Renold plc
Renold House
Styal Road
Wythenshawe
Manchester M22 5WL
Telephone: +44 (0)161 498 4500
Fax: +44 (0)161 437 7782
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Annual Report and
Accounts 2012
Progress in motion
www.renold.com
www.renold.com
Contents
Underlying operating profit*
£m
15
12
9
6
3
0
-3
11.5
09
14.1
7.1
(1.8)
10
11
12
Our performance
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.
01 Our performance
02 Our operations
04 The world of Renold
06 Chairman’s statement
08 Our business model
10 Our business objectives
12 Progress in motion
16 Q&A with the Chief Executive
17 Chief Executive’s review
20 Finance Director’s review
24 Principal risks and uncertainties
26 Responsibilities
Business 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 includes details of
our corporate governance and
our Directors’ remuneration.
30 Board of Directors
32 Corporate governance
38 Directors’ remuneration report
44 Statement of Directors’ responsibilities
45 Statutory information
Financial statements
This section contains all the detailed
financial statements for the Group
and the Company.
Our operations
02-03
Business model & strategy
08-09
Group
49 Independent auditor’s report
50 Accounting policies
57 Consolidated income statement
58 Consolidated statement of
comprehensive income
59 Consolidated balance sheet
60 Consolidated statement of
changes in equity
61 Consolidated statement of cash flows
62 Notes to the consolidated financial
statements
88 Group five year financial review
Company
89 Independent auditor’s report
90 Accounting policies
92 Company balance sheet
93 Company statement of total
recognised gains and losses
94 Notes to the Company financial
statements
99 Corporate information
Renold plc Annual Report and Accounts 2012
Chief Executive’s Q&A
16
This report has been printed in the UK, our printers are
Environmental Management System ISO 14001 accredited
and Forest Stewardship Council (FSC) chain of custody certified.
All inks are vegetable based.
Designed and produced by The College www.thecollege.uk.com
Our performance 01
Renold is a world-class engineering
business, delivering market-leading
precision chain and power transmission
products internationally.
Renold products can be seen in diverse
applications from cement making to
chocolate manufacturing, subway trains
to power stations, escalators to quarries,
in fact, anywhere something needs to
be lifted, moved, rotated or conveyed.
Financial results
Underlying turnover*
£m
Underlying operating profit*
£m
Net debt
£m
250
200
150
100
50
0
216.2
209.5
192.3
162.0
09
10
11
12
15
12
9
6
3
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-3
11.5
14.1
7.1
(1.8)
09
10
11
12
40
35
30
25
20
15
10
5
0
37.2
22.9
20.0
17.9
09
10
11
12
* Underlying results exclude the impact of disposals, exceptional items and are retranslated to current year exchange rates.
Annual Report and Accounts 2012 Renold plc
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02 Our operations
Overview
Our operations
Renold plc is an international engineering group
delivering engineering products and solutions to
service customers in countries across the globe.
Laser cutting technology hugely enhances our
range of adapted chain.
Heat treating components to enhance performance characteristics.
Lubrication free chains are used in hygiene critical
food production industry.
£157.5m
External revenue
Renold Chain
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.
In addition to a broad range of chains
involving different materials and platings,
there is also a comprehensive range of
attachment chains.
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 our
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.
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.
Renold is also a market leader in lifting
chain used in many of the forklift trucks
produced worldwide.
Behind every conceivable industry Renold
is working hard at delivering performance
and increasing productivity.
Renold plc Annual Report and Accounts 2012 Our operations 03
Delivering millions of passenger miles in
New York, USA.
Renold’s industry-recognised engineers design systems using the latest Solid 3-D parametric
design technology.
Tension release backstop in a conveyor.
£52.0m
External revenue
Renold Torque
Transmission
Renold Torque Transmission provides a
wide range of coupling solutions ranging
from fluid couplings to rubber-in-compression
and rubber-in-shear couplings and a
complete range of worm gears, helical
and bevel helical worm drives. We also
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, rail
and escalator transit systems, 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 our gearboxes
and couplings to meet customers’ specific
requirements, delivering durability,
reliability and long life for demanding
industrial applications.
Renold Torque Transmission also provides
a range of freewheel clutches featuring
both sprag and roller ramp technology.
Sprag clutches are used in a wide range
of safety-critical applications such as
keeping riders safe on some of the
world’s most thrilling roller coasters.
We have manufacturing sites across the
world including the UK, US, South Africa
and China. We operate at the leading edge
of technology, producing innovative
products designed to meet customers’
exacting standards.
Annual Report and Accounts 2012 Renold plcOverviewBusiness reviewGovernanceFinancial statements 04 The world of Renold
Overview
The world of Renold
The principal activities of the Group are the
manufacture and sale of industrial chains and
torque transmission products.
33%
Global sales
North America
North America saw continuing strong
growth with underlying sales 11% ahead
of the prior year.
Renold Jeffrey and Renold Ajax have
been well known participants in the
North American markets for many years
with a focus on engineering class chain
and mass transit gears and couplings.
•
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14
manufacturing sites
worldwide
20Selling locations
in 20 countries
2%
Global sales
South Americas
South America remains a significant
future opportunity.
Mining, oil and gas and agriculture
are three markets to leverage existing
Renold capability.
Key
Manufacturing location and sales company
l Sales location
Operating globally
in diverse sectors
Renold plc Annual Report and Accounts 2012 39%
Global sales
Europe
Our European businesses saw
a 7% increase in sales in the year.
Renold Chain operates from two
principal manufacturing locations in
Europe (the UK and Germany). Renold
Torque Transmission operates three
plants in the UK exporting to various
destinations worldwide.
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•
The world of Renold 05
8%
Global sales
Emerging economies
Recent investments in China and India
have created access to fast growing
local markets and expanded our product
offering in all overseas markets.
China and India have experienced
significant growth in activity levels
over the last year, with China focused
on exports and India focused on
domestic demand.
2,569
Employees
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18%
Global sales
Asia Pacific
The expansion in natural resource
industries in the region has led to
sales growth of 8% in the year.
Extractive industries in Australia
and natural oils in other parts of Asia
have seen a significant increase in
activity levels.
Annual Report and Accounts 2012 Renold plcOverviewBusiness reviewGovernanceFinancial statements 06 Chairman’s statement
Overview
Chairman’s statement
In this my final report as Chairman, I look back on our
performance against the key objectives we set for the
Group in 2007. We have made excellent progress
despite the global economic and financial uncertainty.
We are now leveraging, for the benefit of the wider Group,
our Chain operations in Hangzhou, China and Gudalur, India.
This year we have also invested in Torque Transmission
opportunities in China: we established a new jointly controlled
entity to address the opportunities in the fast-expanding Chinese
domestic mass transit market and we also initiated a large
capital program in our existing couplings facility in Beicai, China.
2. Enhancing operating margins1 and overall profitability
We increased operating margins to 6.7% from 3.7% in the prior
year. This is only slightly below the pre-recessionary level of 7%
despite underlying sales still being approximately 10% lower.
In the current year we are pleased to report adjusted earnings
of 4.2 pence per share, more than double the 2.0 pence reported
in 2011. This was driven by a 100% increase in adjusted operating
profit before exceptional items to £14.1m. We continue to improve
and optimise our cost base and are making good progress with
the restructuring of our European back office infrastructure;
the latter will add £1.8m to annual operating profitability when
complete in 2014/15.
Torque Transmission had another particularly good year with its
operating margins improved further to 16.0% while still allowing
for increased investment in business development capability in
four key markets: Mass Transit, Quarrying and Mining, Metals
and Energy. This was achieved at the same time as growing the
business at an underlying rate of 10%.
3. Improving cash generation
The current year has seen a continued improvement in working
capital management with average levels of working capital
now 22.4% of sales, a 9% improvement on the prior year. The
business has added £47.5m of underlying sales in the period since
March 2010 but has only required £2.8m extra working capital
to fund this.
Matthew Peacock Chairman
Overview
In this my final report as Chairman, I look back on our progress
against the key objectives we set for the Group in 2007.
I am pleased to report on a robust set of results achieved
in challenging economic conditions, with significant growth
in operating profit and earnings per share for the second
consecutive year.
1. Sales growth driven by accessing the opportunities
in emerging markets
In the current year, underlying Group sales grew by 9% to £209.5m.
A strong first half was followed by more moderate growth
in the second half when our diversified portfolio exposure to
North America and the emerging economies offset the challenges
in the European markets arising from the Eurozone crisis and
southern European sovereign debt issues. Our exposure to a wider
range of geographical markets and also the broader addressable
market created by having an established manufacturing presence
in low cost countries has facilitated a significant proportion of
this growth.
1 Operating profit before exceptional items as a percentage of total
external revenue.
Renold plc Annual Report and Accounts 2012 Chairman’s statement 07
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4. Reducing the exposure to UK pension deficits
In a year when most businesses with UK pension deficits have
reported increases in liabilities due to lower corporate bond
yields caused largely by Quantitative Easing (QE) reducing yields
on gilts, Renold has taken a number of steps to significantly
reduce its impact. Without the impact of QE, which is generally
accepted to have reduced gilt yields by around 100 basis points2,
the underlying UK deficits, all else being equal, would now be
less than £10m.
The Board
I announced my intention to stand down from the Board on
1 May 2012. At the same time we welcomed Mark Harper as
a Non-Executive Director. Mark will formally take on the role
of Chairman at the closing of the Annual General Meeting
on 12 July 2012. In addition, our Senior Independent Director,
David Shearer, has indicated that he will not seek re-election
to the Board at the Annual General Meeting following over
five years service to the Board. A process has begun to seek
a replacement for David in due course. I wish Mark and David
every success.
I would like to take this opportunity to thank the Board, and all
Renold staff, for their support over the last five years. We have
worked constructively to overcome an extremely challenging
period in Renold’s history and the fact that the business continues
to grow strongly with improving prospects is testament to the
effectiveness of those efforts.
Outlook
The Board has focused on continuing the path of profitable
growth throughout the year under review.
Operating margins are nearing pre-recessionary levels while
gearing as a ratio of net debt to EBITDA has achieved the lowest
level in the last five years at 1.2 times. The Board has decided to
recommend that no dividend be paid, but it will consider future
dividend policy in the light of performance and, in particular,
free cash flow from the business.
Renold remains well placed to exploit its manufacturing base,
strong technical capabilities and internationally respected brand.
The business has a number of opportunities for new investment
and the Board are confident that we will continue to deliver
further growth and improving profitability.
Matthew Peacock
Chairman
£209.5m
Underlying Group sales grew
by 9% to £209.5m
99%
Increase in adjusted underlying
operating profit to £14.1m
2 Bank of England: ‘The United Kingdom’s quantitative easing policy:
design, operation and impact’.
Annual Report and Accounts 2012 Renold plcBusiness reviewGovernanceFinancial statements
08 Our business model
Business review
Our business model
Engineering value through our business model
Over recent years we have been implementing changes to
our business model by reshaping our business and cost base
for greater efficiency.
Through our focus on migration to low-cost countries we have significantly
reduced our cost base during the recession by around £10m, whilst expanding
our market opportunities.
Our business
l
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G l o
Renold
Chain
Renold
Torque
Transmission
Sales and dist r i b u t i o
n
Renold plc Annual Report and Accounts 2012
How we create shareholder value
Our business model 09
Growth
enables
profit
Winning new business
• Improved customer service
• Reducing lead times
• Expanding presence
New product development & innovation
• Technical solutions
• Demand led R&D
Profit
key driver
for cash
generation
Reduce fulfilment costs
• Factory rationalisation
• Increasing automation
Optimising cost base
• Back office restructuring
(Europe and Australasia)
• Implementing ERP system
Sector focus in
Torque Transmission
• 4 key sectors
Leveraging brand
and reputation
Gro w th
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Building
shareholder
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Scheme specific strategies
• Closure of defined
benefit schemes
• Liability management projects
• Member options on benefits
• Asset matching and
investment strategies
Detailed scheme due diligence
• Data cleansing
• Full in depth experience analysis
C ash f ow
Working capital management
• Deploying new analytical tools
• Incentive plan focuses on cash
• Reducing the duration of order
to cash
Optimise financing & tax
• Use of existing tax assets
• Pay expensive down debt
Cash
generation
enables
investment
for growth
Annual Report and Accounts 2012 Renold plc
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10 Our business objectives
Business review
Our business objectives
A number of near term opportunities exist both inside
and outside the Group to further enhance our cost base
and exploit our market presence.
Objectives
10% Return on Sales (RoS) 3
10% sales growth per year
Cash generation
Progress
Chain division Return on Sales3 increased to 5.9% (2011: 3.3%)
Chain benefited from £1.5m of cost reduction initiatives
completed in Q4 of the prior year
TT margin improvement continued with RoS reaching 16.0%
Group RoS improved again from 3.7% to 6.7%
Group achieved underlying sales growth of 9% in the year
Chain achieved underlying sales growth of 9% in the year
Chain addressable markets increased with products from
our China, India and Malaysia facilities
Torque Transmission underlying sales growth of 10% in the
year with 18% growth in key sectors
Chinese mass transit JV achieved ISO certification
Reduced average working capital ratio4 by 2.3% compared
to 2011 (a 9% gain)
Working capital management enhancement initiatives rolled
out in the year
Business cash flows sustained £5.9m of capital investment
and £5.2m pension payments
Reduce exposure to volatile pension liabilities
A number of initiatives cut almost £7m from underlying
UK liabilities (adding to significant reduction in the prior year)
Offset by £9m increase from net impact of market driven
discount rate and inflation changes
3 Operating profit before exceptional items as a percentage of sales.
4 The average of each month’s absolute working capital as a percentage of rolling annual sales.
Renold plc Annual Report and Accounts 2012 Our business objectives 11
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Actions
2013 targets
Restructuring Chain Europe back office will improve
customer service while cutting costs and improving
working capital
Capital investment programmes with attractive
short payback periods
A further increase in RoS
European overhead savings of £1.0m per annum delivered
in 2012/13
Mitigate the slowing of growth in Europe by actively
seeking market share gains
Torque Transmission is investing in additional equipment
and business development capability to maintain growth
momentum
Further investment in Torque Transmission target markets
Chain continue to invest in R&D and innovative products
Leveraging low cost country sources of production to
expand addressable market
Torque Transmission to maintain double digit growth rate
with emphasis on four key markets
Chain to continue to grow sales
Refinance Group’s main banking facility post 30 June 2013
Optimise use of existing tax basis and assets
Continued roll out of Enterprise Resource Planning (ERP)
system
Adoption of new working capital tools
Reduce the Group’s overall cost of debt
Maintain an effective tax rate below standard rate
Cash tax to be maintained at around half of the effective
tax rate through utilisation of tax assets
Implement ERP system in main UK location for Torque
Transmission, Canada and European trading hub
Positive free cash flow
UK Pension scheme Triennial Review (Jones & Shipman scheme)
Detailed review of overseas schemes to match UK actions
Continue implementation of UK liability management strategies
Review and develop existing asset management strategy in UK
(see Finance Director’s review pages 20 to 23)
Develop and implement medium term strategic plans for
major overseas defined benefit schemes and their liabilities
Annual Report and Accounts 2012 Renold plc
12 Case study
Business review
Progress in motion
Focusing on improving margins and
customer service in Chain.
Chain Europe transformation – developing and
reshaping our business.
Headline transformation benefits:
Savings of £1.8m p.a. by 2014/15
Improved working capital management
A model to improve customer service
Work began in September 2011 to implement a new operating
model across the European Chain business. The project is
expected to run through to the end of 2013.
The design objectives for the new model are:
Simplification of organisational structures, to better serve
our customers.
Deliver responsive, efficient, customer focused and consistent
customer service through centres of excellence.
Create more efficient and cohesive management units focused
on clearly articulated business objectives.
Eliminate duplication across functional areas to reduce waste
and cost by £1.8m p.a. by 2014/15.
Enhance the connection between product demand and supply
management, with benefits for on time delivery and working
capital management.
Developing improved and standardised processes and controls
to ensure consistency of service delivery, leveraging the new
ERP system as part of a continuous improvement programme.
£9.3m
Chain adjusted operating profit
grew by 98% to £9.3m
European trading hub launch.
Renold plc Annual Report and Accounts 2012
Case study 13
Focusing on innovation and
investment in technology.
Renold is at the forefront of creating the latest
innovative designs for its customers driven by demand
to reduce costs, shorten lead times and deal with
increasingly challenging working environments.
The Group has taken a leading role in the industry for more
than a century and chairs the ISO Standards Committee for
Chain. 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.
Despite the relative maturity of the industry, ongoing work
with key customers has resulted in a number of new solutions
to old problems. Customers rely on the latest Renold technologies
to keep machines running reliably in extreme environments
to maximise performance. We often work on a collaborative
basis with customers to design bespoke solutions to specific
business challenges. The design team uses a global engineering
system, enabling our international teams to work round the
clock on time critical projects.
Renold has pioneered Smart Chain technology to measure
system dynamics, enabling improvements to drive efficiency
which ensures real cost savings for customers. Through this range
of Smart Products, Renold provides visibility of the actual loads and
wear in a chain drive system via an on-line portal and works in
partnership with the customer to deliver maximum working life.
Renold offers a number of industry leading ‘solution products’
targeting specific customer requirements such as high
performance Renold Synergy chain, lubricant free ‘Renold Syno’
chain and corrosion resistant ‘Renold Hydro-Service’ chain.
Palm oil production.
Lumber reclamation.
Renold design and manufacture chains for use in a wide variety of
demanding applications.
Annual Report and Accounts 2012 Renold plc
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14 Case study
Business review
Progress in motion
continued
Focusing on growth markets and
innovation in Torque Transmission.
Leveraging our established expertise into new growth
regions and market sectors.
Growth markets
The expansion of government funded infrastructure projects for mass transit systems and emerging
market demand for energy and commodities have created a strong and sustainable growth platform
on which Renold can gain market share.
Mass transit
Metals
Sales £4.3m Addressable market 5 £300m
Sales £7.3m Addressable market 5 £350m
Renold specialise in gearboxes and couplings for mass transit
applications, delivered from our plant in Westfield, New York.
We operate in the niche market for highly engineered spindles
and couplings for steel rolling mills.
We currently serve markets in North America, Europe and
are making headway in other regions. Our Chinese joint venture
is actively tendering on rapidly expanding transport infrastructure
projects designed to serve 100 cities with over one million people.
This also creates additional opportunities for our escalator gears
and chains.
Renold has won the contract to supply the drives for 17 high
rise escalators for the East Side Access project at Grand Central
Station in New York. Renold was selected because of our ability
to custom design a compact drive package to optimise power
density, efficiency, operational noise levels and running
temperatures, enabling a long and reliable service life with
ease of maintenance.
Refurbishment and after-sales service is an attractive growth
market and we are leveraging existing capabilities into
new geographies such as Africa, Mexico and Europe.
Renold have supplied a Hi-Tec rubber-in-compression coupling to
Talley Metals in McBee, South Carolina. This coupling replaced a
competitor’s gear coupling which was proving both costly and
problematic, leaking grease and causing vibration on the wire
draw works.
The mill was so impressed with the reduction in vibration and
lack of maintenance required that they made the decision last
year to install Hi-Tec couplings on all similar applications.
The result is that the mill has been running smoothly with
significantly reduced vibration and both downtime and
maintenance have been cut.
Escalator Drives
5 Renold estimates.
RB Coupling
Renold plc Annual Report and Accounts 2012 Case study 15
Innovation
Our Torque Transmission products are largely bespoke and often form mission critical components
in large, long term projects. Consequently, the extremely high performance characteristics of many
of our products, some of which are manufactured exclusively by Renold, are a highly valuable core
competency which we are seeking to leverage.
Renold also continues to invest in state of the art engineering tools enabling rapid creation of
3D models integrating the Engineering and Manufacturing environment through a state of the
art product lifecycle management system. Any innovations adopted go through rigorous testing
before they are available to customers.
The ongoing commitment to investment in R&D facilities and growing Engineering expertise
in all of the major Renold geographies across Europe, Asia and the Americas ensures that Renold
will continue to provide solutions for the next generation.
Energy
Quarrying and mining
Sales £12.7m Addressable market 5 £300m
Sales £6.1m Addressable market 5 £150m
Increasing demand for energy and the need for dependable
supplies in the emerging economies is a continuing opportunity.
Rapid economic expansion in Asia has created huge demands
on electrical power which has, in turn, led to a massive increase
in the construction of new fossil fuel power stations across the
continent. Renold Gears manufactures and supplies drives for
air pre-heater and boiler applications in power stations.
World demand for extracted commodities such as coal, iron ore,
copper and precious metals remains a key driver of growth.
We are well placed with established business to service the
extractive industries in South Africa and Australia and are
increasing sales and logistics capabilities to build on our
quality engineering. Similar opportunities are being explored
in South America and other African nations.
High quality Renold products reduce the overall cost of ownership
for manufacturers of mobile electricity generation equipment,
who increasingly sell energy rather than equipment.
Renold have replaced rubber-in-shear couplings on underground
mine trucks with the HTB rubber-in-compression coupling.
The ability to design and manufacture to customer specific
dimensions and project manage from concept to supply
means that Renold is specified by many global manufacturers.
The original V type rubber-in-shear couplings were plagued
by constant failure, causing the mine trucks to come to a complete
stop, often blocking important access points. Renold’s coupling
is intrinsically fail safe and maintenance free with severe shock
load protection properties and can operate in temperatures
up to 200 deg. C.
Pre-heater drive
Hi-Tec HTB Coupling
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Annual Report and Accounts 2012 Renold plc
16 Q&A with the Chief Executive
Business review
Q&A with the Chief Executive
Robert Davies discusses the progress of the Group
and the opportunities for growth.
Q
Torque Transmission looks an exciting opportunity.
What are your plans for growing that business?
A
Growing Torque Transmission to equal the scale of the Chain
division is a medium term goal. There are four clearly defined
market sectors to focus on – mass transit, quarrying and mining,
energy and metals. In all four markets Renold has already
established capability and reputation that can be leveraged
into expansion of our product range and geographical presence.
Q
What about the pension deficit – should shareholders
be concerned?
A
We have carried out a number of projects this year to better
understand the full extent of the actual pension liabilities
but also to reduce their ongoing risk. We are pleased to report
reductions in the underlying UK deficits of c. £7m that partly
offset the net movements in market based bond yields and
inflation rates. The movement in bond yields is in no small part
due to the impact of Quantative Easing, which is estimated to
have reduced yields by 100 basis points. The key message is our
liabilities are well understood and are being actively managed
alongside the asset portfolio to reduce the deficit and ultimately
the annual cash costs of the schemes.
Q
And finally, where will the growth and gains come
from in the year ahead?
A
We will continue on the current approach of growing the Torque
Transmission business while protecting its attractive margins.
In Chain the clear focus remains on improving profitability and
the ongoing European restructuring will support that objective.
We have also deployed new working capital management tools
in the business which will combine with the ongoing ERP roll out
to enhance our overall cash performance.
Robert Davies Chief Executive
Q
Another successful performance in challenging
market conditions. How have you achieved it?
A
We started the year with a clear set of targets and initiatives
to grow the business, improve overall profitability and ultimately
to improve our cash generation. Our performance is the result
of focussing on delivering those targets and objectives: in
Torque Transmission we have invested in additional business
development and customer support capability; in Chain we
have embedded the previous year cost reduction initiatives
and followed that up with the acceleration of the European
back office restructuring.
Q
Why do customers choose Renold?
A
At the core of any customer buying decision is the fundamental
question – does this product solve my problem and will it perform
to my expectations? Renold’s reputation for product quality
and performance is our single biggest advantage in persuading
customers to buy Renold. When quality is backed up with
excellent customer service and competitive pricing you then
have a genuine competitive advantage.
Renold plc Annual Report and Accounts 2012 O
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Chief Executive’s review
Directors’ report 17
We have made significant progress on all four
of our key strategic objectives in what has been,
at times, a difficult trading environment.
Overview
Improving economic conditions in most of our world markets
assisted sales growth throughout the year with Europe seeing
a more moderate growth in the second half. Margins improved
in both Chain (75% of Group sales) and Torque Transmission
(25% of Group sales). Our focus on optimising our cost base
continued as we accelerated a project to restructure our
Chain Europe back office to deliver better customer service and
more efficient business processes. A number of working capital
management initiatives were also deployed during the year.
Our objectives for this year included a recovery to pre-recession
levels of underlying profitability while underlying revenues
were expected to still be approximately 10% below their peak.
The drop through rate of incremental revenue to incremental
operating profit was strong at 41% (compared to 30% in the prior
year) and reflects the existing operational gearing in the business
but also the success of further cost reduction initiatives
implemented during the year. Operating profit before exceptional
items has doubled in the year from £7.0m to £14.1m. This in turn
has resulted in adjusted earnings per share more than doubling
to 4.2 pence.
With regard to pensions, we have been actively reviewing
and improving the overall funding of the UK schemes and so,
despite an adverse change in gilt yields of around 100 basis points
from QE that drove down corporate bond yields and contributed
to an increase in liabilities of £16m, offsetting actions and
lower inflation have limited the UK deficit increase to £1.7m.
More detail on the pension position and actions taken can be
found on pages 22 and 23.
During the year we achieved the first implementation
of our global Enterprise Resource Planning (ERP) system
at our Morristown facility in the USA. There were a number
of operational and working capital issues that arose in the
early stages of the project but these were resolved by the
end of the first half. The opportunity was taken to establish
a series of lessons learned and the experience in Morristown will
undoubtedly help in subsequent implementations of the system
in further parts of our business. Over the next 12 months the
Torque Transmission facility at Milnrow in the UK will transfer
onto the new system, as will the Chain business in Canada and
the Chain Europe back office.
This was achieved in large part due to our geographically diverse
sales presence which saw strong growth continuing in the
Americas, South East Asia and India throughout the year,
offsetting a difficult trading environment in Europe in the second
half where the European sovereign debt crises led to significant
volatility in underlying sales growth. A further complication of
the Eurozone crisis itself was a significant strengthening in the
Swiss Franc which led to a year on year reduction in underlying
sales in our third largest European market in the second half of
the year.
The new operating model for our European businesses is set
out in more detail on page 12. We have created a standardised
shared service model for our finance, payroll and inside sales
functions, based at the headquarters of our Chain Europe
business in Manchester, UK. This model will bring benefits
to customer service, working capital management and cost
savings which are expected to be £1.8m p.a. following completion
of the project in 2013/4. The prolonged timetable reflects the
utmost importance attached to maintaining customer service
during the integration process.
During the year the business successfully reduced gearing levels
(measured as a ratio of net debt to rolling 12 month EBITDA) to
1.2 times from 1.7 times last year. In the year, net debt increased
by £2.9m to £22.9m from £20.0m in the prior year. The Group was
able to fund significant sales growth with only limited increases
in working capital for a second year in succession. Average
working capital has continued to be managed down during
the period under review. Continuous improvement was made
in average working capital levels, which finished the year at
22.4% of sales compared to 24.7% last year.
Annual Report and Accounts 2012 Renold plcGovernanceFinancial statements
18 Directors’ report
Business review
Chief Executive’s review
continued
Renold Torque Transmission
Renold Torque Transmission is focused on growth while
maintaining or improving the current strong operating
margins. Government led investment in transport and energy
infrastructure accompanied by private sector demand for
commodities such as iron ore, steel and electricity have supported
sales growth across our key geographies throughout the year.
Torque Transmission, which was already our highest operating
margin division, performed particularly well this year in delivering
10% growth in underlying revenue but also increasing operating
margins to 16.0% from 13.5% in the prior year. The business benefits
from a portfolio of products and services that are customer
specific and solution focussed and which therefore demonstrate
the bespoke, specialised nature of our value-add services.
We have also added capability to our Torque Transmission
division in the shape of additional production capability in our
large manufacturing cell in Beicai, China which was one of the
year’s larger capital investments. In addition, we have invested
in more business development and service support capability
to underpin the four key markets targeted for growth by Torque
Transmission: Mass Transit, Metals, Quarrying and Mining and
Energy. These markets represent approximately 60% of the
division’s revenues and three of the four grew strongly during the
year. In Mass Transit, revenues are driven by timing of customer
tender processes which can vary in duration. We are participating
in a number of major mass transit tenders in North America
and Europe and have reached shortlisting stage in several
which are expected to lead to contract awards in 2012/13.
Our Chinese joint venture, which targets the rapidly expanding
and significant Chinese mass transit market, now has a fully
installed assembly facility that has passed ISO 9001 certification
(Quality Management Systems). Often aligned to the mass transit
market for vehicle gears and couplings is the demand for high
performing safety critical escalator drives. This opportunity exists
on new mass transit systems but also on the refurbishment,
upgrade and expansion of existing stations such as the
Lower East Side Access at Grand Central Station in New York.
Renold Chain
Renold Chain is focussed on improving profitability with growth
as an important facilitator. Chain delivered an operating margin
of 5.9% (2011: 3.3%). This was the result of underlying sales growth
of £12.5m and the full year benefit of the prior year projects
to close the French manufacturing facility in Seclin and the
US warehouse in Hebron, which together reduced our cost base
by approximately £1.5m.
As noted above, growth in regions outside Europe was good for
most of the year. The second half in Europe was volatile and the
specific impact of currency strength in Switzerland negatively
impacted sales growth. Growth of 7% in the second half in the
rest of Europe was offset by falls in underlying Swiss revenues
in the same period.
Renold plc Annual Report and Accounts 2012 Directors’ report 19
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10%Growth in underlying
revenue for our Torque
Transmission division
5.9%
Chain delivered operating
margin of 5.9% which was
a significant increase on the
previous year result of 3.3%
Summary and outlook
A 10% Return on Sales margin aligned to regaining pre-
recessionary levels of underlying sales remains our firm goal.
Our Torque Transmission business is making excellent progress
in leveraging existing skills, capabilities and reputation. Torque
Transmission has achieved double digit growth while further
enhancing already attractive operating margins. The business
is now expanding its geographical reach by focussing on four key
target markets which show strong underlying growth prospects.
Our aim for Torque Transmission is to maintain the double digit
level of growth in the year ahead and ultimately equal the
revenue scale of Chain.
Chain is rapidly improving its operating profitability and the
European back office restructuring project is a clear sign of
the continued focus on improving our cost base and business
processes while enhancing customer service for future growth.
Prospects in most of the world remain good with some under-
exploited opportunities still remaining in large markets such
as South America. Since the performance of the Chain division
is more closely linked to global economic activity, the current
uncertainty in Europe will reduce growth prospects below
the strong double digit levels seen in the last two years.
Nevertheless, Renold benefits from market leading positions,
a good geographic portfolio and superior products, all of which
are driving growth from an increasingly optimised cost base.
We remain very confident about the long term future of Renold.
Key performance indicators
The Group’s key performance indicators are set out on page 45
of the Statutory information section of the Directors’ report
and are incorporated by reference here.
Robert Davies
Chief Executive Officer
Annual Report and Accounts 2012 Renold plcGovernanceFinancial statements
20 Directors’ report
Business review
Finance Director’s review
The momentum we created in 2011 continued into
the current year, with significant growth in sales
and profitability. Heightened focus on the effective
management of working capital and our cost base
will provide a strong platform for sustained future
growth and cash generation.
Revenue
Revenue for the year increased by 9.7% to £209.5m following a
22% increase in the preceding year to £191.0m. On an underlying
basis, excluding the impact of foreign exchange, the increase
was 8.9%. Underlying revenue growth in the second half was
negatively impacted by the weak macro-economic situation
in Europe.
Operating result
The Group generated £6.3m of operating profit before exceptional
items in the first half (2011: £3.1m) and £7.8m in the second half
(2011: £3.9m) with a full year result of £14.1m (2011: £7.0m). The
improved result was due to the combination of increased sales
and benefits from cost reduction initiatives implemented at the
end of the prior year. The incremental revenue resulted in a strong
‘drop through’ to the profit line of approximately 41%.
During the year, the Group continued to streamline its operations
to achieve greater efficiency. The reorganisation of our Chain
Europe business is now at an advanced stage and the business
is already benefitting from the cost savings and operational
efficiencies of this project to create a standardised shared service
model for finance, payroll and inside sales. This project was the
main constituent of the exceptional charges of £2.1m for the year
(2011: £2.7m charge). Further details of the exceptional items are
given in Note 2(c) to the Group financial statements.
Financing costs
External net interest costs in the year were £2.5m (2011: £2.1m).
Net IAS 19 finance charges (which are a non-cash item) were
£1.8m (2011: £3.6m); the movement being due to lower interest
charges on pension plan liabilities in the UK and overseas. The fall
in discount rates this year means that we expect next year’s net
IAS 19 financing charge to fall further by around £1.5m.
Result before tax
Profit before tax and exceptional items was £9.7m (2011: £1.4m).
The profit before tax after exceptional items was £7.6m
(2011: loss of £1.3m).
Brian Tenner Finance Director
Our performance
Overview
Revenues and profitability saw significant growth during the
year ended 31 March 2012, building on the achievements of
the previous year. Cash generation was sufficient to fund the
European reorganisation, £5.9m of capital investment and £5.2m
of ongoing pension payment obligations. At the same time,
the Group took advantage of a number of pension deficit
reduction opportunities that should ultimately result in a
significant fall in our underlying UK pension scheme deficits
after the effects of Quantitative Easing on corporate bond
and gilt yields have diminished.
Renold plc Annual Report and Accounts 2012 Directors’ report 21
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Taxation
The current year tax charge of £1.2m (2011: tax credit of £0.4m)
is made up of a current tax charge of £1.0m (2011: charge of £0.8m)
and a deferred tax charge of £0.2m (2011: credit of £1.2m). The
charge represents an effective adjusted rate of approximately
17% (2011: 10%). The Group cash tax paid was much lower at £0.5m
(2011: £0.1m) and the difference is due to the utilisation of tax
losses and other tax assets in various parts of the Group.
Bank facility
During the period, the Group reached an agreement to extend
its principal banking facility with the existing syndicate members
led by The Royal Bank of Scotland plc, with Fortis Bank S.A./N.V.
The key terms of this facility were effective from 13 August 2009
with a Multi-Currency Revolving Credit Facility (MRCF) of £20.0m
and a Sterling overdraft facility of £5m. The facility expires on
30 June 2013. The Group expects to agree new banking facilities
in the coming year.
Group results for the financial period
Profit for the financial year ended 31 March 2012 was £6.4m
(2011: loss of £0.9m); the basic earnings per share and the diluted
earnings per share were 2.8p (2011: loss 0.4p). The basic adjusted
earnings per share and diluted adjusted earnings per share were
4.2p (2011: 2.0p).
Balance sheet
Net assets at 31 March 2012 were £53.2m (2011: £56.9m). The net
liability for retirement benefit obligations was £45.2m (2011:
£42.0m) after allowing for a net deferred tax asset of £10.5m
(2011: £9.5m). Overseas schemes now account for £21.3m (47%)
of the post tax pension deficits and £19.1m of this is in respect
of the German scheme which is not required to be prefunded
(see Pensions section on pages 22 and 23).
Cash flow and borrowings
Cash generated from operations was £5.9m (2011: £6.6m).
Capital expenditure was reduced to £5.6m (2011: £6.6m), to
partially mitigate £4.3m working capital increases supporting
sales growth of £18.5m. Group net borrowings at 31 March 2012
were £22.9m (2011: £20.0m) comprising cash and cash
equivalents of £4.8m (2011: £7.4m) and borrowings, including
preference stock, of £27.7m (2011: £27.4m).
This is the Group’s principal credit facility although the Group
also benefits from numerous overseas facilities totalling £21.1m.
At 31 March 2012 the Group had unused credit facilities totalling
£19.8m and cash balances of £4.8m. Total Group credit facilities
amounted to £46.1m with £30.6m being committed.
Treasury and financial instruments
The Group’s treasury policy, approved by the Directors, is to
manage its funding requirements and treasury risks without
undertaking any speculative risks. Treasury and financing
matters are assessed further in the section on Principal risks
and uncertainties on page 24. Note 25 to the Group financial
statements provides further details of financial instruments.
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 2012,
this hedge was fully effective. The carrying value of these
borrowings at 31 March 2012 was £8.1m (2011: £8.1m).
At 31 March 2012, the Group had 4% (2011: 4%) of its gross debt
at fixed interest rates. Cash deposits are placed short term with
banks where security and liquidity are the primary objectives.
The Group has no significant concentrations of credit risk
with sales made to a wide spread of customers, industries
and geographies. Policies are in place to ensure that credit risk
on individual customers is kept to a minimum.
Contracts essential to the business of the Company
The section on Contractual or other arrangements essential
to the business on page 48 of the Statutory information section
of the Directors’ report is incorporated by reference here.
Annual Report and Accounts 2012 Renold plcGovernanceFinancial statements
22 Directors’ report
Business review
Finance Director’s review
continued
Pensions
Detailed information on the Group’s pension schemes is
set out in Note 18 to the Group financial statements, including
the key assumptions used by the actuaries in arriving at the
IAS 19 funding position.
Overseas asset values rose by £0.1m and include a residual
scheme surplus of £1.6m in South Africa which will be returned
to the sponsoring company when the official scheme liquidator
completes the formal wind up process. The overseas asset
portfolio earned an average annual return of 1%.
The Group’s three UK defined benefit pension schemes, the
Renold Group Pension Scheme (RGPS), the Renold Supplementary
Pension Scheme 1967 (RSPS) and the Jones and Shipman plc
Retirement Benefit Plan (J&S), were closed to new entrants in
2002 and to future accrual in 2008 and 2009. The replacement
arrangement set up at that time is the Renold Personal Pension
Plan, a defined contribution plan which is administered by
Fidelity International.
The Group is currently conducting the latest triennial review
process with the trustees of the J&S UK pension scheme with
a valuation date of 5 April 2012. Results of the triennial review
should be available at the time of the Group’s final results
in May 2013. This scheme currently accounts for £0.3m of the
total £2.5m annual UK deficit repair payments and has the
best funding position of the three UK schemes.
During the year ended 31 March 2012, total UK assets were
unchanged at £149.1m. UK asset performance reflects actual
asset returns of £7.4m (circa 5%) and employer contributions
of £3.4m less the funding of £10.8m of pension benefits.
Brian Tenner
Finance Director
Pensions
The Group has a mix of UK (82% of gross liabilities) and overseas (18%) defined benefit pension obligations as shown below.
Defined benefit schemes
UK funded
Overseas funded
Overseas unfunded
Deferred tax asset
Net deficit
Assets
£m
149.1
14.3
–
163.4
2012
Liabilities
£m
(180.6)
(17.3)
(21.2)
(219.1)
Deficit
£m
(31.5)
(3.0)
(21.2)
(55.7)
10.5
(45.2)
Assets
£m
149.1
14.2
–
163.3
2011
Liabilities
£m
(178.9)
(15.4)
(20.5)
(214.8)
Deficit
£m
(29.8)
(1.2)
(20.5)
(51.5)
9.5
(42.0)
UK Membership
UK Assets
47%
37%
16%
18%
52%
29%
Pensioners
Dependents
Deferred
Gilts
Bonds
Equities
Other
1%
The pie charts show the current make up of UK pension scheme
membership and asset allocation as at 31 March 2012.
Given the relative maturity of the scheme 47% of assets are now
invested in gilts and corporate bonds. It is expected that these are
held to maturity and they are held primarily to generate an income
stream that supports the ongoing annual pension payments made
(currently circa £10.8m per annum including cash lump sums on
retirement).
The overall target for UK portfolio returns is 6.6% less an allowance
of 0.5% for expenses.
The membership profile has changed over the last decade with
53% of members being either pensioners or dependents today
compared to 48% in 2002.
The total number of scheme members has fallen by 39% since 2002
to 5,478 today. Of this reduction, net mortality explains 51% with a
further 8% due to net leavers from the schemes (whether through
the recent Trivial Commutation exercises or members opting to
transfer their entitlements elsewhere).
Renold plc Annual Report and Accounts 2012 Directors’ report 23
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The chart shows the assets and liabilities of the Group’s UK
defined benefit pension schemes. The chart also shows the
estimated impact on liabilities of the Bank of England’s program
of Quantitative Easing (QE).
The impact of QE on bond yields (and hence pension discount rates)
has been estimated by the Bank and the National Association of
Pension Funds at 100 basis points (or 1%).
This suggests that without the impact of QE the UK pension schemes
would have an IAS 19 funding ratio of 95%. In other words the
UK pension deficit excluding the impact of QE would be around £8.1m.
Note 18 to the financial statements explains that a 0.1% change in
discount rate reduces deficit by £2.3m.
The chart shows the key drivers of change for the Group’s UK defined
benefit pension schemes over the last year.
The Group has undertaken a number of proactive initiatives
including an offer to members of a Pension Increase Exchange (PIE)
where uncertain future inflation rises on some benefits are swapped
for an immediate one off increase.
The Group has also conducted extensive reviews of actual member
experience over the last decade on mortality and proportions of
members leaving a dependent pension liability. Actual experience
has been significantly favourable to the scheme funding positions
and the gains shown reflect this history and expected continuation.
The Group has increased the assumed CPI discount to RPI from 0.75%
to 1.0% which is in line with consensus views.
The chart also shows the impact of lower discount rates driven by
QE and underlying market inflation rates on the schemes deficits.
For the Group’s largest UK pension scheme, the RGPS which
represents 81% of UK members and 65% of UK liabilities,
the chart shows the numbers of pension years liabilities in
each 5-year age bracket of membership (denoted by the bars).
The lines on the chart show the expected mortality experience
for the last decade based on UK standard assumptions compared
to the actual experience of the scheme.
The scheme clearly has significantly higher mortality experience
than the UK average and hence the use of heavy mortality tables
in the actuarial assumptions.
The area between the two lines has an approximate liability value
of £10m if applied across all members.
UK IAS 19 funding basis
£m
180.6
157.6
149.1
185
180
175
170
165
160
155
150
145
140
135
Assets
Liabilities
Liabilities
excluding QE
Drivers for change in UK Deficit
Discount rate
Inflation/CPI
Mortality
Dependents
PIE
Other
-25
-20 -15
-10
(15.4)
8.1
0.7
5.3
1.3
(1.7)
-5
£m
0
5
10
15
Pensioner mortality experience 2002-2012
)
s
r
a
e
y
e
f
i
l
(
e
r
u
s
o
p
x
E
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
)
s
r
e
b
m
u
n
(
y
t
i
l
a
t
r
o
M
525
450
375
300
225
150
75
0
4
5
-
0
2
9
5
-
5
5
4
6
-
0
6
9
6
-
5
6
4
7
-
0
7
9
7
-
5
7
4
8
-
0
8
9
8
-
5
8
0
2
1
-
0
9
Age band
Exposure
Actual
S1PA standard
mortality
Annual Report and Accounts 2012 Renold plcGovernanceFinancial statements
24 Principal risks and uncertainties
Business review
Principal risks and uncertainties
Renold’s risk management framework is designed to
identify and assess the likelihood and consequences
of risk and to manage the actions necessary to
mitigate their impact.
Set out below are the known principal risks and uncertainties
which could have a material impact on the Group together
with the corresponding mitigating actions that have been
taken by the Group. Additional risks not currently known or
which are currently regarded as immaterial could also affect
future performance.
Status Risk
Market risks
Nature of risk and potential impact
Mitigation
Economic and
political
We operate in 20 countries and sell to customers in over 100 and therefore
we are necessarily exposed to significant economic, political and business risks
such as a global recession, sudden changes in regulation, imposition of trade
barriers and wage and currency controls, security risk and volatility of taxes.
Raw material
price volatility
Perceived increase in risk due to the current macro-economic climate
particularly in the Eurozone.
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. 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.
Competitive
markets and
technology
advancements
Renold operates in highly competitive markets with customer decisions
based typically on price, quality, technology and service. New entrants or
consolidation of existing competitors could restrict our ability to delivery
strategic objectives.
Renold may lose customers to competitors if we are unable to adapt to market
developments due to changes in consumer preferences, regulatory or industry
requirements or competitive technologies.
Operational risks
Manufacturing
disruption
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 material 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.
ERP system
implementation
The Group is presently implementing a global ERP system to replace numerous
legacy systems. The risk continues that an unsuccessful implementation at an
individual site could seriously impact the Group’s business, financial condition,
prospects, customer retention and results of operations.
Risks have reduced by virtue of the experience gained and lessons learned
during the US implementation. This will enable us to resolve issues in advance
of future implementations.
Our diversified geographic footprint mitigates
against over-exposure in any one country.
Executive team monitor macro-economic trends,
industry specific and internal leading indicators.
Contingency planning and scenario modelling.
Continual monitoring of different international
steel price indices for alternate types and grades
of steel.
Where contractually possible, we pass price
increases on to our customers but this ability is,
to some extent, dependent upon market conditions.
Stock holdings are managed to maintain a forward
hedge on input costs and time buffer to allow
negotiations with customers and suppliers.
Continual review of market trends and competition
in monthly executive sessions.
Investment in new technology and engineering
capabilities.
Maintain strong customer relationships and high
service levels.
Dedicated production and supply chain teams
focused on demand fulfilment.
Preventative maintenance programme.
Inventory maintained to absorb and flatten out
raw material supply and production volatility.
The Group has insurance cover to mitigate the
impact of a number of these risks.
Use of specialist external consultants to advise
on the project.
Recruitment of experienced personnel.
Phased implementation.
Project plan is in place with agreed milestones
reviewed by the Board.
Product liability
and warranty
claims
Product quality issues could lead to exposure to product liability and warranty
claims in the event that a product fails.
Quality assurance embedded in robust
manufacturing systems.
Policy of contractually limiting liability and duration
of warranties.
Maintenance of product liability insurance.
Renold plc Annual Report and Accounts 2012
Principal risks and uncertainties 25
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Status Risk
Nature of risk and potential impact
Mitigation
Operational risks continued
Environmental
risks
Unforeseen legislative changes may increase manufacturing costs but we
believe that they can also drive change to make operations more efficient.
Health and safety
in the workplace
A lack of robust safety processes and procedures could result in accidents
involving Renold employees and others on Renold premises potentially
causing damage to Renold’s reputation and financial performance.
Monitor environmental legislation at a local level
in order to anticipate the effect on our businesses
and customers.
Groupwide health and safety policies and
procedures.
Health and safety audits and reporting at all sites.
Continual risk assessments and to ensure education
of risks.
Regular tracking of accident rates and root cause
analysis via a new risk system.
People
A lack of technical expertise or management skills could adversely impact
the Group’s ability to serve its customers and damage financial performance.
Competitive reward programmes, and focused
training and development.
Financial risks
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.
Foreign exchange
rate volatility
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.
Translational exposure: arises due to exchange rate fluctuations in
the translation of the results of overseas subsidiaries into Sterling.
Ongoing reviews of succession plans based on
business need.
The Group engages in active dialogue with various
banks to match funding needs with appropriate
facilities.
Cash deposits are placed short term with banks
where security and liquidity are the primary
objectives.
Constant management focus to enhance working
capital management processes.
Our global ERP system implementation is a
part of that working capital improvement plan.
The Board has approved a net cash flow hedging
strategy for major currencies that extends for four
quarters on a rolling diminishing coverage basis.
Transactions are covered primarily by forward
foreign exchange contracts or cash flow hedges.
Dollar denominated borrowings taken out in the UK
to finance US acquisitions have been designated as
a hedge of the net investment in US subsidiaries.
Interest rate
volatility
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.
Facility in place for interest rate swaps to manage
part of this exposure if volatility arises.
Pensions deficit
volatility
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 longevity of members.
Continual review of the risks in relation to the
Group’s pension schemes tracked in the risk
management system. See Financial Director’s
review on pages 20 to 23 for details of actions
taken in the year.
Group is represented by a Company nominated
trustee on the investment committee which
sets the asset strategies of its pension plans.
Annual Report and Accounts 2012 Renold plc
26 Directors’ report
Business review
Responsibilities
We believe that consideration of corporate social
responsibility is integral to ensuring the protection
of the long term interests of our shareholders.
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, disability, gender 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.
Following implementation of the UK Bribery Act, the Group
has put in place training for all members of staff whose roles
involve working in environments or activities where there is a
perceived risk. Other control processes and revisions to formal
contractual arrangements with agents and distributors have
also been put in place in order to comply with the requirements
of the Act.
The highest standards of ethical business conduct are required
of our employees in the performance of their duties. Employees
may not engage in conduct or activity that may raise questions
as to Renold’s honesty, impartiality, or reputation or otherwise
cause embarrassment to the Group. Our employees are required
to neither offer nor accept improper and/or illegal gifts,
hospitality or payments.
Every Renold employee has the responsibility to ask questions,
seek guidance and report suspected violations of the Group’s
code of ethics.
A free of charge, independent whistleblowing hotline is available
to all employees across the Group, enabling them to report
any concerns about theft, fraud and other malpractice in
the workplace.
Employees
The motivation and commitment of our employees is essential
to drive forward our business. Talent is key to our success and we
therefore aim to attract and retain motivated, effective people.
During the year ended 31 March 2012 we focused on the following
activities across the Group:
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 and helps
with employee retention.
Engaging our people
We have placed a strong emphasis on employee communications
and two way feedback and the Group’s intranet site enables easy
access to the latest Group information as well as Group policies.
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 encourage the
involvement of employees in the Group’s performance and
to aid internal communications across the Group, we have
bulletin boards for the sharing of knowledge and information
across the world. This helps to achieve a common awareness
amongst employees of the financial and economic factors
affecting the performance of the Group.
Environment
Renold is committed to managing its activities to provide
appropriate levels of care for the environment, for customers
and for employees. In particular, Renold seeks to develop and
manufacture products that 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 operations
in compliance with relevant statutory provisions concerning
environmental matters.
Renold plc Annual Report and Accounts 2012 Directors’ report 27
Four sites within the group have become accredited with the
ISO 14001 Environmental Management standard and a further
site recently began to implement the standard. The systems
introduced will assist in ensuring that Renold meets all legal
requirements, continues its efforts in preventing pollution and
improves its environmental performance across all its activities.
Renold remains compliant with the Government’s Carbon
Reduction Commitment scheme and has submitted both a
carbon footprint report and annual return to the environmental
agency on behalf of the impacted UK sites.
The Group continues to strive to reduce its energy costs and the
impact of its activities on the environment. With this aim in mind,
there has been a number of energy saving initiatives during the
year ended 31 March 2012, including the following:
An energy saving programme at the UK Gears facility
highlighted the need to update the power factor correction
equipment that dated back to the 1980s, with the project
paying back in less than a year.
Our Morristown site in the USA is in the process of replacing
outdated and inefficient metal halide lights with more efficient
electronic ceramic fittings. The project is subject to 70% rebate
from the utility supplier, resulting in a six month return on a
significant investment.
The UK Chain facility carried out a full review of the entire
waste disposal system, which has resulted in one contractor
providing a total waste management service. This will result
in improved waste management and a reduction in waste
going to landfill, as more opportunities for recycling have
been identified.
Arrangements are being made for energy management
consultants to undertake energy saving surveys at two more of
our UK sites to assist in producing energy saving programmes.
Renold’s facility in India has significantly improved an outside
area where a large amount of waste ‘husk’ material was stored.
The product is used in the de-burring and polishing operations
to absorb coolant. The product is now stored in barrels prior to
being disposed of by licensed contractors.
As part of the manufacture of ‘sprag’ clutches, bar material
has to be drawn through dies and as a result becomes work
hardened, that then requires an annealing process to soften
the material. This process was carried out on all bar material
irrespective of hardness values which has now been changed
to only anneal based on hardness values and has resulted in
gas furnace savings.
We will continue to explore further energy saving and
environmental projects in the future.
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.
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Annual Report and Accounts 2012 Renold plc
28 Directors’ report
Business review
Responsibilities
continued
Developing capability
We strongly believe it is essential to maintain our skill pool.
A good example of this is the commitment to a healthy flow
of apprentices being recruited, trained and then permanently
employed across our factories in the UK. For example, at our
Bredbury factory two apprentices have recently completed their
apprenticeship and went into permanent skilled engineering
roles with other apprentices reaching completion with a view
to securing design engineer roles within the business.
At the Renold Gears facility we have an Apprentice Training
School where apprentices spend their first year learning
basic engineering skills, before transferring to the shopfloor
and other areas of the business such as planning, quality,
purchasing and distribution so that they also gain an
appreciation and awareness of the wider business operations
and how these work together.
The apprentices themselves value this mix of formal learning
and the ‘hands on’ experience they gain from working
alongside their colleagues. There are currently 20 apprentices in
the training school at various stages of a four year programme
with plans to recruit more in September 2012.
We have also sponsored two ex-apprentices to undertake
degrees in engineering at a local university. Renold also
participates in other youth programmes, such as work
experience and work shadowing, and liaise closely with various
universities which conduct relevant research. We serve our
engineering pipeline through these relationships with key
universities and through sponsorship.
Health and safety
Renold is committed to providing a safe workplace for all
its employees and those affected by its activities.
The Board regularly reviews health and safety performance
and monitors that any issues identified are promptly addressed.
The following charts show the Group’s health and safety
performance for the five years to 31 March 2012. Further details
of the lost time accident frequency rate and reportable injury rate
can be found on page 45 of the statutory information section of
the Directors’ report.
Renold recognise that a strong performance in health and safety
is important to the business, to the employees and to those who
may be affected by Renold’s activities. Critically, a safe business
is more likely to be a profitable one. Towards the end of 2011,
Renold commissioned a third party to benchmark two sites
against relevant legislation and industry standards. This exercise
has helped Renold to review its existing management systems
and highlight where they can be improved. As a result, Renold
are piloting a culture development programme at the main
UK chain manufacturing site and further reviews are planned
to assess three other sites.
Further, the Group is completing the introduction of an integrated
risk management system, whereby incidents from all sites are
logged, investigated and actioned accordingly. The system
allows the collection, review and analysis of health, safety and
environmental data globally, further heightening awareness
throughout the Group.
Renold plc Annual Report and Accounts 2012 Directors’ report 29
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Our Hi-Tec Couplings site in the UK became the first within Renold
to successfully achieve OHSAS 18001, the management system
for Occupational Health and Safety and a second site will begin
working towards the standard in 2012. All sites develop specific
health and safety plans to highlight areas that require particular
attention and are monitored on a regular basis by the health and
safety team. Where accidents do occur, Renold are keen that any
lessons are learned swiftly and that findings are shared throughout
the Group to prevent recurrence. Root cause analysis of incidents
is carried out to identify common issues and solutions.
The Group aims to achieve zero accident and incident levels
by identifying and mitigating occupational health hazards and
raising awareness at all levels. During the year ended 31 March
2012, Renold delivered a 39% reduction in the average lost time
accident frequency rate within the Group, which reflects the
focus given to this key risk area by management. In addition, a
number of sites have recorded zero reportable injuries in the year.
Working days lost are the direct result of workplace injuries and
accidents. They also have a clear impact on business performance
and productivity. Management actively engage with affected
employees to ensure a healthy return to work plan that delivers
lower days away from the work place.
The Group uses the UK average manufacturing index for
Reportable Incident Rates (RIR) as the performance benchmark for
each of our locations. That benchmark is a score of 1,500 or lower.
Sites with a score in excess of 1,500 are required to implement
remediation actions to improve their performance.
Average lost time accident frequency rates
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2009
2010
Year
2011
2012
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2009
2010
Year
2011
2012
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2009
2010
Year
2011
2012
The lost time accident frequency rate is calculated using the rolling lost
time accident figure for the year to date divided by the number of hours
worked in the year and multiplied by 1,000,000 thus providing the lost
time accident rate per 1,000,000 hours worked.
Annual Report and Accounts 2012 Renold plc
30 Directors’ report
Governance
Board of Directors
Matthew Peacock
Chairman
Robert Davies
Chief Executive
Brian Tenner
Finance Director
David Shearer
Senior Independent Non-Executive Director
John Allkins
Non-Executive Director
Ian Griffiths
Non-Executive Director
Mark Harper
Non-Executive Director
Renold plc Annual Report and Accounts 2012 Directors’ report 31
Matthew Peacock
Chairman
Matthew, aged 50, 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 20 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 Group plc
and Regenersis plc. Matthew will be standing down from
the Board at the Annual General Meeting on 12 July 2012.
Robert Davies
Chief Executive
Robert, aged 58, 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 Vice Chairman
of Economic Solutions Limited. His previous experience includes
his role 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
12 years spent in the US.
Brian Tenner
Finance Director
Brian, aged 43, joined the Group in September 2010 as Finance
Director and was also appointed Company Secretary on 3 January
2012. Until 31 August 2010, he was Group Finance Director and a
member of the Board of Scapa Group plc. Prior to this, he was Group
Finance Director for the former British Nuclear Group. Brian held
various Finance Director posts within National Grid and his first
industry role was as Head of Investor Relations of the Lattice Group
plc. His early career was spent with PricewaterhouseCoopers where
he qualified as a chartered accountant and he completed several
extended international assignments and a wide range of consulting
and corporate finance projects.
David Shearer
Senior Independent Non-Executive Director
David, aged 53, was appointed to the Board in May 2007 as the
Senior Independent Non-Executive Director. He is an experienced
corporate financier and turnaround specialist and was previously
Senior Partner of Deloitte LLP for Scotland & Northern Ireland and
a UK Executive Board member of Deloitte LLP. He is Chairman of
Mouchel Group plc, Deputy Chairman of Aberdeen New Dawn
Investment Trust plc, Senior Independent Director of Martin
Currie (Holdings) Limited, STV Group plc and Superglass Holdings
plc and a Non-Executive Director of Mithras Investment Trust plc.
He was previously Chairman of Crest Nicholson plc and a
Non-Executive Director of City Inn Limited where he stood down
after successfully completing the financial restructuring of these
businesses, was a Non-Executive Director of Scottish Financial
Enterprise and a Governor of The Glasgow School of Art.
David will be standing down from the Board at the Annual
General Meeting on 12 July 2012. A process to select a new
Senior Independent Non-Executive Director is underway.
John Allkins
Non-Executive Director
John, aged 62, was appointed to the Board and to the chair of
the Audit Committee in April 2008. He is also a Non-Executive
Director of Fairpoint Group plc, Albemarle & Bond Holdings plc
and Linpac Senior Holdings Limited and was previously a
Non-Executive Director of Intec Telecom Systems plc and Molins plc.
Prior to this he was Group Finance Director of MyTravel Group plc
and was also Chief Financial Officer of Equant NV.
Ian Griffiths
Non-Executive Director
Ian, aged 61, was appointed to the Board in January 2010 and to
the chair of the Remuneration Committee in November 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. He has also held Executive Director
roles at 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.
Mark Harper
Non-Executive Director
Mark, aged 56, was appointed to the Board as a Non-Executive
Director and Chairman-elect on 1 May 2012. He will take on the
role of Chairman in succession to Matthew Peacock at the close
of the Annual General Meeting on 12 July 2012. Mark became
the Chief Executive of Filtrona plc at the time of its demerger
from Bunzl plc in June 2005 and led a successful period of growth
until his retirement in May 2011. Prior to this, he held a number
of senior operational management positions within Bunzl plc
and was appointed to the Bunzl plc Board in September 2004.
Mr Harper is currently a Non-Executive Director of BBA Aviation plc.
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Annual Report and Accounts 2012 Renold plc
32 Directors’ report
Governance
Corporate governance
The Group is committed to high standards of corporate
governance in order to facilitate efficient, effective and
entrepreneurial management of the Company. Your Board
acknowledges its contribution to achieving management
accountability, improving risk management and ultimately to
creating shareholder value over the longer term. This statement
describes how the principles of corporate governance contained
in the UK Corporate Governance Code issued by the Financial
Reporting Council in June 2010 (the Governance Code), to which
the Company is subject for the year ended 31 March 2012, have
been applied. The Governance Code is available to view on the
Financial Reporting Council’s website at www.frc.org.uk.
Board evaluation
The Board is supportive of the principle of evaluation of the Board,
as set out in paragraph B.6 of the Governance 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 during the year
ended 31 March 2012.
Compliance with the Governance Code
The Board considers that the Company has complied with all
relevant provisions set out in the Governance Code throughout
the year ended 31 March 2012 except where highlighted below.
Board independence
The Chairman, Matthew Peacock, is and has been throughout the
year ended 31 March 2012 a principal of Hanover Investors Limited,
which until 17 November 2011 was a significant shareholder of
the Company.
Leadership and Effectiveness
Composition
During the year ended 31 March 2012, the Board comprised 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 set out in
writing and agreed by the Board. The Chairman’s primary role
is to ensure the effectiveness of the Board in setting the direction
of the Company and the agenda of the Board. The Chief Executive
has the responsibility for managing the business and implementing
the strategy agreed by the Board. Biographical details of the
Directors as at the date of this report appear on pages 30 and 31.
Board operation
The Board has approved a schedule of matters reserved for
decision by it to ensure that it takes all major strategy, policy and
investment decisions affecting the Group. The Board provides
entrepreneurial leadership of the Company within a framework of
prudent and effective controls which enables risk to be assessed
and managed. In addition, it is responsible for business planning,
including reviewing succession planning and risk management
and the development of Group policies for areas such as health,
safety and environmental, Directors’ and senior managers’
remuneration and ethics. The Executive Directors have authority
to deal with all other matters affecting the Group. Appropriate
ongoing training is provided for the Board and individual directors
as required.
Feedback is provided to the Board following presentations to
investors and meetings with shareholders in order to ensure
that its members, and in particular Non-Executive Directors,
develop an understanding of the views of major shareholders
about their Company.
Matthew Peacock was, until 30 July 2011 the Chairman of the
Company’s former broker and financial adviser, Singer Capital
Markets Limited (Singer). The Board had discussed and approved
this appointment and had agreed that until this date he would
not be involved in any discussions relating to the evaluation of
Singer’s performance, fee negotiations or termination of the
relationship with Singer.
Matthew Peacock’s other significant commitments are detailed
in his biography on page 31.
David Shearer, the Senior Independent Director, is, and has
been throughout the year ended 31 March 2012, a director of
STV Group plc, a company of which Matthew Peacock was a
director until his resignation on 19 January 2012.
John Allkins is, and has been throughout the year ended
31 March 2012, a director of Fairpoint Group plc, a company
of which Matthew Peacock is also a director.
Whilst the Company is obliged to disclose the existence of
cross-directorships by paragraph B.1.1 of the Governance Code,
the Board has discussed the independence issue and concluded
that the existence of cross-directorships does not prevent a
Director from being independent and therefore considers that each
of David Shearer, John Allkins and Ian Griffiths are independent
as they all act with complete independence of character and
judgement in respect of their dealings with matters pertaining
to Renold plc and are free from any business or other relationship
which could affect their judgement.
Renold plc Annual Report and Accounts 2012 Directors’ report 33
Number attended
Board
Audit
Committee
Nomination
Committee
Remuneration
Committee
Risk
Monitoring
Committee
8
Matthew Peacock
Robert Davies1
8
Brian Tenner1
8
8
David Shearer
8
John Allkins
7
Ian Griffiths
Mark Harper2
–
Total number of meetings 8
–
4
4
3
4
4
–
4
–
–
–
–
–
–
–
–
1
2
–
3
3
3
–
3
–
4
4
–
–
–
–
4
1
Robert Davies and Brian Tenner attended Remuneration Committee and
Audit Committee meetings by invitation.
2 Mark Harper was appointed to the Board with effect from 1 May 2012 and
therefore attended no meetings during the year.
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. Committee membership may not be refreshed
as frequently as would be the case for a company with a larger
board. However, the Board is satisfied that no undue reliance is
placed on particular individuals. Hannah Woodcock, as Company
Secretary, acted as secretary to all of these committees except
the Remuneration Committee until Brian Tenner’s appointment
as Company Secretary on 3 January 2012. Maggie Hurt
(the Group Human Resources Director) acts as secretary to
the Remuneration Committee. The terms of reference for each
of these committees are available on the Company’s website
at www.renold.com.
The Board includes a balance of Executive and Non-Executive
Directors and is of the opinion that all of the Directors take
decisions objectively and in the best interests of the Company
and that no individual or small group of individuals can dominate
the Board’s decision taking.
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, who ensures that Board
procedures are complied with. Updates are provided to the Board
at regular intervals in order to refresh the Directors’ knowledge.
All new Directors are initially appointed upon recommendation
by 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,
subject to the Company’s articles of association and to the
provisions of the Companies Act 2006 relating to the removal
of a Director, thereafter at intervals of no more than three years,
subject to continued satisfactory performance.
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 on 12 July 2012 (Annual General Meeting),
Matthew Peacock will be stepping down from the Board
and David Shearer will not be offering himself for re-election.
Therefore the requirement for one-third of the Directors to retire
at the Annual General Meeting has been met.
Mark Harper will be elected as a Director at the Annual General
Meeting in accordance with the Company’s articles of association.
Biographical details of Mark Harper are contained in the notice
of the Annual General Meeting.
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.
Annual Report and Accounts 2012 Renold plcOverviewBusiness reviewGovernanceFinancial statements 34 Directors’ report
Governance
Corporate governance
continued
Composition
Role
Activities
John Allkins (Chairman)
David Shearer
Ian Griffiths
The review of the Group’s
financial statements, internal
financial control systems,
ethics policy, internal
audit reports and the
appointment/reappointment
and independence of
the external auditors and
conduct of the external audit.
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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 those from the internal audit function)
attend meetings from time to time at the invitation of the Audit
Committee. The external auditor, who attends by invitation,
is 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 performance and
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 auditor, the Audit Committee has approved a policy
on non-audit services provided by the auditors in line with
professional practice. The policy is discussed in further detail
on page 36 under ‘Review of the work of the external auditor’
and is available on the Company’s website at www.renold.com.
The Audit Committee met four times during the year ended
31 March 2012. In the course of these meetings the Audit
Committee considered matters which included the following:
• Internal controls: The Audit Committee considered 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 auditor 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 which was used to facilitate a discussion
of performance.
• Risk monitoring: The Risk Monitoring Committee reported
the results of its discussions to the Audit Committee.
• 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 auditor 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 International
Financial Reporting Standards (IFRSs). It also reviewed papers
prepared by the Board to support key judgements and their
related disclosures in accordance with IFRS.
• Whistleblowing: The Audit Committee review the Group’s
procedures for staff to raise concerns about financial reporting
or other misconduct in confidence. The Audit Committee
consider any and all reports summarising the concerns raised,
how these were investigated and follow-up action taken.
Renold plc Annual Report and Accounts 2012
Directors’ report 35
Composition
Role
Activities
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.
e
e
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.
Ian Griffiths (Chairman)
David Shearer
John Allkins
Robert Davies (Chairman)
Brian Tenner
Maggie Hurt
Mike Christmas
Stephen Gates
Mike McClure
Andrew Monkhouse
e
e
t
t
i
m
m
o
C
n
o
i
t
a
r
e
n
u
m
e
R
e
e
t
t
i
m
m
o
C
g
n
i
r
o
t
i
n
o
M
k
s
i
R
There were no new appointments during the year ended
31 March 2012. Mark Harper was appointed to the Board as
a Non-Executive Director and Chairman-elect on 1 May 2012.
Mark Harper was appointed following an evaluation of
a number of candidates. Mark Harper’s appointment was
made on merit and against objective criteria based upon
his skills experience, independence and knowledge of the
company and the process for his appointment was led by
the Nomination Committee through the use of experienced
external recruitment consultants, which recommended the
appointment to the Board.
The Remuneration Committee is currently chaired by
Ian Griffiths. In addition, it comprises John Allkins and
David Shearer, both of whom are Non-Executive Directors.
Robert Davies and Matthew Peacock attend meetings from
time to time at the invitation of the Remuneration Committee.
The Directors’ remuneration report is set out on pages 38 to 43.
Robert Davies is and has been throughout the year ended
31 March 2012 a Non-Executive Director of Economic Solutions
Limited. He is not remunerated for such services.
Details of advice taken by the Remuneration Committee
during the year ended 31 March 2012 is contained within
the Directors’ remuneration report on pages 38 to 43
which is incorporated by reference here.
The Risk Monitoring Committee is chaired by the Chief
Executive and is comprised of the Executive Directors, the
Group Human Resources Director, the Group Engineering
Director, the Managing Director of European Chain, the Group
IT Director and the Group Head of Business Process and
Assurance. Prior to Hannah Woodcock’s resignation as
Company Secretary on 3 January 2012, the Company Secretary
was also a member of the Risk Monitoring Committee.
The Risk Monitoring Committee meets and reports to the
Audit Committee at least twice each year. For the year ended
31 March 2012, the Risk Monitoring Committee met four times
as more frequent consideration of the risks to the Group
and their reporting to the Audit Committee was felt to be
appropriate. It is intended that, in future, the Risk Monitoring
Committee will meet quarterly.
The Risk Monitoring Committee considers the principal risks to
the Group and the appropriate actions to be taken to minimise
such risks. It is also provided with information in the form of
reports on health and safety, treasury, insurance and material
litigation. The Chairman of the Risk Monitoring Committee
reports to the Audit Committee.
Annual Report and Accounts 2012 Renold plcOverviewBusiness reviewGovernanceFinancial statements
36 Directors’ report
Governance
Corporate governance
continued
Review of the work of the external auditor
The annual appointment of the external auditor is subject to the
approval of the Company’s shareholders and the Audit Committee
regularly reviews the relationship between the Group and the
external auditor. 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 auditor. The Group has implemented a policy of
controlling the provision of non-audit services by the external
auditor in order to ensure that its 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 2012, 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 ending 31 March 2013.
A full breakdown of the audit and non-audit related fees is
set out in Note 2(b) to the financial statements on page 65.
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 auditor does not impair
its independence or objectivity and considers that the Company
receives particular benefit from the advice provided by its
external auditor, given its wide and detailed knowledge of the
Group and its international operations. An assignment would
not be given to the external auditor when the result may be that:
as part of the statutory audit, it is required to report directly on
its own non-audit work; it makes management decisions on
behalf of the Group; it acts as advocate for the Group; or the
level of non-audit fees is such, relative to audit fees, as to raise
concerns about its ability to form objective judgements.
The Audit Committee, having considered the external
auditor’s performance during their period in office, recommends
its reappointment.
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 the Board thinks fit when
giving any authorisation. Any decision of the Board to authorise
a conflict of interest is only effective if it is approved 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 Board considers that the procedures
it has in place for reporting and considering conflicts of interest
are effective and a review of previously approved conflicts is
carried out annually.
Internal control
The Board has overall responsibility for the Group’s system of
internal control including financial, operational and compliance
controls and risk management systems, and for reviewing
internal control effectiveness. The ongoing process, in accordance
with the Financial Reporting Council’s ‘Internal Control: Revised
Guidance for Directors on the Combined Code (October 2005)’,
of review of the system of internal controls by the Directors, to
identify, evaluate and manage the significant risks faced by the
Group, has been in place for the year ended 31 March 2012 and up
to the date of approval of this report and the financial statements.
Internal controls and the risk management process are reviewed
on a regular basis by the Audit Committee, which reports directly
to the Board, and the Risk Monitoring Committee, which reports
to the Audit Committee and, ultimately, to the Board.
During the year ended 31 March 2012, the responsibility to review
internal control effectiveness was discharged by the Audit
Committee and reported to the Board as follows:
• receiving and considering regular reports from the internal
audit function on the status of internal control across the
Group. The Audit Committee also reviewed the internal audit
function’s findings, annual audit plan and the resources
available to it to perform its work;
• reviewing the external auditor’s findings on internal financial
control; and
• monitoring the adequacy and timeliness of management’s
response to identified audit issues.
The executive team is accountable to the Directors for
implementing Board policies on internal control and for
monitoring and reporting to the Board that it has done so.
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 and risk
management systems are:
• a Risk Monitoring Committee which oversees, on behalf of the
Audit Committee and, ultimately, the Board, that appropriate
policies are implemented to identify and evaluate risks. As
part of the Group’s efforts to ensure continuous improvement,
a review has been commissioned to ensure that risk management
processes continue to meet the needs of the Group;
• access for all Group employees to a free of charge, independent
whistleblowing hotline enabling them to report any concerns
about theft, fraud or 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;
• 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;
Renold plc Annual Report and Accounts 2012 Directors’ report 37
• procedures for the appraisal, approval and control of capital
investment proposals;
• procedures for the appraisal, approval and control of
acquisitions and disposals;
• monitoring procedures which include a system of key financial
controls self assessment questionnaires; and
• enhancements in internal controls will also be achieved in
future from the standardisation of processes and core
transactional controls as supported by the implementation
of the new ERP system.
There are also in place internal control systems in relation to the
Company’s financial reporting process and the Group’s process
for preparation of consolidated accounts. These systems include
policies and procedures that: pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect
transactions and dispositions of assets; provide reasonable
assurance that transactions are recorded as necessary to permit
the preparation of financial statements in accordance with IFRSs;
require representatives of the businesses to certify that their
reported information gives a true and fair view of the state of
affairs of the business and its results for the period; and review
and reconcile reported data. The Audit Committee is responsible
for overseeing these internal control systems.
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 Renold Internal Control Statement contains details of such
matters as Group signing authorities, contracting principles and
ethics policy 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 has been fully rolled out across the Group.
Throughout the year ended 31 March 2012, the Group has
undertaken a review of its policies and procedures in preparation
for the implementation of the Bribery Act 2010, including
appropriate employees having undertaken training.
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 50 which is incorporated by reference here.
Communications with shareholders
Communications with shareholders are given high priority.
The Board is accountable to shareholders and therefore, 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 Non-Executive
Directors make themselves available to meet shareholders
on request, attend shareholder visits at Company sites and are
available for discussions with analysts and the Company’s broker.
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 8 to 29.
At other times during the year, presentations are given by the
Executive Directors to analysts and updates provided 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 Senior Independent Non-Executive Director does not
generally attend meetings with shareholders although makes
himself available to attend such meetings if and when required.
Whilst the Company is not in compliance with paragraph E1.1
of the Governance Code, the Chairman ensures that the
Chief Executive and Finance Director provide feedback to the
Board following presentations to investors and meetings with
shareholders and analysts’ and brokers’ briefings are circulated
to all Directors 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 provides an opportunity for
communication with private and institutional investors.
Shareholders are encouraged to attend the Annual General
Meeting and we welcome their participation.
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
and shareholders are invited to talk informally to the Directors
after the formal proceedings.
Other information
The Company’s website at www.renold.com, which 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 99. 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.
Annual Report and Accounts 2012 Renold plcOverviewBusiness reviewGovernanceFinancial statements 38 Directors’ report
Governance
Directors’ remuneration report
This Directors’ remuneration report has been prepared on behalf
of the Board and is subject to the approval of shareholders at the
Annual General Meeting.
Remuneration Committee and advisers
The 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 2012
are contained in the Corporate governance section of the
Directors’ report on pages 30 to 37 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), Ian Griffiths (Chairman),
John Allkins and David Shearer, none of whom has any personal
financial interest other than as a shareholder, in the matters to
be decided.
The Chief Executive and the Chairman attend meetings of the
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 ended 31 March 2012, the Remuneration
Committee appointed and received advice from Ernst & Young LLP
in respect of the payment of Executive Directors’ bonuses
in shares.
The Remuneration Committee meets as often as necessary to
discharge its duties, which during the year ended 31 March 2012
was on three 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.
The performance conditions to which the Executive Directors’
entitlement to share options are subject are detailed under the
section of this Directors’ remuneration report titled Long term
incentive arrangements on page 39 and are incorporated by
reference here.
In fixing remuneration packages, the Remuneration Committee
has regard to the compensation commitments that would result
in the event of early termination.
The Remuneration Committee also takes into account the pay
and employment conditions of employees within the Group when
determining Executive Directors’ remuneration. During the year
ended 31 March 2012, pay rises for Executive Directors were in line
with average percentage increases of salaries across the Group.
The proportion of the Group’s basic salary bill attributable to the
Executive Directors’ base salaries for the year ended 31 March 2012
was 0.78% (2011: 0.83%).
In line with the Association of British Insurers’ Guidelines on
Responsible Investment Disclosure, the Remuneration Committee
ensures that the incentive structure for the Executive Directors
will not raise environmental, social or governance risks
by inadvertently motivating irresponsible behaviour. The
Remuneration Committee has discretion to consider corporate
performance on environmental, social or governance issues
when setting the remuneration of the Executive Directors.
Incentive arrangements are structured so as to motivate
Executive Directors to deliver high standards of performance,
without encouraging excessive risk taking. In addition, and
as described below, a significant proportion of the short term
annual bonus for the Executive Directors for the year ended
31 March 2012 will be paid in shares with a requirement, subject
to certain exceptions, that the shares be held for three years,
thereby providing a longer term performance horizon for the
annual bonus.
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.
Renold plc Annual Report and Accounts 2012 Directors’ report 39
The Remuneration Committee recently reviewed Robert Davies’
and Brian Tenner’s base salary in the context of the overall
business performance. The current salary levels of the Executive
Directors who served on the Board during the year ended
31 March 2012, effective from the date shown, are set out below:
• Robert Davies £290,700 effective from 1 January 2011; and
• Brian Tenner £185,000 effective from 1 January 2011
Benefits in kind
Benefits consist of a fully expensed company car (or cash
equivalent) and private medical insurance, in addition to
life assurance. The value of benefits is not pensionable.
Pensions
The Executive Directors are not members of the Company
pension scheme and they have their own pension arrangements.
Details of the Company’s contributions to these pension
arrangements are provided on page 42 of this Directors’
remuneration report. 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
Bonus payments are based on Group financial targets and
personal objectives for each Executive Director, set by the
Remuneration Committee. Maximum bonus payments are
made only upon the achievement of outstanding performance.
Bonuses are not pensionable. For Robert Davies and Brian Tenner,
the maximum annual bonus during the year ended 31 March 2012
was 100% (£290,700 and £185,000 respectively) of base salary.
Objectives are set at the start of the financial year and are
determined by reference to performance targets based on the
Group’s financial results (with 34% based on adjusted EBIT
and 33% on average ratios of working capital to sales each
quarter). The balance of 33% is based on specific individual
targets derived from critical business objectives.
For the year ended 31 March 2012, a bonus was awarded to
Robert Davies of £127,181 and to Brian Tenner of £80,938. In both
cases this reflects achievement of bonus targets of 35%. It also
includes a matching purchase of shares for the quarter of the
bonus award that is paid in shares. The bonus mechanism and
metrics set for the year ended 31 March 2012 will remain in place
for the forthcoming year with 50% of potential awards based on
cash and working capital improvements, 30% based on EBIT
and 20% based on specific individual targets.
A decision was taken in principle during the year ended 31 March
2010 to change the criteria structure of the short term bonus
scheme for Executive Directors to more closely align it with
shareholders’ interests. For the year ended 31 March 2012 and in
future years, a significant portion (25% of the bonus payable in
respect of the year ended 31 March 2012) 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 unless the Executive
Director’s employment with the Company terminates during
this period, in which case, the required holding period will
also terminate. The Company makes an additional matching
purchase of shares on behalf of each Executive Director and
these are subject to the same conditions.
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.
At 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.
Annual Report and Accounts 2012 Renold plcOverviewBusiness reviewGovernanceFinancial statements 40 Directors’ report
Governance
Directors’ remuneration report
continued
2004 Option Plans continued
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
under the 2004 Option Plans prior to 31 March 2009, 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
3
annualised compound growth in the Company’s adjusted EPS
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%
For options granted during and since 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 share options as follows:
Share price (p)
30
40
50
60
% of shares under option
that become exercisable4
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 and since 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. Therefore aligning the performance conditions 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 share options being granted
to ensure that they remain appropriate given the Company’s
expectations of future performance.
Other long term incentive plans
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 ended 31 March 2012 under the
SAYE Scheme and all options previously granted under the
SAYE Scheme have now lapsed.
Details of the market price of shares in the Company at the end
of the year and the highest and lowest market price, are set out
in Note 20 to the financial statements.
3 Being basic EPS from continuing operations less exceptional items
4 With the corresponding number of shares being rounded down to the
after tax.
nearest whole number.
Renold plc Annual Report and Accounts 2012
Directors’ report 41
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:
Date of contract
Robert Davies
2 March 2004
Brian Tenner
1 Sept 2010
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
Association of British Insurers’ and 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.
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 his duties.
Chairman’s and Non-Executive Directors’ fees
The contractual fee levels paid to the Chairman and Non-Executive
Directors as at 31 March 2012 are set out on the next page.
Matthew Peacock
David Shearer
John Allkins
Ian Griffiths
£80,0005
£40,5006
£40,500
£38,000
Appointment details
The details of the appointments of the Chairman and Non-
Executive Directors who have served during the year ended
31 March 2012 are as follows:
Date of
appointment
21 Sept 2006
1 May 2007
17 April 2008
13 Jan 2010
Unexpired term
(approximate
months from
31 May 2012)
5
12
23
7
Date of election/
last re-election
21 Sept 2009
21 Sept 2009
15 July 2010
15 July 2010
Matthew Peacock
David Shearer
John Allkins
Ian Griffiths
The letters of appointment of the Chairman and 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, the appointment may be renewed, provided
that both the Non-Executive Director and the Board agree.
The letters of appointment contain no provision for payment
or compensation on early termination. Copies of the individual
letters of appointment are available for inspection by
shareholders at the Annual General Meeting.
5 Matthew Peacock’s fee is paid to Hanover Investors Management LLP
for the provision of his services as Non-Executive Director.
6 David Shearer’s fee was paid to Buchanan Shearer Associates LLP for the
provision of his services as Non-Executive Director from 1 January 2012.
Annual Report and Accounts 2012 Renold plcOverviewBusiness reviewGovernanceFinancial statements 42 Directors’ report
Governance
Directors’ remuneration report
continued
Directors’ remuneration (audited information)
The remuneration for each of the Directors for the year ended 31 March 2012 is as set out below:
Salaries and fees
(£000)
Annual bonus
(£000)
Cash
(£000)
Non-cash
(£000)
Total
(£000)
Year ended 31 March 2012
Benefits
Year ended
31 March 2011
Total
(£000)
Executive Directors
Robert Davies7
Brian Tenner8
Peter Bream9
Non-Executive Directors
Matthew Peacock10
David Shearer11
John Allkins12
Ian Griffiths13
291
185
–
476
70
39
39
36
660
127
81
–
208
–
–
–
–
208
44
10
–
54
–
–
–
–
54
32
1
–
33
–
–
–
–
33
494
277
–
771
70
39
39
36
955
631
162
96
889
50
36
35
31
1,041
The Company did not provide separate pension contributions for Robert Davies during the year ended 31 March 2012, his pension
contributions were paid as a cash allowance of £43,605 (£35,696 for the year ended 31 March 2011). Pension contributions of
£27,750 were paid during the year ended 31 March 2012 for Brian Tenner (£14,183 for the year ended 31 March 2011 for the period
from commencement of this employment on 27 September 2010) and £nil for Peter Bream (£13,500 for the year ended 31 March 2011
for the period to termination of his employment on 30 September 2010), in each case, being 15% of base salary.
Robert Davies received a non-cash benefit of £32,000 for his company car and private healthcare. Brian Tenner received a cash benefit
of £10,000 for his company car allowance and £1,000 non-cash benefit for private healthcare.
Mark Harper’s fee as a Non-Executive Director was equivalent to £40,000 per annum and will increase to £110,000 per annum when
he becomes Chairman at the Annual General Meeting.
Directors’ beneficial interests in shares (unaudited information)
The beneficial interests of the Directors who held office at 31 March 2012 and their connected persons in the ordinary shares of the
Company were as follows:
Matthew Peacock14
Robert Davies
Brian Tenner
David Shearer
John Allkins
Ian Griffiths
31 March 2012
Nil
924,409
240,831
68,442
Nil
Nil
31 March 2011
24,688,990
723,669
50,000
68,442
Nil
Nil
No Directors held non-beneficial interests in the ordinary shares of the Company as at 31 March 2012 or at the date of this report.
There have been no other changes in the interests of Directors in the share capital of the Company between 31 March 2012 and the
date of this report.
7 £43,605 was agreed to be paid to Robert Davies as salary instead of his contractual pension contribution.
8 Brian Tenner was appointed as Finance Director with effect from 27 September 2010.
9 Peter Bream resigned as Finance Director with effect from 27 September 2010.
10 Matthew Peacock’s fee is paid to Hanover Investors Management LLP for the provision of his services as Non-Executive Director. Matthew Peacock’s fee
was increased from £50,000 to £80,000 with effect from 1 August 2011.
11 David Shearer’s fee was increased from £35,000 to £40,500 with effect from 1 August 2011.
12 John Allkins’ fee was increased from £35,000 to £40,500 with effect from 1 August 2011.
13
Ian Griffiths’ fee was increased from £32,500 to £38,000 with effect from 1 August 2011.
14 Matthew Peacock was indirectly interested in all of these shares through Hanover I Master Fund LP/Vidacos Nominees Limited. Hanover sold 12,000,000
shares on 29 September 2011 and 12,688,990 shares on 21 November 2011.
Renold plc Annual Report and Accounts 2012 Directors’ report 43
Directors’ share options as at 31 March 2012 (audited information)
Robert Davies
Number of share options
Executive Scheme
Total
Brian Tenner
Executive Scheme
Total
Options
held at
1 April 2011
146,799
557,835
117,439
117,439
2,456,896
–
3,396,408
Options
held at
1 April 2011
678,898
–
678,898
Granted
–
–
–
–
–
779,356
779,356
Lapsed
–
–
–
–
–
–
–
Number of share options
Granted
–
495,978
495,978
Lapsed
–
–
–
Options
held at
31 March
2012
146,799
557,835
117,439
117,439
2,456,896
779,356
4,175,764
Options
held at
31 March
2012
678,898
495,978
1,174,876
Option
price (p)
65.14
74.93
52.45
97.24
23.20
37.30
Date
from which
exercisable
11.03.2007
02.09.2007
26.07.2009
02.01.2010
05.02.2013
08.06.2014
Expiry date
10.03.2014
01.09.2014
25.07.2016
01.01.2017
04.02.2020
07.06.2021
Option
price (p)
27.25
37.30
Date
from which
exercisable
27.09.2013
08.06.2014
Expiry date
26.09.2020
07.06.2021
There have been no other changes in the interests of Directors in the share options between 31 March 2012 and the date of this report.
The performance conditions to which the share options are subject are disclosed on pages 39 and 40 and are included in this audited
information section by reference. None of the terms and conditions of the share options were varied in the year.
The market value of shares in the Company at 31 March 2012, was £80.1m and the highest and lowest values during the year were
22p and 42p respectively.
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 shares in the Company against a hypothetical holding of shares in the
FTSE All-Share/ Industrial Engineering 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
Apr 07
Apr 08
Apr 09
Apr 10
Apr 11
Apr 12
Renold plc
FTSE All-Share/Industrial Engineering
Approved by the Board
Brian Tenner
Finance Director and Company Secretary
28 May 2012
Annual Report and Accounts 2012 Renold plcOverviewBusiness reviewGovernanceFinancial statements 44 Directors’ report
Governance
Statement of Directors’ responsibilities in relation
to the Group financial statements and Annual Report
The directors are responsible for preparing the Annual Report
and the Group financial statements in accordance with applicable
United Kingdom law and regulations. Company law requires
the directors to prepare Group financial statements for each
financial year. Under that law, the directors are required to
prepare Group financial statements under IFRSs as adopted
by the European Union.
Under Company Law the directors must not approve the
Group financial statements unless they are satisfied that they
give a true and fair view of the state of affairs of the Group and
of the profit or loss of the Group for that period. In preparing
the Group financial statements the directors are required to:
• Present fairly the financial position, financial performance
and cash flows of the Group;
• 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;
• make judgements that are reasonable;
• provide additional disclosures when compliance with the
specific requirements in IFRSs as adopted by the European
Union 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; and
• state whether the Group financial statements have been
prepared in accordance with IFRSs as adopted by the European
Union, subject to any material departures disclosed and
explained in the financial statements.
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.
The directors are also responsible for preparing the Directors‘
Report, the Directors‘ Remuneration Report and the Corporate
Governance Statement in accordance with the Companies Act
2006 and applicable regulations, including the requirements
of the Listing Rules and the Disclosure and Transparency Rules.
The Directors who were members of the Board at the time of
approving the Directors’ report are listed on pages 30 and 31.
Having made enquiries of fellow Directors and of the Company’s
auditor, each of these Directors confirms that:
• to the best of each Director’s knowledge and belief, there is
no information (that is, information needed by the Group’s
auditor in connection with preparing its report) of which the
Company’s auditor is unaware; and
• 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 auditor
is aware of that information.
Each of the Directors listed on pages 30 and 31 confirms that,
to the best of his knowledge:
• the consolidated 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 profit
of the Company and the undertakings included in the
consolidation taken as a whole; and
• the Directors’ report, including the Business review (comprising
pages 8 to 29) includes a fair review of the development
and performance of the Company and the undertakings
included in the consolidation taken as a whole, together with
a description of the principal risks and uncertainties they face.
On behalf of the Board:
Robert Davies
Chief Executive
Brian Tenner
Finance Director
Renold plc Annual Report and Accounts 2012 Statutory information
Directors’ report 45
The Directors submit their report and the financial statements as
set out on pages 49 to 88. The Directors’ Report, which comprises
pages 17 to 48, incorporates the management report and corporate
governance statement required under the Financial Services
Authority’s Disclosure and Transparency rules for listed companies.
In compiling this report, the Directors have consulted with
the management of the Company and its subsidiaries.
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 which are sold
in over 100 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 is 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 8 to 29.
Results
Profit for the year ended 31 March 2012 before tax is £7.6m
compared with a loss of £1.3m for the year ended 31 March 2011.
The profit for the year is £6.4m (a loss of £0.9m for the year ended
31 March 2011).
Key performance indicators
At Board level, the most important key performance measures
are summarised below together with details of performance in
the current and prior year:
Operating profit before
exceptional items
Return on sales15
Average working capital
as a percentage of sales16
Adjusted earnings per share17
Group reportable injury rate (RIR)18
2012
£14.1m
6.7%
22.4%
4.2p
960
2011
£7.0m
3.7%
24.7%
2.0p
1,227
15
Operating profit before exceptional items as a percentage of sales.
16 Working capital is the sum of inventories, trade and other receivables
17
and trade and other payables.
This is basic earnings per share from continuing operations before
exceptional items after tax.
18 The RIR is calculated by dividing the number of reportable injuries in a year
by the average number of Group employees for the year and multiplying
by 100,000. The figures show an improved RIR in the year compared to
RIR of 1,227 for the year ended 31 March 2011. There has also been a 39%
reduction in the average lost time accident frequency rate compared
to the rate for the year ended 31 March 2011 which included all injuries
involving more than eight hours of lost working time and therefore
also reportable injuries. The target remains to minimise the RIR.
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.
Directors
The Directors’ biographical details can be found on pages 30
and 31 and are incorporated by reference here. All Directors
were Directors throughout the year.
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.
Under the terms of reference of the Nomination Committee,
appointments to the Board 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 of this Directors’ report on
pages 32 to 37.
Directors’ interests
Details of the interests of the Directors and their connected
persons in the Company’s share capital and in options held under
the Company’s 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 38 to 43. 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.
Statement of Directors’ responsibilities
Please refer to page 44 for the statement of Directors’
responsibilities in respect of the Annual Report and for the
Directors’ statement as to disclosure of information to auditors.
Employees
As at 31 March 2012, the Group employed 2,569 people, including
644 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.
Annual Report and Accounts 2012 Renold plcOverviewBusiness reviewGovernanceFinancial statements 46 Directors’ report
Governance
Statutory information
continued
Employment policies continued
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.
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
These disclosures are included in Note 18 to the Group financial
statements on page 76 and incorporated by reference here.
The 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 UK defined benefit pension schemes 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.
The Company obtained shareholder authority at the 2011 Annual
General Meeting to make market purchases of up to 21,956,470
ordinary shares in the Company, which remains outstanding until
the conclusion of the 2012 Annual General Meeting. The minimum
price which must be paid for any ordinary share is the nominal
value of such share at the time of the purchase and the maximum
price is that permitted under the Financial Services Authority’s
Listing Rules or, in the case of a tender offer, 5% above 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 tender offer is announced. 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
22,106,445 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 19 to the Group financial statements
on page 79.
The rights and obligations attaching to the Company’s shares
are contained in the Company’s 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.
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 boards of trustees of the
principal schemes.
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.
The Group has reviewed its UK pension position, along with
its other pension provisions around the world. Following
consultation in the UK, two of the defined benefit schemes were
closed to future accrual from August 2008 and the remaining
defined benefit scheme from June 2009, and the Renold Personal
Pension Plan, a group personal pension plan, which is not trust
based and is contracted in, has been offered to employees.
Shares
Share capital
As at 31 March 2012, the issued share capital of the Company was
£26,971,657.75 divided into 219,564,703 ordinary shares of 5p each,
580,482 units of 6% cumulative preference stock of £1 each and
77,064,703 deferred shares of 20p each. The ordinary shares
represent 40.70%, the preference stock represents 2.15% and the
deferred shares represent 57.14% of the Company’s total share
capital. The Company’s ordinary shares and 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.
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 ordinary share capital of the
Company at that time and circa 1.6% of the current ordinary share
capital) with a subscription price of 21.06p per share (subject
to amendment on any changes to the Company’s share capital
structure). 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.
Renold plc Annual Report and Accounts 2012 Directors’ report 47
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 31 March 2012, 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:
Dividends
Details about dividend policy are set out on page 56 of the Group
financial statements.
The Board has decided to recommend that no ordinary dividend
be paid in respect of the year ended 31 March 2012, but it will
consider future dividend policy in the light of results from the
business going forward.
Dividend payments in respect of the 6% cumulative preference
stock in the Company were made on 1 July 2011 and 1 January 2012.
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.
Shareholder
Henderson Global Investors Limited
Prudential plc group of companies
M&G Investment Funds 319
JPMorgan Asset Management
Holdings Inc.
Blackrock, Inc.20
Gartmore Investment Limited
Cazenove Capital Management Limited
Hargreave Hale Limited
Rights and Issues Investment Trust plc
Legal & General Group plc
Number of
voting rights
32,077,466
30,007,234
21,977,803
11,979,586
11,582,295
10,958,081
10,591,636
9,933,956
7,180,000
6,755,100
% of total
number of
voting rights
14.60
13.66
10.00
5.46
5.28
4.99
4.82
4.52
3.27
3.07
Issue of shares
The Directors are authorised to issue equity securities either by
way of a rights issue or in any other way, provided that the shares
issued other than by way of a rights issue, open offer or other
pre-emptive offer or under the various share option schemes
of the Company be limited to shares with an aggregate nominal
value of £548,911.75, being equal to 5% of the aggregate nominal
amount of the Company’s ordinary share capital in issue as at the
date of the notice of the Company’s 2011 Annual General Meeting.
The authority will expire at the forthcoming Annual General
Meeting. The Directors will seek authority from shareholders
at the Annual General Meeting to issue equity securities either
by way of a rights issue or in any other way, provided that the
shares issued other than by way of a rights issue, open offer
or other pre-emptive offer or under the various share option
schemes of the Company be limited to shares with an aggregate
nominal value of £552,661.13.
19 M&G Investment Funds 3 Open Ended Investment Company (OEIC)
and is not a Prudential group company and must be separately disclosed.
The Prudential plc group holding of 13.66% includes the 10% holding
of M&G Investment Funds 3 as M&G Investment Management Ltd is
a wholly owned subsidiary of Prudential plc.
20 Subsequent to the year ended 31 March 2012, the Company was
notified by Blackrock, Inc. of a reduction in its shareholding to 10,736,840
ordinary shares.
The Company allotted 1,499,750 fully paid ordinary shares on
16 May 2012 pursuant to the exercise of Warrants by Fortis Bank
UK Branch at a price of 21.06p per share. Following this allotment,
the number of ordinary shares in issue increased to 221,064,453
ordinary shares of 5p each.
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.
In addition, the Directors have authority to allot shares up to
a maximum nominal amount of £7,311,504.60, representing
approximately two thirds of the issued ordinary share capital
as at the date of the notice of the Company’s 2011 Annual
General Meeting. 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 £7,361,446.28, representing
approximately 66.6% of the issued ordinary share capital as at
the date of the notice of the Annual General Meeting.
Annual Report and Accounts 2012 Renold plcOverviewBusiness reviewGovernanceFinancial statements 48 Directors’ report
Governance
Statutory information
continued
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.
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
section of this Directors’ report on pages 24 and 25, and in Note 25
to the Group financial statements on pages 83 to 87.
Policy on payment of suppliers
Under the supervision of the head office of the Group, 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. It is intended that such policy will remain in place
for the year ending 31 March 2013.
As at 31 March 2012, trade creditors of the Group’s businesses
in the UK and overseas represented 86 days’ purchases, compared
with 99 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.
No other material contracts contain change of control provisions.
Contracts of significance
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.
Note 18 to the Group financial statements on pages 76 to 79
details the Group’s obligations to contribute to the UK defined
benefit pension schemes and is incorporated by reference here.
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
Related party transactions which took place during the year
ended 31 March 2012 are set out in Note (xii) to the Company
financial statements on page 97 which are incorporated by
reference here.
Important events affecting the Group
since 31 March 2012
Note 27 to the financial statements refers to post balance sheet
events and is incorporated by reference here.
Brian Tenner
Group Finance Director and Company Secretary
28 May 2012
Renold plc Annual Report and Accounts 2012 Independent auditor’s report
Financial statements 49
To the members of Renold plc
We have audited the Group financial statements of Renold plc for
the year ended 31 March 2012 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 27.
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 auditor’s 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 auditor
As explained more fully in the Statement of Directors’
Responsibilities in relation to the Group financial statements set
out on page 44, 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
and express an opinion on 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.
In addition, we read all the financial and non-financial information
in the Annual Report and accounts to identify material
inconsistencies with the audited financial statements. If we
become aware of any apparent material misstatements or
inconsistencies we consider the implications for our report.
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 2012 and of its profit 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
We have nothing to report in respect of the following:
• 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 Financial Services Authority’s Listing Rules we are
required to review:
– the Directors’ statement, set out on page 37, 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; and
– certain elements of the Directors’ remuneration report.
Other matter
We have reported separately on the parent company financial
statements of Renold plc for the year ended 31 March 2012 and
on the information in the Directors’ remuneration report that
is described as having been audited.
Gary Harding
(Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
Manchester
28 May 2012
Annual Report and Accounts 2012 Renold plcOverviewBusiness reviewGovernanceFinancial statements 50
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 IFRSs
as adopted by the EU. 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 parent company financial
statements in accordance with UK GAAP; these are presented
on pages 89 to 98. The financial statements were approved by
the Board on 28 May 2012.
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 Business review
section of the Directors’ report on pages 8 to 29.
The financial position of the Group, its cash flows, liquidity
position and borrowing facilities are described in the Business
review section of the Directors’ report on pages 8 to 29. In
addition Note 25 to the financial statements includes the Group’s
objectives, policies and processes for managing its capital, its
financial risk management objectives, details of its financial
instruments and hedging activities and its exposure to foreign
exchange, credit and interest rate risk. Further details of
the Group’s cash balances and borrowings are included in
Notes 13, 14 and 24 of 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 and cash flow forecasts, financial instruments
and hedging arrangements for at least the twelve month period
from the date of signing the annual report. 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 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 accounts.
Changes in accounting policy and disclosures
The accounting policies adopted are consistent with those of
the previous year.
The Group has adopted all applicable amendments to standards
with an effective date from 1 April 2011. Adoption of these revised
standards and interpretations did not have any material impact
on the financial performance or position of the Group.
No standards or interpretations have been adopted before the
required implementation date.
The Group has not adopted the following pronouncements,
which have been issued by the International Accounting
Standards Board (IASB) but are not effective for the year
ended 31 March 2012.
International Accounting Standards (IAS/IFRSs)
IAS 1
IAS 12
IAS 19
IAS 27
IAS 28
IAS 32
IFRS 7
IFRS 7
IFRS 9
IFRS 10
IFRS 11
IFRS 12
IFRS 13
Presentation of Items of
Other Comprehensive Income
Income Taxes (Amendment) –
Deferred Taxes: Recovery of
Underlying Assets
Employee Benefits (revised)
Separate Financial Statements
Investments in Associates and
Joint Ventures
Offsetting Financial Assets and
Financial Liabilities
Financial Instruments: Disclosures
(amendment)
Disclosures Offsetting Financial Assets
and Financial Liabilities
Financial Instruments: Classification
and Measurement
Consolidated Financial Statements
Joint Arrangements
Disclosures of Interests in
Other Entities
Fair Value Measurement
Effective date1
1 July 2012
1 January 2012
1 January 2013
1 January 2013
1 January 2013
1 January 2014
1 July 2011
1 January 2013
1 January 2015
1 January 2013
1 January 2013
1 January 2013
1 January 2013
With regard to the specific change in IAS 19 relating to the
restriction on the expected rate of return on scheme assets to
the interest rate on post-employment obligations, the impact
on current year profit after tax would have been a reduction of
£0.8m. However, adjusted profit after tax, which is the metric
commonly used in assessing financial performance and which
excludes exceptional items and IAS 19 financing charges, would
have been unchanged.
The Group is currently assessing the impact of IFRS 11 on
the financial position but it is not expected to be material.
All other revisions and amendments to standards and
interpretations are not expected to have a material impact
on the Group’s results or financial position.
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.
Renold plc Annual Report and Accounts 2012 51
Basis of consolidation – The consolidated financial statements
incorporate the financial statements of the Company and entities
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.
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. 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 company, 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 re-translation 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 other comprehensive income. On loss of control of a foreign
entity, related exchange differences previously recognised in
other comprehensive income are recognised in the income
statement as part of the gain or loss on sale.
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.
Exceptional items – Items which individually or, if of a similar type,
in aggregate, are material to an understanding of the Group’s
financial performance are separately disclosed as memorandum
information on the face of the income statement.
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.
Taxation – The tax charge comprises current tax payable and
deferred tax.
The Group is subject to taxes in numerous jurisdictions. The
current tax charge represents an estimate of the amounts
payable to tax authorities in respect of taxable profits. It is based
on tax rates and laws that have been enacted, or substantively
enacted, by the balance sheet date.
Deferred income tax is provided in full, using the liability method,
on temporary differences arising between the tax bases of assets
and liabilities and their carrying amounts in the consolidated
financial statements. Currently enacted, or substantively
enacted, tax rates as at the balance sheet date are used in
the determination of deferred income tax.
Deferred income tax assets are recognised to the extent that it is
probable that future taxable profit will be available against which
the temporary differences can be utilised or taxable profit will be
available against which unused tax losses can be utilised before
they expire.
Deferred income tax is provided on temporary differences arising
on investments in subsidiaries except where the timing of the
reversal of the temporary difference can be controlled by the
Group and it is probable that the temporary difference will not
reverse in the foreseeable future.
The carrying amount of deferred income tax assets is reviewed
at each balance sheet date and reduced to the extent that it is
no longer probable that sufficient taxable profit will be available
to allow all or part of the deferred income tax asset to be utilised.
Unrecognised deferred income tax assets are reassessed at each
balance sheet date and are recognised to the extent that it has
become probable that future taxable profit will allow the deferred
tax asset to be recovered.
Deferred income tax relating to items recognised directly in other
comprehensive income is recognised in other comprehensive
income and not the income statement. Similarly, income tax is
charged or credited to equity if it relates to items that are credited
or charged directly to equity. 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.
Annual Report and Accounts 2012 Renold plcOverviewBusiness reviewGovernanceFinancial statements 52
Financial statements
Accounting policies
continued
Business combinations and goodwill – prior to 1 April 2010
The purchase method of accounting was used to account for
the acquisition of subsidiaries of the Group. 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.
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.
Business combinations and goodwill – post 1 April 2010
There have been no business combinations post 1 April 2010.
IFRS 3R will apply for any business combinations prospectively
and will result in the following changes in accounting treatment
from the policy adopted prior to 1 April 2010.
• Acquisition costs incurred will be expensed and included in
expenses.
• Contingent consideration will be recognised at fair value
at the acquisition date. Subsequent changes to the fair
value of the contingent consideration will be recognised in
accordance with IAS 39 either in the profit or loss or in other
comprehensive income.
Interests in joint ventures
The Group has a contractual arrangement with another party
which represents a joint venture whereby there is an agreement
to share control over a jointly controlled entity. The Group
recognises its interest in the entity’s assets and liabilities using
the equity method of accounting. Under the equity method,
the interest in the joint venture is carried in the balance sheet
at cost plus post-acquisition changes in the Group’s share of its
net assets, less distributions received and less any impairment
in value of individual investments. The Group income statement
reflects the share in the jointly controlled entity’s results after tax.
Intangible assets
(a) 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 seven years. Costs
associated with maintaining computer software programmes
are recognised as an expense as incurred.
(b) 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.
Property, plant and equipment – Property, plant and equipment
are stated at cost, being purchase cost plus any incidental costs
of acquisition, less accumulated depreciation.
Depreciation is calculated on a straight-line basis so as to charge
the depreciable amount of the respective 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.
Where the carrying amount of an asset is greater than its
estimated recoverable amount, it is written down immediately
to its recoverable amount.
Gains and losses on disposals are determined by comparing
proceeds with carrying amounts 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.
Renold plc Annual Report and Accounts 2012
53
Asset impairment – Intangible assets and property, plant and
equipment are reviewed, at least annually, to ensure that assets
are not carried above their recoverable amounts. Where some
indication of impairment exists, calculations are made of the
discounted cash flows resulting from continued use of the assets
(value in use) or from their disposal (fair value less costs to sell).
Where these values are less than the carrying amount of the
assets, an impairment loss is charged to the income statement.
Leases – Tangible assets held under finance leases, which are those
where substantially all the risks and rewards of ownership of
the asset have passed to the Group, are capitalised in the balance
sheet at the lower of the fair value of the leased asset or the
present value of the minimum lease payments. Assets acquired
under finance leases are depreciated over the shorter of the
useful life of the asset or the lease term. The corresponding
liability to the leasing company, net of finance charges, is included
as an obligation under finance leases in creditors. The interest
element of the lease payment is charged to the income statement
on a basis which produces a constant rate of charge over the
period of the liability.
Leases where a significant portion of the risk and reward of
ownership is retained by the lessor are classified as operating
leases. Payments made under operating leases (net of any
incentives received from the lessor) are charged to the income
statement on a straight-line basis over the period of the lease.
Investment property – One of the Group’s properties is classified
as an investment property on the basis that it will be held for
the long-term, earning a rental income. This is a contractual
arrangement arising from the disposal of a former business
segment.
The investment property was previously a manufacturing facility
of the Group but owner-occupation ceased upon disposal of
the Automotive business. On the date of disposal a transfer was
made from property to investment property. The cost model has
been applied since that date and depreciation charged at 2% on
a straight-line basis.
Inventories – Inventories are stated at the lower of cost and
estimated net realisable value, after due allowance for obsolete
or slow moving items. Cost includes all direct expenditure and
attributable overhead expenditure incurred in bringing goods
to their current state under normal operating conditions. The
first in, first out method of valuation is used. Net realisable value
is the estimated selling price in the ordinary course of business,
less the costs of completion and selling expenses. In the Group
accounts, unrealised profit on sales within the Group is deducted
from inventories.
Trade receivables – Trade receivables are recognised and carried
at the original invoice amount less an allowance for any identified
impairment. The impairment allowance is charged to the income
statement when there is objective evidence that the Group
will not collect all amounts due under the original terms of the
transaction. 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 time frame 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. 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.
Annual Report and Accounts 2012 Renold plcOverviewBusiness reviewGovernanceFinancial statements 54
Financial statements
Accounting policies
continued
(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.
(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 –
Includes financial liabilities held for trading and financial liabilities
designated upon initial recognition as at fair value through the
income statement.
(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.
(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.
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.
Employee benefits
(a) Pension obligations
The Group operates a number of defined benefit plans around
the world. The costs are 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 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.
Renold plc Annual Report and Accounts 2012 55
(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 calculated using a
Black-Scholes pricing model and is recognised as an expense
over the vesting period. The total amount to be expensed over
the vesting period is determined by reference to the fair value
of the options granted. 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 market-based conditions
are linked to the market price of shares in 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.
Financial instruments
The Group uses derivative financial instruments such as forward
currency contracts to hedge its risks associated with foreign
currency and interest rate fluctuations. Since 1 April 2005, such
derivative financial instruments have been initially recognised at
fair value on the date on which a derivative contract is entered
into and are subsequently remeasured at fair value. Derivatives
are carried as assets when the fair value is positive and as
liabilities when the fair value is negative.
The fair value of forward currency contracts is calculated by
reference to current forward exchange rates for contracts with
similar maturity profiles.
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.
(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 loss of control of the foreign operation,
the cumulative value of any such gains or losses recognised
directly in other comprehensive income is transferred 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 (Preference Stock) has been classified as a liability.
Dividends payable are included within net finance costs.
Annual Report and Accounts 2012 Renold plcOverviewBusiness reviewGovernanceFinancial statements 56
Financial statements
Accounting policies
continued
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.
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.
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.
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
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 17.
c) Retirement benefit obligations
The valuation of the Group’s defined benefit plans are determined
by using actuarial valuations. These involve making assumptions
about discount rates, expected rates of return on assets, future
salary increases, mortality rates and future pension increases.
Due to the long term nature of these plans, such estimates are
subject to significant uncertainty. Further details are given in
Note 18.
Renold plc Annual Report and Accounts 2012 Consolidated income statement
for the year ended 31 March 2012
Revenue
Operating costs
Operating profit
Operating profit before exceptional items
Exceptional items
Operating profit
Share of post-tax loss of jointly controlled entity
Financial costs
Financial revenue
Net IAS 19 financing costs
Net financing costs
Profit/(loss) before tax
Taxation
Profit/(loss) for the financial year
Attributable to:
Owners of the parent
Non-controlling interests
Earnings/(loss) per share
Basic earnings/(loss) per share
Diluted earnings/(loss) per share
Adjusted earnings per share2
Diluted adjusted earnings per share2
2 Adjusted for the after tax effects of exceptional items and the IAS 19 charge.
57
2011
£m
191.0
(186.7)
4.3
7.0
(2.7)
4.3
–
(2.1)
0.1
(3.6)
(5.6)
(1.3)
0.4
(0.9)
(0.9)
–
(0.9)
(0.4)p
(0.4)p
2.0p
2.0p
Note
1
2
2
3
4
5
2012
£m
209.5
(197.5)
12.0
14.1
(2.1)
12.0
(0.1)
(2.5)
–
(1.8)
(4.3)
7.6
(1.2)
6.4
6.2
0.2
6.4
2.8p
2.8p
4.2p
4.2p
Annual Report and Accounts 2012 Renold plcOverviewBusiness reviewGovernanceFinancial statements 58
Financial statements
Consolidated statement of comprehensive income
for the year ended 31 March 2012
Profit/(loss) for the year
Other comprehensive income/(expense):
Reclassification of losses on cash flow hedges to the income statement
Net gains on cash flow hedges
Foreign exchange translation differences
Foreign exchange differences on loans forming part of the net investment in foreign operations
Actuarial (losses)/gains on retirement benefit obligations
Actuarial gain on retirement benefit obligations – restriction removed
Tax on components of other comprehensive income
Other comprehensive (expense)/income for the year, net of tax
Total comprehensive (expense)/income for the year, net of tax
Attributable to:
Owners of the parent
Non-controlling interest
2012
£m
6.4
–
0.1
(1.1)
(0.5)
(9.9)
–
1.4
(10.0)
(3.6)
(3.8)
0.2
(3.6)
2011
£m
(0.9)
0.1
–
(0.1)
(1.0)
20.3
0.1
(7.0)
12.4
11.5
11.5
–
11.5
Renold plc Annual Report and Accounts 2012 Consolidated balance sheet
as at 31 March 2012
ASSETS
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Investment property
Investment in jointly controlled entity
Other non-current assets
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Retirement benefit surplus
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
Preference Stock
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
Non-controlling interests
TOTAL SHAREHOLDERS’ EQUITY
Approved by the Board on 28 May 2012 and signed on its behalf by:
Matthew Peacock
Chairman
Robert Davies
Director
59
2011
£m
22.4
4.1
48.9
2.1
–
0.4
16.9
94.8
44.1
32.8
1.7
7.4
86.0
180.8
(13.6)
(39.6)
(0.9)
(0.2)
(1.2)
(55.5)
30.5
(13.3)
(0.5)
(0.6)
(0.8)
(53.2)
(68.4)
(123.9)
56.9
26.4
29.4
5.9
1.4
(8.3)
54.8
2.1
56.9
O
v
e
r
v
i
e
w
B
u
s
i
n
e
s
s
r
e
v
i
e
w
G
o
v
e
r
n
a
n
c
e
F
i
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
Note
7
7
8
9
10
12
17
11
12
18
13
14
15
25
16
14
14
15
17
18
19
21
21
21
2012
£m
22.3
5.8
47.2
1.9
0.2
0.2
18.1
95.7
45.5
33.4
1.6
4.8
85.3
181.0
(13.6)
(38.6)
(1.4)
(0.1)
(1.5)
(55.2)
30.1
(13.6)
(0.5)
(0.4)
(0.8)
(57.3)
(72.6)
(127.8)
53.2
26.4
29.4
4.3
1.5
(10.7)
50.9
2.3
53.2
Annual Report and Accounts 2012 Renold plc
60
Financial statements
Consolidated statement of changes in equity
for the year ended 31 March 2012
At 1 April 2010
Loss for the year
Other comprehensive income
Total comprehensive income for the year
Share warrants
Employee share options:
– value of employee services
Proceeds from non-controlling interests
At 31 March 2011
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Employee share options:
– value of employee services
At 31 March 2012
Share
capital
£m
Note 19
Share
premium
account
£m
Retained
earnings
£m
Note 21
Currency
translation
reserve
£m
Note 21
Other
reserves
£m
Note 21
Attributable
to owners
of parent
£m
Note 21
Non-
controlling
interests
£m
26.4
–
–
–
–
–
–
26.4
–
–
–
–
26.4
29.4
–
–
–
–
–
–
29.4
–
–
–
–
29.4
(20.7)
(0.9)
13.4
12.5
–
(0.1)
–
(8.3)
6.2
(8.5)
(2.3)
(0.1)
(10.7)
7.0
–
(1.1)
(1.1)
–
–
–
5.9
–
(1.6)
(1.6)
–
4.3
0.9
–
0.1
0.1
0.4
–
–
1.4
–
0.1
0.1
–
1.5
43.0
(0.9)
12.4
11.5
0.4
(0.1)
–
54.8
6.2
(10.0)
(3.8)
(0.1)
50.9
1.8
–
–
–
–
–
0.3
2.1
0.2
–
0.2
–
2.3
Total
equity
£m
44.8
(0.9)
12.4
11.5
0.4
(0.1)
0.3
56.9
6.4
(10.0)
(3.6)
(0.1)
53.2
Renold plc Annual Report and Accounts 2012
Consolidated statement of cash flows
for the year ended 31 March 2012
Cash flows from operating activities (Note 24)
Cash generated from operations
Income taxes paid
Net cash from operating activities
Cash flows from investing activities
Acquisition of subsidiary undertaking
Investment in jointly controlled entity (Note 10)
Purchase of property, plant and equipment
Purchase of intangible assets
Proceeds from non-controlling interests capital injection
Net cash from investing activities
Cash flows from financing activities
Financing costs paid
Proceeds from borrowings
Repayment of borrowings
Payment of finance lease liabilities
Net cash from financing activities
Net decrease in cash and cash equivalents
Net cash and cash equivalents at beginning of year
Effects of exchange rate changes
Net cash and cash equivalents at end of year (Note 13)
61
2011
£m
6.6
(0.1)
6.5
(0.7)
–
(3.6)
(3.0)
0.3
(7.0)
(2.0)
9.5
(7.9)
(0.1)
(0.5)
(1.0)
5.9
–
4.9
2012
£m
5.9
(0.5)
5.4
–
(0.3)
(3.7)
(1.9)
–
(5.9)
(2.7)
10.7
(10.9)
(0.1)
(3.0)
(3.5)
4.9
(0.2)
1.2
Annual Report and Accounts 2012 Renold plcOverviewBusiness reviewGovernanceFinancial statements 62
Financial statements
Notes to the consolidated financial statements
1. Segmental information
For management purposes, the Group is organised into two reportable operating segments 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 Renold plc 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 Companies (NSCs); and
• 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 Segments’
is considered to be the Board of Directors of Renold plc. 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.
Year ended 31 March 2012
Revenue
External customer
Inter-segment
Total revenue
Operating profit/(loss) before exceptional items
Exceptional items
Operating profit/(loss)
Share of post-tax loss of jointly controlled entity
Net financing costs
Profit before tax
Other disclosures
Inventories
Working capital
Capital expenditure
Depreciation and amortisation
Torque
Transmission
£m
Head Office
costs and
eliminations
£m
Consolidated
£m
52.0
5.9
57.9
8.3
(0.1)
8.2
10.8
9.1
1.2
1.0
–
(7.4)
(7.4)
(3.5)
(0.4)
(3.9)
(0.7)
3.8
2.0
0.2
209.5
–
209.5
14.1
(2.1)
12.0
(0.1)
(4.3)
7.6
45.5
39.9
5.6
4.6
Chain
£m
157.5
1.5
159.0
9.3
(1.6)
7.7
35.4
27.0
2.4
3.4
Inter-segment revenues are eliminated on consolidation.
i.
ii. Capital expenditure consists of additions to property, plant and equipment, and intangible assets including assets from the
acquisition of subsidiaries.
iii. Included in Chain external sales is £12.3m 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.
iv. The measures of segment assets reviewed by the CODM are inventories and total working capital.
v. Working capital includes inventories, trade and other receivables, less trade and other payables.
Renold plc Annual Report and Accounts 2012 63
1. Segmental information continued
The segment results for the year ended 31 March 2011 have been restated due to the re-categorisation of a business unit from the
Chain segment to the Torque Transmission segment.
The results were as follows:
Year ended 31 March 2011 (restated)
Revenue4
External customer
Inter-segment
Total revenue
Operating profit/(loss) before exceptional items5
Exceptional items
Operating profit/(loss)
Net financing costs
Loss before tax
Other disclosures
Inventories
Working Capital
Capital expenditure
Depreciation and amortisation
Torque
Transmission
£m
Head Office
costs and
eliminations
£m
Consolidated
£m
48.0
5.1
53.1
6.4
–
6.4
10.5
9.9
1.1
0.9
–
(7.6)
(7.6)
(4.1)
–
(4.1)
–
3.7
3.2
0.4
191.0
–
191.0
7.0
(2.7)
4.3
(5.6)
(1.3)
44.1
36.7
7.1
4.9
Chain
£m
143.0
2.5
145.5
4.7
(2.7)
2.0
33.6
23.1
2.8
3.6
4 The effect on revenue of the re-categorisation is a reduction in Chain sales of £2.3m and a corresponding increase in Torque Transmission.
5
The effect on operating profit before exceptional items of the re-categorisation is a £0.1m reduction in Chain, and a corresponding increase
in Torque Transmission.
i. Inter-segment revenues are eliminated on consolidation.
ii. Capital expenditure consists of additions to property, plant and equipment, and intangible assets including assets from the
acquisition of subsidiaries.
iii. Included in Chain external sales is £12.6m 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.
iv. The measures of segment assets reviewed by the CODM are inventories and total working capital.
v. Working capital includes inventories, trade and other receivables, less trade and other payables.
The Board reviews the performance of the business using information presented at consistent exchange rates (‘underlying’). The prior
year results have been restated using this year’s exchange rates as follows:
Year ended 31 March 2011 (restated)
Revenue
External customer
Foreign exchange
Underlying external sales
Operating profit/(loss) before exceptional items
Foreign exchange
Underlying operating profit/(loss) before exceptional items
Torque
Transmission
£m
Head Office
costs and
eliminations
£m
Consolidated
£m
48.0
(0.7)
47.3
6.4
–
6.4
–
–
–
(4.1)
–
(4.1)
191.0
1.3
192.3
7.0
0.1
7.1
Chain
£m
143.0
2.0
145.0
4.7
0.1
4.8
Annual Report and Accounts 2012 Renold plcOverviewBusiness reviewGovernanceFinancial statements
64
Financial statements
Notes to the consolidated financial statements
continued
1. Segmental information continued
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 principal operating territories are as follows:
• United Kingdom
• Rest of Europe
• North America
• 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:
United Kingdom
Rest of Europe
North America
Other countries
External revenues
2012
£m
20.3
61.3
66.7
61.2
209.5
2011
£m
16.5
56.0
65.3
53.2
191.0
Non-current assets
2011
£m
2012
£m
16.9
14.0
24.7
21.8
77.4
15.0
15.3
24.8
22.4
77.5
All revenue relates to the sale of goods. No individual customer, or group of customers, represents more than 10% of Group revenue
(2011: none).
Non-current assets consist of goodwill, other intangible assets, property, plant and equipment, investment property and investment
in jointly controlled entities. Other non-current assets and deferred tax assets are not included above.
Renold plc Annual Report and Accounts 2012 2. Operating costs and exceptional items
(a) Operating profit is stated after charging/(crediting):
Change in finished goods and work in progress
Raw materials and consumables
Other external charges
Employee costs
Gross wages and salaries
Social security costs
Pension costs
– defined benefit (Note 18)
– defined contribution (Note 18)
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
Other operating income
Loss on disposal of property, plant and equipment
Research and development expenditure
Auditors’ remuneration (Note 2(b))
Trade receivables impairment
Foreign exchange
Exceptional items (Note 2(c))
(b) Auditors’ remuneration
Audit of the Group’s annual financial statements
Audit of the Company’s subsidiaries pursuant to legislation
Total audit fees
Taxation services
Corporate finance services
All other services
This is analysed in the following captions in the financial statements:
Exceptional abortive acquisition costs
Operating costs
2012
£m
61.0
8.1
(0.8)
1.9
0.1
0.4
2.0
£m
(2.5)
92.8
28.5
70.3
4.3
0.1
0.2
2.4
(2.4)
–
0.6
0.6
0.2
0.3
2.1
197.5
65
2011
£m
£m
0.3
79.7
28.8
57.7
8.2
0.4
1.8
(0.1)
0.5
2.1
2012
£000
Total
60
226
286
97
156
31
570
156
414
570
68.0
4.3
0.1
0.5
2.6
(1.9)
0.1
0.5
0.6
0.1
0.3
2.7
186.7
2011
£000
Total
59
221
280
188
–
105
573
–
573
573
The Group’s auditors also received fees of £31,000 for audit services provided to Group pension schemes (2011: £29,000). These were
the only services provided to the pension schemes.
Annual Report and Accounts 2012 Renold plcOverviewBusiness reviewGovernanceFinancial statements 66
Financial statements
Notes to the consolidated financial statements
continued
2. Operating costs and exceptional items continued
(c) Exceptional items
Included in operating costs
Reorganisation and redundancy costs
Abortive acquisition costs
2012
£m
1.7
0.4
2.1
2011
£m
2.7
–
2.7
Exceptional costs associated with the restructuring of the Group’s European back office support functions as well as global
manufacturing and distribution facilities have originated as follows: UK £0.8m (2011: £1.1m), Rest of Europe £0.7m (2011: £1.2m),
North America £0.2m (2011: £0.2m) and other countries £nil (2011: £0.2m).
Costs of £0.4m (2011: £nil) were also incurred in relation to a potential acquisition which was ultimately unsuccessful.
(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 benefits6
Social security costs
Post employment benefits
Share-based payments
2012
£000
872
126
28
163
1,189
2011
£000
858
54
63
82
1,057
6
2011 short term employee benefits updated to include the cash paid in relation to bonus declared in that year but paid in the current financial year as shown
in the Directors Remuneration section of the 2011 Annual Report and Accounts.
Further details of the remuneration of Directors are provided in the auditable part of the Directors’ Remuneration Report on
pages 38 to 43.
The average monthly number of people employed by the Group during the year was:
United Kingdom
Rest of Europe
North America
Other countries
2012
649
441
333
1,161
2,584
2011
614
454
386
1,058
2,512
Renold plc Annual Report and Accounts 2012 3. Net financing costs
Financial costs:
Interest payable on bank loans and overdrafts
Amortised financing costs
Total financing costs
Financial revenue:
Ineffectiveness of net investment hedge
Total financing revenue
IAS 19 financing costs:
Interest cost on plan balances
Expected return on pension plan assets
Net IAS 19 financing costs
Net financing costs
4. Taxation
Analysis of tax charge/(credit) in the year
United Kingdom
UK corporation tax at 26% (2011: 28%)
Less: double taxation relief
Overseas taxes
Corporation taxes
Withholding taxes
Current income tax charge
Deferred tax
UK – origination and reversal of temporary differences
Overseas – origination and reversal of temporary differences
Total deferred tax charge/(credit)
Tax charge/(credit) on profit/(loss) on ordinary activities
Tax on items taken to other comprehensive income
Deferred tax on changes in net pension deficits
Tax (credit)/charge in the statement of other comprehensive income
67
2011
£m
(2.1)
–
(2.1)
0.1
0.1
(12.7)
9.1
(3.6)
(5.6)
2011
£m
–
–
–
0.7
0.1
0.8
(0.1)
(1.1)
(1.2)
(0.4)
2011
£m
7.0
7.0
2012
£m
(2.4)
(0.1)
(2.5)
–
–
(11.6)
9.8
(1.8)
(4.3)
2012
£m
–
–
–
0.9
0.1
1.0
0.7
(0.5)
0.2
1.2
2012
£m
(1.4)
(1.4)
Annual Report and Accounts 2012 Renold plcOverviewBusiness reviewGovernanceFinancial statements 68
Financial statements
Notes to the consolidated financial statements
continued
4. Taxation continued
Factors affecting the Group tax charge for the year
Announcements were made in the Budget on 21 March 2012 that the main rate of corporation tax is to be reduced from 26% to 24%
with effect from 1 April 2012 and then 1% per year to 22%. Only the first 2% reduction above has been substantively enacted at the
balance sheet date and hence only this change has been recognised in the accounts. This has resulted in a £0.2m deferred tax charge
to the income statement and a £0.6m deferred tax charge to other comprehensive income, due to the reduction in the value of the
deferred tax assets recognised in the UK.
Based on the closing deferred tax assets at the balance sheet date, the aggregate impact of the proposed reductions from 24% to
22% would reduce the deferred tax asset by approximately £0.8m (approximately £0.4m per 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 actual tax on the Group’s profit/(loss) before tax differs from the theoretical amount using the UK corporation tax rate as follows:
Profit/(loss) on ordinary activities before tax
Theoretical tax credit at 26% (2011: 28%)
Effects of:
Permanent differences
Overseas tax rate differences
Utilisation of previously unrecognised tax losses
Other temporary differences
Change in tax rate
Total tax charge/(credit)
2012
£m
7.6
2.0
0.1
–
0.1
(1.2)
0.2
1.2
2011
£m
(1.3)
(0.4)
(0.3)
(0.2)
0.2
–
0.3
(0.4)
5. Earnings/(loss) per share
Earnings/(loss) per share (EPS) is calculated by reference to the earnings/(loss) for the year and the weighted average number of shares
in issue during the year as follows:
2012
Earnings
£m
Shares
(thousands)
Per share
amount
(pence)
2011
Loss
£m
Shares
(thousands)
Per share
amount
(pence)
Basic EPS
Earnings/(loss) attributed to ordinary shareholders
Basic EPS
6.2
6.2
219,565
219,565
2012
2.8
2.8
(0.9)
(0.9)
219,565
219,565
(0.4)
(0.4)
Earnings
£m
Shares
(thousands)
Per share
amount
(pence)
(Loss)/
earnings
£m
2011
Shares
(thousands)
Per share
amount
(pence)
Adjusted EPS
Basic EPS
Effect of exceptional items, after tax:
Redundancy and restructuring
Net pension financing costs
Adjusted EPS
6.2
1.8
1.3
9.3
219,565
219,565
2.8
0.8
0.6
4.2
(0.9)
219,565
(0.4)
2.8
2.6
4.5
219,565
1.2
1.2
2.0
Inclusion of the dilutive securities, comprising 1,357,000 (2011: 1,293,000) additional shares due to share options and 1,246,000
(2011: 1,107,000) additional shares due to warrants over shares, in the calculation of adjusted EPS does not change the amounts
shown above (2011: no change).
Further details in relation to the warrants can be found in Note 21 and Note 27.
The adjusted earnings per share numbers have been provided in order to give a useful indication of underlying performance by the
exclusion of exceptional items. Due to the existence of unrecognised deferred tax assets, there was no associated tax credit on some
of the exceptional charges and in these instances exceptional costs are added back in full.
Renold plc Annual Report and Accounts 2012
6. Dividends
No ordinary dividend payments were paid or proposed in either the current or prior year.
7. Intangible assets
Cost
At 1 April 2010
Exchange adjustment
Additions
At 1 April 2011
Exchange adjustment
Additions
Disposals
At 31 March 2012
Accumulated amortisation and impairment
At 1 April 2010
Amortisation charge
At 1 April 2011
Exchange adjustment
Amortisation charge
Disposals
At 31 March 2012
Net book amount at 31 March 2012
Net book amount at 31 March 2011
Net book amount at 31 March 2010
69
Total
£m
27.9
(1.1)
3.0
29.8
(0.2)
1.9
(0.3)
31.2
2.8
0.5
3.3
(0.1)
0.2
(0.3)
3.1
28.1
26.5
25.1
Goodwill
£m
Computer
software
£m
23.5
(1.1)
–
22.4
(0.1)
–
–
22.3
–
–
–
–
–
–
–
22.3
22.4
23.5
4.4
–
3.0
7.4
(0.1)
1.9
(0.3)
8.9
2.8
0.5
3.3
(0.1)
0.2
(0.3)
3.1
5.8
4.1
1.6
Goodwill is tested for impairment at least annually. No impairment charge has been recognised in the period (2011: £nil). The table
below sets out the cash generating units (CGUs), their associated carrying amounts of goodwill and assumed levels of growth and
discount rates used to assess value in use:
Jeffrey Chain, US
Renold Hangzhou, China
Ace Chains, Australia
Renold Chain, India
Growth rates
Discount rates
Carrying values
2012
%
3.1
8.7
3.5
7.3
2011
%
2.8
10.7
3.5
6.9
2012
%
14.2
13.7
15.7
23.5
2011
%
15.2
12.4
14.1
21.3
2012
£m
18.2
1.5
0.5
2.1
22.3
2011
£m
18.1
1.5
0.5
2.3
22.4
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 financial year as approved by the Board. Cash flows beyond this are
extrapolated using the long term country growth rates disclosed above.
Annual Report and Accounts 2012 Renold plcOverviewBusiness reviewGovernanceFinancial statements 70
Financial statements
Notes to the consolidated financial statements
continued
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 financial year. The expected sales
prices and volumes reflect management’s experience of how sales will develop at this point of the economic cycle. The expected
profit margin reflects management’s experience of each CGU’s profitability at the forecast level of sales and incorporates the impact
of any restructuring that took place during the year ended 31 March 2012.
Cash flows beyond the period of projections are extrapolated using the long term growth rate published by the Organisation for
Economic Co-operation and Development for the territory in which the CGU is based. The discount rates applied to the cash flows
of each of the CGUs are based on the risk free rate for long term bonds (typically ten years) issued by the government in the respective
market. This is then adjusted to reflect both the increased risk of investing in equities and the systematic risk of the specific CGU.
In determining the risk adjusted discount rate, management has applied an adjustment for the systematic risk to each of the CGUs
using an average of the betas of comparable companies.
Management believe that no reasonably possible change in any of the key assumptions would cause the carrying value of
Jeffrey Chain, Renold Hangzhou, Ace Chains and Renold Chain India to materially exceed each CGU’s recoverable amount.
8. Property, plant and equipment
Cost
At 1 April 2010
Exchange adjustment
Additions
Disposals
At 1 April 2011
Exchange adjustment
Additions
Disposals
At 31 March 2012
Accumulated depreciation
At 1 April 2010
Exchange adjustment
Charge for the year
Exceptional impairment charge
Disposals
At 1 April 2011
Exchange adjustment
Charge for the year
Disposals
At 31 March 2012
Net book amount at 31 March 2012
Net book amount at 31 March 2011
Net book amount at 31 March 2010
Land and
buildings
£m
Plant and
equipment
£m
23.3
0.1
0.2
–
23.6
(0.5)
0.3
–
23.4
3.2
–
0.3
–
–
3.5
(0.1)
0.4
–
3.8
19.6
20.1
20.1
121.1
(1.4)
3.9
(2.2)
121.4
(2.6)
3.4
(1.7)
120.5
91.3
(0.9)
4.1
0.2
(2.1)
92.6
(2.0)
4.0
(1.7)
92.9
27.6
28.8
29.8
Total
£m
144.4
(1.3)
4.1
(2.2)
145.0
(3.1)
3.7
(1.7)
143.9
94.5
(0.9)
4.4
0.2
(2.1)
96.1
(2.1)
4.4
(1.7)
96.7
47.2
48.9
49.9
The book amount for plant and equipment includes £nil (2011: £0.1m) in respect of assets acquired under finance leases.
Future capital expenditure
At 31 March 2012 capital expenditure contracted for but not provided for in these accounts amounted to £0.4m (2011: £1.3m).
Renold plc Annual Report and Accounts 2012 9. Investment property
Cost
At 1 April 2010
Exchange adjustment
At 1 April 2011
Exchange adjustment
At 31 March 2012
Accumulated depreciation
At 1 April 2010
Charge for the year
At 1 April 2011
Charge for the year
At 31 March 2012
Net book amount at 31 March 2012
Net book amount at 31 March 2011
Net book amount at 31 March 2010
71
£m
2.2
–
2.2
(0.2)
2.0
0.1
–
0.1
–
0.1
1.9
2.1
2.1
The present sub-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 £0.3m (2011: £0.3m).
The total future minimum lease payments under the non-cancellable term amount to £0.3m (2011: £0.6m) and of this £0.3 (2011: £0.3m)
is due within one year and £nil (2011: £0.3m) is due between one and two years from the balance sheet date.
The property has been accounted for on a cost model basis with a value of £1.4m in respect of land and £0.6m in respect of the
building. 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 £2.2m based on similar market
transactions of properties in the area at that time. The Directors are not aware of any long term circumstances that have arisen
to materially alter that external valuation.
10. Investment in jointly controlled entity
Group share of net book amount
Investment in jointly controlled entity
Share of post-tax loss of jointly controlled entity
At 31 March
2012
£m
0.3
(0.1)
0.2
2011
£m
–
–
–
During the period the Group formed a joint venture with Changzhou Baiyidar Railway Carparts Co., Ltd, a Chinese entity,
to establish the jointly controlled entity, Renold Transmission Technology (Jiangsu) Inc. to pursue the rapidly expanding mass transit
infrastructure sector, seeking to leverage Renold’s existing capabilities in gears and couplings for subway and light railway cars.
The business licence for the jointly controlled entity was granted on 20 April 2011. Each shareholder holds 50% of the shares
and voting rights in the jointly controlled entity and has the right to appoint three directors. The agreement provides that each
shareholder will invest £0.3m (US$0.45m) within three months of the business licence being issued and a further US$2.55m within
two years of the business licence being issued. The Group is not exposed to any further significant contingent liabilities as a result
of the joint venture.
During the year the business has achieved ISO 9001 certification and customer approval following the establishment of an assembly
facility. At 31 March 2012, expenditure is expected to be minimal until customer supply contracts are obtained at which point activity
levels and costs and revenues will increase in proportion to the contracts won.
Annual Report and Accounts 2012 Renold plcOverviewBusiness reviewGovernanceFinancial statements 72
Financial statements
Notes to the consolidated financial statements
continued
11. Inventories
Materials
Work in progress
Finished products
2012
£m
7.7
9.3
28.5
45.5
2011
£m
8.4
9.7
26.0
44.1
Inventories pledged as security for liabilities amounted to £18.4m (2011: £17.4m). Write-offs taken to the income statement amount
to £1.0m (2011: £1.2m).
12. Trade and other receivables
Trade receivables7
Less: impairment provision
Trade receivables: net
Other receivables7
Prepayments and accrued income
7 Financial assets carried at cost.
2012
Current
£m
2012
Non-current
£m
2011
Current
£m
2011
Non-current
£m
31.4
(0.7)
30.7
0.9
1.8
33.4
–
–
–
0.2
–
0.2
30.0
(0.6)
29.4
1.4
2.0
32.8
–
–
–
0.3
0.1
0.4
The Group has no significant concentration of credit risk but does have a concentration of translational and transactional foreign
exchange risk in both US Dollars and Euros. However, the Group hedges against these risks.
Trade receivables are non-interest bearing and are generally on 30-90 days’ terms. See Note 25(d) for credit risk policy.
As at 31 March, the ageing analysis of trade receivables is as follows:
Past due but not impaired
30-60 days
£m
60-90 days
£m
> 90 days
£m
Neither past due
nor impaired
£m
25.3
24.8
Total
£m
30.7
29.4
< 30 days
£m
3.3
2.8
2012
2011
Movement on impairment provision
Opening provision
Exchange adjustment
Net charge to income statement
Utilised in year through assets written off
Closing provision
13. Cash and cash equivalents
Cash at bank and in hand
Short term bank deposits
Cash and cash equivalents
0.7
0.6
0.5
0.3
2012
£m
0.6
–
0.2
(0.1)
0.7
2012
£m
4.8
–
4.8
In the Group cash flow statement, net cash and cash equivalents are shown after deducting bank overdrafts as follows:
2012
£m
Cash and cash equivalents (as shown above)
Less: Overdrafts (Note 14)
Net cash and cash equivalents
4.8
(3.6)
1.2
0.9
0.9
2011
£m
0.7
0.1
0.1
(0.3)
0.6
2011
£m
7.2
0.2
7.4
2011
£m
7.4
(2.5)
4.9
Renold plc Annual Report and Accounts 2012 14. Borrowings
Amounts falling due within one year:
Overdrafts
Bank loans
Obligations under finance leases
Amounts falling due after more than one year:
Bank loans
Obligations under finance leases
Preference Stock
Total borrowings (Note 25(d))
73
2011
£m
2.5
11.0
0.1
13.6
13.2
0.1
13.3
0.5
13.8
27.4
2012
£m
3.6
9.9
0.1
13.6
13.6
–
13.6
0.5
14.1
27.7
All financial liabilities, excluding finance lease obligations above are carried at amortised cost.
The Group’s principal credit facility is a £20.0m Multi Revolving Credit Facility. This facility was extended in the year from June 2012
for an additional 12 months to expire in June 2013. This facility is reduced by £2.0m in June 2012 and a further £2.0m in December 2012.
At the year end the undrawn facility was £7.0m (2011: £8.6m). The Group pays interest at LIBOR plus a variable margin in respect
of this facility. The average rate of interest paid in the year was LIBOR plus 4% (2011: LIBOR plus 2.5%). This facility has a number of
financial and non-financial covenants which are tested on a quarterly basis. The Group also benefits from numerous overseas facilities.
Secured borrowings
Included in Group borrowings are secured borrowings of £20.9m (2011: £19.8m). 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
Amounts payable within one year
Amounts payable between two and five years
Total gross payments
Allocated as:
Current obligations
Non-current obligations
2012
£m
0.1
–
0.1
0.1
–
0.1
2011
£m
0.1
0.1
0.2
0.1
0.1
0.2
Preference Stock
At 31 March 2012 there were 580,482 units of Preference Stock in issue (2011: 580,482).
All payments of dividends on the Preference Stock have been paid on the due dates. The Preference Stock has the following rights:
(i)
a fixed cumulative preferential dividend at the rate of 6% per annum payable half yearly on 1 January and 1 July in each year;
(ii) rank both with regard to dividend (including any arrears on the commencement of a winding up) and return of capital in
priority to all other stock or shares in the Company, but with no further right to participate in profits or assets;
(iii) no right to attend or vote, either in person or by proxy, at any general meeting of the Company or to have notice of any such
meeting, unless the dividend on the Preference Stock is in arrears for six calendar months; and
(iv) no redemption entitlement.
There is no significant difference between the carrying value of financial liabilities and their equivalent fair value.
Annual Report and Accounts 2012 Renold plcOverviewBusiness reviewGovernanceFinancial statements
74
Financial statements
Notes to the consolidated financial statements
continued
15. Trade and other payables
Trade payables8
Other tax and social security
Other payables8
Accruals and deferred income8
8 Financial liabilities carried at amortised cost.
2012
Current
£m
2012
Non-current
£m
2011
Current
£m
2011
Non-current
£m
21.9
2.8
1.6
12.3
38.6
–
–
–
0.4
0.4
21.6
2.0
1.9
14.1
39.6
–
–
0.1
0.5
0.6
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.
16. Provisions
At 1 April 2011
Arising during the year
Utilised in year
At 31 March 2012
Allocated as:
Current provisions
Non-current provisions
Business
restructuring
£m
Contingent
consideration
£m
Total
provisions
£m
0.6
1.7
(1.4)
0.9
0.6
–
–
0.6
2012
£m
1.5
–
1.5
1.2
1.7
(1.4)
1.5
2011
£m
1.2
–
1.2
Business restructuring
This provision relates to the reorganisation and restructuring of businesses and will be completed within the next two financial years.
Contingent consideration
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.
17. 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
2012
£m
0.4
10.9
7.7
(0.9)
18.1
(0.8)
17.3
2011
£m
0.8
10.0
6.4
(0.3)
16.9
(0.8)
16.1
2012
£m
(0.2)
(0.4)
0.1
(0.3)
(0.8)
0.8
–
2011
£m
(0.3)
(0.5)
0.1
(0.1)
(0.8)
0.8
–
2012
£m
0.2
10.5
7.8
(1.2)
17.3
–
17.3
2011
£m
0.5
9.5
6.5
(0.4)
16.1
–
16.1
The net deferred tax asset recoverable after more than one year is £17.3m (2011: £16.1m).
Renold plc Annual Report and Accounts 2012 17. Deferred tax continued
The movement in the net deferred tax balance relating to assets is as follows:
2012
Accelerated capital allowances
Pension plans
Tax losses
Other temporary differences
2011
Accelerated capital allowances
Pension plans
Tax losses
Other temporary differences
Opening
balance
£m
Exchange
adjustments
£m
Recognised
in income
statement
£m
Recognised
directly in other
comprehensive
income
£m
0.8
10.0
6.4
(0.3)
16.9
(0.1)
–
0.1
–
–
(0.3)
(0.5)
1.2
(0.6)
(0.2)
–
1.4
–
–
1.4
Opening
balance
£m
Exchange
adjustments
£m
Recognised
in income
statement
£m
Recognised
directly in other
comprehensive
income
£m
1.3
16.6
5.9
(0.9)
22.9
–
–
(0.2)
0.1
(0.1)
(0.5)
0.3
0.7
0.5
1.0
–
(6.9)
–
–
(6.9)
The movement in the net deferred tax balance relating to liabilities in the year is as follows:
2012
Accelerated capital allowances
Pension plans
Tax losses
Other temporary differences
2011
Accelerated capital allowances
Pension plans
Tax losses
Other temporary differences
Opening
balance
£m
Exchange
adjustments
£m
Recognised
in income
statement
£m
Recognised
directly in other
comprehensive
income
£m
(0.3)
(0.5)
0.1
(0.1)
(0.8)
–
–
–
–
–
0.1
0.1
–
(0.2)
–
–
–
–
–
–
Opening
balance
£m
Exchange
adjustments
£m
Recognised
in income
statement
£m
Recognised
directly in other
comprehensive
income
£m
(0.3)
(0.4)
0.1
(0.3)
(0.9)
–
–
–
–
–
–
–
–
0.2
0.2
–
(0.1)
–
–
(0.1)
75
Closing
balance
£m
0.4
10.9
7.7
(0.9)
18.1
Closing
balance
£m
0.8
10.0
6.4
(0.3)
16.9
Closing
balance
£m
(0.2)
(0.4)
0.1
(0.3)
(0.8)
Closing
balance
£m
(0.3)
(0.5)
0.1
(0.1)
(0.8)
During the year the Group has reported an operating profit of £14.1m, 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.
Unrecognised deferred tax assets amount to £17.4m (2011: £18.8m) arising from unrecognised losses of £14.8m (2011: £16.5m)
(representing losses of £48.4m (2011: £52.4m)) and other timing differences of £2.6m (2011: £2.3m). Based on available evidence,
it is considered unlikely that these amounts will be recovered within the foreseeable future. Materially all of these losses are not
subject to time limits.
Annual Report and Accounts 2012 Renold plcOverviewBusiness reviewGovernanceFinancial statements 76
Financial statements
Notes to the consolidated financial statements
continued
18. Pensions
The Group operates a number of pension plans throughout the world covering many of its employees. The principal funds are those
in the UK: (i) the Renold Group Pension Scheme (RGPS); (ii) the Jones & Shipman plc Retirement Benefits Plan (1971) (J&S RBP); and
(iii) the Renold Supplementary Pension Scheme 1967 (RSPS). These three plans are funded plans of the defined benefit type with
assets held in separate trustee administered funds. The Trustees are chaired by an independent professional trustee firm. Future
accrual to the J&S RBP 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 triennial valuation of the J&S scheme is now underway with a valuation date of 5 April 2012. The valuation will be carried out
by Barnett Waddingham, professionally qualified actuaries. Future annual contributions to the schemes are as follows: J&S scheme
£0.3m, RGPS £1.7m and RSPS £0.5m per annum all indexed by RPI for the remainder of the deficit recovery plans ending in December
2019, July 2024 and July 2024 respectively. The Group also funds the annual UK scheme administration costs (£0.6m per annum) and
Pension Protection Fund (PPF) levies (2012: £0.3m).
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 below are presented on a weighted average basis where appropriate.
The principal financial assumptions used to calculate plan liabilities as at 31 March 2012 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 salaries9
Rate of increase in pensions in payment and deferred pensions
Discount rate
Inflation assumption10
Expected return on plan assets
UK
Overseas
2012
–
1.7%
4.9%
2.0%
6.1%
2011
–
2.6%
5.6%
2.75%
6.25%
2012
1.5%
1.9%
4.1%
1.7%
7.7%
2011
2.0%
1.5%
5.6%
1.7%
7.2%
9 No increase applies following the closure of the UK defined benefit pension schemes to future accrual.
10 Inflation assumption used for UK schemes was changed to a blend of RPI and CPI in 2011.
The expected rates of return on UK plan assets shown above is 6.6% less 0.5% for expenses.
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 UK government announced in 2010 its intention to adopt the consumer price index (CPI) rather than the retail price index (RPI)
for statutory minimum pension revaluations/indexation from 1 January 2011. The reduction in liability at 31 March 2011 from applying
the CPI assumption where relevant was £6.4m (before tax). This was accounted for as an assumption change and recognised through
the statements of comprehensive income in 2011 (CPI assumed to be 0.75% lower than RPI) with no impact in the current period.
The predominant defined benefit obligation for funded plans within the Group resides in the UK (£180.6m of the £197.9m 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
smaller RSPS and the J&S RBP).
Retiring today
Males
Females
Retiring in 20 years
Males
Females
2012
18.5
21.9
19.5
23.1
2011
19.1
21.2
20.5
22.8
Renold plc Annual Report and Accounts 2012 77
18. Pensions continued
The post-retirement mortality tables used for the plan are the Heavy series tables with a 10% uplift published by the UK actuarial
profession (2011: S1PA series tables with a 40% uplift). 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. The uplift of 10% to the Heavy tables has been estimated based on ten years actual mortality
experience. The effect of this adjustment and the change in base tables was to reduce life expectancy. The assumed life expectancy
is slightly longer for the other two UK defined benefit plans.
Sensitivity analysis:
Assumption
Discount rate
Rate of inflation
Rate of mortality
Change in assumption
Impact on plan liabilities
Increase/decrease by 0.1%
Increase/decrease by 0.1%
Increase by 1 year11
Decrease/increase by £2.3m
Increase/decrease by £1.8m
Increase by £7.2m
11 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.
It should be noted that in Australia and New Zealand where no deep market for high quality corporate bonds exists or where government
bonds of appropriate duration do not exist, that liabilities have been discounted using available rates on existing actual government
bonds in accordance with the requirements of IAS 19. If discount rates in those territories reflected the typical spreads seen over government
bonds in high quality corporate bonds in more developed markets the reported overseas liabilities would be reduced. 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
Corporate bonds
Gilts
Other
Total market value of assets
UK
£m
77.5
43.2
26.9
1.5
149.1
2012
Overseas
£m
6.9
3.1
0.8
3.5
14.3
Total
£m
84.4
46.3
27.7
5.0
163.4
UK
£m
85.2
40.5
25.3
(1.9)
149.1
Equities include investments in quoted equities, funds of hedge funds and property investment vehicles.
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 (losses)/gains
Curtailments gains
Negative past service cost
Benefits paid
Liabilities extinguished on settlement
Exchange adjustment
Closing obligation
UK
£m
(178.9)
–
(9.8)
–
(4.0)
–
1.3
10.8
–
–
(180.6)
The total defined benefit obligation can be analysed as follows:
Funded pension plans
Unfunded pension plans
(180.6)
–
(180.6)
2012
Overseas
£m
(35.9)
(0.5)
(1.8)
(0.1)
(3.6)
–
–
2.4
–
1.0
(38.5)
(17.3)
(21.2)
(38.5)
Total
£m
(214.8)
(0.5)
(11.6)
(0.1)
(7.6)
–
1.3
13.2
–
1.0
(219.1)
(197.9)
(21.2)
(219.1)
UK
£m
(197.4)
–
(10.8)
–
19.9
–
–
9.4
–
–
(178.9)
(178.9)
–
(178.9)
2011
Overseas
£m
7.6
3.1
0.9
2.6
14.2
2011
Overseas
£m
(40.8)
(0.5)
(1.9)
(0.1)
0.2
0.1
–
2.2
4.5
0.4
(35.9)
(15.4)
(20.5)
(35.9)
Total
£m
92.8
43.6
26.2
0.7
163.3
Total
£m
(238.2)
(0.5)
(12.7)
(0.1)
20.1
0.1
–
11.6
4.5
0.4
(214.8)
(194.3)
(20.5)
(214.8)
Annual Report and Accounts 2012 Renold plcOverviewBusiness reviewGovernanceFinancial statements 78
Financial statements
Notes to the consolidated financial statements
continued
18. Pensions continued
Pension assets
The movement in the present value of the defined benefit plan assets is as follows:
Opening assets
Expected return
Actuarial (losses)/gains
Employer contributions
Participant contributions
Benefits paid
Assets distributed on settlement
Exchange adjustment
Closing assets
Balance sheet reconciliation:
Plan obligations
Plan assets
Net deficit
Analysed as follows:
Current assets
Retirement benefit surplus
Non-current liabilities
Retirement benefit obligations
Net deficit
UK
£m
149.1
8.9
(1.5)
3.4
–
(10.8)
–
–
149.1
(180.6)
149.1
(31.5)
2012
Overseas
£m
14.2
0.9
(0.8)
1.1
0.1
(1.2)
–
–
14.3
(38.5)
14.3
(24.2)
Total
£m
163.3
9.8
(2.3)
4.5
0.1
(12.0)
–
–
163.4
(219.1)
163.4
(55.7)
UK
£m
147.7
8.4
(0.3)
2.7
–
(9.4)
–
–
149.1
(178.9)
149.1
(29.8)
2011
Overseas
£m
17.5
0.7
0.6
0.9
0.1
(1.0)
(4.5)
(0.1)
14.2
(35.9)
14.2
(21.7)
Total
£m
165.2
9.1
0.3
3.6
0.1
(10.4)
(4.5)
(0.1)
163.3
(214.8)
163.3
(51.5)
–
1.6
1.6
–
1.7
1.7
(31.5)
(31.5)
(25.8)
(24.2)
(57.3)
(55.7)
(29.8)
(29.8)
(23.4)
(21.7)
(53.2)
(51.5)
The negative past service cost relates to the impact of the Pension Increase Exchange Scheme in the year (see Finance Director’s
Report pages 22 and 23 for details).
The retirement benefit surplus shown above is a net £1.6m (2011: £1.7m) balance 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 of this amount.
The net amount of actuarial gains and losses taken to other comprehensive income is as follows:
(Losses)/gains arising on plan obligations
(Losses)/gains arising on plan assets
Net (losses)/gains
UK
£m
(4.0)
(1.5)
(5.5)
2012
Overseas
£m
(3.6)
(0.8)
(4.4)
Total
£m
(7.6)
(2.3)
(9.9)
UK
£m
19.9
(0.3)
19.6
2011
Overseas
£m
0.2
0.6
0.8
The actual return on plan assets was £7.5m (2011: gain £9.4m).
An analysis of amounts charged to operating costs is set out below:
Operating costs
Current service cost
Gains on curtailments
Negative past service costs
2012
£m
(0.5)
–
1.3
0.8
Total
£m
20.1
0.3
20.4
2011
£m
(0.5)
0.1
–
(0.4)
Renold plc Annual Report and Accounts 2012 18. Pensions continued
History of experience gains and losses
The movement in the present value of the defined benefit plan assets is as follows:
Experience on plan assets (£m)
Percentage of plan assets
Actuarial (losses)/gains on plan liabilities (£m)
Percentage of present value of plan liabilities
Present value of plan liabilities (£m)
Fair value of plan assets (£m)
Deficit (£m)
Experience on plan assets (£m)
Percentage of plan assets
Actuarial (losses)/gains on plan liabilities (£m)
Percentage of present value of plan liabilities
Present value of plan liabilities (£m)
Fair value of plan assets (£m)
Deficit (£m)
Experience on plan assets (£m)
Percentage of plan assets
Actuarial (losses)/gains on plan liabilities (£m)
Percentage of present value of plan liabilities
Present value of plan liabilities (£m)
Fair value of plan assets (£m)
Deficit (£m)
2012
£m
(1.5)
(1.0%)
(4.0)
(2.2%)
(180.6)
149.1
(31.5)
2012
£m
(0.8)
(5.6%)
(3.6)
(9.4%)
(38.5)
14.3
(24.2)
2012
£m
(2.3)
(1.4%)
(7.6)
(3.5%)
(219.1)
163.4
(55.7)
2011
£m
(0.3)
(0.2%)
19.9
11.1%
(178.9)
149.1
(29.8)
2011
£m
0.6
4.2%
0.2
0.6%
(35.9)
14.2
(21.7)
2011
£m
0.3
0.1%
20.1
9.4%
(214.8)
163.3
(51.5)
UK
2010
£m
17.7
12.0%
(40.9)
(20.7%)
(197.4)
147.7
(49.7)
Overseas
2010
£m
1.0
5.7%
2.2
5.4%
(40.8)
17.5
(23.3)
Total
2010
£m
18.7
11.3%
(38.7)
(16.2%)
(238.2)
165.2
(73.0)
2009
£m
(31.5)
(24.1%)
12.5
7.9%
(157.8)
130.7
(27.1)
2009
£m
(3.7)
(23.7%)
0.4
0.9%
(43.6)
15.6
(28.0)
2009
£m
(35.2)
(24.1%)
12.9
6.4%
(201.4)
146.3
(55.1)
79
2008
£m
(11.0)
(6.9%)
26.8
16.0%
(168.0)
158.5
(9.5)
2008
£m
(0.9)
(5.9%)
1.1
3.0%
(36.9)
15.2
(21.7)
2008
£m
(11.9)
6.9%
27.9
13.6%
(204.9)
173.7
(31.2)
The cumulative amount of actuarial losses recognised in other comprehensive income since 4 April 2004 was £36.1m (2011: £26.2m).
The Group operates a number of defined contribution plans. The cost for the period was £1.9m (2011: £1.8m) and were fully paid up.
19. Called up share capital
Ordinary shares of 5p each
Deferred shares of 20p each
Issued
2011
£m
11.0
15.4
26.4
2012
£m
11.0
15.4
26.4
At 31 March 2012, the issued ordinary share capital comprised 219,564,703 ordinary shares of 5p each (2011: 219,564,703) and 77,064,703
deferred shares of 20p each (2011: 77,064,703).
During the year the Company issued no ordinary shares (2011: nil).
Annual Report and Accounts 2012 Renold plcOverviewBusiness reviewGovernanceFinancial statements 80
Financial statements
Notes to the consolidated financial statements
continued
20. Share-based payments
Details of the share-based payment arrangements are provided in the Directors’ Remuneration Report on pages 38 to 43.
At 31 March 2012, unexercised options for ordinary shares amounted to 9,737,599 (2011: 7,335,447).
The fair value per option granted in the period and the assumptions used in the calculation are as follows:
Grant date
Share price at date of grant
Exercise price
Number of employees
Shares under option
Vesting period (years)
Expected volatility
Option life (years)
Expected life (years)
Risk free interest rate
Assumed dividends expressed as a dividend yield
Possibility of ceasing employment before vesting
Fair value per option
Probability of meeting market based vesting conditions
2012
Executive share
option scheme
2011
Executive share
option scheme
8.6.11
37.1p
37.3p
9
3,653,062
3
54%
10
6
1.6%
Zero
Zero
19.1p
40%
27.9.10
27.0p
27.3p
1
678,898
3
50%
10
6
1.2%
Zero
Zero
12.8p
40%
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 2012 is shown below:
Executive share option schemes
Outstanding at 1 April
Granted
Lapsed
Forfeited
Outstanding at 31 March
Exercisable at 31 March
2012
2011
Weighted
average
exercise price
34.3p
37.3p
57.3p
35.2p
35.1p
Number
10,903,517
678,898
(1,641,760)
(2,605,208)
7,335,447
Weighted
average
exercise price
41.2p
27.3p
65.1p
42.1p
34.3p
Number
7,335,447
3,653,062
(102,172)
(1,148,738)
9,737,599
1,392,849
69.8p
1,586,604
69.9p
Renold plc Annual Report and Accounts 2012 81
20. Share-based payments continued
Executive share option schemes
2012
2011
Weighted
average
exercise price
Number of
shares
Weighted average
remaining life
Weighted
average
exercise price
Number of
shares
Weighted average
remaining life
Range of exercise prices
23.2p to 63.3p
64.6p to 80.5p
85.2p to 100.9p
Expected
Contractual
Expected
Contractual
30.8p
72.8p
97.2p
8,803,959
745,737
187,903
4.2
–
0.8
8.2
2.3
4.8
27.1p
72.7p
97.2p
6,307,855
792,713
234,879
4.4
–
1.8
8.2
3.3
5.8
No options have been exercised in the period (2011: nil). The total charge for the year relating to employee share-based payment plans
was £0.1m (2011: credit £0.3m), all of which related to equity settled share-based transactions. After deferred tax, the total charge was
£0.1m (2011: credit £0.3m).
A £0.1m charge has been made in the year in relation to the equity portion of the Executive bonus scheme’s (2011: £0.2m). The terms of
the scheme are outlined in the Directors’ report on pages 39 and 40.
The middle market price of ordinary shares at 31 March 2012 was 36.5p and the range of prices during the year was 22p to 42p.
21. 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 record 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 2012, subsequent to the capital reorganisation in January 1985,
amounted to £2.0m (2011: £2.0m).
Other reserves include £0.4m being the fair value of a warrant 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 5p each and have a seven year term commencing
from 13 August 2009 during which they can be exercised at any time.
Included in retained earnings is an amount of £7.0m (net of tax) (2011: £7.0m) 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.
Annual Report and Accounts 2012 Renold plcOverviewBusiness reviewGovernanceFinancial statements 82
Financial statements
Notes to the consolidated financial statements
continued
22. Operating lease obligations
The Group has entered into leases on commercial properties and plant and equipment. Minimum rental commitments under
non-cancellable operating leases at the year end are as follows:
Within one year
Between two and five years
Over five years
2012
2011
Properties
£m
Equipment
£m
Properties
£m
Equipment
£m
1.8
7.3
15.1
24.2
0.4
0.4
–
0.8
1.8
6.1
18.3
26.2
0.5
0.6
–
1.1
Certain of the leased properties have been sublet and the future minimum sublease payments expected to be received under
non-cancellable sublease agreements is £1.8m (2011: £1.2m).
23. Contingent liabilities and commitments
Performance guarantees given to third parties in respect of Group companies were £3.4m (2011: £3.7m) associated with the disposal
of the Automotive business in 2006 expiring in August 2012. The Group is also committed to invest US$2.55m by 20 April 2013
in relation to further investment in the jointly controlled entity Renold Transmission Technology (Jiangsu) Inc. – see Note 10.
24. Additional cash flow information
Reconciliation of operating profit to net cash flows from operations:
Cash generated from operations:
Operating profit
Depreciation and amortisation
Impairment charge included in exceptional items
Loss on plant and equipment disposals
Equity share plans
Increase in inventories
Increase in receivables
(Decrease)/increase in payables
Increase in provisions
Movement on pension plans
Movement in derivative financial instruments
Cash generated from operations
Reconciliation of net decrease in cash and cash equivalents to movement in net debt:
Decrease in cash and cash equivalents
Change in net debt resulting from cash flows
Foreign currency translation differences
Change in net debt during the period
Net debt at start of year
Net debt at end of year
Net debt comprises:
Cash and cash equivalents (Note 13)
Total borrowings (Note 14)
2012
£m
12.0
4.6
–
–
(0.1)
(2.0)
(1.2)
(1.1)
0.3
(6.5)
(0.1)
5.9
2012
£m
(3.5)
0.2
0.4
(2.9)
(20.0)
(22.9)
4.8
(27.7)
(22.9)
2011
£m
4.3
4.9
0.2
0.1
(0.1)
(1.6)
(4.6)
7.7
–
(4.4)
0.1
6.6
2011
£m
(1.0)
(1.6)
0.5
(2.1)
(17.9)
(20.0)
7.4
(27.4)
(20.0)
Renold plc Annual Report and Accounts 2012 83
25. Financial instruments
These notes should be read in conjunction with the narrative disclosures in the Finance Director’s review on pages 20 to 23.
Foreign currency risk and sensitivity
As a result of the significant investment operations in the US and Europe, the Group’s balance sheet can be affected significantly
by movements in the US Dollar/Sterling and Euro/Sterling exchange rates.
The following table demonstrates the sensitivity to a reasonably possible change in the US Dollar (US$) and Euro exchange rates,
with all other variables held constant, of the Group’s result before tax (due to the effect of foreign exchange on monetary assets
and liabilities denominated in a different currency to the functional currency of operation) and the Group’s equity (due to the effect
on other comprehensive income of changes in the fair value of forward exchange contracts and the effect of hedging borrowings).
The impact of translating the net assets of foreign operations into Sterling is excluded from the sensitivity analysis.
Change in US Dollar rate:
2012
2011
Change in Euro rate:
2012
2011
Increase/
(decrease)
in US$ rate
Effect on
profit/(loss)
before tax
£m
Effect on
shareholders’
equity
£m
25%
(10%)
25%
(10%)
0.4
(0.2)
0.4
(0.3)
2.1
(1.1)
2.7
(1.5)
Increase/
(decrease)
in Euro rate
Effect on
profit/(loss)
before tax
£m
Effect on
shareholders’
equity
£m
25%
(10%)
25%
(10%)
(0.4)
0.2
0.3
(0.2)
0.3
(0.2)
2.1
(1.2)
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:
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
Increase in
basis points
+150
+150
+150
2012
Effect on
profit
before tax
£m
2011
Effect on
loss
before tax
£m
(0.2)
(0.1)
(0.1)
(0.4)
2012
£m
(0.2)
(0.1)
(0.2)
(0.5)
2011
£m
(0.1)
(0.2)
The cash flow hedges of the expected future transactions in US Dollars and Euros were assessed to be highly effective. In the period
£nil (2011: £nil) 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.
Annual Report and Accounts 2012 Renold plcOverviewBusiness reviewGovernanceFinancial statements 84
Financial statements
Notes to the consolidated financial statements
continued
25. Financial instruments continued
(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 2012 was £8.1m (1 April 2011: £8.1m). No foreign exchange difference
(2011: gain £0.4m) on translation of the borrowings into Sterling is included as part of the hedging reserve movement in other
comprehensive income as this was deemed to be effective.
(d) Currency and interest rate profile of financial liabilities of the Group
Currency
Sterling
– Financial liabilities
– Preference Stock
US Dollar
Euro
Other
Fixed
rate
£m
0.1
0.5
–
–
–
0.6
2012
Floating
rate
£m
1.4
–
10.7
4.8
10.2
27.1
Fixed
rate
£m
0.2
0.5
–
–
0.4
1.1
2011
Floating
rate
£m
1.1
–
10.3
3.8
11.1
26.3
Total
£m
1.5
0.5
10.7
4.8
10.2
27.7
Total
£m
1.3
0.5
10.3
3.8
11.5
27.4
The Preference Stock 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 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.
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 12. There are no significant concentrations of credit risk within the Group.
With respect to credit risk arising from other financial assets of the Group, which comprise cash and cash equivalents and certain
derivative instruments, the Group’s exposure to credit risk has a maximum exposure equal to the carrying value of these instruments.
(e) Currency and interest rate profile of financial assets at 31 March 2012
Currency
Euro
US Dollar
Other
Cash at bank
and in hand
£m
2012
Short term
deposits
£m
1.6
0.9
2.3
4.8
–
–
–
–
Cash at bank
and in hand
£m
2011
Short term
deposits
£m
3.8
1.0
2.4
7.2
–
–
0.2
0.2
Total
£m
1.6
0.9
2.3
4.8
Total
£m
3.8
1.0
2.6
7.4
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.
Renold plc Annual Report and Accounts 2012 25. Financial instruments continued
(f) Maturity of financial liabilities
The maturity profile of the contracted amount of the Group’s financial liabilities was as follows:
2012
Interest bearing loans and borrowings
Leases
Trade payables
Forward foreign exchange contracts – outflow
Preference Stock12
2011
Interest bearing loans and borrowings
Leases
Trade payables
Forward foreign exchange contracts – outflow
Preference Stock12
12 No fixed repayment date.
One year
or less
on demand
£m
14.4
0.1
21.9
4.1
–
40.5
One year
or less
on demand
£m
14.4
0.1
21.6
19.5
–
55.6
One to
two years
£m
Two to
five years
£m
More than
five years
£m
14.1
–
–
–
–
14.1
–
–
–
–
–
–
–
–
–
–
0.5
0.5
One to
two years
£m
Two to
five years
£m
More than
five years
£m
12.6
0.1
–
–
–
12.7
1.0
–
–
–
–
1.0
–
–
–
–
0.5
0.5
85
Total
£m
28.5
0.1
21.9
4.1
0.5
55.1
Total
£m
28.0
0.2
21.6
19.5
0.5
69.8
The Group has contracted forward contracts consisting of Euro forward contracts of £3.0m (2011: £12.2m) and US Dollar forward
contracts of £4.4m (2011: £7.3m) and has contracted to buy foreign currency consisting of Euro swap contracts for £3.3m (2011: £nil)
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
Expiring between one and two years
2012
£m
12.8
7.0
19.8
2011
£m
14.7
–
14.7
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 2013.
Annual Report and Accounts 2012 Renold plcOverviewBusiness reviewGovernanceFinancial statements 86
Financial statements
Notes to the consolidated financial statements
continued
25. Financial instruments continued
(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 (or where the carrying
amount approximates 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
2012
£m
4.8
2011
£m
7.4
2012
£m
4.8
3.6
2.5
3.6
23.5
0.1
0.5
23.8
0.6
0.5
23.5
0.1
0.5
2011
£m
7.4
2.5
23.8
0.6
0.5
The fair value of derivatives and borrowings has been calculated by discounting the expected future cash flows at prevailing interest rates.
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 2012, the Group held the following financial instruments measured at fair value:
Liabilities measured at fair value
Forward foreign currency contracts: cash flow hedge
As at 31 March 2011:
Liabilities measured at fair value
Forward foreign currency contracts: cash flow hedge
Total
£m
0.1
Total
£m
0.2
Level 1
£m
Level 2
£m
Level 3
£m
–
0.1
–
Level 1
£m
Level 2
£m
Level 3
£m
–
0.2
–
Renold plc Annual Report and Accounts 2012
87
25. Financial instruments continued
(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 2012 and 31 March 2011.
The Group monitors capital using two gearing ratios, one of which is net debt divided by total capital plus net debt and the other is
the ratio of net debt to adjusted EBITDA.
Net debt (Note 24)
Total debt
Total capital
Capital and net debt
Gearing ratio
Adjusted EBITDA (£m)
Net debt to adjusted EBITDA
2012
£m
22.9
22.9
50.9
73.8
31%
2011
£m
20.0
20.0
54.8
74.8
27%
18.7
1.2 times
11.9
1.7 times
26. Business combinations
There were no acquisitions in the current or prior year.
27. Post balance sheet events
Exercise of warrants and allotment of ordinary shares
On 17 May 2012, the Company allotted 1,499,750 fully paid new ordinary shares pursuant to the exercise of warrants held by Fortis Bank
at a price of 21.06p per share. Following this allotment, the total number of ordinary shares in issue increased to 221,064,453 ordinary
shares of 5p each. The number of remaining warrants is 2,000,250 held by Royal Bank of Scotland and these are exercisable up to
13 August 2016 at the same price of 21.06p.
Annual Report and Accounts 2012 Renold plcOverviewBusiness reviewGovernanceFinancial statements 88
Financial statements
Group five year financial review (unaudited)
Group revenue
Operating profit/(loss) before exceptional items
Operating profit/(loss)
Profit/(loss) before tax
Taxation
Discontinued operations:
Profit from discontinued operations
Profit/(loss) for the year
Net assets employed
Tangible and intangible fixed assets
Working capital and other net assets
Operating assets
Goodwill
Net debt
Deferred and current taxation
Provisions
Net assets excluding pension obligations
Pension obligations
Total net assets
Other data and ratios
Return on capital employed (%)13
Return on sales (%)14
Capital expenditure (£m)
Basic earnings/(loss) per share (p)
Employees at year end (continuing)
2012
£m
209.5
14.1
12.0
7.6
(1.2)
6.4
–
6.4
54.9
40.2
95.1
22.3
(22.9)
15.9
(1.5)
108.9
(55.7)
53.2
15.2
6.7
5.6
2.8
2,569
2011
£m
191.0
7.0
4.3
(1.3)
0.4
(0.9)
–
(0.9)
55.1
36.9
92.0
22.4
(20.0)
15.2
(1.2)
108.4
(51.5)
56.9
7.6
3.7
6.6
(0.4)
2,521
2010
£m
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)
(1.3)
4.2
(8.0)
2,257
2009
£m
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
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
13 Being operating profit before exceptional items divided by average operating assets.
14 Based on operating profit before exceptional items divided by revenue.
Renold plc Annual Report and Accounts 2012 Independent auditor’s report
89
To the members of Renold plc
We have audited the parent company financial statements of Renold plc for the year ended 31 March 2012 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 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 auditor’s 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 auditor
As explained more fully in the Statement of Directors’ responsibilities for the Company financial statements set out on page 90,
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 and express an opinion on 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.
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 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.
In addition, we read all the financial and non-financial information in the Annual Report and accounts to identify material
inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies
we consider the implications for our report.
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 2012;
• 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.
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 matters
We have reported separately on the Group financial statements of Renold plc for the year ended 31 March 2012.
Gary Harding
(Senior statutory auditor) for and on behalf of Ernst & Young LLP, Statutory Auditor
Manchester
28 May 2012
Annual Report and Accounts 2012 Renold plcOverviewBusiness reviewGovernanceFinancial statements 90
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 Company 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 Financial Reporting Standard (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 25.
Derivative financial instruments – The Company uses derivative
financial instruments to hedge the Group’s exposure to foreign
exchange 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 cashflows
of the underlying entities are reviewed to determine whether the
investment value is recoverable.
Renold plc Annual Report and Accounts 2012 91
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.
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.
Equity-settled share based payments granted to employees of the
Group providing services to subsidiary undertakings are treated as
an investment in the company’s balance sheet.
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.
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 the employee services received in exchange for
the grant of the options is calculated using a Black-Scholes pricing
model and is recognised as an expense over the vesting period.
The total amount to be expensed over the vesting period is
determined by reference to the fair value of the options granted.
At each balance sheet date, the Company 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 market-based conditions are linked to the market price
of shares in the Company.
Annual Report and Accounts 2012 Renold plcOverviewBusiness reviewGovernanceFinancial statements Note
i
ii
iii
iv
vi
v
v
viii
ix
ix
2012
£m
6.7
61.1
67.8
15.4
17.5
32.9
(1.9)
–
31.0
98.8
(11.2)
(0.5)
87.1
26.4
29.4
31.3
87.1
2011
£m
4.8
65.6
70.4
12.6
15.7
28.3
(2.7)
(0.1)
25.5
95.9
(8.1)
(0.5)
87.3
26.4
29.4
31.5
87.3
92
Financial statements
Company balance sheet
as at 31 March 2012
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
Derivative financial instruments
Net current assets
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 28 May 2012 and signed on its behalf by:
Matthew Peacock
Chairman
Robert Davies
Director
Renold plc Annual Report and Accounts 2012
93
Company statement of total recognised gains and losses
for the year ended 31 March 2012
(Loss)/profit for the year
Total recognised (losses)/gains for the year
All attributable to the equity shareholders of the Company.
2012
£m
(0.1)
(0.1)
2011
£m
1.0
1.0
Annual Report and Accounts 2012 Renold plcOverviewBusiness reviewGovernanceFinancial statements 94
Financial statements
Notes to the Company financial statements
(i) Tangible assets
Cost
At beginning of year
Additions at cost
At end of year
Depreciation
At beginning of year
Depreciation for the year
At end of year
Net book value at end of year
Net book value at beginning of year
Property
£m
Equipment
£m
0.4
–
0.4
0.2
0.1
0.3
0.1
0.2
5.6
2.0
7.6
1.0
–
1.0
6.6
4.6
Total
£m
6.0
2.0
8.0
1.2
0.1
1.3
6.7
4.8
Future capital expenditure
At 31 March 2012, contracted capital expenditure not provided for in these financial statements for which contracts have been placed
amounted to £nil (2011: £0.8m).
(ii) Investments in subsidiary undertakings
Subsidiary undertakings
Cost or valuation
At beginning of year
Net repayments
At end of year
The principal subsidiary undertakings of the Company at 31 March 2012 are set out in Note (xiii).
(iii) Debtors
Amounts owed by subsidiary 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
Shares
£m
Advances
£m
Total
£m
43.0
–
43.0
22.6
(4.5)
18.1
65.6
(4.5)
61.1
2012
£m
14.9
0.2
–
0.3
15.4
2012
£m
0.2
0.2
2011
£m
12.0
0.2
0.1
0.3
12.6
2011
£m
0.2
0.2
Renold plc Annual Report and Accounts 2012 (iv) Other creditors
Amounts falling due within one year:
Trade creditors
Amounts owed by subsidiary undertakings
Other taxation and social security
Accruals
(v) Borrowings
Amounts falling due after one year:
Bank loans repayable in one to two years
Summary of total borrowings:
Bank loans
Preference Stock
Total borrowings
Bank borrowings are secured by fixed and floating charges over the assets of UK subsidiaries.
Preference Stock
Details of the Company’s Preference Stock are set out in Note 14 to the consolidated financial statements.
(vi) Derivative financial instrument
Forward foreign currency contracts – cash flow hedge
95
2011
£m
1.4
0.4
0.2
0.7
2.7
2011
£m
8.1
8.1
0.5
8.6
2011
£m
(0.1)
2012
£m
1.0
0.1
0.2
0.6
1.9
2012
£m
11.2
11.2
0.5
11.7
2012
£m
–
The Group has contracted forward contracts to sell foreign currency consisting of Euro forward contracts £3.0m (2011: £12.2m) and
US Dollar forward contracts £4.4m (2011: £7.3m), and has contracted to buy foreign currency consisting of Euro swap contracts for
£3.3m (2011: £nil) 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 under 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 18
in the Group financial statements. No contributions are outstanding at the year end. As the pension schemes are 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.
Annual Report and Accounts 2012 Renold plc
OverviewBusiness reviewGovernanceFinancial statements 96
Financial statements
Notes to the Company financial statements
continued
(viii) Called up share capital
Equity interests
Ordinary shares of 5p each
Deferred shares of 20p each
Preference Stock1
1
Included in borrowings – see Note (v).
2012
£m
11.0
15.4
0.5
26.9
Issued
2011
£m
11.0
15.4
0.5
26.9
At 31 March 2012, the issued ordinary share capital comprised 219,564,703 ordinary shares of 5p each (2011: 219,564,703) and 77,064,703
deferred shares of 20p each (2011: 77,064,703). During the year the Company issued no ordinary shares (2011: nil).
Details of the Preference Stock are set out in Note 14 of the consolidated financial statements.
Disclosures in respect of capital management can be found in Note 25 of the consolidated financial statements.
Share options
At 31 March 2012, unexercised options for ordinary shares amounted to 9,737,599 (2011: 7,335,447) made up as follows:
Date normally exercisable
Executive Share Option Schemes
Within seven years from:
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)
2 January 2010 (2004 Scheme)
25 November 2011 (2004 Scheme)
5 February 2013 (2004 Scheme)
27 September 2013 (2004 Scheme)
8 June 2014 (2004 Scheme)
Option price
(p per share)
Number of
shares
2012
Number of
shares
2011
57.3
49.8
71.1
65.1
74.9
63.3
52.5
97.2
31.5
23.2
27.3
37.3
–
50,499
41,104
146,799
557,835
111,568
275,982
187,903
21,160
4,280,885
678,898
3,384,966
9,737,599
125,660
100,998
88,079
146,799
557,835
123,312
334,702
234,879
21,160
4,923,125
678,898
–
7,335,447
Further details of share-based payment schemes operated by the Company are provided in the Directors’ remuneration report and
Note 20 of the consolidated financial statements.
Renold plc Annual Report and Accounts 2012 97
(ix) Reserves
At beginning of year
Loss for the year
Employee share option schemes – value of employee services
At end of year
Profit and
loss account
£m
Share
premium
£m
31.5
(0.1)
(0.1)
31.3
29.4
–
–
29.4
Total
reserves
£m
60.9
(0.1)
(0.1)
60.7
As permitted by section 408 of the Companies Act 2006, no profit and loss account is presented in these financial statements.
The Company’s loss for the financial year was £0.1m (2011: profit £1.0m).
Reserves include £0.4m 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 5p each and have a seven year
term commencing from 13 August 2009 during which they can be exercised at any time.
Total fees payable by the Company to Ernst & Young LLP for work in respect of the audit of the Company were £30,000 (2011: £29,000).
Fees paid to the Company’s auditor for non-audit services to the Company are not disclosed in these financial statements because
the Group 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
2012
£m
0.2
0.2
2011
£m
0.2
0.2
(xi) Contingent liabilities
The Company has guaranteed borrowings by subsidiary undertakings of £9.9m (2011: £13.9m). Performance guarantees given
to third parties in respect of Group companies were £3.4m (2011: £3.6m) associated with the sale of the automotive business in
July 2006. This guarantee expires in August 2012. 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) Company Limited, its 75% owned subsidiary, Renold Chain India Private Limited and its 50% jointly controlled
entity, Renold Transmission Technology (Jiangsu) Inc. Transactions entered into and trading balances outstanding at 31 March 2012
(and 2011) with Renold Chain India Private Limited and Renold Transmission Technology (Jiangsu) Inc. are not material. Transactions
entered into and trading balances outstanding at 31 March with Renold (Hangzhou) Company Limited are as follows:
Recharges of services
Amounts payable as at 31 March
Transactions with key management personnel
There were no transactions with key management personnel during the year.
2012
Renold
(Hangzhou)
Company
Limited
£m
–
0.1
2011
Renold
(Hangzhou)
Company
Limited
£m
0.4
0.7
Annual Report and Accounts 2012 Renold plcOverviewBusiness reviewGovernanceFinancial statements 98
Financial statements
Notes to the Company financial statements
continued
(xiii) Significant undertakings as at 31 March 2012
United Kingdom
Renold Power Transmission Limited (held directly by Renold plc)
Renold Europe Limited
Europe (other than the United Kingdom)
Austria
Belgium
Denmark
France
Germany
Holland
Russia
Sweden
Switzerland
North America
Canada
USA
Other countries
Australia
China
India
Malaysia
New Zealand
Singapore
South Africa
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
Renold Canada Limited
Renold Inc
Jeffrey Chain LP
Renold Australia Proprietary Limited
Renold Transmission (Shanghai) Company Limited
Renold Technologies (Shanghai) Company Limited
Renold (Hangzhou) Company Limited
Renold Transmission Technology (Jiangsu) Inc.
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 with the exception of Renold (Hangzhou) Company Limited, Renold Chain India Private Limited and Renold
Transmission Technology (Jiangsu) Inc. are direct or indirect subsidiaries of Renold plc, a company incorporated in England and Wales,
which ultimately holds a 100% (except for those companies in which the Group does not hold all of the shares and voting rights as
set out above) interest in the equity shares and voting rights. Renold Power Transmission Limited and Renold Continental Limited
are registered in England and Wales.
The Group has the following interests in the exceptions noted above:
Subsidiary undertaking
Renold (Hangzhou) Company Limited
Renold Chain India Private Limited
Jointly controlled entity
Renold Transmission Technology (Jiangsu) Inc.
Our overseas companies are incorporated in the countries in which they operate except where otherwise stated.
Equity
shares
90%
75%
Voting
rights
90%
75%
50%
50%
Renold plc Annual Report and Accounts 2012
Corporate details
Corporate information
99
Corporate calendar
Annual General Meeting
Interim management statement (first)
Half year end 2012/13
Announcement of half year 2012/13 results November 2012
Interim management statement (second)
Year end 2012/13
Announcement of annual results 2012/13
Payment of preference dividends
12 July 2012
Between 10 June 2012 and 18 August 2012
30 September 2012
Between 10 December 2012 and 17 February 2013
31 March 2013
June 2013
1 July 2012 and 1 January 2013
Registered number: 249688
Telephone: +44 (0)161 498 4500
Fax: +44 (0)161 437 7782
Email: enquiry@renold.com
Website: www.renold.com
Company details
Registered office
Renold House
Styal Road
Wythenshawe
Manchester
M22 5WL
Company Secretary
Brian Tenner
Auditor
Ernst & Young LLP
Broker and financial adviser
Arden Partners
Financial PR consultants
College Hill Associates Limited
Registrars
Capita Registrars
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
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
Registrars Share Portal: www.capitashareportal.com
If you receive two or more copies of this report please write to Capita Registrars at The Registry,
34 Beckenham Road, Beckenham, Kent BR3 4TU and ask for your accounts to be amalgamated.
Annual Report and Accounts 2012 Renold plcOverviewBusiness reviewGovernanceFinancial statements
100
Notes
Renold plc Annual Report and Accounts 2012 Contents
Underlying operating profit*
£m
15
12
9
6
3
0
-3
11.5
09
14.1
7.1
(1.8)
10
11
12
Our performance
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.
01 Our performance
02 Our operations
04 The world of Renold
06 Chairman’s statement
08 Our business model
10 Our business objectives
12 Progress in motion
16 Q&A with the Chief Executive
17 Chief Executive’s review
20 Finance Director’s review
24 Principal risks and uncertainties
26 Responsibilities
Business 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 includes details of
our corporate governance and
our Directors’ remuneration.
30 Board of Directors
32 Corporate governance
38 Directors’ remuneration report
44 Statement of Directors’ responsibilities
45 Statutory information
Financial statements
This section contains all the detailed
financial statements for the Group
and the Company.
Our operations
02-03
Business model & strategy
08-09
Group
49 Independent auditor’s report
50 Accounting policies
57 Consolidated income statement
58 Consolidated statement of
comprehensive income
59 Consolidated balance sheet
60 Consolidated statement of
changes in equity
61 Consolidated statement of cash flows
62 Notes to the consolidated financial
statements
88 Group five year financial review
Company
89 Independent auditor’s report
90 Accounting policies
92 Company balance sheet
93 Company statement of total
recognised gains and losses
94 Notes to the Company financial
statements
99 Corporate information
Renold plc Annual Report and Accounts 2012
Chief Executive’s Q&A
16
This report has been printed in the UK, our printers are
Environmental Management System ISO 14001 accredited
and Forest Stewardship Council (FSC) chain of custody certified.
All inks are vegetable based.
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
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Annual Report and
Accounts 2012
Progress in motion
www.renold.com
www.renold.com