ended 31 March 2010 (£27,000 during the year ended 31 March 2009)
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.
Annual Report and Accounts 2010 Renold plc
26 Directors’ report – Governance
Directors’ remuneration report
continued
Directors’ beneficial interests in shares (unaudited information)
The beneficial interests of the Directors who held office at 31 March 2010 in the ordinary shares of the Company were as follows:
Matthew Peacock1
David Shearer
John Allkins
Ian Griffiths
Robert Davies
Peter Bream
31 March
2010
24,688,990
68,442
Nil
Nil
723,669
78,348
31 March
2009
12,937,500
30,000
Nil
Nil
254,000
27,500
1 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 the Company as at 31 March 2010 or at the date of this report.
As a result of the capital reorganisation which was completed on 9 December 2009, each of the Directors with a holding in the ordinary
shares of the Company noted above now holds a number of deferred shares of 20 pence each. These deferred shares hold no value or
voting rights and accordingly have not been disclosed in the table above.
There have been no other changes in the interests of Directors in the share capital of the Company between 31 March 2010 and the date
of this report.
Directors’ share options as at 31 March 2010 (audited information)
Robert Davies
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Scheme
Executive
Total
SAYE
Total
Options
held at
1 April
2009
125,000
475,000
100,000
100,000
150,000
568,083
180,292
1,698,375
10,744
10,744
Number
of share
options
granted
–
–
–
–
–
–
–
2,456,896
2,456,896
–
–
Adjusted
number of
options held
following capital
reorganisation
and share
issue in
December
20092
146,799
557,835
117,439
117,439
176,159
667,151
211,733
–
1,994,555
–
–
Number
of share
options
lapsed
–
–
–
–
150,000
–
–
–
150,000
10,744
–
Options
held at
31 March
2010
146,799
557,835
117,439
117,439
–
667,151
211,733
2,456,896
4,275,292
–
–
Original
option
price (p)
76.50
88.00
61.60
114.20
92.55
75.90
77.00
–
Date
from
which
exercisable
11.03.2007
Adjusted
Expiry
option
date
price (p)
65.14
10.03.2014
74.93 02.09.2007 01.09.2014
25.07.2016
52.45 26.07.2009
01.01.2017
97.24 02.01.2010
26.11.2017
27.11.2010
78.81
64.63
30.03.2018
31.03.2011
31.03.2018
65.57 01.04.2011
23.20 05.02.2013 04.02.2020
–
54.3 01.03.2009 31.08.2009
2 Outstanding options were subject to an adjustment following the capital reorganisation and share issue to reflect the dilutive effect of these transactions. The number
of shares under each outstanding option under the Company’s executive share option plans was multiplied by a TERP factor of 1.17439 and the respective option price
was multiplied by a factor of 0.85151.
Renold plc Annual Report and Accounts 2010
Directors’ report – Governance 27
Peter Bream
Scheme
Executive
Total
SAYE
Total
Adjusted
number of
options held
following capital
reorganisation
and share
issue in
December
2009
176,159
70,463
117,439
278,511
–
642,572
–
–
Number
of share
options
lapsed
–
–
100,000
–
–
100,000
–
–
Options
held at
31 March
2010
176,159
70,463
–
278,511
1,551,724
2,076,857
–
–
Options
held at
1 April
2009
150,000
60,000
100,000
237,154
547,154
–
–
Number
of share
options
granted
–
–
–
–
1,551,724
1,551,724
–
–
Original
option
price (p)
61.60
114.20
92.55
75.90
–
Date
Adjusted
from
Expiry
option
which
date
price (p)
exercisable
25.07.2016
52.45 26.07.2009
01.01.2017
97.24 02.01.2010
26.11.2017
27.11.2010
78.81
64.63
30.03.2018
31.03.2011
23.20 05.02.2013 04.02.2020
–
–
–
–
The performance conditions disclosed on pages 22 and 23 are included in this audited information section by reference.
The market value of shares at 31 March 2010, and the highest and lowest values, have been disclosed in Note 19 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. The Remuneration Committee considers this index to be an appropriate index for total shareholder return
and comparison disclosure as it represents a broad equity index of which the Company is a constituent.
300
250
200
150
100
50
0
Mar 05
Mar 06
Mar 07
Mar 08
Mar 09
Mar 10
Renold plc
FTSE All-Share/Industrial Engineering
Approved by the Board
Hannah Woodcock
Company Secretary
7 June 2010
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Annual Report and Accounts 2010 Renold plc
28 Directors’ report – Governance
Statement of Directors’ responsibilities
in relation to the Group financial statements
The Directors are responsible for preparing the annual report
and the Group financial statements in accordance with
applicable United Kingdom law and those IFRSs as adopted
by the European Union.
The Directors who were members of the Board at the time
of approving the Directors’ report are listed on page 16.
Having made enquiries of fellow Directors and of the
Company’s auditors, each of these Directors confirms that:
Under company law the Directors must not approve the Group
financial statements unless they are satisfied that they present
fairly the financial position, financial performance and cash flows
of the Group for that period. In preparing the Group financial
statements the Directors are required to:
• to the best of each Director’s knowledge and belief, there is
no information (that is, information needed by the Group’s
auditors in connection with preparing their report) of which
the Company’s auditors are unaware; and
• select suitable accounting policies in accordance with IAS 8:
Accounting Policies, Changes in Accounting Estimates and
Errors and then apply them consistently;
• present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
• provide additional disclosures when compliance with the
specific requirements in IFRSs 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;
• state that the Group has complied with IFRSs, subject to any
material departures disclosed and explained in the financial
statements; and
• make judgements and estimates that are reasonable
and prudent.
• each Director has taken all the steps a Director might reasonably
be expected to have taken to be aware of relevant audit
information and to establish that the Company’s auditors are
aware of that information.
Each of the Directors listed on page 16 confirms that to the best
of their knowledge:
• The financial statements, prepared in accordance with IFRS as
adopted by the European Union, give a true and fair view of
the assets, liabilities, financial position and (loss)/profit of the
Company and the undertakings included in the consolidation
taken as a whole; and
• The Directors’ report and the Business review include a fair
review of the development and performance of the business
and the position of the Company and the undertakings
included in the consolidation taken as a whole, together with
a description of the principal risks and uncertainties that
they face.
On behalf of the Board:
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The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group’s
transactions and disclose with reasonable accuracy at any time
the financial position of the Group and enable them to ensure
that the Group financial statements comply with the Companies
Act 2006 and Article 4 of the IAS Regulation. They are also
responsible for safeguarding the assets of the Group and hence
for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
Robert Davies
Chief Executive
Peter Bream
Finance Director
Renold plc Annual Report and Accounts 2010
Statutory information
Directors’ report – Governance 29
The Directors submit their report which incorporates the
management report required under the Financial Services
Authority’s Disclosure and Transparency rules for listed
companies, the Corporate Governance Report and the Group
financial statements as set out on pages 34 to 74. In compiling
this report, the Directors have consulted with the management
of the Company and its subsidiaries.
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.
At Board level, the most important key performance measures are:
Group
The Company is a public limited company incorporated in
England, registered number 249688, with its registered office at
Renold House, Styal Road, Wythenshawe, Manchester M22 5WL.
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 torque transmission products.
A summary of the principal undertakings of the Group are set out
in Note xiii to the Company financial statements.
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
Loss for the year ended 31 March 2010 before tax is £13.6 million
compared with a profit of £2.9 million for the year ended 31 March
2009. The loss for the year is £9.7 million (a profit of £2.1 million
for the year ended 31 March 2009).
Key performance indicators (KPIs)
Performance in the current and prior years is summarised
as follows:
Operating (loss)/profit before
exceptional items
Return on sales1
Average working capital
as a percentage of sales2
Low cost countries’ direct labour3
Adjusted (loss)/earnings per share4
Group reportable injury rate (RIR)5
2010
2009
£(2.1)m
(1.3)%
£10.0m
5.1%
27%
–
(1.4)p
1,037
20%
59%
7.3p
1,818
1 Operating profit before exceptional items as a percentage of sales.
2 Working capital before the sum of inventories, trade and other receivables and
trade and other payables.
3 Low cost countries’ direct labour is no longer used as a KPI because the target
percentage was achieved during the year ended 31 March 2009 and is no longer
seen as a key metric for the business going forward so the figure is no longer
monitored on a monthly basis.
4 This is basic (loss)/earnings per share from continuing operations before
exceptional items after tax.
5 The RIR has been included as a KPI as the Group takes the health and safety of
its employees very seriously and wishes to demonstrate its commitment to this.
The RIR is calculated by dividing the number of reportable injuries in a rolling
12 month period by the year to date average number of Group employees and
multiplying by 100,000. The figures therefore show an improving trend to the
Group’s health and safety record.
• operating profit before exceptional items;
• return on sales;
• working capital as a percentage of sales, being net working
capital as a percentage of sales;
• adjusted EPS, being basic EPS adjusted for the after tax effects
of exceptional items; and
• the Group RIR.
Directors
The Directors’ biographical details can be found on page 16.
All Directors were Directors throughout the year.6
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.
Accordingly, Ian Griffiths will retire and offer himself for election
at the Annual General Meeting.
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 20.
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 Annual
General Meeting, John Allkins will retire and offer himself for
re-election by shareholders in accordance with the Company’s
articles of association.
Directors’ interests
Details of the interests of the Directors and their connected
persons in the Company’s 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 21 to 27. No Director had any
interests in contracts of significance in relation to the
Company’s business during the year.
Directors’ and officers’ liability insurance
Liability insurance for Directors and officers was maintained
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.
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6 With the exception of Ian Griffiths, who was appointed to the Board
on 13 January 2010.
Annual Report and Accounts 2010 Renold plc
30 Directors’ report – Governance
Statutory information
continued
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.
The basis on which this conclusion has been reached is set out
on page 34.
Statement of Directors’ responsibilities
Please refer to page 28 for the statement of Directors’
responsibilities in relation to the Group financial statements.
Employees
As at 31 March 2010, the Group employed 2,257 people, including
571 in the UK.
Employment policies
Arrangements for consulting and involving Group 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.
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.
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Group policy is to ensure that disabled applicants for employment
are given full and fair consideration having regard to their
particular aptitudes and abilities, and that existing disabled
employees are given equal access to training, career development
and promotion opportunities. In the event of existing employees
becoming disabled, all reasonable means would be explored to
achieve retention in employment in the same or an alternative
capacity, including arranging appropriate training.
UK pension schemes
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 the Company. 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 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.
Renold plc Annual Report and Accounts 2010
Neither the Chairman nor the 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.
The Group 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
Following the completion of the capital reorganisation and
share issue in December 2009, as detailed on page 86, and as
at 31 March 2010, the issued share capital of the Company was
£26,971,657.75 divided into 219,564,703 ordinary shares of 5 pence
each, 580,482 units of 6% cumulative preference stock of £1 each
and 77,064,703 deferred shares of 20 pence each. The ordinary
shares of 5 pence each represent 40.70%, the 6% cumulative
preference stock of £1 each represent 2.15% and the deferred
shares of 20 pence each represent 57.14% of the Company’s total
share capital. The Company’s ordinary shares and 6% cumulative
preference stock are listed on the London Stock Exchange. The
deferred shares have no voting or dividend rights and are not
able to be traded. At the 2009 Annual General Meeting, the
requirement for the Company to have an authorised share capital
was removed from the articles of association with effect from
1 October 2009.
The Company obtained shareholder authority at the 2009 annual
general meeting to make market purchases of up to 7,706,470
ordinary shares, which remains outstanding until the conclusion
of the Annual General Meeting. The minimum price which must
be paid for such shares is 5 pence 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 the date 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 21,956,470 of its own ordinary shares (which represents
approximately 10% of the Company’s ordinary share capital
as at the date of this report) either to be cancelled or retained
as treasury shares.
Details of the Company’s share capital and any changes during
the year are set out in Note 18 to the financial statements on
page 64.
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.
Directors’ report – Governance 31
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.
Participants in employee share schemes have no voting or other
rights in respect of the shares subject to those awards until the
options are exercised, at which time the shares rank pari passu in
all respects with shares already in issue. No such schemes carry
any special rights with regard to control of the Company.
In August 2009, warrants were granted to West Register
(Investments) Limited and Fortis Bank, UK Branch over an
aggregate number of 3,500,000 ordinary shares in the capital of
the Company (circa 4.3% of the existing ordinary share capital of
the Company at that time). The warrant holders have no rights
to vote at general meetings of the Company unless and until they
exercise their subscription rights under the terms of the warrant
instruments and shares in the Company are issued to them.
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 notice issued under section 793 of the Companies
Act 2006.
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 are set out in the
Notice of Annual General Meeting which accompanies this report.
Major shareholdings
As at the date of this report, the Company had been notified of
the following major holdings of voting rights attached to its
ordinary shares under the Financial Services Authority’s Disclosure
and Transparency Rule 5:
Number
of voting
rights
Shareholder
32,323,668
Prudential plc group of companies
26,498,844
Gartmore Investment Limited
24,688,990
Hanover Investors Limited
11,033,816
Henderson Global Investors Limited
Lowland Investment Company plc
10,792,266
Cazenove Capital Management Limited 10,591,636
9,933,956
Hargreave Hale Limited
% of total
number
of voting
rights
14.72
12.07
11.24
5.03
4.92
4.82
4.52
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 dividend policy are set out on page 40.
The Board has decided to recommend that no ordinary dividend
be paid, but it will consider future dividend policy in the light of
results from the business going forward.
Preference dividend payments were made on 1 July 2009 and
1 January 2010.
Directors’ rights in respect of shares
The Board, which is responsible for the management of the
Company’s business, may exercise all the powers of the
Company subject to the provisions of relevant legislation and
the Company’s 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 option
schemes of the Company be limited to shares with a nominal
value of £963,308.75, being equal to 5% of the aggregate nominal
amount of the Company’s ordinary share capital in issue as at
the date of the Company’s 2009 annual general meeting. The
authority will expire at the forthcoming Annual General Meeting.
In addition, the Directors have authority to allot shares up
to a maximum nominal amount of £12,831,273 representing
approximately two-thirds of the issued ordinary share capital at the
date of passing of the relevant resolution. The authority will expire
at the forthcoming Annual General Meeting. The Directors will
seek authority from shareholders at the Annual General Meeting
to allot shares up to a maximum nominal amount of £7,311,504.60
representing approximately 66.6% of the issued ordinary 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 certificate
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 notice issued under section 793 of the
Companies Act 2006.
There are no other restrictions on the transfer of shares in the
Company other than certain restrictions which may from time
to time be imposed by laws and regulations (for example, insider
trading laws and market requirements relating to close periods)
and pursuant to the Financial Services Authority’s Listing Rules
whereby certain employees of the Company require the approval
of the Company to deal in the Company’s securities.
Annual Report and Accounts 2010 Renold plc
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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, other than those described under the section on change
of control provisions above, that require disclosure under the
enhanced Business review requirements of the Companies Act 2006.
Related party transactions
As part of the non pre-emptive part of the share issue on
December 2009, 8,096,935 new ordinary shares were allotted
and issued to M&G Investment Management, which constituted
a related party transaction for the purposes of Chapter 11 of the
Listing Rules. Consequently, the approval of shareholders to such
transaction was obtained at the general meeting of the Company
on 9 December 2009 and M&G Investment Management did not
vote on the relevant resolution approving such allotment.
Other related party transactions which took place during the
year ended 31 March 2010 are set out in Note xii to the Company
financial statements on page 84 which are incorporated by
reference here.
By order of the Board
Hannah Woodcock
Company Secretary
7 June 2010
32 Directors’ report – Governance
Statutory information
continued
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
Financial risk management objectives and policies, and exposure
to risk (including credit risk) are discussed in the Business review
on page 12, in the Directors’ report and in the Notes to the
financial statements on pages 68 and 72.
Policy on payment of suppliers
Under the supervision of the head office of the Company,
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
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 2010, trade creditors of the Group’s businesses in
the UK and overseas represented 110 days’ purchases, compared
with 97 last year.
Donations
During the year, the Group made no contributions to UK
organisations for charitable purposes nor any political donations.
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
L. G. Balakrishnan & Bros Ltd, Renold International Holdings
Limited and Renold Chain India Private Limited 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.
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Renold plc Annual Report and Accounts 2010
Report of the independent auditors
Financial statements 33
To the members of Renold plc
We have audited the Group financial statements of Renold plc
for the year ended 31 March 2010 which comprise the
Consolidated Income Statement, the Consolidated Statement
of Comprehensive Income, the Consolidated Balance Sheet, the
Consolidated Statement of Changes in Equity, the Consolidated
Statement of Cash flows, the Accounting policies and the related
notes 1 to 25. The financial reporting framework that has been
applied in their preparation is applicable law and IFRSs as adopted
by the European Union.
This report is made solely to the Company’s members, as a body,
in accordance with chapter 3 of part 16 of the Companies Act
2006. 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
As explained more fully in the Statement of Directors’
Responsibilities in relation to the Group financial statements set
out on page 28, the Directors are responsible for the preparation
of the Group financial statements and for being satisfied that
they give a true and fair view. Our responsibility is to audit the
Group financial statements in accordance with applicable law
and International Standards on Auditing (UK and Ireland).
Those standards require us to comply with the Auditing
Practices Board’s Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts
and disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free
from material misstatement, whether caused by fraud or error.
This includes an assessment of:
• whether the accounting policies are appropriate to the
Group’s circumstances and have been consistently applied
and adequately disclosed;
• the reasonableness of significant accounting estimates
made by the Directors; and
• the overall presentation of the financial statements.
Opinion on financial statements
In our opinion the Group financial statements:
• give a true and fair view of the state of the Group’s affairs
as at 31 March 2010 and of its loss for the year then ended;
• have been properly prepared in accordance with IFRSs as
adopted by the European Union; and
• have been prepared in accordance with the requirements of the
Companies Act 2006 and Article 4 of the IAS Regulation.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Directors’ report for
the financial year for which the Group financial statements are
prepared is consistent with the Group financial statements.
Matters on which we are required to report by exception
Under the Companies Act 2006, we are required to report to you
if, in our opinion:
• certain disclosures of Directors’ remuneration specified by law
are not made; or
• we have not received all the information and explanations we
require for our audit.
Under the Listing Rules, we are required to review:
• the Directors’ statement, set out on page 30, in relation
to going concern; and
• the part of the Corporate Governance section of the Directors’
report relating to the Company’s compliance with the nine
provisions of the Combined Code specified for our review.
Other matter
We have reported separately on the parent company financial
statements of Renold plc for the year ended 31 March 2010 and
on the information in the Directors’ remuneration report that
is described as having been audited.
Eamonn McGrath
(Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
Manchester
7 June 2010
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Annual Report and Accounts 2010 Renold plc
34 Financial statements
Accounting policies
Basis of preparation
Renold plc is a public limited company incorporated and domiciled
in the United Kingdom. The consolidated financial statements of
the Company comprise the Company and its subsidiaries
(together referred to as the Group). The Company financial
statements present information about the Company as a
separate entity and not about the Group. The consolidated
financial statements have been prepared in accordance with
International Financial Reporting Standards as adopted by the
EU (IFRSs). In addition, the financial statements have been
prepared in accordance with those parts of the Companies
Act 2006 applicable to groups reporting under IFRS.
The Company has elected to prepare its Company financial
statements in accordance with UK GAAP; these are presented
on pages 75 to 85. The financial statements were approved
by the Board on 7 June 2010.
The Group financial statements are presented in Sterling and all
values are rounded to the nearest million pounds (£m) except
when otherwise stated.
Going concern
The financial statements have been prepared on a going concern
basis. In determining the appropriate basis of preparation of the
financial statements, the Directors are required to consider
whether the Group can continue in operational existence for the
foreseeable future.
Further information in relation to the Group’s business activities,
together with the factors likely to affect its future development,
performance and position is set out in the Directors’ report on
pages 9 to 15.
The financial position of the Group, its cash flows, liquidity
position and borrowing facilities are described in the Business
review. In addition Note 24 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 12, 13 and 23 to the financial statements.
The Directors have assessed the future funding requirements
of the Group and the Company and compared them to the
level of available borrowing facilities. The assessment included
a detailed review of financial forecasts, financial instruments
and hedging arrangements for at least the 12 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 projections, taking account of reasonably possible
scenarios, show that the Group should be able to operate within
the level of its borrowing facilities and covenants.
Having undertaken this work, the Directors are of the opinion that
the Company and the Group have adequate resources to continue
in operational existence for the foreseeable future. Accordingly
they continue to adopt the going concern basis in preparing the
annual report and financial statements.
Renold plc Annual Report and Accounts 2010
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.
Amendment to IFRS 2 – Share-based Payment: Vesting
Conditions and Cancellations
Amendment to IFRS 7 – Improving Disclosures about
Financial Instruments
IFRS 8
– Operating Segments
IAS 1 (Revised)
– Presentation of Financial Statements
Amendments to IAS 23 – Borrowing Costs
IAS 39 and IFRS 7
– Reclassification of Financial Assets
effective 1 July 2008
Amendments to
IFRIC 9 and IAS 39
– Embedded Derivatives effective for
periods ending on or after 30 June 2009
IFRIC 16
– Hedges of a Net Investment in
a Foreign Operation effective
1 October 2008
Improvements to IFRSs (issued May 2008).
Adoption of these standards and interpretations did not have a
material impact on the Group’s results or financial position but
IAS 1, IFRS 7 and IFRS 8 did give rise to additional or changes in
disclosures in the Group’s financial statements.
The Group has not adopted the following pronouncements,
which have been issued by the IASB but are not effective for the
year ended 31 March 2010.
International Accounting Standards (IAS/IFRSs)
IAS 24
– Related Party Disclosures
Effective date1
1 January 2011
IAS 27
– Consolidated and Separate
1 July 2009
Financial Statements (revised)
IFRS 3
– Business Combinations (revised)
1 July 2009
IFRS 9
– Financial Instruments:
1 January 2013
Classification and Measurement
IFRIC 18
– Transfer of Assets from Customers
1 July 2009
IFRIC 19
– Extinguishing Financial Liabilities
1 July 2010
with Equity Instruments
– Improvements to IFRSs (issued
Various dates
April 2009 and May 2010)
1 The effective dates stated above are those given in the original IASB/IFRIC standards
and interpretations. As the Group prepares its financial statements in accordance
with IFRS as adopted by the European Union, the application of new standards and
interpretations will be subject to their having being endorsed for use in the EU via the
EU endorsement mechanism. In the majority of cases this will result in an effective
date consistent with that given in the original standard or interpretation but the
need for endorsements restricts the Group’s discretion to early adopt standards.
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Financial statements 35
Management does not expect that these standards will have
a material impact on the Group’s results or financial position.
However, IFRS 3 (revised) will impact the recognition of goodwill,
acquisition costs and contingent consideration for acquisitions
made after adoption.
Basis of consolidation – The consolidated financial statements
incorporate the financial statements of the Company and
enterprises controlled by the Company (its subsidiaries). 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.
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, the excess is recognised immediately as a gain
in the income statement.
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, Renold plc.
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 other comprehensive income.
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.
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 programs 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.
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Annual Report and Accounts 2010 Renold plc
36 Financial statements
Accounting policies
continued
Depreciation is calculated on a straight-line basis so as to charge
the depreciable amount of the respective assets 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.
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 its
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% straight-line.
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.
Where the carrying amount of an asset is greater than its
estimated recoverable amount, it is written down immediately
to its recoverable amount.
Taxation – The tax charge comprises current tax payable and
deferred tax.
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 the 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.
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.
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Renold plc Annual Report and Accounts 2010
Financial statements 37
Deferred income tax relating to items recognised directly in other
comprehensive income is recognised in other comprehensive
income and not the income statement. Similarly, income tax
is charged or credited to other comprehensive income if it
relates to items that are credited or charged directly to other
comprehensive income. Otherwise income tax is recognised
in 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 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.
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
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 market place. 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 is 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.
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38 Financial statements
Accounting policies
continued
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
includes 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 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 Other Comprehensive Income 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. No expense is recognised for
awards that do not ultimately vest except for awards where
vesting is conditional upon market or non-vesting conditions
which are treated as vesting irrespective of whether or not the
market or non-vesting condition is satisfied provided that all
other performance or service conditions are satisfied. The
Black-Scholes pricing model is adjusted as necessary for market
and non-vesting conditions. The market-based conditions are
linked to the price of shares of the Company.
Where the terms of an equity-settled award are modified or
a new award is designated as replacing a cancelled or settled
award, the cost based on the original award terms continues
to be recognised over the original vesting period. In addition, an
expense is recognised over the remainder of the new vesting
period for the incremental fair value of any modification, based
on the difference between the fair value of the original award
and the fair value of the modified award, both as measured on
the date of the modification. No reduction is recognised if this
difference is negative.
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.
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Financial statements 39
Financial instruments
The Group uses derivative financial instruments such as forward
currency contracts to hedge its risks associated with foreign
currency 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.
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 in other comprehensive income 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.
The fair value of forward currency contracts is calculated by
reference to current forward exchange rates for contracts with
similar maturity profiles.
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 other
comprehensive income, while the ineffective portion is
recognised in the income statement. Amounts taken to other
comprehensive income 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 other comprehensive income 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 other comprehensive income 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.
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 6% cumulative preference stock of
£1 each have been classified as liabilities. Dividends payable 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 directly attributable to
the acquisition, construction or production of an asset that
necessarily takes a substantial period of time to get ready for its
intended use or sale are capitalised as part of the costs of the
respective assets. All other borrowing costs are expensed in the
period they occur. Borrowing costs consist of interest and other
costs that an entity incurs in connection with the borrowing
of funds.
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, 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.
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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 7.
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 that could
require a material adjustment to the carrying amounts. Further
details are contained in Note 16.
c) Retirement benefit obligations
The cost 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 17.
40 Financial statements
Accounting policies
continued
Assets held for sale and discontinued operations (continued)
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
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.
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.
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Renold plc Annual Report and Accounts 2010
Consolidated income statement
for the year ended 31 March 2010
Revenue
Operating costs
Operating (loss)/profit
Operating (loss)/profit before exceptional items
Exceptional items
Operating (loss)/profit
Financial costs
Financial revenue
Exceptional refinancing costs
Net financing costs
(Loss)/profit before tax
Taxation
(Loss)/profit for the financial year
Attributable to:
Owners of the parent
Minority interests
(Loss)/earnings per share
Basic (loss)/earnings per share
Diluted (loss)/earnings per share
Adjusted (loss)/earnings per share1
Diluted adjusted (loss)/earnings per share1
1 Adjusted for the after tax effects of exceptional items and the IAS 19 charge.
Financial statements 41
Note
1
2
2
2
3
4
5
2010
£m
156.1
(160.9)
(4.8)
(2.1)
(2.7)
(4.8)
(15.7)
9.7
(2.8) –
(8.8)
(13.6)
3.9
(9.7)
(9.6)
(0.1) –
(9.7)
(8.0)p
(8.0)p
(1.4)p
(1.4)p
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
2.8p
2.8p
7.3p
7.3p
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Annual Report and Accounts 2010 Renold plc
42 Financial statements
Consolidated statement of comprehensive income
for the year ended 31 March 2010
(Loss)/profit for the year
Other comprehensive income/(expense):
Reclassification of losses on cash flow hedges to the income statement
Net gains/(losses) on cash flow hedges
Foreign exchange translation differences
Foreign exchange differences on borrowings
Foreign exchange differences on loans forming part of the net investment in foreign operations
Actuarial losses on retirement benefit obligations
Actuarial gain on retirement benefit obligation – restriction removed
Tax on components of other comprehensive income
Other comprehensive expense for the year, net of tax
Total comprehensive expense for the year, net of tax
Attributable to:
Owners of the parent
Minority interest
2010
£m
(9.7)
0.1
2.7
1.2
–
(1.8)
(21.5)
1.5 –
4.9
(12.9)
(22.6)
(22.5)
(0.1) –
(22.6)
2009
£m
2.1
0.5
(1.8)
3.4
(2.6)
8.1
(22.3)
4.6
(10.1)
(8.0)
(8.0)
(8.0)
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Renold plc Annual Report and Accounts 2010
Consolidated balance sheet
as at 31 March 2010
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
Retirement benefit surplus
Current tax asset
Cash and cash equivalents
TOTAL ASSETS
LIABILITIES
Current liabilities
Borrowings
Trade and other payables
Current tax
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 7 June 2010 and signed on its behalf by:
Matthew Peacock
Chairman
Robert Davies
Director
Financial statements 43
Note
2010
£m
2009
£m
7
7
8
9
11
16
10
11
17
12
13
14
24
15
13
15
13
14
16
17
18
20
20
20
23.5
1.6
49.9
2.1
0.4
22.9
100.4
42.9
28.3
1.5 –
–
7.3
80.0
180.4
(13.4)
(33.0)
(0.2) –
(0.2)
(0.6)
(47.4)
32.6
(11.3)
(0.5)
(0.5)
(0.5)
(0.9)
(74.5)
(88.2)
(135.6)
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)
44.8
40.1
26.4
29.4
7.0
0.9
(20.7)
43.0
1.8
44.8
19.3
9.6
7.6
(1.9)
3.9
38.5
1.6
40.1
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Annual Report and Accounts 2010 Renold plc
44 Financial statements
Consolidated statement of changes in equity
for the year ended 31 March 2010
At 1 April 2008
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Proceeds from share placing
Associated costs of placing
Employee share options:
– value of employee services
Minority interests arising on acquisition
At 31 March 2009
Loss for the year
Other comprehensive income
Total comprehensive income for the year
Proceeds from share placing
Associated costs of placing
Employee share options:
– value of employee services
Proceeds from minority interests
At 31 March 2010
Share
capital
£m
Note 18
17.5
–
–
–
1.8
–
–
–
19.3
–
–
–
7.1
–
–
–
26.4
Share
premium
account
£m
6.3
–
–
–
3.5
(0.2)
–
–
9.6
–
–
–
21.4
(1.6)
–
–
29.4
Retained
earnings
£m
Note 20
19.1
Currency
translation
reserve
£m
Note 20
(1.3)
Other
reserves
£m
Note 20
(0.6)
2.1
(17.7)
(15.6)
–
–
0.4
–
3.9
(9.6)
(15.1)
(24.7)
–
–
0.1
–
(20.7)
–
8.9
8.9
–
–
–
–
7.6
–
(0.6)
(0.6)
–
–
–
–
7.0
–
(1.3)
(1.3)
–
–
–
–
(1.9)
–
2.8
2.8
–
–
–
–
0.9
Minority
interests
£m
Total
equity
£m
–
–
–
–
–
–
–
1.6
1.6
(0.1)
–
(0.1)
–
–
–
0.3
1.8
41.0
2.1
(10.1)
(8.0)
5.3
(0.2)
0.4
1.6
40.1
(9.7)
(12.9)
(22.6)
28.5
(1.6)
0.1
0.3
44.8
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Renold plc Annual Report and Accounts 2010
Consolidated statement of cash flows
for the year ended 31 March 2010
Cash flows from operating activities (Note 23)
Cash generated from operations
Income taxes refunded/(paid)
Net cash from operating activities
Cash flows from investing activities
Acquisition of subsidiary undertaking (Note 25)
Purchase of property, plant and equipment
Purchase of intangible assets
Proceeds on disposal of property, plant and equipment
Proceeds from minority interests capital injection
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 12)
Financial statements 45
–
2010
£m
0.9
1.0
1.9
(0.5)
(3.3)
(0.9)
0.3 –
–
(4.4)
(5.6)
3.0
(24.0)
26.9
(0.1)
0.2
(2.3)
8.6
(0.4)
5.9
2009
£m
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
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46 Financial statements
Notes to the consolidated financial statements
1. Segmental information
For management purposes, the Group is organised into business units according to the nature of their products and services. Having
considered the management reporting and organisational structure of the Group, the Directors’ have concluded that the Company
has two reportable operating segments as follows:
• The Chain segment manufactures and sells power transmission and conveyor chain and also includes sales of Torque Transmission
product through Chain national sales centres (NSC);
• The Torque Transmission segment manufactures and sells torque transmission products such as gearboxes and couplings used
in power transmission.
No operating segments have been aggregated to form the above reportable segments.
Management monitors the operating results of its business units separately for the purpose of making decisions about resource
allocation and performance assessment. The Chief Operating Decision Maker (CODM) for the purposes of IFRS 8 – Operating Segment
is considered to be the Board of Directors. Segment performance is evaluated based on operating profit and loss and is measured
consistently with operating profit and loss in the consolidated financial statements. However, Group financing (including finance
costs and finance income), retirement benefit obligations and income taxes are managed on a Group basis and are not allocated
to operating segments.
Transfer prices between operating segments are on an arm’s length basis in a manner similar to transactions with third parties.
Adjustments
and
Torque
Year ended 31 March 2010
Revenue
External customer
Inter-segment
Total revenue
Operating (loss)/profit before exceptional items
Exceptional operating costs
Segment operating (loss)/profit
Net financing costs
Loss before tax
Other disclosures
Inventories
Capital expenditure
Depreciation and amortisation
Chain Transmission eliminations Consolidated
£m
£m
£m
£m
111.2
0.4
111.6
(7.4)
(2.2)
(9.6)
33.8
3.3
4.1
44.9
5.3
50.2
3.0
(0.3)
2.7
9.1
0.9
0.9
–
(5.7)
(5.7)
2.3
(0.2)
2.1
–
–
–
156.1
–
156.1
(2.1)
(2.7)
(4.8)
(8.8)
(13.6)
42.9
4.2
5.0
i. Inter-segment revenues are eliminated on consolidation;
ii. Segment operating results do not include certain Head Office income of £2.1 million;
iii. Capital expenditure consists of additions to property, plant and equipment, and intangible assets;
iv. Included in Chain external sales is £9.7 million of Torque Transmission product sold through the Chain NSCs. The Torque Transmission
businesses may use the Chain NSC framework in countries where it does not have its own presence. Where this occurs Torque
Transmission represents a low proportion of total sales for the NSC;
v. The measurement of segment assets reviewed by the CODM is inventories.
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Renold plc Annual Report and Accounts 2010
Financial statements 47
Adjustments
and
Torque
Chain Transmission eliminations Consolidated
£m
£m
£m
£m
142.1
0.2
142.3
2.2
(2.1)
0.1
36.5
3.9
3.8
52.6
7.3
59.9
6.3
(0.2)
6.1
9.9
1.9
0.9
–
(7.5)
(7.5)
1.5
(0.1)
1.4
–
–
–
194.7
–
194.7
10.0
(2.4)
7.6
(4.7)
2.9
46.4
5.8
4.7
1. Segmental information (continued)
Year ended 31 March 2009
Revenue
External customer
Inter-segment
Total revenue
Operating profit before exceptional items
Exceptional operating costs
Segment operating profit/(loss)
Net financing costs
Profit before tax
Other disclosures
Inventories
Capital expenditure
Depreciation and amortisation
i. Inter-segment revenues are eliminated on consolidation;
ii. Segment operating results do not include certain Head Office income of £1.4 million;
iii. Capital expenditure consists of additions to property, plant and equipment, and intangible assets;
iv. Included in Chain external sales is £13.1 million of Torque Transmission product sold through the Chain NSCs. The Torque Transmission
businesses may use the Chain NSC framework in countries where it does not have its own presence. Where this occurs Torque
Transmission represents a low proportion of total sales for the NSC;
v. The measurement of segment assets reviewed by the CODM is inventories.
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
• US
• Other countries
The sales analysis in the table below is based on the location of the customer; the analysis of non-current assets is based on the
location of the assets:
Revenues from external customers
United Kingdom
Rest of Europe
US
Other countries
All revenue relates to the sale of goods.
No individual customer, or group of customers, represents more than 10% of Group revenue (2009 – none).
Non-current assets (excluding deferred tax and other non-current assets)
United Kingdom
Rest of Europe
US
Other countries
2010
£m
14.7
44.3
47.7
49.4
156.1
2010
£m
12.5
15.8
26.3
22.5
77.1
2009
£m
19.9
63.9
61.5
49.4
194.7
2009
£m
11.5
17.6
28.2
21.6
78.9
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Non-current assets consist of goodwill, other intangible assets, property, plant and equipment and investment property.
Annual Report and Accounts 2010 Renold plc
48 Financial statements
Notes to the consolidated financial statements
continued
2. Operating costs and exceptional items
(a) Operating (loss)/profit is stated after charging/(crediting):
Change in inventory of finished goods and work in progress
Other operating income
Raw materials and consumables
Other external charges
Employee costs
Gross wages and salaries
Social security costs
Pension costs – Defined benefit (Note 17)
– Defined contribution (Note 17)
Cost of share-based incentive plans
Depreciation of property, plant and equipment
– owned assets
– leased assets
Amortisation of intangible assets
Operating leases – minimum lease payments
– plant and machinery
– property
Loss/(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
2010
£m
£m
2.9
(2.4)
66.7
25.0
48.4
7.8
(0.5)
1.0
0.1
0.5
2.0
56.8
4.5
0.1
0.4
2.5
0.5
0.4
0.6
0.2
–
2.7
160.9
£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
2009
£000
Total
68
253
321
96
29
142
588
588
588
54.1
8.6
1.1
0.7
0.4
0.4
1.9
2010
£000
Total
64
241
305
247
924
103
1,579
798 –
126 –
655
1,579
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
This is analysed in the following captions in the financial statements:
Exceptional financing costs
Share premium
Operating costs
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In the year ended 31 March 2010, the Group’s auditors also received fees of £30,000 for audit services provided to Group pension
schemes (2009 – £30,000). These were the only services provided to the pension schemes.
Renold plc Annual Report and Accounts 2010
2. Operating costs and exceptional items (continued)
c) Exceptional items
Included in operating costs
Reorganisation and redundancy costs
Financial statements 49
2010
£m
2.7
2.7
2009
£m
2.4
2.4
Exceptional costs associated with the restructuring of the Group’s manufacturing and distribution facilities have originated as follows:
UK £1.2 million (2009 – £0.5 million), Germany £0.1 million (2009 – £0.6 million), Poland £0.7 million (2009 – £0.6 million) and other
countries £0.7 million (2009 – £0.7 million).
Included in net financing costs
Costs associated with refinancing
2010
£m
2009
£m
2.8 –
2.8 –
Exceptional refinancing costs include professional fees of £1.5 million, warranty waiver fee of £0.3 million, bank arrangement fee of
£0.6 million, and the fair value of the warrants over shares of £0.4 million.
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
2010
£000
602
70
67
739
2009
£000
668
70
162
900
Further details of the remuneration of Directors are provided in the auditable part of the Directors’ remuneration report on
pages 21 to 27.
During the year key management personnel subscribed for 12,310,449 shares at 20 pence per share under the December 2009 share
issue, as detailed in Note 18. This includes shares which were subscribed for by Hanover Investors Limited, which are held beneficially
for Matthew Peacock, an entity over which Matthew Peacock exercises significant influence.
During the year commissions and fees of £978,000 were paid in relation to the December 2009 share issue, as detailed in Note 18,
to Singer Capital Markets Limited, an entity of which Matthew Peacock is the Chairman.
The average monthly number of persons employed by the Group during the year was:
United Kingdom
Rest of Europe
US
Other countries
2010
591
368
288
909
2,156
2009
700
604
381
945
2,630
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Annual Report and Accounts 2010 Renold plc
50 Financial statements
Notes to the consolidated financial statements
continued
3. Net financing costs
Financial costs:
Interest payable on bank loans and overdrafts
Costs associated with refinancing – old arrangement
Interest cost on financial liabilities not at fair value through the income statement
Interest cost on pension plan balances
Exceptional financing costs:
Costs associated with refinancing
Total financing costs
Financial revenue:
Interest receivable on bank deposits and cash equivalents
Interest income on financial assets not at fair value through the income statement
Ineffectiveness of net investment hedge
Expected return on pension plan assets
Total financial revenue
Net financing costs
£m
(2.6)
(0.2)
–
2010
£m
(2.8)
(12.9)
(15.7)
(2.8)
(18.5)
–
0.6
9.1
9.7
(8.8)
4. Taxation
Analysis of tax (credit)/charge in the year
United Kingdom
UK corporation tax at 28% (2009 – 28%)
Less: double taxation relief
Overseas taxes
Corporation taxes
Current income tax (credit)/charge
Deferred tax
UK – origination and reversal of temporary differences
Overseas – origination and reversal of temporary differences
Total deferred tax credit
Tax (credit)/charge on (loss)/profit on ordinary activities
Tax on items taken directly to equity
Deferred tax on pension plan balances
Deferred tax on other direct movements in reserves
Tax charge in the statement of other comprehensive income
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Renold plc Annual Report and Accounts 2010
£m
(2.8)
(0.2)
–
0.1
–
2009
£m
(3.0)
(13.0)
(16.0)
(16.0)
0.1
11.2
11.3
(4.7)
2010
£m
2009
£m
0.2
(0.2)
– –
(0.2)
(0.2)
(0.5)
(3.2)
(3.7)
(3.9)
2010
£m
4.9
–
4.9
0.2
(0.2)
0.9
0.9
0.2
(0.3)
(0.1)
0.8
2009
£m
5.5
(0.9)
4.6
Financial statements 51
4. Taxation (continued)
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 more than (2009 – the same as) the standard rate of corporation tax in the UK of 28% (2009 – 28%).
The differences are explained below:
(Loss)/profit on ordinary activities before tax
Tax on ordinary activities at 28% (2009 – 28%)
Effects of:
Permanent differences
Overseas tax rate differences
Utilisation of brought forward unrecognised tax losses
Other temporary differences
Adjustments in respect of prior periods
Total tax (credit)/charge
2010
£m
(13.6)
(3.8)
0.6
(0.5)
(1.2)
1.2
(0.2)
(3.9)
2009
£m
2.9
0.8
0.2
0.4
(0.6)
0.2
(0.2)
0.8
5. (Loss)/earnings per share
(Loss)/earnings per share (EPS) are calculated by reference to the earnings for the year and the weighted average number of shares in
issue during the year as follows:
2010
Weighted
average
(Loss)/ number of
shares
£m (Thousands)
earnings
2009
Weighted
average
number of
shares
£m (Thousands)
Earnings
Per
share
amount
(p)
Per
share
amount
(p)
Basic EPS
(Loss)/earnings attributed to ordinary shareholders
(9.7)
120,520
(8.0)
2.1
74,363
Effect of dilutive securities:
Employee share options
Diluted EPS
Adjusted EPS
Basic EPS
Effect of exceptional items, after tax:
Redundancy and restructuring
Exceptional financing costs
Net finance costs arising on pension plan assets
Adjusted EPS
–
(9.7)
120,520
(9.7)
120,520
2.5
2.8
2.7
(1.7)
120,520
–
(8.0)
(8.0)
2.1
2.3
2.2
(1.4)
–
2.1
2.1
2.0
–
1.3
5.4
17
74,380
74,363
74,363
2.8
–
2.8
2.8
2.7
–
1.8
7.3
Inclusion of the dilutive securities, shown above, in the calculation of adjusted EPS does not change the amounts shown above
(2009 – no change).
Warrants over 3,500,000 ordinary shares of 5 pence each issued during the year ended 31 March 2010 have been excluded from the
EPS calculation above on the grounds that these are anti-dilutory. Further details relating to the warrants can be found in Note 14.
The adjusted EPS numbers have been provided in order to give a useful indication of underlying performance by the exclusion of
exceptional items.
6. Dividends
No ordinary dividend payments were paid or proposed in either the current or prior year.
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Annual Report and Accounts 2010 Renold plc
52 Financial statements
Notes to the consolidated financial statements
continued
7. Intangible assets
Cost
At 1 April 2009
Exchange adjustment
Additions
Disposals
At 31 March 2010
Accumulated amortisation and impairment
At 1 April 2009
Amortisation charge
Disposals
At 31 March 2010
Net book amount at 31 March 2010
Net book amount at 31 March 2009
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
Goodwill
£m
Computer
software
£m
24.5
(1.0)
–
–
23.5
–
–
–
–
23.5
24.5
3.7
–
0.9
(0.2)
4.4
2.6
0.4
(0.2)
2.8
1.6
1.1
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
Total
£m
28.2
(1.0)
0.9
(0.2)
27.9
2.6
0.4
(0.2)
2.8
25.1
25.6
Total
£m
19.6
6.2
2.4
28.2
2.1
0.2
0.3
2.6
25.6
17.5
Goodwill is tested for impairment at least annually and following that exercise in 2010 no impairment charge has been recognised
in the period (2009 – £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, US
Renold Hangzhou, China
Ace Chains, Australia
Renold Chain India
2010
£m
19.1
1.5
0.5
2.4
23.5
2009
£m
20.4
1.5
0.4
2.2
24.5
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 as follows:
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Renold plc Annual Report and Accounts 2010
Financial statements 53
7. Intangible assets (continued)
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 CGUs profitability at the level of sales and incorporates the impact of
restructuring that took place during the year ended 31 March 2010.
Growth rates
Cash flows beyond the period of projections are extrapolated using the long term growth rate published by the OECD (Organisation
for Economic Co-operation and Development) for the territory in which the CGU is based.
Growth rate
Jeffrey Chain, US
Renold Hangzhou, China
Ace Chains, Australia
Renold Chain India
2010
% %
2009
3.0
8.1
3.7
7.0
3.1
8.1
3.7
7.0
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, US
Renold Hangzhou, China
Ace Chains, Australia
Renold Chain India
2010
% %
14.7
14.2
11.5
21.6
2009
13.4
14.6
11.4
23.5
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
Jeffrey Chain, Renold Hangzhou, Ace Chains or Renold Chain India to materially exceed each CGUs recoverable amount.
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Annual Report and Accounts 2010 Renold plc
54 Financial statements
Notes to the consolidated financial statements
continued
8. Property, plant and equipment
Cost
At 1 April 2009
Exchange adjustment
Additions
Disposals
At 31 March 2010
Aggregate depreciation
At 1 April 2009
Exchange adjustment
Charge for the year
Disposals
At 31 March 2010
Net book amount at 31 March 2010
Net book amount at 31 March 2009
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
Land and
Plant and
buildings equipment
£m
£m
22.2
0.8
0.3
–
23.3
2.8
–
0.4
–
3.2
20.1
19.4
123.5
(1.2)
3.0
(4.2)
121.1
91.8
(1.0)
4.2
(3.7)
91.3
29.8
31.7
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
145.7
(0.4)
3.3
(4.2)
144.4
94.6
(1.0)
4.6
(3.7)
94.5
49.9
51.1
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
Net book amount for plant and equipment includes £0.2 million (2009 – £0.3 million) in respect of assets acquired under finance leases.
Future capital expenditure
At 31 March 2010 capital expenditure contracted for but not provided for in these accounts amounted to £0.8 million
(2009 – £0.8 million).
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Renold plc Annual Report and Accounts 2010
9. Investment property
Cost
At 1 April 2009
Exchange adjustment
As at 31 March 2010
Aggregate depreciation
At 1 April 2009
Charge for the year
At 31 March 2010
Net book amount at 31 March 2010
Net book amount at 31 March 2009
Cost
At 1 April 2008
Exchange adjustment
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
Financial statements 55
£m
2.3
(0.1)
2.2
0.1
–
0.1
2.1
2.2
2.0
0.3
2.3
0.1
–
0.1
2.2
1.9
The present lease of the Group’s 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 (2009 – £0.3 million).
The total future minimum lease payments under the non-cancellable term amount to £0.9 million (2009 – £0.3 million) and of this
£0.3 million (2009 – £0.2 million) is due in the next financial year and £0.6 million (2009 – £0.1 million) is due in the period after one
year but not later than five years from the balance sheet date.
The property has been accounted for on a cost model basis. The most recent valuation of the 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.
10. Inventories
Materials
Work in progress
Finished products
Inventories pledged as security for liabilities amounted to £14.7 million (2009 – £22.7 million).
Write-offs taken to the income statement amount to £1.0 million (2009 – £0.7 million).
2010
£m
6.6
9.9
26.4
42.9
2009
£m
7.6
9.1
29.7
46.4
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Annual Report and Accounts 2010 Renold plc
56 Financial statements
Notes to the consolidated financial statements
continued
11. Trade and other receivables
Trade receivables1
Less: provision for impairment of receivables
Trade receivables – net
Other receivables
Prepayments and accrued income
1 Financial assets carried at amortised cost.
2010
2010
2009
2009
Current Non-current Current Non-current
£m
–
–
–
0.3
0.1
0.4
£m
26.1
(0.7)
25.4
1.6
1.3
28.3
£m
33.8
(0.7)
33.1
2.0
2.0
37.1
£m
–
–
–
0.3
0.1
0.4
The Group has recognised a loss of £0.2 million (2009 – loss of £0.2 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 24(d) for credit risk policy.
As at 31 March, the ageing analysis of trade receivables is as follows:
Neither past
due nor
impaired
£m
20.9
28.4
Total
£m
25.4
33.1
2010
2009
Movement on impairment provision
Opening provision
Exchange adjustment
Net charge to income statement
Utilised in year through assets written off
Closing provision
12. Cash and cash equivalents
Cash at bank and in hand
Short term bank deposits
Cash and cash equivalents
Past due but not impaired
<30 days 30-60 days 60-90 days
£m
0.3
0.3
£m
0.8
0.9
£m
3.0
3.1
>90 days
£m
0.4
0.4
2010
£m
2009
£m
0.7
(0.1)
0.2
(0.1)
0.7
2010
£m
5.1
2.2
7.3
0.6
0.1
0.2
(0.2)
0.7
2009
£m
9.3
2.0
11.3
2009
£m
11.3
(2.7)
8.6
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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 13)
Net cash and cash equivalents
Renold plc Annual Report and Accounts 2010
2010
£m
7.3
(1.4)
5.9
13. 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 stock
Total borrowings (Note 24(d))
Financial statements 57
2010
£m
2009
£m
1.4
11.9
0.1
13.4
11.2
0.1
11.3
0.5
11.8
25.2
2.7
41.6
0.1
44.4
3.5
0.1
3.6
0.5
4.1
48.5
All financial liabilities, excluding finance lease obligations above, are carried at amortised cost.
Refinancing
On 13 July 2009, the Group reached agreement to enter into a three year bank facility with the existing bank syndicate members led
by The Royal Bank of Scotland plc, with Fortis Bank S.A./N.V. as a participant and the key terms of this new facility were effective from
13 August 2009. The key terms were a Multi Revolving Credit Facility (MRCF) of £20.0 million and a Multi Currency Term-Loan Facility (MTLF)
of £11.0 million with both facilities expiring on 30 June 2012. This facility was itself amended in December 2009 following the successful
share issue (see Note 18) with the repayment and cancellation of the £11.0 million MTLF and certain financial and non-financial covenants
were relaxed. The remaining £20.0 million MRCF is the Group’s principal credit facility although the Group also benefits from numerous
overseas facilities. At the year end the undrawn facility was £11.7 million.
The Group pays interest at Libor plus a variable margin in respect of the MRCF. The average rate of interest paid in the year was
LIBOR plus 3.375%. This facility has a number of financial and non-financial covenants which are tested on a quarterly basis.
Secured borrowings
Included in Group borrowings are secured borrowings of £16.9 million (2009 – £40.5 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
2010
£m
2009
£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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Annual Report and Accounts 2010 Renold plc
58 Financial statements
Notes to the consolidated financial statements
continued
13. Borrowings (continued)
Preference stock
At 31 March 2010 there were 580,482 units of 6% cumulative preference stock of £1 each in issue (2009 – 580,482).
All payments of dividends on the 6% cumulative preference stock have been paid on the due dates. The 6% cumulative preference stock
has the following rights:
i) a fixed cumulative preferential dividend at the rate of 6% per annum payable half yearly on 1 January and 1 July in each year;
ii)
rank both with regard to dividend (including any arrears 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) 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) no redemption entitlement.
There is no significant difference between the carrying value of financial liabilities and their equivalent fair value.
14. Trade and other payables
Trade payables1
Other tax and social security
Other payables
Accruals and deferred income
1 Financial liabilities carried at amortised cost.
2010
2010
Current Non-current
£m
–
–
–
0.5
0.5
£m
20.1
1.9
1.3
9.7
33.0
2009
2009
Current Non-current
£m
–
–
–
0.5
0.5
£m
22.9
2.3
1.4
11.0
37.6
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.
Other payables include £0.4 million (2009 – £nil) being the fair value of warrants issued to the Group’s lenders as part of the refinancing
that was completed in August 2009. The warrants are over 3,500,000 ordinary shares of 5 pence each and have a seven year term
commencing from 13 August 2009 during which they can be exercised at any time.
15. Provisions
At 1 April 2009
Exchange adjustment
Arising during the year
Utilised in year
At 31 March 2010
Allocated as:
Current provisions
Non-current provisions
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Renold plc Annual Report and Accounts 2010
Business Contingent
restructuring consideration
£m
1.5
0.1
–
(1.1)
0.5
£m
1.7
(0.2)
0.4
(1.3)
0.6
Other
provisions
£m
0.2
–
–
(0.2)
–
Total
provisions
£m
3.4
(0.1)
0.4
(2.6)
1.1
2010
£m
0.6
0.5
1.1
2009
£m
2.9
0.5
3.4
Financial statements 59
15. Provisions (continued)
Business restructuring
This provision relates to the reorganisation and restructuring of businesses and will be utilised within the next financial year.
Contingent consideration
Renold Chain India Private Limited – India
The contingent consideration following the acquisition of Renold Chain India Private Limited was finalised by the year end at £1.1 million.
This was fully paid in April 2010.
Renold (Hangzhou) Co Limited – China
A provision was established following the acquisition of 90% of the equity interest in Renold (Hangzhou) Co Limited in the period
ended 31 March 2008.
Other provisions
Provisions retained in respect of former discontinued operations have been utilised in the year.
16. Deferred tax
Accelerated capital allowances
Pension plans
Tax losses
Other temporary differences
Tax assets/(liabilities)
Net off (liabilities)/assets
Net deferred tax assets
Assets
Liabilities
Net
2010
£m
1.3
16.6
5.9
(0.9)
22.9
(0.9)
22.0
2009
£m
1.4
10.7
4.6
(2.5)
14.2
(0.9)
13.3 –
2010
£m
(0.3)
(0.4)
0.1
(0.3)
(0.9)
0.9
2009
£m
(1.5)
0.3
–
0.3
(0.9)
0.9
–
2010
£m
1.0
16.2
6.0
(1.2)
22.0
– –
22.0
2009
£m
(0.1)
11.0
4.6
(2.2)
13.3
13.3
The net deferred tax asset recoverable after more than one year is £22.0 million (2009 – £13.3 million).
The movement in the net deferred tax balance relating to assets is as follows:
2010
Accelerated capital allowances
Pension plans
Tax losses
Other temporary differences
2009
Accelerated capital allowances
Pension plans
Tax losses
Other temporary differences
Recognised
Recognised
directly
in other
Opening
Exchange
balance adjustments
£m
(0.1)
0.1
0.2
(0.2)
–
£m
1.4
10.7
4.6
(2.5)
14.2
in income comprehensive Closing
income balance
statement
£m
£m
–
1.3
0.5
16.6
1.1
5.9
1.8
(0.9)
3.4
22.9
£m
–
5.3
–
–
5.3
Recognised
Recognised
directly
in other
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
in income comprehensive Closing
income balance
statement
£m
£m
1.4
(1.1)
10.7
–
4.6
1.5
(2.5)
(0.5)
14.2
(0.1)
£m
–
5.5
–
(1.2)
4.3
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Annual Report and Accounts 2010 Renold plc
60 Financial statements
Notes to the consolidated financial statements
continued
16. Deferred tax (continued)
The movement in the net deferred tax balance relating to liabilities in the year is as follows:
2010
Accelerated capital allowances
Pension plans
Tax losses
Other temporary differences
2009
Accelerated capital allowances
Pension plans
Tax losses
Other temporary differences
Recognised
Recognised
directly
in other
Opening
Exchange
balance adjustments
£m
0.2
(0.1)
–
–
0.1
£m
(1.5)
0.3
–
0.3
(0.9)
in income comprehensive Closing
income balance
statement
£m
£m
1.0
(0.3)
(0.2)
(0.4)
0.1
0.1
(0.6)
(0.3)
0.3
(0.9)
£m
–
(0.4)
–
–
(0.4)
Recognised
Recognised
directly
in other
Exchange
Opening
balance adjustments
£m
0.2
–
–
–
0.2
£m
(2.2)
0.1
0.3
0.2
(1.6)
in income comprehensive Closing
income balance
statement
£m
£m
(1.5)
0.5
0.3
0.2
–
(0.3)
0.3
(0.2)
(0.9)
0.2
£m
–
–
–
0.3
0.3
During the year the Group has reported an operating loss of £2.1 million, before exceptional items. 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 £18.1 million (2009 – £18.3 million) consisting of a deferred tax asset in relation to unrecognised
losses of £15.6 million (2009 – £17.0 million) representing losses of £50.0 million (2009 – £54.1 million) and a deferred tax asset in relation
to other timing differences of £2.5 million (2009 – £1.3 million) has not been recognised in certain subsidiaries where, based on available
evidence, it is considered unlikely that they will be recovered within the foreseeable future. Materially all of these losses are not subject
to time limits.
17. Pensions
The Group operates a number of pension plans throughout the world covering many of its employees. The principal funds are those
in the UK: (i) the Renold Group Pension Scheme (RGPS); (ii) the Jones & Shipman plc Retirement Benefits Plan (1971) (J&S); 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 and RSPS ceased in August 2008 and 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 financial statements 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 on the next page are presented on a weighted average basis where appropriate.
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Renold plc Annual Report and Accounts 2010
Financial statements 61
17. Pensions (continued)
The principal financial assumptions used to calculate plan liabilities as at 31 March 2010 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 salaries1
Rate of increase in pensions in payment and deferred pensions
Discount rate
Inflation assumption
Expected return on plan assets
UK
Overseas
2010
–
3.5%
5.6%
3.7%
6.5%
2009
3.5%
3.0%
6.9%
3.0%
6.8%
2010
2.3%
1.5%
5.6%
2.1%
7.3%
2009
2.8%
2.8%
6.2%
2.8%
7.6%
1 Following the closure of the UK defined benefit pension schemes to future accrual, no assumption for the rate of increase in pensionable salaries is necessary.
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 (£197.4 million of the £238.2 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).
Retiring today
Males
Females
Retiring in 20 years
Males
Females
2010
2009
19.6
22.3
20.8
23.4
19.5
22.3
20.7
23.4
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.
Sensitivity analysis:
Assumption
Discount rate
Rate of inflation
Rate of mortality
Change in assumption
Increase/decrease by 0.5%
Increase/decrease by 0.5%
Increase by 1 year2
Impact on plan liabilities
Decrease/increase by 7.0%
Increase/decrease by 4.0%
Increase by 3.0%
2 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 1 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
2010
£m
70.1
66.8
10.8
147.7
(197.4)
(49.7)
2009
£m
67.8
62.0
0.9
130.7
(157.8)
(27.1)
2010
£m
7.8
4.6
5.1
17.5
(40.8)
(23.3)
2009
£m
5.3
4.3
6.0
15.6
(43.6)
(28.0)
2010
£m
77.9
71.4
15.9
165.2
(238.2)
(73.0)
2009
£m
73.1
66.3
6.9
146.3
(201.4)
(55.1)
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Annual Report and Accounts 2010 Renold plc
62 Financial statements
Notes to the consolidated financial statements
continued
17. Pensions (continued)
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
Liabilities extinguished on settlement
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
(157.8)
(0.1)
(10.5)
–
(40.9)
1.1
10.8
–
–
(197.4)
2010
Overseas
£m
(43.6)
(0.5)
(2.4)
(0.2)
2.2
–
3.4
1.5
(1.2)
(40.8)
Total
£m
(201.4)
(0.6)
(12.9)
(0.2)
(38.7)
1.1
14.2
1.5
(1.2)
(238.2)
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)
(197.4)
–
(197.4)
(19.6)
(21.2)
(40.8)
(217.0)
(21.2)
(238.2)
(157.8)
–
(157.8)
(21.6)
(22.0)
(43.6)
(179.4)
(22.0)
(201.4)
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
Assets distributed on settlement
Exchange adjustment
Closing assets
Balance sheet reconciliation:
Plan obligations
Plan assets
Retirement benefit obligation
Analysed as follows:
Current assets
Retirement benefit surplus
Non-current liabilities
Retirement benefit obligations
Net retirement benefit obligation
UK
£m
130.7
8.0
17.7
2.1
–
(10.8)
–
–
147.7
2010
Overseas
£m
15.6
1.1
1.0
1.3
0.2
(2.2)
(1.5)
2.0
17.5
Total
£m
146.3
9.1
18.7
3.4
0.2
(13.0)
(1.5)
2.0
165.2
(197.4)
147.7
(49.7)
(40.8)
17.5
(23.3)
(238.2)
165.2
(73.0)
–
1.5
1.5
(49.7)
(49.7)
(24.8)
(23.3)
(74.5)
(73.0)
UK
£m
158.5
9.9
(31.5)
2.9
0.5
(9.6)
–
–
130.7
(157.8)
130.7
(27.1)
–
(27.1)
(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
(43.6)
15.6
(28.0)
(201.4)
146.3
(55.1)
–
(28.0)
(28.0)
–
(55.1)
(55.1)
The retirement benefit surplus shown above is a net asset of £1.5 million (2009 – £nil) in respect of a closed South African defined
benefit pension scheme. Following a number of key events in respect of the South African scheme in accordance with South African
legislation a surplus was identified. These events included a surplus apportionment exercise undertaken by the Company and trustees.
As a result of these events the surplus qualifies as an asset under IFRIC 14 and therefore has been recognised in the balance sheet. The
Directors expect that upon final liquidation of the scheme that the Group will receive a cash settlement.
Renold plc Annual Report and Accounts 2010
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Financial statements 63
2010
£m
(38.7)
18.7
(20.0)
2010
£m
(0.6)
1.1
0.5
2009
£m
12.9
(35.2)
(22.3)
2009
£m
(1.5)
0.4
(1.1)
17. Pensions (continued)
The net amount of actuarial gains and losses taken to the statement of comprehensive income is as follows:
Actuarial (losses)/gains arising on plan obligations
Actuarial gains/(losses) arising on plan assets
Net actuarial losses
The actual gain on plan assets was £27.8 million (2009 – loss £24.0 million).
An analysis of amounts (credited)/charged to operating costs is set out below:
Operating costs
Current service cost
Gains on curtailments
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
2010
2009
17.7
12.0%
(31.5)
24.1%
UK
2008
(11.0)
6.9%
2007
2006
(3.5)
2.1%
14.5
8.9%
(40.9)
20.7%
12.5
7.9%
26.8
16.0%
4.5
2.3%
(15.2)
7.8%
Present value of plan liabilities (£m)
(197.4)
(157.8)
(168.0)
(192.5)
(195.6)
Fair value of plan assets (£m)
147.7
130.7
158.5
164.4
162.7
Deficit (£m)
(49.7)
(27.1)
(9.5)
(28.1)
(32.9)
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
2010
2009
Overseas
2008
2007
2006
1.0
5.7%
2.2
5.4%
(3.7)
23.7%
(0.9)
5.9%
0.8
5.3%
1.7
11.0%
0.4
0.9%
1.1
3.0%
(0.9)
2.6%
(6.3)
17.3%
Present value of plan liabilities (£m)
(40.8)
(43.6)
(36.9)
(35.0)
(36.5)
Fair value of plan assets (£m)
17.5
15.6
15.2
15.1
15.5
Deficit (£m)
(23.3)
(28.0)
(21.7)
(19.9)
(21.0)
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Annual Report and Accounts 2010 Renold plc
64 Financial statements
Notes to the consolidated financial statements
continued
17. Pensions (continued)
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
2010
2009
18.7
11.3%
(35.2)
24.1%
Total
2008
(11.9)
6.9%
(38.7)
16.2%
12.9
6.4%
27.9
13.6%
2007
2006
(2.7)
1.5%
3.6
1.6%
16.2
9.1%
(21.5)
9.3%
Present value of plan liabilities (£m)
(238.2)
(201.4)
(204.9)
(227.5)
(232.1)
Fair value of plan assets (£m)
165.2
146.3
173.7
179.5
178.2
Deficit (£m)
(73.0)
(55.1)
(31.2)
(48.0)
(53.9)
The cumulative amount of actuarial losses recognised in other comprehensive income since 4 April 2004 was £46.6 million
(2009 – £26.6 million). The Group expects to contribute approximately £0.7 million (2009 – £3.5 million) to defined benefit plans
in the year ended 31 March 2011.
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 £1.6 million will be paid to the RGPS plan and £0.5 million to the RSPS plan over a twelve
year period.
The Group operates a number of defined contribution plans. The cost for the period was £1.0 million (2009 – £0.7 million). There were
outstanding contributions in creditors of £nil (2009 – £nil) at the balance sheet date.
18. Called-up share capital
Equity interests
Ordinary shares of 25 pence each
Ordinary shares of 5 pence each
Deferred shares of 20 pence each
Authorised
2010
£m
2009
£m
Issued
2010
£m
2009
£m
–
–
–
–
23.1
–
–
23.1
–
19.3
11.0 –
15.4 –
26.4
19.3
At 31 March 2010, the issued ordinary share capital comprised 219,564,703 ordinary shares of 5 pence each (2009 – 77,064,703 ordinary
shares of 25 pence each).
On 9 December 2009, each issued ordinary share of 25 pence was subdivided and converted into one ordinary share of 5 pence
and one deferred share of 20 pence. The deferred shares have no voting or dividend rights.
On 10 December 2009, 87,500,000 new ordinary shares of 5 pence each were issued through a placing and open offer and 55,000,000
new ordinary shares of 5 pence each were issued through a firm placing raising £28.5 million gross (£26.9 million after transaction
expenses). The new shares rank pari passu with the existing ordinary shares.
At the 2009 annual general meeting, new articles of association of the Company were adopted whereby the requirement for the
Company to have an authorised share capital has been removed.
During the year the Company issued no ordinary shares (2009 – 42,509 ordinary shares of 25 pence each) for a cash consideration
of £nil (2009 – £23,319) by the exercise of options under the Company’s share option schemes.
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Renold plc Annual Report and Accounts 2010
Financial statements 65
19. Share-based payments
Details of the share-based payment arrangements are provided in the Directors’ remuneration report on pages 21 to 27.
Following the division of the existing shares on 9 December 2009 and issue of new ordinary shares on 10 December 2009, the
comparative numbers have been restated to take account of the adjustments required to calculate the dilutory impact of the share
issue on the value of the share options outstanding at that date. Whilst this adjustment changes the quantity and exercise price,
it does not impact the net overall value of the share options awarded.
At 31 March 2010, unexercised options for ordinary shares amounted to 10,903,517 (2009 – 6,104,307 restated).
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 co nditions
2010
Executive share
option scheme
5.2.10
23.0p
23.2p
8
6,474,849
3
48.0%
10
6
1.9%
Zero
Zero
10.9p
40%
restated
2009
Executive share
option scheme
25.11.08
31.1p
31.5p
1
63,481
3
33.6%
10
6
2.3%
Zero
Zero
11.3p
60%
1.4.08
67.3p
65.6p
1
211,735
3
30.8%
10
6
3.9%
Zero
Zero
26.1p
60%
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 ended
31 March 2010 is shown as follows:
Executive share option schemes
Outstanding at 1 April
Granted
Lapsed
Forfeited
Outstanding at 31 March
Exercisable at 31 March
2010
Weighted
average
exercise
price
69.9p
23.2p
83.4p
70.4p
41.2p
Number
5,424,596
6,474,849
(745,742)
(250,186)
10,903,517
restated
2009
Weighted
average
exercise
price
73.1p
57.7p
134.4p
n/a
69.9p
Number
5,358,423
275,216
(209,043)
–
5,424,596
2,203,159
71.0p
1,069,878
68.9p
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Annual Report and Accounts 2010 Renold plc
66 Financial statements
Notes to the consolidated financial statements
continued
19. Share-based payments (continued)
Savings related share option scheme
Outstanding at 1 April
Lapsed
Forfeited
Exercised
Outstanding at 31 March
Exercisable at 31 March
Executive share option scheme
2010
Weighted
average
exercise
price
46.2p
46.2p
46.2p
n/a
–
Number
679,711
(674,615)
(5,096)
–
–
restated
2009
Weighted
average
exercise
price
46.2p
46.3p
46.3p
46.7p
46.2p
Number
777,588
(38,568)
(9,386)
(49,923)
679,711
–
–
679,711
46.2p
2010
restated
2009
Range of exercise prices
31.5.p to 63.3p
64.6p to 80.5p
85.2p to 100.9p
101.0p to 117.4p
Weighted
average
exercise Number of
shares
7,510,728
2,776,233
616,556
–
price
27.3p
67.0p
94.8p
–
Savings related share option scheme
Weighted average
remaining life
Expected Contractual
9.1
6.9
6.2
–
5.2
2.9
2.5
–
Weighted
average
exercise Number of
shares
1,059,366
3,660,586
616,562
88,082
price
52.8p
69.5p
94.8p
117.4p
Weighted average
remaining life
Expected Contractual
6.2
8.1
7.2
0.3
2.4
4.0
3.4
–
2010
restated
2009
Range of exercise prices
54.3p to 55.08p
Weighted
average
exercise Number of
shares
–
price
–
Weighted average
remaining life
Expected Contractual
–
–
Weighted
average
exercise Number of
shares
679,711
price
46.2p
Weighted average
remaining life
Expected Contractual
0.2
–
The weighted average share price during the period for options exercised over the year was nil (2009 – 64.4p restated). The total
charge for the year relating to employee share-based payment plans was £110,000 (2009 – £368,000), all of which related to equity
settled share-based transactions. After deferred tax, the total charge was £110,000 (2009 – £269,000).
The middle market price of ordinary shares at 31 March 2010 was 24.25p and the range of prices during the year was 15.5p to 33.25p.
20. Reserves
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 2010, subsequent to the capital reorganisation in January 1985,
amounted to £2.0 million (2009 – £2.0 million).
Included in retained earnings is an amount of £7.0 million (net of tax) (2009 – £7.1 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 2010
Financial statements 67
21. Operating lease obligations
The Group has entered into 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
2010
Properties Equipment
£m
0.5
0.4
–
0.9
£m
2.1
6.6
17.3
26.0
2009
Properties Equipment
£m
0.5
0.4
–
0.9
£m
2.1
7.4
13.9
23.4
Certain of the leased properties have been sublet and the future minimum sublease payments expected to be received under non-
cancellable sublease agreements is £0.9 million (2009 – £1.2 million).
22. Contingent liabilities
Performance guarantees given to third parties in respect of Group companies were £3.8 million (2009 – £3.9 million).
23. Additional cash flow information
Reconciliation of (loss)/profit before tax to net cash flows from operations:
Cash generated from operations:
(Loss)/profit before taxation
Depreciation and amortisation
Loss/(profit) on plant and equipment disposals
Equity share plans
Net finance costs
Decrease in inventories
Decrease in receivables
Decrease in payables
Decrease in provisions
Movement on pension plans
Movement in derivative financial instruments
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 12)
Total borrowings (Note 13)
2010
£m
2009
£m
(13.6)
5.0
0.5
0.1
8.8
4.0
8.6
(5.3)
(2.2)
(5.1)
0.1
0.9
2010
£m
(2.3)
21.0
0.6
19.3
(37.2)
(17.9)
7.3
(25.2)
(17.9)
2.9
4.7
(0.7)
0.4
4.7
3.4
3.8
(13.0)
(2.0)
(3.9)
0.8
1.1
2009
£m
(7.5)
(0.2)
(5.6)
(13.3)
(23.9)
(37.2)
11.3
(48.5)
(37.2)
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Annual Report and Accounts 2010 Renold plc
68 Financial statements
Notes to the consolidated financial statements
continued
24. Financial instruments
These notes should be read in conjunction with the narrative disclosures in the Finance Director’s 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 loss 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 excluded from the sensitivity analysis:
Change in US Dollar rate:
2010
2009
Change in Euro rate:
2010
2009
Effect on
Increase/
(decrease) before tax
£m
1.9
(1.2)
in US$ rate
25%
(10%)
Effect on
loss shareholders
equity
£m
0.6
(0.2)
Effect on
Increase/
(decrease) before tax
£m
0.2
(0.1)
in US$ rate
25%
(10%)
Effect on
profit shareholders
equity
£m
3.9
(2.1)
Effect on
Increase/
(decrease) before tax
£m
0.3
(0.1)
in Euro rate
25%
(10%)
Effect on
loss shareholders
equity
£m
2.5
(1.5)
Effect on
Increase/
(decrease) before tax
£m
0.3
(0.2)
in Euro rate
25%
(10%)
Effect on
profit shareholders
equity
£m
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:
Increase
in basis
point
Effect on
loss
before tax
£m
+150
+150
+150
+150
–
(0.2)
–
(0.2)
(0.4)
2010
Sterling
US Dollar
Euro
Other
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Renold plc Annual Report and Accounts 2010
24. Financial instruments (continued)
2009
Sterling
US Dollar
Euro
Other
(a) The balance sheet position on financial instruments is set out below:
Current liabilities:
Forward foreign currency contracts – cash flow hedge
Financial statements 69
Increase
in basis
point
Effect on
profit
before tax
£m
+150
+150
+150
+150
(0.1)
(0.2)
(0.2)
(0.2)
(0.7)
2010
£m
2009
£m
(0.2)
(2.9)
The cash flow hedges of the expected future transactions in US Dollars and Euros were assessed to be highly effective. A loss of
£0.1 million (2009 – loss £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.
c) 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 US.
The carrying value of the US Dollar borrowings at 31 March 2010 was £8.5 million (1 April 2009 – £9.1 million). A foreign exchange gain of
£0.6 million (2009 – loss of £2.6 million taken to reserves) on translation of the borrowings into Sterling is included in net financing costs
as interest income on financial assets not at fair value as the hedge of the net investment in the US subsidiaries was deemed not to
be effective.
d) Currency and interest rate profile of financial liabilities of the Group
Currency
2010
Sterling
– Financial liabilities
– Preference stock
US Dollar
Euro
Other
Fixed
rate
£m
Floating
rate
£m
0.2
0.5
–
–
0.4
1.1
–
–
11.4
0.9
11.8
24.1
Total
£m
0.2
0.5
11.4
0.9
12.2
25.2
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Annual Report and Accounts 2010 Renold plc
70 Financial statements
Notes to the consolidated financial statements
continued
24. Financial instruments (continued)
d) Currency and interest rate profile of financial liabilities of the Group (continued)
Currency
2009
Sterling
– Financial liabilities
– Preference stock
US Dollar
Euro
Other
Fixed
rate
£m
Floating
rate
£m
0.2
0.5
–
–
0.6
1.3
10.6
–
11.6
13.0
12.0
47.2
Total
£m
10.8
0.5
11.6
13.0
12.6
48.5
The 6% cumulative preference stock of £1 each has no fixed repayment date.
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 rate 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 US and Europe, the Group’s balance sheet can be affected significantly
by movements in the US Dollar/Sterling and Euro/Sterling exchange rates.
Credit risk
The Group trades only with recognised, creditworthy 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 11.
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.
e) Currency and interest rate profile of financial assets at 31 March 2010
Currency
Sterling
Euro
US Dollar
Other
2010
Cash at
bank and Short term
deposits
£m
1.0
0.6
–
0.6
2.2
in hand
£m
1.4
1.3
0.1
2.3
5.1
2009
Cash at
bank and Short term
deposits
£m
–
1.3
–
0.7
2.0
in hand
£m
0.6
3.6
3.0
2.1
9.3
Total
£m
2.4
1.9
0.1
2.9
7.3
Total
£m
0.6
4.9
3.0
2.8
11.3
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.
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Renold plc Annual Report and Accounts 2010
Financial statements 71
24. Financial instruments (continued)
f) Maturity of financial liabilities
The maturity profile of the contracted amount of the Group’s financial liabilities was as follows:
2010
Interest bearing loans and borrowings
Leases
Trade payables
Forward foreign exchange contracts – outflow
Preference stock1
2009
Interest bearing loans and borrowings
Leases
Trade payables
Forward foreign exchange contracts – outflow
Preference stock1
1 No fixed repayment date.
1 year or
less or
on demand
£m
14.2
0.1
20.1
17.2
–
51.6
1 year or
less or
on demand
£m
46.2
0.1
22.9
14.3
–
83.5
1 to 2
years
£m
0.5
0.1
–
–
–
0.6
1 to 2
years
£m
1.8
0.1
–
–
–
1.9
2 to 5
years
£m
10.8
–
–
–
–
10.8
2 to 5
years
£m
1.1
–
–
–
–
1.1
More
than 5
years
£m
0.3
–
–
–
0.5
0.8
More
than 5
years
£m
0.7
–
–
–
0.5
1.2
Total
£m
25.8
0.2
20.1
17.2
0.5
63.8
Total
£m
49.8
0.2
22.9
14.3
0.5
87.7
The Group has contracted forward contracts consisting of Euro forward contracts of £13.3 million (2009 – £5.0 million) and US Dollar
forward contracts of £3.9 million (2009 – £9.3 million) due within one year.
g) 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
2010
£m
20.5
2009
£m
18.6
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 2011.
h) 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 stock
Carrying value
Fair value
2010
£m
2009
£m
2010
£m
2009
£m
7.3
1.4
22.7
0.6
0.5
11.3
2.7
44.5
0.8
0.5
7.3
1.4
22.7
0.5
0.5
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2.7
44.5
0.8
0.5
The fair value of derivatives and borrowings has been calculated by discounting the expected future cash flows at prevailing
interest rates.
Annual Report and Accounts 2010 Renold plc
72 Financial statements
Notes to the consolidated financial statements
continued
24. Financial instruments (continued)
h) Fair values (continued)
Fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly
or indirectly; and
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable
financial market data.
As at 31 March 2010, the Group held the following financial instruments measured at fair value:
Liabilities measured at fair value
Forward foreign currency contracts – cash flow hedge
Warrants over shares
£m
0.2
0.4
Level 1
£m
Level 2
£m
Level 3
£m
–
–
0.2
–
–
0.4
The assumptions used to calculate the fair value of the warrants over shares are an exercise price of 21.06p in line with the agreement,
a risk-free rate of 3.5% and a seven year term. Upon recognition of the warrants a liability and charge of £0.4 million was recognised in
the income statement.
i) 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 2010 and 31 March 2009.
To this end the Group raised £26.9 million from investors in December 2009 in order to repay some of its debt and strengthen the
balance sheet. Having successfully completed this share issue the Directors are satisfied that the capital structure of the Group is
appropriate.
The Group monitors capital using a gearing ratio, which is net debt divided by total capital plus net debt.
2010
£m
17.9
0.5
18.4
43.0
43.0
61.4
30%
2009
£m
37.2
0.5
37.7
38.5
38.5
76.2
49%
Net debt (Note 23)
Preference stock
Total debt
Equity
Total capital
Capital and net debt
Gearing ratio
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Renold plc Annual Report and Accounts 2010
Financial statements 73
25. 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 L. G. Balakrishnan & Bros
Ltd (LGB), located in India. The acquisition has been accounted for using the purchase method of accounting.
The Group’s interest is represented by a 75% equity investment in Renold Chain India Private Limited (RCIPL), the vehicle used to acquire
the respective trade and business assets of LGB. The shareholders’ agreement contains a call option allowing Renold International
Holdings Limited 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 shareholders’ 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 paid1
Direct costs relating to the acquisition
Total purchase consideration
Fair value of net identifiable assets acquired
Goodwill
£m
6.1
0.6
6.7
(4.6)
2.1
1 Includes deferred consideration of £0.8 million and contingent consideration of £0.9 million net of a working capital adjustment of £0.6 million.
The deferred consideration, which was calculated based on the minimum amount of total consideration payable under the terms of
the sale and purchase agreement and contingent consideration which is dependent upon the adjusted audited results of the acquired
business for the year ended 31 March 2009 was agreed with the vendor of the business during the year.
A payment of £0.5 million was made by the Group to LGB representing a partial payment of the amount due in relation to the deferred
and contingent consideration payable net of the working capital adjustment. As at 31 March 2010 a balance of £0.7 million was payable
to the vendor.
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 integrating RCIPL into the 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
25% of the equity interest in RCIPL is owned by LGB and resulted in a minority interest of £1.6m at acquisition.
There has been no adjustment to the goodwill calculated at 31 March 2009 as there was no change to the provisional fair values
during the current year.
Annual Report and Accounts 2010 Renold plc
Book Provisional
fair values
value
£m
£m
4.5
1.3
1.7
1.9
6.2
3.2
(1.6)
4.6
£m
5.0
0.6
5.6
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74 Financial statements
Group five-year financial review (unaudited)
Group revenue
Less discontinued operations
Revenue from continuing operations
Operating (loss)/profit before exceptional items
– continuing
Operating (loss)/profit
(Loss)/profit before tax
Taxation
Discontinued operations:
Profit/(loss) from discontinued operations
(Loss)/profit 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 assets1
Operating (loss)/profit on turnover2
Capital expenditure
Basic (loss)/earnings per share
Employees at year end (continuing)
%
%
£m
p
1 Being operating profit before exceptional items divided by average operating assets.
2 Based on operating profit before exceptional items.
2010
£m
156.1
–
156.1
(2.1)
(4.8)
(13.6)
3.9
(9.7)
–
(9.7)
53.6
37.9
91.5
–
–
–
23.5
(17.9)
21.8
(1.1)
117.8
(73.0)
44.8
(2.2)
(3.1)
4.2
(8.0)
2,257
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
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Renold plc Annual Report and Accounts 2010
Report of the independent auditors
Financial statements 75
To the members of Renold plc
We have audited the financial statements of Renold plc for the
year ended 31 March 2010 which comprise the Company Balance
Sheet, the Company Statement of Total Recognised Gains and
Losses, and the related notes (i) to (xiii). The financial reporting
framework that has been applied in their preparation is applicable
law and United Kingdom Accounting Standards (United Kingdom
Generally Accepted Accounting Practice).
This report of the independent auditors is made solely to the
Company’s members, as a body, in accordance with chapter 3
of part 16 of the Companies Act 2006. 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.
We have reported separately on the Group financial statements
of the Company for the year ended 31 March 2010.
Respective responsibilities of Directors and auditors
As explained more fully in the Statement of Directors’
responsibilities for the Company financial statements set out
on page 76, the Directors are responsible for the preparation
of the parent company financial statements and for being
satisfied that they give a true and fair view. Our responsibility
is to audit the parent company financial statements in accordance
with applicable law and International Standards on Auditing
(UK and Ireland). Those standards require us to comply with the
Auditing Practices Board’s Ethical Standards for Auditors.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
• the part of the Directors’ remuneration report to be audited has
been properly prepared in accordance with the Companies Act
2006; and
• the information given in the Directors’ report for the financial
year for which the financial statements are prepared is
consistent with the Company financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters
where the Companies Act 2006 requires us to report to you if,
in our opinion:
• adequate accounting records have not been kept by the
Company, or returns adequate for our audit have not been
received from branches not visited by us; or
• the Company financial statements and the part of the Directors’
remuneration report to be audited are not in agreement with
the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by
law are not made; or
• we have not received all the information and explanations
we require for our audit.
Other matter
We have reported separately on the Group financial statements
of Renold plc for the year ended 31 March 2010.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts
and disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free
from material misstatement, whether caused by fraud or error.
This includes an assessment of:
• whether the accounting policies are appropriate to the parent
company’s circumstances and have been consistently applied
and adequately disclosed;
• the reasonableness of significant accounting estimates made
by the Directors; and
• the overall presentation of the financial statements.
Opinion on financial statements
In our opinion the Company financial statements:
• give a true and fair view of the state of the Company’s affairs
as at 31 March 2010;
• have been properly prepared in accordance with United
Kingdom Generally Accepted Accounting Practice; and
• have been prepared in accordance with the requirements
of the Companies Act 2006.
Eamonn McGrath
(Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
Manchester
7 June 2010
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Annual Report and Accounts 2010 Renold plc
76 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 408 of the Companies Act 2006 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 2006 and in accordance
with UK Generally Accepted Accounting Principles. They have
been prepared under the historical cost convention.
Statement of Directors’ responsibilities for the Company
financial statements
The Directors are responsible for preparing the Directors’ report
and the financial statements in accordance with applicable
law and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have elected to prepare the financial statements in accordance
with United Kingdom Generally Accepted Accounting Practice
(United Kingdom Accounting Standards and applicable law).
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and of the profit or
loss of the Company for that period. In preparing those financial
statements, the Directors are required to:
• select suitable accounting policies and then apply
them consistently;
• make judgements and estimates that are reasonable
and prudent;
• state whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time
the financial position of the Company and enable them to ensure
that the financial statements comply with the Companies Act
2006. They are also responsible for safeguarding the assets
of the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
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
2(d) of FRS 29, the Company is exempt from the disclosure
requirements of FRS 29. The Company’s financial instruments are
consolidated with those of the Group and are incorporated into
the disclosures in Note 24.
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, the
Company does not hold or use derivative financial instruments
for trading or speculative purposes.
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 reviewed for impairment on an annual
basis. Where indicators of impairment are present, the cash flow
of the underlying entities are reviewed to determine whether the
investment value is recoverable.
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.
• 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.
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Renold plc Annual Report and Accounts 2010
Financial statements 77
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.
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.
No expense is recognised for awards that do not ultimately vest
except for awards where vesting is conditional upon market or
non-vesting conditions which are treated as vesting irrespective
of whether or not the market or non-vesting condition is satisfied
provided that all other performance or service conditions are
satisfied. The model is adjusted as necessary for market based
and non-vesting conditions. The market-based conditions are
linked to the price of shares of the Company.
Where the terms of an equity-settled award are modified
or a new award is designated as replacing a cancelled or settled
award, the cost based on the original award terms continues
to be recognised over the original vesting period. In addition,
an expense is recognised over the remainder of the new vesting
period for the incremental fair value of any modification, based
on the difference between the fair value of the original award
and the fair value of the modified award, both as measured on
the date of the modification. No reduction is recognised if this
difference is negative.
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
wholly owned subsidiaries of the Group under FRS 8 – Related
Party Disclosures.
Accounting policy on derivatives – Financial assets and financial
liabilities are disclosed in the Group financial statements.
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Annual Report and Accounts 2010 Renold plc
Note
i
ii
iii
iv
v
vi
v
v
viii
ix
ix
2010
£m
2.0
70.4
72.4
9.1
16.4
25.5
(2.7)
–
(0.1)
22.7
95.1
(8.6) –
(0.5)
86.0
26.4
29.4
30.2
86.0
2009
£m
0.4
66.1
66.5
4.7
13.0
17.7
(1.8)
(19.7)
(2.8)
(6.6)
59.9
(0.5)
59.4
19.3
9.6
30.5
59.4
78 Financial statements
Company balance sheet
as at 31 March 2010
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
Derivative financial instruments
Net current assets/(liabilities)
Total assets less current liabilities
Creditors – amounts falling due after more than one year
Bank borrowings
Preference stock
Net assets
Capital and reserves
Called-up share capital
Share premium account
Profit and loss account
Shareholders’ funds
Approved by the Board on 7 June 2010 and signed on its behalf by:
Matthew Peacock
Chairman
Robert Davies
Director
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Renold plc Annual Report and Accounts 2010
Company statement of total recognised gains and losses
for the year ended 31 March 2010
Financial statements 79
(Loss)/profit for the year
Total recognised (losses)/gains for the year
Equity shareholders of the Company
2010
£m
(0.4)
(0.4)
2009
£m
2.3
2.3
(0.4)
2.3
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Annual Report and Accounts 2010 Renold plc
80 Financial statements
Notes to the Company financial statements
(i) Tangible assets
Cost
At beginning of year
Additions at cost
Group transfers
Disposals
At end of year
Depreciation
At beginning of year
Depreciation for the year
Group transfers
Disposals
At end of year
Net book value at end of year
Net book value at beginning of year
Properties Equipment
£m
£m
Total
£m
0.4
–
–
–
0.4
0.2
–
–
–
0.2
0.2
0.2
1.0
0.1
1.8
(0.3)
2.6
0.8
0.2
0.1
(0.3)
0.8
1.8
0.2
1.4
0.1
1.8
(0.3)
3.0
1.0
0.2
0.1
(0.3)
1.0
2.0
0.4
Future capital expenditure
At 31 March 2010 authorised capital expenditure not provided for in these financial statements for which contracts have been placed
amounted to £106,000 (2009 – £nil).
(ii) Investments in subsidiary undertakings
Subsidiary undertakings
Cost or valuation
At beginning of year
Increase in investment
Impairment of investment
Net advances/(repayments)
At end of year
The principal subsidiary undertakings of the Company at 31 March 2010 are set out in Note (xiii).
(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
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Renold plc Annual Report and Accounts 2010
Shares
£m
Advances
£m
Total
£m
22.6
20.8
(0.4)
–
43.0
43.5
–
–
(16.1)
27.4
66.1
20.8
(0.4)
(16.1)
70.4
2010
£m
8.7
0.2
0.1
0.1
9.1
2010
£m
0.2
0.2
2009
£m
4.2
0.1
0.2
0.2
4.7
2009
£m
0.1
0.1
(iv) Other creditors
Amounts falling due within one year:
Trade creditors
Amounts owed by Group undertakings
Other taxation and social security
Accruals
Other creditors
Financial statements 81
2010
£m
2009
£m
1.1
0.4
0.2
0.5
0.5 –
2.7
0.7
0.4
0.3
0.4
1.8
Other creditors include £0.4 million (2009– £nil) being the fair value of warrants issued over the Company’s shares to the Company’s
lenders as part of the refinancing that was completed in August 2009. The warrants are over 3,500,000 ordinary shares of 5 pence
each and have a seven year term commencing from 13 August 2009, during which they can be exercised at any time.
(v) Borrowings
Amounts falling due within one year:
Bank overdrafts
Bank loans
Amounts falling due after one year:
Bank loans
Repayable:
In more than two years but not more than three years
Summary of total borrowings:
Bank overdrafts
Total bank loans
Preference stock
Total borrowings
2010
£m
–
–
–
8.6 –
8.6 –
8.6 –
–
8.6
0.5
9.1
2009
£m
1.0
18.7
19.7
1.0
18.7
0.5
20.2
Bank borrowings are secured by fixed and floating charges over the assets of UK subsidiaries.
Preference stock
At 31 March 2010 there were 580,482 units of 6% cumulative preference stock of £1 each in issue (2009 – 580,482).
All payments of dividends on the 6% cumulative preference stock have been paid on the due dates. The preference stock has the
following rights:
(i) a fixed cumulative preferential dividend at the rate of 6% per annum payable half yearly on 1 January and 1 July in each year;
(ii) rank both with regard to dividend (including any arrears 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) no right to attend or vote, either in person or by proxy, at any general meeting of the Company or to have notice of any such
meeting, unless the dividend on the preference stock is in arrears for six calendar months; and
(iv) no redemption entitlement.
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Annual Report and Accounts 2010 Renold plc
82 Financial statements
Notes to the Company financial statements
continued
(vi) Derivative financial instruments
Forward foreign currency contracts – cash flow hedge
2010
£m
(0.1)
2009
£m
(2.8)
The cash flow hedges of the expected future transactions in US Dollars and Euros were assessed to be highly effective. A loss of
£0.1 million (2009 – loss £2.0 million) in respect of US Dollar contracts and £nil (2009 – loss £0.8 million) in respect of Euro contracts
was included in equity.
A loss of £0.1 million (2009 – loss £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 £13.3 million
(2009 – £5.0 million) and US Dollar forward contracts of £3.9 million (2009 – £9.3 million) due within one year.
(vii) Pensions
Employees of the Company include members of the principal UK defined benefit schemes. However, the contributions paid by the
Company are accounted for as a defined contribution scheme, because 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 17 in the consolidated
financial statements. No contributions are outstanding at the year end. As the pension scheme is in a deficit position a plan has been
put in place for the participating employers to make additional payments into the schemes. The Company will continue to make
payments in line with the plan agreed with the trustees.
(viii) Called-up share capital
Equity interests
Ordinary shares of 25 pence each
Ordinary shares of 5 pence each
Deferred shares of 20 pence each
6% cumulative preference stock
Authorised1
2010
£m
2009
£m
Issued
2010
£m
2009
£m
–
–
–
–
–
23.1
–
–
0.6
23.7
–
19.3
11.0 –
15.4 –
0.5
26.9
0.5
19.8
1 At the 2009 annual general meeting, new articles of association of the Company were adopted whereby the requirement for the Company to have an authorised share
capital has been removed.
At 31 March 2010, the issued ordinary share capital comprised 219,564,703 ordinary shares of 5 pence each (2009 – 77,064,703 ordinary
shares of 25 pence each).
On 9 December 2009, each issued ordinary share of 25 pence was subdivided and converted into one ordinary share of 5 pence and one
deferred share of 20 pence. The deferred shares have no voting or dividend rights.
On 10 December 2009, 87,500,000 new ordinary shares of 5 pence each were issued through a placing and open offer and 55,000,000
new ordinary shares of 5 pence each were issued through a firm placing raising £28.5 million gross (£26.9 million after transaction
expenses). The new shares rank pari passu with the existing ordinary shares.
During the year the Company issued no ordinary shares (2009 – 42,509 ordinary shares of 25 pence) each for a cash consideration
of £nil (2009 – £23,319) by the exercise of options under share option schemes.
Details of the 6% cumulative preference stock are set out in Note (v).
Disclosures in respect of capital management can be found in Note 24 of the consolidated financial statements.
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Renold plc Annual Report and Accounts 2010
Financial statements 83
(viii) Called-up share capital (continued)
Share options
Share options have been granted under the executive share option schemes. Following the division of the existing shares on
9 December 2009, and issue of new ordinary shares on 10 December 2009, the comparative numbers have been restated to take
account of the adjustments required to calculate the dilutory impact of the share issue on the value of the share options outstanding
at that date. Whilst this adjustment changes the quantity and exercise price, it does not impact the net overall value of the share
options awarded.
At 31 March 2010, unexercised options for ordinary shares amounted to 10,903,517 (2009 – 6,104,307 restated) made up as follows:
Date normally exercisable
Executive Share Option Schemes
Within seven years from:
16 July 2002 (1995 Scheme)
19 July 2003 (1995 Scheme)
28 November 2004 (1995 Scheme)
27 November 2005 (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)
5 February 2013 (2004 Scheme)
Savings related share option schemes
Within six months from:
1 March 2009 (2004 Scheme)
restated
Option
price
(p per share)
Number
of shares
2010
restated
Number
of shares
2009
117.4
100.9
57.3
49.8
71.1
65.1
74.9
63.3
52.5
85.2
97.2
78.8
64.6
65.6
31.5
23.2
46.2
–
52,848
143,276
124,485
105,695
146,799
557,835
123,312
581,325
140,926
422,782
–
1,754,171
211,733
63,481
6,474,849 –
10,903,517
88,080
52,848
143,276
124,485
117,440
146,799
557,835
123,312
604,816
140,926
422,782
775,104
1,851,679
211,733
63,481
5,424,596
–
–
679,711
679,711
Further details of share-based payment schemes operated by the Company are provided in the Directors’ remuneration report and Note
19 of the consolidated financial statements.
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Annual Report and Accounts 2010 Renold plc
84 Financial statements
Notes to the Company financial statements
continued
(ix) Reserves
At beginning of year
Loss for the year
Employee share option schemes – value of employee services
Proceeds from share placing
Associated costs of placing
At end of year
Profit
and loss
account
£m
30.5
(0.4)
0.1
–
–
30.2
Share
premium
£m
9.6
–
–
21.4
(1.6)
29.4
Total
reserves
£m
40.1
(0.4)
0.1
21.4
(1.6)
59.6
As permitted by section 408 of the Companies Act 2006, no profit and loss account is presented in these financial statements.
The Company incurred a loss for the financial year of £0.4 million (2009 – profit £2.3 million).
Total fees payable by the Company to Ernst & Young LLP for work in respect of the audit of the Company were £31,000 (2009 – £31,000).
Fees paid to the Company’s auditors for non-audit services to the Company are not disclosed in these financial statements 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:
– between two and five years
2010
£000’s
2009
£000’s
199
199
199
199
(xi) Contingent liabilities
The Company has guaranteed borrowings by subsidiary undertakings of £11.3 million (2009 – £23.6 million). Performance guarantees
given to third parties in respect of Group companies were £3.6 million (2009 – £3.8 million). No material loss is expected to arise as a
result of these contingent liabilities.
(xii) Related party transactions
The Company has taken advantage of the exemption in FRS 8, not to disclose transactions with its wholly owned subsidiaries.
During the year, the Company entered into transactions in the ordinary course of business with its 90% owned subsidiary Renold
(Hangzhou) Co Limited and its 75% owned subsidiary Renold Chain India Private Limited. Transactions entered into and trading balances
outstanding at 31 March 2010 (and 2009) with Renold Chain India Private Limited are not material. Transactions entered into and
trading balances outstanding at 31 March with Renold (Hangzhou) Limited are as follows:
Recharges of services
Amounts payable as at 31 March
2010
Renold
2009
Renold
(Hangzhou) (Hangzhou)
Co Limited Co Limited
£m
0.2
0.1
£m
0.2
0.3
Transactions with key management personnel
During the year key management personnel subscribed for 12,310,449 shares at 20 pence per share under the December 2009 share
issue, as detailed in Note xiii. This includes shares which were subscribed for by Hanover Investors Limited, which are held beneficially
for Matthew Peacock, an entity over which Matthew Peacock exercises significant influence.
During the year commissions and fees of £978,000 were paid in relation to the December 2009 share issue, as detailed in Note xiii,
to Singer Capital Markets Limited, an entity of which Matthew Peacock is the Chairman.
Renold plc Annual Report and Accounts 2010
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Financial statements 85
(xiii) Significant undertakings as at 31 March 20101
United Kingdom
Renold Power Transmission Limited (held directly by Renold plc)
Europe
(other than the United Kingdom)
Austria
Belgium
Denmark
France
Germany
Holland
Russia
Sweden
Switzerland
Renold GmbH
Renold Continental Limited (incorporated in the United Kingdom)
Renold A/S
Brampton Renold SAS
Renold GmbH
Renold Continental Limited (incorporated in the United Kingdom)
Renold Russia (Obshchestvo s Ogranichennoj Otvetstvennost’u)
Renold Transmission AB
Renold (Switzerland) GmbH
North America
Canada
US
Other countries
Australia
China
India
Malaysia
New Zealand
Singapore
South Africa
Renold Canada Limited
Renold Inc
Jeffrey Chain LP
Renold Australia Proprietary Limited
Renold Transmission (Shanghai) Company Limited
Renold Technologies (Shanghai) Company Limited
Renold (Hangzhou) Co Ltd
Renold Chain India Private Limited
Renold (Malaysia) Sdn Bhd
Renold New Zealand Limited
Renold Transmission Limited (incorporated in the United Kingdom)
Renold Crofts (Pty) Limited
The subsidiary undertakings listed above are those which, in our opinion, principally affected the results and assets of the Group.
Companies of minor importance are omitted by virtue of section 410 of the Companies Act 2006.
All of our companies other than Renold (Hangzhou) Co Ltd and Renold Chain India Private Limited (in which we hold an interest of 90%
and 75% of the equity shares and voting rights respectively) 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.
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Annual Report and Accounts 2010 Renold plc
86 Corporate details
Corporate details
2009 share issue information
On 17 November 2009, the Company announced a capital reorganisation and placing and open offer and firm placing. Following
receipt of shareholder approval, each of the 25 pence ordinary shares of the Company was divided into one ordinary share of 5 pence
and one deferred share of 20 pence on 9 December 2009. On 17 November 2009, eligible shareholders were given the opportunity to
participate in an open offer on the basis of 1.1354 new ordinary shares for every existing ordinary share held on 13 November 2009, at a
subscription price of 20 pence per share. The open offer period ended on 8 December 2009 and dealing in the new fully paid 5 pence
ordinary shares commenced on the London Stock Exchange on 10 December 2009. Information relating to the transaction is available
in the prospectus available at www.renold.com.
Corporate calendar
Annual General Meeting
Interim Management Statement (first)
Half year end 2010/11
Announcement of half year 2010/11 results
Interim Management Statement (second)
Year end 2010/11
Announcement of annual results 2010/11
Payment of preference dividends
15 July 2010
Between 11 June 2010 and 17 August 2010
30 September 2010
November 2010
Between 11 December 2010 and 16 February 2011
31 March 2011
June 2011
1 July 2010 and 1 January 2011
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
Hannah Woodcock
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 0GA
Telephone: If calling from the UK: 0871 664 0300 (calls cost 10p per minute plus network extras;
lines are open 8.30am to 5.30pm, Monday to Friday)
If calling from overseas: +44 208 639 3399
Email: shareholder.services@capitaregistrars.com
Website: www.capitaregistrars.com
Registrar’s Share Portal: www.capitashareportal.com
If you receive two or more copies of this report please write to Capita Registrars at Shareholder Services, Capita Registrars,
Northern House, Woodsome Park, Fenay Bridge, Huddersfield HD8 0GA and ask for your accounts to be amalgamated.
Renold plc Annual Report and Accounts 2010
Notes
Financial statements 87
Annual Report and Accounts 2010 Renold plc
88 Financial statements
Notes
Renold plc Annual Report and Accounts 2010
This report has been printed in the UK, our printers are
Environmental Management System ISO 14001 accredited
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Designed and produced by The College www.thecollege.uk.com
Renold plc
Renold House
Styal Road
Wythenshawe
Manchester M22 5WL
Telephone: +44 (0)161 498 4500
Fax: +44 (0)161 437 7782
www.renold.com