Renold plc Annual Report and Accounts
for the year ended 31 March 2015
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www.renold.com Stock code: RNO
23998-04 Proof Two - final 15 June 2015 3:03 PM
Renold plc is an international group
delivering high precision engineered
and power transmission products to our
customers worldwide.
Our market-leading 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.
Read more about Our Strategy on pages 16 to 23
Navigating the report
For further information
within this document and
relevant page numbers
Additional information
available online
Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015
23998-04 Proof Two - final 15 June 2015 3:03 PM
Visit us online at
www.renold.com
Welcome to our Report
We present our Annual Report
and Accounts for the year ended
31 March 2015.
An overview of who we are and what
we do can be found in the introductory
pages of our Annual Report, including
our Chairman’s letter.
In our Strategic Report, we outline
our strategy and how we are taking
the business forward. We then give
details of our operational and financial
performance across the Group. We
also outline our approach to corporate
responsibility and talk about our people
and why they are fundamental to
our success.
The Governance section follows the
Strategic Report and includes our
Corporate Governance Report, Audit
and Nomination Committee Reports and
our Directors’ Remuneration Report.
The Directors’ Report provides other
statutory and regulatory information.
The financial statements for the Group
and the Company can be found at pages
94 to 148 towards the end of the Annual
Report and Accounts.
We use a number of technical terms
and abbreviations within this document.
Please refer to the Glossary on page 150
for the definitions and other explanatory
information.
Map key
Manufacturing and
sales company
Sales only location
Knowledge
of customer problems,
products and solutions
Skills & facilities
the ability to conceive
and deliver these solutions
Service
unique after-sales service
means we continue to
learn and deliver
Logistics
the right product in the
right place at the right time
For full details of Group at a Glance
See page 02
For full details of Our Business Model
See page 12
For full details of Our Strategy
See page 16
For full details of Health and Safety
See page 41
Contents
Welcome to our Report
Who We Are: Group at a Glance
Our Customer Journey
Where We Are: Highlights
Chairman’s Letter
Strategic Report
Our Business Model
Market Review
Our Strategy: Strategic Objectives
Our Strategy: Three-Phase
Strategic Plan
Our Strategy: Progress Against Our
Strategic Objectives
Our Strategy: Our Five 'Staircases'
Chief Executive’s Review
Our Performance: Chain
Our Performance: Torque Transmission
Finance Director’s Review
Corporate Social Responsibility
Risk
Principal Risks and Uncertainties
Governance
Corporate Governance Report:
Chairman’s Letter
Board of Directors
Governance Structure and
Board Composition
Audit Committee Report
Nomination Committee Report
Directors’ Remuneration Report:
Annual Statement
Directors’ Remuneration Report:
Directors’ Remuneration Policy
Directors’ Remuneration Report:
Annual Report on Remuneration
Directors’ Report
Statement of Directors’ Responsibilities
Shareholder Information
Financial Statements
Independent Auditor’s Report
to the Members of Renold plc
Accounting Policies
Consolidated Income Statement
Consolidated Statement of
Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of
Changes in Equity
Consolidated Statement of Cashflows
Notes to the Consolidated
Financial Statements
Group Five Year Financial Review
Accounting Policies
Company Balance Sheet
Company Statement of Total
Recognisable Gains and Losses
Notes to the Company
Financial Statements
Additional Information
Corporate Information
Glossary
01
02
04
06
08
10
12
14
16
17
18
22
24
26
30
34
40
46
47
50
52
54
56
62
68
70
73
81
88
91
93
94
96
100
108
109
110
111
112
113
139
140
142
143
144
149
150
23998-04 Proof Two - final 15 June 2015 3:03 PM
01
Overviewwww.renold.com Stock code: RNO
Who We Are:
Group at a Glance
Renold plc is an international group delivering high precision
engineered products and solutions to our customers worldwide.
Chain
Torque Transmission
A global market leading supplier of chain for many
applications. Heavy duty, high precision, indoor or outdoor,
high or low temperature and in clean or contaminated
environments; these are all in a day’s work.
We have manufacturing sites across the world including the
USA, Germany, India, China, Malaysia and Australia in addition
to local service capabilities in a number of other markets. We
operate at the leading edge of technology, with innovative
products designed to meet customers’ exacting standards.
Our 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.
Conveyor chain applications including theme park rides,
water treatment plants, cement mills, agricultural machinery,
mining and sugar production all rely on the high-specification
materials and treatment processes used by Renold. Renold
is also a market leader in lifting chain used in many of the
forklift trucks produced worldwide.
A global market leading manufacturer and developer of
coupling and gearbox solutions, 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.
We have manufacturing sites across the world including
the USA, the UK, South Africa and China. We work closely
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 our customers’ specific requirements.
Our solutions deliver 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 rollercoasters.
Adjusted
operating profit
External
revenue
Employees at
31 March 2015
Adjusted
operating profit
External
revenue
Employees at
31 March 2015
£14.2m
£138.3m
1,747
£6.9m
£43.1m
463
Read more about our performance on pages 26 to 29
Read more about our performance on pages 30 to 33
02
23998-04 Proof Two - final 15 June 2015 3:03 PM
Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015
Our international network includes 13 locations where we both manufacture and sell
and a further nine sales only companies which are strategically located to support our
customers within our two operating divisions.
Renold employed an average of 2,277 people around the world in the last year, with
57% of our staff engaged in direct production activities. The divisional split of staff aligns
closely with the split of sales with 78% of staff in Chain, 21% in Torque Transmission and
1% in our head office.
Map key
Manufacturing and
sales company
Sales only location
North America
Europe
Asia Pacific
High growth economies
37%
of global sales
37%
of global sales
18%
of global sales
8%
of global sales
North America delivered
1.3% growth in underlying
revenue with both the US
and Canada 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 chain and gear
spindles and couplings.
Europe delivered a 4.5%
rise in underlying revenue.
Germany, the UK and
France all showed modest
growth with Switzerland
well ahead.
Renold Chain now operates
from one major European
manufacturing location in
Germany. Renold Torque
Transmission operates
three plants in the UK
exporting to various
destinations worldwide.
Australasia delivered a flat
result down 0.1%, with a
continuing weak Australia
market offset by South
East Asia growth.
Our Indian business
delivered growth in
underlying revenue of
10.3%, while China grew
8.9% in underlying revenue.
We operate manufacturing
plants in Australia and
Malaysia with additional
sales centres in New
Zealand and Singapore. We
also operate a distribution
network in Australia and
Malaysia.
Our Chinese chain plant
primarily serves sister
companies and has
a smaller local focus.
Conversely, our Indian
chain business focuses on
the local market.
23998-04 Proof Two - final 15 June 2015 3:03 PM
03
Overviewwww.renold.com Stock code: RNO Our Customer Journey
Our activities range from diagnosing our customers' specific power
transmission application challenges to proposing materials and their
properties, then to cutting and treating the components and finally
to assembly into the final product.
Bringing our un-paralleled
engineering capability to
design customer solutions
Material performance
can be enhanced with
the right coating.
4
Coating
specification
ENGINEERING CENTRE
2
Design
1
Analysing
customer
problem
Customer issues
are often challenging
and sometimes unique.
5
Making
components
Deploying over 100 years
of manufacturing know how
to create superior products
MANUFACTURING
Specifying the right
grade and composition
of metals is key.
3
Material
specification
Ongoing performance
monitoring, field support
and technical advice.
9
After sales
service
SERVICE
WAREHOUSE
10
Sales
channels
04
23998-04 Proof Two - final 15 June 2015 3:03 PM
6
7
Treating
components
Heat treatment and
other applications to
optimise performance.
Assembling
components
Automated
assembly processes
reduce lead times.
Enhancing the customer
experience with after sales
service and performance monitoring
8
Shipping
Wide range of stocked
products and daily
shipment options.
Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 We add value during our customer journey from our unrivalled engineering
capability, 100+ years of know how and enhanced after sales service.
Our Business Model on pages 12 and 13 shows our value generation
in more detail.
Bringing our un-paralleled
engineering capability to
design customer solutions
Material performance
can be enhanced with
the right coating.
4
Coating
specification
ENGINEERING CENTRE
2
Design
1
Analysing
customer
problem
Customer issues
are often challenging
and sometimes unique.
5
Making
components
Deploying over 100 years
of manufacturing know how
to create superior products
MANUFACTURING
Specifying the right
grade and composition
of metals is key.
3
Material
specification
Ongoing performance
monitoring, field support
and technical advice.
9
After sales
service
SERVICE
WAREHOUSE
10
Sales
channels
6
Treating
components
Heat treatment and
other applications to
optimise performance.
7
Assembling
components
Automated
assembly processes
reduce lead times.
Enhancing the customer
experience with after sales
service and performance monitoring
8
Shipping
Wide range of stocked
products and daily
shipment options.
23998-04 Proof Two - final 15 June 2015 3:03 PM
05
Overviewwww.renold.com Stock code: RNO Highlights
We continue to build sustainable momentum in driving the business
forward. We delivered a 48% increase in underlying adjusted
operating profit and a 56% increase in adjusted earnings per share
underpinned by Chain achieving its 10% RoS threshold target.
The generation of £5.3m of free cash flow from organic activities
represents a significant step change from over a decade of organic
cash consumption.
Financial highlights
Adjusted earnings per share
pence
Underlying adjusted operating profit1
£m
Underlying revenue1
£m
5
4
3
2
1
0
4.2
5.0
3.2
2.0
1.4
2011
2012
2013
2014
2015
16
14
12
10
8
6
4
2
0
12.9
15.5
10.5
6.0
6.7
2011
2012
2013
2014
2015
250
200
150
100
50
0
195.1
179.3
180.8
177.9
181.4
2011
2012
2013
2014
2015
Adjusted Return on Sales
%
Return on capital employed
%
16
Net debt
£m
30
9
8
7
6
5
4
3
2
1
0
6.7
6.0
3.7
3.8
8.5
15.6
12.2
11.1
6.1
6.5
12
8
4
0
2011
2012
2013
2014
2015
2011
2012
2013
2014
2015
25
20
15
10
5
0
22.9
22.8
24.8
20.0
19.5
2011
2012
2013
2014
2015
1 Underlying results are retranslated to current year exchange rates. Adjusted results exclude the impact of exceptional items, pension financing charges, pension
administration costs and any tax thereon.
Adjusted EBITDA up
Cash generated
from operations
Total operating assets
Average working capital
% of sales
26%
£14.2m
£75.8m
19.1%
06
23998-04 Proof Two - final 15 June 2015 3:03 PM
Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015
Operational highlights
Æ Delivery of Group wide health and safety
training for managers, accompanied by the
launch of the first Renold Health and
Safety Awards.
Æ Successful completion of the Bredbury
closure on budget and ahead of schedule to
deliver £3.8m of annualised savings, a gain of
£0.6m on our original estimate.
Æ Delivery of a revised and extended core Group
banking facility underpinning our Strategic
Plan and lowering our cost of finance.
Æ Contribution margin gains starting to be
delivered by leveraging high quality
product offering.
Æ Completion of a UK pension scheme de-
risking project and termination of a US
defined benefit pension scheme.
Æ Graduate recruitment programme launched
and new sales skills training being rolled out.
Executive summary
The year was marked by a number of
further self-help successes building on
the significant achievements of last
year. As a result, we have delivered a
48% increase in underlying adjusted
operating profit against a background
of mixed macro-economic conditions in
our operating geographies.
Underlying revenue increased by 2.0%
for the Group as a whole. In Chain,
Europe, the Americas, China and India
all delivered growth while underlying
Australasian revenues were marginally
down by 0.1%. The weak commodity
dependent Australian market was
almost entirely offset by strong growth
in South East Asia.
In Torque Transmission underlying
revenue fell 1.1% although the second
half was more encouraging with a small
rise of 2.0%. Torque Transmission also
contributed to lowering our breakeven
point by cutting overheads by £0.8m.
The complex project to reduce excess
capacity in our Chain division saw
completion of the closure of the
Bredbury facility soon after the end of
the last financial year. We successfully
moved the production with a minimum
of disruption for our customers and
exceeded our business retention target
of 90%. Offsetting this gain were
additional transitional costs incurred in
recipient sites for Bredbury production.
In order to minimise disruption to
customers, we incurred excess labour
and freight costs which more than
offset the gains from retaining the
majority of our revenue. The excess
costs were managed out of the business
in the second half of the year and so we
expect the lasting annual gains from
the closure project to be approximately
£3.8m, some £0.6m better than our
original estimate.
Our Strategic Plan, STEP 2020, has been
developed to take us through the next
five years. The origins and significance
of STEP 2020 are discussed in more
detail in the Q&A session with Robert
Purcell, our Chief Executive, on pages 24
and 25.
In summary, adjusted operating profits
are now 133% higher than two years
ago when we started to implement our
three-phase Plan. Adjusted earnings per
share have more than trebled over the
same period.
This clearly emphasises the value
generation that is available through our
self-help measures. STEP 2020 sets
out detailed, unit specific self-help and
growth initiatives which will deliver
sustainable margin gains as we move
to deliver our new medium term goal of
mid-teens operating margins by 2020.
Pension deficit increase
Biggest customer
% of sales
Total employees
at 31 March 2015
Adjusted EPS
year on year increase
£10.8m
5%
2,243
56%
23998-04 Proof Two - final 15 June 2015 3:03 PM
07
Overviewwww.renold.com Stock code: RNO
Chairman’s Letter
Overview
The past year has been marked by
a number of notable successes. We
delivered a significant reduction in our
breakeven point when we completed
the closure of the Bredbury chain facility
under budget and ahead of schedule in
the first quarter. During the first half
we also developed a series of five year
action plans in each unit to advance
the first two phases of our Strategic
Plan. That plan is now being further
developed and communicated to all
of our stakeholders under the banner
'STEP 2020'. These actions are the
multiple individual steps that build to
deliver our overall strategic goal of mid-
teens operating margins by 2020.
Re-engineering our future
The successful delivery of the project
to close the Bredbury manufacturing
facility and transfer the production to
three other sister sites was only one
aspect of the many self-help initiatives
delivered by the Group during the year.
Most recently we have also announced
that we are moving our head office
to new local premises in Manchester
which are more suited to the size of our
business today, are a better reflection of
the culture that we are seeking, and also
reduce our fixed overhead base.
Elsewhere, we continue to develop
and enhance our senior management
team with recruitment to a number of
posts that will support the business as
it makes the transition into the second
phase of the Strategic Plan, the Growth
phase. We continue to work hard to
improve our health and safety culture
and performance and while this year
has seen some disappointment in the
accident statistics, we are confident that
the continued drive to embed a 'safety
first' culture will pay dividends in the
long term.
Our balance sheet
The amendment and extension to
our core banking facilities that was
completed in May 2015, just after the
end of the financial year, put in place
an important foundation for the next
phases of our Strategic Plan. The
revised facilities give access to longer
term financing that matures in 2020, a
flexible £20.0m accordion facility that
can be used for major investments or
strategically aligned opportunistic bolt-
on acquisitions, and also provide a lower
cost of financing the Group’s net debt.
De-risking our exposure to defined
benefit pension schemes remains a key
priority. During the year one scheme in
the USA was terminated at minimal cost
to the Group. Just after the year end we
announced an insured buy in of 25% of
the higher risk pension liabilities and
cash flows in the UK.
The Group is currently evaluating the
potential impact of the recent changes
in UK legislation on flexible retirement
planning which may allow for further
de-risking while allowing the members
of the UK scheme access to the flexibility
introduced by the Government. De-
risking projects continue to be assessed
in various territories with open defined
benefit pension schemes.
Positive outcomes were also delivered
in net debt and working capital. As a
result of strong operating cash flows,
the Group finished the year with net
debt £5.3m lower than the same time
last year.
The Board and our people
The Board continues to support the
Executive team in reviewing and
monitoring our continuous improvement
initiatives. All Board members have
given additional time and support on a
wide range of issues during the year. The
Board remains closely involved in the
governance of the major projects and
further evolution of the Strategic Plan.
“The Group has
delivered a second
consecutive year
of significantly
improved margins
and earnings
growth. We
continue to build
and develop our
three-phase Plan
to deliver mid-teens
operating margins
by 2020. The new
five year financing
facility with access
to additional funds
positions us well for
the next phases of
our strategy.”
Mark Harper
Chairman
08
23998-04 Proof Two - final 15 June 2015 3:03 PM
Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 Achievement of double digit operating
margins is fast becoming a realistic
short term opportunity as both
operating divisions already achieve this
level of profitability. Robust foundations
for further improvements have already
been put in place over the last year
and we expect to accelerate our capital
investment programme over the coming
year. The STEP 2020 programme has
a medium term goal of delivering mid-
teens operating margins by 2020.
Mark Harper
Chairman
Pictured: The use of robots at our Chain
manufacturing facility in Germany is one element
of our Manufacturing Efficiency programme.
For further details see page 22: Our Strategy.
In parallel with developing the detailed
five year plan, we are also working to
develop and embed a new Group culture
that will support our change initiatives.
The 'Renold Values' have been rolled
out across all of our business units
this year, and aim to set standards of
behaviour and expectations for all of our
employees that will shape and inform
the manner in which we implement our
Strategic Plan.
I am grateful for the continued efforts
and new ideas that our staff are
bringing to the table in support of our
Strategic Plan. The pace of change
remains unremitting and it is truly
heartening to see the commitment of
all of our employees in making those
changes a success. Through our Values
and regular communication with
employees we aim to ensure that all
staff are able to contribute and remain
fully engaged, motivated and inspired.
Dividend
The Group has an extensive series of
planned capital investments in the new
financial year and capital expenditure
will increase significantly as a result. The
new investments are aimed primarily at
further improving our performance and
supporting the delivery of our strategic
objectives. Given these planned
investments, the Board has decided
not to recommend the payment of a
dividend in the current financial year.
The Board does however recognise the
importance of dividends to shareholders
and this will remain under active review
as performance improves further.
Outlook
Our efforts remain focused on self-help
initiatives. We have identified a wealth
of internal improvement and growth
initiatives in our detailed strategic
planning process. These serve as a
reminder that there remains significant
opportunity and scope for continuous
improvement. We will continue our
efforts to create and embed a continuous
improvement philosophy in all aspects
of our business, whether front line sales
and service, manufacturing processes or
support functions.
Externally, most of our end markets are
more stable than would be suggested
by the extreme volatility in the capital
and foreign currency markets. The
combination of these market conditions
with our self-help initiatives gives
confidence that, as we transition into
the Growth phase of our Strategic Plan,
we are well placed to continue to deliver
sustainable longer term gains in adjusted
operating profit and earnings per share.
23998-04 Proof Two - final 15 June 2015 3:03 PM
09
Overviewwww.renold.com Stock code: RNO Strategic Report
10
23998-04 Proof Two - final 15 June 2015 3:03 PM
Heading OneRenold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 Contents
Our Business Model
Market Review
Our Strategy: Strategic Objectives
Our Strategy:
Three-Phase Strategic Plan
Our Strategy: Progress Against Our
Strategic Objectives
Our Strategy: Our 'Staircases'
Chief Executive’s Review
Our Performance: Chain
Our Performance:
Torque Transmission
Finance Director’s Review
Corporate Social Responsibility
Risk
Principal Risks and Uncertainties
12
14
16
17
18
22
24
26
30
34
40
46
47
Products
Our products may often play an invisible role in their
operating environment. However, that role is usually
critical in ensuring that the overall system performs
and delivers as expected. That is one reason our
customers keep coming back for more.
23998-04 Proof Two - final 15 June 2015 3:03 PM
11
www.renold.com Stock code: RNOStrategic Report Our Business Model
Our Business Model
The Renold business model is focused on leveraging the unique knowledge
and capabilities of our people and facilities, to generate value for our
stakeholders. See below for our continuous value generation cycle that
underpins STEP 2020.
Knowledge
of customer problems,
products and solutions
Skills & facilities
the ability to conceive
and deliver these solutions
Service
unique after-sales service
means we continue to
learn and deliver
Logistics
the right product in the
right place at the right time
Value generated for our customers:
End users
Æ Expert knowledge
Æ Bespoke solutions
Æ Unique problems
understood
and solved
18% of sales
OEMs
Æ Access to facilities
and capabilities
Æ Bespoke
components
Æ Meeting their own
customer needs
43% of sales
Distribution
Æ Trust
Æ Reliability
Æ Access to
further products
39% of sales
12
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Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015
Knowledge
Skills & facilities
Æ Reviewing after-sales service means we
continue to learn and deliver
Æ Deep understanding of metallurgy and
chemistry in real world scenarios
Æ Practical application of engineering
excellence
See page 16
Read how we’re targeting
efficiency in our strategy
Æ Bringing our unparalleled engingeering
capability to design customer solutions
Æ Deploying over 100 years of manufacturing
know how to create superior products
Æ Manufacturing capability in most
major regions
See page 28
See examples in our
divisional case studies
Service
Æ Enhancing the customer experience
with after sales service and
performance monitoring
Æ Rapid response offering on standard
configured chain
Æ Getting closer to customers in more locations
See page 32
See our service in
action case study
Logistics
Æ Wide range of stocked products can
reduce supply chain complexity
Æ Daily shipment options respond to
customer specific needs
Æ Rapid response cells geared up
for swift deliveries
See page 20
Read how we maintain and
develop the knowledge and
skills of our people
Underpinned by our:
People
We are re-building a
strong, highly skilled
team with a clear set of
values and stretching
targets. Our approach
combines new skills for
existing staff and new
capabilities from new
staff.
Assets
We are upgrading our
infrastructure and
process capability to be
an appropriate match
for our strategic goals.
This will support better
quality and service and
also lower our break
even point.
Partners
We work in long term
collaboration with a
wide range of general
and specialist suppliers.
This supports our ability
to source complex
materials for our leading
edge solutions.
23998-04 Proof Two - final 15 June 2015 3:03 PM
13
www.renold.com Stock code: RNOStrategic Report Market Review
Renold manufactures and sells power transmission products and
is configured as two separate operating divisions: Chain and Torque
Transmission. We operate Chain production facilities in seven countries,
strategically placed to serve large or growing local markets. In Torque
Transmission we have a number of specialised niche businesses that
produce a range of technical products in both the industrial couplings and
industrial gear markets.
Commercial overview
Renold benefits from its presence in a
wide spread of geographic markets and
even wider range of diverse end user
applications across a myriad of industry
sectors as illustrated in the charts
opposite. Our global manufacturing and
distribution footprint not only delivers
operational economies of scale, but
also the ability to meet our customers’
exacting delivery expectations. Our
extensive network of local commercial
and engineering support teams ensures
that we are able rapidly to understand
and provide solutions for our customers’
often technically challenging power
transmission and conveying applications.
When combined with our highly
regarded ranges of industrial chains,
gearboxes and couplings, this results in
a compelling offering for our customers,
whether they are looking for individual
products or a fully integrated solution.
With a very diverse and numerically
large customer base, reliance on any
single customer is relatively low. Our
biggest global customer represents 5%
of sales. Of our five largest customers,
three are themselves distributors
of a wide range of industrial power
transmission equipment and thus even
this limited concentration of our sales is
effectively sub-segmented into a huge
range of end customers.
Similarly, the business enjoys little
reliance on any one particular industry
with sales spread across most general
industrial markets such as construction
machinery, material handling,
transportation, mining and quarrying,
food processing, energy production,
agriculture, leisure and many more.
The fact that our largest market sector
is 'Other' further demonstrates the
wide spread of customers that we
supply. Around 60% of sales are to
OEMs and other end users, with the
remainder channelled through an
established distributor network, again
covering a wide range of end industries.
Marketing initiatives can therefore be
tailored towards growth territories and
industries in order to offset the impact
of any adverse market conditions.
As a recent example, the continued
downturn within the Australian
commodity market is being actively
countered with a commercial focus in
more buoyant areas such as agriculture
and food processing.
Delivering exceptional service to our
customers is a key and growing element
of our go to market strategy. Whether
it is in a drive system or a conveying
application, reducing downtime and
thus cost is vital to our customers.
We continue to drive internal process
improvements and investment in the
right component and finished goods
inventory in order to support our
customers on a global basis with more
rapid response times.
In re-engineering the Chain business,
and with the appointment of a Chain
Manufacturing Director, we are aiming
to create an integrated production base
that serves our customers around the
globe in an efficient and effective way.
The competitive landscapes in our
markets are highly fragmented with
a large number of small and medium
sized manufacturers and specialist
distributors. However, few, if any,
have the capability to match Renold
on a global scale and this represents a
significant opportunity for growth.
Market outlook
Performance in the year was against
a backdrop of mixed macroeconomic
conditions within our core geographic
markets. The macroeconomic
outlook for the coming year remains
somewhat uncertain but with
moderately strengthening economic
growth predicted in many of our core
geographic markets, the business is
well placed as we move into the Growth
phase of our Strategic Plan. With a
potential addressable market estimated
in excess of £1.5 billion in industrial chain
applications alone, the business has
ample scope to deliver GDP plus levels
of growth. This applies equally to the
more mature markets like Europe, the
US and Australasia where we have an
established market position, in addition
to the major growth opportunities in
developing markets such as Asia and
Central/South America. The addressable
market in Torque Transmission is many
14
23998-04 Proof Two - final 15 June 2015 3:03 PM
Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 Other
24.6
32.0
USA
Other
39.2
Agriculture, forestry
and fishing
6.4
Construction
machinery
12.9
Sales by geography
>100 countries
%
India
3.9
Switzerland
5.2
4.8
Canada
France
3.8
3.9
6.0
6.5
9.3
UK
China
Germany
Australia
Sales by end user
market
%
Mining and
quarrying
3.8
3.9
Transportation
7.0
12.1
Material handling
7.8
Energy
1.3
5.6
Environmental
Food and drink
Manufactured
products
Renold currently sells products in over 100 countries. The key regions
and territories are represented in this chart.
This chart shows the extremely diverse markets for the approximate (61%) of
our sales where we serve end users and OEMs directly. Distribution sales are
excluded from this analysis as visibility of the final market is somewhat limited.
times larger than the Chain market and
the capability of our core products can
be leveraged to deliver growth in their
markets too.
A number of recent key managerial
appointments have significantly
strengthened the commercial team
across all areas of the business. Within
Europe, our sales teams have been re-
organised with dedicated teams now in
place adopting a more market focused
approach. Coordinated commercial
campaigns will be targeted at specific
industrial applications where we have
historically been under represented.
Significant investment in additional
sales resource is being made within
higher growth Asian markets in order to
leverage our existing positions and grow
market share. Our local manufacturing
in India and China, coupled with
an excellent assembly operation in
Malaysia, means that we are well
placed to capitalise on these efforts
and opportunities.
Products
Renold has built a strong reputation for
its product range, in terms of design,
quality and reliability.
Similar to our geographic penetration,
we also estimate that we have relatively
low levels of penetration in the
addressable end use markets for the
majority of our products. This creates
opportunities for growth in those
sectors where in many cases we already
have an established presence.
The range of Renold transmission
chains comprises a wide range of off
the shelf brands to suit individual
customer requirements, combined
with specific solution based ranges for
applications requiring anti-corrosion,
low maintenance or abrasion resistant
properties.
Our products are often used in harsh
and demanding environments where
reliability and performance are key
attributes for customers. Conveyor
chain solutions can be readily tailored
to individual requirements with
enhancements to our capabilities during
the year, designed to further improve
response times and service levels. Our
couplings range includes fluid based
systems, rubber-in-shear and rubber-in-
compression products and, in gears, we
provide a complete range of speciality
worm and helical gears and drives.
The breadth of the overall product
offering enables us, where appropriate,
to take a more solution based approach.
Summary
The business has long been at
the forefront of engineering and
technological developments and this is
set to continue. Current developments
are utilising our expert knowledge of
metallurgy and chemical coatings to
deliver the next generations of our
products. These added value ranges
are designed to offer our customers
reduced overall cost of ownership, with
potential benefits including increased
service intervals and reduced downtime.
The product management and marketing
teams have also been strengthened in
the year and are tasked with providing
better tools to the customer facing
commercial teams, re-energising the
new product introduction process and
supporting the Growth phase of the
business on our STEP 2020 journey.
23998-04 Proof Two - final 15 June 2015 3:03 PM
15
www.renold.com Stock code: RNOStrategic Report Our Strategy
Strategic Objectives
We aim to deliver consistently improving returns to shareholders
by re-engineering everything we do to generate enhanced operating profits
and margins. We will achieve this through delivery of a number of strategic
objectives as set out below.
1
Significantly improving our health
and safety performance
We firmly believe that a safe business is a well run and profitable business.
By changing our health and safety culture and developing enhanced working
practices and policies we aim to ensure everyone associated with our business
goes home each day in the same condition as when they came to work.
2 Generating margin enhancing
growth from our superior product
capability
2
3 Enhancing customer service
4 Optimising business processes
4
5 Lowering our breakeven point
6 Developing our people
In the markets we serve, our products are among the best in the world. We are
emphasising the value proposition in their superior performance, longevity and
total cost of ownership. We aim to ensure that the value generated by these
characteristics stays within the business to support re-investment, and earns a
return for shareholders.
As we enter the Growth phase of our Strategic Plan, we will selectively target
those sectors and geographies where our high performance products can earn an
appropriate return.
By streamlining our business processes and making Renold easier to do business
with we aim to offer a seamless route to market with shorter lead times and
improved service levels. Rapid response configured chain cells aim to bring a
compelling new service proposition to the market. An enhanced level of customer
service will support repeat revenues and growth in profitability.
A Group wide programme is underway aimed at implementing standardised,
efficient and seamless business processes. These will cover the full range of
commercial, operational and support activities and will be underpinned by one
global IT system. Our ultimate aim is to significantly reduce our cost to serve whilst
also improving service levels.
The same streamlined business processes that enhance customer service will
also reduce our installed fixed cost base in all of our locations. This will reduce
the volatility of our profits in relation to changes in sales values and also serve to
enhance our operating margins in times of stable or growing revenues.
We are leveraging and enhancing the knowledge and experience of our existing
staff with training to see that they are equipped with the knowledge necessary to
do their jobs well. We are also adding new hires who bring different, incremental
skills and experience to Renold. This will include new graduate recruitment
programmes in many locations. Proportionate to the scale of our business, we will
ensure succession plans exist to develop resilience and strength in depth.
6
7 Strengthening and de-risking our
balance sheet
We will improve working capital management to support business development
through stock availability while minimising the cash tied up.
We aim to reduce the annual cash burden of legacy pension liabilities in the
medium term while also seeking to de-risk them. We plan to realise value from
significant tax assets and any surplus properties.
The overall aim of these activities is to significantly enhance the cash generation
capability of the Group.
16
23998-04 Proof Two - final 15 June 2015 3:03 PM
Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 Our Strategy
Three-Phase Strategic Plan
Three-phase Strategic Plan delivering value
Phase III
Structural activities
3
Significant opportunities from our scale
Fragmented market
Growth potential through selective bolt-on
acquisitions adding capability and market share
Phase II
Organic growth
2
Leverage superior products in Chain and Torque Transmission
Leverage market and brand leading positions
Drive growth from improved sales and marketing practices
Phase I
Restructuring
1
Restructure unattractive segments
Some of our business segments
deliver results below their capability
for a number of reasons such as
under-selling, inflexible overheads
and too high a cost to serve.
Right-size capacity and cost base
Right-sizing capacity involves both
reducing the absolute size of the
manufacturing footprint and also
reducing surplus capacity.
Right-sizing our cost base involves
reducing the infrastructure or support
costs of the retained business activities.
It closely aligns to our business process
re-engineering activities.
Fix product margins
We aim to achieve appropriate value
for the highly technical products we
offer to the market.
Effective product management will be
key in identifying and implementing
appropriate margin structures for our
wide range of high performance products.
We will drive manufacturing efficiency
supported by a focused capital
investment upgrade to reduce
production costs.
Establish uniform operating processes
Implementation of simple repeatable
processes for all aspects of our business,
whether in manufacturing, commercial or
support activities, will lead to more
efficient and more robust processes.
This will be supported by investment in
one common ERP system.
Make right hires to drive growth
We have strong engineering credentials
and capability. We need to ensure that
other key parts of the business are equally
capable, such as Manufacturing, Product
Management, Marketing, Business Systems
and Commercial functions.
Find out more:
www.renold.com
EPS
1.4 pence
3.2 pence
5.0 pence
Strong EPS growth as plan progresses
March
2013
March
2014
March
2015
Three Phase Plan Commences
Double digit margins and
boost in shareholder value.
Deliverable in the short term
Achieve streamlined
business fit for future
Mid teens % margins
deliverable by 2020
23998-04 Proof Two - final 15 June 2015 3:03 PM
17
www.renold.com Stock code: RNOStrategic Report
Our Strategy
Progress Against Our Strategic Objectives
The second year of our Strategic Plan has built on the successes of last year. Completing the Bredbury closure project on
budget and ahead of schedule was a major achievement. By incurring additional operating costs to protect our customers
from teething problems in the recipient sites for products formerly made in Bredbury, we were able to maintain our revenue.
This has allowed us to revise upwards the annual benefits of the closure project from £3.2m to £3.8m. During the year, we
have also created detailed action plans for each of our operating units that will deliver significant continuous improvements
in performance. These improvements will span the full range of health and safety, customer service, business processes and
operating margins. We have also identified initiatives that align to our transition to the second Growth phase of our Strategic
Plan. STEP 2020 has been launched to embody all of these detailed projects in the context of our Strategic Plan. By the
effective implementation of STEP 2020 we will continue to re-engineer everything that we do.
Strategic objective
Progress in 2014/15
Future aims
Risks and mitigations
1
Significantly
improving our
health and safety
performance
A huge amount of work has been done over the last 12 months and our determination to
significantly improve our health and safety performance is undiminished. It is undoubtedly
disappointing that a number of accident statistics have shown a negative trend over the last
year. We remain committed to following best practice in our goals and activities and believe
that by constantly doing the right things our overall performance as measured by the KPIs will
improve. Beneath the surface, accidents involving almost all major body parts have reduced
during the year with the exception being hands and fingers. To address this latter point we have
taken a number of actions including a major initiative to review and improve guarding and install
'best of breed' control systems.
2 Generating
margin enhancing
growth from our
superior product
capability
Customers continue to seek us out for our high value added technical products. In Torque
Transmission in particular we have delivered a second year of margin improvement as sales
have fallen. This reflects a churn of business and a shift in mix towards higher value added
products. In the Chain division, more limited progress was made on margins as the business
focused on completing the Bredbury closure and assimilating production in the new sites. This
focus of management time and effort led to a decision to defer the appointment of a Product
Management Director to the second half.
2
3 Enhancing
customer service
During the year we launched our service centre concept on a pilot basis. Initially focused
on the UK market we aimed to ensure a smooth transition of Bredbury production without
inconveniencing customers. Within the centre sits our configured cell that allows customers
to choose any chain that could be configured from a range of standard components and
have it delivered in 24, 48 or 72 hours. While relatively modest in scale, it has proven an
attractive proposition for customers and we are reviewing options to expand the model in
other geographies. Efforts to improve service are also being supported by investments in new
production capabilities in our factories that will, among other things, help to reduce lead times.
18
23998-04 Proof Two - final 15 June 2015 3:03 PM
KPIs1
Rates
Rates
Average Lost Time
Accident Frequency
Reportable Injury
15.6
2,060
806
Lost Time Days
Safety
Improvements
1,723
RoS%
Adjusted EPS
ROCE%
8.5%
5.0p
15.6%
Our overarching objective is to achieve
Organisational change increases the risk of
zero accidents every year. As well as
accidents, particularly when the change is on
targeting improvements in each KPI, we
a large scale and in production environments.
have tasked all manufacturing sites with
The Group is mitigating this risk by considering
achieving OHSAS 18001 by the end of the
in advance of any change, full risk assessments
year.
and new safe operating procedures.
We hope to see an increase in the
number of sites achieving one of our new
Health and Safety Awards.
We are aiming to deliver steady
Our mid-teens operating margin target is
improvements in RoS % each year. These
based on a GDP plus growth environment. A
will feed directly into growth in adjusted
significant fall in sales or a rapid appreciation
EPS. Our medium term goal, as part of
of input costs could jeopardise this outcome
our STEP 2020 programme, is to deliver
if we were not able to respond quickly and
mid-teens operating margins by 2020,
effectively. Our order books give reasonable
implying around 1.0% annual average
visibility on sales in Chain (3 months) and
gains in RoS%.
Torque Transmission (6 months).
Our aim is to show a steady and regular
Excellent customer service requires efficient
Improvement in:
— Customer contact
response times
— Quotation lead times
— On Time Delivery In Full
('OTDIF')
improvement in all metrics.
A number of consistent quantitative
metrics will be capable of measurement
when the new ERP system is
implemented.
business processes and systems that deliver
replicable, predictable and timely outcomes.
As the Group is changing and improving many
of our business processes and systems, this
creates a risk to current service levels. This risk
is being mitigated by a newly created Steering
Committee with responsibility for oversight
and approval of all business system change
requests.
Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 Key:
KPI result an improvement on the prior year
KPI result unchanged on the prior year
KPI result a deterioration on the prior year
Strategic objective
Progress in 2014/15
KPIs1
Future aims
Risks and mitigations
1
Significantly
improving our
health and safety
performance
A huge amount of work has been done over the last 12 months and our determination to
significantly improve our health and safety performance is undiminished. It is undoubtedly
disappointing that a number of accident statistics have shown a negative trend over the last
year. We remain committed to following best practice in our goals and activities and believe
that by constantly doing the right things our overall performance as measured by the KPIs will
improve. Beneath the surface, accidents involving almost all major body parts have reduced
during the year with the exception being hands and fingers. To address this latter point we have
taken a number of actions including a major initiative to review and improve guarding and install
'best of breed' control systems.
2 Generating
margin enhancing
growth from our
superior product
capability
Customers continue to seek us out for our high value added technical products. In Torque
Transmission in particular we have delivered a second year of margin improvement as sales
have fallen. This reflects a churn of business and a shift in mix towards higher value added
products. In the Chain division, more limited progress was made on margins as the business
focused on completing the Bredbury closure and assimilating production in the new sites. This
focus of management time and effort led to a decision to defer the appointment of a Product
Management Director to the second half.
2
3 Enhancing
During the year we launched our service centre concept on a pilot basis. Initially focused
customer service
on the UK market we aimed to ensure a smooth transition of Bredbury production without
inconveniencing customers. Within the centre sits our configured cell that allows customers
to choose any chain that could be configured from a range of standard components and
have it delivered in 24, 48 or 72 hours. While relatively modest in scale, it has proven an
attractive proposition for customers and we are reviewing options to expand the model in
other geographies. Efforts to improve service are also being supported by investments in new
production capabilities in our factories that will, among other things, help to reduce lead times.
Average Lost Time
Accident Frequency
Rates
15.6
Reportable Injury
Rates
Lost Time Days
Safety
Improvements
2,060
806
1,723
RoS%
Adjusted EPS
ROCE%
8.5%
5.0p
15.6%
Our overarching objective is to achieve
zero accidents every year. As well as
targeting improvements in each KPI, we
have tasked all manufacturing sites with
achieving OHSAS 18001 by the end of the
year.
Organisational change increases the risk of
accidents, particularly when the change is on
a large scale and in production environments.
The Group is mitigating this risk by considering
in advance of any change, full risk assessments
and new safe operating procedures.
We hope to see an increase in the
number of sites achieving one of our new
Health and Safety Awards.
We are aiming to deliver steady
improvements in RoS % each year. These
will feed directly into growth in adjusted
EPS. Our medium term goal, as part of
our STEP 2020 programme, is to deliver
mid-teens operating margins by 2020,
implying around 1.0% annual average
gains in RoS%.
Our mid-teens operating margin target is
based on a GDP plus growth environment. A
significant fall in sales or a rapid appreciation
of input costs could jeopardise this outcome
if we were not able to respond quickly and
effectively. Our order books give reasonable
visibility on sales in Chain (3 months) and
Torque Transmission (6 months).
Improvement in:
— Customer contact
response times
— Quotation lead times
— On Time Delivery In Full
('OTDIF')
Our aim is to show a steady and regular
improvement in all metrics.
A number of consistent quantitative
metrics will be capable of measurement
when the new ERP system is
implemented.
Excellent customer service requires efficient
business processes and systems that deliver
replicable, predictable and timely outcomes.
As the Group is changing and improving many
of our business processes and systems, this
creates a risk to current service levels. This risk
is being mitigated by a newly created Steering
Committee with responsibility for oversight
and approval of all business system change
requests.
1 Refer to Glossary on page 150 for definitions of KPIs.
23998-04 Proof Two - final 15 June 2015 3:03 PM
19
www.renold.com Stock code: RNOStrategic Report Our Strategy
Progress Against Our Strategic Objectives
continued
Strategic objective
Progress in 2014/15
KPIs1
Future aims
Risks and mitigations
4 Optimising
business
processes
A number of improvement initiatives have been launched or implemented in the current year. The
single biggest was the selection of the single ERP system that will become the Group’s standard.
Accompanying the selection of the system was the creation of a document known as ‘The Template’
which aims to set out the detailed requirements and functioning of all of our key business processes.
The core team are now in place and are configuring the underlying software system. In parallel, we
are putting in place a robust infrastructure platform which includes an improved WAN service and
outsourcing the hosting of our critical servers. Other processes being piloted for implementation
include warehouse management by barcoding over wireless, a new simplified planning tool and a
number of improved reporting tools.
Beneath this global KPI, each
Our intention is to create one global,
Changes to systems and processes may in
of our business processes
integrated, ERP system. Our cost to serve
the short term reduce performance as users
will have its own set of
will be reduced and this work will also
learn new skills. If changes are not managed
detailed KPIs
feed into the KPIs for customer service.
properly, the performance reduction and its
duration can grow.
Sales per
employee
£79.7k
4
5 Lowering our
breakeven point
The Bredbury closure project was clearly a significant contributor to the reduction in our
overheads during the year with annual cost savings being revised upwards from £3.2m to £3.8m.
However, it was not the only cost reduction initiative. Overheads in our Torque Transmission
division were also reduced by £0.8m year on year. In all cases we aim to re-engineer our processes
and organisation to deliver sustainable efficiencies and cost reductions. This will reduce the risk
of simplistic cost cutting that could lead to costs coming back into the business when business
activity changes.
Total overheads £66.5m
As we re-engineer our business processes
Overhead structures tend to be inflexible and
we aim to reduce the cost to serve of all
can be a major financial burden in a downturn.
of our activities. Our medium term goal is
Our new processes are being designed with
to deliver meaningful annual reductions
more flexibility in mind to reduce this risk.
in our overheads to support the delivery
of enhanced margins and shareholder
value.
6 Developing our
people
6
7 Strengthening
our balance sheet
We are working hard to deliver new skills and capabilities to existing staff but also to ensure that
new employees bring the right mix of skills and experience. A key focus in the last year has been
on filling a number of senior and other management roles with an emphasis on preparedness to
challenge the status quo and to be willing to bring new and fresh ideas as well as energy to each
role. We launched a graduate recruitment programme at the end of the year and have already had
almost 400 applications for the seven roles advertised across a number of disciplines which include
engineering, finance, business systems and operations. We believe that this level of interest reflects
well on what Renold has to offer as an employer and will allow us to ensure that the successful
candidates are of a very high calibre. We have also devoted time and energy to creating a new Group
wide set of values. These values will sit alongside our STEP 2020 programme and will inform how
we will behave as we make the journey towards our strategic goals.
During the year we started a process to put in place a five year financing structure that would
match the needs of our Strategic Plan. That process completed in early May 2015 and delivered
a facility closely aligned to our current and future business needs. Our cost of debt is reduced to
reflect current market conditions and we have an accordion facility available that will support us
in the third ‘Acquisitions’ phase of our Strategic Plan but also in the short term should any bolt-on
acquisition opportunities arise.
During the year we started a project to de-risk £25m of our highest risk pensioner liabilities.
These were in respect of individuals with higher annual pensions and therefore a concentration of
longevity risk. We were able to secure the liabilities at a discount to their funding value and at a
broadly neutral value from an accounting valuation perspective in a transaction which completed
just after the year end (see Note 27). During the year we also terminated one of three US defined
benefit plans and the excess funding now available is being used to accelerate deficit funding in a
second closed scheme in the US.
Under development
Performance management processes
Change can be unsettling for all staff creating
and systems in the business are currently
a risk of some staff leaving due to feelings of
somewhat ad-hoc and inefficient. We aim
uncertainty.
to deliver a performance management
system that assesses performance
but that also both identifies training
and development needs and supports
delivery of them.
To counter some of this we are increasing the
regularity and content of communication to
give all staff a clearer sense of direction.
Cash cost of servicing
Ultimately, we aim to de-risk the Group
Pension liabilities fluctuate with factors outside
legacy pensions
£4.4m
Average working
capital ratio
Leverage ratio
19.1%
0.9x
from all defined benefit pension liabilities.
the Group’s control (interest rates, inflation
The short term focus is on managing
expectations, longevity and returns on assets).
down the larger exposures in the UK and
The key is to be ready to de-risk when the
Germany. We aim to have stable annual
market opportunity arises. Legislative changes
cash costs to enhance predictability.
can also lead to changes in liabilities and
We want to optimise working capital to
opportunities for de-risking.
Net Debt
£19.5m
support the business while minimising
Working capital can take time to unwind and in
the cash tied up.
the event of a sudden downturn in activity the
Group could be left with excess stock.
To mitigate this risk we have deployed working
capital management tools and WC % is a
monthly monitored KPI.
20
23998-04 Proof Two - final 15 June 2015 3:03 PM
Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 Key:
KPI result an improvement on the prior year
KPI result unchanged on the prior year
KPI result a deterioration on the prior year
Strategic objective
Progress in 2014/15
KPIs1
Future aims
Risks and mitigations
4 Optimising
business
processes
A number of improvement initiatives have been launched or implemented in the current year. The
single biggest was the selection of the single ERP system that will become the Group’s standard.
Accompanying the selection of the system was the creation of a document known as ‘The Template’
which aims to set out the detailed requirements and functioning of all of our key business processes.
The core team are now in place and are configuring the underlying software system. In parallel, we
are putting in place a robust infrastructure platform which includes an improved WAN service and
outsourcing the hosting of our critical servers. Other processes being piloted for implementation
include warehouse management by barcoding over wireless, a new simplified planning tool and a
number of improved reporting tools.
Beneath this global KPI, each
of our business processes
will have its own set of
detailed KPIs
Our intention is to create one global,
integrated, ERP system. Our cost to serve
will be reduced and this work will also
feed into the KPIs for customer service.
Changes to systems and processes may in
the short term reduce performance as users
learn new skills. If changes are not managed
properly, the performance reduction and its
duration can grow.
Sales per
employee
£79.7k
4
5 Lowering our
The Bredbury closure project was clearly a significant contributor to the reduction in our
breakeven point
overheads during the year with annual cost savings being revised upwards from £3.2m to £3.8m.
Total overheads £66.5m
6 Developing our
people
Under development
However, it was not the only cost reduction initiative. Overheads in our Torque Transmission
division were also reduced by £0.8m year on year. In all cases we aim to re-engineer our processes
and organisation to deliver sustainable efficiencies and cost reductions. This will reduce the risk
of simplistic cost cutting that could lead to costs coming back into the business when business
activity changes.
We are working hard to deliver new skills and capabilities to existing staff but also to ensure that
new employees bring the right mix of skills and experience. A key focus in the last year has been
on filling a number of senior and other management roles with an emphasis on preparedness to
challenge the status quo and to be willing to bring new and fresh ideas as well as energy to each
role. We launched a graduate recruitment programme at the end of the year and have already had
almost 400 applications for the seven roles advertised across a number of disciplines which include
engineering, finance, business systems and operations. We believe that this level of interest reflects
well on what Renold has to offer as an employer and will allow us to ensure that the successful
candidates are of a very high calibre. We have also devoted time and energy to creating a new Group
wide set of values. These values will sit alongside our STEP 2020 programme and will inform how
we will behave as we make the journey towards our strategic goals.
As we re-engineer our business processes
we aim to reduce the cost to serve of all
of our activities. Our medium term goal is
to deliver meaningful annual reductions
in our overheads to support the delivery
of enhanced margins and shareholder
value.
Performance management processes
and systems in the business are currently
somewhat ad-hoc and inefficient. We aim
to deliver a performance management
system that assesses performance
but that also both identifies training
and development needs and supports
delivery of them.
Overhead structures tend to be inflexible and
can be a major financial burden in a downturn.
Our new processes are being designed with
more flexibility in mind to reduce this risk.
Change can be unsettling for all staff creating
a risk of some staff leaving due to feelings of
uncertainty.
To counter some of this we are increasing the
regularity and content of communication to
give all staff a clearer sense of direction.
6
7 Strengthening
During the year we started a process to put in place a five year financing structure that would
our balance sheet
match the needs of our Strategic Plan. That process completed in early May 2015 and delivered
a facility closely aligned to our current and future business needs. Our cost of debt is reduced to
reflect current market conditions and we have an accordion facility available that will support us
in the third ‘Acquisitions’ phase of our Strategic Plan but also in the short term should any bolt-on
acquisition opportunities arise.
During the year we started a project to de-risk £25m of our highest risk pensioner liabilities.
These were in respect of individuals with higher annual pensions and therefore a concentration of
longevity risk. We were able to secure the liabilities at a discount to their funding value and at a
broadly neutral value from an accounting valuation perspective in a transaction which completed
just after the year end (see Note 27). During the year we also terminated one of three US defined
benefit plans and the excess funding now available is being used to accelerate deficit funding in a
second closed scheme in the US.
Cash cost of servicing
legacy pensions
£4.4m
Average working
capital ratio
Leverage ratio
19.1%
0.9x
Net Debt
£19.5m
Ultimately, we aim to de-risk the Group
from all defined benefit pension liabilities.
The short term focus is on managing
down the larger exposures in the UK and
Germany. We aim to have stable annual
cash costs to enhance predictability.
We want to optimise working capital to
support the business while minimising
the cash tied up.
Pension liabilities fluctuate with factors outside
the Group’s control (interest rates, inflation
expectations, longevity and returns on assets).
The key is to be ready to de-risk when the
market opportunity arises. Legislative changes
can also lead to changes in liabilities and
opportunities for de-risking.
Working capital can take time to unwind and in
the event of a sudden downturn in activity the
Group could be left with excess stock.
To mitigate this risk we have deployed working
capital management tools and WC % is a
monthly monitored KPI.
23998-04 Proof Two - final 15 June 2015 3:03 PM
21
www.renold.com Stock code: RNOStrategic Report Our Strategy
Our ‘Staircases’
STEP 2020 is
fundamentally concerned
with continuous
improvement. Each
initiative, no matter how
small, is a step in a series
of commonly themed
staircases aimed at re-
engineering everything
we do.
Business process efficiency
Manufacturing efficiency
Pictured: Renold’s new head
office location, Trident, where we
will be moving in August 2015.
Overview
We operate a varied and wide ranging
set of business processes which differ
in almost all locations. All of them
inter-link in different ways with
multiple different users and computer
systems. The Business Process
Efficiency staircase of projects is aimed
at delivering our strategic goals of
Optimising business processes and
Lowering our breakeven point.
Objectives
Our aim is to implement one global
standard operating model. This will
unify our people, processes and
systems. Each of our business processes
is being designed to be simple and
effective while being robust and as
automated as possible. That will free
up management time to focus on value
added activities. It will also reduce
the cost and simplify support for our
information systems.
Overview
Our manufacturing facilities have been
under invested in previous years. This
has led to inefficient manufacturing
processes, long lead times, excess waste
and waiting time as products pass
between multiple work centres. The
Manufacturing Efficiency staircase of
projects is aimed at supporting delivery
of a number of our strategic goals such
as Lowering our breakeven point.
Objectives
Our aim is to modernise our
manufacturing capability to match
our leading edge engineering and
production know how. Better equipped
facilities will shorten lead times to
enhance customer service, reduce stock
holdings to improve the balance sheet,
and contribute strongly towards our
goal of mid-teens operating margins
by 2020.
22
23998-04 Proof Two - final 15 June 2015 3:03 PM
Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 Commercial positioning
Corporate efficiency
Growth activities
Overview
Our commercial business processes are
focused on improving customer service
and enhancing our service offering.
Like many of our diverse business
processes, there is much scope for
us to standardise and simplify. The
Commercial Positioning staircase of
projects is primarily aimed at supporting
delivery of our strategic goal of
Enhancing customer service.
Objectives
We are working hard to improve
our customer service. We know we
have a long way to go as this is an
area that has been weak in the past.
Through improved management of our
commercial teams and resources and by
re-connecting with customers in their
own local markets we aim to make our
reputation for service as strong as that
for our superior products.
Overview
Much of our operating footprint has
been accumulated over a long period
of time and in many cases either
falls short of modern standards, is
too big, or over-priced for our needs.
The Corporate Efficiency staircase of
projects is aimed at supporting delivery
of a number of our strategic goals such
as Strengthening our Balance Sheet and
Improving Financial performance.
Objectives
Put simply, we want to make the best
use of the spaces we occupy. Where we
have too much space will aim to reduce
it. Where we overpay for space we will
renegotiate lower rents or move to
better priced premises. Where we have
surplus assets or facilities we will aim
to realise value and avoid unnecessary
costs.
Overview
Our diversity of markets is a major
opportunity for the Group. By bringing
greater focus to our sales activities,
we can deliver steady and sustainable
growth and eliminate much of our
historical cyclicality. The Growth
Activities staircase of projects is aimed
at supporting delivery of our strategic
goal of Generating margin enhancing
growth.
Objectives
Our markets typically grow in line with
GDP. Because we are under represented
in a number of geographies markets
and industry sectors, we are aiming to
deliver annual growth of GDP plus in the
period to 2020. At the same time, we
will leverage superior product capability
to enhance our operating margins and
retain value for our shareholders.
23998-04 Proof Two - final 15 June 2015 3:03 PM
23
www.renold.com Stock code: RNOStrategic Report Chief Executive’s Review
Robert Purcell discusses the strategy and development of the business
“Self-help will
continue to be a
major source of
value generation
supported by the
benefits of growth
as we transition into
the second phase
of our STEP 2020
Strategic Plan.”
Robert Purcell
Chief Executive
Tell us about the thinking behind
STEP 2020?
Robert: When we first started to
describe our three-phase Strategic Plan,
we said that the different phases were
not about one or two major projects
that would solve all of our problems or
immediately transform the business.
Instead we have described, in increasing
levels of detail, that our improvement
journey will be made up of a significant
number of individual continuous
improvement activities. In some ways
this is similar to the roadmap for
success of the British Cycling Team
with whom we have been working for
a number of years. The idea is that if
you look at all the different parts of an
organisation and improve each part
of it, when you add it all up, you get a
major improvement in the business as
a whole.
We have been describing those
individual initiatives in terms of a series
of steps that we have then grouped
into staircases, which share a common
theme. These themes, or staircases, we
refer to are: Business Process Efficiency;
Manufacturing Efficiency; Commercial
Positioning; Corporate Efficiency and
Growth Activities. Over the last year we
have pushed the business to develop
detailed action plans that cover those
five staircases that run through to the
year 2020. It seemed a natural extension
to christen the overall Strategic Plan
STEP 2020. Lastly, because of its
importance for the business, the number
one priority, Health and Safety, has a
staircase of its own.
What changes will we see as the
business moves into the Growth
phase of the Strategic Plan?
Robert: The first thing to say is that the
Growth phase activities will be in parallel
with our restructuring activity. We have
always said there are large numbers of
internal, self-help initiatives that we can
deliver for a number of years to come
that will all add value to the business.
Some of those will be about cost
reduction but some will be about process
efficiency, lead time reductions and other
service improvements. So the Growth
phase activities will be additional to our
continuous improvement initiatives and
not as a replacement for them.
The Growth phase will bring in to play
a number of changes for us with focus
being a key objective. This change will
include product focus, channel focus and
also geographical focus. For example, in
France, we have separated our Chain and
Torque Transmission businesses to give
clearer and more accountable ownership
for delivery of growth in both distinct
product groups. We believe in being local
and convenient for our customers so
you will see us continually move to be
closer to their locations. For example, we
have re-established local sales offices
in Belgium and Denmark. In other parts
of the world, we are opening new sales
offices with local staff in markets where
we have already developed enough
critical mass to support the cost base,
and which will in turn lead to further
opportunities for growth.
Are the markets helping or hindering
you at the moment?
Robert: In general terms things feel a
little better than last year, though the
picture is actually quite mixed across
the different geographies. With the
exception of Australasia, all of our Chain
regions posted year on year growth in
underlying external sales with China and
India at or around double digit levels of
sales growth while the larger territories
of Europe and the Americas showed low
single digit growth. In Australasia, the
region showed a very small decline in
sales, a 0.1% fall this year compared to
a decline of 7.4% in the prior year. South
East Asia saw particularly strong growth
and in the larger Australian market the
year on year decline more than halved
from 15.2% to 7.3% and actually showed
signs of levelling off in the second half of
the year. The small 1.1% decline in Torque
Transmission was a major improvement
on the prior year fall of 5.8%, again
showing some signs of levelling off.
24
23998-04 Proof Two - final 15 June 2015 3:03 PM
Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 Business Process Efficiency
Commercial
Positioning
Growth Activities
Manufacturing Efficiency
Corporate Efficiency
In summary, the current market
conditions create a relatively benign
environment in which to be entering the
second ‘Growth’ phase of our Strategic
Plan. We won’t get much help from
the markets but equally there do not
appear to be many headwinds that will
hinder our self-help initiatives aimed at
growing the business.
Why did you decide to re-finance the
business 18 months early?
Robert: A number of reasons really.
While we were setting out the STEP
2020 detailed action plan, our thoughts
turned naturally to medium term
issues such as how we would finance
our progressive capital investment
programme. We also wanted to build
in some future proofing. We would
expect to be in the third ‘Acquisitions’
phase of the Strategic Plan before we get
to 2020 but the revised financing also
allows us to take advantage of
any opportunistic acquisitions that
arise in the short term. Finally, current
market conditions for company financing
are quite favourable with lower costs
and also longer terms available. The
combination of these factors created a
clear and simple value adding imperative
to put in place a five year financing
structure that is closely aligned to our
five year STEP 2020 programme.
Pension deficits seem to be growing.
What can the business do about it?
Robert: The key thing to remember in
any discussion of pension deficits is
that the real issue is the predictability
and affordability of the cash flows for
the pension scheme and for Renold, the
sponsoring employer. While volatility
in market interest rates for gilts and
corporate bonds is undoubtedly having
an impact on balance sheet liabilities,
the picture for cash flows is much more
stable. Because we have in place a long
term plan for funding the UK deficit,
which sets contributions at £2.6m per
annum rising by inflation plus 1.5%, we
have wholly predictable cash flows for
Renold for a number of years. The UK
scheme represents over half of all of
our annual pension cash flows. From
a pension scheme perspective, this
predictability of cash flow income is a
major strength. In addition, because the
principal UK and German schemes are
mature in nature, their cash outflows in
the form of pension payments are also
very stable and predictable.
In terms of ‘What can be done?’, the
business has been actively managing
our legacy defined benefit schemes for
a number of years. Most recently, we
completed a medically underwritten
insured buy-in that fully de-risked
25% of our highest risk UK pensioner
members. We also completed the
termination of one of our three legacy
schemes in the USA. In the previous
year we merged three UK schemes and
1,316 members had their benefits paid
out in full. The merger and reduction in
member numbers significantly reduced
the administrative burden on the
scheme. We will continue to consider
other liability management and de-
risking projects.
So where do you think STEP 2020 will
take the business?
Robert: In the early days of Phase
One of our Strategic Plan, the
Restructuring or Turnaround phase, we
set the goal of delivering double digit
operating margins. Given the history
of the business since the turn of the
millennium, it is not hard to see why this
was seen as a repeat of the aspiration
to deliver 10% operating margins or,
in more sceptical circles, was simply
seen as undeliverable. As we have
progressed, belief inside and outside
the business has grown that 10% is a
realistic target. Of course, I have never
tired of saying that double digit includes
10% but is not limited to that figure. By
delivering the initiatives underpinning
STEP 2020, accompanied by organic
growth in the range of GDP+, we believe
the business can achieve operating
margins in the mid-teens and hence
deliver further major improvements in
our adjusted earnings per share thereby
delivering significant increases in
shareholder value.
Robert Purcell
Chief Executive
26 May 2015
Turn to page 17 for our three–phase Strategic Plan
25
23998-04 Proof Two - final 15 June 2015 3:03 PM
www.renold.com Stock code: RNOStrategic Report Our Performance:
Chain
Renold Chain is a global market leading
supplier of differentiated and value added
chain products for a wide variety of end
use applications. We create innovative
solutions for our customers who want
to reduce costs and ensure performance
while dealing with increasingly challenging
working environments. The Renold name
is known in the industry for quality
and performance.
CHAIN
FACTS
The Chain division is exemplified by
an extensive product range reaching
into a wide number of geographies:
Æ Sales offices and distribution
channels in over 18 countries
worldwide
Æ Extensive product range that can
be customised or designed from
scratch for any application
Æ Solution chains for many
challenging applications
Chain performance review
Underlying external revenue of £138.3m
was 3% ahead of the prior year. The
regional picture was more mixed and
reflected differences in local macro-
economic conditions. Our largest region
of Europe delivered growth of 4.5%
with the three major territories of
Germany, the UK and France all being
up on the prior year while Switzerland
had a particularly strong year on the
back of a one-off major project win.
The Americas and India delivered good
growth of 1.3% and 10.3% respectively.
Underlying revenue in Australasia was
broadly flat (down 0.1%) with the 7.3%
fall in Australia almost being offset by
growth in South East Asia. The regional
result was a significant improvement
on the 7.4% fall in the prior year though
Australia itself remains challenging
(down 7.3% compared to 15.2% in the
prior year). Our Chinese Chain business
focuses on supporting other Group
companies and its own direct external
sales saw small but positive growth
of 8.9%.
Underlying order intake grew by
2.7% almost matching the growth in
sales. At a regional level, European
underlying order intake was up 1.5%
and in the Americas it was up 3.1%.
Overall order intake in Australasia
was up 3.5% though again Australia
itself was weaker, down by 6.7%. The
smaller regions of China and India, in
terms of externally focused activity,
both delivered order intake growth. The
profile of our order intake (and hence
our revenue profile) continues to be
more stable with less reliance being
placed on large one off orders which can
have an adverse impact by disrupting
our production processes.
Contribution margins, the margin after
all variable production costs, improved
during the year. Direct labour costs were
favourable to the prior year by 0.4% of
revenue. This figure would have been
better still had it not been for additional
temporary activity undertaken during
the transfer of production from the
Bredbury facility to sister sites where
extra labour and labour inefficiencies
were treated as normal operating costs.
Now that the recipient sites have fully
absorbed the Bredbury production load,
a key task will be to deliver a second
phase of operational efficiencies that
will flow from the operating leverage at
those sites.
Underlying net overheads were reduced
by £2.3m in the year. The overall gains in
the year were part of the global effort to
streamline our processes and structures
and are part of our continuous
improvement effort.
As a result of continuing reductions in
overheads and measures to improve
our contribution margins, underlying
adjusted operating profit rose 53%
to £14.2m (2014: £9.3m), delivering a
Return on Sales of 10.3% (2014: 6.9%).
With the exception of Australasia,
three of the five Chain regions delivered
a double digit Return on Sales with
Europe seeing significant benefit from
the Bredbury closure. Margins in the
Americas suffered slightly, though
still double digit, due to the excess
operating costs incurred in absorbing
Bredbury production transfers. Australia
continued to face the additional
challenge of continuing weakness in
the foreign exchange rate for the
Australian dollar which made Chinese
imports 18% more expensive by the year
end. This currency change is inevitably
having an inflationary impact on input
costs which we have taken action to
recover with a combination of price rises
and overhead reductions.
26
23998-04 Proof Two - final 15 June 2015 3:03 PM
Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 EU territories towards the end of this
year. The service will also be expanded
to cover a wider product range in the
second half of the new year.
Preparing for growth
In Europe, new sales offices have been
opened in Denmark and Belgium to
improve support to the local markets,
with a very positive response from local
customers. Further locations are due to
be opened during the next 18 months. In
France we have separated the activities
of the Chain and TT divisions, to provide
clearer focus on each sector.
These are a few of the initiatives already
delivered or underway to support the
Group's transition to Phase 2 of our
Strategic Plan, the Growth phase.
Performance improvement projects
We reported last year on the closure
of the Bredbury Chain manufacturing
facility and transfer of production to
sister facilities around the world, which
was completed ahead of target in May
2014. The first half of this financial year
involved considerable work to embed
the new production capabilities into
routine operations at the recipient sites,
and normalise the manufacture of their
extended product ranges. Inevitably this
brought a number of challenges and
there was some disruption to supply
from the Einbeck and Morristown
sites, resulting in additional overtime
and freight charges. These issues were
fully resolved before the year end and
we are seeing initial progress in the
second phase of the project, targeting
efficiency gains in the production of the
transferred products.
Rationalisation of the manufacturing
sites has been followed by a series of
projects targeting improvements in
Customer Service. A successful pilot
programme in the UK that has been
delivering configured transmission chain
in market-leading response times has
been expanded to other parts of Europe
and is expected to roll out across all
Underlying revenue
£m
145.5
131.8
134.5
134.3
138.3
150
100
50
0
2011
2012
2013
2014
2015
Underlying adjusted operating
margin1
%
10.3
6.0
5.4
6.9
4.0
12
10
8
6
4
2
0
2011
2012
2013
2014
2015
1 Operating profit before pension administration
costs and exceptional items divided by revenue
at constant exchange rates.
23998-04 Proof Two - final 15 June 2015 3:03 PM
27
www.renold.com Stock code: RNOStrategic Report Our Performance:
Chain continued
Our products
in action
Renold escalator chains
first in India
Renold’s chain manufacturing
facility in India is the first chain
company in the country to
develop and supply escalator
chains within India.
To meet the demands of major escalator users, Renold’s
significant experience in providing value engineered design
solutions for public service escalators utilises modern
materials and the very latest lubrication techniques. Renold
has designed and manufactured high performance escalator
systems for more than 50 years. Renold supplies escalator
manufacturers and end users with roller chain, step chain,
individual drive units and drive packages that surpass the high
standards required for this safety conscious industry.
The picture above shows the assembly of
an escalator chain at Renold’s manufacturing
facility in India.
Reputation
Internationally, Renold has established an unrivalled expertise
for supplying products for escalators made by many of the
world’s leading manufacturers.
Read more online at www.renold.com
28
23998-04 Proof Two - final 15 June 2015 3:03 PM
Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 Renold chain for US food
processing company
Renold offers the most
comprehensive range of chain
products designed for the food
industry and works with many
international brand names.
Renold supplies Sovereign chain to a US grocery
manufacturing and processing company. Renold Sovereign
includes a particular surface treatment that ensures greatly
increased wear resistance. On the assembly section of the
production line, two conveyors, each run with six pairs of
chains in series. Renold’s Sovereign chains run in a tandem
configuration where each pair of pins, along the conveyor, push
against the bottom half of the cookie. It is critical that chain
wears evenly and that the production process is accurate. The
chains operate in an abrasive and humid environment.
Renold Sovereign chain
Read more online at www.renold.com
23998-04 Proof Two - final 15 June 2015 3:03 PM
29
www.renold.com Stock code: RNOStrategic Report Our Performance:
Torque Transmission
Renold Torque Transmission is an international
manufacturer of high integrity torque
transmitting products used where public
safety or assured plant operation is critical.
Renold’s products are integral, but generally
unseen, in different facets of daily life from
gearboxes driving heavy duty, high rise
escalators in London and New York subway
systems to shaft couplings in cement plants
ensuring the uninterrupted production of a
vital building material.
TORqUE
FACTS
Torque Transmission operates
successfully in a number of
attractive niches with:
Æ Sales presence in over 12
countries worldwide
Æ Bespoke design solutions for the
most demanding applications
Æ Coupling products with unique
characteristics
Torque Transmission performance
Underlying external revenue of £43.1m
was 1.1% below the prior year which
itself had seen a fall of 5.8%. Underlying
revenue, after excluding a low margin
mass transit contract that ended in Q1
of the prior year, grew by 1.3%.
Order intake was weak and down 7.8%,
primarily as a result of lower demand
for gear products sourced from the
UK. This was in part due to the Chinese
business, primarily in the coal fired
power station sector, being slower
than the prior year. Work is ongoing to
better understand the power generation
sector to identify other uses to which
our products are well suited. Successful
contract wins for escalator drives
in Europe and USA partly offset the
reduced Chinese orders.
Recent divisional restructuring activity
has brought more product focus
through the appointment of leaders
responsible for the Couplings and the
Gears product ranges. This has in turn,
started to deliver new products such
as a new high precision adjustable
gear mechanism shown in the picture
opposite. We are also delivering new
services such as same day despatch for
industrial coupling products. This will
translate into further revenue growth
next year.
Contribution margins, the margin after
all variable production costs, improved
during the year. In part this was the
result of the lower margin mass transit
contract previously mentioned, that
came to an end during the previous
year, but it was also supported by
focusing more sales effort on the higher
performance products in the portfolio.
Continuous improvement activities
in the factories also contributed to
the margin gains with labour and
material cost ratios positive compared
to the prior year. Further benefits will
be achieved as we implement more
efficient manufacturing processes using
new plant and equipment.
The businesses that make up Torque
Transmission are continually challenging
themselves to find better ways of
working by simplifying processes
and cutting out waste in every form.
This has resulted in underlying net
overheads in the division reducing
for the second consecutive year with
£0.8m savings as a result of a number
of initiatives in each location rather than
one major restructuring project.
The combination of the gains in
contribution margins and ongoing
overhead reductions led to an increase
in the adjusted operating profit from
13.3% to 16.0%. The absolute level of
adjusted operating profit also rose
by £1.1m to £6.9m. This was achieved
despite the fall in underlying external
revenue. Operating margin gains were
delivered in five of the seven units, with
only the UK gear business being down
year on year.
At the start of the year only one business
unit in the division had implemented
the Health and Safety standard OHSAS
18001. During the year a further five
units implemented the standard with
the last remaining business expected to
complete next year.
The divisional management team
continued to be enhanced during the
year. Key changes included a new
divisional Finance Director and, as
previously mentioned, new leaders for
the Couplings and Gears businesses.
Both businesses are engaged in change
programmes which will impact positively
on every part of their operation. The new
leadership is tasked with continuing to
improve business efficiency and deliver
growth within the framework of STEP
2020. Our ongoing commitment to invest
in development of new products and
processes using the latest manufacturing
technology in all of Torque Transmission’s
facilities will continue to provide
solutions with lasting benefits for Renold
and our customers.
30
23998-04 Proof Two - final 15 June 2015 3:03 PM
Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 Pictured: Adjustment
device with a rotary
table.
Underlying revenue
£m
49.6
47.5
46.3
43.6
43.1
50
40
30
20
10
0
2011
2012
2013
2014
2015
Underlying adjusted operating margin1
%
20
New product launch – dual lead adjustment mechanism
Renold Gears has launched a new high precision adjustment mechanism, ‘Ren-
Adjust’ (pictured above) for its DL Series dual lead worm gears. These are used
on positional machinery requiring a high degree of accuracy, such as rotary
tables and machine tools.
This new market leading system for precisely adjusting backlash without the
need to remove the wormshaft or drain the oil, is quick and simple to operate,
thereby reducing downtime whenever an adjustment needs to be made.
15
10
5
0
16.1
16.0
13.3
13.3
11.4
2011
2012
2013
2014
2015
The design can be used as a replacement on existing machinery and can replace
that of most other manufacturers without any redesign or modifications.
1 Operating profit before pension administration
costs and exceptional items divided by revenue at
constant exchange rates.
The size range of the Ren-Adjust covers centre distances from 67 to 500mm.
23998-04 Proof Two - final 15 June 2015 3:03 PM
31
www.renold.com Stock code: RNOStrategic Report Our Performance:
Torque Transmission continued
Our products
in action
Renold gear box for
Bühler pasta machine
Renold has designed
a bespoke gearbox for
Swiss food processing equipment
manufacturer, Bühler.
The custom gearbox for a new pasta making machine was
a multiple input bevel-helical unit that had to fit within very
tight space constraints and meet demanding weight limits.
To achieve this, Renold’s engineers had to use the latest finite
element analysis and 3D modelling software to reduce the
thickness of the gearbox casing without compromising its
structural integrity.
Renold was selected because of our ability to design a custom
solution that met the customer’s requirements. Also with
gearbox design and manufacture at one location, the gearbox
was designed in record time with just 3 online meetings
(using TeamViewer) between the customer’s engineers and
Renold’s engineers in both Switzerland and
the UK.
Read more online at www.renold.com
Renold HC11 8 multi input bevel helical unit
32
23998-04 Proof Two - final 15 June 2015 3:03 PM
Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 Renold gear box for
coal power station
Renold is supplying an air
preheater gearbox to a coal
powered thermal power
station located in New South
Wales, Australia.
Air Preheaters are very large fan drives that pre-heat the
combustion air before it enters the boiler to improve thermal
efficiency.
Renold designs and manufactures a complete range of
specialist drive solutions for the huge air preheaters found
at gas, oil and coal fired power stations. In this case, Renold
supplied a twin input helical bevel gear unit, designed as a
‘drop-in’ replacement for an obsolete air preheater. Taking the
original dimensions and speed and power requirements, a
fabricated version was designed and manufactured, including
an uprated lubrication system, as an improvement to the
original design.
Read more online at www.renold.com
Renold twin input helical bevel gear unit
23998-04 Proof Two - final 15 June 2015 3:03 PM
33
www.renold.com Stock code: RNOStrategic Report Finance Director’s Review
Overview
We continue to deliver steady
incremental improvements in
profitability, margins and earnings
per share. This has been achieved in
parallel with the successful delivery
of a number of the key projects and
continuous improvement initiatives that
underpin our Strategic Plan. At the same
time, work continues to strengthen
our balance sheet and improve cash
generation that will fund our investment
programme and in turn support further
margin growth.
Orders and revenue
Order intake during the year in the Chain
division grew at a similar rate to the
growth in revenue with the underlying
ratio of orders to revenue (book to bill)
being 100.1% (2014: 100.4%). Four out
of five Chain regions showed growth
in underlying external order intake
with only China showing a small £0.3m
decline. In Torque Transmission, weaker
demand for gear boxes in the Chinese
domestic power generation sector, was
the key driver for a year on year fall in
order intake of £3.4m. This resulted in
a book to bill ratio of 91.5%. The results
for the Chain and Torque Transmission
divisions are set out in more detail on
pages 26 to 29 and 30 to 33.
Group revenue for the year decreased
by 1.4% to £181.4m (2014: 3.3%
decrease). On an underlying basis,
excluding the impact of foreign
exchange, revenue actually grew by
2.0% or £3.6m in absolute terms (2014:
1.6% decrease, £2.9m in absolute terms).
The business uses underlying
measures of orders and sales in
its daily reporting activities by
retranslating the prior year figures
to the current year foreign exchange
rates to give a more meaningful
comparison of performance. The
same is also true for operating profit
and earnings measures which are
stated on an adjusted basis that
strips out the impact of exceptional
items and costs of closed legacy
pension schemes to better reflect
the underlying performance of the
ongoing business.
“A fourth consecutive half year of
incremental profit growth underpinned
the new five year financing structure
completed with our current banking
partners. This immediately lowers our
interest costs and includes new flexibility
to support the Group’s investment goals
in the Growth phase of the Strategic Plan
as well as providing the capacity to fund
potential acquisitions.”
Brian Tenner
Finance Director
2015
2014
Order
intake
Revenue
Operating
profit
Order
intake
Revenue
As reported
Impact of foreign exchange
Exceptional items
Pension administration costs
Underlying/adjusted
177.9
–
–
–
177.9
181.4
–
–
–
181.4
12.1
–
2.9
0.5
15.5
183.7
(6.0)
–
–
177.7
184.0
(6.1)
–
–
177.9
Operating
(loss)/
profit
(1.3)
(0.6)
11.8
0.6
10.5
34
23998-04 Proof Two - final 15 June 2015 3:03 PM
Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 Some momentum built in the second
half with the period being up 2.4%
compared to the prior year and a first
half increase of 1.6%.
The Chain division was responsible for
the overall growth in Group revenue
with the division delivering underlying
growth of 3.0%. Torque Transmission
saw a modest fall in underlying revenue
of 1.1%, representing an improvement on
the previous year’s decrease of 5.8%.
Operating result
The Group generated £7.5m of adjusted
operating profit in the first half (2014:
£5.1m) and £8.0m in the second half
(2014: £6.0m) with a full year result of
£15.5m (2014: £11.1m). The second half
result was achieved on 1.7% (£1.6m)
lower underlying revenue than the first
half. This reflects our continuing drive to
improve margins and reduce our costs
as we continue to lower our breakeven
point. It also reflects certain excess
operating costs incurred in the first half
following the closure of the Bredbury
facility. These costs were reduced in the
second half and largely eliminated by
the end of the year.
Trends in adjusted operating profit
and RoS
£m / %
10
9
8
7
6
5
4
3
2
1
0
Adjusted operating profit
RoS
8.3%
5.3%
6.8%
£6.0m
£7.5m
8.8%
£8.0m
3.8%
£5.1m
£3.6m
H2-2013
H1-2014
H2-2014
H1-2015
H2-2015
The chart above shows the positive
trend in half-yearly adjusted operating
profit and Return on Sales. Our aim is to
continue this trend.
Foreign exchange rates have been
extremely volatile during the year as
shown in the table above which shows
the movements in the Group's three
primary operating currencies versus
Sterling. The Group’s diverse operating
territories and currencies provided a
FX rates
GBP/Euro
GBP/US$
GBP/A$
natural hedge during the year with
Euro weakness almost fully offset by
US$ strength. The net impact of this
volatility was an operating income of
£0.2m in the year (2014: £0.4m charge).
All else being equal, there would be an
estimated increase of £0.5m operating
profit if the year end exchange rates
applied throughout the year.
Exceptional items
The exceptional charges of £2.9m
were much reduced on the prior year
(2014: £11.8m). A £1.2m impairment
charge has been booked against a
surplus property in Calais where a
depressed local economy and weak
property market are hampering the
Group’s ability to realise value from the
site. It has therefore been written down
to a nil net book value, which reflects
potential clean up costs in the event of
a sale. A £0.5m charge arose to increase
the Bredbury factory onerous lease
provision as a result of a change in the
interest rate assumption used when
discounting future obligations. The
remaining charges are detailed further
in Note 2(c) to the Group financial
statements.
Financing costs
External net interest costs in the year
were £1.7m (2014: £1.8m). The annual
charge includes £0.3m in respect of
amortisation of the refinancing costs
paid in 2012 which were being expensed
over the four year term of the facility.
Financing costs also include £0.2m of
the impact of unwinding discounts on
onerous lease provisions established
in the prior year (the Bredbury factory
onerous lease provision and the provision
for onerous software license costs).
The new facility terms that were agreed
in May 2015, just after the end of the
current financial year (see Note 27),
include lower interest rates and were
delivered at a lower one off cost of
re-financing than previously. The annual
amortisation charge is therefore also
March 2014
March 2015
Variation
1.210
1.667
1.799
1.382
1.485
1.943
(14.2%)
10.9%
(8.0%)
expected to fall by £0.1m to £0.2m p.a.
as the costs are amortised over the
remaining five year term of the facility.
Net IAS 19 finance charges (which are
a non-cash item) were £2.5m (2014:
£2.8m), the net movement being due
to lower interest rates on a higher
opening liability figure. In the current
year, the actual return on assets was
£13.7m higher than the return used in
the interest calculation as specified
in IAS 19. The difference appears as a
remeasurement gain in the asset section
of Note 18.
Result before tax
Profit before tax was £7.7m (2014:
loss of £5.9m). The profit before tax
and exceptional items was £10.6m
(2014: £5.9m).
Taxation
The current year tax charge of £2.1m
(2014: tax charge of £4.8m) is made up
of a current tax charge of £1.4m (2014:
charge of £1.2m) and a deferred tax
charge of £0.7m (2014: charge of £3.6m).
The Group cash tax paid was much
lower at £1.4m (2014: £0.9m) and the
difference is due to the utilisation of tax
losses and other tax assets in various
parts of the Group.
Group results for the financial period
Profit for the financial year ended 31
March 2015 was £5.6m (2014: loss
of £10.7m) and the basic and diluted
earnings per share was 2.5p for both
(2014: loss 4.9p for both). The basic and
diluted adjusted earnings per share
was 5.0p for both (2014: earnings 3.2p
for both).
Balance sheet
Net assets at 31 March 2015 were
£11.6m (2014: £13.9m restated). The
fall was driven by the increase in the
present value of pension liabilities as a
result of falling yields on government
and corporate bonds.
23998-04 Proof Two - final 15 June 2015 3:03 PM
35
www.renold.com Stock code: RNOStrategic Report Finance Director’s Review
continued
The net liability for pension benefit
obligations was £61.2m (2014: £53.5m
restated) after allowing for a net
deferred tax asset of £14.5m (2014:
£11.4m). Overseas schemes now account
for £25.3m (41%) of the post tax pension
deficits and £21.5m of this is in respect
of the German scheme which is not
required to be prefunded (see Pensions
section on pages 37 to 39).
Following the year end review of
deferred tax in respect of the German
pension deficit, it was identified that
the prior year asset was overstated
by £4.2m. The Balance Sheet and
Statement of Other Comprehensive
Income have been restated with the
correct balance. The restatement has
had no impact on the prior year or
current year profitability or earnings per
share. Further detail is set out on page
107 in the Accounting Policies.
Cash flow and borrowings
Cash generated from operations
was £12.8m (2014: £6.1m). Capital
expenditure was marginally down
in the year at £5.5m (2014: £7.1m).
Following the closure of the Bredbury
facility and the transfer of production
to sister plants, those recipient plants
were focused on absorbing the
transferred production into their day
to day operations. As a result, capital
expenditure in the year was lower
than previously anticipated. Capital
expenditure in the new financial year
is expected to exceed £10.0m with
a number of major projects already
committed as at the date of this report.
Further gains were made in working
capital management with reductions
equivalent to £1.4m.
Group net borrowings at 31 March 2015
of £19.5m were £5.3m lower than the
opening position of £24.8m comprising
cash and cash equivalents of £12.6m
(2014: £6.7m) and borrowings (which
include £0.5m of preference stock) of
£32.1m (2014: £31.5m).
Debt facility and capital structure
Towards the end of the current financial
year the Group decided to ask our
current banking partners, Lloyds Bank
plc and Svenska Handelsbanken AB,
to amend and extend the terms of the
Group’s primary banking facility which
was due to mature in October 2016. The
decision to offer the financing to our
current banks only was based on our
desire to build a long-term relationship
with our banking partners who have
been very supportive during the first
two years of our Strategic Plan. We
maintained a firm view on market
pricing through independent advice
from Rothschilds. The process to amend
and extend the facility completed in
May 2015.
The amended facility comprises an
unchanged committed £41m Multi-
Currency Revolving Credit Facility
(MRCF), but now also includes a £20.0m
accordion feature. This can be used in
the event of a significant investment
or acquisition opportunity. In the short
term, any such acquisition would be
likely to be opportunistic in nature.
However, given that the amended
facility has a five year term (matures
in May 2020), the facility will also be
available at a time when the Group is
likely to enter the third phase of our
Strategic Plan, the Acquisition phase.
The amended facility has also taken
advantage of lower interest rates in the
corporate banking market which will
have an immediate positive impact on
our financing costs in the first half of
the new financial year. The process to
amend and extend the existing facility
was significantly faster, cheaper and
less demanding on management time
than a full scale competitive banking
re-financing exercise. The Group saved
approximately £0.7m in one off costs
compared to the re-financing exercise
in 2012.
The principal covenants remain
unchanged, being the Net Debt/Adjusted
EBITDA ratio (calculated on a rolling
12 months basis), which remains at a
maximum of 2.5 times until maturity,
and minimum Adjusted EBITDA/Interest
cover which is also unchanged at 4.0
times until maturity. The Net Debt/
Adjusted EBITDA ratio as at 31 March
2015 is 0.9 times (2014: 1.5 times), based
on the period end net debt of £19.5m
(2014: net debt £24.8m). The Adjusted
EBITDA/interest cover as at 31 March
2015 is 12.1 times (2014: 8.7 times).
At 31 March 2015 the Group had unused
credit facilities totalling £10.6m and cash
balances of £12.6m. Total Group credit
facilities amounted to £42.6m with
£41.0m 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
pages 47 to 49. 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 US 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 2015 this hedge was fully
effective. The carrying value of these
borrowings at 31 March 2015 was £5.8m
(2014: £5.2m).
At 31 March 2015, the Group had 2%
(2014: 2%) 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.
36
23998-04 Proof Two - final 15 June 2015 3:03 PM
Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 Pensions assets and liabilities
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 (2014: restated – see page 107)
Net deficit
Assets
£m
156.6
14.7
–
171.3
2015
Liabilities
£m
(201.5)
(19.5)
(26.0)
(247.0)
Deficit
£m
Assets
£m
144.9
14.1
–
159.0
(44.9)
(4.8)
(26.0)
(75.7)
14.5
(61.2)
2014
Liabilities
£m
(183.0)
(17.3)
(23.6)
(223.9)
Deficit
£m
(38.1)
(3.2)
(23.6)
(64.9)
11.4
(53.5)
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
valuation.
The Group’s retirement benefit
obligations increased from £64.9m
(£53.5m net of deferred tax) at 31 March
2014 to £75.7m (£61.2m net of deferred
tax) at 31 March 2015. The drivers of
change are shown on the waterfall chart
below. The main reason for the change
was the sharp decline in UK corporate
bond yields. This was accompanied by a
sharp decline in European interest rates
following the launch of Quantitative
Easing by the European Central Bank.
It is important to note that the change
in discount rates used to value the
schemes’ liabilities balance has no
impact on the cash contributions paid to
the schemes and these remain stable.
One of the Group’s US pension schemes
had all of its members benefits paid
out and the scheme is now in wind up
having moved into surplus during the
prior year.
The aggregate expense of administering
the pension schemes was £0.5m (2014:
£0.6m) and is now included in operating
costs but is excluded in arriving at
adjusted operating profit.
UK pensions scheme merger and
asset backed funding structure
The previous three UK defined benefit
pension schemes were merged into the
Renold Supplementary Pensions Scheme
(subsequently renamed the Renold
Pension Scheme ‘RPS’) on 26 June 2013.
At that time, 1,316 members took wind-
up lump sums to the value of £10.4m
and, as a result, a small settlement gain
of £0.5m was recognised. The remaining
assets of the Renold Group Pension
Scheme and J&S Retirement Benefit
Plan were transferred into the RPS
and full wind-up of those schemes was
triggered on 27 June 2014. The merged
scheme had 3,502 members as at 31
March 2015 compared to 3,635 at the
start of the year.
The detailed structure and mechanics
of the merger and underpinning asset
backed funding structure are set out
in Note 18 to the accounts. The most
recent triennial actuarial valuation of the
RPS was completed with an effective
date of 5 April 2013 and no additional
contributions in excess of those
generated by the asset backed funding
structure were deemed necessary. The
next triennial valuation will take place
with an effective date of 5 April 2016.
Summary
The focus for the management team
remains on steady and continuous
improvement in our day to day business
processes and performance. We are
working to support this activity with
initiatives to improve our working
capital management, including adding
stock or resources to support business
development activity. Separately, we
aim to ensure that the legacy issues the
Group faces are ring fenced as much as
possible from the day to day operation
of the business to ensure they are
neither a distraction nor a hindrance.
The improvements in our cost of debt
and pension liability management
represent a series of successful
outcomes in delivering our strategic goal
of strengthening our balance sheet.
Brian Tenner
Finance Director
UK discount
rate
Overseas
discount rate
UK inflation
rate
Asset
performance
Other
-35
Bad
(30.3)
(6.8)
9.8
13.7
2.7
-25
-15
-5
0
5
15
Good
Æ The chart shows the key drivers of change for the Group’s
defined benefit pension schemes over the last year.
Æ UK discount rates decreased by 1.2% increasing the deficit
by £30.3m.
Æ UK discount rates are now around 2% below their long
term historical average of around 5.6%.
Æ German and American discount rates fell by 1.9% and 0.5%
respectively increasing the deficit by £6.1m and £0.7m in
each case.
Æ Net asset out performance compared to the IAS 19
discount rate reduced the deficit by £13.7m.
23998-04 Proof Two - final 15 June 2015 3:03 PM
37
www.renold.com Stock code: RNOStrategic Report Finance Director’s Review
continued
Pensions
UK membership today
%
Deferred
44
3,502
Members
41
Pensioners
15
Dependants
Trends in UK scheme
membership
Æ The pie chart shows the current make up of the UK pension scheme membership
as at 31 March 2015.
Æ The membership profile has changed over the last decade with 56% of members
being either pensioners or dependants today compared to 49% in 2005.
Æ The bar chart shows the evolution of the number of total members of the
UK defined benefit scheme over the last ten years and the numbers in each
category.
Æ The total number of scheme members has fallen by 56% since 2005 from
8,030 to 3,502 today due to a combination of net mortality and leavers from
the scheme (whether through trivial commutation exercises, scheme merger or
members simply opting to transfer their entitlements elsewhere).
Æ All three UK defined benefit schemes were closed to new members and future
accrual by March 2010 and hence membership of the active category fell to zero.
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
Pensioners
Deferred
Active
Æ The significant step down in total membership in 2014 followed the scheme
merger in June 2013. At that time 1,316 members opted to have their small
pension entitlements paid out as a lump sum.
Æ The Group and Trustees are currently reviewing the potential impact of the
recent changes in legislation. That allows more members to take their pension
pots as a lump sum benefit which may have implications for the future
membership of the UK scheme and on its administration costs.
2005 2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
UK assets
%
Hedge and
diversified
funds 25
Gilts
19
£156.6m
Assets
23
Bonds
Equities
32
1
Other
Æ Given the relative maturity of the scheme, 42% of assets are now invested in gilts
and corporate bonds. they are held primarily to generate an income stream that
supports the ongoing annual pension payments (currently circa £10.0m including
cash lump sums on retirement).
Æ The overall target for UK portfolio returns is 5.5%.
Æ The actual UK return in the year was 13.6% compared to the return (based on
the discount rate on the scheme liabilities) used in the IAS 19 financing charge
calculation of 4.5%.
Æ It should be noted that the hedge and diversified funds have characteristics of
both protection assets (returns are lower and less volatile than equities) and
growth assets (return targets higher than simple gilts and bonds).
Projected future membership change
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
s
r
e
b
m
e
m
f
o
r
e
b
m
u
N
0
2015/16
38
Dependant - new
Dependant - current
Pensioner status - member
Deferred status - member
The chart to the left shows the
projected change in scheme
membership using the current
mortality assumptions. It makes no
allowances for trivial commutation
of small pots (over 1,000 eligible
members) or transfers out of
the scheme which may increase
significantly with the new flexible
retirement options in recent
legislation.
2020/21
2025/26
2030/31
2035/36
2040/41
2045/46
2050/51
2055/56
2060/61
Years from 5 April 2014
23998-04 Proof Two - final 15 June 2015 3:03 PM
Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015
Targeted UK pensions strategy
£'000
1,600
1,400
1,200
1,000
800
600
400
200
0
10
A
E
B
D
C
30
50
70
90
Age
In the chart to the left, each dot represents one UK scheme
member plotted by age and pension pot. Liabilities and risks
are concentrated in the small number of members with the
large pots whereas administrative and governance costs are
concentrated in the large number of members with small pots.
A number of liability management options exist for the different
groupings shown and discussed below:
Æ A De-risked after the year end with an insured buy-in of
approximately £25m of liabilities;
Æ B The next tier of larger pension pots. If market opportunities
exist, the Scheme could de-risk these in future as in A;
Æ C Members able to take advantage of the new retirement
flexibilities offered by recent changes in legislation. The Scheme
will ensure that all members are aware of their new options;
Æ D Over 1,000 members eligible for the new trivial
commutation allowance limit of £10,000; and
Æ E Young dependent pensioners whose liability will cease
when they reach the age of majority.
Discounted cash flows – UK
£m
10.0
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0
2015
Pensioner
Deferred
Æ The upper chart shows the future cash outflows expected
for the UK pension scheme, split between deferred and
pensioner members. The cash flow profile has been
discounted at 3.3%, the discount rate used to value the
total liabilities of the scheme.
Æ The chart for the UK scheme shows that the scheme has
already passed peak funding and therefore, all else being
equal, future cash flows will reduce in line with the profile
above.
Æ It should be noted, however, that the profile assumes that
all members draw their pension in regular payments rather
than transferring out of the scheme. Any transfer out would
accelerate the reductions in annual cash flows.
2025
2035
2045
2055
2065
Discounted cash flows – Germany
£m
1.3
1.2
1.1
1.0
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2015
Pensioner
Deferred
Æ The lower chart shows a similar analysis for the unfunded
German scheme, discounted at 1.4%.
Æ The German chart also shows that peak funding has been
passed and also the maturity of the scheme as evidenced
by the relatively steep decline in annual cash flows in the
medium term.
Æ The German scheme closed to new members in 1992 and
the current average age of members is 69 years old.
Æ The Group has initiated action to close the scheme to
future accrual and the outcome of the court mediation
process is expected to be known in the new financial year.
If successful, the future annual cash costs of the scheme
would reduce.
2025
2035
2045
2055
23998-04 Proof Two - final 15 June 2015 3:03 PM
39
www.renold.com Stock code: RNOStrategic Report Corporate Social Responsibility
We believe that
our commitment
to 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 with the
Chief Executive taking direct leadership
responsibility supported by the regional
and business unit Executive teams.
We recognise our duty to behave
responsibly towards all stakeholders in
our business, including shareholders,
employees, customers, suppliers and
communities in which we operate. This
includes a commitment to:
Æ Act in an ethical manner in all our
business relationships;
Æ Work with the communities in which
we operate;
Æ Provide a rewarding and safe
working environment for all our
employees;
Æ Minimise the environmental impact
of our products and processes.
Aligned to this is our continuous
commitment to uphold good corporate
governance principles, in respect of
which further details are set out in our
Corporate Governance Report at pages
52 to 61.
Our Values
Operate with integrity
Value our people
Work together to achieve excellence
Accept accountability
Be open-minded
Values
During the year ended 31 March 2015
we have engaged with all employees
across all regions in which we operate
in order to facilitate the development
of a statement of Renold’s Values and
Behaviours ('Values').
The Values describe the Group as we
want it to be. Our decisions and actions
will reflect the Values and we believe
that putting these values into practice
will create long term benefits for all
stakeholders, including employees,
customers, shareholders and suppliers.
The Values are set out above and
represent a key element of the progress
we have made in our strategic objective
'Developing our people'. Further
information in relation to “Developing
our people” can be found on pages 20
and 21.
There is clear recognition that in the
end our values are defined by what
we do and not just what we say, in
other words it is how we behave that
is important. We have also identified
a number of desirable behaviours that
support the Values.
The Values have been launched across
the Group and there are ongoing plans
to deepen understanding of them and
embed them into the business.
Business integrity and ethics
We operate the business in an ethical
and responsible manner and we expect
our employees and business operations
to conduct themselves ethically, and
to be honest, fair and courteous in
their dealings.
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, 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
in accordance with the Group Gifts and
Hospitality policy.
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 whistle
blowing hotline continues to be
available to all employees across the
Group, enabling them to report any
concerns about theft, fraud and other
malpractice in the workplace.
40
23998-04 Proof Two - final 15 June 2015 3:03 PM
Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 The Group Health and Safety Management Framework
Each stage has a number of key components:
Plan
Do
Plan
Learn
Measure
The Group is also committed to
compliance with anti-corruption
laws in all countries and operates
a zero tolerance policy. The Group
Anti-Corruption policy forms part of
that commitment, together with the
Gifts and Hospitality policy, both of
which are designed to assist Renold
employees in meeting corporate and
individual obligations under anti-
corruption laws. Implementation of
these policies followed the coming into
force of the UK Bribery Act in 2011.
Other control processes and updates
to formal contractual arrangements
with agents and distributors have been
put in place to ensure compliance with
the requirements of the UK Bribery
Act. In addition, an annual training
programme is in place for all members
of staff whose roles involve working in
environments or activities where there
is a perceived risk. The training is also
undertaken by external parties, such as
agents.
These principles are reflected in the
statement of Values.
→ Determine the
scope of the
management
system
→ Set objectives and
timescales and
identify resource
requirements
→ Develop
performance
indicators based
upon desired
objectives
Measure
Learn
→ Conduct timely
monitoring and
measurement
confirming the
status of compliance
→ Develop and
implement
corrective/
preventative actions
→ Undertake periodic
reviews of the
management
system’s
effectiveness
→ Identify areas for
improvement
Do
→ Create a
management
structure with
clearly assigned
roles and
responsibilities
→ Create and
implement
processes and
procedures,
including controls
and training people
→ Maintain records
Health and safety
As a core objective Renold remains
committed to providing a safe workplace
for all its employees and those affected
by its activities. No activity is so critical
or urgent that it may be done in an
unsafe and uncontrolled manner. Safety
at Renold is paramount.
Governance structures are clearly
defined. These include a Group Health
and Safety policy which is reviewed
annually. Cascading from this is the
Group Health and Safety Management
Framework (the 'Framework') which
defines the Board’s expectations
regarding health and safety control
and performance. Management across
all material locations are required to
adhere to the Framework.
The Framework is not a set of rules and
regulations to be applied mechanically
across the Group. It contains principles
and expectations describing a set of
outcomes. It provides a structure to
manage health and safety, encompassing
continual monitoring and periodic review.
The Framework is consistent with
internationally recognised standards,
including OHSAS 18001.
The Framework consists of eight core
components, which include setting a
supportive leadership tone, with sub
processes, covering for example, hazard
assessment, incident management and
the management of third parties. The
internationally adopted model of Plan-
Do-Measure-Learn cycle is a key aspect
of the Framework.
The web based Integrated Risk
Management System provides aligned
processes and data mining functionality.
This allows sites to manage
accident reporting, opportunities for
improvement, hazard assessment and
all action tracking. Performance data for
the Board and to support site reviews is
derived from the system.
The hazard assessment reporting
feature provides both a consistent and
transparent view of the ongoing health
and safety risks at both site and Group
level. The online hazard assessment
module, launched last year, supports
our drive to deliver improvements to
our health and safety risk management
processes.
An independent programme of audits is
in place, which requires all material sites
to be audited within a twelve month
period. This assesses compliance and
performance against the Framework.
The assurance results along with other
typical KPIs are reported each month to
the Group Board and reviewed under a
standing agenda item.
23998-04 Proof Two - final 15 June 2015 3:03 PM
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continued
Groupwide performance and
improvement initiatives
The Group uses a number of KPIs to
monitor performance. Examples are
provided below, showing performance
for the four years to 31 March 2015.
Average lost time accident
frequency rates1
18.0
20
15
10
5
0
15.6
14.0
11.0
7.2
2011
2012
2013
2014
2015
Working days lost
1,500
1,200
1,250
900
600
300
0
1,050
806
587
481
2011
2012
2013
2014
2015
Average trend of Reportable
injury rates
2,250
2,000
1,750
1,500
1,250
1,000
750
500
250
0
2060
1,665
1,200
1,050
748
2011
2012
2013
2014
2015
1 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.
The need to improve performance
is recognised. A number of targeted
initiatives have been completed and
others are planned at both a Group and
site level. Momentum is being built. By
way of example, during the year ended
31 March 2015, sites have implemented
1,700 general improvements emanating
from accident investigations, near
misses, hazard assessments and the
internal assurance programme.
The Group has launched a new visual
identity logo (right) to reinforce a simple
message; Be safe, Act safe and Think
safe – BAT. Over a relatively short
period this has become recognised by all
parts of Renold as being illustrative of
the basis of safety management.
During the year a global manager
training programme was completed,
attended by 158 delegates at 16 venues
throughout the Group including all Group
Board members. This focused on the
Framework and related management
processes, ensuring clarity of personal
management accountabilities.
A Group wide exercise has commenced
to critically review all site hazard
assessments, to ensure that risks are
managed within acceptable levels, as set
by the Group Board with the Group Risk
Management policy.
An additional six production facilities
have achieved certification, to OHSAS
18001, the internationally recognised
management system for Occupational
Health and Safety. The remaining
production facilities are scheduled to
achieve certification during 2015.
Whilst it is important to recognise
and address known areas where
improvement is required, it is equally
important to acknowledge and celebrate
success. The annual Health and Safety
Awards Scheme was launched during
2014. The awards support and deliver
benefits by gaining prestige for the site/
team and the staff who contribute to
a positive health and safety culture. A
number of awards have been granted in
the first year of the scheme.
Community
We aim to be a part of the communities
in which we work and seek to assist
local projects with support where
possible. This year, the Group acquired
new defibrillators through a scheme run
by a charitable organisation. As a result,
a further defibrillator was provided free
of charge to a local high school close to
the Group’s UK Head Office: pictured
opposite on page 43.
We also encourage volunteering
and working with local educational
institutions in the promotion and
raising of awareness of engineering and
manufacturing.
Whilst the Group is not currently in a
position to provide financial support to
local projects, it is our aim to review this
in future with a view to improving our
contribution to local communities.
Employees
The motivation and commitment of
our employees are essential to drive
forward our business. The recruitment,
retention and development of
motivated, effective people will be key
to the successful delivery of the revised
strategy for the Group. That revised
strategy will itself include assessing
opportunities to improve our processes
for managing and developing people.
42
23998-04 Proof Two - final 15 June 2015 3:03 PM
Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 During the year ended 31 March 2015
the following activities were carried out
across the Group:
Engaging our people
We place a strong emphasis on
employee communications and two
way feedback. The Group’s intranet
site enables access to the latest
Group information as well as Group
policies. We also undertake regular
presentations to employees throughout
the Group where the half year and year-
end financial results are presented and
explained by senior management. This
helps to achieve a common awareness
amongst employees of the financial
and economic factors affecting the
performance of the Group.
We also use electronic bulletin boards
for the sharing of knowledge and
information across the world.
Talent acquisition and development
Building a strong talent pool to deliver
the current business needs whilst
establishing the foundation for longer
term sustainable employee development
is crucial to the Group strategy.
The past year has seen the Group
continue to strengthen the senior
management team in both Chain
and Torque Transmission with
key appointments in commercial,
operational and leadership roles,
including the appointment of key new
roles in Torque Transmission (Managing
Director Couplings and Managing
Director Gears) and a new Commercial
Director for Chain Europe. We will
continue to review and optimise the
Group’s organisational structures.
The Group’s apprentice programme
both in the UK and Germany continues
to operate. Apprentices in the UK at
the Renold Gears facility spend their
first year learning basic engineering
skills, before transferring to the shop
floor 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
A new defibrillator is presented to Newall Green High School in Wythenshawe, Manchester by Group Head
of Risk and Assurance, Andrew Monkhouse.
these work together. We currently have
13 apprentices at various stages of
development within the UK.
The apprentices themselves value this
mix of formal learning and the ‘hands
on’ experience they gain from working
alongside their colleagues.
Our German Chain facility currently
employs 21 apprentices and two
students for bachelors degrees. There
are a number of different types of
apprenticeship in Germany for school
leavers, the various roles including
bachelor of engineering, bachelor of
business administration, industrial clerk,
industrial mechanic and toolmaker. In
addition to role specific training, wider
education and experience is also offered
from exchange programmes with
other local companies, participation in
simulated business competitions, training
and attendance at business exhibitions.
This year the Group has also launched
a Graduate Programme under which
between six and eight university leavers
will be recruited into the business in
the autumn of 2015. Graduates will be
sought to join the Group’s manufacturing
operations and its commercial, business
systems, finance and engineering
functions. New graduates will have
real roles, with real responsibility in the
business from day one. They will also
participate in a structured two year
training programme which will develop
their skills in key management and
leadership areas, be involved in critical
business projects and have regular
exposure to the senior leadership team.
We expect this programme to be one
of the key processes through which
the business ensures that we internally
develop our leaders of the future.
The financial year ending 31 March
2016 will also see the implementation
of a more rigorous performance and
development review process, with a
particular focus on the leadership and
management teams. This will enable the
Group to more effectively set objectives
and targets, manage employee
performance against the delivery of
these targets and identify employee
development requirements. We plan to
meet these development requirements
through a range of approaches. These
will include a modular Leadership and
23998-04 Proof Two - final 15 June 2015 3:03 PM
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www.renold.com Stock code: RNOStrategic Report Corporate Social Responsibility
continued
Management Programme for high
potential employees, supported and
delivered by an external third party
and the provision of internal, online
and off the shelf training interventions
to allow us to address critical gaps in
management skills and knowledge
quickly and cost effectively.
Employment policies
Arrangements for consulting and
involving Group employees on matters
affecting their interests at work are
developed in ways appropriate to each
business. A variety of approaches is
adopted aimed at encouraging the
involvement of employees in effective
communication and consultation, and
the contribution of productive ideas at
all levels.
Employment policies are designed to
provide equal opportunities irrespective
of race, caste, national origin, religion,
age, disability, gender, marital status,
sexual orientation or political affiliation.
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.
Diversity
The Group is committed to equal
opportunities and operates a non-
discriminatory working environment.
We expect staff and job applicants to be
treated equally regardless of age, race,
religion, disability, gender or sexuality.
As at 31 March 2015, the Group
employed 2,243 people including
380 in the UK. Of the total number of
employees, 385 (being 17%) are female.
The Company recognises the need to
encourage and support more gender
diversity throughout the
employee population as well as at Board
level: details of the Board’s Diversity
policy are set out in the Nomination
Committee report at pages 68 and 69.
and procedures reflect principles
of equal treatment. Respect for the
individual is also enshrined in Renold’s
statement of Values and Behaviours.
The Group has not been made aware of
any incident in which the organisation’s
activities have resulted in an abuse of
human rights.
Greenhouse gas ('GHG') emissions
As a part of the Group’s commitment to
minimising the impacts of its business
operations on the environment, our
policy is to co-operate with regulators,
suppliers and customers to develop
and achieve improved standards of
environmental protection.
We continue to use the boundaries
and methodology established during
the previous year for the reporting of
our GHG emissions. After setting the
organisational boundary (adopting a
financial approach) all Scope 1 and 2
emissions, as defined below, arising
from the assets and operations within
this control boundary are reported for
the period 1 April 2014 to 31 March
2015. We report 100% of operational
boundary emissions for entities within
the organisational boundary. Using
the selected 12-month period avoids
the need to include consumption
estimations when calculating the Scope
1 and Scope 2 emissions.
Note: The organisational boundary
determines the operations owned or
controlled by the reporting company.
The operational boundary determines
the direct and indirect emissions
associated with operations owned or
controlled by the reporting company.
Both are as defined by the Greenhouse
Gas Protocol Corporate Accounting and
Reporting Standard issued in May 2013
('GHG Protocol').
We set out in the table below, a
breakdown of the gender of our Board
members, and, in accordance with new
reporting requirements introduced last
year, the number of ‘senior managers’
(including directors of the Company’s
subsidiary companies) and employees
as at 31 March 2015. A senior manager is
defined in the legislation as an employee
who has responsibility for planning,
directing or controlling the activities of
the company or a strategically significant
part of the company. Whilst falling
within the definition of ‘senior manager’,
the most senior leadership population
(below the Board), the Group Executive,
is shown separately in the table below.
Board and employees
Male Female
Board*
Group Executive
Senior managers, including
those on Renold’s subsidiary
boards
Other employees
5
6
0
1
26
1,824
7
377
* The Non-Executive Directors are not employees.
Human rights
The Group is required to make a
disclosure in relation to human rights.
The Board has overall responsibility
for ensuring the Group upholds and
promotes respect for human rights and
has adopted the definition of human
rights within the European Convention
on Human Rights: the concept of human
beings as having universal rights, or
status, regardless of legal jurisdiction
or other localising factors, such as
ethnicity, nationality, and sex.
The Group respects all human rights
and in conducting its business regards
the right to non-discrimination and fair
treatment as the most relevant to its
key stakeholder groups, these being
customers, employees and suppliers.
The Group’s employment policies
44
23998-04 Proof Two - final 15 June 2015 3:03 PM
Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 The financial control approach is where
the company has the ability to direct
the financial and operating policies of
the organisation with a view to gaining
economic benefits from its activities, as
defined in the Environmental Reporting
Guidelines: Including Mandatory
Greenhouse Gas Emissions Reporting
Guidance, June 2013.
Effective environmental management
is integral to the Group’s business
strategy and we endeavour to achieve
the highest practicable environmental
standards of performance to ensure
compliance with our statutory
obligations. Our manufacturing facilities
have active programmes to implement
environmental management systems
compliant to ISO 14001. This provides
an opportunity not only to identify the
environmental impacts of the business
but to also consider opportunities to
manage and optimise energy usage. This
approach to both existing processes
and new projects is embedded within
our business model and will feature
in the business’s developing carbon
management plan.
The third party consultancy (EEF: The
Manufacturers’ Association) engaged
last year continues to provide advice
and review the ongoing data collection
process. In addition, EEF undertakes
an assurance audit on the 12 months
reported data.
Greenhouse gas emission sources
Scope 1 emissions are from those direct
sources that are owned by the Group
(e.g. from direct combustion of natural
gas within our facilities’ boilers and
heaters); fugitive gases are not included.
Scope 2 emissions are those emissions
for which the Group is indirectly
responsible, excluding transmission
and distribution losses (e.g. from the
electricity we purchase to operate
machinery or equipment).
Our reported Scope 2 emissions
are limited to those associated with
purchased electricity as no location
within the business purchases steam,
heating or cooling from a third party.
Scope 3 (Other indirect emissions)
arising as a consequence of our actions,
which occur at sources which we do
not own or control and which are not
classed as Scope 2 emissions. Scope 3
emissions are not reported
The emissions are expressed as CO2-e
which is the unit of measurement used
to indicate the global warming potential
('GWP') of each of the six greenhouse
gases. GWP provides a basis to evaluate
the effects of releasing (or avoiding
release) of different greenhouse gases.
To do so it compares the warming effect
of a mass of a GHG compared to a
similar mass of carbon dioxide (CO2).
The main contributors to GHG emissions
arising from our energy use are
electricity consumption, which accounts
for 67.9% of our emissions, and fuels,
such as natural gas and fuel oil, burnt on
our premises which, combined, account
for 31.7% of the Group’s emissions.
The combined CO2-e emissions arising
from owned transport and fugitive
refrigerant gases were calculated to
be 0.4% of the total emissions and
considered to be immaterial and have
therefore been excluded.
In line with UK Government guidance
and to ensure we have the ability to
compare future years to our base year
we established an intensity measure in
which we express the combined Scope
1 and 2 GHG emissions (as tonnes of
CO2-e) per £m external revenue for the
financial year ending 31 March 2015.
Global GHG emissions data for period
1 April 2013 to 31 March 2015
Tonnes CO2-e
Scope 1 emissions
Scope 2 emissions
Intensity Measure
1 April 2013
to 31 March
2014
11,175
21,353
176.8
1 April 2014
to 31 March
2015
9,570
20,503
165.8
The reduction in emissions for the year
ended 31 March 2015 in contrast to the
prior year is primarily as a result of the
closure of the UK chain manufacturing
facility in Bredbury and the transfer of
production to other non-UK sites. Other
site specific improvement initiatives
have also contributed to the overall
measured reduction.
Our report methodology has used
the GHG Protocol and emission
factors from the UK Government’s
GHG Conversion Factors for Company
Reporting 2014. Conversion of the
source data into equivalent emissions
was undertaken using the DEFRA
(Department for Environment, Food and
Rural Affairs) datasets ‘Greenhouse Gas
Conversion Factor Repository’ which
can be found on their website www.
ukconversionfactorscarbonsmart.co.uk
Where possible, emissions are calculated
based upon direct measurement or
purchase invoices of fuel and energy. In
other cases including those in relation to
some Group transport and refrigerant
gases, it has been necessary to make
consumption estimations. Where there is
considered significant uncertainty in the
activity data used, this will be identified.
An overall ranking of uncertainty will
be applied (high, good, fair or poor) so
activity data quality is made using an
internal procedure consistent with that
suggested by the GHG Protocol Chapter 7.
The baseline will be amended where
a variation of 5% or more results from
acquisition and divestment or significant
change in reporting methodology.
23998-04 Proof Two - final 15 June 2015 3:03 PM
45
www.renold.com Stock code: RNOStrategic Report Risk
Renold’s risk management framework is designed to identify
and assess the probability and consequences of risks occurring
and to manage the actions necessary to reduce the risks and to
mitigate their impact.
How we assess risk
Over the last three years, throughout
the world, the Group has deployed an
online Integrated Risk Management
System (IRMS). Before the IRMS is
deployed or populated in a region, the
Group Head of Risk and Assurance
facilitates a work shop with the local
management team to explain the
guiding principles of risk management,
the functionality of the IRMS and also
the consistent approach and standards
expected by the Group.
The Group has built up a risk library of
common risks and these are used to
identify which of these applies to the
local site before drilling down to a more
detailed analysis of site specific risks.
This approach combines the sharing
of best practice across sites, expert
guidance from the Group Head of Risk
and Assurance, and local ‘on the ground’
experience and knowledge of specific
risk factors.
How we manage risk
The IRMS was initially used to identify and
capture risk assessments in the health
and safety arena. That functionality has
now been extended to all aspects of risk.
The IRMS automatically links risks to
associated actions that are designed
to reduce either the probability or
the impact of a risk crystallising. The
IRMS therefore operates as a live
management tool that assists staff in
actions management and also in the
production of live reports.
The ‘heat map’ shows three bandings
in the different shades of risks that are
within appetite (green), out of appetite
(red) and risks that are somewhere
in between. Management actions are
focused on those risks deemed not yet
within appetite. It should be noted that
there is no level of acceptable health
and safety risk, that topic will always be
under active management
Risk management framework
IRMS
Board oversight
Æ Sets the ‘Tone at the Top’ – the culture adopted in respect of risk
Æ Responsible for Risk Management and Internal Control Processes
Æ Sets direction for key focus areas (e.g. Health and Safety)
Æ Defines acceptable levels of risk (referred to as our ‘Risk Appetite’)
Æ Monitors compliance with our Risk Appetite and completion of action plans
Executive Risk Management
and Monitoring Committee
Æ Critique of local risk
Audit Committee
Æ Supports the Board in review
of risk management process
registers
Æ Challenge and review of
completed actions
Æ Shares best practice risks
and solutions across the
Group
Æ Particular emphasis on
monitoring completion of
risk mitigation actions
Æ Oversight of Executive Risk
Management and Monitoring
Committee
Business units
Æ Detailed local risk registers and action plans
Æ Ongoing action management and tracking
Æ Embedding Group culture and risk appetite at a local level
Æ Process for global alerts to share emerging risks and best
practice
Internal audit
Æ Reviews
local risk
management
process
Æ Reviews
status of risk
management
actions
Risk heat map
Impact
High
6
10
4
1
12
3
5
2
7
8
9
11
Low
High
Likelihood
46
23998-04 Proof Two - final 15 June 2015 3:03 PM
Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 Principal Risks and Uncertainties
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. The numbers correspond to the risk identified on the heat
map and the arrows indicate whether or not the probability or impact of the risk materialising is increasing, reducing or constant.
Additional risks not currently known or which are currently regarded as immaterial could also affect future performance.
Key:
Risk trending downwards
Risk trend unchanged
Risk trending upwards
Risk
Strategic risks
1
Business strategy
A strategy which does not match the
Group’s circumstances, capabilities or
potential will fail to create shareholder
value.
Potential impact
Mitigation
The Group is developing a new strategy to
deliver a turnaround in performance and
to make that performance more stable and
less exposed to revenue volatility. Unless
successfully implemented the Group will
continue to experience volatile results and
weak levels of cash generation. These are
basic requirements to allow the delivery
of sustainable and consistent growth in
shareholder value.
A three phase strategic plan was developed in
the prior year (refer to page 17). In parallel, a
new and detailed operating model has also been
specified and is now in the process of being
implemented.
During the year a detailed five year unit level
action plans have been developed.
These combine to form STEP 2020.
2 Macro-economic and political
Key territory sales profile is shown below:
We operate in 18 countries and sell to
customers in over 100 and therefore we
are necessarily exposed to economic and
political risks in these territories such
as recession or the imposition of trade
barriers.
The continuing fragile macro-economic
climate in the Eurozone and Australia is a
specific source of risk.
USA
UK
Germany
Australia
32.0% (of Group sales)
9.3%
6.5%
6.0%
Adverse macro-economic or political
changes in any of these territories
could have a material negative effect
on the Group’s financial performance
and condition and is a key driver for the
objective to lower our breakeven point.
Our diversified geographic footprint inherently
exposes us to more countries where risks arise
but conversely mitigates the risk of over-
exposure in any one country.
Actions to lower the Group’s overall breakeven
point also serve to reduce the impact of a global
economic slowdown.
Continuous monitoring of macro-economic
trends, industry specific and internal leading
indicators.
Strong core banking group with multi-currency
debt facility supported by matching cash flows
plus improving EBITDA.
3
Raw material price volatility
Increases in the cost of raw materials
may not always be recoverable or have
delays in recovery due to weakness in
demand or competitor actions.
If raw material costs fall, the Group may
face customer pressure to reduce prices
or experience a fall in demand.
Approximately 35% of the Group’s sales
value is spent on raw materials with steel
being the primary purchase.
Steel prices experienced by the Group have
been relatively stable recently following
previous periods of considerable volatility.
Unrecovered cost increases would have
a material effect on the Group’s financial
performance.
Continuous monitoring of different international
steel price indices to give early warning of
negative trends. The Group is partially insulated
from movements in raw commodity prices
because of intermediary processing steps in the
supply chain.
Where contractually possible, we pass on price
increases.
4
Competitive markets and
technology advancements
Renold operates in highly competitive
markets with customer decisions based
typically on quality, technology, service
and price. New entrants or consolidation
of existing competitors could restrict our
ability to deliver our 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.
Highly fragmented market may reduce risk of
significant competitive pressure.
Strategic objective to improve service and
enhance customer relationships will deliver a
more loyal customer base.
Investment in new technology and engineering
capabilities.
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www.renold.com Stock code: RNOStrategic Report
Principal Risks and Uncertainties
continued
Risk
Operational risks
Potential impact
Mitigation
5
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.
The risk assessment reflects the fact that
increased focus and auditing is part of
the rising rate trends seen on page 42.
Accidents caused by a lack of robust safety
procedures could result not only in civil or
criminal liability for both the Group and the
Directors but also:
Æ Business interruption;
Æ Significant fines and penalties; and
Æ Reputational damage.
Revised group wide health and safety policies
contained within a documented management
system, ‘the Framework’, have been rolled out
during the year. Health and safety audits and
enhanced reporting have been implemented
at all sites and a new Group HSE Assurance
Manager has been appointed.
Continual risk assessments to ensure awareness
of risks.
Live tracking of accident rates and root cause
analysis via the Integrated Risk Management
System.
6 Manufacturing disruption
A catastrophic loss of the use of all or a
portion of any of Renold’s manufacturing
or distribution facilities, due to accident,
labour issues, fire, weather, terrorism,
natural disaster or otherwise, which in
the short or long term could adversely
affect the Group’s ability to meet the
demands of its customers.
A material disruption to operational
facilities or the loss of critical assets may
negatively affect the Group’s:
Æ Production capability and asset base;
Æ Supply chain management;
Æ Customer relationships and reputation;
and
Æ Financial performance.
Dedicated production teams focused on demand
fulfilment.
Preventative maintenance programmes.
Alternate manufacturing capacity exists for a
substantial portion of the Group’s product range.
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.
7
ERP systems
The Group is presently implementing a
global ERP system to replace numerous
legacy systems.
Legacy systems are less robust and less
efficient than new systems.
The risk continues that an unsuccessful
implementation at an individual site could
seriously impact the Group’s performance.
Æ Risks have reduced by virtue of the
experience gained and lessons learned
from previous implementations.
Æ Old systems may not support delivery
of business objectives.
Short term stabilisation of existing hardware
and legacy software platforms.
Use of specialist external consultants on
the global ERP project and recruitment of
experienced personnel.
Phased implementation rather than ‘big bang.’
Project assurance and lessons learned reviews
to continuously improve the quality of successive
roll outs.
8
Compliance risks
– laws and regulations
Risks related to regulatory and legislative
changes include the inability of the Group
to comply with current, changing or new
requirements.
Many of the Group’s business activities
are subject to increasing regulation and
enforcement by relevant authorities.
Failure by the Group or its representatives
to abide by applicable laws and regulations
could result in:
Æ Administrative, civil or criminal liability;
Æ Significant fines and penalties;
Æ Suspension of the Group from trading;
Communication of a clear compliance culture.
Risk assessments and ongoing compliance
reviews.
Published up to date policies and procedures.
Monitoring of compliance with nominated
accountable managers in each business unit.
and
Æ Reputational damage.
Clear guidance and training issued to all
employees.
9
A lack of technical expertise
or management skills
The Group’s international operations are
dependent upon existing key executives
and certain other employees in order
to sustain and grow its business and
there can be no assurances that these
employees will remain with the Group. The
success of the Group will depend upon
its ability to attract, retain and motivate
highly qualified and trained employees.
If the Group fails to retain, attract or
motivate the required calibre of employees
then its operational and financial
performance may be negatively impacted.
Competitive reward programmes, focused
training and development.
Ongoing reviews of succession plans based on
business needs.
Personal development reviews and training
programmes.
Management team strengthened with new
capability from external hires and internal
promotions.
48
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Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 Risk
Financial risks
10 Liquidity
At times in the past, the conditions in
the banking markets and Renold’s own
financial performance have made access
to appropriate debt facilities difficult to
achieve.
Potential impact
Mitigation
If the Group fails to obtain the required
funding then this could negatively impact:
Æ Ongoing business operations; and
The Group’s primary banking facility expires May
2020 and is fully available given current levels of
profitability.
Æ Going concern.
11
Foreign exchange rate volatility
Currency markets have shown significant
volatility in recent months. The Group is
exposed to transactional exchange risk
exposure in the short term impacting
earnings and cash flow. In the long term,
sustained variations in foreign exchange
rates could alter the viability of supply
chains in and out of certain territories.
Shown below are the Groups principal
trading currencies, weighted by revenue:
US$
Euro
£GBP
A$
C$
Other
34% (of Group sales)
14%
20%
6%
4%
22%
12 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.
Pension deficits are dependent on
market based assumptions for discount
rates and inflation.
Changes in these assumptions can
materially impact the financial condition
of the Group, reported in the balance
sheet and could, in the longer term, lead
to changes in cash contributions to the
schemes.
The facility includes additional draw down
capability, accessible as long as financial
covenants are complied with
Constant management focus to enhance working
capital management processes.
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
simple forward foreign exchange contracts.
Borrowings denominated in foreign currency
are supported and serviced by cash flows in the
same currencies.
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.
The major UK pension cash flows (50% of all
defined benefit pension cash costs) are fixed
under the 25 year asset backed funding scheme
put in place during 2013. A further 25% of the
annual cash flows are pensions in payment in
Germany in a mature scheme that has passed its
peak funding requirement.
All pension risks are actively managed in line
with the Group’s risk management system
covering investment and liability management
issues.
Strategic Report approval
The Strategic Report, on pages 10 to 49, incorporates: Our Business Model, Market Review, Our Strategy, Chief
Executive’s Review, Our Performance, Finance Director’s Review, Corporate Social Responsibility, Risk and Principal
Risks and Uncertainties, and was approved by the Board on 26 May 2015.
For and on behalf of the Board
Louise Brace
Company Secretary
26 May 2015
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www.renold.com Stock code: RNOStrategic Report
Governance
50
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Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 Our Values
Read more about our Values on page 40
Contents
Corporate Governance Report:
Chairman’s Letter
Board of Directors
Governance Structure and
Board Composition
Audit Committee Report
Nomination Committee Report
Directors’ Remuneration Report:
Annual Statement
Directors’ Remuneration Report:
Directors’ Remuneration Policy
Directors’ Remuneration Report:
Annual report on remuneration
Directors’ Report
Statement of Directors’
Responsibilities
Shareholder Information
52
54
56
62
68
70
73
81
88
91
93
Process
“Corporate governance is the system by which companies are directed and
controlled. Boards of directors are responsible for the governance of their
companies. The shareholders’ role in governance is to appoint the directors and
the auditors and to satisfy themselves that an appropriate structure is in place.”
Cadbury Committee 1992
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www.renold.com Stock code: RNOGovernance Corporate Governance Report
Chairman’s Letter
Introduction
I am pleased to present the Corporate Governance report for
the year ended 31 March 2015 on behalf of the Board.
In this report, we explain the Group’s approach to corporate
governance and provide the information required of us by
the UK Corporate Governance Code 2012 ('2012 Code').
The detailed list of contents of the Corporate Governance
report can be found on page 51. The Statement of Corporate
Governance covers these areas. In addition, the Group’s principal
risks and uncertainties are described in the Strategic Report
and this section forms part of the Corporate Governance report.
We also include a section in this report addressing how the
Company communicates with shareholders.
The Financial Reporting Council ('FRC') revised the UK
Corporate Governance Code in September 2014 ('2014 Code').
The Board continues to review the requirements of corporate
governance, this year considering the revisions made by the
FRC in the 2014 Code. The 2014 Code applies to reporting
periods beginning on or after 1 October 2014. As a result,
the 2014 Code does not apply to the Company’s reporting
period ended 31 March 2015. However, the Board has, where
appropriate, adopted some of the new provisions in the 2014
Code earlier than required. Where it has done so, disclosure
is provided against these requirements in the 2015 Annual
Report and Accounts.
In addition to the changes in the 2014 Code relating to
remuneration and accountability/financial reporting, the
Board considers a key development to be the emphasis on the
importance of establishing 'tone from the top'. This has been
set in particular by the policies and procedures put in place by
the Board in relation to anti-corruption and whistleblowing.
The Group rightly operates with a zero tolerance approach to
all forms of bribery and corruption.
In addition, the Board was also pleased to approve the
issue of Renold’s Values and Behaviours this year, which are
described in more detail on page 40. Renold’s first referenced
Value is to 'Operate with integrity'. This means “We will
conduct ourselves with uncompromising integrity, honesty
and fairness as individuals, as teams and as a company,
holding ourselves accountable to the highest ethical and
relevant legal standards and fulfilling our commitments as
responsible citizens and employees.”
Turning to matters outside corporate governance and ethics,
the key priority for every Board is the delivery of business
strategy. The Strategic Plan has been uppermost on the
Board’s agenda again this year as is reflected in my opening
Chairman’s Letter on pages 8 and 9.
“The Group continues to be
committed to and recognise the
importance of high standards
of corporate governance and
behaviour. Aligned to this
is the Group’s commitment
to maintaining the highest
standards of ethics and
integrity in the way in which
we conduct business around
the world.”
Mark Harper
Chairman
52
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Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 Operate with integrity
Pictured: An employee working in the
test centre in Renold’s manufacturing
facility in Germany.
In terms of the function of the Board itself, the annual
effectiveness review this year again proved a worthwhile and
constructive process. In its second full financial year since
being constituted, following the appointment of Robert Purcell
as Chief Executive in January 2013, the Board continues to
work effectively together with a real culture of openness and
constructive debate. Given the position of the Company as
it enters Phase 2 of the Strategic Plan, this is by no means a
complacent Board and the collective view is that it continues
to perform well.
Annual General Meeting
Our Annual General Meeting will be held at 11am on Tuesday
21 July 2015 at Renold House, Styal Road, Wythenshawe,
Manchester, M22 5WL. We are pleased to receive feedback
from shareholders at all times and I would encourage our
shareholders to attend the AGM.
Compliance with the 2012 Code
The Group is committed to high standards of corporate
governance in order to facilitate efficient, effective and
entrepreneurial management of the Company. The Board
acknowledges its contribution to achieving management
accountability, improving risk management and ultimately to
creating shareholder value over the longer term.
The 2012 Code sets out guidance for companies with a premium
listing in the form of main principles and specific provisions of
good governance.
The rules of the FCA require listed companies incorporated
in the UK to disclose, in relation to the applicable governance
code, how they have applied those principles and whether
they have complied with the provisions throughout the
financial year.
The obligation of all listed companies is to comply with the
provisions of the UK Corporate Governance Code, or to explain
why it has not done so. The Board’s compliance statement is
therefore made with reference to the 2012 Code which applies
to the Company’s reporting period. The Board reviews its
compliance with the Governance Code regularly and considers
that the Company has complied with all provisions set out in
the 2012 Governance Code that are applicable to it throughout
the year ended 31 March 2015, except where highlighted in
this report.
The 2012 Code is available to view on the FRC’s website at
www.frc.org.uk.
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53
www.renold.com Stock code: RNOGovernance Board of Directors
The Board provides entrepreneurial
leadership of the Company within a
framework of prudent and effective
controls which enables risk to be
assessed and managed.
On these pages, we set out the age, tenure and biographical
details of each Board member and the Company Secretary.
For details of how our governance structure works, including
how the Board and its Committees are composed and how
they work, see pages 56 and 57.
Committee memberships key:
Audit Committee
Nomination Committee
Remuneration Committee
Executive Risk Management and Monitoring Committee
Membership of the board
Membership of the Board
Non-Executive
Chairman
1
Non-Executive
Directors
2
5
Members
2
Executive
Directors
The above graphic shows the balance of Non-Executive Directors and
Executive Directors.
Experience of the board
Experience of the Board
HSE
4
Manufacturing
and engineering
sector
4
International
experience
5
0
HR
Financial management
and corporate finance
3
3
5
2
Strategy
development
Sales and marketing
Corporate governance
The above graphic shows the number of directors with significant
experience in the areas listed. The Board recognises that it would
be beneficial to have a member with a background in HR and will be
mindful of this when further recruitment to the Board next arises.
Mark Harper, Chairman
Committee memberships
Appointment to the Board
May 2012
Experience
Mark, aged 59, was appointed to the Board as a Non-Executive
Director and Chairman-elect on 1 May 2012. He took on the role of
Chairman at the close of the Annual General Meeting on 12 July 2012.
His appointment was extended on 1 May 2015 to May 2018. Prior to
joining Renold, 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. He also held a
number of senior operational management positions within Bunzl plc,
being appointed to the Bunzl plc Board in September 2004 and has
previously acted as a Non-Executive Director of BBA Aviation plc.
Robert Purcell, Chief Executive
Committee memberships
Appointment to the Board
January 2013
Experience
Robert, aged 53, joined the Group on 21 January 2013 as Chief
Executive. Prior to joining Renold, Robert was Managing Director
of Filtrona plc’s Protection and Finishing Products Division. He has
also held a Managing Director role at Low and Bonar plc within
its technical textiles business. His early career was in operational
management within Courtaulds plc, during which time he gained an
MBA from the Cranfield School of Management.
54
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Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015
Brian Tenner, Finance Director
Ian Griffiths, Non-Executive Director
Committee memberships
Appointment to the Board
September 2010
Committee memberships
Appointment to the Board
January 2010
Experience
Brian, aged 46, joined the Group in September 2010 as Finance
Director. 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 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.
Experience
Ian, aged 64, was appointed to the Board in January 2010 and
to the chair of the Remuneration Committee in November 2010.
His appointment to both was extended in January 2013. Ian was
appointed as Non-Executive Director of Hydro International plc, a
Company admitted to trading on the AIM Market of the London Stock
Exchange, in October 2014. He was previously Managing Director of
Royal Mail Letters and a Director of Royal Mail Holdings plc. He has
also been a Non-Executive Director of Ultra Electronics Holdings plc
and held Executive Director roles at GKN plc and GKN Holdings plc
where he was Group Managing Director, GKN Automotive.
John Allkins, Senior Independent Non-Executive Director
Louise Brace, Group Legal Manager and Company Secretary
Committee memberships
Appointment to the Board
April 2008
Appointment as Company Secretary
November 2012
Experience
John, aged 65, was appointed to the Board and to the chair of the
Audit Committee in April 2008 and became the Senior Independent
Non-Executive Director on 21 January 2013. John brings strong
relevant technical experience to the role having served as the finance
director of the publicly quoted companies MyTravel Group plc and
Equant NV. Since 2007, he has served as a Non-Executive Director on
a number of boards of public and private companies and is currently a
Non-Executive Director of Fairpoint Group plc, Punch Taverns plc and
Nobina AB. John is a fellow of the Chartered Institute of Management
Accountants.
Experience
Louise, aged 42, joined Renold as Group Legal Manager in June 2012
and was appointed Company Secretary in November 2012. Louise
qualified as a solicitor at a leading City law firm in 1998 and specialised
in London market insurance litigation until 2003. She then held senior
roles in private practice at Addleshaw Goddard LLP and Pannone LLP,
advising in relation to commercial litigation and dispute resolution.
23998-04 Proof Two - final 15 June 2015 3:03 PM
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www.renold.com Stock code: RNOGovernance
Governance
Governance Structure and Board Composition
The Board is collectively responsible for the effective
oversight of the Group and its businesses.
In addition, it is responsible for strategic business planning,
including reviewing succession planning and risk management
and the development of Group policies in areas such as health,
safety and environmental matters, Directors’ and senior
managers’ remuneration and ethics. The Executive Directors
have authority to deal with all other matters affecting the
Group.
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.
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. As part of the
Board’s oversight of operations, it must ensure maintenance
of a sound system of internal control and risk management.
There have been no changes to the composition of the Board
during the year ended 31 March 2015, there being a balance of
Executive and Non-Executive Directors. Currently, the Board
comprises a Non-Executive Chairman, two Non-Executive
Directors and two Executive Directors.
The Board’s consideration of its composition in the context
of its diversity is more fully detailed in the Nomination
Committee Report on pages 68 and 69, together with a
statement on the Board’s diversity policy.
Governance structure
Board
The Board has ownership of the global policies and is
responsible for strategic business planning
Board Committees
Support the Board in its work with specific review and oversight
Audit Committee
Remuneration Committee
Nomination Committee
Oversees the Company’s financial
reporting and internal controls and
their effectiveness, together with
the procedures for identifying,
assessing and reporting risks.
It also oversees the services
provided by the external auditor
and its remuneration.
Determines remuneration policy
and practices to attract, motivate
and retain high-calibre Executive
Directors and other senior
employees to deliver performance
for all our stakeholders and ensure
a close alignment of executive
pay to the Company’s strategic
objectives and performance.
Responsible for considering the
structure, size and composition
of the Board and Committees,
and succession planning. It also
identifies and proposes individuals
to be Directors where new
appointments are to be made and
leads that process.
Executive Risk Management
and Monitoring Committee
Led by the Chief Executive, the
principal role of the Executive
Risk Management and Monitoring
Committee is to evaluate and
manage the risks to the Group.
Report at pages 62 to 67
Report at pages 70 to 87
Report at pages 68 and 69
See further at pages 59 to 61
Group management team
Implementation of the Group policies
Chief Executive
The Chief Executive has responsibility for managing
the business and implementing the strategy agreed
by the Board
Executive Committee
Business unit
leaders
Functional
leaders
Finance
Director
Business unit teams
Functional teams
56
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Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 The members of the Board maintain the appropriate balance
of status, experience, independence and knowledge of the
Company to enable them to discharge their respective duties
and responsibilities and to ensure the Board is of a sufficient
size that the requirements of the business can be met.
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 responsibility for managing the business and
implementing the strategy agreed by the Board.
Biographical and experience details of the current Directors
appear on pages 54 and 55. Details of Board and Committee
membership and attendance during the year are set out on
page 59. Further details of the Directors’ service contracts
and letters of appointment are set out in the Directors’
Remuneration Report.
The Board and its Committees
The Board delegates authority to a number of Committees
to deal with specific aspects of the management and control
of the Group. These Committees are summarised on page
56 and details about the structure and activities of each are
set out in the separate Committee reports. The Committees
communicate and work together where required.
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.
Terms of reference for each Committee together with the
schedule of matters reserved for the Board, are available on
the Company’s website at www.renold.com.
Louise Brace, the Company Secretary, has acted as secretary
to the Committees during the year ended 31 March 2015.
Board focus during the year
During the year ended 31 March 2015, the Board has provided
its main focus on the following matters:
Æ Continued review of Group strategy and supporting the
Chief Executive in developing the Group’s Strategic Plan;
Æ Completion of the project to review manufacturing capacity
in the Chain Division;
Æ Health and safety performance;
Æ Renold’s statement of Values and Behaviours;
Æ Organic growth opportunities;
Æ Customer service enhancement;
Æ ERP effectiveness and commencement of new ERP
implementation;
Æ Pension liabilities;
Æ Capital investment programme;
Æ Margins and profitability;
Æ Cashflow;
Æ Organisational development; and
Æ Consideration of the new 2014 Code.
Expected Board focus for next year
The Board will continue to review the matters listed above
other than the Chain Division manufacturing capacity review
which has been completed. In addition, it is anticipated that
the following areas will form areas of focus for the Board for
the year ended 31 March 2016:
Æ Preparation for the new 'viability statement' requirements
in the 2014 Code, which will apply to the Company’s
reporting period ending 31 March 2016;
Æ Financial performance;
Æ Succession planning.
Director induction and development
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.
The training needs of the Board are discussed as part of
the Board performance evaluation process. Updates are
provided to the Board at regular intervals in order to refresh
the Directors’ knowledge. Training is arranged primarily by
the Company Secretary in consultation with the Chairman.
During the period, the Board has received an update from
EY in relation to the 2014 Code. Remuneration advisers,
PwC, have also presented updates to the Remuneration
Committee, including in relation to market trends in executive
remuneration.
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www.renold.com Stock code: RNOGovernance Governance
Governance Structure and Board Composition
continued
In accordance with the 2012 Code, the evaluation process
also included a number of discussions during the year
between the Chairman and the Non-Executive Directors,
without the Executive Directors present, to discuss feedback
arising from the process and the performance of each
Executive Director. The Senior Independent Director also
met with the other Directors as part of the Chairman’s
performance evaluation process.
Election of Directors
The 2012 Code recommends that all Directors of FTSE
350 companies should be subject to annual election by
shareholders. This provision is not applicable to the Company.
However, with a view to complying voluntarily with all terms
of the Governance Code where possible, the Board considered
this provision during the year ended 31 March 2014 and
agreed that all Non-Executive Directors will be subject to
annual election. Given the size of the Company, it would not
be practicable for the two Executive Directors to be subject to
annual election.
Board and Committee membership and attendance
The Board meets on a regular basis with an agenda and
necessary papers for discussion distributed in advance of
each meeting. The meetings are scheduled to coincide with
the internal financial reporting timetable of the Company and
key events including interim and final results and the AGM.
The table on page 59 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. All Directors attended all scheduled Board
meetings, as can be seen in the table of attendance.
The Company has a detailed framework for the induction of
new Directors. This includes the issuing of all key documents
relating to the new Director’s role on the Board to the new
Director, as well as site visits and face-to-face meetings
with senior executives. Throughout the year ended 31 March
2015 the Executive Directors have continued to visit Renold
sites around the world including: United States of America,
India, Germany, Australia, New Zealand, Malaysia and
China. The Board itself also met during the year at Renold’s
manufacturing site in Germany and at manufacturing sites in
the UK.
Non-Executive Director independence
The Non-Executive Directors throughout the year are
considered to be independent in character and judgement.
The Board 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. The balance between
Non-Executive and Executive Directors allows independent
challenge to the Executive Directors and senior management.
Board evaluation and effectiveness
The Board is supportive of the principle of evaluation of the
Board, as set out in paragraph B.6 of the 2012 Code, and
recognises that evaluation of its performance is important in
enabling it to realise its maximum potential. A formal process
for evaluating the performance of the Board, its members
and its Committees is planned and 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.
Evaluations of the Board (including of the Chairman), the
Audit Committee, the Nomination Committee and the
Remuneration Committee were carried out during the year
ended 31 March 2015.
The evaluation process commences with the completion of a
written questionnaire for each separate review, compilation of
a summary of the results and feedback obtained and then
discussion between the participants. The Board’s discussion
of the results of the review highlighted a number of areas
where objectives might be set by the Board and practical
issues for consideration. As a result, the Board has
implemented a number of changes including allocating
additional time for Board and Audit Committee meetings at
key points in the financial year, these being review of interim
and annual financial results. The Board has also continued to
allocate separate time for review and consideration of the
Strategic Plan.
58
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Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 Table of attendance
Brian Tenner*
John Allkins
Ian Griffiths
Mark Harper*
Robert Purcell*
8 meetings
Board
4 meetings
Audit
Committee
3 meetings
Nomination
Committee
8 meetings
Remuneration
Committee
4 meetings
ERMM
Committee
8
4
–
4
4
8
4
3
8
–
8
4
3
8
–
8
4
3
7
–
8
4
–
6
4
* Robert Purcell, Mark Harper and Brian Tenner attended Remuneration Committee and/or Audit Committee meetings or
parts thereof by invitation.
Risk monitoring and 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 FRC’s ‘Internal
Control: Revised Guidance for Directors on the Combined
Code (October 2005)’, for 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 2015 and up to the date of approval of
this report and the financial statements.
During the year ended 31 March 2015, the responsibility to
review internal control effectiveness was discharged by the
Audit Committee and reported to the Board as follows:
Æ 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;
Æ reviewing the external auditor’s findings on internal
financial control; and
Æ monitoring the adequacy and timeliness of management’s
response to identified audit issues.
Internal controls and the risk management processes are
reviewed on a regular basis by the Audit Committee, which
reports directly to the Board. This review includes a report
from the Executive Risk Management and Monitoring
Committee ('ERMMC') after each meeting to the Audit
Committee. Further details of the Group’s risk management
framework can be found on page 46 of the Strategic Report
and of the Audit Committee’s oversight of the ERMMC can be
found in the Audit Committee Report on page 62.
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.
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www.renold.com Stock code: RNOGovernance Governance
Governance Structure and Board Composition
continued
The key features of the Group’s internal control and risk
management systems are:
Æ the ERMMC which oversees, on behalf of the Audit
Committee and, ultimately, the Board, that appropriate
policies are implemented to identify and evaluate risks.
Æ access for all Group employees to a free of charge,
independent whistle blowing hotline enabling them to
report any concerns about theft, fraud or other malpractice
in the workplace;
Æ 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;
Æ an organisational structure which supports clear lines of
communication and tiered levels of authority;
Æ a schedule of matters reserved for the Board’s approval
to ensure it maintains control over appropriate strategic,
financial, organisational and compliance issues;
Æ the preparation of detailed annual financial plans covering
profit and cash flow, which are approved by the Board;
Æ the review of detailed regular reports comparing actual
performance with plans and of updated financial forecasts;
Æ procedures for the appraisal, approval and control of
capital investment proposals;
Æ procedures for the appraisal, approval and control of
acquisitions and disposals; and
Æ monitoring procedures which include a system of key
financial controls self-assessment questionnaires.
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 an 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. Separate Group policies
also address anti-corruption and gifts and hospitality.
Control over financial reporting
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 IFRS; 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.
Executive Risk Management and Monitoring Committee
The principal role of the ERMMC is to evaluate and manage
the risks to the Group.
The ERMMC is chaired by the Chief Executive Robert Purcell
and is comprised of the Executive Directors. The Chairman
invites attendance to the ERMMC of any employee as
appropriate depending upon the nature of the risks to be
considered at any one time.
The following people currently attend by invitation: the Group
Business Systems Director, the Group HR Director, the Group
Head of Risk and Assurance and the Group Legal Manager and
Company Secretary.
The ERMMC meets quarterly and reports to the Audit
Committee after each meeting (at least twice each year).
During the year ended 31 March 2015, the ERMMC met four
times. Details of the attendance by the Executive Directors
can be found at page 59.
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Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 Annual General Meeting
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 two Non-Executive Directors who respectively chair
the Audit and Remuneration Committees, together with the
Executive Directors, will be available to answer questions. The
Chairman of the Board is also chairman of the Nomination
Committee and the Chief Executive chairs the Executive Risk
Management and Monitoring Committee.
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.
The Annual General Meeting will be held at 11.00 am on Tuesday
21 July 2015 at Renold House, Styal Road, Wythenshawe,
Manchester, M22 5WL.
The Notice of Meeting will be sent to shareholders prior to the
AGM. This will set out a detailed explanation of each item of
business for consideration at the AGM. Shareholders who are
unable to attend the AGM are encourage to vote before the
meeting by using the Proxy Card which will be sent with the
Notice of Meeting.
All resolutions were passed at last year’s AGM with votes in
support all exceeding 98%.
The Executive Risk Management and 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 Executive Risk Management and Monitoring Committee
reports to the Audit Committee.
Communications with shareholders
Communications with shareholders are given high priority
and are made in a number of ways. 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. Formal
regulatory news service announcements are also made
in accordance with the Company’s reporting obligations.
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 Strategic Report on pages 10 to 49.
The Company continues to keep shareholders informed
of its strategy and progress at other times during the
year, presentations being 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. The Board receives feedback from the
Company’s brokers throughout the year. In addition, the
Chairman, Chief Executive and Finance Director meet with
major shareholders to discuss governance and Group strategy
and update the Board as a whole accordingly at each meeting.
The Board also receives reports prior to each Board meeting
which set out the main changes to the composition of the
Company’s share register.
The Senior Independent Non-Executive Director does not
generally attend meetings with shareholders although he
makes himself available to attend such meetings if and when
required. Whilst the Company is not in compliance with
paragraph E1.1 of the 2012 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.
23998-04 Proof Two - final 15 June 2015 3:03 PM
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“We continue to ensure that the
major change projects being
delivered in the business are
appropriately controlled and
monitored. The key goal is to
support the Group in identifying
and capturing the benefits of
those projects and maintaining
financial control during a period
of significant change.”
John Allkins
Audit Committee Chairman
Audit Committee members and meetings attended
Names
John Allkins
Ian Griffiths
Position
Meetings attended
Chairman
Non-Executive Director
4 of 4
4 of 4
In addition to monitoring effective project control and benefits
delivery from major change initiatives, we also support
the efforts of the Executive team to continuously improve
the financial control and risk monitoring environment. Our
approach is to ensure that embedded and responsive financial
controls operate in the vanguard of our activities rather than
run the risk of a loss of control by operating in the rearguard.
Key objective
In support of the Board’s duty of stewardship, the Committee
aims to ensure appropriate corporate governance is applied
to the Group’s systems of internal control, risk management,
internal audit and other compliance matters such as UK
anti-bribery legislation. We monitor the integrity of financial
information published externally for use by shareholders. We
also ensure that the integrity of the financial statements is
supported by an effective external audit.
Governance
The terms of reference of the Audit Committee appear on the
Company website at www.renold.com.
Responsibilities
Æ Reviewing the Group’s financial results, announcements
and financial statements;
Æ Reporting to the Board on the appropriateness of existing
accounting policies and their application across the Group;
Æ As a matter of course, confirming that the Going Concern
basis remains appropriate for the financial statements;
Æ Advising the Board on the application of any new or
modified accounting and reporting standards;
Æ Advising the Board on the adequacy of the processes
required to confirm that the Annual Report and
Accounts, when taken as a whole, are fair, balanced and
understandable and include the information necessary
to allow shareholders to assess the Group’s performance,
business model and strategy;
Æ Overseeing the Internal Audit function. This includes
reviewing the annual internal audit plan, identifying
specific areas of focus for new or emerging business risks
and receiving internal audit reports;
Æ Oversight of the relationship with the external auditor,
including the appointment and, where appropriate, re-
appointment of the external auditor;
Æ Assessing and making recommendations to the Board on
the activities and performance of the Group’s Executive
Risk Management and Monitoring Committee ('ERMMC')
including reviewing the Integrated Risk Management
System ('IRMS');
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Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 Æ Reviewing and reporting to the Board on the Group’s
internal control and compliance processes;
Æ Reviewing the procedures for responding to whistle
blowing, fraud or potential breaches of anti-bribery
legislation. This includes oversight of any and all reports
summarising the concerns raised, how they were
investigated and the response to the same;
Æ Reporting to the Board at regular intervals on how the
Committee is discharging its responsibilities.
Composition
The Committee was chaired by me during the year. The
second member of the Committee is Ian Griffiths, also an
independent Non-Executive Director.
Main activities of the Committee during the year
Significant issues considered in relation to the
financial statements
The Committee monitors the integrity of the Company’s
financial information and other formal documents relating
to its financial performance and makes appropriate
recommendations to the Board before publication.
A key factor in the integrity of financial statements is ensuring
that suitable and compliant accounting policies are adopted
and applied consistently on a year-on-year basis and across
the Company. In this respect, the Committee also considered
the estimates and judgements made by management when
accounting for non-standard transactions, the treatment of
exceptional items and in provision calculations.
The composition of the Committee therefore remains
unchanged in the year and complies with the requirements of
the Governance Code for a smaller company, this being to have
two independent Non-Executive members.
These considerations are supported by input from other
assurance providers, for example, the Group’s actuarial
advisers, the Group Internal Audit and Assurance team as well
as our external auditor.
Biographical details and experience of members are set out
on pages 54 and 55.
Expertise
The Committee members have been selected to give an
appropriate range of financial, operational, commercial and
risk management expertise to allow the Committee to fulfil
its duties. The Board considers that I have recent and relevant
financial experience as required by the Governance Code to
perform the role of Committee Chairman.
Committee meetings
The Committee meets at least four times each year. During
the year ended 31 March 2015 the Committee met four times.
The meetings are attended by the independent Non-Executive
Directors (the members), the Company Secretary and, by
invitation, the Chairman, the Chief Executive, the Group
Finance Director and the Group Head of Risk and Assurance.
Full details of Director attendance during the year are set out
in the table of all Committee meetings on page 59.
Other members of the Group’s management team are
also invited to attend to present or respond to queries on
particular areas of focus. Our external auditor, EY, also
attended the majority of Committee meetings. Each meeting
so attended includes an opportunity for the external auditor
to raise any matters in confidence which they consider should
be brought to the attention of the Committee without the
Executive Directors being present. Similarly, the Group Head
of Risk and Assurance has a regular opportunity to address
the Committee without the Executive Directors being present.
Summarised below are some of the significant issues the
Committee considered during the year in relation to the
financial statements. These are separated into items of
particular focus this year and recurring items that the
Committee regularly addresses.
Reporting of exceptional items (current year focus item:
See Note 2(c) to the financial statements on page 116)
Following two years of significant exceptional restructuring
charges and asset impairments, the Committee continued
its focus on this area to ensure that the lower charges in
the current year genuinely need to be excluded to allow a
user of the accounts to form an accurate assessment of the
performance of the underlying business. The Committee
concluded that the charges were sufficiently material and
unrelated to underlying business activities to require separate
disclosure as exceptional charges. In two cases, the charges
for the revaluation of the Bredbury onerous lease provision
(£0.5m) and the further write down of surplus Bredbury
assets (£0.2m), were directly related to the significant
restructuring project which started in the prior year and
concluded in the first quarter of the current year. The direct
relation to that project was a firm basis for classifying both
of these items as exceptional charges. In the third case, the
impairment charge of £1.2m against a surplus French property
was sufficiently material and potentially distorting of the
underlying operating results to also require disclosure as an
exceptional item.
Other restructuring and redundancy costs include an
impairment of software licences (£0.2m) following the
decision to change the Group’s global ERP system and costs
associated with the agreed re-location of our head office and
ongoing restructuring of senior management teams (£0.8m).
23998-04 Proof Two - final 15 June 2015 3:03 PM
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continued
Defined benefit pension accounting
(recurring annual item: See Note 18 to the financial
statements on pages 126 to 130)
Defined benefit pension scheme accounting is a complex
matter. The values disclosed can fluctuate, particularly in
a period of significant changes in gilt yields and interest
rates. The values disclosed are also sensitive to a range of
assumptions where judgement is required. The Committee
therefore devoted a significant amount of time to assessing
the basis of the actuarial assumptions used to derive the
values shown in the financial statements.
As has been the case for a number of years, the Committee
reviews management estimates which are themselves
produced following independent actuarial advice and are
compared to third party benchmarks on the reasonableness
of the assumptions used. The Group’s underlying assumptions
and methodology used in deriving them are unchanged year
on year. In respect of the relatively high mortality assumption,
the Committee considers extensive scheme specific data
which underpins and supports the level of mortality
assumed by the Group. The Committee was satisfied that the
assumptions are within an acceptable range and no changes
were made to management assumptions.
The Committee has also encouraged additional disclosure of
forward looking financial information in respect of defined
benefit pension schemes. Typically graphical in nature, this
is designed to give greater clarity of the risks, issues and
opportunities in what is a complex area of accounting: see
pages 38 to 39 of the Finance Director's Review.
The Committee continues to conclude that the financing
charges and administration costs of the closed defined benefit
pension schemes should, for the purposes of assessing
underlying performance as reported in adjusted operating
profit and adjusted EPS, be excluded from these calculations.
The costs involved relate to closed legacy pension schemes
that have no bearing or relevance to understanding the
underlying performance of the ongoing business: see Note 18
to the financial statements on pages 126 to 130.
Review of carrying value of intangible assets, deferred tax
assets and investments in subsidiary undertakings
(recurring annual item: see Note 7 to the financial
statements on pages 119 and 120 and Note 17 on pages
125 and 126)
The Group holds a number of valuable intangible assets such
as goodwill and deferred tax. In addition, the parent company
and other subsidiary holding companies hold investments
in various subsidiaries (which are relevant in their individual
statutory accounts as opposed to the consolidated financial
statements). The judgements on the carrying value of these
assets are normally a key area for Committee scrutiny.
These are areas where management estimates play a key
role in supporting the carrying values reported in the balance
sheet. The Committee reviews the assumptions underlying
the discounted cash flow calculations and the likelihood of
long term recovery of the asset values. The details of the
impairment reviews and the sensitivities performed are in Note
7 on pages 119 and 120. Short term cash flows are confirmed
by reference to the Board approved budget for the following
year and sense checked against the longer term plan and this
is also a key area of focus for the external auditor.
As part of the review of defined benefit pension accounting the
Committee also reviews the carrying value and recoverability
of the deferred tax assets which are the corollary of the gross
pension deficit. The Committee was satisfied that the extended
duration of the pension liabilities in Germany and the UK, and
their priority in recognition, justified the extended recovery
periods for the associated deferred tax assets which were also
fully supported by future expectations of taxable profitability.
During the year end review of the carrying value of deferred
tax assets in respect of pension liabilities in Germany, it was
identified that the asset recognised in the prior year was
overstated. The Committee has reviewed the circumstances
that led to the over statement as well as management actions
to improve the controls and processes to ensure that a similar
issue does not recur. The Committee has also critically reviewed
the disclosures and accounting treatment of the prior year
adjustment and restatement contained in this Annual Report,
in the Finance Director’s Review on pages 34 to 39 and in the
Accounting Policies to the accounts on page 107.
Review of inventory valuation and provisioning
(recurring annual item: see Note 11 to the financial
statements on page 122)
As a manufacturer, the Group adds value to raw materials as
part of its normal production processes. In order to provide
shorter lead times and better customer service the Group
also holds a significant amount of stock. Inventory therefore
represents a material component of the Group’s balance
sheet. The basis of valuation always includes the allocation
of amounts for labour and overhead costs which require the
exercise of management judgement.
The Committee therefore reviews in some detail both the
valuation bases and the application of the Group’s policy on
providing for slow moving and obsolete stock. The Committee
is satisfied that the net book value shown in Note 11 on page
122 is appropriate and that any management judgements
formed in arriving at those values are reasonable.
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Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 The Committee was satisfied that all whistle blowing reports
received during the year were properly investigated. In
all cases, no material issues were identified at a Group
or subsidiary level and were, in the main, related to local
employee relations matters. The Committee considers the
number and nature of reports received in the year to be small
in number and risk in comparison to businesses of a similar
size and geographical distribution.
Internal audit
The Committee receives and considers reports on the control
environment from the Group Head of Risk and Assurance. These
reports highlight key improvement themes and recommend
areas for business focus, with additional observations
provided around root cause analysis and cultural and
behavioural themes. In addition, the Committee has visibility
of management responses and action tracking via the Group’s
IRMS. The audit plan, which contains mandatory, risk-based
and cyclical reviews, was approved by the Committee in
February 2014, and was built around focus areas such as
organisational change, major projects, security, business
resilience and capital spend.
The annual Internal Audit plan is built on a risk-based
approach for the majority of work, but also includes an
element to ensure coverage of key operations and processes
over a defined period. The inherent risk of each process is
assessed and in turn is used to inform audit frequency, with
elements of higher risk processes being audited on a more
frequent basis. The Committee supports this approach and
comments on particular areas of focus or concern that we
wish to see addressed. In the new financial year, the plan will
include site financial control audits, site Health and Safety
audits and project assurance associated with the M3 ERP
implementation.
External audit
The Committee is responsible for overseeing relations with the
external auditor, including the approval of fees, and makes
recommendations to the Board on their appointment and,
where appropriate, reappointment based upon reviews of
audit effectiveness.
Details of total remuneration for the auditors for the year,
including audit services, audit related services and other non-
audit services, can be found in Note 2(b) of the consolidated
financial statements on page 115.
Other matters reviewed by the Committee:
Æ corporate risk reporting processes and action plans;
Æ the annual process for control self-assurance and reporting;
Æ reviewing medium term financial planning assumptions;
Æ the ongoing programme to improve the efficiency of financial
control processes in the business; and
Æ commissioning an independent review of the Group’s
processes for complying with UK anti-bribery legislation
and following up the best practice action plan.
Internal control, risk and compliance
We evaluate regularly the integrity of financial reporting and
the robustness of internal controls to ensure compliance
with applicable legal and internal requirements. We also
review the Group’s policies and procedures for identifying
material business risks and action plans aimed at reducing
the likelihood of risks crystallising and mitigating the impact if
they do.
During the year, detailed risk management processes and
reviews were pushed deeper into the organisation with
a focus on operational risks in manufacturing facilities in
particular.
The ERMMC receive regular reports from the Group Head of Risk
and Assurance, to convey the status of risk profiles and actions
arising from the risk assessment process. The ERMMC reports
the results of its discussions to the Committee.
The Group’s management team makes regular use of the
IRMS which is delivered via the Group’s intranet. This system
facilitates both the identification of risks and their relative
priority in each functional area or each geographic location.
The system also allows users to develop and implement
action plans to mitigate those risks. The system has extensive
reporting functionality that allows senior management and the
ERMMC to review progress in mitigating the risks faced by the
Group.
Further details of our internal control and risk management
systems, including the financial reporting process, can be
found on pages 59 to 61 in the Corporate Governance report.
Our primary risk factors are shown in the Strategic Report on
pages 46 to 49.
Confidential reporting procedures and whistle blowing
The stewardship of the Group’s assets and the integrity
of the financial statements are further supported by
confidential reporting and whistle blowing procedures. The
Committee reviews these procedures once a year to ensure
that appropriate processes are in place to treat complaints
confidentially and implement proportionate and independent
investigation in all cases. The Committee is diligent in ensuring
a high degree of visibility and accessibility of whistle blowing
communications methods to all staff, including first hand
inspection during site visits.
23998-04 Proof Two - final 15 June 2015 3:03 PM
65
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continued
Auditor independence and objectivity
The independence of the external auditor is essential to the
provision of an objective opinion on the true and fair view
presented in the financial statements. Auditor independence
and objectivity is safeguarded by limiting the nature and value of
non-audit services performed by the external auditor. The Group
has a policy of not recruiting senior employees of the external
auditor, who have worked on the audit in the past two years,
to senior financial positions within the Group, and the rotation
of the lead engagement partner at least every five years. The
current lead engagement partner has held the position for four
years.
Non-audit services provided by the external auditors
The Committee is responsible for ensuring that an appropriate
relationship is maintained between the Group and the
external auditor. Non-audit services can only be provided by
the external auditor if there is no potential conflict of interest
or material risk of values being included in the financial
statements that have been both advised on and audited by
the external auditor.
To safeguard the independence and objectivity of the auditor,
the Committee has approved a policy on non-audit services
provided by the auditor in line with professional practice and
in accordance with ethical standards published by the Audit
Practices Board. Control of non-audit services is exercised
by ensuring that all non-audit services where fees exceed
an agreed limit are subject to the prior approval of the
Committee. The policy is available on the website at www.
renold.com.
During the year ended 31 March 2015, the 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 2016.
Total non-audit services provided by EY during the year ended
31 March 2015 were £0.2m (2014: £0.2m) which comprised
25% (2014: 46%) of total audit and audit related fees. Total
audit and audit related fees include the statutory audit fee
and fees paid to EY for other services which the external
auditor is required to perform. Examples include reporting to
banking partners in territories where no statutory accounts
are required to be prepared. Non-audit fees represent all
other services provided by EY not included in the above.
Significant non-audit services provided by EY in the year
included tax advisory and compliance services (£0.1m) that
were provided in territories where it would be prohibitive for
the Group to employ its own full time tax manager.
The Committee concluded that some overseas tax advisory
and compliance services could most efficiently be provided
by the external auditor as much of the information used in
preparing computations and returns is derived from audited
financial information. In order to maintain the external
auditor's independence and objectivity, Group and local
management reviewed and considered EY’s findings and EY
did not make any decisions on behalf of management.
The Committee also discussed the overall level of fees and
considered them appropriate given the current size of the
Group. The 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.
The Committee is also mindful of impending changes in
regulations relating to the provision of non-audit services by
the external audit firm. New European regulations due to take
effect in 2016 will restrict the level of non-audit fees that can
be charged by a company's external auditor and will forbid
the provision of certain specific services, a number of which
are tax services currently provided by the external audit
firm. The Committee has decided to early adopt some of the
proposed restrictions on non-audit services and, specifically,
will make all tax services non-permitted services with effect
from the next tender of the external audit.
The objective is to achieve a smooth transition to the
proposed new limits on non-audit services provided by the
external auditor and thereby avoid a disruptive major step
change.
Audit focus
To ensure appropriate focus on key risk areas identified by the
Committee, the proposed external audit plan is challenged
before the audit commences to ensure that EY have
developed appropriately targeted audit procedures. These are
closely aligned with the current year focus items noted above
in the section Main activities of the Committee during the
year. They also reflect the relative changes in profitability and
materiality of each of the Group’s operating units during the
year (in some cases as a result of the ongoing restructuring
activities).
Assessment of effectiveness of external audit
The Committee has a formal system for evaluating the
performance and independence of the external auditors. This
system involves active dialogue with the Lead Engagement
Partner, a formal questionnaire and feedback process involving
senior management in direct contact with the audit team, and
EY’s response to accounting, financial control and audit issues
as these arise.
An annual review is conducted by the Committee of the
structure and approach taken in the external audit, the level
of non-audit fees, and the effectiveness, independence and
objectivity of the external auditor. This includes consideration
of:
Æ the global external audit process;
Æ the auditor’s performance;
Æ the expertise of the firm and our relationship with them;
and
Æ the results of the questionnaire process.
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Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 Fair, Balanced and Understandable: the role of the
Disclosure Committee
As part of the process of ensuring that all disclosures made
by the Company are timely, accurate and importantly meet
the ‘Fair, Balanced and Understandable’ requirements arising
under the FCA's Listing and Disclosure and Transparency
Rules, the Group maintains a Disclosure Committee whose
membership includes the Chairman of the Audit Committee
(as Chair), Group Finance Director, Group Chief Accountant and
the Company Secretary.
The following activities were carried out by the Disclosure
Committee:
Æ all those contributing to the Annual Report and Accounts
were briefed on the requirements of the Governance
Code with specific emphasis on the fair, balanced and
understandable requirements;
Æ a number of senior managers who were knowledgeable
about the business but otherwise not significantly involved
in the preparation of the Annual Report and Accounts, each
performed an independent review and their comments
incorporated accordingly; and
Æ as in previous years, a documented verification file of
all substantive facts and assertions is maintained and
reviewed for completeness prior to finalisation of the
Annual Report and Accounts.
The Disclosure Committee presents its findings and
recommendations to the Audit Committee as part of
its review of processes to enable the fair, balanced and
understandable statement to be made.
We welcome feedback from shareholders on this report and I
will be available at the AGM to answer questions.
John Allkins
On behalf of the Audit Committee
26 May 2015
The results of the review are discussed with the external
auditor.
Following this year’s annual review, the Committee was
satisfied with the effectiveness, independence and objectivity
of the external auditor. As noted below, the Committee
has made a recommendation to the Board to re-tender the
contract for audit services. The Committee believes that the
tender would add value at this time. There are no contractual
obligations restricting the choice of external auditor, nor
entered into any auditor liability agreements.
Audit tender
EY were first appointed as the Company’s external auditor
in 2006 for the year end audit in 2006/07 following a tender
process where assessment criteria included quality of service,
qualifications, expertise, independence, effectiveness and
scale of international network to service the Company.
The Governance Code requires FTSE 350 companies to put
the contract for audit services out to tender at least once
every ten years which, in the case of Renold, would be for the
year ended 31 March 2017. While the Company is not covered
by this requirement, as part of the Company's internal
governance the Board is generally minded to match the
requirements for FTSE 350 companies, even when not strictly
required.
The Committee has reviewed the timeframe for an audit
tender that would comply with the Governance Code. The
Committee has decided that the best interests of the Group
would be better served by accelerating the tender process
for the external audit by one year. A process is therefore
underway to appoint the external auditor for the year ended
March 2016. The tender process will include the assessment
criteria of quality of service, qualifications, expertise,
independence, effectiveness and scale of international
network to support the Group. A resolution to appoint the
external auditor will be included in the Ordinary Business of
the Annual General Meeting scheduled for 21 July 2015.
In the interests of efficiency and minimising disruption, and
being conscious of the impending changes in non-audit service
regulations noted above, the Committee has also decided to
run a parallel selection process to appoint the Group's global
tax advisers at the same time as the external auditor. The
firms participating in the two tenders are aware that the
Group will appoint a separate auditor and tax advisers.
Audit information
Having made the requisite enquiries, so far as the Directors
in office at the date of the approval of this report are aware,
there is no relevant audit information of which the auditor is
unaware and each Director has taken all reasonable steps to
make themselves aware of any relevant audit information and
to establish that the auditor is aware of that information.
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67
www.renold.com Stock code: RNOGovernance Nomination Committee Report
Nomination Committee members and meetings attended
Names
Mark Harper
John Allkin
Ian Griffiths
Position
Meetings attended
Chairman
Non-Executive Director
Non-Executive Director
3 of 3
3 of 3
3 of 3
Role of the Nomination Committee
The Committee has delegated authority from the Board. The
duties of the Committee include the following:
Æ to review the structure, size and composition of the Board
and recommend any proposed changes;
Æ where new appointments of Executive and/or Non-
Executive Directors are to be made, to lead that process
and identify and nominate candidates to the Board; and
Æ to give full consideration to succession planning for
Directors and other senior executives, taking account of the
challenges and opportunities facing the Company.
Composition of the Nomination Committee
I chair the Committee and our two Non-Executive Directors
are members of the Committee and have been so throughout
the year. The Committee meets during the year as required.
Policy on appointments to the Board
In accordance with the provisions of the 2012 Code, when
reviewing the Board’s structure, the Committee’s primary
objective is to ensure that the Executive and Non-Executive
Directors have the relevant skills, knowledge and experience
to create a balanced and effective Board and to support the
Group in delivering its overall strategic objectives. This is in
parallel with ensuring that the costs and composition of the
Board reflect the size of business and also the current stage of
development of the business. Our policy extends to ensuring
that the various sub-committees of the Board also have an
appropriate range of skills and experience to deliver their
terms of reference.
In addition to skills and experience, we will also consider
factors such as how an individual’s personal attributes would
complement and enhance the diversity on the Board. For the
appointment of Non-Executive Directors, additional factors for
consideration include independence and time commitment.
In selecting candidates for the short-list for any appointment,
the Board always considers candidates from a wide range of
backgrounds and on merit and against objective criteria.
“The Nomination Committee
acknowledges a key
requirement of the UK
Corporate Governance Code
placing responsibility on the
Board for succession planning.
As a result, the Nomination
Committee will ensure a full
review of the Company’s
succession plans is begun
during the forthcoming
financial year.”
Mark Harper
Committee Chairman
68
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Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 Activities during the year
Here we set out the principal activities of the Committee during
the year.
Effectiveness review
The Nomination Committee carried out its annual evaluation
during the year.
Succession planning
As a result of the Committee’s Effectiveness review and the
Board’s evaluation process, a key discussion point arising
was that of succession planning for the Board. A review of
succession planning for the Board will commence during the
forthcoming financial year and will form part of a Company
wide review of succession planning. An update will be
provided to shareholders accordingly in the next Annual
Report and Accounts.
Board composition
As stated in its report for the year ended 31 March 2014, the
Committee continues to review the composition of the Board.
Conscious of the fact that the Company is continuing in the
Turnaround Phase of the Group’s Strategic Plan and entering
Phase 2, the Committee notes that reductions in staffing
levels and pay restraint throughout the Group continue.
The current capability and cost of the Board has therefore
been appropriate in the Committee’s view during the current
reporting period. In the view of the Committee, the Group
and Board have continued to benefit from the stability and
continuity of membership of the current Board. However, this
issue will continue to be monitored and discussed.
Mark Harper
On behalf of the Nomination Committee
26 May 2015
The Board is already aware of the need to consider the
benefits of diversity on the Board in all its aspects. The Board
recognises that gender is one important aspect of diversity
and while all current members of the Board are male, the
Company Secretary, who is also the Group’s most senior
legal professional, is female. An analysis of the gender of all
employees is set out in the Strategic Report on page 44. Other
than in relation to gender, the current Board is diverse in
terms of the different skill sets of each member. These include
professional qualifications and career work experience but
also wider experience relevant to our global business, most
of the Board members having worked and lived overseas for
significant periods for example. For further information, see
the charts set out on page 54.
Both the Board and the Committee continue to be mindful of
the issue of diversity, a formal Board diversity policy having
been discussed and adopted last year. In any future changes
to its composition, the Board will continue to be mindful of
the issues of diversity, including gender, and these factors will
be taken into account alongside the over-riding objective of
appointing the best possible candidate for the role.
The Board does not believe it is appropriate to set measurable
objectives for the implementation of the policy at this time.
As an international business with operations in multiple
locations we employ a very diverse work force with a broad
range of ethnicity which extends to senior management
and leadership posts in the various territories. We prefer to
appoint local management where possible.
The process for making appointments to the Board
commences with the evaluation described earlier in this
report. The Committee will then seek to identify suitable
candidates usually with the use of external recruitment
consultants or, where appropriate, the use of open
advertising. The Board supports the engagement of executive
search firms who have signed up to the Voluntary Code of
Conduct on gender diversity and best practice. Recruitment
consultancy services have been provided by Korn Ferry
Whitehead Mann and Odgers Berndtson, who themselves are
signatories to the Voluntary Code of Conduct. None of these
firms has any other connection to the Company.
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69
www.renold.com Stock code: RNOGovernance Directors’ Remuneration Report
Annual Statement
As Chairman of the Remuneration Committee I present the
Directors’ Remuneration Report for the year ended 31 March
2015. This year’s remuneration report has been prepared in
accordance with Schedule 8 to the Large and Medium-sized
Companies and Groups (Accounts and Reports) Regulations
2008. This amended Schedule 8 was introduced by the
Department for Business, Innovation and Skills, for financial
years ending on or after 30 September 2013 in the Large and
Medium-sized Companies and Groups (Accounts and Reports)
(Amendment) Regulations 2013 ('the Regulations').
Our report is structured in two sections following this Annual
Statement:
Æ Directors’ Remuneration Policy (pages 73 to 80) which
sets out the Company’s policy on Directors’ remuneration
for three years from the 2014 AGM. The Directors’
Remuneration Policy is subject to a binding shareholder
vote and was approved by shareholders at the AGM
on 22 July 2014. It is expected that the Company will
next propose a resolution to approve the Directors’
remuneration policy at the 2017 AGM, or earlier should any
revisions to the policy be proposed. There are no proposals
to amend the policy at this time.
Æ Annual Report on Remuneration (pages 81 to 87) which
shows the implementation of the Directors’ Remuneration
Policy in 2014 and how it is proposed to be applied in 2015.
The Annual Report on Remuneration together with this
letter is subject to an advisory shareholder vote at the
2015 AGM.
Key responsibilities of the Committee
The 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, and the terms of the service contracts and all
other terms and conditions of employment of the Executive
Directors.
The key aim is to ensure that executive pay is strongly aligned
to the Company’s business priorities and the interests of
shareholders. Our policy is also designed to attract, motivate
and retain individuals who will deliver strong performance
for all of our stakeholders. The Committee takes into account
the pay and employment conditions of employees within the
Group when determining Executive Directors’ remuneration.
In line with the Association of British Insurers’ Guidelines on
Responsible Investment Disclosure, the Committee ensures
that the incentive structure for the Executive Directors
will not raise environmental, social or governance risks by
inadvertently motivating irresponsible behaviour.
“Further to the changes in
remuneration reporting
last year, the Directors’
Remuneration Policy was
approved by shareholders at
the AGM which took place on
22 July 2014 and took effect
on that date. A key aim of
the policy is to ensure a close
alignment of executive pay
to the Company’s strategic
objectives and performance.”
Ian Griffiths
Chairman of the Remuneration Committee
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Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 Committee membership
This section describes the membership of the Committee
and principal activities during the year. It forms part of the
Annual Report on Remuneration section of the Directors’
Remuneration Report. All members of the Committee are
independent. Members of the Committee during the year are
set out below and further biographical details can be found on
page 55:
Æ Ian Griffiths (Chairman)
Æ John Allkins
The Company Secretary attends all Committee meetings and
is secretary to the Committee. The Executive Directors, the
Chairman of the Board and the Group HR Director attend
meetings by invitation. PwC, the external advisers to the
Committee, also attend meetings by invitation. Further details
in relation to PwC’s engagement as adviser to the Committee
can be found at page 87. No Director is involved in deciding his
own remuneration, whether determined by the Committee, or
in the case of the Non-Executive Directors, by the Board.
An evaluation of the Committee was undertaken during the
year ended 31 March 2015 and I can report that this review
concluded the Committee has operated effectively.
The terms of reference of the Committee are available on the
Company’s website at www.renold.com. None of the Committee
members has any personal financial interest (other than as
shareholders) in the matters to be decided or any conflict of
interest, cross-directorships or day-to-day involvement in the
running of the business.
The Company’s auditor is required to report on certain parts of
the Directors’ Remuneration Report and to state whether in its
opinion those parts of the report have been properly prepared
in accordance with the relevant accounting regulations. Audited
sections of the report are indicated accordingly.
Key decisions and changes in remuneration policy
The Committee undertook an extensive review of the
Directors’ Remuneration Policy last year and decided to leave
all fixed elements of salary and benefits unchanged for both
of the Company’s Executive Directors. This aligns directly
to the key strategic goal of lowering the Group’s breakeven
point. It also reflects the pay restraint that is in force in all
Renold locations. The next review by the Committee of the
Executive Directors’ salaries will be in July 2015. The Directors’
Remuneration Policy received support from shareholders both
through an informal consultation with major shareholders
and approval being given by 98% of those voting at the 2014
AGM. Outside of fixed elements of salary, the key elements of
remuneration policy comprise:
Æ Annual bonus: The maximum achievable annual bonus
remains unchanged. The targets reflect the continuing need
to improve operating margins and reduce average levels
of net debt, structured as a matrix to ensure that one
goal cannot be pursued at the expense of the other. The
Committee assessed performance against EBITDA and Net
Debt targets set at the beginning of the year. The adjusted
EBITDA for the year ended 31 March 2015 of £20.8m was
a 26% increase on the prior year and the Average Net
Debt during the year was £25.9m, lower than in the year
ended 31 March 2014. As such, annual bonus payments
to Executive Directors equal to 67% of salary were
determined. The Committee believes this result represents
the strong underlying performance of the Company during
the year ended 31 March 2015.
Æ The 2013 Performance Share Plan (PSP) (approved by
shareholders at the 2013 AGM): The PSP was introduced
to increase the alignment of Directors’ remuneration
with shareholder value, to motivate the achievement
of strong growth in the long term and to increase the
proportion of variable pay. PSP Awards have a three year
performance period and the awards granted during this
year have required 30% growth per year in adjusted EPS
for maximum vesting. As a result, it is both challenging and
firmly aligned to shareholders’ interests. Growth of 56% in
adjusted EPS has been achieved during the year ended 31
March 2015. Provisions to enable PSP awards to be clawed
back prior to vesting have been introduced to the 2013
PSP as well as a shareholding requirement for Executive
Directors. In addition, a provision has been added so that
part or all of an annual bonus may be forfeited or sought to
be clawed back in certain circumstances.
Æ 2004 Options Plans: Option awards granted to Brian Tenner
in 2011 vested during June 2014 as the share price condition
attached to these awards was met in full.
Finally, there have been no changes to the Non-Executive
Directors’ annual fees in the year.
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71
www.renold.com Stock code: RNOGovernance Directors’ Remuneration Report
Annual Statement
continued
Committee activities
The Committee’s terms of reference require meetings to be held at least twice a year. This year, the Committee met on eight
occasions to discuss the following themes and agenda items in accordance with its terms of reference:
Theme
Best practice
Agenda items
— The Company’s remuneration policy in light of the Regulations, and consideration of any
AGM feedback
— Review of the current UK corporate governance environment and the implications for the
Company
Directors’ remuneration policy
Annual report on remuneration
Executive Directors
— Noting the Directors’ Remuneration Policy is in place for three years from the 2014 AGM
— Consideration and approval of the Annual report on remuneration to be put to shareholders
— Reviewing the base salaries payable to each of the Executive Directors
— Reviewing performance under the annual bonus and consideration of any bonuses payable
for the financial year ended 31 March 2015
— Approving the annual bonus structure and performance targets for the financial year ending
31 March 2016
Committee performance
Performance of external advisers
— Approving the LTIP awards made under the Company’s 2013 PSP during the year
— Reviewing the Committee’s performance
— Reviewing the performance of PwC and retaining them as external remuneration
consultants
In addition, it is noted that the Executive Directors and the Chairman reviewed the remuneration arrangements of the
Non-Executive Directors.
The Company has complied with the 2012 Code in respect
of the Directors’ Remuneration Policy and the Directors’
Remuneration Report, to the extent set out in the statement
of Corporate Governance on page 52. The 2014 Code does
not apply to the Company’s reporting period ending 31
March 2015. However, the Board has, where appropriate,
early adopted some of the new provisions in the 2014 Code
and provides disclosure against these requirements in this
Directors’ Remuneration Report.
In particular, the Committee notes the new Main Principle in
the 2014 Code: “Executive Directors’ remuneration should be
designed to promote the long-term success of the Company”
and believes that the Director’s Remuneration Policy
inherently reflects this requirement.
As noted in the Directors’ Remuneration Policy, all of the rules
relating to the 2013 PSP and Executive Director annual bonus
contain clawback and malus provisions.
Finally, the Committee considered the 2014 Code provision for
share schemes requiring Directors to hold shares for a period
after vesting or exercise including for a period after leaving
the Company. There is a minimum vesting period of three
years in respect of PSP awards and as set out in the Directors’
Remuneration Policy on page 75, all LTIP awards vesting (net
of income tax and National Insurance contributions) must
be retained until a shareholding requirement is met. The
Committee has considered a post-vesting holding period but
has decided not to implement this.
The Committee reviewed the existing remuneration
arrangements and is satisfied that the Company is otherwise
compliant with the 2014 Code.
The Committee reviews shareholder voting on the
remuneration report each year. We are focused on clear
reporting of past remuneration and future policy and we
welcome feedback from shareholders. I will be available at the
AGM to answer any questions about the Committee and its
work.
Ian Griffiths
Chairman of the Remuneration Committee
26 May 2015
72
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Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 Directors’ Remuneration Report
Directors’ Remuneration Policy
Introduction
This part of the Directors’ Remuneration Report sets out the
Company’s policy for the remuneration of its Directors.
The Directors’ Remuneration Policy was approved by
shareholders at the AGM on 22 July 2014 and took effect
from that date. The Committee has since reviewed the
Directors’ Remuneration Policy and concluded that it
remained appropriate for the foreseeable future. There are
no current proposals to revise the policy and it will not be
put for shareholder approval at the AGM on 21 July 2015. It is
expected that the Company will next propose a resolution to
approve the Directors’ Remuneration Policy at the 2017 AGM,
or earlier should any revisions to the policy be proposed.
The Directors’ Remuneration Policy is extracted in full from
the 2014 Annual Report, without amendment except; (1) this
Introduction; (2) minor amendments such as cross references
and (3) updating the total remuneration opportunity chart on
page 77 and the Non-Executive Directors’ appointment details
on page 79 which are time specific. It is in the form approved by
shareholders at the AGM which took place on 22 July 2014.
Remuneration principles for Executive Directors
Our Directors’ Remuneration Policy has been designed to
deliver two key aims:
To attract, motivate and retain executives who will deliver
high performance for all our stakeholders.
We believe the mix of our remuneration package provides an
appropriate and balanced set of rewards. Executive reward at
Renold is relatively modest compared to our peer group and
this has been validated by independent third parties. In part,
this reflects a number of years of business under-performance
but it is also consistent with the key strategic objective of
lowering our breakeven point by reducing our cost base – this
applies to executive pay as much as it does to any business
expenditure. However, we are careful to ensure appropriate
incentive opportunities remain for sustainable improvements
in business performance.
To ensure a close alignment of executive pay to the
Company’s strategic objectives and performance.
We review our incentive plans each year to ensure they
remain closely aligned with the Company’s strategic
objectives and our shareholders’ interests, while continuing
to motivate and engage the team leading the Company to
achieve stretching targets. One consequence of this approach
during the last year was to launch the 2013 PSP that includes
demanding three year performance targets. To achieve the
maximum vesting, the Compound Annual Growth Rate (CAGR)
in adjusted EPS has to be more than 50% per annum, which
would result in an adjusted EPS figure more than three times
that achieved in the year ended 31 March 2013. The current
and forecast dilution levels from our share plans remain well
below prescribed limits.
In addition, we aim to make the remuneration framework for
Executive Directors relatively simple – the incentive plans are
now therefore limited to an annual bonus and the 2013 PSP.
The Committee believes the requirement to build up and
maintain a direct shareholding in the Company ensures that
Executive Directors share a significant level of risk with the
Company’s shareholders and their interests are aligned.
Having reviewed current best practice, we have introduced
a shareholding requirement for Executive Directors equal to
100% of annual salary to be achieved over a five year period.
Unvested shares/unexercised options are not counted within
the shareholding requirement. Otherwise, the shareholding
requirements can be met through purchase from salary,
bonus or through vested long term incentive shares. As at
31 March 2014 the Executive Directors both hold shares of a
value in excess of this requirement.
We also operate a mitigation policy in the event of early
termination by the Company of an Executive Director’s
employment. During the year the Committee introduced a
formal claw back policy for Executive Directors in respect of
annual bonuses and long-term incentive awards. This claw
back policy is to come into effect so as to apply from 1 April
2014 and has been introduced to provide the Committee
with discretionary powers to claw back performance based
remuneration should exceptional circumstances occur. Such
circumstances would include: fraud; misconduct; significant
misstatement of financial results or incorrect calculation of
performance conditions.
Should the Committee, in its opinion, consider such
circumstances to have occurred during a performance
period from 1 April 2014 onwards then the claw back policy
will provide the Committee discretion to determine that
any amounts paid or payable under the Annual Bonus or
awards under the 2013 PSP (which have not yet vested) by
reference to the relevant period may be clawed back. The
Committee will take into consideration any claw back events
when determining future awards and/or bonus payments for
Executive Directors.
Shareholder views
The Committee constantly welcomes the views of
shareholders in respect of pay policy as well as those views
expressed on behalf of shareholders by their respective
proxy advisers. The Committee documents all remuneration
related comments made at the Company’s AGM and feedback
received during consultation with shareholders throughout
the year. Any feedback received is fully considered by the
Committee and where thought necessary amendments made
to remuneration policy.
Discretion of the Committee
The Committee has discretion in various areas of policy
as set out in this report. The Committee may also exercise
operational and administrative discretions under relevant plan
rules approved by shareholders as set out in those rules. In
addition, the Committee has the discretion to amend policy
with regard to minor or administrative matters where it
would be, in the opinion of the Committee, disproportionate
to seek or await shareholder approval.
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73
www.renold.com Stock code: RNOGovernance Directors’ Remuneration Report
Directors’ Remuneration Policy
continued
Policy table
Based on our view of current market practice, and the principles of our remuneration policy, we have established the
remuneration policy set out in this report. The following table summarises the fixed and variable elements of remuneration for
the Executive Directors.
The policy described here is intended to apply for three years beginning on the date of the 2014 AGM, subject to shareholders’
approval. Each of the elements of remuneration set out below are forward looking other than the 2004 Option Plans which
is a provision of previous remuneration policy and although it will not be used going forward, it will continue to apply until all
outstanding awards vest and is therefore included in the Policy table as required by the Regulations.
Remuneration
element
Purpose and link to
corporate strategy Operation of the element
Maximum potential value and
payment at threshold/review basis Performance metrics
Base salary
To ensure
competitive
salaries to
attract, retain and
motivate those
responsible for
executing strategy
while ensuring the
Company pays
no more than is
necessary.
Base salary is paid in 12 equal monthly
instalments during the year.
Reviewed annually, the policy is to provide
third quartile salary for comparable jobs in
manufacturing companies of a similar size,
influenced by:
Æ Role, experience and performance;
Æ Changes in broader workforce salary;
and
Æ Salaries payable in similar companies.
Benefits
As base salary
above, benefits
are non-
pensionable.
Pension
As base salary
above.
The Company pays the cost of providing the
benefits on a monthly basis or as required
for one-off events.
Benefits consist of a fully expensed
company car (or cash equivalent) and
private medical insurance in addition to a
lump sum death-in-service benefit of five
times base salary. Death-in-service benefit
is also available to all other UK staff at five
times base salary for those who opt to join
the Company pension scheme and at two
times for those opting out.
In the case that an Executive Director is
required to relocate, either on recruitment
or during service as a Director, reasonable
relocation expenses will be provided in line
with market practice.
The Committee may change the benefits
offered in line with local market practice or
the operational needs of the business.
The Executive Directors are not members
of the Company pension scheme and have
their own pension arrangements. The
Company’s only pension liability is to make
annual cash contributions to the personal
pension arrangements of the Executive
Directors.
None.
None.
Reviewed annually and set on
1 August each year.
Annual rate for each Executive
Director is set out in the annual
report on remuneration on page
81.
Salary increases will normally
be in line with increases for the
wider employee population.
Higher increases may be
awarded in circumstances such
as following recruitment into
a role at a below-market rate
or due to a change in role or
responsibilities.
For new recruits, the salary
increases may be higher than
the wider workforce until the
individual is aligned with market
levels.
Reviewed annually and set on
1 August each year in line with
the Company’s car policy to a
maximum of £11,000 per annum
cash allowance or equivalent
lease value.
The maximum opportunity for
other benefits is defined by the
nature of the benefit itself and
the cost of providing it. As the
cost of providing such insurance
benefits varies according to
premium rates and the cost of
other benefits is dependent on
market rates and other factors,
there is no formal maximum
monetary value.
Cash allowances equivalent to
15% of base salary.
None.
74
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Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 Remuneration
element
Purpose and link to
corporate strategy Operation of the element
Maximum potential value and
payment at threshold/review basis Performance metrics
Annual bonus To incentivise
delivery of
the corporate
strategy and
reward delivery
of superior
performance.
2013 PSP
To incentivise
delivery of
long-term
shareholder value.
To strengthen
the alignment
between the
interests of
Executive
Directors
and those of
shareholders.
To align the
interests of
Executive
Directors
with those of
shareholders.
Shareholding
requirement
Provisions
of previous
policy that
continue to
apply – LTIP
awards made
prior to and
in 2013 under
the 2004
Option Plans.
Annual bonuses are paid shortly after the
end of the financial year end to which they
relate.
Bonuses are normally payable in cash but
the Committee has flexibility to introduce a
deferral if it deems it appropriate.
Bonus payments are based on Group
financial targets. Maximum bonus
payments are made only on the
achievement of outstanding performance.
Bonuses are not pensionable.
Performance targets are set at the start
of the financial year and the level of bonus
paid is determined by the Committee after
the year end based on performance against
target.
A claw back facility will apply from 1 April
2014 under which part or all of the cash
bonus may be forfeited or clawed back if
any of the circumstances outlined on page
73 arise.
The 2013 PSP was approved by
shareholders at the AGM on 23 July 2013.
The key features are as follows:
Æ Conditional share awards or options
may be granted under the PSP (the
exercise price of options is set by the
Committee and can be nil).
Æ The Committee will impose demanding
performance conditions on the vesting
of awards.
Æ Outstanding commitments to issue new
shares under all share plans operated by
the Company are subject to a maximum
of 10% of the Company’s issued share
capital in any ten year period.
Æ The PSP includes the ability to grant
options under an HM Revenue &
Customs approved schedule.
Æ A claw back facility is in operation with
effect from 1 April 2014 under which
part or the whole of the PSP award can
be recovered prior to vesting if any of
the circumstances outlined on page 73
arise, including if there is a restatement
of the financial accounts or the individual
is dismissed for cause.
Executive Directors must build up over five
years.
Unvested LTIP or deferred shares are not
taken into account. Share price is measured
at the end of each financial year.
All LTIP or deferred share awards vesting
(net of income tax and National Insurance
contributions) must be retained until the
shareholding requirement is met.
The outstanding awards under the 2004
Option Plans will continue to form part of
the remuneration policy until vesting.
Details in relation to the background, terms
and use of the 2004 Option Plans are set
out on page 79.
For Executive Directors the
maximum annual bonus payable
is 100% of base salary.
No bonuses will be payable
unless a minimum level of
financial performance has been
achieved. 50% is payable at
threshold performance.
A maximum grant is permitted
of 100% of base salary each
year (200% of base salary in
exceptional circumstances such
as recruitment).
Vesting is dependent on
performance conditions. On
achievement of threshold
performance 25% of the award
vests for 30% CAGR in adjusted
EPS.
The bonus may be based on a
range of financial, non-financial
and personal targets as set by
the Committee from year to year.
Financial targets will comprise at
least half of the bonus.
Details of the measures and
weightings will be set out in the
Annual Report on Remuneration
following the end of each financial
year.
Notwithstanding the achievement
of performance targets, any
bonus payable will be determined
by the Committee in accordance
with the relevant plan rules,
including the Committee’s right to
exercise its discretion fairly and
reasonably in any circumstances
which the Committee considers it
appropriate to do so.
The Committee has the discretion
to vary the weighting of
performance metrics over the life
of this remuneration policy.
Performance condition based on
CAGR in adjusted EPS which must
be met over a three year period.
In exceptional circumstances,
the Committee has discretion
to change the performance
measures, targets and weightings
between measures during the
performance period if there is a
significant event which causes
the Committee to believe that the
original conditions are no longer
appropriate. Any amendments
would be such that the new
conditions are not materially less
difficult to satisfy than the original
conditions.
The Committee also has discretion
to reduce the percentage that
vests in cases where it believes
the outcome of the performance
conditions is not a fair reflection
of the Company’s performance.
Executive Directors – 100% of
salary.
None.
A maximum of 200% of salary.
Market value options exercisable
on the third anniversary of the
grant.
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 grant.
23998-04 Proof Two - final 15 June 2015 3:03 PM
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Directors’ Remuneration Policy
continued
Notes to the Policy table
Performance measure and targets for the annual bonus plan and the 2013 PSP
The performance targets are determined annually by the Committee.
Adjusted EBITDA is defined as earnings before interest, tax, depreciation, amortisation, closed defined benefit pension scheme
charges and excludes exceptional items. Average net debt is the net sum of external borrowings, finance leases and cash and
cash equivalents, measured at each month end to produce a simple annual average which excludes preference stock from
targets and results. Adjusted EPS excludes exceptional items, pension administration costs, IAS 19 financing charges and the tax
thereon from earnings.
The Committee selected the performance conditions because these are central to the Company’s overall strategy. The annual
bonus plan metrics of adjusted EBITDA and average net debt provide a balanced mix of targets to deliver improving business
performance and enhanced cash generation. Importantly, both are consistent with the longer term goals of generating
additional shareholder value and facilitating additional investment in the business itself and hence align with the long term
incentive plan. Average net debt has been chosen as the appropriate measure of cash performance as it encourages continuous
focus on cash and working capital management throughout the year rather than focusing on a single point in time. The two
targets are structured as a matrix to ensure that management must have regard to both metrics to maximise reward. Equally, if
either metric falls below a specified minimum level of performance then no reward can be earned, irrespective of performance on
the other metric.
The Committee considers CAGR in adjusted EPS to be the most appropriate performance condition to align the longer term
goals of executive management with the interests of shareholders. The performance period is three years at which point
testing occurs and awards either vest or lapse. There is no opportunity for testing to be deferred or for re-testing at a later
date. Minimum and maximum targets, at which 25% and 100% of awards vest, are set at the time each award is made and are
adjusted to ensure that they remain suitably demanding but also motivating.
The Committee is of the opinion that the performance targets for the annual bonus are commercially sensitive in respect of the
Group and that it would be detrimental to the interests of the Group to disclose them.
Changes to remuneration policy from that operating in 2013/14
Element
Base salary
Benefits
Pension
Annual bonus
Long term incentive (2013 PSP)
Shareholding requirement
Long term incentive (2004 Option Plans)
Operation of component
Maximum potential value
No change
No change
No change
Previously no claw back
provision
Previously no claw back
provision
No change
No change
No change
No change
No change
No change
No change
100% of salary
No change
Performance metrics used,
weighting and time period
applicable
No change
No change
No change
Previously included
individual director
performance targets
No change
None
No change
Differences in remuneration policy for all employees
All employees of the Group are entitled to base salary and benefits. The Group operates a number of pension plans for
employees which it operates in line with local market practice. Some employees in senior roles are entitled to participate in an
annual bonus scheme. The maximum opportunity available is based on the seniority and responsibility of the role.
Conditional share awards are only available to senior executives and Directors. Since 2008, share option grants and conditional
share awards have been made only to employees at senior executive level.
Statement of consideration of employment conditions elsewhere in the Group
The Committee invites the HR Director to present at a meeting on the proposals for salary increases for the employee population
generally and on any other changes to remuneration policy within the Group. The Committee limits any salary increases for
Executive Directors to the inflationary increase available to employees unless there has been a change in role or they are
progressing through a development phase.
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Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 The HR Director consults with the Committee on the performance metrics for Executive Directors’ bonuses and to the extent to
which these should be cascaded to other employees. The Committee approves the overall annual bonus cost to the Group each
year. The Committee has oversight over the grant of all LTIP awards across the Group.
The Group does not specifically invite employees to comment on the Directors’ Remuneration Policy but any comments made
by employees are taken into account.
The Committee is provided with data on the remuneration structure for senior management in the three tiers below Executive
Director and uses this information to work with the human resources team to ensure consistency of approach throughout the
Group.
Total remuneration opportunity
The chart below demonstrates the total amount of remuneration payable to the Chief Executive, Robert Purcell and Finance
Director, Brian Tenner, under the proposed remuneration policy for the year ending 31 March 2015 should they achieve
minimum, on-target or maximum performance. The amounts shown represent £’000s and for share related elements are the
face value of awards.
The chart shows that at minimum levels of performance the Executive Directors only form of remuneration is the fixed element
of base pay, benefits in kind and pension contributions. For performance above minimum the variable element of pay for the
Chief Executive increases to approximately 63% of total reward or 168% of the fixed elements of pay noted. The ratios are
similar for the Finance Director.
The Executive Directors’ base salaries are assessed independently of the ability to earn variable awards under the annual and
long term incentive plans and hence future bonus opportunities are not a consideration when setting base pay.
Total remuneration
£’000
1,000
800
600
£360
400
£960
31%
31%
£585
13%
26%
100%
61%
38%
200
0
PSP
Annual bonus
Salary, benefits
and pension
£594
31%
31%
38%
£363
13%
26%
63%
£224
100%
Minimum
On-target
Maximum
Minimum
On-target
Maximum
Robert Purcell
Brian Tenner
Note: On-target assumes 50% of maximum bonus is earned and threshold vesting under the 2013 PSP. Share price growth is excluded.
Service contracts, remuneration and exit payments
As a matter of policy, the length of service contracts and notice periods is determined by the Committee at the time of
appointment in light of the then prevailing market practice. Details of the Executive Directors’ terms of appointment and notice
periods are as follows:
Robert Purcell
Brian Tenner
Date of contract
Expiry date of current term/notice period
21 January 2013
1 September 2010
No specified term/terminable on 12 months’ notice
No specified term/terminable on 12 months’ notice
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Directors’ Remuneration Policy
continued
Other than normal payments due during notice periods, there are no express provisions for compensation on 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 Committee has noted the Association of British Insurers’ and National Association of Pension Funds’ joint statement on
Executive Contracts and Severance. Neither of the Executive Directors’ contracts provide for compensation in the event of
a change of control of the Company. Copies of the two service contracts are available for inspection by shareholders at the
Company’s registered office.
Change of control
In the event of a change of control, any outstanding awards under the long term incentive plan may vest. Awards will become
exercisable immediately. The proportion of award vesting will be determined by the Committee based on the proportion of
the performance period completed and the extent to which the performance condition has been met at the date the change of
control occurs.
The Committee has discretion to waive any performance condition if it considers this appropriate in the particular
circumstances.
Leavers
The Committee’s policy for exit payments on a leaver event involving an Executive Director is:
Item
Policy
Details
Salary, pension
and benefits
A maximum of 12 months’ salary, pension and
benefits may be payable.
Payments may be subject to mitigation if the leaver finds
alternative employment.
Annual bonus
No annual bonus normally payable, unless the
Committee uses its discretion to treat as a good
leaver.
Good leavers are entitled to receive a bonus based on
performance to date of termination, pro-rated for the
period of service to termination.
PSP
The Committee will use its discretion to determine
whether the individual should be treated as a good
leaver or a bad leaver.
In the event of death or retirement, an individual will
be treated as a good leaver.
Bad leavers will forfeit outstanding PSP awards.
Good leavers’ awards shall vest pro-rata based on the proportion
of the vesting period completed and based on the extent to which
the performance condition has been met at the date of leaving.
Awards may be exercised within a six month period following date
of leaving. In the case of death, the award may be exercised within
a 12 month period following death.
In determining whether an individual should be treated as a good leaver or a bad leaver, and in assessing the extent to which
any award will vest, the Committee will consider the specific circumstances of the departure, the individual’s performance prior
to departure and the performance of the Company.
Approach to recruitment remuneration
In the event of the appointment of a new Director the same principles would apply as they do today to the existing Directors.
The remuneration package of any new Executive Director would therefore include the elements and maximum award size set
out on pages 74 and 75 in accordance with the Company’s remuneration policy and subject to the same discretions.
The Committee’s approach to recruitment remuneration is to set the salary level in accordance with the remuneration policy
and having taken into account the individual’s experience, the nature of the role and their existing remuneration package.
Where it is necessary to ‘buy out’ an individual’s awards from a previous employer, the Committee will seek to match the
expected value of the awards that vest over a timeframe similar to those given up, with a commensurate reduction in quantum
where the new awards will be subject to performance conditions that are not as stretching as those on the awards given up.
This would be an additional element of remuneration to the normal maxima as set out in the Policy table on pages 74 and 75.
Details of the Company’s approach to the remuneration of Non-Executive Directors are set out on page 79.
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Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 External non-executive directorships
The Board encourages Executive Directors to broaden their
experience outside the Company by taking up a non-executive
directorship.
Long Term Incentive Plans – 2004 Option Plans (audited
information)
The 2004 Option Plans were not used during the year ended
31 March 2014 as indicated in the resolution approving the
2013 PSP at the Annual General Meeting on 23 July 2013.
The final use of these plans was an award of options to
Robert Purcell in January 2013 on joining the Company. The
information presented below is therefore purely in respect
of awards made in previous years. The plans consist of 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’). Their key features are:
Æ Market value options exercisable three years after grant;
Æ The maximum annual grant limit is 200% of base salary;
and
Æ Outstanding commitments to issue new shares under all
share plans operated by the Company are subject to a
maximum of 10% of the Company’s issued share capital in
any ten year period.
For options granted since the year ended 31 March 2010, the
performance condition is based on a varying percentage of
the share options becoming exercisable depending on the
Company’s share price on the date three years following the
date of the grant. The following tables show the different
conditions for existing awards not yet subject to performance
testing.
Granted 8 June 20111 – performance test 8 June 2014
Share price (p)
45
55
60
65
% of shares under
option that become
exercisable2
25
50
75
100
Granted 21 January 20133 – performance test 21 January 2016
Share price (p)
30
35
40
% of shares under
option that become
exercisable2
0
50
100
1 The closing share price on the date of grant (8 June 2011) was 37.13 pence.
2 With the corresponding number of shares being rounded down to the nearest
whole number.
3 The closing share price on the date of grant (21 January 2013) was 25.5 pence.
Long Term incentive Plans – 2013 PSP (audited information)
The key features of the 2013 PSP are set out in the table on page 75. The performance conditions attaching to options granted
under the 2013 PSP in the year ended 31 March 2014, measured as the equivalent CAGR in adjusted EPS over a three year
period, are as follows:
Entry
Threshold
Maximum
Performance period
Performance
% vesting
Performance
% vesting
Performance
% vesting
<30%
0%
30%
25%
50%
100%
3 years from
1 April 2013
Non-Executive Directors
Appointment details and fees of the Non-Executive Directors are set out below:
Name
Mark Harper
John Allkins
Ian Griffiths
Date of appointment
Unexpired term (months)
Date of election/last re-election
Contractual fees
1 May 20121
17 April 20082
13 January 20104
1
23
9
22 July 2014
22 July 2014
22 July 2014
£110,000
£43,0003
£38,000
1 Mark Harper’s appointment was renewed with effect from 1 May 2015 and for a period of three years in line with best practice guidelines.
2 John Allkins’ appointment was renewed with effect from 17 April 2014 and for a period of three years in line with best practice guidelines.
3 John Allkins’ fee includes an additional £2,500 payable with effect from 21 January 2013 as a result of his appointment as the Senior Independent Non-Executive
Director.
4 Ian Griffiths’ appointment was renewed on 14 January 2013 for a period of three years in line with best practice guidelines.
23998-04 Proof Two - final 15 June 2015 3:03 PM
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Directors’ Remuneration Policy
continued
The Company’s policy for Non-Executive Directors’
remuneration is managed by the Board. Their remuneration is
confined to fees alone, with no performance-related element.
Reasonable expenses are also reimbursed as incurred.
Fees for the Non-Executive Directors are determined by
the Chairman and the Executive Directors. The level of fees
is reviewed from time to time with regard to fees paid in
comparable organisations and the time commitment required.
The Chairman’s remuneration is determined by the Committee
and the Board and is subject to the same basis of review as
the other Non-Executive Directors.
The letters of appointment for each of the Non-Executive
Directors confirm that their appointment 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.
Their respective appointments continue on an annual basis,
subject to re-election at each AGM. 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 Company’s
registered office.
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Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 Directors’ Remuneration Report
Annual Report on Remuneration
“The Group delivered a second consecutive significant increase in
adjusted operating profit and earnings per share, two of the key
performance metrics used to assess the performance of the business
and Executive Directors. The further development of a series of
detailed five year action plans in each operating unit to deliver our
longer term strategic objectives was also a key milestone. In parallel,
implementing the new five year financing agreement and further
progress in de-risking our pensions liabilities supports and aligns
the business to longer term value generation. The Committee had
regard to all of these factors when aspects of the Executive Directors'
remuneration was assessed.”
Ian Griffiths
Chairman of the Remuneration Committee
Introduction
This section of the Directors’ Remuneration Report sets out the remuneration paid to Directors for the financial year ending
31 March 2015. This part, together with the description of the composition of the Committee, which is set out on page 71 of
the report, constitutes the Annual report on remuneration. The Annual report on remuneration will be subject to an advisory
shareholder vote at the AGM on 21 July 2015.
Directors’ remuneration
Total remuneration – single total figure table (audited information)
The total remuneration for the period and for the year ending 31 March 2014, in order to permit comparison, for each Director is
set out in the table below:
Executive Directors
Robert Purcell
Brian Tenner
Non-Executive Directors’ fees
Mark Harper
John Allkins
Ian Griffiths
Salary
(£’000)
Benefits
(£’000)
Bonus
(£’000)1
LTIP
(£’000)2
Pensions
(£’000)
Total
(£’000)
2015
2014
2015
2014
300
300
185
185
15
14
11
11
201
300
124
185
–
–
1373
36
2015
£’000
110
43
38
45
45
28
28
2014
£’000
110
43
38
561
659
485
445
Change
£’000
–
–
–
1 Further details in relation to the annual bonus paid to Executive Directors are on page 82 within the Directors' Remuneration Report.
2
3
Further details of awards to the Executive Directors under the 2004 Option Plans and 2013 PSP are on pages 82 to 84. The LTIP uses the closing share price on
the day of vesting less the option exercise price to calculate the value of the award.
Of the 495,978 options awarded to Brian Tenner on 8 June 2011 with an exercise price of 37.30p, 495,978 (equivalent to 100% of the maximum award) vested on
8 June 2014 as the mid-market price of the Company’s shares on the five preceding trading days was 65.2p. The closing mid share price on 6 June 2014, which
was the last trading day prior to vesting on 8 June 2014, was 65.0p.
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Annual Report on Remuneration
continued
(1) Fixed elements of pay
(i) Base salary
Consistent with the key strategic goal of lowering the Group’s breakeven point and the pay restraint that continued across the
Group, there were no pay rises for Executive Directors during the period. Robert Purcell’s annual salary therefore remained at
£300,000 and Brian Tenner’s annual salary at £185,000. These figures are outlined in the Total remuneration table on page 81.
The proportion of the Group’s basic salary bill attributable to the Executive Directors’ base salaries for the year ended 31 March
2015 was 0.91% (2014: 0.87%).
(ii) Pension
The Executive Directors’ only pension entitlements are Company contributions equivalent to 15% of base salary. The Committee
agreed that Brian Tenner’s pension would be payable as a cash equivalent with effect from 1 April 2014 as the value of his
retirement benefits were expected to exceed the lifetime allowance. During the year ended 31 March 2015, cash payments of
£45,000 (2014: £45,000) and £27,750 (2014: pension contribution of £27,750) were made by the Company to Robert Purcell and
Brian Tenner respectively. These figures are shown in the Total remuneration table on page 81.
(iii) Benefits
The Executive Directors received the following benefits during the period. Robert Purcell received a non-cash benefit of £15,000
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. These figures are outlined in the Total remuneration table on page 81.
Non-Executive Directors do not receive any benefits.
(2) Variable elements of pay – awards vested in year
(i) Annual bonus (payable in cash)
The annual bonus, which is payable in cash, provides the Executive Directors with the opportunity to receive an annual
bonus based on achievement of certain performance targets. For the year ended 31 March 2015 the annual bonus scheme for
Executive Directors was structured as follows:
Robert Purcell
Brian Tenner
Maximum
Adjusted EBITDA
Average Net Debt
Paid in cash
(% salary)
Weight
Achieved
Weight
Achieved
(£’000)
100%
100%
70%
70%
60%
60%
30%
30%
66%
66%
201
124
Total paid as
% maximum
%
67
67
The two metrics shown were structured as a matrix such that failure to deliver a minimum result in either metric would have
led to no bonus being achievable in the other. Similarly, in order to achieve the maximum award, superior performance would
be required against both metrics. There was no allowance for personal objectives during the year (this was the same for the
year ended 31 March 2014).
The following table sets out an indication of the actual performance against the targets for the year ended 31 March 2015. The
performance targets for the annual bonus are based on internal targets and considered commercially sensitive. Consequently
these will not be disclosed.
Adjusted EBITDA
Average Net Debt
Below
threshold
Between threshold
and maximum
At maximum
Below
threshold
Between threshold
and maximum
At maximum
Robert Purcell
Brian Tenner
(ii) 2004 Options performance testing during the year
Awards made under the 2004 Option Plans in 2011 had a three year performance period ending on 8 June 2014 with share
price targets as shown in the table below:
Of the 495,978 options awarded to Brian Tenner on 8 June 2011 with an exercise price of 37.30p, 495,978 (equivalent to 100%
of the maximum award) vested on 8 June 2014 as the mid-market price of the Company’s shares on the five preceding trading
days was 65.2p.
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Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 Granted 8 June 2011 – tested on 8 June 2014
Share price (p)
45
55
60
65
% of shares under option that become exercisable1
25
50
75
100
1 With the corresponding number of shares being rounded down to the nearest whole number.
(iii) 2013 PSP awards performance testing during the year
The year ended 31 March 2015 was the second year in which awards were made under the 2013 PSP and none were due for testing
in the same year.
(3) Variable elements of pay – awards made in year
Awards made to Executive Directors during the year under the 2013 PSP and associated performance conditions are set out
below.
(i) 2013 PSP (granted in year)
Awards equal to 100% of salary were made.
Robert Purcell
Brian Tenner
Type of award
Nil price Option
Nil price Option
Face value
Number of shares2
£300,000
£185,000
460,358
283,887
Date of award
5 June 2014
5 June 2014
2 The number of shares is based on the average mid-market share price for the three business days preceding the date of grant (65.17 pence).
The performance conditions attaching to options granted under the 2013 PSP in the year ended 31 March 2015, measured as
the equivalent compound annual growth rate in adjusted EPS over a three year period from a base EPS for the year ended
31 March 2014, are as follows. On achievement of threshold performance 25% of the award vests. Straight line vesting occurs
between threshold and maximum performance.
Threshold
Performance
20%
% vesting
25%
Maximum
Performance
30%
% vesting
Performance period
100%
3 years from 1 April 2014
(4) Payments to past Directors
No payments were made to past Directors during the year in respect of services provided to the Company as a Director.
(5) Payments made for loss of office
No payments were made to a Director during the year in respect of loss of office.
Directors’ shareholding and share interests (audited information)
(1) Vesting history of the 2004 Options Plan and PSP
The following table shows the vesting history of the 2004 Options Plans over the last five years as a percentage of the total
award to Executive Directors. The first awards under the 2013 PSP were made in the year ended 31 March 2014 and will be due
for testing in July 2016.
Vesting %
Nil
Nil
Nil
47.9%
100%
Award 2007/08
Vesting 2010/11
Award 2008/09
Vesting 2011/12
Award 2009/10
Vesting 2012/13
Award 2010/11
Vesting 2013/14
Award 2011/12
Vesting 2014/15
The vested awards relate to options awarded to Brian Tenner in 2010/11 and 2011/12: further details are set out on page 82 and
above.
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Annual Report on Remuneration
continued
(2) Directors’ interests
The beneficial interest of each of the Directors and their connected persons in the ordinary shares of the Company is detailed
below and these amounts were unchanged between the year ended 31 March 2015 and the date of this report.
Executive Directors
Executive Directors are required to build up a shareholding equal to 100% of salary over a five year period. Unvested shares and
unexercised options are not counted within the shareholding requirement. The table below sets out the extent to which this
requirement was met as at 31 March 2015.
Robert Purcell
Brian Tenner
Non-Executive Directors
The shareholdings of the Non-Executive Directors are:
Mark Harper
John Allkins
Ian Griffiths
31 March 2014
3,748,526
408,396
Shareholding
requirement (% of
salary)
Shareholding at 31
March 2015
(% of salary)
100%
100%
675%
119%
31 March 2015
3,748,526
408,396
31 March 2015
469,189
75,000
10,000
The shareholdings of the Executive Directors and Non-Executive Directors are unchanged between 31 March 2015 and the date of
this report.
(3) Directors’ share options
Awards over shares in which the Executive Directors retain an interest are detailed in the table below and were unchanged
between the year ended 31 March 2015 and the date of this report.
Robert Purcell
2004 Options Plan
Total 2004 Options Plan
2013 PSP
Total 2013 PSP
Total
Brian Tenner
2004 Options Plan
Total 2004 Options Plan
2013 PSP
Total 2013 PSP
Total
Options
held at
1 April
2014
1,145,038
1,145,038
1,065,089
–
1,065,089
2,210,127
Options
held at
1 April
2014
(restated)1
311,444
495,978
807,422
656,805
–
656,805
1,464,227
Number of share options
Granted
in year
Lapsed
in year
Options
held at
31 March
2015
Options
vested at
31 March
2015
–
–
–
460,358
460,358
460,358
–
–
–
–
–
–
1,145,038
1,145,038
1,065,089
460,358
1,525,447
2,670,485
–
–
–
–
–
–
Number of share options
Granted
in year
Lapsed
in year
–
–
–
–
283,887
283,887
283,887
–
–
–
–
–
–
Options
held at
31 March
2015
311,444
495,978
807,422
656,805
283,887
940,692
1,748,114
Options
vested at
31 March
2015
311,444
495,978
807,422
–
–
–
807,422
Option
price (p)
Date from
which
exercisable
Expiry
date
26.20 21.01.2016 20.01.2023
Nil
25.07.2016 25.07.2023
Nil 05.06.2017 31.03.2024
Option
price (p)
Date from
which
exercisable
Expiry
date
27.25
27.09.2013 26.09.2020
37.30 08.06.2014 07.06.2021
Nil
25.07.2016 25.07.2023
Nil 05.06.2017 31.03.2024
1 The prior year figures have been amended to restate the number of share options lapsed.
The performance conditions to which the share options are subject are disclosed on pages 79, 82 and 83 and are included in
this audited information section by reference. None of the terms and conditions of the share options was varied in the year.
84
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Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 Performance graph and table
The graph below shows the Company’s total shareholder return (share price growth plus dividends reinvested where
applicable) for each of the last six 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 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.
The market capitalisation of the Company at 31 March 2015 was £120.45m and the lowest and highest share prices during the
year were 49.25p and 67.75p respectively, with a share price on 31 March 2015 of 54p.
600
500
400
300
200
100
0
Renold plc
FTSE All-Share Industrial Engineering Index
31 March 2009
31 March 2015
Source: Thomson Financial – Thomson One Banker
Chief Executive’s remuneration for the period
2009/10 to 2014/15
The following table shows the history of the Chief Executive’s total remuneration and proportions of annual bonus and options
vesting each year as a percentage of the maximum over the last six years.
Chief Executive’s total remuneration1 £’000
Annual bonus as % of maximum awarded
LTI as % of maximum vesting
2009/10
2010/11
2011/12
2012/13
2013/14
2014/15
337
0
100
667
81
0
494
44
0
311
16
0
659
100
N/A
561
67
N/A
1 The values use the same methodology as that shown in calculating the single figure basis of remuneration in the table on page 81.
Chief Executive pay and employee pay
The table below shows the percentage change from the preceding financial year in respect of the total of the Chief Executive’s
remuneration (on a single total remuneration basis as shown in the table above on page 81).
Chief Executive
Workforce 2
Percentage change in salary
Percentage change in benefits
Percentage change in annual bonus
0%
<2%3
6%
0%
(33%)
(33%)
2 The Group uses the UK workforce as an appropriate comparator group as the Executives are based in the UK and the structure of remuneration varies
considerably based on local market practice in other countries in which the Group operates.
3 The figures include only those employees who were not promoted and did not change role during the year to provide a like-for-like comparison.
23998-04 Proof Two - final 15 June 2015 3:03 PM
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www.renold.com Stock code: RNOGovernance Directors’ Remuneration Report
Annual Report on Remuneration
continued
Relative importance of spend on pay
The table below sets out the total of the Executive Directors’ remuneration (on a single total remuneration basis as shown in
the table on page 81) compared to a number of other key financial metrics. The metrics chosen are considered of interest and
relevance to both the Group’s actual performance in the period and also to be of relevance to different stakeholder groups.
2015
2014
Difference (%)
Employee
remuneration
Shareholder
distributions
Market
capitalisation
£61.7m
£64.0m
4%
Nil
Nil
Nil
£120.5m
£124.4m
3%
Revenue1
£181.4m
£184.0m
1%
Adjusted
operating profit2
£15.5m
£11.1m
40%
EBITDA3
£20.8m
£16.5m
26%
Executive
Directors’ total
remuneration
£0.6m
£1.1m
1 and 2 Note 2 to the Company financial statements sets out the calculation of revenue (total operating costs) and adjusted operating profit.
3 EBITDA is adjusted operating profit before depreciation and amortisation charges.
Statement of implementation of remuneration policy in next financial year
The Committee intends to operate the remuneration policy as set out in the Policy table and notes on pages 73 to 80 and as
approved by shareholders at the 2014 AGM for the next financial year.
Base salary
Consistent with the timing of annual employee pay reviews across the Group, which are implemented with effect from 1 August,
the Committee reviews base salaries for the Executive Directors annually at its July meeting. The Committee’s review of base
salaries for the Executive Directors in July 2014 concluded that there would be no increase with effect from 1 August 2014.
The next review will take place in July 2015 and any change implemented from 1 August 2015. The current base salaries for the
Executive Directors are set out on page 82 and below:
Robert Purcell £’000
Brian Tenner £’000
2014/15
300
185
Annual bonus
The performance measures and weightings for the 2015/16 annual bonus are unchanged from 2014/15. The performance
measures and weightings are as follows:
Adjusted EBITDA
Average net debt
Weighting
70%
30%
Adjusted EBITDA is defined as earnings before interest, tax, depreciation, amortisation, closed defined benefit pension scheme
charges and exceptional items. Average net debt is the net sum of external borrowings, finance leases and cash and cash
equivalents, measured at each month end to produce a simple annual average.
The performance targets for the annual bonus are based on internal targets and considered commercially sensitive.
Consequently these will not be disclosed.
Long Term Incentive Plan – 2013 PSP
The performance conditions attaching to options that will be granted under the 2013 PSP in the year commencing 1 April
2015, measured as the equivalent CAGR in adjusted EPS over a three year period, are as follows. On achievement of threshold
performance 25% of the award vests. Straight line vesting occurs between threshold and maximum performance. Performance
will be measured from an adjusted EPS figure of 5.0p for the year to 31 March 2015.
Threshold
Performance
20%
% vesting
25%
Maximum
Performance
30%
% vesting
Performance period
100%
3 years from 1 April 2015
86
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Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 Adviser to the Committee
During the year, the Committee received independent
advice from PwC in relation to remuneration reporting,
share sourcing in connection with the exercise of options
under the Company’s share plans, an update on market
trends in executive remuneration and themes from the
2014 AGM season. Total fees for services provided over the
year amounted to £13,310 plus VAT. PwC was appointed
by the Committee in 2014 following an assessment and
interview process and has advised on various issues including
remuneration policy and the Regulations and updating the
Committee on trends in compensation matters. Fees charged
have been on a time-spent basis. PwC is a member of the
Remuneration Consultants Group and adheres to that group’s
Code of Conduct. PwC has provided internal audit and pensions
related services to the Company. The Committee has chosen to
retain PwC as its adviser.
The Committee is satisfied that the advice given on executive
remuneration is objective and independent and that no conflict
of interest arises as a result of these other services.
In addition to external advice received from PwC, the
Committee consulted and received reports from the
Group Finance Director and the Group HR Director. At all
times, the Committee recognises the need to identify and
manage conflicts of interest when receiving reports from, or
consulting with, the Executive Directors or members of senior
management.
Statement of shareholder voting
The Directors’ Remuneration Report and Remuneration Policy
received significant shareholder support at the AGM held on
22 July 2014. Votes cast in respect of each of these at the
2014 AGM are detailed in the table below.
Remuneration Report
Votes cast in favour
Votes cast against
Total
Votes withheld
Remuneration Policy
Votes cast in favour
Votes cast against
Total
Votes withheld
%
98.74
1.26
2014 AGM
149,734,682
1,916,225
151,650,907
58,786
2014 AGM
%
98.68
1.32
149,644,229
1,999,735
151,643,964
65,729
Approved by the Board and signed on its behalf by:
Ian Griffiths
Chairman of the Remuneration Committee
26 May 2015
23998-04 Proof Two - final 15 June 2015 3:03 PM
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www.renold.com Stock code: RNOGovernance Directors’ Report
The Directors submit their report and the financial statements
as set out on pages 94 to 148.
As a result, Mark Harper, John Allkins and Ian Griffiths will be
standing for re-election at the 2015 AGM.
The Directors’ report, which comprises pages 88 to 90,
sets out certain information in relation to the Company in
accordance with the requirements of the Companies Act 2006
and the FCA’s Listing and Disclosure and Transparency Rules.
The Strategic Report provides an overview of the
performance of the business in the year ended 31 March 2015
and covers likely future developments in the business of the
Company and the Group.
In accordance with section 414C (11) of the Companies Act
2006, information about the employment of disabled persons,
employee involvement and greenhouse gas emissions, which
is required to be included in the Directors’ report, has been
included in the Strategic Report. The Corporate Governance
report also forms part of the Directors’ Report. Where
statutory disclosures have been made elsewhere in the
Annual Report and Accounts, they are cross referenced in the
table on page 90 and therefore incorporated by reference.
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.
Results
Profit before tax for the year ended 31 March 2015 is
£7.7m compared with a loss of £5.9m for the year ended
31 March 2014.
Dividends
Details about dividend policy are set out on page 106 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 2015,
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 2014
and 1 January 2015.
Directors' appointment and replacement
The appointment and replacement of Directors of the
Company is governed by its articles of association and
legislation. 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. In addition, all Non-Executive
Directors are subject to annual election: please refer to the
Corporate Governance report on page 58 for further details.
Under the terms of reference of the Nomination Committee,
appointments to the Board are recommended by the Nomination
Committee for approval by the Board. For a full description of
the Company’s policy on appointments to the Board, see the
Nomination Committee report at pages 68 and 69.
Shareholders may also appoint a Director by ordinary
resolution.
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 70 to
87. 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.
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.
Shares
Share capital
As at 31 March 2015, the issued share capital of the Company
was £27,146,657.75 divided into 223,064,703 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 41.08% of the Company’s total
share capital, the preference stock represents 2.14% and the
deferred shares represent 56.78%. 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.
The Company obtained shareholder authority at the 2014
Annual General Meeting to make market purchases of up to
22,306,470 ordinary shares in the Company, which remains
88
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Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 outstanding until the conclusion of the 2015 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 FCA’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 22,306,470
of its own ordinary shares (which represents approximately
10% of the Company’s ordinary share capital as at the date
of this report) either to be cancelled or retained as treasury
shares.
Details of the Company’s share capital are also set out in Note
19 to the Group financial statements on page 131.
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.
Voting rights
The Directors confirm that no person has any special rights of
control over the Company’s share capital and that no shares
have been issued that carry any special rights with regard to
control of the Company.
Participants in employee share schemes have no voting or
other rights in respect of the shares subject to those awards
until the options are exercised, at which time the shares rank
pari passu in all respects with shares already in issue. No such
schemes carry any special rights with regard to control of
the Company.
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.
Major shareholdings
As at 31 March 2015, the Company had been notified of the
following major holdings of voting rights attached to its
ordinary shares under the FCA’s Disclosure and Transparency
Rule 5:
Shareholder
Schroder Investment Management
Prudential plc group of companies,
of which 11% is managed by M&G
Investment Funds 31
Henderson Global Investors Limited
JP Morgan Asset Management
Rights and Issues Investment Trust
plc
AXA Framlington
Number of
voting rights
% of total number
of voting rights
34,094,214
15.28
33,343,324
25,959,814
24,353,229
8,480,000
8,373,982
14.95
11.64
10.92
3.80
3.75
1 M&G Investment Funds 3 is an Open Ended Investment Company (OEIC) and
is not a Prudential group company and must be separately disclosed. The
Prudential plc group holding includes the holding of M&G Investment funds
3 as M&G Investment Management Ltd is a wholly owned subsidiary of
Prudential plc.
Subsequent to 31 March 2015, the Company was notified of
the following: by Schroder Investment Management,
a reduction in its shareholding to 14.93% ordinary shares;
and by JP Morgan Asset Management, an increase in its
shareholding to 11.01% ordinary shares.
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.
Directors’ rights in respect of shares
The Board, which is responsible for the management of the
Company’s business, may exercise all the powers of the
Company subject to the provisions of relevant legislation
and the Company’s articles of association. The powers of the
Directors set out in the articles of association include those in
relation to the issue and buyback of shares.
Issue of shares
The Directors are authorised to issue equity securities 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 £557,661.76, 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 2014 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 £557,661.76.
23998-04 Proof Two - final 15 June 2015 3:03 PM
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www.renold.com Stock code: RNOGovernance Directors’ Report
continued
In addition, the Directors have authority to allot shares up to
a maximum nominal amount of £7,428,054.61, representing
approximately two thirds of the issued ordinary share capital
as at the date of the Notice of the Company’s 2014 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 £7,428,054.61,
representing approximately 66.6% of the issued ordinary
share capital as at the date of the Notice of the Annual
General Meeting.
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 FCA’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.
Donations
During the year, the Group made no political donations.
Contracts: Change of control provisions
The Company’s main UK banking facilities agreement with
Lloyds Bank plc and Svenska Handelsbanken AB 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 shareholder has a right
to terminate the agreement and/or to require the shareholder
suffering the change of control to sell, at a fair price, all of its
equity shares to the terminating shareholder or a nominee of
such shareholder.
No other material contracts contain change of control
provisions.
There are no agreements between the Company and its
Directors or employees providing for compensation for
loss of office or employment (whether through resignation,
purported redundancy or otherwise) that occurs because of a
takeover bid.
Note 18 to the Group financial statements on pages 126 to 130
details the Group’s obligations to contribute to the UK defined
benefit pension schemes.
Details of the effect of any change of control in relation to
awards under the long term incentive plan are set out on page
78 within the Directors’ remuneration report.
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 100 which is incorporated by reference here.
Other disclosures
Directors’ biographical details and date of appointment
Employee involvement
Employment of disabled persons
Financial instruments Note 25 to the Group financial
statements
Greenhouse gas emissions
Important events affecting the Group since 31 March 2015
Note 27 to the Group financial statements
Statement on disclosure to auditor
Statement of Directors’ responsibilities
54 & 55
43 & 44
44
133 to
137
44 & 45
138
91
91 & 92
The Directors’ report was approved by the Board on
26 May 2015.
For and on behalf of the Board:
Louise Brace
Company Secretary
26 May 2015
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Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 Statement of Directors’ Responsibilities
In Relation to the Group Financial Statements and
Annual Report
Consolidated financial statements prepared under IFRS
The directors are responsible for preparing the Annual Report
and the Consolidated Financial Statements in accordance with
applicable United Kingdom law and regulations and IFRS as
adopted by the European Union.
Parent company financial statements prepared
under UK GAAP
The directors are responsible for preparing the parent
company Financial Statements in accordance with applicable
United Kingdom law and regulations.
Company law requires the directors to prepare Consolidated
financial statements for each financial year. Under that law,
the directors must not approve the Consolidated financial
statements for the Group 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.
Under IFRS, the directors are required to prepare financial
statements that present fairly the financial position of the
Group and the financial performance and cash flows of the
Group for that period.
In preparing the Consolidated financial statements, the
directors are required to:
Æ select suitable accounting policies in accordance with IAS 8
and apply them consistently;
Æ present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
Æ make judgements and estimates that are reasonable;
Æ 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;
Æ state that the Group has complied with IFRSs as adopted
by the European Union, subject to any material departures
disclosed and explained in the financial statements; and
Æ prepare the financial statements on a going concern basis
unless it is inappropriate to presume that the Group will
continue in business.
The directors are responsible for keeping adequate accounting
records, which 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
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 Strategic
Report, the Directors’ Report, the Directors’ Remuneration
Report and the Corporate Governance Report in accordance
with the Companies Act 2006 and applicable regulations,
including the requirements of the Listing Rules and the
Disclosure and Transparency Rules.
Company law requires the directors to prepare financial
statements for each financial year. Under that law, the
directors have elected to prepare the financial statements in
accordance with UK GAAP. 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 and loss of the
Company for that period.
In preparing these financial statements, the directors are
required to:
Æ select suitable accounting policies and then apply them
consistently;
Æ make judgements and estimates that are reasonable and
prudent;
Æ state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
Æ 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.
The directors who were members of the Board at the time
of approving the Directors’ report are listed on pages 54 and
55. Having made enquiries of fellow Directors and of the
Company’s auditor, each of these Directors confirms that:
Æ 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
Æ 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.
23998-04 Proof Two - final 15 June 2015 3:03 PM
91
www.renold.com Stock code: RNOGovernance Statement of Directors’ Responsibilities
In Relation to the Group Financial Statements and
Annual Report
continued
Directors’ responsibility statements pursuant to DTR4
Each of us, for himself and on behalf of each other director
who held office on 31 March 2015, confirms that, to the best of
his knowledge:
Æ the Consolidated Financial Statements, prepared in
accordance with IFRS as adopted by the EU, give a true
and fair view of the assets, liabilities, financial position and
result of the Company and the undertakings included in the
consolidation as a whole; and
Æ the Strategic Report (comprising pages 10 to 49) and the
Directors’ report (on pages 88 to 90) includes fair review
of the development and performance of the business and
the position of the Company and the undertakings included
in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties it faces.
Æ the Board confirms that the Annual Report and Accounts,
taken as a whole, is fair, balanced and understandable and
provides the information necessary for shareholders to
assess the performance, strategy and business model of
the Company.
On behalf of the Board:
Robert Purcell
Chief Executive
Brian Tenner
Finance Director
92
23998-04 Proof Two - final 15 June 2015 3:03 PM
Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 Report a scam
If you are approached by fraudsters please tell the FCA using
the share fraud reporting form at www.fca.org.uk/scams,
where you can find out more about investment scams.
You can also call the FCA Consumer Helpline on
0800 111 6768.
If you have already paid money to share fraudsters you
should contact Action Fraud on 0300 123 2040.
Shareholder 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
Asset Services, whose contact details appear on page 149.
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
Beware of share fraud
Fraudsters use persuasive and high-pressure tactics to lure
investors into scams. They may offer to sell shares that turn
out to be worthless or non-existent, or to buy shares at an
inflated price in return for an upfront payment. While high
profits are promised, if you buy or sell shares in this way you
will probably lose your money.
How to avoid share fraud
1. Keep in mind that firms authorised by the FCA are unlikely
to contact you out of the blue with an offer to buy or sell
shares.
2. Do not get into a conversation, note the name of the
person and firm contacting you and then end the call.
3. Check the Financial Services Register from www.fca.org.uk
to see if the person and firm contacting you is authorised
by the FCA.
4. Beware of fraudsters claiming to be from an authorised
firm, copying its website or giving you false contact details.
5. Use the firm’s contact details listed on the Register if you
want to call it back.
6. Call the FCA on 0800 111 6768 if the firm does not have
contact details on the Register or you are told they are out
of date.
7. Search the list of unauthorised firms to avoid at
www.fca.org.uk/scams.
8. Consider that if you buy or sell shares from an
unauthorised firm you will not have access to the Financial
Ombudsman Service or Financial Services Compensation
Scheme.
9. Think about getting independent financial and professional
advice before you hand over any money.
10. Remember: if it sounds too good to be true, it probably is!
23998-04 Proof Two - final 15 June 2015 3:03 PM
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Statements
94
94
Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015
23998-04 Proof Two - final 15 June 2015 3:03 PM
Notes to the Consolidated Financial StatementscontinuedRenold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 Contents
Independent Auditor’s Report
to the Members of Renold plc
Accounting Policies
Consolidated Income Statement
Consolidated Statement of
Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement
of Changes in Equity
Consolidated Statement
of Cashflows
Notes to the Consolidated
Financial Statements
96
100
108
109
110
111
112
113
Group Five Year Financial Review 139
Company only:
Accounting Policies
Company Balance Sheet
Company Statement of Total
Recognised Gains and Losses
Notes to the Company
Financial Statements
Corporate Information
Glossary
140
142
143
144
149
150
People
The ability to deliver our Strategic Plan depends
upon our people. Building upon our existing
capability we will continue to strengthen
our teams, develop our people and create a
sustainable pipeline of talent for the future.
www.renold.com Stock code: RNO
95
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www.renold.com Stock code: RNOFinancial Statements Independent Auditor’s Report
To the Members of Renold plc
Opinion on financial statements
In our opinion:
Æ the financial statements give a true and fair view of the
state of the group’s and of the parent company’s affairs as
at 31 March 2015 and of the group’s profit for the year then
ended;
Æ the group financial statements have been properly
prepared in accordance with IFRSs as adopted by the
European Union;
Æ the parent company financial statements have been
properly prepared in accordance with United Kingdom
Generally Accepted Accounting Practice; and
Æ the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006; and, as
regards the group financial statements, Article 4 of the IAS
Regulation.
What we have audited
We have audited the financial statements of Renold plc
for the year ended 31 March 2015 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 Consolidated
Accounting Policies and the related Notes 1 to 27, the
Company Balance Sheet, the Company Statement of Total
Recognised Gains and Losses and the Company Accounting
Policies and the related notes i to xv.
The financial reporting framework that has been applied in
the preparation of the Group financial statements is applicable
law and International Financial Reporting Standards (IFRSs)
as adopted by the European Union. The financial reporting
framework that has been applied in the preparation of the
parent company financial statements 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 Directors’ Responsibilities
Statement set out on page 91, the directors are responsible
for the preparation of the 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 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 and to identify any information that is apparently
materially incorrect based on, or materially inconsistent with,
the knowledge acquired by us in the course of performing
the audit. If we become aware of any apparent material
misstatements or inconsistencies we consider the implications
for our report.
Our assessment of risks of material misstatement
We consider that the following areas present the greatest risk of material misstatement in the financial statements and
consequently have had the greatest impact on our audit strategy, the allocation of resources and, the efforts of the engagement
team, including the more senior members of the team:
Principal risk area and rationale
Audit response
Revenue recognition
Refer to page 101 (notes).
There is a risk concerning inappropriate revenue recognition when
the risks and rewards of the product have not yet passed to the
customer and revenue is recognised. As such revenue recognition
has been held as an area of audit focus.
We carried out substantive testing, including cut-off testing
verifying the recognition of revenue to contractual shipping terms
and goods dispatched. We also performed analytical procedures
to identify significant fluctuations and trends which were further
investigated.
We undertook a review of credit notes raised post year end and
detailed test of transactions back to supporting evidence.
We also audited a sample of manual revenue journal entries to
underlying evidence to assess appropriateness.
We confirmed managements’ policies for revenue recognition
continue to be robust and are applied consistently.
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Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 Principal risk area and rationale
Audit response
Inventory provision
Refer to page 64 (Audit Committee Report) and Note 11.
Inventory provision is generated automatically by the system based
on age of stock and historical usage with management adjustment
for known anomalies, for example new stock lines with no history.
This level of management adjustment can leave the stock provision
susceptible to error/ judgement.
Accounting for defined benefit pension schemes
Refer to page 64 (Audit Committee Report) and Note 18.
Small changes in the underlying assumptions used to value these
schemes have a material impact on the Group’s balance sheet.
Volatility in capital markets means that asset values can change
significantly in a short period of time.
We tested the standard costs used to value inventory at year end,
such as agreeing back to invoices, and challenged management’s
key assumptions, such as labour and overhead absorption rates
compared to actual costs.
We tested management’s calculation of the inventory provision,
challenged management judgements formed in adjusting the
system generated provision for appropriateness and confirmed that
the provision was derived in line with Group policy.
We reviewed the inventory provision compared to the prior year
and investigated any unusual movements.
We also checked that a consistent approach to inventory valuation
and provisioning had been adopted globally
We utilised our own actuarial experts to benchmark and consider
an appropriate range for the key assumptions underpinning the
calculation of the pension liabilities.
We also utilised our own actuarial experts to challenge the
appropriateness and consistency of the methodology used by
management’s actuaries to calculate the liabilities for the pension
scheme.
We reviewed the adequacy of pension disclosures provided in the
financial statements and compliance with the requirements of IAS
19 (revised).
We obtained confirmation of the pension assets from the asset
managers and performed procedures to verify that assets have
been appropriately valued.
Deferred tax
Refer to page 64 (Audit Committee Report) and Note 17.
The recoverability of these assets needs to be considered, taking
into account the forecast taxable profits of the individual trading
entities as well as the ability to utilise losses against future profits.
We performed audit procedures on the calculation and disclosure
of deferred tax to assess compliance with local tax rules and the
group’s accounting policies, including review by our Tax specialists
to ensure it has been recognised in accordance with local tax
regulations.
We considered the appropriateness of management’s assumptions
and estimates in relation to the likelihood of generating suitable
future taxable profits, such as the appropriateness of profit
forecasts, to support the recognition of deferred tax assets
described in note 17, challenging those assumptions and considering
supporting forecasts and estimates.
We reviewed the adequacy of deferred tax disclosures provided in
the financial statements and compliance with the requirements of
IAS 12.
Following a review of the tax base of the unfunded pension
scheme in Germany, it was identified that the value of the tax
base that had been used in calculating the deferred tax asset on
the German pension deficit in 2014 was understated. The effect
of this restatement has been to reduce, for the prior period, the
closing recognised deferred tax asset by £4.2m. Please refer to
the Accounting Policies on page 107 for further details. The tax
credit shown in other comprehensive income in the consolidated
statement of comprehensive income in the prior year has been
reduced by the same amount. The restatement has no impact on the
current or prior year income statement, cash flows or earnings per
share.
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www.renold.com Stock code: RNOFinancial Statements Independent Auditor’s Report
To the Members of Renold plc
continued
In 2014 we highlighted that Group restructure was identified
as a significant risk in relation to the Bredbury closure. As this
project was completed in the first quarter of the current year
with only £0.2m additional costs recorded, this was no longer
considered to be a significant risk. Hence the risk has not been
included in the risk table above.
Our application of materiality
We apply the concept of materiality both in planning
and performing our audit, and in evaluating the effect of
misstatements on our audit and on the financial statements.
For the purposes of determining whether the financial
statements are free from material misstatement we define
materiality as the magnitude of misstatement that makes
it probable that the economic decisions of a reasonably
knowledgeable person, relying on the financial statements,
would be changed or influenced.
We determined planning materiality for the group to be
£480,000, (2014: £415,000), which is approximately 5% (2014:
5%) of adjusted pre-tax profit (2014: 5% of forecast adjusted
profit before interest and tax). We used adjusted pre-tax
profits (2014: forecast adjusted profit before interest and tax)
to exclude the exceptional items of £2.9m (2014: £11.8m) as
described in note 2 (c). This provided a basis for determining
the nature, timing and extent of risk assessment procedures,
identifying and assessing the risk of material misstatement
and determining the nature, timing and extent of further audit
procedures.
On the basis of our risk assessments, together with our
assessment of the group’s overall control environment, our
judgement was that overall performance materiality (i.e.
our tolerance for misstatement in an individual account
or balance) for the group should be 50% (2014 50%) of
planning materiality, namely £240,000 (2014: £207,000). Our
objective in adopting this approach was to ensure that total
uncorrected and undetected audit differences in all accounts
did not exceed our materiality level.
Audit work at individual components is undertaken based
on a percentage of our total performance materiality. The
performance materiality set for each component is based on
the relative size of the component and our view of the risk
of misstatement at that component. In the current year the
range of performance materiality allocated to components
was £48,000 to £144,000.
We agreed with the Audit Committee that we would report
to the Committee all audit differences in excess of £24,000
(2014: £20,750) as well as differences below that threshold
that, in our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the
quantitative measures of materiality discussed above and in
the light of other relevant qualitative considerations.
An overview of the scope of our audit
Following our assessment of the risk of material misstatement
to the Group financial statements, we selected components
which represent the twelve (2014: fourteen) principal business
units within the Group’s two divisions and account for 86%
(2014: 69%) of the group’s profit before tax (2014: profit
before interest and tax) and 83% (2014: 86%) of the group’s
total revenue.
Profit before tax %
14%
11%
75%
Revenue %
17%
14%
69%
■ Full
■ Specific
■ Review
■ Full
■ Specific
■ Review
Six (2014: five) of these were subject to a full audit, whilst
on the remaining six (2014: nine) specific audit procedures
were performed including full audit of the accounts that were
impacted by our assessed risks of material misstatement and
the materiality of the Group’s business operations at those
locations. They were also selected to provide an appropriate
basis for undertaking audit work to address the risks of
material misstatement identified above. For the remaining
components, we performed other procedures to confirm
there were no significant risks of material misstatement in the
Group financial statements.
The Group audit team continued to follow a programme of
planned visits that has been designed to ensure that the
Senior Statutory Auditor or his designate visits each full
scope location at least once every other year on a rotational
basis. This year the group team visited five out of six full
scope locations. For all entities in scope, the Group audit
team reviewed key working papers and participated in the
component team’s audit planning, including the component
team’s discussion of fraud and error, and the audit closing
meeting.
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Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015
Opinion on other matter prescribed by the Companies
Act 2006
In our opinion:
Under the Listing Rules we are required to review:
Æ the directors’ statement, set out on page 90, in relation to
going concern; and
Æ the part of the Directors’ Remuneration Report to be
audited has been properly prepared in accordance with the
Companies Act 2006;
Æ the part of the Corporate Governance Statement relating
to the company’s compliance with the ten provisions of the
UK Corporate Governance Code specified for our review.
Gary Harding
(Senior statutory auditor)
for and on behalf of Ernst & Young LLP,
Statutory Auditor
Manchester
26 May 2015
Æ the information given in the Strategic Report and the
Directors’ Report for the financial year for which the
financial statements are prepared is consistent with the
financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the ISAs (UK and Ireland), we are required to report to
you if, in our opinion, information in the annual report is:
Æ materially inconsistent with the information in the audited
financial statements; or
Æ apparently materially incorrect based on, or materially
inconsistent with, our knowledge of the Group acquired in
the course of performing our audit; or
Æ is otherwise misleading.
In particular, we are required to consider whether we have
identified any inconsistencies between our knowledge
acquired during the audit and the directors’ statement
that they consider the annual report is fair, balanced and
understandable and whether the annual report appropriately
discloses those matters that we communicated to the audit
committee which we consider should have been disclosed.
Under the Companies Act 2006 we are required to report to
you if, in our opinion:
Æ adequate accounting records have not been kept by the
Parent Company, or returns adequate for our audit have
not been received from branches not visited by us; or
Æ the Parent 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
Æ certain disclosures of directors’ remuneration specified by
law are not made; or
Æ we have not received all the information and explanations
we require for our audit.
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www.renold.com Stock code: RNOFinancial 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 140 to 148. The financial statements were
approved by the Board on 26 May 2015.
Basis of consolidation
The consolidated financial statements comprise the financial
statements of the Group and its subsidiaries as at 31 March
2015. Control is achieved when the Group is exposed, or
has rights, to variable returns from its involvement with the
investee and has the ability to affect those returns through its
power over the investee. Specifically, the Group controls an
investee if, and only if, the Group has:
Æ Power over the investee (i.e., existing rights that give it
the current ability to direct the relevant activities of the
investee);
Æ Exposure, or rights, to variable returns from its
involvement with the investee;
Æ The ability to use its power over the investee to affect its
returns.
Generally, there is a presumption that a majority of voting
rights result in control. To support this presumption and when
the Group has less than a majority of the voting or similar
rights of an investee, the Group considers all relevant facts
and circumstances in assessing whether it has power over an
investee, including:
Æ The contractual arrangement with the other vote holders
of the investee;
Æ Rights arising from other contractual arrangements;
Æ The Group’s voting rights and potential voting rights.
The Group re-assesses whether or not it controls an investee
if facts and circumstances indicate that there are changes to
one or more of the three elements of control. Consolidation
of a subsidiary begins when the Group obtains control over
the subsidiary and ceases when the Group loses control of
the subsidiary. Assets, liabilities, income and expenses of
a subsidiary acquired or disposed of during the year are
included in the consolidated financial statements from the
date the Group gains control until the date the Group ceases
to control the subsidiary.
Profit or loss and each component of other comprehensive
income 'OCI' are attributed to the equity holders of the parent
of the Group and to the non-controlling interests, even if
this results in the non-controlling interests having a deficit
balance. When necessary, adjustments are made to the
financial statements of subsidiaries to bring their accounting
policies into line with the Group’s accounting policies. All intra-
group assets and liabilities, equity, income, expenses and cash
flows relating to transactions between members of the Group
are eliminated in full on consolidation.
A change in the ownership interest of a subsidiary, without a
loss of control, is accounted for as an equity transaction.
If the Group loses control over a subsidiary, it derecognises
the related assets (including goodwill), liabilities, non-
controlling interest and other components of equity while
any resultant gain or loss is recognised in profit or loss. Any
investment retained is recognised at fair value.
The results and financial position of Renold Scottish Limited
Partnership ('SLP') have been consolidated in the consolidated
financial statements of Renold plc. Renold plc is the parent
undertaking of the general partner in the SLP (see Note (xv) to
the Company financial statements). To determine that Renold
plc has control over the SLP, we considered the following
activities, benefits and risks:
Activities – the SLP was established by Renold plc as a means
of funding its pension obligation in an efficient manner.
Benefits – during the 25 year period, the Schemes will receive
substantially all of the SLP’s income. However, after this
period, the Renold Group is entitled to any remaining income
generated in the SLP, together with any other residual value
in the SLP.
Risks – the Group bears the risks incidental to the activities
of the SLP because it retains the obligation to ensure the
Schemes are appropriately funded.
Accordingly, advantage has been taken of the exemption
conferred by paragraph 7 of the Partnerships (Accounts)
Regulations 2008 from the requirements for preparation,
delivery and publication of the partnership’s accounts.
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
Strategic Report on pages 10 to 49.
The financial position of the Group, its cash flows, liquidity
position and borrowing facilities are described in the
Strategic Report on pages 10 to 49. In addition Note 25 to the
financial statements includes the Group’s objectives, policies
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Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 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. Note 27, Post Balance Sheet
Events, includes additional information on the revisions to the
core banking agreement signed after the year end.
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 12
month period from the date of signing the Annual Report
and Accounts. The Directors considered a range of potential
scenarios within the key markets the Group serves and how
these might impact 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 consolidated financial statements.
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 presentational 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 and services
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. Revenue from the sale
of services is recognised when the service has been provided.
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. Examples
are costs incurred in restructuring the Group, significant asset
impairments and discount adjustments on onerous lease
provisions.
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 taxable 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.
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101
www.renold.com Stock code: RNOFinancial Statements Accounting Policies
continued
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.
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:
Æ Acquisition costs incurred will be expensed and included in
expenses.
Æ 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 account
or in other comprehensive income.
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 their expected useful lives. The useful
lives of assets are as follows:
Freehold buildings
Leasehold properties
General plant and equipment
Fixtures
Precision cutting and
grinding machines
Motor vehicles
Years
50
50 years or the period
of the lease if less
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.
102
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Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015
Gains and losses on disposals are determined by comparing
proceeds with carrying amounts and are included in operating
profit.
business, less the costs of completion and selling expenses.
In the Group accounts, unrealised profit on sales within the
Group is deducted from inventories.
As permitted by IFRS 1, at 4 April 2004, the Group has
measured its freehold properties on a fair value basis and
used that value as the deemed cost at the transition date.
Asset impairment
Intangible assets and property, plant and equipment are
reviewed, at least annually, to ensure that assets are not
carried above their recoverable amounts. Where some
indication of impairment exists, calculations are made of the
discounted cash flows resulting from continued use of the
assets (value in use) or from their disposal (fair value less
costs to sell). Where these values are less than the carrying
amount of the assets, an impairment loss is charged to the
income statement.
Leases
Tangible assets held under finance leases, which are those
where substantially all the risks and rewards of ownership
of the asset have passed to the Group, are capitalised in the
balance sheet at the lower of the fair value of the leased
asset or the present value of the minimum lease payments.
Assets acquired under finance leases are depreciated over the
shorter of the useful life of the asset or the lease term. The
corresponding liability to the leasing company, net of finance
charges, is included as an obligation under finance leases
in creditors. The interest element of the lease payment is
charged to the income statement on a basis which produces a
constant rate of charge over the period of the liability.
Leases where a significant portion of the risk and reward of
ownership is retained by the lessor are classified as operating
leases. Payments made under operating leases (net of any
incentives received from the lessor) are charged to the income
statement on a straight-line basis over the period of the lease.
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. An
impairment charge was made against the book value in the
year, writing down the value of this property to nil. See Note 9.
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
Assets held for sale
Assets are classified as held for sale if their carrying amount
will be recovered by sale rather than by continuing use in the
business and where the sale is highly probable. Assets that
are classified as held for sale are measured at the lower of
their carrying amount or fair value less costs to sell.
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
a 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.
23998-04 Proof Two - final 15 June 2015 3:03 PM
103
www.renold.com Stock code: RNOFinancial Statements Accounting Policies
continued
Financial assets may be designated at initial recognition as
at fair value through the income statement if the following
criteria are met: (i) the designation eliminates or significantly
reduces the inconsistent treatment that would otherwise
arise from measuring the assets or recognising gains or
losses on them on a different basis; or (ii) the assets are part
of a group of financial assets which are managed and their
performance evaluated on a fair value basis in accordance
with a documented risk management strategy; or (iii) the
financial asset contains an embedded derivative that would
need to be separately recorded.
(ii) Loans and receivables:
Loans and receivables are non-derivative financial assets
with fixed or determinable payments that are not quoted in
an active market, do not qualify as trading assets and have
not been designated as either fair value through the income
statement or available for sale. Such assets are carried at
amortised cost using the effective interest method if the time
value of money is significant. Gains and losses are recognised
in the income statement when the loans and receivables are
derecognised or impaired, as well as through the amortisation
process.
(b) Impairment of financial assets
The Group assesses at each balance sheet date whether a
financial asset or group of financial assets is impaired.
(i) Assets carried at amortised cost:
If there is objective evidence that an impairment loss on
assets carried at amortised cost has been incurred, the
amount of the loss is measured as the difference between the
asset’s carrying amount and the present value of estimated
future cash flows (excluding future credit losses that have
not been incurred), discounted at the financial asset’s original
effective interest rate (i.e. the effective interest rate computed
at initial recognition). The carrying amount of the asset
is reduced, through the use of an allowance account. The
amount of the loss is recognised in administration costs.
If, in a subsequent period, the amount of the impairment
loss decreases and the decrease can be related objectively
to an event occurring after the impairment was recognised,
the previously recognised impairment loss is reversed. Any
subsequent reversal of an impairment loss is recognised in the
income statement, to the extent that the carrying value of the
asset does not exceed its amortised cost at the reversal date.
In relation to trade receivables, a provision for impairment
is made when there is objective evidence (such as the
probability of insolvency or significant financial difficulties
of the debtor) that the Group will not be able to collect all of
the amounts due under the original terms of the invoice. The
carrying amount of the receivable is reduced through use of
an allowance account. Impaired debts are derecognised when
they are assessed as irrecoverable.
(ii) Assets carried at cost:
If there is objective evidence that an impairment loss on an
unquoted equity instrument that is not carried at fair value
because its fair value cannot be reliably measured, or on
a derivative asset that is linked to and must be settled by
delivery of such an unquoted equity instrument, has been
incurred, the amount of the loss is measured as the difference
between the asset’s carrying amount and the present value of
estimated future cash flows discounted at the current market
rate of return for a similar financial asset.
(c) Interest-bearing loans and borrowings
Obligations for loans and borrowings are recognised when
the Group becomes party to the related contracts and are
measured initially at the fair value of consideration received
less directly attributable transaction costs. After initial
recognition, interest-bearing loans and borrowings are
subsequently measured at amortised cost using the effective
interest method. Gains and losses arising on the repurchase,
settlement or otherwise cancellation of liabilities are
recognised respectively in finance revenue and finance cost.
(d) Financial liabilities at fair value through the income
statement
Includes financial liabilities held for trading and financial
liabilities designated upon initial recognition as at fair value
through the income statement.
Financial liabilities are classified as held for trading if they
are acquired for the purpose of selling in the near term.
Derivatives, including separated embedded derivatives, are
also classified as held for trading unless they are designated
as effective hedging instruments. Gains or losses on liabilities
held for trading are recognised in the income statement.
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.
104
23998-04 Proof Two - final 15 June 2015 3:03 PM
Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 For the purpose of hedge accounting, hedges are classified as:
Æ 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
Æ 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 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.
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. Administration costs, other than plan asset
management costs which are included in the actual return
on plan assets, are charged to operating costs, including the
Pension Protection Fund Levy.
Remeasurement gains and losses, comprising of actuarial
gains and losses, and the return on plan assets (excluding
amounts included in net interest), 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 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 present value of any amount
expected to be recoverable by the Group by way of refunds or
reduction in future contributions.
Under the UK pension scheme rules, any notional surplus
arising on payment of agreed contributions is fully
recoverable.
For defined contribution plans, the Group’s contributions are
charged to the income statement in the period in which they
fall due. Once the contributions have been paid, the Group has
no further payment obligation.
(b) Share-based compensation
The Group operates equity settled, share-based compensation
plans. The fair value of the employee services received in
exchange for the grant of the options is 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 or performance shares 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
23998-04 Proof Two - final 15 June 2015 3:03 PM
105
www.renold.com Stock code: RNOFinancial Statements Accounting Policies
continued
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.
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 in respect of pension liabilities are recognised in full (with the exception of Germany where the amount
recognised is offset by a deferred tax liability in relation to the German tax base of the pension liability) given the business has
a legal obligation to make the underlying pension contributions and it is probable that adequate taxable profit will be available
to take advantage of the associated taxable deductions. 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 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, 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. Net interest is calculated by applying the discount
rate to the net defined benefit liability. Further details are given in Note 18.
106
23998-04 Proof Two - final 15 June 2015 3:03 PM
Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 d) Onerous lease
The Group has assessed an existing operating lease obligation at the Bredbury facility and concluded that an onerous lease
provision is required following the cessation of significant manufacturing activity at the site. This involves making assumptions
upon future sub-let income streams and the discount rate used. Refer to Note 2(c) and 16.
e) Inventory valuation
Manufactured inventory and work in progress include amounts of attributable indirect costs incurred in the production process.
The Group employs a standard cost methodology which, while including judgements and assumptions, seeks to allocate the
allowable indirect production costs in a logical and appropriate manner.
Changes in accounting policy and disclosures
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 2015:
International Accounting Standards (IAS/IFRSs)
IAS 1
IAS 19
IFRS 9
IFRS 15
Amendment - presentation of financial statements
Amendment - employee benefits
Financial instruments
Revenue from contracts with customers
Annual improvements 2010-2012 cycle
Annual improvements 2011-2013 cycle
Annual improvements 2012-2014 cycle
Effective date1
1 January 2016
1 July 2014
1 January 2018
1 January 2017
1 July 2014
1 July 2014
1 January 2016
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.
The Group has adopted all applicable amendments to standards with an effective date from 1 April 2014. Adoption of these
standards did not have any material impact on financial performance or position of the Group.
Restatements
Following a review of the tax base of the unfunded pension scheme in Germany, it was identified that the value of the tax
base in relation to the pension deficit that had been used in calculating the deferred tax asset on the German pension deficit
in 2014 was understated. The tax base had been assumed to be nil, whereas tax relief had been claimed in respect of the
pension scheme, based on actuarial valuations, under German tax law. In respect of pensions, a deferred tax asset represents
the difference between the carrying amount of a pension deficit and its tax base. As a result, the deferred tax asset recognised
in the accounts in the prior year was over-stated by £4.2m. The prior year comparatives have been restated to correct for this
error. The deferred tax asset in respect of the pension deficit was correctly calculated at 2013 and therefore no opening balance
sheet at 1 April 2013 is presented.
The effect of this restatement has been to reduce, for the prior period, the closing recognised deferred tax asset by £4.2m. The
tax credit shown in other comprehensive income in the consolidated statement of comprehensive income in the prior year has
been reduced by the same amount. The restatement has no impact on the current or prior year income statement, cash flows
or earnings per share.
The restatement has been made in accordance with IAS 8, ‘Accounting Policies, Changes in Accounting Estimates and Errors’.
The effect of the restatement to the financial statements including the related impact on taxation is summarised below:
Consolidated statement of comprehensive income
– Tax credit on remeasurement (gains) / losses on retirement benefits obligations
– Other comprehensive expense for the year, net of tax
– Total comprehensive expense for the year net of tax
Balance Sheet
– Recognised deferred tax assets
– Total assets
– Net assets
23998-04 Proof Two - final 15 June 2015 3:03 PM
2014
Reported
£m
2014
Adjustment
£m
2014
Restated
£m
2.1
(2.7)
(13.4)
18.9
160.0
18.1
(4.2)
(4.2)
(4.2)
(4.2)
(4.2)
(4.2)
(2.1)
(6.9)
(17.6)
14.7
155.8
13.9
107
www.renold.com Stock code: RNOFinancial Statements Consolidated Income Statement
for the year ended 31 March 2015
Revenue
Operating costs before pension administration costs and exceptional items
Operating profit before pension administration costs and exceptional items
Pension administration costs
Exceptional items
Operating profit/(loss)
Financial costs
Net IAS 19 financing costs
Discount on provisions
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 share1
Diluted adjusted earnings per share1
Note
1
2
2
2
3
4
5
2015
£m
181.4
(165.9)
15.5
(0.5)
(2.9)
12.1
(1.7)
(2.5)
(0.2)
(4.4)
7.7
(2.1)
5.6
5.5
0.1
5.6
2.5p
2.5p
5.0p
5.0p
2014
£m
184.0
(172.9)
11.1
(0.6)
(11.8)
(1.3)
(1.8)
(2.8)
–
(4.6)
(5.9)
(4.8)
(10.7)
(10.9)
0.2
(10.7)
(4.9)p
(4.9)p
3.2p
3.2p
1 Adjusted for the after tax effects of pension administration costs, exceptional items, changes in the provision discounts and the IAS 19 financing costs.
108
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Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015
Consolidated Statement of
Comprehensive Income
for the year ended 31 March 2015
Profit/(loss) for the year
Other comprehensive income/(expense):
Items that may be reclassified to profit or loss in subsequent periods:
Net (losses)/gains on cash flow hedges
Foreign exchange translation differences
Foreign exchange differences on loans hedging the net investment in foreign operations
Items not to be reclassified to profit or loss in subsequent periods:
Remeasurement (losses)/gains on retirement benefit obligations
Tax on remeasurement losses/(gains) on retirement benefit obligations
Other comprehensive income/(expense) for the year, net of tax
Total comprehensive income/(expense) for the year, net of tax
Attributable to:
Owners of the parent
Non-controlling interest
2015
£m
5.6
2014 (restated)
£m
(10.7)
(0.2)
4.6
(0.6)
3.8
(15.1)
3.4
(11.7)
(7.9)
(2.3)
(2.4)
0.1
(2.3)
0.2
(8.5)
0.6
(7.7)
2.9
(2.1)
0.8
(6.9)
(17.6)
(17.7)
0.1
(17.6)
23998-04 Proof Two - final 15 June 2015 3:03 PM
109
www.renold.com Stock code: RNOFinancial Statements
Consolidated Balance Sheet
as at 31 March 2015
ASSETS
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Investment property
Other non-current assets
Deferred tax assets
Retirement benefit surplus
Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Non-current asset classified as held for sale
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
Provisions
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 26 May 2015 and signed on its behalf by:
Robert Purcell
Chief Executive
Brian Tenner
Finance Director
110
Note
2015
£m
2014 (restated)
£m
7
7
8
9
12
17
18
11
12
25
13
10
14
15
25
16
14
14
15
17
18
16
19
21
21
21
21.9
6.1
39.7
–
–
17.3
0.2
85.2
35.8
30.6
–
12.6
79.0
1.4
80.4
165.6
(0.7)
(36.6)
(1.6)
(0.1)
(2.1)
(41.1)
39.3
(30.9)
(0.5)
(1.1)
(0.2)
(75.9)
(4.3)
(112.9)
(154.0)
11.6
26.6
29.9
2.3
1.0
(50.8)
9.0
2.6
11.6
19.8
6.1
39.3
1.3
0.2
14.7
0.4
81.8
35.9
29.7
0.1
6.7
72.4
1.6
74.0
155.8
(0.1)
(34.9)
(1.7)
–
(2.4)
(39.1)
34.9
(30.9)
(0.5)
(0.6)
(0.2)
(65.3)
(5.3)
(102.8)
(141.9)
13.9
26.6
29.9
(1.7)
1.2
(44.6)
11.4
2.5
13.9
Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015
Consolidated Statement of Changes in Equity
for the year ended 31 March 2015
At 1 April 2013
(Loss)/profit for the year
Other comprehensive income/(expense)
Total comprehensive income/(expense)
for the year
Employee share options:
– value of employee services
Exercise of share warrants:
– release of share warrant reserve
– proceeds from share issue
At 31 March 2014 (restated)
Profit for the year
Other comprehensive income/(expense)
Total comprehensive income/(expense)
for the year
Employee share options:
– settled share based payment transactions
– value of employee services
At 31 March 2015
Share
capital
£m
Note 19
26.5
–
–
–
–
–
0.1
26.6
–
–
–
–
–
26.6
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
29.6
–
–
–
–
–
0.3
29.9
–
–
(34.8)
(10.9)
0.8
(10.1)
0.1
0.2
–
(44.6)
5.5
(11.7)
–
(6.2)
–
–
29.9
(0.2)
0.2
(50.8)
6.1
–
(7.8)
(7.8)
–
–
–
(1.7)
–
4.0
4.0
–
–
2.3
1.2
–
0.2
0.2
–
(0.2)
–
1.2
–
(0.2)
(0.2)
–
–
1.0
28.6
(10.9)
(6.8)
(17.7)
0.1
–
0.4
11.4
5.5
(7.9)
(2.4)
(0.2)
0.2
9.0
2.4
0.2
(0.1)
0.1
–
–
–
2.5
0.1
–
0.1
–
–
2.6
Total
equity
£m
31.0
(10.7)
(6.9)
(17.6)
0.1
–
0.4
13.9
5.6
(7.9)
(2.3)
(0.2)
0.2
11.6
23998-04 Proof Two - final 15 June 2015 3:03 PM
111
www.renold.com Stock code: RNOFinancial Statements
Consolidated Statement of Cashflows
for the year ended 31 March 2015
Cash flows from operating activities (Note 24)
Cash generated from operations
Income taxes paid
Net cash from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Purchase of intangible assets
Net cash from investing activities
Cash flows from financing activities
Proceeds from issue of ordinary shares
Financing costs paid
Proceeds from borrowings
Repayment of borrowings
Net cash from financing activities
Net increase/(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)
2015
£m
14.2
(1.4)
12.8
(3.8)
(1.7)
(5.5)
–
(1.4)
1.0
(1.1)
(1.5)
5.8
6.6
(0.2)
12.2
2014
£m
7.0
(0.9)
6.1
(6.0)
(1.1)
(7.1)
0.4
(1.5)
8.0
(8.0)
(1.1)
(2.1)
9.2
(0.5)
6.6
112
23998-04 Proof Two - final 15 June 2015 3:03 PM
Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 Notes to the Consolidated Financial Statements
1. Segmental information
For management purposes, the Group is organised into two operating segments according to the nature of their products and
services and these are considered by the Directors to be the reportable operating segments of Renold plc as shown below:
Æ 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
Æ The Torque Transmission segment manufactures and sells torque transmission products such as gearboxes and couplings.
No operating segments have been aggregated to form the above reportable segments.
The Chief Operating Decision Maker 'CODM' for the purposes of IFRS 8: ‘Operating Segments’ is considered to be the Board of
Directors of Renold plc. Management monitor the results of the separate reportable operating segments based on operating
profit and loss which is measured consistently with operating profit and loss in the consolidated financial statements. The
same segmental basis applies to decisions about resource allocation. However, Group net financing costs, retirement benefit
obligations and income taxes are managed on a Group basis and therefore are not allocated to operating segments. Transfer
prices between operating segments are on an arm’s length basis in a manner similar to transactions with third parties.
Year ended 31 March 2015
Revenue
External customer
Inter-segment(i)
Total revenue
Operating profit/(loss) before pension administration costs and exceptional
items
Pension administration costs
Exceptional items
Operating profit/(loss)
Net financing costs
Profit before tax
Other disclosures
Working capital(iii)
Capital expenditure(iv)
Depreciation and amortisation
Year ended 31 March 2014
Revenue
External customer
Inter-segment(i)
Total revenue
Operating profit/(loss) before pension administration costs and exceptional
items
Pension administration costs
Exceptional items
Operating (loss)/profit
Net financing costs
Loss before tax
Other disclosures
Working capital(iii)
Capital expenditure(iv)
Depreciation and amortisation
Chain(ii)
£m
Torque
Transmission
£m
Head office
costs and
eliminations
£m
Consolidated
£m
138.3
–
138.3
14.2
–
(2.1)
12.1
22.3
4.4
3.0
43.1
4.6
47.7
6.9
–
(0.2)
6.7
9.3
0.9
1.1
–
(4.6)
(4.6)
(5.6)
(0.5)
(0.6)
(6.7)
(3.0)
1.3
1.2
181.4
–
181.4
15.5
(0.5)
(2.9)
12.1
(4.4)
7.7
28.6
6.6
5.3
Chain(ii)
£m
Torque
Transmission
£m
Head office
costs and
eliminations
£m
Consolidated
£m
139.6
0.3
139.9
9.9
–
(11.5)
(1.6)
22.6
4.8
3.1
44.4
5.0
49.4
5.8
–
(0.3)
5.5
8.6
1.3
1.1
–
(5.3)
(5.3)
(4.6)
(0.6)
–
(5.2)
(1.1)
1.0
1.2
184.0
–
184.0
11.1
(0.6)
(11.8)
(1.3)
(4.6)
(5.9)
30.1
7.1
5.4
113
23998-04 Proof Two - final 15 June 2015 3:03 PM
www.renold.com Stock code: RNOFinancial Statements 1. Segmental information continued
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 2014
Revenue
External customer
Foreign exchange
Underlying external sales
Operating profit/(loss) before pension administration costs
and exceptional items
Foreign exchange
Underlying operating profit/(loss) before pension administration costs
and exceptional items
Torque
Transmission
£m
Head office
costs and
eliminations
£m
Consolidated
£m
44.4
(0.8)
43.6
5.8
–
5.8
–
–
–
(4.6)
–
(4.6)
184.0
(6.1)
177.9
11.1
(0.6)
10.5
Chain(ii)
£m
139.6
(5.3)
134.3
9.9
(0.6)
9.3
(i)
(ii)
(iii)
Inter-segment revenues are eliminated on consolidation.
Included in Chain external sales is £7.2m (2014: £7.6m) of Torque Transmission product sold through the Chain NSCs, usually in countries where Torque
Transmission does not have its own presence.
The measure of segment assets reviewed by the CODM is total working capital, defined as inventories and trade and other receivables, less trade and other
payables. Working capital is also measured as a ratio of rolling annual sales.
(iv) Capital expenditure consists of additions to property, plant and equipment and intangible assets (including through acquisitions).
Geographical analysis of external sales by destination, non-current asset location and average employee numbers
The UK is the home country of the parent company, Renold plc. The principal operating territories, the proportions of Group
external revenue generated in each (customer location), external revenues, non-current assets (asset location) and average
employee numbers in each are as follows:
United Kingdom
Rest of Europe
North America
Australasia
China
India
Other countries
Revenue ratio
External revenues
Non-current assets
Employee numbers
2015
%
9.3
27.8
36.8
11.5
3.8
3.9
6.9
100
2014
%
8.7
27.7
37.8
12.0
4.1
3.4
6.3
100
2015
£m
16.9
50.5
66.7
20.8
6.8
7.1
12.6
181.4
2014
£m
16.0
51.0
69.5
22.0
7.5
6.2
11.8
184.0
2015
£m
12.7
10.8
28.3
6.6
3.5
4.9
0.9
67.7
2014
£m
13.8
12.8
24.8
7.0
3.5
3.8
0.8
66.5
2015
372
503
351
152
350
481
68
2,277
2014
558
405
355
157
348
479
77
2,379
All revenue relates to the sale of goods and services. No individual customer, or group of customers, represents more than 10%
of Group revenue (2014: none).
Non-current assets consist of goodwill, other intangible assets, property, plant and equipment and investment property. Other
non-current assets and deferred tax assets are not included above.
114
23998-04 Proof Two - final 15 June 2015 3:03 PM
Notes to the Consolidated Financial StatementscontinuedRenold plc Annual Report and Accounts 2015 for the year ended 31 March 2015
2. Operating costs and exceptional items
(a) Operating profit/(loss) 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)
Share-based incentive plans
Depreciation of property, plant and equipment
– owned assets
Amortisation of intangible assets
Operating leases – minimum lease payments
– plant and machinery
– property
Other operating income
Profit/(loss) on disposal of property, plant and equipment
Research and development expenditure
Auditors’ remuneration (Note 2(b))
Trade receivables impairment
Foreign exchange
Operating costs before pension administration costs and exceptional items
Pension administration costs
Exceptional items (Note 2(c))
Total operating costs
(b) Auditors’ remuneration
Audit of the Group’s annual financial statements
Audit of the Company’s subsidiaries
Total audit fees
Tax compliance services
Tax advisory services
All other assurance services
All other non-audit services
This is analysed in the following captions in the financial statements:
Exceptional reorganisation and restructuring costs
Operating costs
2015
£m
53.4
6.2
0.4
1.5
0.2
0.3
0.9
2015
£m
1.0
61.9
33.8
61.7
3.9
1.4
1.2
(0.3)
–
0.8
0.6
0.1
(0.2)
165.9
0.5
2.9
169.3
2014
£m
55.6
6.4
0.4
1.5
0.1
0.4
1.6
2015
£000
Total
208
240
448
82
20
–
10
560
–
560
560
2014
£m
1.5
64.0
34.8
64.0
4.2
1.2
2.0
(0.8)
0.1
0.7
0.7
0.1
0.4
172.9
0.6
11.8
185.3
2014
£000
Total
180
327
507
50
75
60
48
740
54
686
740
The Group’s auditors also received fees of £54,000 for audit services provided to Group pension schemes (2014: £74,000).
These were the only services provided to the pension schemes, the decrease reflecting additional work performed in the prior
year on the asset backed funding structure and subsequent UK scheme merger.
23998-04 Proof Two - final 15 June 2015 3:03 PM
115
www.renold.com Stock code: RNOFinancial Statements
2. Operating costs and exceptional items continued
(c) Exceptional charges
Included in operating costs
Bredbury factory closure costs
Bredbury site onerous lease provision
Increase in onerous lease provision due to change in discount rate
Chain business model review
– impairment of property, plant and equipment
– impairment of inventory and production tooling
Impairment of investment property
Impairment of software licences
Other reorganisation and redundancy costs
2015
£m
0.2
–
0.5
–
–
1.2
0.2
0.8
2.9
2014
£m
4.7
5.7
–
0.1
0.5
–
–
0.8
11.8
The current year saw £0.2m of residual costs incurred in relation to the completion of the Bredbury closure project such as
additional redundancy costs and lease termination costs. Even with these extra costs the project was still completed ahead of
its estimated cost. In the prior year, closure costs of £4.7m and an onerous lease provision of £5.7m were recognised in that
period. The current carrying value of the Bredbury onerous lease provision is set out in more detail in Note 16. The Bredbury
site onerous lease provision was increased by £0.5m due to a change in the discount rate used to discount the future payment
obligations.
Also in the current year, an impairment charge of £1.2m was made in relation to an investment property located in Calais,
France, writing down the value of the property to a net book value of nil. This decision reflects ongoing weakness in the general
economy and property market in particular in that region of France and therefore we have concluded that the property has no
material value. Any alternate use specified by local planning regulations may also impact any net realisable value (see Note 9).
The impairment of software licences reflects the decision to change the Group’s planned global ERP system and consequently
not to make use of previously acquired licences. As a result, future periods will include approximately £0.2m accelerated
amortisation for 4-5 years to reflect the shorter assumed useful economic life. Other restructuring and redundancy costs
include costs associated with the agreed relocation of our headquarters in Manchester and ongoing restructuring of our senior
management teams.
(d) Employees and key management compensation
Employee costs, including Directors, are set out in Note 2(a). Key management personnel are represented by the Board and
their aggregate emoluments were as follows:
Directors’ remuneration
Post-employment benefits – contributions direct to defined contribution schemes
Statutory Directors’ remuneration
Share-based payments
Social security costs
Total
2015
£000
1,100
–
1,100
53
167
1,320
2014
£000
1,231
28
1,259
75
103
1,437
The remuneration listed in the table above differs from the single total figure table in the Directors’ Remuneration Report on
page 81 for the following reasons:
Only pensions payable directly to pension schemes are included in the post employment benefits in the table on page 81.
£73,000 (2014: £45,000) additional cash payments for pensions paid indirectly were included in Directors’ remuneration;
The table above excludes LTIPs vested in the form of share options.
Further details of the remuneration of Directors are provided in the Directors’ Remuneration Report on pages 70 to 87.
A geographical split of the Group’s average number of employees during the year is included in Note 1. The total number of
employees employed by the Group at 31 March 2015 was 2,243 (2014: 2,208).
116
23998-04 Proof Two - final 15 June 2015 3:03 PM
Notes to the Consolidated Financial StatementscontinuedRenold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 3. Net financing costs
Financial costs:
Interest payable on bank loans and overdrafts
Amortised financing costs
Total financing costs
Net IAS 19 financing costs
Discount unwind on provisions
Net financing costs
4. Taxation
Analys is of tax charge/(credit) in the year
United Kingdom
UK corporation tax at 21% (2014: 23%)
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 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
2015
£m
(1.4)
(0.3)
(1.7)
(2.5)
(0.2)
(4.4)
2015
£m
–
–
–
1.3
0.1
1.4
(0.3)
1.0
0.7
2.1
2014
£m
(1.5)
(0.3)
(1.8)
(2.8)
–
(4.6)
2014
£m
–
–
–
1.0
0.2
1.2
3.0
0.6
3.6
4.8
2015
£m
2014 (restated)
£m
3.4
3.4
(2.1)
(2.1)
Factors affecting the Group tax charge for the year
The UK Finance Act 2013 reduced the main rate of UK corporation tax from 23% to 21% from 1 April 2014 and then 20%
from 1 April 2015. The effect of these reductions has been incorporated into the closing deferred tax balances in the financial
statements.
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 charge/(credit) at 21% (2014: 23%)
Effects of:
Permanent differences
Overseas tax rate differences
Deferred tax (utilised)/not recognised
Change in UK tax rate
Total tax charge/(credit)
23998-04 Proof Two - final 15 June 2015 3:03 PM
2015
£m
7.7
1.6
0.8
0.8
(1.1)
–
2.1
2014
£m
(5.9)
(1.4)
0.2
0.4
5.2
0.4
4.8
117
www.renold.com Stock code: RNOFinancial Statements 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:
Basic EPS
Profit/(loss) attributed to ordinary
shareholders
Basic EPS
Adjusted EPS
Basic EPS
Effect of exceptional items, after tax:
Exceptional items in operating costs
Exceptional tax charge
Pension administration costs included
in operating costs
Discount unwind on exceptional items
Net pension financing costs
Adjusted EPS
2015
2014
Profit
£m
Shares
(thousands)
Per share
amount
(pence)
Loss
£m
Shares
(thousands)
Per share
amount
(pence)
5.5
5.5
223,065
223,065
2.5
2.5
(10.9)
(10.9)
222,398
222,398
(4.9)
(4.9)
2015
Earnings
£m
Shares
(thousands)
Per share
amount
(pence)
(Loss)/
earnings
£m
2014
Shares
(thousands)
Per share
amount
(pence)
5.5
2.9
–
0.5
0.2
2.1
11.2
223,065
223,065
2.5
1.3
0.2
0.1
0.9
5.0
(10.9)
222,398
(4.9)
11.4
3.5
0.6
–
2.4
7.0
222,398
5.1
1.6
0.3
–
1.1
3.2
Inclusion of the dilutive securities, comprising 2,489,000 (2014: 1,620,000 restated) additional shares due to share options in
the calculation of basic and adjusted EPS does not change the amount shown above (2014: no change).
Further details in relation to the warrants can be found in Note 19.
The adjusted EPS 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.
6. Dividends
No ordinary dividend payments were paid or proposed in either the current or prior year.
118
23998-04 Proof Two - final 15 June 2015 3:03 PM
Notes to the Consolidated Financial StatementscontinuedRenold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 7. Intangible assets
Cost
At 1 April 2013
Exchange adjustment
Additions
Disposals
At 1 April 2014
Exchange adjustment
Additions
Disposals
At 31 March 2015
Accumulated amortisation and impairment
At 1 April 2013
Exchange adjustment
Amortisation charge
Disposals
At 1 April 2014
Exchange adjustment
Amortisation charge
Disposals
Impairment charge
At 31 March 2015
Net book amount at 31 March 2015
Net book amount at 31 March 2014
Net book amount at 31 March 2013
Goodwill
£m
Computer
software
£m
23.3
(2.1)
–
–
21.2
2.1
–
–
23.3
1.5
(0.1)
–
–
1.4
–
–
–
–
1.4
21.9
19.8
21.8
10.9
–
1.1
(0.7)
11.3
(0.2)
1.7
(0.1)
12.7
4.7
–
1.2
(0.7)
5.2
(0.1)
1.4
(0.1)
0.2
6.6
6.1
6.1
6.2
Total
£m
34.2
(2.1)
1.1
(0.7)
32.5
1.9
1.7
(0.1)
36.0
6.2
(0.1)
1.2
(0.7)
6.6
(0.1)
1.4
(0.1)
0.2
8.0
28.0
25.9
28.0
The Group performed its annual impairment test of goodwill at 31 March 2015 that compares the current book value to the
recoverable amount from the continued use or sale of the related business. No impairment charge has been recognised in the
period.
The recoverable amount of each Cash Generating Unit (CGU) has been determined on a value in use basis. Value in use is
calculated as the net present value of cash flows derived from detailed financial plans for the next two financial years as
approved by the Board. Cash flows beyond this are extrapolated using the long term country growth rates disclosed below:
Jeffrey Chain, USA
Ace Chains, Australia
Renold Chain, India
Growth rates
CGU discount rates
Carrying values
2015
%
2.7
3.0
6.7
2014
%
3.1
3.0
6.7
2015
%
13.7
13.5
24.1
2014
%
13.6
13.6
23.7
2015
£m
19.5
0.5
1.9
21.9
2014
£m
17.4
0.5
1.9
19.8
23998-04 Proof Two - final 15 June 2015 3:03 PM
119
www.renold.com Stock code: RNOFinancial Statements
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 2015.
Cash flows beyond the period of projections are extrapolated using long term growth rates published by the Organisation for
Economic Co-operation and Development for the territory in which the CGU is based. The discount rates applied to the cash
flows of each of the CGUs are based on the risk free rate for long term bonds issued by the government in the respective
market. This is then adjusted to reflect both the increased risk of investing in equities and the systematic risk of the specific
CGU (using an average of the betas of comparable companies).
Management believe that no reasonably possible change in any of the key assumptions would cause the carrying value of
Jeffrey Chain and Ace Chains to materially exceed each CGU’s recoverable amount. With respect to Renold Chain India, if long
term growth rates fell by approximately 46% (2014: 15%) the goodwill in respect of that unit may become impaired.
Computer software
Following the decision to change the Group’s planned global ERP system, an impairment charge of £0.2m has been recognised
in the period in respect of software licences that are no longer expected to be used in the business (2014: nil) (see Note 2(c)
for details). As a result, future periods will include approximately £0.2m per annum of accelerated amortisation to reflect the
shorter useful economic life.
8. Property, plant and equipment
Cost
At 1 April 2013
Exchange adjustment
Additions
Transfer to asset held for sale
Disposals
At 1 April 2014
Exchange adjustment
Additions
Disposals
At 31 March 2015
Accumulated depreciation and impairment
At 1 April 2013
Exchange adjustment
Charge for the year
Transfer to asset held for sale
Disposals
At 1 April 2014
Exchange adjustment
Charge for the year
Disposals
At 31 March 2015
Net book amount at 31 March 2015
Net book amount at 31 March 2014
Net book amount at 31 March 2013
Land and
buildings
£m
Plant and
equipment
£m
25.0
(1.6)
0.9
(2.3)
(3.0)
19.0
(0.5)
0.2
–
18.7
6.0
–
0.8
(0.7)
(3.0)
3.1
(0.1)
0.5
–
3.5
15.2
15.9
19.0
121.3
(6.3)
5.1
–
(15.2)
104.9
(2.4)
4.7
(2.1)
105.1
97.2
(4.3)
3.4
–
(14.8)
81.5
(2.2)
3.4
(2.1)
80.6
24.5
23.4
24.1
Total
£m
146.3
(7.9)
6.0
(2.3)
(18.2)
123.9
(2.9)
4.9
(2.1)
123.8
103.2
(4.3)
4.2
(0.7)
(17.8)
84.6
(2.3)
3.9
(2.1)
84.1
39.7
39.3
43.1
Future capital expenditure
At 31 March 2015 capital expenditure contracted for but not provided for in these accounts amounted to £1.1m (2014: £0.1m).
Asset held for sale
In the prior year the former manufacturing site located in Seclin, France was reclassified as an asset held for sale (See Note 10).
120
23998-04 Proof Two - final 15 June 2015 3:03 PM
Notes to the Consolidated Financial StatementscontinuedRenold plc Annual Report and Accounts 2015 for the year ended 31 March 2015
9. Investment property
Cost
At 1 April 2013
Exchange adjustment
At 1 April 2014
Exchange adjustment
At 31 March 2015
Accumulated depreciation
At 1 April 2013
Charge for the year
At 1 April 2014
Impairment charge
Charge for the year
At 31 March 2015
Net book amount at 31 March 2015
Net book amount at 31 March 2014
Net book amount at 31 March 2013
£m
2.0
(0.1)
1.9
(0.1)
1.8
0.6
–
0.6
1.2
–
1.8
–
1.3
1.4
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. A valuation of the property was conducted in March 2013 by BNP Paribas, French chartered surveyors and property
consultants. At that date, the fair value of the property was assessed at £1.9m (excluding de-pollution costs) based on ongoing
rental for industrial use. As a result of this valuation, an impairment charge of £0.4m was made in 2013 to include estimated
depollution costs.
During the year, the Directors have reassessed the medium term prospects regarding the future use or sale of the property.
Given the depressed local property market and general economic weakness in that region of France, the Directors have decided
to write down the net book value of the property to nil. As a result, a £1.2m impairment charge (included in the 'Chain' segment
in Note 1) has been charged as an exceptional item in the year. Any future maintenance costs will be charged to operating profit
in the period incurred. The Group will continue to assess options with regard to the future use of this site which are also subject
to any changes in local zoning or planning restrictions.
10. Asset Held for Sale
At 1 April
Transfer in
Exchange adjustment
At 31 March
2015
£m
1.6
–
(0.2)
1.4
2014
£m
–
1.6
–
1.6
The asset held for sale is the former Chain manufacturing facility located in Seclin, France. Since the transfer of the majority
of manufacturing in 2011/12, part of the facility has been used as a distribution and sales office. The property is being actively
marketed for sale by an independent real estate agent in France and regular enquiries continue to be made by various third
parties. In the event of a sale, the Company may retain an interest in the part of the facility that is in use in the business or seek
alternate premises for that activity. The property was independently valued by BNP Paribas Real Estate on 29 October 2012
on the basis of a freehold sale. The value disclosed above reflects that valuation and in the opinion of the Directors no changes
have occurred that would alter that valuation.
23998-04 Proof Two - final 15 June 2015 3:03 PM
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11. Inventories
Raw materials
Work in progress
Finished products and production tooling
Inventories pledged as security for liabilities amounted to £27.8m (2014: £27.5m).
12. Trade and other receivables
2015
£m
6.1
5.9
23.8
35.8
2014
£m
5.8
6.8
23.3
35.9
Trade receivables1
Less: impairment provision
Trade receivables: net
Other receivables1
Prepayments
1 Financial assets carried at cost.
2015
Current
£m
2015
Non-current
£m
2014
Current
£m
2014
Non-current
£m
27.5
(0.5)
27.0
1.8
1.8
30.6
–
–
–
–
–
–
26.8
(0.6)
26.2
1.7
1.8
29.7
–
–
–
0.2
–
0.2
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 the Group’s credit risk
policy. As at 31 March, the ageing analysis of trade receivables is as follows:
Neither past
due nor
impaired
£m
23.9
22.8
Total
£m
27.5
26.8
2015
2014
Movement on impairment provision
Opening provision
Net charge to income statement
Utilised in year through assets written off
Closing provision
Past due but not
impaired
<30 days
£m
30-60 days
£m
60-90 days
£m
>90 days
£m
2.4
2.3
0.4
0.8
–
0.2
2015
£m
0.6
0.1
(0.2)
0.5
13. Cash and cash equivalents
In the Group cash flow statement, net cash and cash equivalents are shown after deducting bank overdrafts as follows:
Cash and cash equivalents
Less: Overdrafts (Note 14)
Net cash and cash equivalents
2015
£m
12.6
(0.4)
12.2
122
23998-04 Proof Two - final 15 June 2015 3:03 PM
0.8
0.7
2014
£m
0.8
0.1
(0.3)
0.6
2014
£m
6.7
(0.1)
6.6
Notes to the Consolidated Financial StatementscontinuedRenold plc Annual Report and Accounts 2015 for the year ended 31 March 2015
14. Borrowings
Amounts falling due within one year:
Overdrafts
Bank loans (net of capitalised costs)
Amounts falling due after more than one year:
Bank loans (net of capitalised costs)
Preference Stock
Total borrowings (Note 25(d))
All financial liabilities above are carried at amortised cost.
2015
£m
0.4
0.3
0.7
30.9
0.5
31.4
32.1
2014
£m
0.1
–
0.1
30.9
0.5
31.4
31.5
Core banking facilities
On 13 May 2015 a revision of the terms of the facility in place was agreed. Details of the revised agreed terms are outlined in
Note 27. The details of the facility in place at the end of the financial year are summarised below.
On 28 September 2012, Renold agreed a banking facility agreement for a four year period maturing in October 2016. The
facilities comprise a £41m Multi-Currency Revolving Credit Facility ('MRCF'), and an additional £8m of ancillary facilities. These
facilities have been provided by a banking group comprised of Lloyds Bank plc and Svenska Handelsbanken AB. The MRCF is
fully committed and available until maturity.
At the year end the undrawn facility was £9.0m (2014: £9.0m). 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 2.69% for the Euro and Sterling
denominated facility and LIBOR plus 2.94% for the US Dollar denominated facility (2014: LIBOR plus 2.75% for the Euro and
Sterling denominated facility and LIBOR plus 3% for the US Dollar denominated facility). This facility has two primary financial
covenants which are tested on a six monthly basis. The first is net debt as a ratio of rolling annual EBITDA with a maximum
ratio of 2.5 times. The second is interest cover with a minimum ratio of 4.0 times (rolling annual EBITDA divided by net financial
interest cost). The Group also benefits from a number of overseas facilities totalling £1.6m. Costs of £1.1m associated with the
refinancing were capitalised and offset against loans and are being amortised over the life of the facility.
Secured borrowings
Included in Group borrowings are secured borrowings of £29.3m (2014: £27.5m). Security is provided by fixed and floating
charges over assets (including certain property, plant and equipment and inventory) primarily in the UK, USA, France, Germany
and Australia.
Finance leases
The Group has no obligations under finance leases.
Preference Stock
At 31 March 2015 there were 580,482 units of Preference Stock in issue (2014: 580,482).
All payments of dividends on the Preference Stock have been paid on the due dates. The Preference Stock has the following
rights:
i. a fixed cumulative preferential dividend at the rate of 6% per annum payable half yearly on 1 January and 1 July in each year;
ii. rank both with regard to dividend (including any arrears on the commencement of a winding up) and return of capital in
priority to all other stock or shares in the Company, but with no further right to participate in profits or assets;
iii. no right to attend or vote, either in person or by proxy, at any general meeting of the Company or to have notice of any such
meeting, unless the dividend on the Preference Stock is in arrears for six calendar months; and
iv. no redemption entitlement and no fixed repayment date.
There is no significant difference between the carrying value of financial liabilities and their equivalent fair value.
23998-04 Proof Two - final 15 June 2015 3:03 PM
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15. Trade and other payables
Trade payables1
Other tax and social security
Other payables1
Accruals1
1 Financial liabilities carried at amortised cost.
2015
Current
£m
2015
Non-current
£m
2014
Current
£m
2014
Non-current
£m
18.1
1.7
1.6
15.2
36.6
–
–
–
1.1
1.1
17.3
1.4
1.4
14.8
34.9
–
–
–
0.6
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 2014
Exchange
Arising during the year
Release/utilised in the year
Discount unwind on provision
At 31 March 2015
Allocated as:
Current provisions
Non-current provisions
Business
restructuring
£m
Onerous
lease
£m
Onerous
licences
£m
Contingent
consideration
£m
Total
provisions
£m
1.1
–
1.0
(1.8)
–
0.3
5.7
–
0.5
(1.0)
0.2
5.4
0.3
–
–
(0.3)
–
–
0.6
0.1
–
–
–
0.7
2015
£m
2.1
4.3
6.4
7.7
0.1
1.5
(3.1)
0.2
6.4
2014
£m
2.4
5.3
7.7
Business restructuring
This provision relates to the reorganisation and restructuring of various parts of the business. £0.2m relates to the Bredbury
plant closure initiated in the prior year and that was completed in the first half of the current financial year. See Note 2(c) on
exceptional charges for more details.
Onerous lease
A provision was established in relation to onerous lease costs in respect of the lease of the Bredbury plant. The lease expires
in May 2030 (See Note 2(c)). The provision was increased by £0.5m in the year due to a change in the discount rate used to
discount the future payment obligations.
Contingent consideration
Renold (Hangzhou) Co Limited: China
A provision was established for the purchase of the outstanding 10% of the equity following the acquisition of 90% of the equity
interest in Renold (Hangzhou) Co Limited in the period ended 31 March 2008 and is due to be paid at the latest by 15 June 2017.
124
23998-04 Proof Two - final 15 June 2015 3:03 PM
Notes to the Consolidated Financial StatementscontinuedRenold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 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
2015
£m
(1.6)
14.5
6.3
(1.9)
17.3
(0.2)
17.1
2014 (restated)
£m
(1.7)
11.4
6.7
(1.7)
14.7
(0.2)
14.5
2015
£m
(0.2)
–
–
–
(0.2)
0.2
–
2014
£m
(0.3)
–
–
0.1
(0.2)
0.2
–
2015
£m
(1.8)
14.5
6.3
(1.9)
17.1
–
17.1
2014 (restated)
£m
(2.0)
11.4
6.7
(1.6)
14.5
–
14.5
The net deferred tax asset recoverable within one year is £2.5m (2014: nil) and recoverable after more than one year is £14.6m
(2014: £14.5m restated).
The movement in the net deferred tax balance relating to assets is as follows:
2015
Accelerated capital allowances
Pension plans
Tax losses
Other temporary differences
2014 (restated)
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
(1.7)
11.4
6.7
(1.7)
14.7
–
(0.6)
0.6
(0.1)
(0.1)
0.1
0.3
(1.0)
(0.1)
(0.7)
–
3.4
–
–
3.4
Opening
balance
£m
Exchange
adjustments
£m
Recognised
in income
statement
£m
Recognised
directly in other
comprehensive
income
£m
0.3
13.5
9.4
(1.8)
21.4
0.2
(0.2)
(0.9)
0.2
(0.7)
(2.2)
0.2
(1.8)
(0.1)
(3.9)
–
(2.1)
–
–
(2.1)
The movement in the net deferred tax balance relating to liabilities in the year is as follows:
2015
Accelerated capital allowances
Pension plans
Tax losses
Other temporary differences
2014
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)
–
–
0.1
(0.2)
–
–
–
–
–
0.1
–
–
(0.1)
–
–
–
–
–
–
Opening
balance
£m
Exchange
adjustments
£m
Recognised
in income
statement
£m
Recognised
directly in other
comprehensive
income
£m
(0.5)
(0.3)
0.2
–
(0.6)
0.1
–
–
–
0.1
0.1
0.3
(0.2)
0.1
0.3
–
–
–
–
–
23998-04 Proof Two - final 15 June 2015 3:03 PM
Closing
balance
£m
(1.6)
14.5
6.3
(1.9)
17.3
Closing
balance
£m
(1.7)
11.4
6.7
(1.7)
14.7
Closing
balance
£m
(0.2)
–
–
–
(0.2)
Closing
balance
£m
(0.3)
–
–
0.1
(0.2)
125
www.renold.com Stock code: RNOFinancial Statements 17. Deferred tax continued
During the year the Group has reported an operating profit before exceptional items and pensions administration costs of
£15.5m. 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 £22.5m (2014: £27.4m) arising from unrecognised losses of £14.4m (2014: £15.9m)
(representing losses of £51.5m (2014: £56.0m)) and other timing differences of £8.1m (2014: £11.5m). Based on available
evidence, it is considered unlikely that these amounts will be recovered within the foreseeable future. The significant majority of
these losses are not subject to time limits.
18. Pensions
The Group operates a number of pension plans throughout the world covering many of its employees. The plans are a mix
of defined benefit and defined contribution plans. In a defined benefit plan the members are guaranteed a certain level of
benefits that depend on a number of factors such as service, salary and inflation. Defined benefit plans can be supported by
an asset fund that will be used to pay member benefits or can be unfunded in which case obligations to members are paid by
the sponsoring employer as they fall due. In a defined benefit plan, because the level and duration of the members’ benefits are
uncertain, the risk of any increase or decrease in the cost of providing those benefits stays with the employer. This contrasts
with a defined contribution plan where the employer’s only obligation is to pay the amount agreed in the employment contract
into a pension plan.
Any change in the total expected cost of providing defined benefits can produce either funding shortfalls or surpluses. In the
case of an expected funding shortfall, the Company is required to agree a deficit recovery plan. This is usually a combination of
additional contributions to make good the shortfall over an agreed period of time (sometimes referred to as a ‘funding plan’ or
a Minimum Funding Requirement (‘MFR’)) and which can also include an allowance for some of the shortfall to be made good
by future asset outperformance. In the case of a surplus, mechanisms are available in all of the Renold schemes to return that
surplus to, or utilise it for the benefit of, the Group.
UK Pension Plans
The principal fund is the Renold Pension Scheme (‘RPS’) in the UK that was formed by the merger in June 2013 of three
predecessor plans, all of which were already closed to future accrual and to new members: (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’) (which was then renamed the RPS). The RPS is a funded defined benefit plan with assets held in
separate Trustee administered funds.
The merger of the UK schemes was implemented to reduce the administration costs of running three separate pension
schemes. During the merger, 1,316 members with smaller pension entitlements opted at that time to have their entire
entitlement paid out in wind up lump sums. All other members had their benefits transferred in full into the RPS. The legacy
RGPS and J&S RBP were formally liquidated during the year.
The Trustees are chaired by an independent professional trustee firm and have access to a range of professional advisers.
The Trustee Board is required to consult the Company in matters such as investment policy and to obtain agreement to any
amendments to benefits. The Company can make proposals to the Trustees on a range of issues but cannot insist on their
adoption. The majority of Trustees are either independent or member nominated with Company nominated Trustees being in
the minority. To mitigate the risk of potential conflicts of interests, no Directors of Renold plc are Trustees of the RPS.
126
23998-04 Proof Two - final 15 June 2015 3:03 PM
Notes to the Consolidated Financial StatementscontinuedRenold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 18. Pensions continued
The RPS is underpinned by a 25 year asset backed partnership structure (the ‘SLP’). The partnership holds an intercompany
loan from Renold International Holdings Limited, the holding company for most of the Group’s overseas trading companies. The
capital rights to the assets in the SLP belong to Renold plc except in the event of a corporate insolvency of the scheme sponsor
(Renold plc). The income rights in the SLP belong to the RPS. The loan generates interest income that provided an annual cash
contribution of £2.6m to the pension fund in the current year, with annual increases linked to RPI plus 1.5% and capped at
5%. The income stream is used to fund deficit repair payments and the first £0.5m of annual administrative expenses (with
the company bearing any excess). In the event that the RPS becomes fully funded on a buyout basis, the income stream will
instead accrue to Renold. The SLP was put in place with the expectation that the period to recover the funding shortfall was 25
years from the time of merger. The SLP therefore helps reduce the volatility in short term cash funding by following an agreed
payment plan over a longer period of time. The interest in the SLP held by the Schemes is not reported as a plan asset in the
consolidated financial statements as it is a non-transferable interest issued by the Group.
The new arrangement replaced all other existing funding arrangements for the RPS and there is no separate schedule of
contributions as at 31 March 2015. The SLP therefore represents the entirety of the committed cash element of the funding
plan for the RPS. The funding plan also assumes an allowance for asset outperformance of 1.0% (that is, assets are expected
to return an amount of 1.0% more than the discount rate applied to the liabilities). Separately to the SLP but put in place at the
same time, the Group has also agreed that if operating profits reach £16.0m in any year following the year ended 31 March
2017, additional annual contributions of £1.0m will become payable (monthly in arrears) while profits remain above this level.
The £1.0m increase matches the approximate £1.0m reduction agreed at the inception of the SLP. Finally, as part of the overall
agreement, Renold plc is not constrained from paying a dividend, other than by normal legal considerations, and has agreed to
make additional contributions equal to 25% of the value of any dividend paid in order to accelerate the deficit recovery plan. The
accounting deficit will be reduced as the cash contributions under the scheme are made.
Total cash costs for UK deficit repair payments and UK administrative expenses in the period were £3.1m (2014: £2.7m). The
current year figure includes the £2.6m noted above in connection with the SLP, and a further £0.5m in respect of the costs of
other pension projects that were carried out or initiated during the year. The main initiative was the medically underwritten
insured buy-in that completed after the end of the financial year to de-risk approximately 25% of current pensioner liabilities.
Further details on that project are contained in the Finance Director’s report on pages 37 to 39 and Note 27.
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 Pension Plans
Germany
In Germany, in addition to participating in the Government pension scheme, the Group operates an unfunded defined benefit
scheme (no other Group company operates an unfunded defined benefit scheme). The scheme has no asset backing and the
Group pays member benefits as they fall due. The scheme closed to new members on 1 April 1992. The Group has commenced
proceedings aimed at closing the scheme to future accrual. A number of arbitration hearings have been held during the year
and a final decision is awaited in the coming financial year. If successful, depending on the terms of the closure, there would be
a reduction in ongoing annual service costs, the book value of the scheme liabilities, and the lifetime cost of the scheme, all else
being equal.
United States of America
In the US the Group operated three defined benefit pension schemes in the Torque Transmission business. All three schemes
are closed to new members and two of the schemes closed to future accrual at the same time. Only the hourly paid scheme
remains open to future accrual. One of the three schemes, with gross liabilities of £1.1m was formally terminated and member
benefits secured in full during the year at a net cost to the Group of £0.1m. Funds that had been earmarked for the closed
scheme are now being used to accelerate making good the deficit in the second fully closed US scheme with a similar intention
to terminate and secure member benefits in the next two to three years. The US Chain business operates a defined contribution
scheme.
In aggregate, the two (2014: three) defined benefit schemes in the US have combined assets of £8.6m (2014: £8.0m) and
liabilities of £13.4m (2014: £11.4m), giving a net deficit of £4.8m (2014: £3.4m). The change in the net deficit was due to reduction
in the discount rate to 3.5% (2014: 4.0%) and a change in the national mortality rate tables as issued by the US Society of
Actuaries.
23998-04 Proof Two - final 15 June 2015 3:03 PM
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www.renold.com Stock code: RNOFinancial Statements 18. Pensions continued
Other overseas schemes
Other overseas employees participate in a variety of different pension arrangements of the defined contribution or defined
benefit type, funded in accordance with local practice.
In aggregate the other overseas defined benefit schemes have combined assets of £5.7m (2014: £5.7m) and liabilities of £6.2m
(2014: £6.1m) giving a net deficit of £0.5m (2014: net deficit of £0.4m).
The pension 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 are presented on a
weighted average basis where appropriate. Plan assets are stated at their market values at the respective balance sheet dates.
The weighted average durations for both the UK and German pension schemes are 14 years (2014: 14 years) respectively.
Significant assumptions
The principal financial assumptions used to calculate plan liabilities as at 31 March 2015 are presented below. The assumptions
adopted by the plans’ actuaries represent the best estimates chosen from a range of possible actuarial assumptions which, due
to the timescale covered, may not necessarily be borne out in practice.
Rate of increase in pensionable salaries1
Rate of increase in pensions in payment
and deferred pensions
Discount rate
Inflation assumption2
UK
Germany
Other Overseas
2015
–
1.6%
3.3%
1.7%
2014
–
1.9%
4.5%
2.2%
2015
1.5%
1.5%
1.4%
1.5%
2014
1.5%
1.5%
3.3%
1.5%
2015
2.4%
–
3.2%
2.3%
2014
2.3%
–
3.9%
2.4%
1 No increase applies following the closure of the UK defined benefit pension schemes to future accrual.
2 The inflation assumption used for UK schemes was changed to a blend of RPI and CPI in 2012. In addition members have the option to take a one off increase in
pension at retirement in exchange for surrendering future increases. Approximately 25% of members took this option.
The predominant defined benefit obligation for funded plans within the Group resides in the UK (£201.5m of the £247.0m Group
obligation for funded plans). In addition to the assumptions shown previously, mortality assumptions have a significant bearing
on the calculated obligation. The assumed life expectancy for the RPS members on retirement at age 65 is as follows.
Males
Currently aged 45
Currently aged 65
Females
Currently aged 45
Currently aged 65
2015
21.3
20.4
23.7
22.6
2014
21.3
20.3
23.6
22.5
The post-retirement mortality tables used for the UK plan are the S1PA series tables published by the UK actuarial profession
with a 20% uplift in mortality reflecting scheme specific experience. The RPS experiences mortality significantly in excess of the
national average. The mortality rates for the RPS are based on average year of birth for both non-pensioners and pensioners
with an allowance for future annual improvements in life expectancy.
In Germany, the mortality expectations for the scheme are in line with the local national averages as is the case in the United
States and Australia.
128
23998-04 Proof Two - final 15 June 2015 3:03 PM
Notes to the Consolidated Financial StatementscontinuedRenold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 18. Pensions continued
Sensitivity analysis on UK scheme:
Assumption
Change in assumption
Discount rate
Rate of inflation
Rate of mortality
Increase/decrease by 0.25%
Increase/decrease by 0.25%
Increase/decrease by 1 year1
Impact on plan liabilities
Decrease by £7.2m/increase by £7.6m
Increase by £4.0m/decrease by £3.9m
Increase/decrease by £8.0m
1 Calculated using a reduction to assumed mortality rates of 12.5% at all ages. This is broadly equivalent to an increase in life expectancy of one year at age 65.
The 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
and since it is not intended to realise the assets in the short term, the value may change significantly 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:
UK equities
Overseas equities
Hedge funds and diversified growth funds
Corporate bonds
Gilts
Other
Total market value of assets
UK
£m
20.4
29.7
39.1
36.0
29.8
1.6
156.6
2015
Overseas
£m
–
7.6
–
4.2
0.7
2.2
14.7
Total
£m
20.4
37.3
39.1
40.2
30.5
3.8
171.3
UK
£m
20.3
26.1
31.9
39.1
26.1
1.4
144.9
2014
Overseas
£m
–
7.1
–
4.0
0.7
2.3
14.1
Total
£m
20.3
33.2
31.9
43.1
26.8
3.7
159.0
Equities include investments in quoted equities, funds of hedge funds and, in the prior year, property investment vehicles. The
assets held are materially a reflection of the underlying liabilities in that lower risk assets such as gilts and bonds are deemed
to be a match for pensioner liabilities whereas equities are deemed a better match for the liabilities associated with scheme
members not yet in retirement.
Pension obligations
The movement in the present value of the defined benefit obligation is as follows:
Opening obligation
Current service cost
Interest expense
Contributions by plan participants
Remeasurement gains /(losses) by changes
in:
– Experience
– Demographic assumptions
– Financial assumptions
Liabilities extinguished on settlement
Benefits paid
Exchange adjustment
Closing obligation
The total defined benefit obligation can be
analysed as follows:
Funded pension plans
Unfunded pension plans
UK
£m
(183.0)
–
(8.0)
–
–
–
(20.5)
–
10.0
–
(201.5)
(201.5)
–
(201.5)
2015
Overseas
£m
(40.9)
(0.4)
(1.4)
(0.1)
(1.5)
(0.5)
(6.3)
1.1
2.4
2.1
(45.5)
(19.5)
(26.0)
(45.5)
Total
£m
(223.9)
(0.4)
(9.4)
(0.1)
(1.5)
(0.5)
(26.8)
1.1
12.4
2.1
(247.0)
(221.0)
(26.0)
(247.0)
UK
£m
(199.1)
–
(8.1)
–
0.3
(2.5)
4.9
10.9
10.6
–
(183.0)
(183.0)
–
(183.0)
2014
Overseas
£m
(42.3)
(0.4)
(1.5)
(0.1)
0.4
–
(1.7)
–
2.0
2.7
(40.9)
(17.3)
(23.6)
(40.9)
Total
£m
(241.4)
(0.4)
(9.6)
(0.1)
0.7
(2.5)
3.2
10.9
12.6
2.7
(223.9)
(200.3)
(23.6)
(223.9)
129
23998-04 Proof Two - final 15 June 2015 3:03 PM
www.renold.com Stock code: RNOFinancial Statements 18. Pensions continued
Pension assets
The movement in the present value of the defined benefit plan assets is as follows:
Opening assets
Interest income
Remeasurement gains
Employer contributions
Participant contributions
Benefits paid
Assets distributed on settlement
Exchange adjustment
Closing assets
Balance sheet reconciliation:
Plan obligations
Plan assets
Net plan deficit
Analysed as follows:
Non-current assets
Retirement benefit surplus
Non-current liabilities
Retirement benefit obligations
Net deficit
UK
£m
144.9
6.3
12.8
2.6
–
(10.0)
–
–
156.6
(201.5)
156.6
(44.9)
2015
Overseas
£m
14.1
0.6
0.9
1.0
0.1
(1.3)
(1.2)
0.5
14.7
(45.5)
14.7
(30.8)
–
0.2
(44.9)
(44.9)
(31.0)
(30.8)
Total
£m
159.0
6.9
13.7
3.6
0.1
(11.3)
(1.2)
0.5
171.3
(247.0)
171.3
(75.7)
0.2
(75.9)
(75.7)
UK
£m
156.0
6.3
0.9
2.7
–
(10.6)
(10.4)
–
144.9
(183.0)
144.9
(38.1)
–
(38.1)
(38.1)
2014
Overseas
£m
15.9
0.5
0.6
1.1
0.1
(2.1)
–
(2.0)
14.1
(40.9)
14.1
(26.8)
0.4
(27.2)
(26.8)
The retirement benefit surplus relates to the Australian scheme which remains in surplus.
The net amount of remeasurement gains and losses taken to other comprehensive income is as follows:
Remeasurement gains/(losses) on plan
obligations
Remeasurement gains/(losses) on plan
assets
Net (losses)/gains
UK
£m
(20.5)
12.8
(7.7)
2015
Overseas
£m
(8.3)
0.9
(7.4)
Total
£m
(28.8)
13.7
(15.1)
UK
£m
2.7
0.9
3.6
2014
Overseas
£m
(1.3)
0.6
(0.7)
Total
£m
171.9
6.8
1.5
3.8
0.1
(12.7)
(10.4)
(2.0)
159.0
(223.9)
159.0
(64.9)
0.4
(65.3)
(64.9)
Total
£m
1.4
1.5
2.9
The actual return on plan assets was £20.6m (2014: £8.3m) which equates to 12.9% (2014: 4.8%) and compares to the assumed
rates of return of 4.5% in the UK and 3.9% in other overseas locations (2014: 4.3% and 3.7%).
An analysis of amounts charged to operating costs is set out below:
Operating costs
Pension administration costs
Current service cost
Settlement (loss)/gains
2015
£m
(0.5)
(0.4)
(0.1)
(1.0)
2014
£m
(0.6)
(0.4)
0.5
(0.5)
The settlement loss of £0.1m relates to the termination of the US Clerical pension scheme in February 2015. The settlement gain
in 2014 relates to the merger of the three UK schemes in June 2013.
The cost for the period of the various defined contribution schemes was £1.5m (2014: £1.5m) and was fully paid up.
130
23998-04 Proof Two - final 15 June 2015 3:03 PM
Notes to the Consolidated Financial StatementscontinuedRenold plc Annual Report and Accounts 2015 for the year ended 31 March 2015
19. Called up share capital
Ordinary shares of 5p each
Deferred shares of 20p each
Issued
2015
£m
11.2
15.4
26.6
2014
£m
11.2
15.4
26.6
At 31 March 2015, the issued ordinary share capital comprised 223,064,703 ordinary shares of 5p each (2014: 223,064,703) and
77,064,703 deferred shares of 20p each (2014: 77,064,703).
20. Share-based payments
Details of the share-based payment arrangements are provided in the Directors’ Remuneration Report on pages 70 to 87. At 31
March 2015, unexercised options for ordinary shares amounted to 7,454,402 (2014: 7,242,517 restated).
The fair value per option granted in the period and the assumptions used in the calculation are as follows:
Grant date
Share price at date of grant
Exercise price
Number of employees
Shares under option
Vesting period (years)
Expected volatility
Option life (years)
Expected life (years)
Risk free interest rate
Assumed dividends expressed as a dividend yield
Possibility of ceasing employment before vesting
Fair value per option
Weighted probability of meeting vesting conditions
2015
Executive share
option scheme
2014
Executive share option scheme
05.06.14
65.17p
0.0p
23
1,945,789
3
58%
10
6
1.0%
Zero
Zero
65.17p
37.5%
6.12.13
49.9p
0.0p
10
520,887
3
59%
10
6
1.0%
Zero
Zero
49.9p
37.5%
26.9.13
38.3p
0.0p
2
319,427
3
59%
10
6
1.0%
Zero
Zero
38.3p
37.5%
25.7.13
28.2p
0.0p
8
3,236,249
3
58%
10
6
0.8%
Zero
Zero
28.2p
37.5%
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 2015 is shown below:
Executive share option schemes
Outstanding at 1 April
Granted
Exercised
Lapsed
Forfeited
Outstanding at 31 March
Exercisable at 31 March
2015
2014 (restated)
Weighted
average exercise
price
18.3p
0.0p
37.3p
63.27p
24.08p
9.9p
37.9p
Number
7,242,517
1,945,789
(1,060,811)
(29,360)
(643,733)
7,454,402
1,158,935
Weighted
average exercise
price
35.5p
0.0p
–
30.35p
32.9p
18.3p
34.5p
Number
5,343,642
4,076,563
–
(390,942)
(1,786,746)
7,242,517
819,826
23998-04 Proof Two - final 15 June 2015 3:03 PM
131
www.renold.com Stock code: RNOFinancial Statements 20. Share-based payments continued
Range of exercise prices
Nil
20p to 30p
30p to 40p
40p to 100p
2015
2014 (restated)
Weighted
average
exercise
price
0.0p
26.4p
37.3p
71.3p
Number
of shares
5,150,429
1,456,482
735,923
111,568
Weighted average
remaining life
Expected
Contractual
Weighted
average
exercise price
8.6
7.3
6.2
1.5
4.6
3.3
2.2
–
0.0p
26.9p
37.3p
69.6p
Number
of shares
3,420,252
1,714,931
1,966,406
140,928
Weighted average
remaining life
Expected
Contractual
5.4
4.0
3.2
–
9.4
8.0
7.2
2.1
1,060,811 options have been exercised in the period (2014: nil). The exercise of the options was executed in the form of a
surrender for cash consideration rather than the issue of new equity. This was done to avoid dilution on the issue of a relatively
small number of shares on a post tax basis. The total charge for the year relating to employee share-based payment plans was
£0.2m (2014: charge £0.1m), all of which related to equity settled share-based transactions.
The prior year figures have been restated to exclude share options that had in fact lapsed.
The middle market price of ordinary shares at 31 March 2015 was 54.00p and the range of prices during the year was 49.25p to
67.75p.
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 2015 amounted to £3.5m (2014: £3.5m).
Included in retained earnings is an amount of £5.7m (net of tax) (2014: £6.1m) 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.
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
2015
2014
Properties
£m
Equipment
£m
Properties
£m
Equipment
£m
1.9
6.2
10.8
18.9
0.3
0.4
0.1
0.8
1.9
6.4
12.9
21.2
0.3
0.3
–
0.6
Certain of the leased properties have been sublet and the future minimum sublease payments expected to be received under
non-cancellable sublease agreements is £3.0m (2014: £3.0m).
An onerous lease provision of £5.4m (2014: £5.7m) (see Note 16) was established in 2014 following the closure of the Bredbury
manufacturing facility (see Note 2(c) for more details). The lease expires in May 2030 at a rental cost of £0.8m per annum and is
included in the analysis above.
23. Contingent liabilities and commitments
Performance guarantees given to third parties in respect of Group companies were £nil (2014: £nil).
Various UK group companies have given guarantees to the merged UK pension scheme to cover the full cost of buying out
the liabilities in the event that the Sponsoring Employers defaulted on the agreed deficit repair plan. As one of the sponsoring
employers of the UK scheme is Renold plc, the continuing obligation is effectively unchanged and is to fully fund the member’s
accrued benefits.
132
23998-04 Proof Two - final 15 June 2015 3:03 PM
Notes to the Consolidated Financial StatementscontinuedRenold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 24. Additional cash flow information
Reconciliation of operating profit to net cash flows from operations:
Cash generated from operations:
Operating profit/(loss)
Depreciation and amortisation
Impairment of intangible assets
Impairment of investment property
Proceeds from plant and equipment disposals
Equity share plans
Decrease in inventories
(Increase)/decrease in receivables
Increase/(decrease) in payables
(Decrease)/increase in provisions
Movement on pension plans
Movement in derivative financial instruments
Cash generated from operations
Reconciliation of net change in cash and cash equivalents to movement in net debt:
Increase/(decrease) in cash and cash equivalents
Change in net debt resulting from cash flows
Foreign currency translation differences
Non-cash movement – amortisation of refinancing costs
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)
2015
£m
12.1
5.3
0.2
1.2
–
–
0.7
(0.2)
0.9
(1.5)
(4.4)
(0.1)
14.2
2015
£m
5.8
0.1
(0.3)
(0.3)
5.3
(24.8)
(19.5)
12.6
(32.1)
(19.5)
2014
£m
(1.3)
5.4
–
–
0.2
0.1
1.8
0.8
(1.8)
5.8
(3.8)
(0.2)
7.0
2014
£m
(2.1)
–
0.4
(0.3)
(2.0)
(22.8)
(24.8)
6.7
(31.5)
(24.8)
25. Financial instruments
These notes should be read in conjunction with the narrative disclosures in the Finance Director’s review on pages 34 to 39.
Foreign currency risk and sensitivity
As a result of the significant 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 impact of reasonably possible changes in the US Dollar (US$) and Euro exchange rates
(with all other variables held constant) on the Group’s result before tax (due to the effect of foreign exchange on monetary
assets and liabilities denominated in a different currency to the functional currency of operation) and the Group’s equity (due to
the effect on other comprehensive income of changes in the fair value of forward exchange contracts and the effect of hedging
borrowings). The impact of translating the net assets of foreign operations into Sterling is excluded from the sensitivity analysis.
23998-04 Proof Two - final 15 June 2015 3:03 PM
133
www.renold.com Stock code: RNOFinancial Statements
25. Financial instruments continued
Change in US Dollar rate (an ‘increase’ being a fall in the value of Sterling compared to US$):
2015
2014
Increase/
(decrease) in
US$ rate
Effect on profit
before tax
£m
Effect on
shareholders’
equity
£m
25%
(10%)
25%
(10%)
(0.1)
0.1
0.1
–
1.3
(0.7)
1.6
(0.9)
Change in Euro rate (an ‘increase’ being a fall in the value of Sterling compared to the Euro):
2015
2014
Increase/
(decrease) in
Euro rate
Effect on profit
before tax
£m
Effect on
shareholders’
equity
£m
25%
(10%)
25%
(10%)
–
–
–
–
0.3
(0.2)
–
–
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:
Sterling
US Dollar
Euro
Other
(a) The balance sheet position on financial instruments is set out below:
Current (liabilities)/assets:
Forward foreign currency contracts: cash flow hedge
Increase in basis
points
2015
Effect on profit
before tax
£m
2014
Effect on loss
before tax
£m
+150
+150
+150
+150
(0.3)
(0.1)
(0.1)
–
(0.5)
2015
£m
(0.1)
(0.3)
(0.1)
(0.1)
–
(0.5)
2014
£m
0.1
The cash flow hedges of the expected future transactions in US Dollars and Euros were assessed to be highly effective. In the
period £nil (2014: £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.
(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 2015 was £5.8m (2014: £5.2m). £0.6m of exchange loss
(2014: £0.6m gain) on translation of the borrowings into Sterling is included as part of the hedging reserve movement in other
comprehensive income as the hedge was deemed to be effective.
134
23998-04 Proof Two - final 15 June 2015 3:03 PM
Notes to the Consolidated Financial StatementscontinuedRenold plc Annual Report and Accounts 2015 for the year ended 31 March 2015
25. Financial instruments continued
(d) Currency and interest rate profile of financial liabilities of the Group
Currency
Sterling
– Financial liabilities
– Preference Stock
US Dollar
Euro
Other
2015
Fixed rate
£m
Floating rate
£m
–
0.5
–
–
–
0.5
21.7
–
5.8
3.6
0.5
31.6
Total
£m
21.7
0.5
5.8
3.6
0.5
32.1
2014
Fixed rate
£m
Floating rate
£m
–
0.5
–
–
–
0.5
20.5
–
5.9
4.5
0.1
31.0
Total
£m
20.5
0.5
5.9
4.5
0.1
31.5
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
Exposure to the risk of changes in market interest rates relates 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 2015
Cash at bank and in hand by currency
Sterling
Euro
US Dollar
Other
2015
£m
0.7
5.0
3.1
3.8
12.6
2014
£m
1.2
0.6
2.5
2.4
6.7
Cash balances are held with the Group’s bankers. These deposits are held largely in Canada and Australia and earn interest at
bank deposit interest rates for periods of up to three months.
(f) Maturity of financial liabilities
The maturity profile of the contracted amount of the Group’s financial liabilities was as follows:
2015
Interest bearing loans and borrowings
Interest paid on borrowings
Trade payables
Forward foreign exchange contracts – outflow
Preference Stock1
One year or less
on demand
£m
One to
two years
£m
Two to
five years
£m
More than
five years
£m
–
1.7
18.1
2.7
–
22.5
32.1
–
–
–
–
32.1
–
–
–
–
–
–
–
–
–
–
0.5
0.5
Total
£m
32.1
1.7
18.1
2.7
0.5
55.1
23998-04 Proof Two - final 15 June 2015 3:03 PM
135
www.renold.com Stock code: RNOFinancial Statements 25. Financial instruments continued
2014
Interest bearing loans and borrowings
Interest paid on borrowings
Trade payables
Forward foreign exchange contracts – outflow
Preference Stock1
1 No fixed repayment date.
One year or less
on demand
£m
One to
two years
£m
Two to
five years
£m
More than
five years
£m
–
1.8
17.3
3.2
–
22.3
–
–
–
–
–
–
32.7
–
–
–
–
32.7
–
–
–
–
0.5
0.5
Total
£m
32.7
1.8
17.3
3.2
0.5
55.5
The Group has contracted forward contracts consisting of Euro forward contracts of £1.7m (2014: nil) and US Dollar forward
contracts of £1.0m (2014: £3.2m). The Euro contracts are buy contracts and the US Dollar are sell contracts, given that the UK
Group tends to have a surplus in US Dollars and a deficit in Euro’s.
A lease became onerous in 2014, see Note 22 for details of rentals payable under this lease.
(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
Expiring between two and five years
2015
£m
3.0
7.6
–
10.6
2014
£m
2.5
–
9.0
11.5
The facilities expiring in one year or less, or on demand, are primarily annual facilities subject to review at various dates during
the year ended 31 March 2015. See Note 27 for details of amended borrowing facilities agreed post year end.
(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 – floating rate bank overdraft
Interest bearing loans and borrowings
Floating rate borrowing
Preference Stock
Carrying value
Fair value
2015
£m
12.6
0.4
31.2
0.5
2014
£m
6.7
0.1
30.9
0.5
2015
£m
12.6
0.4
31.2
0.5
2014
£m
6.7
0.1
30.9
0.5
The fair value of borrowings has been calculated by discounting the expected future cash flows at prevailing interest rates.
With reference to the fair value hierarchy below the above financial instruments are level 2 except Preference Stock which is
level 1.
136
23998-04 Proof Two - final 15 June 2015 3:03 PM
Notes to the Consolidated Financial StatementscontinuedRenold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 25. Financial instruments continued
Fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation
technique:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either
directly or indirectly; and
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable
financial market data.
As at 31 March 2015, the Group held the following financial instruments measured at fair value:
Assets measured at fair value
Forward foreign currency contracts: cash flow hedge
As at 31 March 2014:
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)
–
The fair value of derivatives has been calculated by reference to current forward exchange rates for contracts with similar
maturity profiles.
(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 2015 and 31
March 2014.
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 capital (restated)
Capital and net debt (restated)
Gearing ratio (restated)
Adjusted EBITDA1 (£m)
Net debt to adjusted EBITDA
2015
£m
19.5
9.0
28.5
68%
2014
£m
24.8
11.4
36.2
69%
20.8
0.9 times
16.5
1.5 times
1 Adjusted EBITDA is calculated as operating profit before pension administration costs and exceptional items adding back depreciation and amortisation charges
in the period.
23998-04 Proof Two - final 15 June 2015 3:03 PM
137
www.renold.com Stock code: RNOFinancial Statements Notes to the Consolidated Financial Statements
continued
26. Business combinations
There were no acquisitions in the current or prior year.
27. Post balance sheet events
Amendment and Extension of the Group’s Core Banking Facility
On 13 May 2015 the Group agreed a revision to its existing banking facilities with its current banking partners, Svenska
Handelsbanken AB and Lloyds Bank plc. The new facility replicates the previous £41m MRCF but also adds a £20m accordion
feature that can be triggered by the Group to fund investment or acquisition opportunities. The revised facility has been
extended to mature in May 2020 whereas the original maturity was in October 2016. The new facility is also priced at current
market rates and will lead to a reduction in average annual interest expense of approximately £0.3m on current debt levels. The
main covenants and security granted to the banks and other terms remain largely unchanged.
UK Pensions De-risking Project
After the end of the financial year the Group completed a medically underwritten insured buy-in of approximately £25m of
higher risk current pensioner liabilities representing approximately 25% of current pensioner liabilities. The population in
question is described as high risk because it includes members with higher annual pensions and therefore a concentration of
longevity risk. The UK pension scheme is the beneficiary of the insurance contract purchased which creates matching cash
flows for the pensions secured. The transaction will have no impact on the Group’s accounting balance sheet but the price
achieved was at a discount to the funding assumption which will be relevant to future funding discussions with Trustees.
The key benefit of the transaction was the full de-risking achieved in respect of a significant proportion of current pensioner
liabilities.
138
23998-04 Proof Two - final 15 June 2015 3:03 PM
Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 Group Five Year Financial Review
(unaudited)
Group revenue
Operating profit before exceptional items and pension
administration costs
Operating profit/(loss)
Profit/(loss) before tax
Taxation
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 (restated) (%)1
Return on sales (restated) (%)2
Capital expenditure (£m)
Basic earnings/(loss) per share (restated) (p)
Employees at year end4
2015
£m
181.4
15.5
12.1
7.7
(2.1)
5.6
45.8
30.0
75.8
21.9
(19.5)
15.5
(6.4)
87.3
(75.7)
11.6
15.6
8.5
6.6
2.5
2,243
2014
(restated)
£m
184.0
2013
(restated3)
£m
190.3
11.1
(1.3)
(5.9)
(4.8)
(10.7)
46.7
32.0
78.7
19.8
(24.8)
12.8
(7.7)
78.8
(64.9)
13.9
11.1
6.0
7.1
(4.9)
2,208
7.2
(6.4)
(11.9)
0.1
(11.8)
50.7
33.3
84.0
21.8
(22.8)
19.4
(1.9)
100.5
(69.5)
31.0
6.5
3.8
4.9
(5.4)
2,466
2012
£m
209.5
14.1
12.0
7.6
(1.2)
6.4
54.9
40.2
95.1
22.3
(22.9)
15.9
(1.5)
108.9
(55.7)
53.2
12.2
6.7
5.6
2.8
2,569
2011
£m
191.0
7.0
4.3
(1.3)
0.4
(0.9)
55.1
36.9
92.0
22.4
(20.0)
15.2
(1.2)
108.4
(51.5)
56.9
6.1
3.7
6.6
(0.4)
2,521
1 Being operating profit before exceptional items and pension administration costs divided by average operating assets and goodwill.
2 Based on operating profit before exceptional items and pension administration costs divided by revenue.
3 Only 2013 has been restated for the impact of IAS 19R and hence some of the income statement figures in the earlier years are not fully comparable.
4 Basis of calculation of employee numbers changed to include temporary workers in 2013 onwards.
23998-04 Proof Two - final 15 June 2015 3:03 PM
139
www.renold.com Stock code: RNOFinancial 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 Strategic
Report, 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:
Æ select suitable accounting policies and then apply them
consistently;
Æ make judgements and estimates that are reasonable and
prudent;
Æ state whether applicable UK Accounting Standards
have been followed, subject to any material departures
disclosed and explained in the financial statements; and
Æ 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:
Æ Leasehold properties: the period of the lease
Æ Equipment and fixtures: 10 to 15 years
Æ Motor vehicles: 25% per annum for three years, leaving
25% residual value
Æ Computer software: three to seven years.
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.
140
23998-04 Proof Two - final 15 June 2015 3:03 PM
Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 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.
The results and financial position of Renold Scottish Limited
Partnership (SLP) have been consolidated in the consolidated
financial statements of Renold plc. Renold plc is a parent
undertaking of the general partner in the SLP (see Note (xv)
to the Company financial statements). Accordingly, advantage
has been taken of the exemption conferred by paragraph 7
of the Partnerships (Accounts) Regulations 2008 from the
requirements for preparation, delivery and publication of the
partnerships accounts.
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:
Æ 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
Æ Deferred tax assets are recognised only to the extent
that, based on all available evidence, it is considered more
likely than not that there will be suitable taxable profits
from which the future reversal of the underlying timing
differences can be deducted
Deferred tax is measured on a non-discounted basis at the tax
rates that are expected to apply in the periods in which the
timing differences are expected to reverse, based on tax rates
and laws enacted or substantively enacted by the balance
sheet date.
Pension costs
Employees of the Company participate in the pension plans
operated by the Group in the UK. These include pension
plans of the defined benefit and defined contribution
types. However, the contributions paid by the Company
are accounted for as defined contribution plans in all cases.
This is because the Company is unable to identify its share
of the underlying assets and liabilities in the respective
plans, as required by FRS 17: Retirement Benefits. Therefore,
contributions paid to the respective pension plans are
charged to the profit and loss account as incurred. Disclosures
associated with the Group defined benefit plans are provided
in the Group financial statements.
Share-based compensation
The Company operates equity settled share-based
compensation plans as detailed in the Group financial
statements.
The fair value of 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.
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.
23998-04 Proof Two - final 15 June 2015 3:03 PM
141
www.renold.com Stock code: RNOFinancial Statements Company Balance Sheet
as at 31 March 2015
Fixed assets
Tangible assets
Investments in subsidiary undertakings
Current assets
Debtors
Derivative financial instruments
Cash and short term deposits
Creditors: amounts falling due within one year
Other creditors
Provisions for liabilities
Net current (liabilities)/assets
Total assets less current liabilities
Creditors: amounts falling due after more than one year
Other creditors
Bank borrowings
Preference Stock
Provisions for liabilities
Net assets
Capital and reserves
Called up share capital
Share premium account
Profit and loss account
Shareholders’ funds
Approved by the Board on 26 May 2015 and signed on its behalf by:
Robert Purcell
Chief Executive
Brian Tenner
Finance Director
Note
i
ii
iii
vii
iv
v
iv
vi
vi
v
ix
x
x
2015
£m
6.5
140.2
146.7
2.0
–
3.3
5.3
(6.5)
(0.2)
(1.4)
145.3
(62.5)
(16.7)
(0.5)
–
65.6
26.6
29.9
9.1
65.6
2014
£m
6.7
143.0
149.7
2.3
0.1
1.0
3.4
(8.8)
-
(5.4)
144.3
(62.5)
(14.7)
(0.5)
(0.3)
66.3
26.6
29.9
9.8
66.3
142
23998-04 Proof Two - final 15 June 2015 3:03 PM
Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015
Company Statement of Total Recognised Gains
and Losses
for the year ended 31 March 2015
Loss for the year
Total recognised losses for the year
All attributable to the equity shareholders of the Company.
2015
£m
(0.7)
(0.7)
2014
£m
(8.1)
(8.1)
23998-04 Proof Two - final 15 June 2015 3:03 PM
143
www.renold.com Stock code: RNOFinancial 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
0.4
–
0.4
–
–
10.0
1.3
11.3
3.3
1.5
4.8
6.5
6.7
Total
£m
10.4
1.3
11.7
3.7
1.5
5.2
6.5
6.7
Future capital expenditure
At 31 March 2015, contracted capital expenditure not provided for in these financial statements for which contracts have been
placed amounted to £nil (2014: £nil).
(ii) Investments in subsidiary undertakings
Shares
£m
Advances
£m
Total
£m
Subsidiary undertakings
Cost or valuation
At beginning of year
Net repayments
At end of year
62.0
–
62.0
The principal subsidiary undertakings of the Company at 31 March 2015 are set out in Note (xv).
(iii) Debtors
Amounts owed by subsidiary undertakings
Other debtors
Prepayments
81.0
(2.8)
78.2
2015
£m
1.0
0.3
0.7
2.0
143.0
(2.8)
140.2
2014
£m
1.6
0.1
0.6
2.3
Unrecognised deferred tax assets amount to £2.5m (2014: £4.1m), arising from unrecognised losses of £1.6m (2014: £3.3m)
(representing losses of £8.2m (2014: £16.4m)) and other timing differences of £0.9m (2014: £0.8m). None of these losses are
subject to time limits.
(iv) Other creditors
Amounts falling due within one year:
Trade creditors
Amounts owed to subsidiary undertakings
Other taxation and social security
Accruals
Amounts falling due after one year:
Loan from subsidiary undertakings
2015
£m
0.9
3.9
0.3
1.4
6.5
2015
£m
62.5
2014
£m
0.7
6.7
0.2
1.2
8.8
2014
£m
62.5
A 25 year loan of £62.5m was established with Renold International Holdings Limited in the prior period. Interest of £2.5m per
annum, increasing in line with RPI plus 1.5% capped at 5%, is payable for the period of the loan.
144
23998-04 Proof Two - final 15 June 2015 3:03 PM
Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 (v) Provisions for liabilities
At beginning of year
Charge for the year
Released/utilised in the year
At end of year
2015
£m
0.3
0.2
(0.3)
0.2
2014
£m
0.6
–
(0.3)
0.3
The provision in the prior year relates to onerous software licence costs in relation to the Group ERP system that were unlikely
to be utilised. This has been released in the year. An additional provision has been made in the year relating to Head Office
restructuring costs of £0.2m.
(vi) Borrowings
Amounts falling due after one year:
Bank loans repayable in two to five years
Summary of total borrowings:
Bank loans
Preference Stock
Total borrowings
2015
£m
16.7
16.7
0.5
17.2
2014
£m
14.7
14.7
0.5
15.2
Bank borrowings are secured by fixed and floating charges over the assets of UK subsidiaries.
Banking facilities
The Group’s core banking facilities comprise a £41m Multi-Currency Revolving Credit Facility (MRCF), and an additional £8m of
ancillary facilities which mature in October 2016. These facilities have been provided by a banking group comprised of Lloyds
Bank plc and Svenska Handelsbanken AB. The MRCF is fully committed and available until maturity. See Note 14 and Note 27 to
the consolidated financial statements for more details.
Preference Stock
Details of the Company’s Preference Stock are set out in Note 14 to the consolidated financial statements.
(vii) Derivative financial instrument
Forward foreign currency contracts – cash flow hedge
2015
£m
–
2014
£m
0.1
The Group has contracted forward contracts consisting of Euro forward contracts of £1.7m (2014: £nil) and US Dollar forward
contracts £1.0m (2014: £3.2m). The two Euro contracts are buy contracts and the US Dollar contracts are sell contracts, given
that the UK group companies have a surplus in US Dollars and a deficit in Euros.
(viii) Pensions
Employees of the Company include members of the principal UK defined benefit schemes. However, the contributions paid
by the Company are accounted for under a defined contribution scheme, because the Company is unable to identify with any
degree of reasonable certainty 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. See Note 18 to the consolidated financial statements for more details.
23998-04 Proof Two - final 15 June 2015 3:03 PM
145
www.renold.com Stock code: RNOFinancial Statements (ix) Called up share capital
Equity interests
Ordinary shares of 5p each
Deferred shares of 20p each
Preference Stock1
1
Included in borrowings – see Note (vi).
Issued
2015
£m
11.2
15.4
0.5
27.1
2014
£m
11.2
15.4
0.5
27.1
At 31 March 2015, the issued ordinary share capital comprised 223,064,703 ordinary shares of 5p each (2014: 223,064,703) and
77,064,703 deferred shares of 20p each (2014: 77,064,703).
Disclosures in respect of capital management can be found in Note 25 of the consolidated financial statements.
Share options
At 31 March 2015, unexercised options for ordinary shares amounted to 7,454,402 (2014: 7,242,517 restated) made up as
follows:
Date normally exercisable
Within seven years from:
22 November 2007
26 July 2009
02 January 2010
27 September 2013
08 June 2014
31 July 2015
21 January 2016
25 July 2016
26 September 2016
06 December 2016
05 June 2017
Scheme
2004 Scheme
2004 Scheme
2004 Scheme
2004 Scheme
2004 Scheme
2004 Scheme
2004 Scheme
2013 Scheme
2013 Scheme
2013 Scheme
2013 Scheme
Option price
(p per share)
Number
of shares
2015
Number
of shares
2014 (restated)
63.3
52.5
97.2
27.3
37.3
29.4
26.2
0.0
0.0
0.0
0.0
–
64,592
46,976
311,444
735,923
–
1,145,038
2,579,938
319,427
419,451
1,831,613
7,454,402
29,360
64,592
46,976
311,444
1,966,406
258,449
1,145,038
2,579,938
319,427
520,887
–
7,242,517
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.
The prior year figures have been restated in the table above to exclude share options in relation to the 2004 Scheme
exercisable from 27 September 2013 that had lapsed.
(x) Reserves
At beginning of year
Loss for the year
Employee share options - value of employee services
Settled share based payment transactions
At end of year
Profit and loss
account
£m
Share
premium
£m
Total
reserves
£m
9.8
(0.7)
0.2
(0.2)
9.1
29.9
–
29.9
39.7
(0.7)
0.2
(0.2)
39.0
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 £0.7m (2014: loss £8.1m).
Total fees payable by the Company to Ernst & Young LLP for work in respect of the audit of the Company were £30,000 (2014:
£30,000). 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.
146
23998-04 Proof Two - final 15 June 2015 3:03 PM
Notes to the Consolidated Financial StatementscontinuedRenold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 (xi) 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:
– less than one year
– between one and two years
2015
£m
0.2
–
0.2
2014
£m
–
0.2
0.2
(xii) Contingent liabilities
The Company has guaranteed borrowings by subsidiary undertakings of £0.4m (2014: £0.2m). No material loss is expected to
arise as a result of these contingent liabilities.
(xiii) 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 2015 (and 2014) with Renold Transmission Technology (Jiangsu) Inc. are not material. Transactions entered into and
trading balances outstanding at 31 March with Renold (Hangzhou) Company Limited and Renold Chain India Private Limited are
as follows:
Amounts receivable as at 31 March
– Renold (Hangzhou) Company Limited
– Renold Chain India Private Limited
2015
£m
4.4
–
4.4
2014
£m
0.1
0.2
0.3
Transactions with key management personnel
There were no transactions with key management personnel during the year.
(xiv) Post balance sheet events
Amendment and Extension of the Group’s Core Banking Facility
On 13 May 2015 the Group agreed a revision to its existing banking facilities with its current banking partners, Svenska
Handelsbanken AB and Lloyds Bank plc. The new facility replicates the previous £41m MRCF but also adds a £20m accordion
feature that can be triggered by the Group to fund investment or acquisition opportunities. The revised facility has been
extended to mature in May 2020 whereas the original maturity was in October 2016. The new facility is also priced at current
market rates and will lead to a reduction in average annual interest expense of approximately £0.3m on current debt levels. The
main covenants and security granted to the banks and other terms remain largely unchanged.
UK Pensions De-risking Project
After the end of the financial year the Group completed a medically underwritten insured buy-in of approximately £25m of
higher risk current pensioner liabilities representing approximately 25% of current pensioner liabilities. The population in
question is described as high risk because it includes members with higher annual pensions and therefore a concentration of
longevity risk. The UK pension scheme is the beneficiary of the insurance contract purchased which creates matching cash
flows for the pensions secured. The transaction will have no impact on the Group’s accounting balance sheet but the price
achieved was at a discount to the funding assumption which will be relevant to future funding discussions with Trustees.
The key benefit of the transaction was the full de-risking achieved in respect of a significant proportion of current pensioner
liabilities.
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147
www.renold.com Stock code: RNOFinancial Statements (xv) Significant undertakings as at 31 March 2015
United Kingdom
Renold Power Transmission Limited*
Renold International Holdings Limited*
Renold Europe Limited*
Renold Scottish Limited Partnership (Address: 3-5 Melville Street, Edinburgh, Scotland, UK EH3 7PE)*
Europe (other than the United Kingdom)
Austria
France
Germany
Russia
Switzerland
Renold GmbH
Brampton Renold SAS*
Renold GmbH
Renold Russia (Obshchestvo s Ogranichennoj Otvetstvennost’u)
Renold (Switzerland) GmbH
North America
Canada
USA
Other countries
Australia
China
India
Malaysia
New Zealand
Singapore
South Africa
Renold Canada Limited*
Renold Inc
Jeffrey Chain LP
Renold Australia Proprietary Limited*
Renold Transmission (Shanghai) Company Limited
Renold Technologies (Shanghai) Company Limited
Renold (Hangzhou) Company Limited
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*
*Directly held by Renold plc.
The subsidiary undertakings listed 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, Renold International
Holdings Limited and Renold Europe 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.
Equity shares
Voting rights
90%
75%
50%
90%
75%
50%
Our overseas companies are incorporated in the countries in which they operate except where otherwise stated.
148
23998-04 Proof Two - final 15 June 2015 3:03 PM
Notes to the Consolidated Financial StatementscontinuedRenold plc Annual Report and Accounts 2015 for the year ended 31 March 2015
Corporate Information
Corporate Calendar
Annual General Meeting
21 July 2015
Half year end 2015/16
30 September 2015
Announcement of half year 2015/16 results November 2015
Year end 2015/16
31 March 2016
Announcement of annual results 2015/16
May 2016
Payment of preference dividends
1 July 2015 and 1 January 2016
Company details
Registered office
Renold House
Styal Road
Wythenshawe
Manchester
M22 5WL
Registered number: 249688
Telephone: +44 (0)161 498 4500
Fax: +44 (0)161 437 7782
Email: enquiry@renold.com
Website: www.renold.com
The registered office address of Renold plc will change to the following in August 2015: Trident 2, Trident Business Park, Styal
Road, Wythenshawe, Manchester, M22 5XB.
Company Secretary
Louise Brace
Auditor
Ernst & Young LLP
Broker and financial adviser
Arden Partners
Financial PR consultants
Instinctif Partners Limited
Registrars
Capita Asset Services
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: +44 208 728 5000
Email: shareholderenquiries@capita.co.uk
Website: www.capitaassetservices.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.
23998-04 Proof Two - final 15 June 2015 3:03 PM
149
www.renold.com Stock code: RNOFinancial Statements
Glossary
2013 PSP
Adjusted
AGM
2013 Performance Share Plan (approved by shareholders at the 2013 AGM).
Add back pension administration costs, exceptional items and any tax thereon.
Annual General Meeting of shareholders of the Company held each year to consider ordinary and special business as
provided in the Notice of AGM.
Average working
capital % of sales
Calculated as the average of each months closing working capital divided by rolling twelve months sales in each
month.
Board
CAGR
The Board of Directors of the Company (for more information see pages 54 to 55).
Compound Annual Growth Rate.
Company, Group,
Renold, we, our or us
We use these terms, depending on the context, to refer to either Renold plc itself or to Renold plc and its subsidiaries
collectively.
Directors/Executive
Directors/Non-
Executive Directors
EBITDA
EPS
EY
FCA
FRC
The Directors/Executive Directors and Non-Executive Directors of the Company whose names are set out on pages
54 and 55 of this Report.
Earnings before interest, tax, depreciation and amortisation. Calculated as operating profit before pension
administration costs and exceptional items adding back depreciation and amortisation charged.
Earnings per share. Profit for the year attributable to equity shareholders of the parent allocated to each ordinary
share.
The Company’s external auditor, Ernst and Young LLP.
Financial Conduct Authority.
Financial Reporting Council.
Financial Year
For Renold this is an accounting year ending on 31 March.
FRS
IAS or IFRS
A UK Financial Reporting Standard as issued by the UK Financial Reporting Council (FRC).
An International Accounting Standard or International Financial Reporting Standard, as issued by the International
Accounting Standards Board (IASB). IFRS is also used as the term to describe international generally accepted
accounting principles as a whole. Financial statements are prepared in independence with IFRS as adopted by the EU.
LTA
Lost Time Accident.
Ordinary shares
Voting shares entitling the holder to part ownership of a company.
ROCE%
ROS%
Subsidiary
2012 Code
UK GAAP
Return on Capital Employed is calculated as follows: operating profit before pension administration expenses and
exceptional items divided by average operating assets and goodwill. Operating assets include tangible and intangible
fixed assets, working capital and other non-current assets.
Return on sales is calculated as follows: operating profit before pension administration expenses and exceptional
items divided by revenue.
A company or other entity that is controlled by Renold.
Guidance, issued by the Financial Reporting Council in 2012, on how companies should be governed, applicable to UK
listed companies including Renold. A new edition of the UK Corporate Governance Code was published in September
2014 (the 2014 Code).
United Kingdom Generally Accepted Accounting Practice. Generally accepted accounting principles in the UK. These
differ from IFRS and from US GAAP.
Underlying
Restate prior period information at current year exchange rates.
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Renold plc Annual Report and Accounts 2015 for the year ended 31 March 2015 This Annual Report is printed by an FSC® (Forest Stewardship Council),
certified printer using vegetable based inks.
This report has been printed on Claro Silk, a white coated paper and
board using 100% EFC pulp.
23998-04 Proof Two - final 15 June 2015 3:03 PM
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Renold plc
Renold House
Styal Road
Wythenshawe
Manchester M22 5WL
Telephone: +44 (0)161 498 4500
www.renold.com
23998-04 Proof Two - final 15 June 2015 3:03 PM