25290-04 AR 2017 Proof 325290-04 AR 2017 Proof 3Renold plc Annual Report and Accounts for the year ended 31 March 2017ESTABLISHING A STABLE PLATFORMRe-engineeringour future.Renold plc Annual Report and Accountsfor the year ended 31 March 2017www.renold.com Stock code: RNOINVESTING FOR GROWTHRenold AR2017-Proof3.indd 36/7/2017 2:56:01 PM 25290-04 AR 2017 Proof 325290-04 AR 2017 Proof 3OUR VALUESOperate with integrityValue our peopleWork together to achieve excellenceAccept accountabilityBe open-mindedPICTURED: OUR CHAIN EUROPE SERVICE CENTRE TEAM AT BREDBURY, UK. Renold plc Annual Report and Accounts 2017 for the year ended 31 March 2017Visit us online at www.renold.comNavigating the reportFOR FURTHER INFORMATION WITHIN THIS DOCUMENT AND RELEVANT PAGE NUMBERSREAD MORE ABOUT OUR VALUES IN CORPORATE SOCIAL RESPONSIBILITY ON PAGES 50 TO 51INTRODUCTIONRenold 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.Our areas of key focusOur objective at Renold is to deliver mid-teens operating margins. The STEP 2020 Strategic Plan provides a framework to deliver the key actions that will generate the progressive improvements supporting progress towards achieving this objective. STEP 2020 is built on a bedrock of continuous improvement that is applied to add value in all of our business processes. Through STEP 2020 and our strategic goals, we are re-engineering everything that we do.Renold AR2017-Proof3.indd 46/7/2017 2:56:07 PM FINANCIAL-HEADINGLEVELONE
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WELCOME TO OUR REPORT
We present our Annual Report and
Accounts for the year ended 31 March 2017.
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 set out our
approach to corporate social 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 100 to
155 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 157
for the definitions and other explanatory
information.
1
For full details of
Our Business Model
See pages 10 and 11
For an update on
Our STEP 2020 Strategic Plan
See pages 16 to 25
For full details of
Our Performance
See pages 26 to 33
OVERVIEW
Contents
Overview
Welcome to our Report
Highlights
Group at a Glance
Chairman’s Letter
Strategic Report
Our Business Model
Our Customer Journey
Our Key Performance Indicators
Chief Executive's Review
Our Performance: Chain
Our Performance: Torque Transmission
Finance Director’s Review
Our Risks
Principal Risks and Uncertainties
Viability statement
Health and Safety
Corporate Social Responsibility
Governance
Corporate Governance Report:
Chairman’s Letter
Board of Directors
Board composition, responsibilities
and activities
Governance structure
Communications with shareholders
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
Directors’ Responsibilities Statement
Shareholder Information
Financial Statements
Independent Auditor’s Report
to the Members of Renold plc
Consolidated Statement of
Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of
Changes in Equity
Consolidated Statement of Cash Flows
Accounting Policies
Notes to the Consolidated
Financial Statements
Group Five Year Financial Review
Company only Financial Statements
Accounting Policies
Company Balance Sheet
Company Statement of
Changes in Equity
Notes to the Company
Financial Statements
Additional Information
Corporate Information
Glossary
01
02
04
06
08
10
12
14
16
26
30
34
40
42
47
48
50
56
58
60
62
66
69
70
76
78
82
89
95
98
99
100
102
108
109
110
111
112
116
146
147
148
149
150
156
157
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HIGHLIGHTS
Renold has performed robustly this year against a backdrop of challenging
markets. We have continued to make progress on a number of the key
objectives underpinning our STEP 2020 Strategic Plan.
Our health and safety KPIs continue to improve. We have successfully delivered key consolidation projects, which are expected to improve
our efficiency. We have sold two properties in the period, generating net cash proceeds of £10.2m. Significantly, this year we have also
commenced a multi-year project which relocates our Chain manufacturing facilities in China to a new purpose built facility. Despite the
challenging market conditions we have continued to invest in commercial and marketing activities as well as further invest in ‘state of the art’
machinery. These actions under the STEP 2020 Strategic Plan will generate incremental value particularly when market conditions improve.
PICTURED: THE NEW ROTARY
MACHINING CENTRE (PICTURED WITH
THE SINICO MACHINE PURCHASED
IN 2016) REPRESENTS FURTHER
INVESTMENT AT OUR US CHAIN FACILITY.
Financial highlights
ADJUSTED1 EARNINGS PER SHARE
pence
5
5.0
4.7
4.6
3.2
4
3
2
1
1.4
UNDERLYING2 REVENUE
£m
202.1
198.9
203.0
184.7
183.4
250
200
150
100
50
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
ADJUSTED1 RETURN ON SALES
%
NET DEBT
£m
8.5
8.6
7.9
10
8
6
4
2
6.0
3.8
25
20
15
10
5
24.8
22.8
23.5
19.5
17.4
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
The Group uses alternative performance measures to provide useful historical financial
information to help investors evaluate the underlying performance of the business by
adjusting for volatility created by one-off items and non-trading performance related
costs such as amortisation and legacy pension costs. A reconciliation to reported results is
included in Note 1 of the consolidated financial statements.
1 Adjusted results exclude the impact of exceptional items, pension financing charges, pension administration
costs and the amortisation of acquired intangible assets and any tax thereon.
2 Underlying results are retranslated to current year exchange rates.
Adjusted
return on sales %
Cash generated
from operations
Total operating
assets
7.9% down 0.7%
£8.4m
£92.1m
02
Renold plc Annual Report and Accounts 2017 for the year ended 31 March 2017
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Operational highlights
Æ Improvement in health and safety accident rate
KPIs. All major manufacturing sites certified to
OHSAS 18001.
Æ Completion of the consolidation of the European
Distribution Centre with the facility in Germany
and successful transfer of all UK Couplings
manufacturing into Cardiff.
Æ Significant increase in the Group’s capital
investment programme in the year to £10.9m.
Key projects delivered in the latter part of
the year will support further cost reductions,
improved operational efficiency and enhanced
product quality and service improvements.
Æ Investment in sales and marketing activities
in support of organic growth is demonstrating
results, particularly in Chain Europe.
PICTURED: WE HAVE ALSO
INVESTED IN A MACHINING CENTRE
AT OUR GEARS MANUFACTURING
FACILITY IN MILNROW, UK.
Æ Successful disposal of the former European
Distribution Centre in Seclin, France. Completion
of the sale and short-term leaseback of the
Australian property at Mulgrave, Melbourne,
ahead of relocating the facility. Together, these
disposals generated net cash proceeds of £10.2m.
Æ Successful integration of Renold Tooth Chain
following last year’s acquisition. Renold Tooth
Chain continues to trade ahead of expectations.
UNDERLYING BREAKEVEN POINT
£m
16
15
15.2
14
13
12
11
10
14.2
13.5
12.4
12.3
12.8
12.5
2013
2014
2015
2016
2017
Increase arising from acquisition of Tooth Chain
Chart shows an estimate of the average underlying monthly sales required for the
Group to deliver a breakeven adjusted operating profit. The estimate is based on
actual variable margin in the years in question so that when the actual fixed costs are
deducted the resulting adjusted operating profit is £nil. The resulting sales figure is
then divided by 12 calendar months to arrive at the level of monthly sales required
to breakeven. The breakeven point at March 2017 reflects the increased fixed cost
acquired with Renold Tooth Chain, along with increased commercial and marketing
activities. These factors increase the breakeven point, but are partially offset by
ongoing operational improvements.
Average working capital
% of sales
Biggest customer
% of sales
Total employees at
31 March 2017
3 year CAGR Adjusted
EPS growth1
22.2%
5%
1 Compound Annual Growth Rate
2,139
12.9%
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GROUP AT A GLANCE
Renold plc is an international group delivering high precision engineered
products and solutions to our customers worldwide.
Chain
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
processes used by Renold. Renold is also a market leader in leaf
chain used in many of the forklift trucks produced worldwide.
Our high specification Tooth Chain (sometimes known as silent
chain) produces a wide range of inverted Tooth Chain for drives
and for conveying applications. Offering a high degree of economic
efficiency and reliability, Tooth Chain applications are wide ranging
and include glass production and automobile assembly lines.
Torque Transmission
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 and South Africa. 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.
In a number of locations we also offer service and maintenance
from our own teams of engineers. These services can be provided in
our own facilities or in the field.
READ MORE ABOUT THE PERFORMANCE OF OUR
CHAIN DIVISION ON PAGES 26 TO 29
READ MORE ABOUT THE PERFORMANCE
OF OUR TT DIVISION ON PAGES 30 TO 33
Adjusted
operating profit
Return on
sales
Employees at
31 March 2017
Adjusted
operating profit
Return on
sales
Employees at
31 March 2017
£16.6m
11.4%
1,689
£3.9m
10.5%
405
04
Renold plc Annual Report and Accounts 2017 for the year ended 31 March 2017
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25290-04 AR 2017 Proof 3NORTH AMERICARenold Jeffrey and Renold Ajax have been well known participants in the North American markets for many years.Renold Jeffrey manufactures conveyor (engineering) chain and large pitch chain and sells transmission chain sourced elsewhere in the Group.Renold Ajax focuses on gear spindles and other Hi-Tec products.EUROPERenold Chain and Renold Tooth Chain operate from our two European manufacturing locations in Germany. Along with our European Distribution Centre, these facilities export transmission chain all over the world. Renold Torque Transmission operates two plants in the UK exporting a range of gears and couplings products all over the world. ASIA PACIFICWe operate manufacturing plants in Australia, Malaysia and New Zealand. These are supplemented by additional sales centres in Malaysia, Singapore, Indonesia and Thailand. We also operate our own distribution networks in Australia and Malaysia. We sell a wide range of chain and torque transmission products.HIGH GROWTH ECONOMIESOur Chinese chain plant primarily serves sister companies with a range of transmission chains and has a smaller but growing local focus. Our Indian business was acquired in 2008 and manufactures a broad range of transmission and conveyor chain with 79% of output destined for the local market.Our international network includes nine countries where we both manufacture and sell and a further ten countries where we have sales only companies, strategically located to support our customers within our two operating divisions.Renold employed an average of 2,183 people around the world in the last year, with 54% of our staff engaged in direct production activities.Map key: Manufacturing and sales company Sales only location 39% of global sales16% of global sales8% of global sales37% of global salesOVERVIEWwww.renold.com Stock code: RNO05Renold AR2017-Proof3.indd 56/7/2017 2:56:35 PM CHAIRMAN’S LETTER
“We continue to deliver key
elements of our STEP 2020
Strategic Plan, invest in our future
and produce encouraging results in
volatile market conditions.”
MARK HARPER
CHAIRMAN
Overview
Renold has performed robustly this year
against a backdrop of challenging markets.
A first half decline in revenues was followed
by a return to underlying growth in the
second half. Further self-help measures
have been delivered this year which reflect
our ongoing commitment to the core
objectives of our STEP 2020 Strategic Plan.
These include the completion of two
consolidation projects, the sale of two major
properties in France and Australia and the
successful integration of the Tooth Chain
acquisition, which continues to trade ahead
of expectations. We believe this sets a
template for further successful acquisitions
in the remaining years of the plan.
Our Markets
Renold’s global presence and extensive
product offering result in a broad spread
of end-customer industries. Customers
are served either directly, or through
distribution partners, and our products
are used to satisfy maintenance and repair
requirements in addition to supporting
the manufacture of new equipment.
Our end-customers generally operate in
industrial markets which have continued
to be impacted by broader macroeconomic
factors and geopolitical uncertainty.
During the year, market conditions proved
particularly challenging in North America,
impacting upon both Chain and Torque
Transmission operations in the region
and resulting in a combined 8% decline
in regional revenue. Europe and China
experienced growth, and in flat markets,
we believe this is a result of improving
market share arising from the various
actions implemented in our STEP 2020
Strategic Plan.
Conditions in certain sectors demonstrated
early signs of improvement towards the
end of the financial year. It is too early
to determine whether this is a sustained
improvement in market conditions, or
whether this is another phase of volatility
in the cycle. Whatever the case, our focus
on delivering the underlying improvements
required to deliver sustainable progress in
operating margins continues.
Trading Performance
Revenue grew by 11.0% in the year,
benefiting from foreign exchange tailwinds
and continued strong performance of the
Tooth Chain business acquired in January
2016. On an underlying basis, and excluding
the impact of acquisitions, revenue declined
by 3.6% in the year. This decline reflects
the continuation into the current year of
the challenging market conditions which
impacted performance in the second half of
the prior year.
This underlying reduction in revenue
resulted in a decline in our adjusted
underlying operating margin in the
year which fell to 7.9% from 8.6% in the
prior year.
Whilst this is disappointing, it is reflective of
external market factors and our decision to
make revenue investments to increase our
sales and marketing activities. We continue
to focus attention on delivering actions that
will provide sustainable improvements in
operating margins and have made good
progress in these areas during the year.
The year to March 2017 is the fourth year
of our STEP 2020 Strategic Plan. The Group
has come a long way and delivered a great
deal over these four years. The full benefit
of the actions delivered to date have been
diluted by challenging conditions in our
end-user markets over the last two years.
In spite of this, we remain confident that
we can deliver sustainable mid-teens
margins, the exact timing of which will be
determined by a recovery in volumes.
STEP 2020 Strategic Plan
Further key projects have been
successfully delivered as part of our STEP
2020 Strategic Plan. These include the
consolidation of the European Distribution
Centre with the sister facility in Germany
and the successful transfer of all UK
Couplings manufacturing and associated
processing into our existing Cardiff site.
Furthermore, we have commenced a
programme to relocate our Chain China
manufacturing facilities from Hangzhou to
a purpose built facility near Changzhou in
Jiangsu province. This is a multi-year project
which will see the construction of the new
facility commence during the year ending
March 2018, with the factory relocation
expected to occur in the following year.
We have continued to invest in the
commercial and marketing activities which
we believe will drive organic growth. We are
starting to see the benefit of these actions
with underlying revenue growth in Chain
Europe (excluding acquisitions) of 5.9%.
06
Renold plc Annual Report and Accounts 2017 for the year ended 31 March 2017
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OVERVIEW
A number of important health and safety
initiatives have continued through the year
and I am very pleased that we have again
seen further improvements in our health
and safety culture and performance. Health
and safety rightly remains the number
one priority for the Board and the Group.
Ongoing and new initiatives in this area will
continue to drive further improvements.
Board and People
This year saw the appointment of Ian
Scapens as Group Finance Director after
Brian Tenner left in order to pursue other
opportunities.
Ian Scapens brings extensive experience
in all aspects of financial leadership in
large complex organisations. He joined
Renold from Keepmoat Group, the UK's
leading national provider of social housing
refurbishment and regeneration services
and a developer of low-cost, affordable
housing, where he was Deputy Chief
Financial Officer.
Also during the year we welcomed David
Landless as Non-Executive Director. He has
significant experience at senior levels of
international manufacturing businesses.
Most recently, he was Group Finance
Director of Bodycote plc from 1999 until
his retirement earlier this year. David
will take over the Chairmanship of the
Audit Committee from John Allkins at the
completion of the 2017 AGM. John will
continue as a Non-Executive Director until
his retirement from the Board after the
2018 AGM.
I am delighted that both Ian and David
have joined the Board. They bring a wealth
of relevant experience which will stand
the Board in good stead as we continue to
implement our STEP 2020 Strategic Plan.
I would also like to take the opportunity
to thank Brian Tenner for his substantial
contribution to Renold over the years.
The Board continues to support the
Executive team in reviewing and monitoring
all activities under STEP 2020. The Board
remains closely involved in the oversight
of the major project deliverables. All Board
members have continued to give additional
time and support on a wide range of issues
during the year.
On behalf of the whole Board, I would like to
express my gratitude and thanks to all our
employees for their continued hard work
during the year. The contribution of each
employee is valued and appreciated.
BOARD
BOARD COMMITTEES
Audit
Committee
Remuneration
Committee
Nomination
Committee
Executive Risk
Management and
Monitoring Committee
GROUP MANAGEMENT TEAM
CHIEF EXECUTIVE
EXECUTIVE COMMITTEE
Business unit leaders
Functional leaders
Finance Director
Business unit teams
Functional teams
READ MORE ABOUT OUR GOVERNANCE
STRUCTURE ON PAGES 66 TO 68
Summary
Market conditions remained volatile in
the year. Trading conditions, particularly
in North America and South-East Asia
remained challenging. Early signs of
recovery are evident and are supporting
growth in order intake, but it is too soon
for these to be considered sustainable or
market wide.
We have not allowed a challenging market
to stand in the way of delivery of the STEP
2020 Strategic Plan and have delivered
significant business change in the year. We
are making good progress and continue to
believe that mid-teens operating margins
can be delivered, supported by volume
increases.
Mark Harper
Chairman
30 May 2017
Pensions
The Group's gross retirement benefit
obligations increased to £102.0m (2016:
£82.9m), with the largest element of
the increase relating to changes in the
discount rates and inflation rates applied as
assumptions to assess future liabilities of
the UK scheme. This is a reduction
of £10.4m from the position at
30 September 2016.
The Group remains committed to
progressively de-risking this position over
time through a combination of agreed
contributions to the schemes and specific
de-risking projects as they become viable.
Dividend
The Board has decided not to recommend
the payment of a dividend. Whilst the
Board fully recognises the importance of
dividends to shareholders, it believes that
the investment opportunities available to
the Group continue to provide the optimal
route to increasing shareholder value. This
approach will remain under active review
for future periods.
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www.renold.com Stock code: RNO
07
25290-04 AR 2017 Proof 308Renold plc Annual Report and Accounts 2017 for the year ended 31 March 2017STRATEGIC REPORTAutomation at EinbeckThe Organic Growth phase of the STEP 2020 Strategic Plan is supported by the increased automation of existing processes. In addition to the wide range of standard products manufactured at our Einbeck, German plant, we have an increasing demand for special chains which are designed to specific customer requirements. In order to economically fulfil these demands, Renold has chosen innovative automation processes in assembly and chain production including industrial robotic solutions. The automation department combines classical mechanical engineering with new control systems. The key is the knowledge of chain production, based on long standing experience in the Group. This is combined with new automation methods to guarantee a quick and flexible response to market requirements to always stay ahead of competition. The entire project planning, from development and design to assembly, as well as programming of new robot lines, is undertaken in-house. In addition to robotics, the Einbeck automation team has expanded focus into the wider production area. Internally developed camera systems are now built into all standard assembly lines to enhance the already high product quality of Renold chain. Visual inspection systems with modern industrial image processing are used to ensure a constant quality level in production. The inspection systems control the complete feeding and correct positioning of parts and guarantee process reliability in all steps. Speed and precision of camera systems make it possible to measure individual parts in line with the production process.Renold AR2017-Proof3.indd 86/7/2017 2:56:48 PM READ MORE ABOUT THE STEP 2020 STRATEGIC PLAN ON PAGES 16 TO 2525290-04 AR 2017 Proof 3www.renold.com Stock code: RNO09CONTENTS Our Business Model 10Our Customer Journey 12Our Key Performance Indicators 14Chief Executive's Review 16Our Performance: Chain 26Our Performance: Torque Transmission 30Finance Director’s Review 34Our Risks 40Principal Risks and Uncertainties 42Viability Statement 47Health and Safety 48Corporate Social Responsibility 50STEP 2020 in ActionCommercial PositioningOur high quality engineering solutions can and should be positioned towards the top of the value chain. Matching the quality of our products with superior lead times and customer service will produce a compelling value proposition and competitive advantage.Renold AR2017-Proof3.indd 96/7/2017 2:56:52 PM 25290-04 AR 2017 SHELLOUR BUSINESS MODELThe Renold business model is focused on leveraging the unique knowledge and capabilities of our people and facilities to generate value for our stakeholders. The continuous value generation cycle that underpins STEP 2020 is shown below.Value generated for our customers: SKILLS & FACILITIESthe ability to conceive and deliver these solutionsKNOWLEDGEof customer problems,products and solutionsLOGISTICSthe right product in the right place at the right timeSERVICEunique after-sales service means we continue to learn and deliver ÆAccess to facilities and capabilities. ÆBespoke solutions. ÆMeeting their own customer needs. ÆThe Renold name. ÆExpert knowledge. ÆBespoke solutions. ÆUnique problems understood and solved. ÆThe Renold name. ÆTrust. ÆReliability. ÆAccess to broad product range. ÆThe Renold name.18% of sales39% of sales43% of salesOEMsEnd usersDistribution10Renold plc Annual Report and Accounts 2017 for the year ended 31 March 2017Renold AR2017-Proof3.indd 106/7/2017 2:56:58 PM Underpinned by our: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 breakeven point.25290-04 AR 2017 Proof 3KNOWLEDGESKILLS & FACILITIESSERVICELOGISTICS1We are 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 recruits.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.PeopleAssetsPartners ÆReviewing after-sales service means we continue to learn and deliver. ÆDeep understanding of metallurgy and chemistry in real world scenarios. ÆPractical application of engineering excellence. ÆAfter sales service centres and product performance monitoring. ÆRapid response offering on standard configured chain and standard transmission chain. ÆGetting closer to customers in more locations. ÆBringing our unparalleled engineering capability to design customer solutions. ÆDeploying over 100 years of manufacturing know-how to create superior products. ÆManufacturing capability in most major regions. ÆWide range of stocked products can reduce supply chain complexity. ÆDaily shipment options respond to customer specific needs. ÆRapid response cells geared up for swift deliveries.STRATEGIC REPORT25290-02 AR 2017 Concept.v111www.renold.com Stock code: RNORenold AR2017-Proof3.indd 116/7/2017 2:57:06 PM 25290-04 AR 2017 Proof 3OUR CUSTOMER JOURNEYOur activities range from diagnosing our customers’ specific power transmission application challenges, to proposing the right material solutions, to formulating their often complex properties, then to cutting and heat treating the components and finally to assembling the finished product.Renold plc Annual Report and Accounts 2017 for the year ended 31 March 201712Sales channels10Bringing our unparalleledengineering capability todesign customer solutions We have deep knowledge of the performance characteristics of a number of metals and surface treatments Enhancing the customerexperience with after sales service and performance monitoringMaterial performancecan be enhanced withthe right coating Ongoing performance monitoring, field support and technical adviceCustomer issues are often challenging and sometimes uniqueENGINEERING CENTREMANUFACTURINGWAREHOUSEWide range of stocked products and daily shipment options Heat treatment and other applications to optimise performanceSpecifying the right grade and composition of metals is keyAutomated assembly processes reduce lead timesTreatingcomponents6Assemblingcomponents7Shipping824Materialspecification3Coatingspecification4Design2After salesservice9Makingcomponents5Deploying over 100 yearsof manufacturing know-howto create superior productsHeat treatment expertise is a key competency in many locationsAnalysingcustomerproblem 1SERVICE111Renold AR2017-Proof3.indd 126/7/2017 2:57:07 PM LOGISTICS25290-04 AR 2017 Proof 3We add value during our customer journey from our unrivalled engineering capability, 100+ years of know-how on solving power transmission challenges and enhanced after sales service. KNOWLEDGESKILLS & FACILITIES1SERVICELOGISTICSwww.renold.com Stock code: RNO13STRATEGIC REPORTSales channels10Bringing our unparalleledengineering capability todesign customer solutions We have deep knowledge of the performance characteristics of a number of metals and surface treatments Enhancing the customerexperience with after sales service and performance monitoringMaterial performancecan be enhanced withthe right coating Ongoing performance monitoring, field support and technical adviceCustomer issues are often challenging and sometimes uniqueENGINEERING CENTREMANUFACTURINGWAREHOUSEWide range of stocked products and daily shipment options Heat treatment and other applications to optimise performanceSpecifying the right grade and composition of metals is keyAutomated assembly processes reduce lead timesTreatingcomponents6Assemblingcomponents7Shipping824Materialspecification3Coatingspecification4Design2After salesservice9Makingcomponents5Deploying over 100 yearsof manufacturing know-howto create superior productsHeat treatment expertise is a key competency in many locationsAnalysingcustomerproblem 1SERVICE111Renold AR2017-Proof3.indd 136/7/2017 2:57:11 PM OUR KEY PERFORMANCE INDICATORS
Health and safety remains our top priority. At Renold, we make the
connection between personal safety and sustainable value creation. A robust
system of control for health and safety is the bedrock of a manufacturing
business such as ours.
KPI
Definition
Strategic Objective
Performance
Change
Non-Financial KPIs
The four health and safety KPIs below are taken from a suite of aligned measures that our sites review on a
continuous basis and are reviewed by the Board at every meeting. (See page 49 for more details on these KPIs).
Lost time accident
frequency rates
Over a 12 month period this contrasts the total number of lost time accidents, irrespective of severity,
against the hours worked. An internationally recognised standard measure.
Reportable injury rates
Over a 12 month period this contrasts the number of accidents greater than three lost days, against the
average number of employees in the same period. We also monitor accidents greater than seven lost days
in the same way. Both are internationally recognised standard measures.
Lost time days
The total number of lost days attributable to all accidents in the 12 month period. An internationally
recognised standard measure.
Safety improvements
As part of our annual Health and Safety Awards Scheme we drive our sites to capture and implement
safety improvements. These are generated by, for example, employee suggested improvements and
investigations into any reported near misses or accidents. An internationally recognised concept with
different businesses measuring and capturing in different ways.
Financial KPIs
KPIs selected as either important to our external stakeholders or because they accurately represent an
area of management focus, often where we are trying to improve historically weaker performance.
RoS%
Adjusted operating profit divided by sales.
Adjusted EPS
Earnings per share before exceptional or adjusting items. This is a key metric used by capital markets and
stakeholders in assessing performance improvement and value generation in Renold.
Sales per employee
Total sales divided by the average number of employees. A simple way to assess the efficiency of our
business processes.
Total overheads
Costs that are, in theory, fixed or very inflexible. Driving these down is one way to lower our breakeven
point and to enhance our operational gearing. This therefore has a direct impact on our RoS% target.
Cash cost of servicing
legacy pensions
Annual cash contributions to closed legacy defined benefit pension schemes including associated
administrative costs. Relatively large sum but adding little or no value to the business. Hence the goal to
keep it stable or reduce.
Average working
capital ratio
Leverage ratio
Working capital as a ratio of rolling 12 month sales. Calculated as the simple average of the previous 12
months. Based on an average to prevent short-termism and reflects the need to improve upon historically
poor performance.
Ratio of Net Debt to Adjusted EBITDA. ‘Banking’ leverage means the figure reflects our banking agreements
which differ from IFRS figures (e.g. preference shares are debt in IFRS but ignored in our banking
agreement). Historically Renold has a poor record of cash generation and hence this is an area of focus.
Net Debt
Total borrowing less cash balances.
14
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7
777
190
1,466
7.9
4.6
£84.0k
Up £0.5m
£6.0m
22.2%
0.8
17.4
STRATEGIC REPORT
Our Strategic Objectives:
1 Significantly improving our health and safety
4 Optimising business processes
performance
2 Generating margin enhancing growth
from our superior product capability
3 Enhancing customer service
5 Lowering our breakeven point
6 Developing our people
7 Strengthening and de-risking our balance sheet
KPI
Definition
Strategic Objective
Performance
Change
Non-Financial KPIs
The four health and safety KPIs below are taken from a suite of aligned measures that our sites review on a
continuous basis and are reviewed by the Board at every meeting. (See page 49 for more details on these KPIs).
Lost time accident
frequency rates
Over a 12 month period this contrasts the total number of lost time accidents, irrespective of severity,
against the hours worked. An internationally recognised standard measure.
Reportable injury rates
Over a 12 month period this contrasts the number of accidents greater than three lost days, against the
average number of employees in the same period. We also monitor accidents greater than seven lost days
in the same way. Both are internationally recognised standard measures.
Lost time days
The total number of lost days attributable to all accidents in the 12 month period. An internationally
recognised standard measure.
Safety improvements
As part of our annual Health and Safety Awards Scheme we drive our sites to capture and implement
safety improvements. These are generated by, for example, employee suggested improvements and
investigations into any reported near misses or accidents. An internationally recognised concept with
different businesses measuring and capturing in different ways.
Financial KPIs
KPIs selected as either important to our external stakeholders or because they accurately represent an
area of management focus, often where we are trying to improve historically weaker performance.
RoS%
Adjusted operating profit divided by sales.
Adjusted EPS
Earnings per share before exceptional or adjusting items. This is a key metric used by capital markets and
stakeholders in assessing performance improvement and value generation in Renold.
Sales per employee
Total sales divided by the average number of employees. A simple way to assess the efficiency of our
business processes.
Total overheads
Costs that are, in theory, fixed or very inflexible. Driving these down is one way to lower our breakeven
point and to enhance our operational gearing. This therefore has a direct impact on our RoS% target.
Cash cost of servicing
legacy pensions
Annual cash contributions to closed legacy defined benefit pension schemes including associated
administrative costs. Relatively large sum but adding little or no value to the business. Hence the goal to
Average working
capital ratio
Working capital as a ratio of rolling 12 month sales. Calculated as the simple average of the previous 12
months. Based on an average to prevent short-termism and reflects the need to improve upon historically
keep it stable or reduce.
poor performance.
Leverage ratio
Ratio of Net Debt to Adjusted EBITDA. ‘Banking’ leverage means the figure reflects our banking agreements
which differ from IFRS figures (e.g. preference shares are debt in IFRS but ignored in our banking
agreement). Historically Renold has a poor record of cash generation and hence this is an area of focus.
Net Debt
Total borrowing less cash balances.
1
1
1
1
2
2
2
5
5
7
7
7
7
777
190
1,466
7.9
4.6
£84.0k
Up £0.5m
£6.0m
22.2%
0.8
17.4
KEY:
KPI result an improvement on the prior year
KPI result unchanged on the prior year
KPI result a deterioration on the prior year
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“We continue to make strong progress against our STEP 2020 Strategic Plan. Challenging market conditions have impacted upon trading performance during the year, particularly in our Torque Transmission and Chain Americas businesses. We have not allowed these challenges to delay or obstruct our strategic progress and continue to take the actions required to position the Group well for when markets recover.”ROBERT PURCELLCHIEF EXECUTIVE25290-04 AR 2017 Proof 3STEP 2020 strategy overviewA major milestone in our STEP 2020 programme will be the delivery of sustainable mid-teens margins. We remain confident that the business can meet this objective and, whilst the challenging market environment has, as reported, slowed the rate of EPS progression over the last two years, we are pleased with the overall progress with, and benefits of, STEP 2020 which is alleviating the impact of reduced levels of demand. We are putting in place a number of additional self-help initiatives to mitigate the ongoing challenging environment and to maintain progress.Strategic Plan ComponentDescriptionReferenceStrategic GoalTo deliver mid-teens net operating margins through a combination of restructuring the Group, delivering organic growth and completing value enhancing acquisitions.Strategic ObjectivesThe key objectives, which when successfully combined will underpin the delivery of our medium term goals. PAGE 23StaircasesCommonly themed business improvement programmes, the delivery of which support the achievement of our Strategic Objectives.PAGES 20 AND 21Business ModelHow we operate, set ourselves apart from our competition and add value for our customers.PAGES 10 AND 11CHIEF EXECUTIVE'S REVIEW Phase I Restructuring1 Phase IIOrganic Growth Phase IIIAcquisitions 235.0 pence4.7 pence4.6 penceEPS1.4 pence3.2 penceMarch2013March2014March2015March2016Achieve streamlined business fit for futureMid teens % marginsThe market for industrial chain remains highly fragmented across geographies and sector niches. As we have demonstrated from the successful acquisition of the Gronau based Tooth Chain business, selected acquisitions have the potential to deliver incremental shareholder value. This value derives from: consolidating volume into facilities with efficient business processes and efficient manufacturing capability; or accessing incremental growth opportunities in new product sectors or new geographies, building on the strength in depth of Renold’s existing product range and geographic reach.Renold has the underlying characteristics to make the Group a natural consolidator in the industrial chain market. As the Number 2 by sales we have the reputation, scale and product range to operate as a strong foundation for integration.Enhanced customer serviceWe believe Renold’s reputation for quality and performance is unsurpassed in the market. However, historically our performance in customer service has not lived up to the same standards. To address this, we have implemented strategies to introduce 24, 48 and 72 hour response times on a range of standard and configured chains and extended this concept to standard gear and coupling products. We intend to continue to improve and evolve our offering to enhance the levels of service to our customers, whether in standard products or in highly-engineered bespoke solutions.Product capabilityWe will leverage our existing superior products in Chain and Torque Transmission. We will also reinvigorate the development and speed to market of a new range of products in both divisions. We will leverage our product reputation to add value to our customers as we solve their complex power transmission problems.Renold has strong market shares in certain geographic markets and product categories. However, the fragmented nature of the power transmission market and the extremely diverse end-user markets creates significant opportunities for organic growth. Whilst market conditions have proved challenging in recent years, the activities to deliver future organic growth have continued.Improved sales and marketingWe will continue to invest in the Group’s commercial teams, building upon the commercial coverage across Europe, the Americas and in Asia. We will increasingly target specific end-user markets where growth opportunities in our existing product ranges can help to mitigate the cyclicality experienced in our core industrial goods markets. Through greater levels of direct interaction with our end customers, our targeted marketing and communication activities, we will help to reinforce our reputation for quality engineering solutions and high performance products. These actions will position Renold to secure a greater share of the markets in which we operate and to access related markets where we don’t currently operate.Right size cost baseMany of our manufacturing processes include manual elements that inevitably reduce any volume benefits due to disproportionate increases in costs. We aim to deliver flexible capacity with low marginal costs.Fix product marginsWe aim to achieve appropriate value for the highly technical products we offer to the market.Optimise business processesWe aim to deliver support function business processes with the same degree of flexibility that we are targeting in our operations. By implementing simple repeatable and standardised business processes we will lower our breakeven point.Make the right hires to drive growthWe will invest in our people to enable them to match the performance of our enhanced manufacturing and business processes. In some cases this will involve new talent and ideas being brought into the business.Restructuring is the area of greatest progress to date since the commencement of the STEP 2020 Strategic Plan in 2013. Whilst many projects have been successfully implemented, numerous opportunities remain to improve efficiency and enhance flexibility.Right size capacityHistorically the business suffered from excess and inflexible capacity. We aim to significantly improve in this area by eliminating excess capacity and enhancing the flexibility of existing capacity through increased automation. This will lead to a direct improvement in variable and net margins.Find out more: www.renold.comStrong EPS growth as plan progressesMarch2017Renold plc Annual Report and Accounts 2017 for the year ended 31 March 201716Renold AR2017-Proof3.indd 166/7/2017 2:57:30 PM 25290-04 AR 2017 Proof 3 Phase I Restructuring1 Phase IIOrganic Growth Phase IIIAcquisitions 235.0 pence4.7 pence4.6 penceEPS1.4 pence3.2 penceMarch2013March2014March2015March2016Achieve streamlined business fit for futureMid teens % marginsThe market for industrial chain remains highly fragmented across geographies and sector niches. As we have demonstrated from the successful acquisition of the Gronau based Tooth Chain business, selected acquisitions have the potential to deliver incremental shareholder value. This value derives from: consolidating volume into facilities with efficient business processes and efficient manufacturing capability; or accessing incremental growth opportunities in new product sectors or new geographies, building on the strength in depth of Renold’s existing product range and geographic reach.Renold has the underlying characteristics to make the Group a natural consolidator in the industrial chain market. As the Number 2 by sales we have the reputation, scale and product range to operate as a strong foundation for integration.Enhanced customer serviceWe believe Renold’s reputation for quality and performance is unsurpassed in the market. However, historically our performance in customer service has not lived up to the same standards. To address this, we have implemented strategies to introduce 24, 48 and 72 hour response times on a range of standard and configured chains and extended this concept to standard gear and coupling products. We intend to continue to improve and evolve our offering to enhance the levels of service to our customers, whether in standard products or in highly-engineered bespoke solutions.Product capabilityWe will leverage our existing superior products in Chain and Torque Transmission. We will also reinvigorate the development and speed to market of a new range of products in both divisions. We will leverage our product reputation to add value to our customers as we solve their complex power transmission problems.Renold has strong market shares in certain geographic markets and product categories. However, the fragmented nature of the power transmission market and the extremely diverse end-user markets creates significant opportunities for organic growth. Whilst market conditions have proved challenging in recent years, the activities to deliver future organic growth have continued.Improved sales and marketingWe will continue to invest in the Group’s commercial teams, building upon the commercial coverage across Europe, the Americas and in Asia. We will increasingly target specific end-user markets where growth opportunities in our existing product ranges can help to mitigate the cyclicality experienced in our core industrial goods markets. Through greater levels of direct interaction with our end customers, our targeted marketing and communication activities, we will help to reinforce our reputation for quality engineering solutions and high performance products. These actions will position Renold to secure a greater share of the markets in which we operate and to access related markets where we don’t currently operate.Right size cost baseMany of our manufacturing processes include manual elements that inevitably reduce any volume benefits due to disproportionate increases in costs. We aim to deliver flexible capacity with low marginal costs.Fix product marginsWe aim to achieve appropriate value for the highly technical products we offer to the market.Optimise business processesWe aim to deliver support function business processes with the same degree of flexibility that we are targeting in our operations. By implementing simple repeatable and standardised business processes we will lower our breakeven point.Make the right hires to drive growthWe will invest in our people to enable them to match the performance of our enhanced manufacturing and business processes. In some cases this will involve new talent and ideas being brought into the business.Restructuring is the area of greatest progress to date since the commencement of the STEP 2020 Strategic Plan in 2013. Whilst many projects have been successfully implemented, numerous opportunities remain to improve efficiency and enhance flexibility.Right size capacityHistorically the business suffered from excess and inflexible capacity. We aim to significantly improve in this area by eliminating excess capacity and enhancing the flexibility of existing capacity through increased automation. This will lead to a direct improvement in variable and net margins.Find out more: www.renold.comStrong EPS growth as plan progressesMarch2017OUR STRATEGY STEP 2020:Three Phase Strategic Planwww.renold.com Stock code: RNO17STRATEGIC REPORTRenold AR2017-Proof3.indd 176/7/2017 2:57:32 PM CHIEF EXECUTIVE'S REVIEW
Interaction of our Staircases with the STEP 2020 Strategic Plan:
delivering our Strategic Objectives
Our STEP 2020 Strategic Plan comprises three specific and
overlapping phases: Restructuring in Phase I, Organic Growth in Phase II and
Acquisitions in Phase III. These phases are steps in a programme to deliver a
common set of Strategic Objectives.
In order to deliver these Strategic Objectives, each business unit has developed an action plan. The individual actions make up the many
steps and are grouped into what we call our ‘Staircases’. Together these staircases are the building blocks that combine to deliver our
Strategic Objectives.
The table below identifies the key linkages between the Staircases, the STEP 2020 Strategic Plan and the Strategic Objectives.
STAIRCASE
OVERVIEW
Phase I – Restructuring
Phase II – Organic growth
Phase III – Acquisitions
STEP 2020 STRATEGIC PLAN
Significantly
improving our
health and safety
performance
Generating margin
enhancing growth
from our superior
product capability
Enhancing
customer service
Optimising
business processes
Lowering our
breakeven point
Developing
our people
Strengthening
and de-risking our
balance sheet
STRATEGIC OBJECTIVES
Our aim is to implement one
global standard operating
model which will unify
our people, processes and
systems
Supports operational
efficiency and business
flexibility, whilst enhancing
consistent levels of
customer service
Our aim is to modernise our
manufacturing capability
to match our leading edge
engineering and production
know-how
Reduces wastage (of labour,
materials and capital
invested) and increases
flexibility, protecting
margins and reducing cost
Consolidating manufacturing
facilities (where appropriate)
creates scale and flexibility
to invest in greater
levels of manufacturing
technology to support
capacity improvements and
improved customer service
Selling surplus assets
improves capital efficiency
and permits investment in
value added activities
We aim to make our
reputation for service
as strong as that for our
superior products
We will over time de-risk
the Group’s balance sheet
and reduce exposure to
legacy defined benefit
pension schemes or
inefficient capital
Through bringing greater
focus to our sales activities,
we aim to deliver steady
and sustainable growth
Contributes to improved
customer service, which
in turn supports organic
growth. Consistent
operating models reduce
risk when targeting new
products or geographic
markets
Contributes to sustainable
and consistent
improvement in on-time
delivery, which in turn
supports high levels of
customer service
Provides an effective
platform into which
acquisitions can be
integrated, or bolted-on to
maximise synergy benefits
and reduce acquisition risk
Provides a platform to
consolidate manufacturing
upon acquisition,
maximising synergy
benefits and reducing
capital investment
requirements
Improvements in customer
service levels create greater
opportunity for organic
growth
Acquisitions offering
product expansion can
benefit from the Renold
commercial network,
increasing synergy benefits
Efficient use of capital and
balance sheet de-risking
creates capital capacity to
undertake acquisitions
Well-structured and
clear marketing and
sales strategies to target
specific end-user segments
supports organic growth
Market analysis can
support decision making
by determining key gaps in
product offering that can
be filled through targeted
acquisitions
Business
process efficiency
Manufacturing efficiency
Commercial positioning
Corporate efficiency
Growth activities
18
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Renold plc Annual Report and Accounts 2017 for the year ended 31 March 2017
STAIRCASE
OVERVIEW
Phase I – Restructuring
Phase II – Organic growth
Phase III – Acquisitions
STEP 2020 STRATEGIC PLAN
Significantly
improving our
health and safety
performance
Generating margin
enhancing growth
from our superior
product capability
Enhancing
customer service
Optimising
business processes
Lowering our
breakeven point
Developing
our people
Strengthening
and de-risking our
balance sheet
STRATEGIC OBJECTIVES
STRATEGIC REPORT
PICTURED: RENOLD'S
GROUP HEAD OFFICE IN
MANCHESTER, UK.
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19
CHIEF EXECUTIVE’S REVIEW
Our Strategic Objectives and Progress
Our staircases provide the groupings for the strategic activities being
undertaken within our business units. Despite the challenging market conditions
experienced in a number of our business units in 2016/17, these challenges have
not been allowed to divert our focus from continuing to deliver the strategic
actions required to improve the underlying performance of the Group. Outlined
below is a summary of the key areas of progress delivered during 2016/17 and
the further actions planned for 2017/18 and beyond.
Staircase
Overview
Progress in 2016/17
Business
process
efficiency
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.
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.
Our intention is to create one global,
integrated ERP system, which
incorporates efficient and standardised
business processes.
We continued on our journey towards
this objective during 2016/17. Three
operating units are now live on the new
ERP system, including the acquired
Tooth Chain business. This completed
the integration into the Renold Group
and removed reliance on vendor
systems and support.
Activities for 2017/18
and beyond
The implementation of the ERP system
is a multi-year project which will
continue into FY17/18 and beyond. This
programme incorporates elements
that go beyond the base ERP system
and includes production planning
and scheduling, engineering and CRM
systems.
Manufacturing
efficiency
Our manufacturing facilities have been
underinvested over many years. This
has led to inefficient manufacturing
processes, long lead times, excess
waste and increased waiting time as
products pass between multiple work
centres.
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 objective of improving operating
margins.
During the year, we completed the
transfer of our European Distribution
Centre from France to Uslar in
Germany. This transfer permitted the
co-location of the logistics centres for
European manufactured product with
that imported from our non-European
operations. It also increases capacity
at our manufacturing facility in Einbeck
through the availability of additional
space for manufacturing.
Our manufacturing facility in Malaysia
was relocated during the year to larger
premises, increasing capacity.
Following an employee consultation
process, we have consolidated our UK
Couplings manufacturing facilities into
the existing facility in Cardiff.
During the first quarter of 2017/18,
we have relocated our Torque
Transmission sales and warehousing
functions in China, in addition to
closing the manufacturing facilities.
The manufacturing activities will
now be undertaken in our Torque
Transmission facilities in Cardiff,
Milnrow and South Africa.
We have commenced a major project
to relocate our Chain manufacturing
operations in China to a new facility
being built near Changzhou in
Jiangsu province. The new facility
will be a purpose built 21,000m2
factory, enhancing our manufacturing
capability in China and providing a
strong platform for organic growth in
the growing domestic Chinese market.
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STRATEGIC REPORT
Activities for 2017/18
and beyond
Customer service levels have
improved, particularly on standard
products. We have further work to do
in this area, particularly in specialist
products where we need to ensure
the levels of customer service match
up to the sector leading quality of
our products. With this in mind, we
are implementing tailored customer
service initiatives across the Group.
We continued to focus on customer
service improvements throughout the
year. In 2015/16, we introduced 24, 48
and 72 hour response times on a range
of standard and configured chains.
During 2016/17, this was extended
across a standard range of gear and
couplings products. We continue to
review the breadth of these ranges to
find the appropriate levels of inventory
holdings to provide great customer
service whilst not losing sight of our
capital efficiency objectives.
During the year, we have made good
progress in de-risking exposure to
surplus property or crystallising cash
from underutilised assets. This included
the sub-lease of our closed Bredbury
site in the UK and the sale of freehold
properties in Mulgrave, Australia and
Seclin, France. We continue to trade
from the property in Mulgrave under
a three year lease, giving us time
to manage the orderly transfer to a
smaller, more suitable facility.
In the early part of 2017/18, we have
closed our Torque Transmission
manufacturing facility in China,
allowing the move to a smaller office/
warehousing facility more suitable to
the business' needs.
In addition, following the consolidation
of our Halifax Torque Transmission
facility into Cardiff, we have released a
property for sale. The sale completed
in May 2017 generating disposal
proceeds of £0.5m.
Staircase
Overview
Progress in 2016/17
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.
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 reconnecting with customers in their
own local markets, we aim to make our
reputation for service as strong as that
for our superior products.
Put simply, we want to make the best
use of the spaces we occupy. Where
we have too much space, we 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.
We will, over time, de-risk the Group’s
balance sheet exposure to legacy
defined benefit pension schemes. At
the same time, we will maximise the
latent value in the Group’s recognised
and unrecognised tax assets.
Commercial
positioning
Corporate
efficiency
Growth
activities
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.
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.
Growth is a core element of Phase II of
our STEP 2020 Strategic Plan. Whilst
end markets proved to be challenging
during the year, we continue to lay
the foundations to ensure that we are
well positioned when end markets
recover. During the year, this included
strengthening our commercial teams
and building sustainable customer
relationships from the new sales
locations opened in the prior year.
Marketing spend increased by over
50% as we re-established product
support, particularly for our distributor
customers.
Certain end-user markets are showing
early signs of recovery. Whilst it
is too early for us to consider this
as sustainable, it does reinforce
our ambition to establish a strong
commercial capability ready to
maximise opportunity as markets
demonstrate sustainable recovery.
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CHIEF EXECUTIVE'S REVIEW
Operating Performance
Underlying revenue declined only slightly
in the year as increases in the full-year
revenue from the acquired Tooth Chain
business helped to offset a small reduction
in other underlying Chain revenues and
a larger reduction in underlying Torque
Transmission revenues. These revenue
reductions largely reflect challenging
market conditions experienced by our
customers reducing overall demand for
Renold’s products. The North American and
South-East Asian markets were particularly
difficult, across both Chain and Torque
Transmission divisions. In contrast to this,
the European Chain operations delivered
organic growth to supplement the growth
from the acquired Tooth Chain business.
On a reported basis, adjusted operating
profit increased to £14.5m (2016: £14.2m).
However, this benefits from the foreign
exchange movements in the year.
Underlying adjusted operating profit
reduced by £2.3m, of which £2.1m occurred
in the first half of the year.
Excluding the impact of the acquisition,
the underlying revenue decline of £6.7m
resulted in a £3.3m reduction in underlying
adjusted operating profit as the revenue
reduction experienced was not matched by
a corresponding reduction in non-variable
overhead costs. This was particularly
marked in Torque Transmission, but also in
the North American and South-East Asian
Chain operations.
Order intake improved through the year,
with total orders 1.9% ahead of revenue for
the year as a whole. In the later part of the
year, there were very early indications of
improving conditions in certain end-user
markets. This helped contribute towards the
improving underlying book to bill ratio for
the second half of the year of 103% and an
underlying 9.0% year on year increase in the
closing order book at 31 March 2017.
STEP 2020 Strategic Plan
Update on progress
During the year, we have made progress
on all three phases of the STEP 2020
Strategic Plan.
Phase I – restructuring
Very significant progress has been made
during the year to relocate and reposition
manufacturing and distribution facilities
across the Group.
In the Chain division, the European
Distribution Centre (EDC) was relocated
during the year and the Malaysian
manufacturing facility moved to new larger
premises in Kuala Lumpur. Relocating the
EDC from France to Germany, close to
our main European Chain manufacturing
site, reduces the costs of handling finished
products and improves speed of response
and customer service. It also created the
opportunity to sell our premises in Seclin,
France. In Malaysia, the decision to move
was taken to increase the capacity of the
site. Market conditions have been weak
during the year, and this permitted the site
to relocate with minimum disruption. As
markets recover, the site now has a greater
potential for future growth.
22
PICTURED: THE TOOL CAROUSEL ON THE NEW MACHINING
CENTRE AT OUR COUPLINGS FACILITY IN CARDIFF ALLOWS
AUTOMATIC SELECTION OF THE CURRENT TOOL AT EACH
STAGE OF THE MACHINING PROCESS.
Renold plc Annual Report and Accounts 2017 for the year ended 31 March 2017
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Measurement
KPI1
2014/15
2015/16
2016/17
Change
Progress in 2016/17
STRATEGIC REPORT
Lost Time
Accident
Frequency Rates
Reportable
Injury Rates
16
7
7
2,060
887
777
Lost Time Days
806
308
190
Safety
Improvements
1,723
1,233
1,466
RoS%
8.5%
8.6%
7.9%
Adjusted EPS
5.0p
4.7p
4.6p
ROCE%
15.6%
13.7%
12.6%
Strategic
Objective
Significantly
improving our
health and safety
performance
Generating margin
enhancing growth
from our superior
product capability
Enhancing customer
service
Optimising business
processes
Sales per
employee
£79.7k
£74.0k
£84.0k
Lowering our
breakeven point
(underlying and pre
acquisitions)
Monthly sales
breakeven
point 2.3
Total
overheads 2,3
£13.5m £12.3m £12.5m
£74.2m £70.1m £70.6m
Developing our
people
Strengthening
and de-risking our
balance sheet
£5.3m £5.3m £6.0m
19.1% 20.3%
22.2%
Cash cost of
servicing legacy
pensions
Average
working capital
ratio
Leverage ratio
0.9x
1.1x
0.8x
Net debt
£19.5m £23.5m £17.4m
Health and safety remains our top priority. Our accident KPIs show
considerable improvement during the period and are a reflection of
the cumulative efforts of the Group to implement a culture of safety
and best practice management systems. These efforts are reducing the
number of accidents, and more importantly, are identifying risk and
addressing the root cause, preventing future accidents.
Whilst very clearly a secondary consideration to the safety and well-
being of individuals, our improving record in this area is resulting in lower
insurance costs with savings of c.10% expected upon policy renewal.
Our mid-teens operating margin target is predicated on GDP+ levels of
organic growth. Margins and profitability have reduced slightly in the
financial year. Underlying revenue declines in the non-European Chain
businesses and the Torque Transmission division have been offset by
the acquired Tooth Chain business being included for the full year.
At a margin level, the declining underlying revenue results in reduced
variable margin. However, the full year impact of acquired margin
includes the full year overheads and generates income at a net margin.
The combined effect of these factors is a reduction in RoS% whilst
revenue is largely unchanged.
Customer service improvements remain key to supporting future
organic growth. Many of the development programmes that are
underway support this objective, including the implementation
of consistent business processes (supported by the ERP roll-out),
investment in new manufacturing equipment and extending the
product range covered by our 24, 48 and 72 hour response time
objectives.
The process of standardising core business processes continued in the
year. Our new ERP system went live at our Halifax and Gronau sites.
This was a key enabling factor in the consolidation of the UK Couplings
sites at Cardiff and Halifax and the removal of reliance on vendor
support at the acquired Gronau site.
We have continued to standardise our engineering systems, including
PLM, CAD and CAM packages.
On an underlying basis, our overheads and monthly sales breakeven
point have increased in the year. However, the impact of the volatility
in foreign exchange rates in the year had a significant impact. Adjusting
for these factors to aid true like-for-like comparability, both overheads
and monthly sales breakeven point were largely unchanged in the year.
Ongoing efficiency improvements have continued through the year,
reducing overheads. These reductions have been offset by increased
revenue investment in the commercial teams and product marketing as
we put in place the foundations to deliver on the organic growth phase
of the Strategic Plan.
We continue to make strong progress, building the programme which
supports the development of our people.
A talent review process has been defined and selectively deployed in
the year. A second year intake of six new graduates were welcomed
on to the Future Leaders Graduate Programme, and we continue to
develop our apprenticeship programmes.
Cash costs of servicing legacy pension schemes increased in 2016/17
as the year includes one-off contributions of £0.5m to the UK scheme
which relate to the medically insured buy-ins completed in the prior
year. A further £0.2m of increase arises from movements in foreign
exchange rates, affecting the Sterling cost of overseas schemes.
Net debt and leverage reduced significantly in the year as cash
was crystallised from the disposal of property assets in France and
Australia.
PICTURED: THE TOOL CAROUSEL ON THE NEW MACHINING
CENTRE AT OUR COUPLINGS FACILITY IN CARDIFF ALLOWS
AUTOMATIC SELECTION OF THE CURRENT TOOL AT EACH
STAGE OF THE MACHINING PROCESS.
1 Refer to glossary on page 157 for definitions of KPIs.
2 Presented on an underlying basis.
3 Adjusted to exclude the effect of the Tooth Chain acquisition.
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www.renold.com Stock code: RNO
23
CHIEF EXECUTIVE'S REVIEW
PICTURED: OUR FACILITY
IN MALAYSIA HAS BEEN
SUCCESSFULLY RELOCATED, MORE
THAN QUADRUPLING CAPACITY.
During the year, we took advantage of
the opportunity to sell the premises at
the Mulgrave site in Melbourne, Australia.
The site is too large for our ongoing
requirements and the leaseback period
of three years provides sufficient time to
find alternative premises and to relocate
in a controlled manner. Net proceeds of
the sale were £9.3m and have reduced net
debt at the end of the year to £17.4m (2016:
£23.5m).
In Torque Transmission, the UK Couplings
manufacturing facilities were consolidated
to a single facility in Cardiff. Following
a period of investment in the Cardiff
infrastructure and the commissioning of
new equipment, all manufacturing was
moved from the Halifax site during March
2017. This creates a single, focused UK
Couplings manufacturing facility where the
volume of production justifies investment
in efficient manufacturing equipment that
would otherwise be underutilised. We
also commenced the process of closing
our Chinese Couplings manufacturing
facility in the year; final closure completed
in May 2017. The closure removes a small
underinvested manufacturing facility from
the Group, but without loss of revenue as
the products can now be manufactured in
Cardiff and South Africa. This reduces cost
and avoids future capital investment.
These changes, which generally completed in
the latter part of the financial year, build the
platform for more efficient manufacturing
and distribution in the future.
During the year, we also commenced
a programme to relocate our Chain
manufacturing facility in China. This is
a significant factory move which will
take around 18 months to two years
to complete as we are constructing a
purpose built facility. This will be the final
step in delivering the Strategic Objective
of operating all major manufacturing
facilities from owned premises, reducing
the risk of uncontrolled relocations in the
future and providing the basis for long-
term investment in core manufacturing
locations. When complete, this facility will
increase capacity and permit greater levels
of manufacturing efficiency. This is critical
in targeting growth in the developing
domestic Chinese market, where product
quality is becoming a more important
factor in purchasing decisions, along
with supporting growth in the sale of our
Chinese-manufactured chain through
overseas markets using the Group’s
extensive geographic reach. The overall
programme cost is expected to be £16.0m
over eight years, with £6.0m of construction
costs deferred for five to eight years, and
will be funded from existing Group facilities.
Overlaying these infrastructure changes
is the programme to optimise business
processes. The most significant element
is the implementation of the Group's
ERP system across all sites. This has
been successfully implemented at our
Cardiff, Halifax and Gronau sites, and was
instrumental in permitting the consolidation
of the UK Couplings operations and the
removal of reliance on vendor support in
the acquired Tooth Chain business. The
process of roll-out continues and FY18 will
see the roll-out progress to further business
units, including the first of the major Chain
manufacturing sites.
Phase II – organic growth
Market conditions have limited the
amount of organic growth delivered in
the period. However, we continue to take
action to establish an effective commercial
team, introduce product development
programmes and support our existing
brands and customers through focused
marketing. This has included extensive
training of our teams, distributors and
agents along with building sustainable
customer relationships though the new
Spain, Thailand and Indonesia offices
opened during 2016. We have seen early
signs of progress in Europe and are
replicating these processes and procedures
across North America, China and South-
East Asia. As markets recover, we expect to
see the benefit of these actions.
24
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Developing our people remains a core part
of improving the future prospects of the
Group and we have made progress across
all levels of the businesses. A number of
new senior managers have been recruited
in the year adding to the wider leadership
team, including a Managing Director for
the consolidated UK Couplings business,
a General Manager for the Chain Europe
manufacturing facility in Einbeck, Germany
and a Regional MD for our South-East Asian
businesses with the objective of increasing
our presence in these growing markets.
We also continued with our Future Leaders
programme, welcoming six new graduates.
Macroeconomic landscape and Brexit
There are a number of well-publicised
macroeconomic risks on the horizon. We
continue to deliver our strategy, cognisant
of the risks, but similarly very aware that
the impact of these risks is uncertain and
should not delay our progress.
The vote for Brexit had a significant impact
on the value of Sterling and the foreign
exchange movements have impacted
our reported trading position. However,
this is largely a presentational issue as
our results are reported in Sterling. Our
revenue in the UK is limited, representing
8% of the Group’s revenue, whilst we retain
manufacturing facilities that supply product
to our other global operations. These
products have become more competitive in
overseas markets as a result of the currency
movements.
There are certain product categories which
we import to the UK, particularly chain
manufactured in our European facilities.
Whilst this has become more expensive as a
result of the foreign exchange movements,
the majority of competitor products are
sourced from Europe and the Far-East and
are exposed to similar inflationary pressure.
Overall, we do not believe that Brexit
significantly impacts on our competitive
positioning. The major risk factor to the
Group from Brexit, other Eurozone and US
macroeconomic risks is the impact on the
timing of recovery of industrial production
in general. We will continue to monitor this
and take action as required.
Phase III – acquisitions
The programme to integrate the acquired
Tooth Chain business into the wider Renold
Group completed in the year. Following
the successful roll-out of the Group’s
ERP system, we were able to remove all
dependence from the vendor for back
office and systems support. Tooth Chain
is now a core part of the Group’s product
offering and the greater strength in depth
of Renold’s commercial teams across the
world provide the potential for further
future growth in this product category.
Performance in the period has exceeded
original expectations, resulting in the
payment of the first element of the deferred
consideration in April 2017.
This acquisition was the first step in what
we believe will be a programme of value
adding acquisitions in the future, targeting
opportunities that generate new product
or new geographical opportunities, or
opportunities to improve manufacturing
effectiveness, e.g. through consolidation.
Delivering our Strategic Objectives
We continue to make good progress
in improving our health and safety
performance. Fewer accidents and a greater
focus on identifying and reducing risk in
order to avoid accidents is indicative of the
progress being made and the behavioural
change that we are seeking across the
Group’s global operations.
Our objective of delivering growth in
operating profit margins has been impacted
by short-term trading conditions in the year.
However, a number of other KPI measures
provide evidence that continued progress
on restructuring will deliver improvement
in operating profit margins when market
conditions improve. Average employee
numbers during the year have reduced
by 2.2%, improving sales per employee
to £84.0k (2016: £74.0k; 2016 underlying:
£82.7k). This reduction derives from the
restructuring activities delivered, combining
with a general focus on business efficiency.
The underlying breakeven revenue
(adjusted for acquisitions) has remained
relatively unchanged in the year at £12.5m
per month. This reflects an underlying
decrease following the restructuring
elements of the Strategic Plan, but offset by
additional overheads for marketing, product
management and commercial support
which have been added to support the
organic growth activities.
STRATEGIC REPORT
PICTURED: ARCHITECT'S
DRAWING OF NEW
CHINESE FACILITY.
Outlook
We have delivered a robust performance
in challenging markets. The impact of
the market headwinds on revenue and
operating profit would have been far
greater had it not been for the actions
delivered to increase operating efficiencies
as part of our STEP 2020 strategy.
Markets stabilised during the year and
there was a return to revenue growth in
the second half of the year along with an
increase in order intake.
Although there are some early indications
of improvement, macro-economic
uncertainty remains and, in turbulent times,
our STEP 2020 Strategic Plan remains
relevant and critical to the long term
delivery of value to all of our stakeholders.
Actions already delivered as part of the plan
will combine with on-going programmes
to further improve the efficiency and
effectiveness of our operations. The
Group is positioned for organic growth
and we continue to believe that mid-teens
operating margins, and sustainable gains
in adjusted earnings per share, can be
delivered when volumes improve through
organic growth and acquisitions.
Robert Purcell
Chief Executive
30 May 2017
www.renold.com Stock code: RNO
25
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OUR PERFORMANCE:
Chain
Renold Chain is a global market leading supplier of differentiated and value
added chain products for a wide variety of markets and a myriad of end use
applications. We create innovative solutions for our customers who need to
ensure performance within increasingly challenging working environments.
The Renold name is known for industry leading design and specification, high
quality and exceptional service and technical support. Reducing overall cost
of ownership is important to our customers, with extended product life and
reduced maintenance key factors in specifying our products.
Chain performance review
Underlying revenue of £146.1m was
£3.1m (2.2%) ahead of the prior year.
Underlying external revenues excluding
acquisitions were £2.3m (1.6%) behind
prior year reflecting a backdrop of difficult
macroeconomic conditions in many of the
territories in which we operate. However,
regional performance was mixed and there
were some encouraging performances,
particularly in Europe, Australia and India.
Underlying European revenue increased by
£8.3m (16.3%) in the period (£2.9m (5.9%)
excluding acquisitions) with organic growth
delivered in most of our major European
markets, in addition to growth from the full
year impact of the acquisition of the Tooth
Chain business.
Revenue in the Americas finished £4.4m
(7.3%) down on an underlying basis, with
continued soft demand in the US from
major distributors and larger OEM accounts.
Disappointingly, this was compounded by
production issues during the final quarter
of the year as orders started to recover.
These issues are short-term in nature and
are being resolved. After a slow start, our
Canadian business recovered in the second
half to deliver underlying year on year
growth of 3.4%.
Domestic sales in India and China grew
by £0.5m (7.9%) and £0.4m (12.0%)
respectively. However, the overall
performance of both businesses was
depressed by lower demand in export
markets. Underlying revenue in Australasia
was down by £0.8m (3.9%), primarily due
to continued weakness in palm oil markets
in South-East Asia, being partially offset by
growth in Australia of 4.9% where sales to
the mining and agriculture sectors started
to recover.
Order intake of £149.2m was up by £11.4m
(8.2%) on the previous year. At a regional
level, European underlying order intake was
up by £10.7m (21.1%) against a decline of
£0.5m (0.9%) in the Americas. Order intake
in Australasia was down £0.1m (0.4%) but
up in India and China by 6.8% and 19.3%
respectively. Order intake accelerated in the
second half of the year with growth of 11.9%
(compared to growth of 4.6% in the first half
of the year) as end-user markets started
to demonstrate signs of recovery. Orders
for the year finished £4.1m (5.7%) ahead of
sales.
Contribution margins, the margin after all
variable production costs, remained flat.
This was achieved despite increases in raw
material costs in the second half of the year
and reflects the continued focus on cost
reductions, improved product quality and
enriched business mix.
Overheads increased year on year
with the addition of the Tooth Chain
business, continued upgrading of talent
and investments in marketing and sales
development programmes.
Underlying adjusted operating profit
finished at £16.6m compared to £17.8m
last year. Return on sales of 11.4% (2016:
12.4%) was particularly impacted by the
disappointing performance in the US during
the year.
Renold Tooth Chain (acquired in January
2016) continues to trade ahead of
expectations, delivering underlying organic
growth in both orders and sales against
the last comparable period under prior
ownership. The business has been fully
rebranded and customers transferred
into the Renold commercial network
with no business loss. In December, the
final part of the integration process, the
transfer onto the new Group ERP system,
was successfully completed and Tooth
Chain is now well positioned for further
development in the global commercial and
distribution footprint as part of the Renold
Group.
Commercial talent continues to be steadily
upgraded in all regions and the team has
been further strengthened with senior
commercial resource added in the US,
Australia, and India. A new Managing
Director for the businesses in South-East
Asia has also been appointed for the first
time, bringing a single point of focus to our
activities within that important growth
region.
Service improvements remain key
A key element of the growth strategy
continues to centre on improvements to
our operational effectiveness and customer
service. A number of initiatives have been
successfully completed during the year
which will enable increased production
output, shorter lead times, better inventory
efficiency and improved levels of customer
service.
The largest single investment in new
productive capability, the rotary
machining centre (£2.5m), was successfully
commissioned in February and is already
boosting output in the US facility. This
machine dramatically reduces production
lead times on complex components whilst
at the same time improving quality and
removing up to ten separate manufacturing
operations. Machine investments in
other regions were similarly targeted on
harnessing the latest technology in order to
boost productive capacity and reduce lead
times.
During the year, the European distribution
centre was relocated from France to be
close to the main manufacturing facility
in Einbeck, Germany. The prime drivers
behind this move were to reduce lead
times, improve stock efficiency and enhance
26
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25290-04 AR 2017 Proof 3PICTURED: THE TRUMPF LASER CUTTER AT OUR US CHAIN FACILITY CUTS WITH SPEED AND PRECISION. IMAGE COURTESY OF TRUMPF. overall customer service. The project was successfully delivered during November and also resulted in reduced headcount and the sale of the previous distribution centre in Seclin, France, resulting in proceeds from the sale of £0.9m. The Malaysian factory was successfully relocated during December. The new facility will allow up to four times more productive capability whilst enabling inventory management to be improved and response times reduced. It is also an enabler for the introduction of a rapid response cell for customised transmission chains, following a similar addition in China during this year. Last year, we highlighted the successful introduction of strategic inventory on core product lines. This has been enhanced and developed during the year, in support of our service commitment for 24, 48 and 72 hour response times on standard and configured chains. Where appropriate, targeted holdings of components have also been introduced in order to facilitate the rapid assembly of product variants within particular chain product families. This has been achieved with a marginal increase in net inventories.. As we head into the new financial year, we have commenced the next significant phase in our manufacturing strategy. Using the end of the building lease of our existing Chinese factory as the trigger point for change, we have commenced a programme to relocate the business to a purpose-built facility near Changzhou in Jiangsu province. This strategy incorporates twin objectives of providing a platform for organic growth in the domestic Chinese market along with developing a leading manufacturing facility which can effectively supply Renold’s distribution infrastructure with certain standard product ranges.SummaryMarket headwinds impacted upon trading performance during the second half of 2015/16 and during 2016/17. However, sustained investment in marketing and the commercial teams has driven organic growth in Europe during the latter part of 2016/17. Growing order intake arising as market conditions improve resulted in strengthened order books at 31 March 2017. This improving economic backdrop, along with the benefits of the self-help actions delivered over the last year, give us reason for optimism in 2017/18. In the longer term, we remain confident that the continued progress of the STEP 2020 Strategic Plan will deliver sustainable improvement in the division’s operating margins.CHAIN FACTSThe Chain division is exemplified by an extensive product range reaching into a wide number of geographies: ÆSales offices and distribution channels in over 18 countries worldwide ÆExtensive product range with the ability to customise or design to suit any application ÆInnovative solution chains for many challenging applicationsUNDERLYING REVENUE£m20132015201420015010050020172016150.8150.6155.2146.1143.0UNDERLYING ADJUSTED OPERATING MARGIN%2013201520141512963 0201720164.37.410.311.412.427STRATEGIC REPORT27www.renold.com Stock code: RNORenold AR2017-Proof3.indd 276/7/2017 2:58:24 PM Renold Synergy chain has long been known for industrial applications, where its ability to outperform its closest competitors has seen it leading the market. What is less well known is that the same cutting-edge chain technology platform on which Synergy was built, has been helping the Great Britain Cycling team to achieve world and Olympic success! RENOLD ENABLES PEAK PERFORMANCE25290-04 AR 2017 Proof 3OUR PERFORMANCE:ChainHow it all startedWay back in 1880 when the few cyclists on the roads were more than likely riding high on a Penny Farthing, young engineer Hans Renold achieved a significant technical breakthrough when he invented the bush roller chain. This innovative chain technology solved many problems inherent in existing solutions and brought a new level of performance, efficiency and flexibility to the transmission of mechanical power. Renold’s fledgling business grew steadily, providing power transmission chains to the industrial applications of the day. What this new technology really needed however, was a mass market application.Enter John Kemp Starley who in 1885 brought to market his safety bicycle. The ‘Rover’ bicycle included many ground-breaking features including the use of chain to drive the rear wheel. This synergy of technology and application proved a perfect match and resulted in the rapid growth of both bicycle and roller chain industries.Pedal forward 130 years and the bicycle has been transformed – stronger, lighter and capable of incredible performance. In the chain world, Renold has built a global business serving a huge array of industries and applications. Following the example of its founder, Renold has dedicated itself to the relentless pursuit of better chain technologies – stronger, highly durable and extremely efficient.Renold plc Annual Report and Accounts 2017 for the year ended 31 March 201728Renold AR2017-Proof3.indd 286/7/2017 2:58:28 PM 25290-04 AR 2017 Proof 3KNOWLEDGESKILLS & FACILITIES1SERVICELOGISTICSRenold chain technology – a critical linkIn 2011, British Cycling were looking for a drive chain that could meet the incredible demands of elite level competition both in the Velodrome and on the BMX track. After some discussion between British Cycling’s R&D Team and Renold Engineers it was felt that the requirements could be met using Renold’s Synergy chain technology platform. Following a great deal of collaborative work between British Cycling and Renold Chains, along with the University of Bristol, Renold engineers were able to optimise their pre-existing chain design which culminated in the chain that was used to great effect by the Great Britain Track Cycling team in both the London and Rio Olympic Games.Speaking about the relationship, Matt Taylor – Managing Director of Renold’s Chain division said: “Renold are immensely proud to have played a part in the outstanding success of British Cycling and the Great Britain Cycling Team.”Likewise, Tony Purnell from British Cycling’s R&D Team said that: “As part of British Cycling’s no stone unturned philosophy it was obvious that chain design was an area of interest and we have been impressed by the undoubted expertise and obvious willingness of Renold to work with us on this project.”www.renold.com Stock code: RNO29STRATEGIC REPORTRenold AR2017-Proof3.indd 296/7/2017 2:58:32 PM 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 Transmission performance
Underlying external revenue of £37.3m
was £4.4m (10.6%) below the prior year
primarily reflecting the annualised effect
of the market headwinds that were initially
experienced during the second half of
2015/16. These headwinds were reduced
demand, particularly in the Americas region,
in the oil and gas, raw material extraction
and steel industries. This annualising effect
impacted upon the first half of 2016/17
and saw revenues decline by 22.6% when
compared with the same period in the prior
year. During the second half of the year,
underlying external revenue of £19.5m
was £0.8m (4.3%) ahead of the prior year,
benefiting from large orders for escalator
drives in the London and New York
undergrounds.
Underlying order intake was £3.0m (7.4%)
below the prior year. Order intake was 9.6%
ahead of revenue in the first half of 2016/17.
Due to the longer lead times in the Torque
Transmission division, these orders during
the first half of the year delivered revenue
growth during the second half of the year.
Order intake for the second half of the year
was 7.7% below revenue for the
same period.
Contribution margins, the margin after
all variable production costs, improved
by 3 percentage points during the year
with exchange rate movements benefiting
margins for UK manufactured products,
although this was largely offset by direct
labour costs not reducing in line with
the revenue.
Underlying net overheads in the division
decreased. The savings arising from the
self-help measures implemented have been
reinvested in commercial activities including
expansion of the sales force in order to
target non-traditional end-user sectors.
Underlying adjusted operating profit
finished at £3.9m, a decrease of £1.3m
from the prior year, with a decrease of
£2.8m for the first half of the year, offset
by a recovery of £1.5m for the second half
of the year. The division’s Return on Sales
fell from 12.5% to 10.5%, largely reflecting
the revenue decline in the period. As with
revenue and adjusted operating profit,
the performance in the second half of the
year improved when compared to the first.
Return on Sales for the first half of 2016/17
was 6.7%, increasing to 13.8% for the
second half.
Strategic actions
When the STEP 2020 Strategic Plan was
originally implemented, the initial actions
focused on the Chain division as this was
significantly underperforming. At the time,
the Torque Transmission division delivered
strong margins. However, the decline
in revenue experienced during 2015/16
and 2016/17 impacted significantly upon
profitability, as the protective actions were
not sufficiently developed to mitigate the
margin impact.
Following the CEO taking direct day-to-day
responsibility for the division, acting as
Divisional Managing Director, greater focus
has been given to the elements of the STEP
2020 Strategic Plan which impact on the
Torque Transmission division, and a number
of actions were delivered during the year.
As part of Phase I – Restructuring, the
coupling manufacturing locations in the UK,
Halifax and Cardiff, were consolidated into
the Cardiff facility. This process completed
in April 2017, but was the culmination of a
number of project streams that upgraded
the ERP systems of the businesses to
the same platform, invested in capital
equipment to increase capacity and trained
the teams to ensure manufacturing ‘know-
how’ was transferred. The one-off cost of
the transfer was £2.9m (see Note 2(c)) and
benefits are expected to be realised during
the next financial year.
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25290-04 AR 2017 Proof 3In addition to the consolidation of the UK Coupling locations, the manufacture of couplings in Beicai, China, was transferred to Cardiff and South Africa, with this project completing in May 2017. Again, the one-off costs of transfer were incurred in 2016/17 (see Note 2(c)) with the benefits expected to be realised in 2017/18.As part of Phase II – Organic Growth, the division has re-established its focus on new product development, product marketing and commercial capability. This, along with a reinvigorated focus on customer service is expected to deliver growth, particularly in non-traditional sectors.SummaryThe division has a strong portfolio of niche products and a reputation in the market for product performance and quality. Market conditions have stabilised during the year, and whilst we are not yet seeing demand recover to historical levels, the self-help actions delivered during the year are capable of improving the performance of the division in the absence of market recovery. As market conditions improve over the medium term, the division will be better placed to maximise returns. TORQUE FACTSTorque Transmission operates successfully in a number of attractive niches with: ÆSales presence in over 12 countries worldwide ÆBespoke design solutions for the most demanding applications ÆCoupling products with unique characteristicsUNDERLYING REVENUE£m20132015201460504030201002017201651.348.347.837.341.7UNDERLYING ADJUSTED OPERATING MARGIN%201320152014201510502017201611.513.516.910.512.5PICTURED: THE NEW MACHINING CENTRE IN USE AT OUR COUPLINGS FACILITY IN CARDIFF.PICTURED: AN OPERATOR AT OUR COUPLINGS FACILITY IN CARDIFF CHANGING TOOLS ON THE MACHINING CENTRE. 31STRATEGIC REPORTwww.renold.com Stock code: RNO31Renold AR2017-Proof3.indd 316/7/2017 2:58:51 PM 25290-04 AR 2017 Proof 3OUR PERFORMANCE:Torque TransmissionRenold Gears has supplied one of the largest worm gear sets in the Company’s history to a leading manufacturer of steel plate. Giant screw-down worm gears were designed and manufactured for a leading manufacturer of steel plate to drive two large rollers for rolling steel slabs to the required plate thickness on a quarto reversing mill. The steel slabs could initially be up to 300mm thick and are rolled precisely to reduce thickness and produce steel plate to customers’ exact specifications. During the rolling process the worm gears auto adjust by sliding on a special spline incorporated in the worm-wheel hub.The giant screw-down worm gears have a centre distance of over 32 inches and a ratio of 36:1. The worm shaft is nearly two metres long and together with the wheel they weigh in at a colossal 4,850 kilograms, or nearly five tonnes, the approximate weight of three average sized family cars! The original manufacturer of the mill press was no longer in business and the steel company was finding it impossible to obtain spares. A breakdown would have halted production and so Renold Gears was approached because of its unique ability to manufacture large worm gear sets of this size and specification. As only minimal technical drawings were available of the mill, it was necessary to reverse engineer the old worm gears to accurately and precisely reproduce the original design specifications.The steel company is a leading supplier of steel plate and produces around 200,000 tonnes annually for a wide range of uses including buildings, bridges, yellow goods, industrial machinery, wind turbines and general construction.GIANT WORM GEARS WEIGH AS MUCH AS THREE CARSKNOWLEDGESKILLS & FACILITIES1SERVICELOGISTICSRenold plc Annual Report and Accounts 2017 for the year ended 31 March 201732Renold AR2017-Proof3.indd 326/7/2017 2:59:00 PM 25290-04 AR 2017 Proof 3Renold Hi-Tec will supply 4 DCB-GS 658.5 couplings to Wärtsilä to be used by Geita Gold Mining Limited in Tanzania. Each coupling transmits 10MW at 750rpm between a Wärtsilä 20V32TS duel fuel diesel engine and an alternator which is producing power to the gold mine. The power plant will provide a reliable electricity supply to the Geita gold mine, located in the Lake Victoria goldfields of the Mwanza region in north-western Tanzania. Being off-grid means that the mine needs to secure its own power supply. Since the mine needs to remain operational at all times, the reliability, high efficiency, and quality of the Renold solution were key factors in the award of the contract. RENOLD COUPLINGS' PROJECT WINSRenold Hi-Tec Supplies 4 DCB-GS Couplings to WärtsiläKNOWLEDGESKILLS & FACILITIES1SERVICELOGISTICSwww.renold.com Stock code: RNO33Renold AR2017-Proof3.indd 336/7/2017 2:59:08 PM FINANCE DIRECTOR’S REVIEW
“We have taken a cautious approach
to managing the business in the current
volatile market conditions. Whilst operating
margins have reduced in the year, this is
largely due to market conditions. The self
help actions delivered in the year provide the
basis for a stronger recovery when market
conditions improve.”
IAN SCAPENS
FINANCE DIRECTOR
Overview
Challenging market conditions, first experienced in the second half of the prior year, continued into the year under review, resulting in
reduced revenue and profit in the first half. Relative performance improved through the year as trading in Torque Transmission stabilised
and organic growth in Chain Europe was delivered. This helped to recover some of the declines from the first half.
Positive indications from order intake during the latter part of the year suggest some early signs of improving end-customer markets as we
move into the new financial period.
Orders and revenue
Reconciliation to reported results
As reported
Impact of foreign exchange
Pension administration costs
Exceptional items
Amortisation of acquired intangible assets
Underlying adjusted
Order
intake
£m
186.8
–
–
–
–
186.8
2017
Revenue
£m
183.4
–
–
–
–
183.4
Operating
profit
£m
11.0
–
0.7
1.7
1.1
14.5
Order
intake
£m
159.7
18.8
–
–
–
178.5
2016
Revenue
£m
165.2
19.5
–
–
–
184.7
Operating
profit
£m
11.1
2.6
0.7
2.2
0.2
16.8
Order intake in the Chain division was
higher than revenue with the underlying
ratio of orders to revenue (book to bill)
being 102.2% in the year (2016: 96.4%). All
Chain regions had book to bill ratios greater
than 100% for the year. Underlying order
intake demonstrated good progress in the
year with growth in the second half of 11.9%
over the second half of the prior year. This
compared to growth of 4.6% for the first
half, and together resulted in growth for the
full year of 8.2%.
In Torque Transmission, the weaker demand
from commodity related and capital goods
markets experienced in the second half of
the prior year continued into the first half of
the current year. Underlying order intake in
the first half of the year declined by 13.4%
when compared to the same period in the
prior year. Whilst underlying order intake in
the second half of the year grew by 0.2%,
this is growth over the weaker second half
of the previous year. The book to bill ratio
for the division was 100.8% (2016: 97.4%).
Group revenue for the year increased by
£18.2m (11.0%) to £183.4m, benefiting from
foreign exchange tailwinds and continued
strong performance of the Tooth Chain
business acquired in December 2015.
Underlying revenue for the year was
broadly unchanged with the small decline
of £1.3m representing a 0.7% reduction. This
includes the full-year benefit of the Tooth
Chain acquisition. Excluding the effect of
this acquisition, underlying revenue declined
by £6.7m (3.6%). The reduction in underlying
revenue was concentrated in the first half
of the year with a year-on-year decline of
4.0%, reflecting a continuation of the weak
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reduction to revenue with a reduction to the
operating margin delivered in the year.
Although not readily transparent from the
consolidated Group results, we continue to
remain focused on improving the overhead
efficiency of the Group. The monthly
breakeven revenue has increased to £12.8m
(2016: £11.3m; £12.4m on an underlying
basis). The Tooth Chain acquisition
introduces a monthly revenue requirement
of £0.3m to breakeven. On an underlying
basis, excluding the acquisition, the
monthly breakeven revenue has increased
by £0.2m (1.6%). This reflects the fact that
we are spending more on marketing and
commercial headcount in order to support
the organic growth phase of the STEP 2020
Strategic Plan.
Foreign exchange rates
Foreign exchange rates have been
extremely volatile during the year, reflecting
the decline in the value of Sterling following
the UK’s Brexit vote in June 2016. The value
of Sterling fell significantly in June, with an
impact on the weighted average exchange
rates used to convert the Group’s results to
Sterling in the first half. This fall was largely
sustained throughout the second half of
the year, compounding the impact on the
weighted average rates.
The natural hedge normally provided by the
Group’s diverse operating territories and
currencies therefore did not operate in the
year as Sterling weakened against almost
all global currencies at the same time.
FX Rates (% of Group sales)
£GBP / Euro (30%)
£GBP / US$ (33%)
£GBP / C$ (4%)
£GBP / A$ (5%)
Mar 16
FX rate
1.26
1.44
1.86
1.87
Sep 16
FX rate
1.16
1.30
1.70
1.69
Sep 16
Var %
(8%)
(10%)
(9%)
(10%)
Mar 17
FX rate
1.17
1.25
1.67
1.64
Mar 17
Var %
(7%)
(13%)
(10%)
(12%)
If the year end exchange rates had applied throughout the year, there would be an
estimated increase of £5.6m to revenue and £0.4m to operating profit.
end-customer markets experienced in the
second half of the prior year. The Group
returned to growth for the second half of
the year with revenue 2.8% ahead.
On a divisional basis, the Chain division saw
underlying revenue increase by 2.1% with
Torque Transmission weaker, 10.5% down.
Operating profit
The Group generated £7.0m of adjusted
operating profit in the first half (2016:
£7.9m), £7.5m in the second half (2016:
£6.3m) and a full year result of £14.5m
(2016: £14.2m).
At the half-year, we reported underlying
adjusted operating profit down by £2.0m,
which increased to £2.1m incorporating the
mix effect of changing foreign exchange
rates to March 2017. This shortfall
significantly reduced during the second
half of the year with underlying adjusted
operating profit down by £0.2m, resulting in
a full year shortfall of £2.3m.
Underlying adjusted operating margins
fell during the year to 7.9% (2016: 9.1%).
The Tooth Chain acquisition generated
underlying revenue growth of £5.4m,
delivering an incremental underlying
adjusted operating profit of £1.6m.
Excluding the impact of the acquisition,
underlying revenue declined by £6.7m with
a corresponding reduction in underlying
adjusted operating profit of £3.3m. The
combined effect of these elements is a small
Renold AR2017-Proof3.indd 35
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FINANCE DIRECTOR’S REVIEW
Exceptional items
Net exceptional charges of £1.7m were
£0.5m lower than the prior year figure.
Gross charges of £4.6m (2016: £3.4m)
related to various restructuring and
redundancy costs incurred as part of STEP
2020 (£4.3m) or costs of integrating the
Tooth Chain acquisition (£0.3m). The more
significant restructuring and redundancy
costs were incurred in consolidating the
UK Couplings manufacturing to Cardiff,
relocating the European distribution facility
to Uslar, Germany, and commencing the
programme to relocate our Chain China
manufacturing facility to a new purpose
built facility.
Offsetting these gross exceptional costs
is a net gain of £2.9m made on the sale
and short-term leaseback of the Mulgrave
manufacturing facility in Australia. For more
details please see Note 2(c).
Other adjusting items
Other adjusting items include legacy
pension scheme administration costs of
£0.7m (2016: £0.7m) and amortisation of
acquired intangible assets of £1.1m (2016:
£0.2m).
Financing costs
External net interest costs in the year were
£1.7m (2016: £1.5m). The annual charge
includes £0.2m (2016: £0.2m charge) in
respect of amortisation of the residual
refinancing costs paid in 2012 and 2015.
Financing costs also include £0.1m of
unwinding discounts on onerous lease
provisions established for the Bredbury
factory site.
Certain elements of the Group’s debt
facilities are drawn in non-sterling
currencies and the foreign exchange factors
which impact upon revenue and operating
profit also impact upon financing costs.
The movement in foreign exchange rates in
the year have the effect of increasing the
external net interest cost by £0.1m in the
year.
The net IAS 19 finance charge (which is
a non-cash item) is £2.5m (2016: £2.0m).
In the current year, the actual return on
assets was £11.3m higher than the return
used in the interest calculation as specified
in IAS 19 due primarily to stronger equity
markets and the offsetting impact of higher
corporate bond yields on the value of
corporate bond portfolios. The difference
appears as a remeasurement gain in the
asset section of Note 18.
Result before tax
Profit before tax was £6.7m (2016: £7.4m).
Adjusted profit before tax, which excludes
exceptional items, IAS 19 financing costs,
amortisation of acquired intangible assets
and legacy pension scheme costs, was
£12.8m (2016: £12.7m).
Taxation
The current year tax charge of £1.9m (2016:
charge of £2.0m) is made up of a current
tax charge of £2.9m (2016: charge of £1.5m)
and a deferred tax credit of £1.0m (2016:
charge of £0.5m). The Group cash tax paid
was much lower at £1.0m (2016: £1.0m).
The difference between tax charges and
cash tax paid is due to the utilisation of tax
losses and other tax assets in various parts
of the Group. The last of our historical tax
losses in Germany were utilised in the year.
The effect of this will be to increase tax
payments in future years in this profitable
territory, with a double impact in the year
ended 31 March 2018 as payments on
account become more significant.
Group results for the financial period
Profit for the financial year ended 31 March
2017 was £4.8m (2016: £5.4m). The basic
and diluted adjusted earnings per share
were both 4.6p (2016: earnings of 4.7p and
4.6p respectively).
36
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STRATEGIC REPORT
Balance sheet
Net assets at 31 March 2017 were £7.8m
(2016: £10.5m). The fall was driven by the
increase in the net pension deficit as lower
discount rates and increasing inflation rates
result in increased liabilities. This has only
been partially offset by outperformance of
asset returns in the period.
The net liability for pension benefit
obligations was £84.8m (2016: £68.1m)
after allowing for a net deferred tax asset
of £17.2m (2016: £14.8m). Overseas schemes
now account for £25.0m (29.0%) of the post
tax pension deficits and £26.2m of this is in
respect of the German scheme which is not
required to be prefunded.
Cash flow and borrowings
Cash generated from operations was £7.4m
(2016: £10.8m). Gross capital expenditure
was up in the year at £9.6m (2016: £9.5m).
This investment was partially funded
through the disposal proceeds from the sale
of properties in the year of £10.2m (2016:
£nil).
Capital expenditure in the new financial
year is expected to exceed £13.0m.
A number of major projects totalling
approximately £7.8m are already committed
as at the date of this report including £6.0m
for the relocation of our Chinese Chain
manufacturing facility and £1.2m in respect
of the roll out of our global IT system.
Investments were also made in a number of
stock lines to support new sales initiatives
and new product launches. This in part
explains the small rise in our working capital
KPI (average working capital as a ratio of
rolling 12 month sales) from 20.3% to 22.2%
which was also adversely impacted by the
slow down in demand. The absolute level of
working capital was £3.4m higher than in
the prior year.
Group net borrowings at 31 March 2017 of
£17.4m were £6.1m lower than the opening
position of £23.5m comprising cash and
cash equivalents of £16.4m (2016: £13.5m)
and borrowings of £33.8m (2016: £37.0m).
The decrease in net debt is almost wholly
explained by the proceeds received for the
sale of properties in the year.
Debt facility and capital structure
The Group’s core banking facilities are
unchanged in the year and remain a
committed £41.0m Multi-Currency
Revolving Credit Facility (MCRF), with a
£20.0m accordion. The facility matures in
May 2020.
The Group continues to operate
comfortably within covenant limits. The Net
Debt/Adjusted EBITDA ratio as at 31 March
2017 is 0.82 times (covenant requirement:
2.5 times; 2016: 1.1 times), based on the
reported figures for the period as adjusted
for the banking agreement. The Adjusted
EBITDA/interest cover as at 31 March 2017
is 12.1 times (covenant requirement: 4.0
times; 2016: 13.6 times), again on a banking
basis.
At 31 March 2017, the Group had unused
credit facilities totalling £5.3m and cash
balances of £16.4m. Total Group credit
facilities amounted to £43.3m, all of which
were committed.
Treasury and financial instruments
The Group’s treasury policy, approved
by the Board, 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.
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 are designated as a hedge of
the net investment in US subsidiaries. At 31
March 2017 this hedge was fully effective.
The carrying value of these borrowings at
31 March 2017 was £6.9m (2016: £6.1m).
At 31 March 2017, the Group had 1% (2016:
1%) 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.
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FINANCE DIRECTOR’S REVIEW
Pension assets and liabilities
The Group has a mix of UK (83% of gross liabilities) and overseas (17%) defined benefit pension obligations as shown below.
Defined benefit schemes
UK funded
Overseas funded
Overseas unfunded
Deferred tax asset
Net deficit
Assets
£m
146.4
14.2
–
160.6
2017
Liabilities
£m
(218.4)
(18.0)
(26.2)
(262.6)
Deficit
£m
(72.0)
(3.8)
(26.2)
(102.0)
17.2
(84.8)
Assets
£m
137.7
11.4
–
149.1
2016
Liabilities
£m
(191.3)
(16.2)
(24.5)
(232.0)
Deficit
£m
(53.6)
(4.8)
(24.5)
(82.9)
14.8
(68.1)
The Group’s retirement benefit obligations
increased from £82.9m (£68.1m net of
deferred tax) at 31 March 2016 to £102.0m
(£84.8m net of deferred tax) at 31 March
2017. The largest element of the increase
relates to the UK scheme where the deficit
increased from £53.6m to £72.0m. The
increase in the deficit of the overseas
schemes of £0.7m arises from an underlying
reduction in the deficit of £1.9m, offset
by a £2.6m increase arising from foreign
exchange movements in the year.
Æ UK funded scheme
The major reason for the increase in
the deficit of the UK funded scheme is
the impact of the actuarial assumptions
on the value of liabilities. Reductions
to discount rates have combined
with increasing inflation assumptions
to increase the value of liabilities
by £35.8m. However, this increase
was offset by experience gains (the
difference between assumptions
previously made and experience of real
events) and asset returns delivered
above assumed levels, which together
generated gains of £15.3m to offset the
deficit increase.
Æ Overseas funded schemes
The overseas funded schemes comprise
a number of smaller schemes around
the world. Deficits on these schemes
reduced in the year by £1.0m, despite a
£0.7m increase in net liability due to the
movement in foreign exchange rates.
Experience gains, asset outperformance
and contributions to the schemes
combined to reduce the underlying
deficits in aggregate by £1.7m.
Æ Overseas unfunded schemes
This category largely relates to the
unfunded German schemes. The deficit
increased in the year as foreign exchange
movements increased the liability by
£1.9m. The underlying deficit reduced by
£0.2m as increases arising from actuarial
assumptions were offset by payments of
benefits in the year.
The aggregate expense of administering the
pension schemes was £0.7m (2016: £0.7m)
and is included in operating costs but is
excluded in arriving at adjusted operating
profit.
The latest triennial actuarial valuation of
the UK Scheme, with an effective date of
5 April 2016, was recently agreed. This
process concluded that contributions to
the UK Scheme should continue unchanged
and no additional contributions in excess of
the previously agreed asset backed funding
structure were deemed necessary. The next
triennial valuation date will be 5 April 2019.
The detailed structure and mechanics of
the merger and underpinning asset backed
funding structure are set out in Note 18 to
the accounts.
Total cash costs for UK deficit repair
payments and UK administrative expenses
in the period were £3.9m (2016: £3.4m)
which includes £0.7m (2016: £0.7m) in
administration costs. The increase in UK
deficit repair payments in the year of £0.5m
reflects a one-off additional contribution as
part of the medically underwritten buy-ins
which completed in the prior year.
Total cash costs for the overseas pension
schemes increased in the period to £2.1m
(2016: £1.9m) as a result of foreign exchange
differences.
Ian Scapens
Finance Director
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25290-04 AR 2017 Proof 3 ÆGiven the relative maturity of the scheme, and following the medically underwritten insured buy-ins, 58% of assets are invested in insurance policies, corporate bonds, liability driven investments and diversified growth funds. They are held primarily to generate an income stream that supports the ongoing annual pension payments (currently circa £9.5m including cash lump sums on retirement). ÆThe overall target for UK portfolio returns is 5.5%. The actual UK return in the year was a gain of £15.3m (or 11.1% gain). ÆIt should be noted that the diversified growth funds have characteristics of both protection assets (returns are lower and less volatile than equities) and growth assets (return targets are higher than simple gilts and bonds). ÆThe chart to the left shows a comparison between expected and actual mortality in the UK scheme based on the assumptions underlying the March 2017 Annual Report and the actual mortality experience. ÆThe chart also shows the number of life years that could be expected to die each year (referred to as ‘Exposure’). ÆThe fall in Exposure over the years has largely been driven by the significant falls in membership numbers resulting from the scheme merger and various small pots exercises as well as mortality itself and the age of the membership. ÆThe chart clearly shows that even based on the current strong mortality assumptions, actual deaths have been higher than expected levels. If mortality continues at a higher rate than assumed, all else being equal, the level of future pension payments would fall.DRIVERS OF PENSION DEFICIT MOVEMENTUK ASSETS %MORTALITY AND MORTALITY EXPOSURE ÆThe bar chart shows the evolution of the total membership of the UK scheme over the last six years and the numbers in each category. ÆTotal membership has fallen by 49% or 2,907 since 2010 or 63% since 2005. ÆThe step change in 2014 followed the merger of the three UK schemes when 1,316 members had their benefits paid out in full in wind up lump sums. ÆA small pots exercise completed in 2016 and 207 members had their benefits paid out in full. ÆOf the remaining 3,056 members, approximately 500-600 will have their benefits discharged as a lump sum on retirement or dependency.TRENDS IN UK SCHEME MEMBERSHIP %20052006200820072010200920122011201420138,0007,0006,0005,0004,0003,0002,0001,0000201520162017PensionersDeferredActiveEquitiesGiltsOther£146.4mAssets20365Insurancepolicies336Hedge fundsand diversifiedfunds 05010015020025005001,0001,5002,0002,5003,0003,500201120122013201420152016Number of deathsExposure (life years)ExposureActual deathsExpected deathsPension Insights(6.7)(••)11.3(4.0)(29.2)10-55-25-30-15£m-10-200Deficit upDeficit down5.4UK discount rateUK mortalityUK inflationrateAssetperformanceContributionsFX and Other154.1 ÆThe net pension deficit increased by 23% in the year to £102.0m. ÆLiability assumptions for discount rates and inflation in the UK scheme were the largest cause of deficit increase combining to increase the UK liabilities by £35.9m. ÆUK discount rates fell sharply in the early part of the year resulting in a significant increase in the UK deficit at 30 September 2016. ÆUK discount rates increased in the second half of the year, but the expected reduction in liabilities did not crystalise as increases in UK inflation rates had an offsetting effect. ÆUK asset performance was strong in the year, reducing the deficit by £10.7m with a further £0.6m delivered on overseas schemes. ÆThe movement in the deficit arising on overseas schemes was small as a reduction in the deficit was largely offset by foreign exchange movements.www.renold.com Stock code: RNO39STRATEGIC REPORTRenold AR2017-Proof3.indd 396/7/2017 2:59:57 PM OUR RISKS
Proactive risk management is a key business process at Renold and is used to
help management create and protect value. In the current uncertain markets
its relevance to safeguarding shareholder value is even more critical.
Our approach to risk
The management of risk in the business is
fundamental to the ability of the Group to
successfully deliver the STEP 2020 Strategic
Plan.
The Board has overall responsibility and
oversight of the risk management framework
and is also responsible for setting the
parameters of acceptable and unacceptable
risk (referred to as ‘risk appetite’).
Renold’s risk management framework is
designed to identify and assess the probability
and consequences of risks occurring, to
manage the actions necessary to reduce those
risks, and to mitigate their potential impact.
RISK MANAGEMENT FRAMEWORK
As described in the chart below, we consider risk across the
organisation, blending a holistic top down view with site, functional
and project specific assessments.
THE BOARD
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 management’s responsiveness to
actions designed to treat excessive risk.
AUDIT COMMITTEE
Æ Supports the Board, reviewing the end to end risk management process.
Æ Particular emphasis is placed upon monitoring the implementation of risk
mitigation actions.
GROUP RISK FUNCTION
Æ Facilitates the maintenance of risk
registers and action plans.
Æ Reviews status of risk management
actions.
EXECUTIVE RISK MANAGEMENT
AND MONITORING COMMITTEE
Æ Oversight of risk registers and their
maintenance.
Æ Challenge and review of completed
actions.
Æ Review and critique of risk profiles
presented by senior business leaders
and challenge of risk mitigation plans.
Æ Shares best practice risks and
solutions across the Group.
BUSINESS UNITS
Æ Maintains local risk registers and action plans.
Æ Ongoing action management and tracking.
Æ Embedding Group culture and risk appetite at a local level.
Renold’s risk appetite
The Board acknowledges that the Group is
exposed to risk during the normal course
of business. Renold must be willing to
accept an appropriate level of risk in order
to achieve its Strategic Objectives. The
Board’s attitude to risk management and
its appetite for risk can be described as
‘tending to risk averse’.
Our risk management process:
The Executive Risk Management and
Monitoring Committee
The Group Audit Committee reviews the
principal risks and uncertainties together
with the actions taken and relevant
mitigating controls. The Group Executive
Risk Management and Monitoring
Committee (ERMMC) is a sub-committee
of the main Board. The ERMMC is chaired
by the Group Chief Executive and meets at
least four times per year.
The ERMMC is comprised of the Executive
Directors. Senior members of the business
attend by invitation and are required to
present risk profiles for their functional
areas and the aligned action plans to
manage or mitigate risk. The Group
Business Systems Director, the Group
HR Director, the Group Head of Risk and
Assurance and the Group Legal Manager
and Company Secretary also attend each
meeting.
Each ERMMC meeting is informed by a
detailed risk management status report.
This report provides an insight on new risks
and progress on mitigating actions on all
risks. Other topical risk issues also feature
on the standing agenda e.g. there is focus
on the Group’s response and management
of important health and safety related
events. The ERMMC is also provided with
information in the form of reports on health
and safety, treasury, insurance, material
litigation and whistle blowing.
All ERMMC minutes and the risk status
reports are reviewed and discussed by the
Audit Committee. The Audit Committee
reports on these discussions to the Board.
40
Renold plc Annual Report and Accounts 2017 for the year ended 31 March 2017
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STRATEGIC REPORT
Risk heat map as at 31 March 2017
Impact
4
6
2
8
1
3
5
7
10
9
Likelihood
Æ Grey/black: risks that are deemed to
have such an impact that they could
theoretically impact the ability of the
business to continue in existence. If
any, they would need consideration
in assessing the Directors’ Viability
Statement.
The IRMS is used to track actions and
automatically links these to the associated
risks. The IRMS therefore operates as a
live management tool that assists staff
in actions management and also in the
production of real time risk status reports.
Risk reports for the various Executive
committees derive data from the IRMS.
Key: – Residual risk after mitigation
10
1
How we manage risk
Having identified the risks the business
faces and having scored them against the
Risk Appetite set by the Board, our Group
Policy then provides guidance on how to
manage those risks, depending on where
they sit on the risk heat map.
The ‘heat map’ shows the four bandings
in the different shades of risks as set out
below as well as expected actions and
responses to risks in these areas:
Æ Green: within appetite. Ongoing
monitoring in place.
Æ Amber: out of appetite. Some actions
are required to treat the risk to bring this
within acceptable levels.
Æ Red: significantly out of appetite. High
combination of residual probability and
impact. Management actions required,
with some urgency, to treat the risk,
reducing this to acceptable levels.
How we assess risk
Our approach combines sharing best
practice across sites, expert guidance from
the Group Head of Risk and Assurance,
Catastrophic
and local ‘on the ground’ experience and
knowledge of specific risk factors.
Risk workshops involving local and
Critical
functional staff are used to develop risk
profiles and action plans. The Group Head
of Risk and Assurance facilitates the end
to end risk management process, ensuring
consistency of approach and compliance
with Group Policy.
Risks are assessed against the framework
defined in the Group Risk Management
Policy. Our risk assessment model
considers:
Æ The probability of a risk crystallising.
Æ The potential impact if the risk
crystallised – impact definitions cover
a range of criteria including direct
financial impact, reputational impact,
people impact, e.g. in the event of an
accident, regulatory censure and adverse
movement of the share price.
These are scored and then placed on the
risk heat map above, which is a matrix
of probability and impact and shows our
principal risks and uncertainties. Our model
also considers each risk from two different
perspectives:
Æ The extent of inherent risk (i.e. before
any mitigating controls or actions).
Æ The extent of residual risk (i.e. after
mitigating controls and actions).
This allows us to assess the positive impact
of control on the underlying inherent risk.
The Group has deployed an online
Integrated Risk Management System
(IRMS) across all locations. This is used
to capture risk profiles and actions under
management. Action plans are maintained
across the Group, with all system updates
subject to review by the Group Head of Risk.
Key: Risk heat map
1 Macro-Economic and
Political Volatility
4 Health and Safety in the Workplace
5
Effective Deployment and Utilisation of
Information Technology Systems
8
Liquidity, Foreign Exchange and Banking
Arrangements
9 Pensions Deficit Volatility
2 Strategy Execution
6 Prolonged Loss of a Manufacturing Site
10 Regulatory and Legal Compliance
3 Acquisitions Risk
7 People and Change
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www.renold.com Stock code: RNO
41
25290-04 AR 2017 Proof 3PRINCIPAL RISKS AND UNCERTAINTIESThe Board continues to carry out a robust assessment of the principal risks facing the business. The Executive Risk Management and Monitoring Committee monitors the ongoing identification and assessment of risks, reviews all risks in the IRMS and reports material risks to the Audit Committee. Set out on pages 42 to 46 are the principal risks and uncertainties which could have a material impact on the Group. The numbers correspond to the risk identified on the heat map.These risks are continually monitored. The Board has critically reassessed the risks we face in light of the Group’s progress on its STEP 2020 Strategic Plan coupled with the volatility in our end markets. We indicate whether or not we consider the probability or impact of the risks materialising are increasing, decreasing or unchanged and set out the corresponding mitigating actions that have been taken by the Group. We also show which of our Strategic Objectives could be impacted by the risk. 2 Strategy ExecutionDetailed riskThe Group’s strategy requires the co-ordinated delivery of a number of complex projects e.g. during the year we have rationalised certain production facilities. LINK TO STRATEGIC OBJECTIVES2 3 4 5 6 7Potential impactWhilst these projects are designed to deliver targeted benefits, if not appropriately managed, they have the potential to negatively impact the Group’s operations. Existing mitigation controls ÆThe STEP 2020 Strategic Plan has been developed to deliver a turnaround in performance and to make that performance more stable and less exposed to revenue volatility. ÆThe Board reviews progress against the different STEP 2020 projects in each of its meetings. This is based on a regularly updated report from the CEO which groups the individual projects into themes linked directly to our Strategic Objectives. ÆMajor projects are all managed in accordance with best practice project management techniques with at least one member of the Executive team on the relevant Steering Committees. 1 Macroeconomic and Political Volatility Detailed risk ÆMaterial changes in prevailing macroeconomic or political conditions could have a detrimental impact on business performance. We operate in 19 countries and sell to customers in over 100 and therefore we are necessarily exposed to economic and political risks in these territories.7LINK TO STRATEGIC OBJECTIVES 2 7Potential impact Potential touchpoints include: ÆCommodity prices which have a negative impact on demand in the whole supply chain. ÆForeign exchange volatility can impact customer buying patterns, leading to lower demand or the need to rapidly switch supply chains. ÆThe political issues affecting the UK and Europe are also impacting business performance and confidence.Existing mitigation controls ÆOur diversified geographic footprint inherently exposes us to more countries where risks arise but conversely provides some degree of resilience. ÆActions to lower the Group’s overall breakeven point also serve to reduce the impact of any global economic slowdown. ÆA focus on 'predict and respond', e.g. sales forecasting and raw material price monitoring. ÆStrong core banking group with multi-currency debt facility. ÆOperation of a net cash flow hedging strategy approved by the Board.2016 TREND2017 TREND2016 TREND2017 TREND2016 TRENDRenold plc Annual Report and Accounts 2017 for the year ended 31 March 201742Renold AR2017-Proof3.indd 426/7/2017 3:00:07 PM High impactMedium impactLow impactTrend Direction25290-04 AR 2017 Proof 33 Acquisitions/Business DevelopmentDetailed riskPart of the Group’s strategy is to grow through selective acquisitions. Performance of acquired businesses may not reach expectations, impacting Group profitability and cash flows.LINK TO STRATEGIC OBJECTIVES 2 5 7Potential impactAny acquisition involves risks at various stages of the project life cycle.During the Acquisitions phase, value can be lost through over-paying, missing key issues in due diligence or potential value leakage through poor contract negotiation. Value can also be lost through a poorly planned or executed integration phase. Finally, failure to deliver anticipated benefits during the ‘business as usual’ phase can also lead to a loss of value.Existing mitigation controls ÆMonitoring of specific acquisition targets: Business Acquisition Process incorporating Concept Evaluation, Business Case, Indicative Offer/Heads of Terms, Due Diligence (covering a range of criteria), Integration Planning and Execution and Post Integration Appraisal which in turn feeds back to the Business Acquisition Process. ÆUse of third party specialists to address risks specific to each acquisition. ÆFormation of top-down cross functional business integration project teams and plans. These specifically address any issues or risks identified during the Acquisitions phase. ÆDeployment of detailed benefits realisation plans.4 Health and Safety in the Workplace Detailed riskThe risk of death or serious injury to employees or third parties associated with Renold’s worldwide operations. We are proud of the progress we have made in recent years, but recognise that we have more to do. LINK TO STRATEGIC OBJECTIVES 1 Potential impactAccidents caused by a lack of robust safety procedures could result in life changing impacts for employees, visitors or contractors. This will always be unacceptable. In addition, accidents could result in civil or criminal liability for both the Group and the Directors and officers of the Group and Group companies, leading to reputational damage. Existing mitigation controls ÆGroup policies and a Groupwide management system known as the Framework, to set control expectations, with a support training programme for all managers. ÆThe Group operates a rolling programme of Internal Audits to assess compliance against the Framework. ÆContinual hazard assessments to ensure awareness of risks. ÆLive tracking of accident rates and root cause analysis via the IRMS plus monthly Board reporting focused on a range of KPIs. ÆSpecific initiatives include the BAT safety logo and the Annual Health and Safety Awards Scheme to recognise success.2016 TREND2017 TREND2016 TREND2017 TREND2016 TRENDIncreasing2016 TRENDUnchanged2016 TRENDDecreasingTrend Directionwww.renold.com Stock code: RNO43STRATEGIC REPORTRenold AR2017-Proof3.indd 436/7/2017 3:00:11 PM 25290-04 AR 2017 Proof 3PRINCIPAL RISKS AND UNCERTAINTIES 5 Effective Deployment and Utilisation of Information Technology SystemsDetailed riskWe seek to leverage the use of IT to achieve competitive advantage. The Group continues to implement a global ERP system to replace numerous legacy systems which inherently brings with it the risks associated with a large scale change programme.LINK TO STRATEGIC OBJECTIVES3 4 5 Potential impactInterruption or failure of IT systems (including the impact of a cyber attack) would negatively impact or indeed prevent some business activities from occurring. If the interruption was long lasting, significant damage could be done to the business. It is essential that we are able to rely on the data derived from our business system to feed routine but fundamental business performance monitoring.An unsuccessful implementation of the global ERP system has the potential to materially impact that site’s and possibly the Group’s performance.The risk is assessed as stable as we have already successfully implemented the ERP at two locations.Existing mitigation controls ÆShort-term stabilisation of existing hardware and legacy software platforms. ÆGovernance and control arrangement operating over the Group’s ERP implementation programme. ÆUse of specialist external consultants and recruitment of experienced personnel. ÆPhased implementation rather than ‘big bang’. ÆProject assurance and 'lessons learned' reviews to continuously improve the quality of successive roll outs. ÆTemplate blueprint agreed to form the basis of the implementations. ÆSteering Committee in operation with cascading project management disciplines. ÆA range of preventative and detective controls to manage the risk of a cyber attack.6 Prolonged Loss of a Manufacturing Site Detailed riskA catastrophic loss of the use of all or a significant portion of a strategic production facility. This could result from an accident, a strike by employees, fire, severe weather or other cause outside of management control. LINK TO STRATEGIC OBJECTIVES5 7 Potential impactIn the short or long-term, a related risk event could adversely affect the Group’s ability to meet the demands of its customers.Specifically, this could entail significant repair costs or costs of alternate supply while repairs are made. A significant proportion of the Group’s revenue is on relatively short lead times and a break in our supply chain could result in loss of revenue. All of this translates into lower sales and profits.Existing mitigation controls ÆPreventative maintenance programmes and new investments to reduce risk of interruption of manufacturing. ÆA Group Fire Safety Policy, mandating preventive, detective and containment controls. ÆAlternate manufacturing capacity exists for a substantial portion of the Group’s product range. ÆCore sites are required to maintain a Business Continuity Plan for use in the event of a serious business disruption. ÆInventory maintained to absorb and flatten out raw material supply and production volatility. ÆThe Group has comprehensive insurance policies to mitigate the impact of a number of these risks.2016 TREND2017 TREND2016 TREND2017 TRENDRenold plc Annual Report and Accounts 2017 for the year ended 31 March 201744Renold AR2017-Proof3.indd 446/7/2017 3:00:14 PM 25290-04 AR 2017 Proof 3 7 People and ChangeDetailed riskThe Group’s operations are dependent upon the ability to attract and retain the right people with an appropriate range of skills and experience. Succession planning and the ability to swiftly replace staff retiring or leaving is also critical.LINK TO STRATEGIC OBJECTIVES1 4 6 Potential impactFailure to retain, attract or motivate the required calibre of employees will negatively impact business performance. The delivery of the STEP 2020 Strategic Plan and our strategic goals may also be delayed.Existing mitigation controls ÆCompetitive reward programmes, focused training and development, and a talent retention programme. ÆOngoing reviews of succession plans based on business needs. ÆPerformance management introduced and training programmes, both being extended in the new financial year. Formal personal development review process to be rolled out in the new financial year. ÆManagement team strengthened with new capability from external hires and internal promotions. ÆThe Renold Values, launched in 2015, continue to be embedded.2016 TREND2017 TREND8 Liquidity, Foreign Exchange and Banking ArrangementsDetailed riskA lack of sufficient liquidity and flexibility in banking arrangements could inhibit the Group’s ability to invest for the future or, in extremes, restrict day to day operations. In the past, banking markets and Renold’s own performance have made access to debt facilities difficult. LINK TO STRATEGIC OBJECTIVES4 5 7Potential impact ÆPotentially cause under-investment and sub-optimal short-term decision making. ÆLimiting investment could prevent efficiency savings and reduce competitiveness. ÆIn an extreme situation, the Group’s ability to operate as a Going Concern could also be jeopardised.Existing mitigation controls ÆThe Group’s primary banking facility expires in May 2020 and is fully available given current levels of profitability. ÆThe facility includes additional draw down capability, accessible as long as financial covenants are complied with. ÆSix quarters of rolling forward FX cover.2016 TREND2017 TREND2016 TRENDHigh impactMedium impactLow impactTrend Direction2016 TRENDIncreasing2016 TRENDUnchanged2016 TRENDDecreasingTrend Directionwww.renold.com Stock code: RNO45STRATEGIC REPORTRenold AR2017-Proof3.indd 456/7/2017 3:00:21 PM 25290-04 AR 2017 Proof 3PRINCIPAL RISKS AND UNCERTAINTIES 9 Pensions Deficit VolatilityDetailed riskThe principal pensions risk is that short-term cash funding requirements of legacy pension scheme diverts much needed investment away from the Group’s operations. Secondly, the size of the reported balance sheet deficit can operate as a disincentive to potential investors or other stakeholders. Thirdly, balance sheet deficits can fluctuate based on market conditions outside the control of management.LINK TO STRATEGIC OBJECTIVES7Potential impactGiven the Group’s cash needs to invest in the business, the pace of performance improvement could be slowed if cash has to be diverted to the pension schemes.The balance sheet pension deficit and its volatility could act as a disincentive to potential investors and could reduce the Group’s ability to raise new equity or debt financing.Existing mitigation controls ÆThe Pension Strategy has been updated to 2020. ÆThe major UK pension cash flows (50% of all defined benefit pension cash costs) are stable 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.10 Regulatory and Legal ComplianceDetailed riskThe risk of censure, fine or business prohibition as a result of any part of the Group failing to comply with regulatory or legal obligations.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.LINK TO STRATEGIC OBJECTIVES7Potential impactFailure by the Group or its representatives to abide by applicable laws and regulations could result in: ÆAdministrative, civil or criminal liability. ÆSignificant fines and penalties. ÆSuspension of the Group from trading. ÆReputational damage.Existing mitigation controls ÆCommunication of a clear compliance culture. ÆRisk assessments and ongoing compliance reviews at least annually at all major locations. ÆPublished up to date policies and procedures with clear guidance and training issued to all employees. ÆMonitoring of compliance with nominated accountable managers in each business unit.2016 TREND2017 TREND2017 TREND2016 TREND2016 TREND2017 TREND2016 TRENDRenold plc Annual Report and Accounts 2017 for the year ended 31 March 201746Renold AR2017-Proof3.indd 466/7/2017 3:00:26 PM 25290-04 AR 2017 Proof 3Viability StatementThe UK Corporate Governance Code requires the Directors to assess the prospects of the Group over a period significantly longer than 12 months from the date of approval of the financial statements. The 12 month requirement was the basis for assessing the Going Concern basis.The Group’s STEP 2020 Strategic Plan covers the three year period to March 2020. The Group’s core financing facility expires in May 2020 but, following normal market practice, is likely to be renegotiated at least 12 months earlier. The Board determined that the period to March 2020 was the appropriate and relevant period over which to perform the viability review as it would be based on a set of forecasts already contained in the Group’s Strategic Plan. The Board is not aware of any reason why the Group would not be able to refinance its core financing facility prior to expiry on comparable market based terms at that time.As in prior years, the Board and Audit Committee have continued to review and assess the Group’s ongoing risk appetite, register of principal risks and progress on actions to mitigate the probability and impact of risks crystallising. The internal control structures and processes described on pages 66 to 68 also serve to mitigate overexposure to single risk events that could threaten the Group’s longer term viability. While all risks have the potential to impact longer term viability, the principal risks deemed more relevant for a reasonable assessment of viability are set out below: ÆStrategy Execution: the risk of the Group’s inability to successfully implement the STEP 2020 Strategic Plan which could lead to the Group continuing to experience volatile financial results and weak levels of cash generation. This has the additional potential impact of making it difficult to refinance the Group in 2019. ÆMacroeconomic and political volatility: uncertainty driven by global events is undoubtedly suppressing demand. These events range from Brexit, pressure on the stability of the Eurozone and volatility in the US. As an international manufacturing business the Group is dependent on stable trading environments to deliver our products and shareholder value. A catastrophic failure in the Eurozone or the European Union, e.g. could seriously undermine the Group’s longer term prospects.The Board has continued to review the STEP 2020 Strategic Plan during the current year. This included an additional detailed review of our markets, competitors and product strategies in addition to financial forecasts. The detailed review assessed the results of stress tests on financial forecasts and also financing options around our acquisition strategy in Phase III of the STEP 2020 Strategic Plan. In these stress tests a number of scenarios were reviewed including one in which sales levels were a further 10% below the year ended 31 March 2017 and a second in which sales growth was limited to being 50% below future growth plans. The Board thereby assessed the potential impact of the risks noted above which could affect solvency or liquidity in 'severe but plausible' scenarios over the three year period and concluded that the business would remain viable.The Group maintains a conservative approach to borrowing and while our banking covenants have leverage limits of 2.5x Adjusted EBITDA, the Board makes a point of seeking always to operate within an internally imposed 2.0x leverage limit which ensures there is access to a short-term borrowing buffer to cope with any short-term financial shocks. The Group’s currently expanded capital investment programme was also included in viability assessments to confirm the degree and period for which it could be curtailed without doing permanent long-term damage to the business. Current capital spend plans are significantly ahead of what could reasonably be described as ‘maintenance’ capital spend and hence provide additional comfort.Based on the results of the processes described above and the Board’s overall comprehensive and proactive approach to risk management, the Directors have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of assessment.www.renold.com Stock code: RNO47STRATEGIC REPORTRenold AR2017-Proof3.indd 476/7/2017 3:00:28 PM HEALTH AND SAFETY
A safe business
provides the
foundations for a
profitable business.
Our health and safety
KPIs show considerable
improvement and
are the result of the
considerable focus
in this area in recent
years. That focus
will continue as we
strive for further
improvement.
PLAN:
Determine the scope of
the management system
Set objectives
and timescales
Develop KPIs based
upon desired outcomes
LEARN:
Periodically assess the
management system’s
design effectiveness
Identify and respond to
areas of improvement
Adapt to changes
in legislative
requirements
7
Working with
Third Parties
1
Hazard
Assessment
6
Assessment, Assurance
and Improvement
The
Framework
2
Training and
Behaviours
5
Incident
Analysis and
Prevention
4
Information and
Documentation
3
Operations and
Maintenance
DO:
Create a management
structure with clearly
assigned accountabilities
Create and implement
processes and procedures
including controls
and training
Set standards for
record keeping
MEASURE:
Conduct timely
monitoring and
measurement confirming the
status of compliance
Develop and implement
corrective/
preventative actions
Accountability and Leadership
KPIs and Performance Management
Key Strategic Objective
Renold’s locations across the world operate
against a simple philosophy expressed in
the Group Health and Safety Management
Framework (the Framework) by our Group
Chief Executive: “Everyone who works at
Renold should expect to return home at
night in the same fit and healthy state in
which they came to work. Very simply,
safety is our top priority.”
Significantly improving our health and
safety performance remains Renold’s
number one Strategic Objective. Health
and safety features prominently in
our assessment of Principal Risks and
Uncertainties.
Health and safety governance
Governance structures are clearly defined.
These include a Group Health and Safety
policy which is reviewed annually.
Cascading from this is the Framework
which defines the Board’s expectations
regarding health and safety control and
performance. Management across all
locations are required to adhere to the
Framework. This contains principles and
expectations describing a set of outcomes
and provides a structure to manage health
and safety. The Framework is consistent
with recognised standards, including the
internationally adopted model of Plan-Do-
Measure-Learn and OHSAS 18001, with
accredited certification held by all of our
major production facilities.
The Framework consists of seven core
components, which include setting a
supportive leadership tone, with sub-
processes, covering e.g. hazard assessment,
incident management and the management
of third parties.
We use a web based Integrated Risk
Management System (IRMS) which
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 to inform
monthly Board reporting and site reviews
are derived from the system.
An independent programme of audits is
in place, which requires all material sites
to be audited within a 12 month period.
This assesses compliance and performance
against the Framework. Each audit typically
takes a week to perform, to allow a robust
assessment of compliance against the
Framework. The assurance results along
with other typical KPIs are reported each
month to the Board and reviewed under a
standing agenda item. There is particular
focus on any serious accidents and the
quality of accident investigations, ensuring
that true root causes are identified and
addressed.
Improvement initiatives
The following examples of health and safety
initiatives and specific site improvements
are indicative of the broad range of positive
changes which continue to be made:
Æ Renold’s Health and Safety Awards
scheme is now an important part of the
calendar for all sites.
Æ The BAT logo (shown on page 49)
continues to be used by all sites to
reinforce the message: Be safe; Act safe;
Think safe.
Æ Personal protective equipment
requirements are regularly reviewed
and we have ensured that clear
communication of standards is observed.
48
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25290-04 AR 2017 Proof 3 ÆAll core production sites have introduced a new standardised health and safety information board, which includes themes which align to the Framework and the Health and Safety Awards. ÆReplacement guarding has been fitted to machinery to prevent strike hazards from materials. ÆMandated standards relevant to fire safety have been developed and are being rolled out. ÆGuidance has been issued regarding workplace transport hazard management. ÆFollowing a review of accident root causes and trends, at our Einbeck, Germany site, 5,000 parts bins have been replaced and new glove protection is being trialled, designed to reduce the risk of finger injuries.Improved Groupwide performance The Group uses a number of KPIs to monitor performance. Each Board meeting considers a comprehensive report from the Group Risk Management function, which includes a rolling analysis of a range of KPIs along with other relevant criteria. Examples are provided on this page showing performance for the five years to 31 March 2017. Some key highlights during the year include: ÆA year on year reduction of 13% in our reportable accident rate (greater than three lost days). ÆContinuation of an exercise started in the prior year to develop hazard assessments against a standardised methodology – 3,541 assessments completed to date. ÆA total of 1,416 employee generated safety improvement opportunities. ÆIn recognition of the improvements, we are working with our insurers to leverage a further reduction in related insurance premiums. A £50k bursary allowance has been made available to help deliver future improvement initiatives.LOST TIME ACCIDENT FREQUENCY RATES1 2015105201320152014201720167.214.015.67.17.02,5002,0001,5001,000500201320152014201720167481,6652,06077788790060030020132015201420172016481587806190308TREND OF REPORTABLE INJURY RATES2Renold Health and Safety Awards SchemeThe annual Health and Safety Awards scheme was launched in 2014. The scheme rules encourage continuous improvement and align to the Framework. During the year, we refined the rules to implement stretch targets as part of a programme of continuous improvement. There is now an increased emphasis on innovative initiatives which are aimed at winning hearts and minds. Recognising the further improvements made across the Group, eight awards were made during 2016 (eight in 2015). The images show awards being presented by Chief Executive, Robert Purcell, to our teams in Milnrow (left) and South Africa (above). LOST TIME DAYS1 Lost time accident frequency rate = (no. of lost time accidents in the 12 month period/total hours worked in the 12 month period) x 1,000,000.2 Trend of reportable injury rates = (no. of accidents greater than three lost days divided by average number of employees in the 12 month period) x 100,000. Note that whilst accidents greater than seven days are reportable events in the UK, Renold monitors both three and seven lost day categories.www.renold.com Stock code: RNO49STRATEGIC REPORTRenold AR2017-Proof3.indd 496/7/2017 3:00:33 PM CORPORATE SOCIAL RESPONSIBILITY
Our Commitments
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 is mindful of the importance
to the business of its responsibility to
stakeholders and the wider community. We
recognise our duty to behave responsibly
towards all stakeholders in our business,
including shareholders, employees,
customers, suppliers and communities in
which we operate.
Our approach to corporate social
responsibility has three key elements:
our people, our community and our
environment. The commitment to our
people includes the provision of a rewarding
and safe environment for our employees
and the way in which we work according to
our Values.
Detailed information in relation to health
and safety matters is reported upon at
pages 48 and 49 of this Annual Report.
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.
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 on pages 58 to 59.
Provide a rewarding and safe working environment
Work in accordance with our values
Act in an ethical manner in all our business relationships
Work with the communities in which we operate
Minimise the environmental impact of our
products and processes
Our employees
The Group requires motivated, talented
employees, with a clear understanding
of their role within the business in order
to deliver our Strategic Objectives.
Consequently, Renold remains actively
focused on the delivery of actions in the
following areas:
Æ Talent acquisition and optimisation of
organisation structures
— Attracting, recruiting and retaining
talented individuals and optimising
our organisational structures to
enable them to operate effectively.
Æ Values, behaviours and engagement
— Establishing a values driven working
environment that actively engages
employees.
Æ Creating a high performance culture
— Recognising and rewarding strong
performance and identifying
opportunities for learning and
development.
Æ Compliance
— Ensuring compliance with
employment regulations wherever we
operate.
In line with the STEP 2020 Strategic Plan,
the Group has continued to build upon the
foundation laid down in previous years and
to make progress in each of these key areas.
Talent acquisition and optimisation of
organisation structures
As in previous years, the Group has
continued to review and strengthen the
management team and organisation
structures, with new appointments
into key roles including Group Finance
Director, Managing Director – Couplings
and Managing Director Chain – South East
Asia. The business has increasingly been
able to focus on clarifying, developing
and strengthening the capability of
management and staff at deeper levels in
the organisation.
Our recruitment processes to enable
the sourcing and assessment of high
calibre people at the right time into well-
defined roles with clear deliverables and
accountabilities continues to evolve. As
our understanding of what it takes to be
successful in our business develops we
are able to focus on the key competencies
and capacities that are critical to identify
in future hires. In particular, a more
rigorous use of skills assessments in areas
such as numerical and verbal reasoning,
and the insistence on standards of high
performance in these areas is beginning
to bear fruit. The Company will continue
to refine and standardise our capability
in this area in the coming financial year,
particularly with the introduction of a
consistent methodology for definition,
activation and assessment of roles and
candidates across the Group globally.
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STRATEGIC REPORT
As in the past, Renold continues to
implement programmes to develop 'home
grown' talent.
We continue to operate our apprenticeship
programmes, particularly in the UK and
Germany.
The UK currently has seven apprentices
within our Torque Transmission business
and is planning to add several more in
the coming year. Our Chain business in
Einbeck, Germany, has 21 apprentices
working across a broad range of levels and
disciplines including engineering, technical,
administration and logistics functions.
From the coming financial year onwards,
Renold will be making a contribution to the
Apprenticeship Levy. In order to ensure that
we are in a position to fully maximise our
utilisation of the funds from the levy we are
working with an external organisation (The
Skills Company) to develop a bespoke action
plan, specifically tailored to the future
needs of Renold. We anticipate, for the
UK in particular, that this will enhance the
uptake in apprenticeships and the delivery
of training to apprentices.
Renold has also continued to develop the
Future Leaders Graduate Programme in the
past year. Through an assessment process
designed to objectively identify graduates
with future leadership potential, we
employed six additional graduates onto the
programme in the UK.
Each of these graduate Future Leaders
has had a real job in the organisation from
their first day of employment and are
participants in a structured programme of
training and development with 12 training
modules being delivered by external experts
over a two year period. These modules aim
to provide participants with a broad range
of skills and knowledge to act as a base
upon which they can further develop as
their careers progress. Additionally, they
have the opportunity to be involved in
critical business projects and have regular
exposure to the senior leadership team.
Finally, this year we defined and selectively
deployed a Talent Review Process. The
process focused on a review of staff in key
areas of the business and assesses both the
performance and the longer term potential
of those individuals and teams. Based on
those evaluations, senior management
teams were able to prioritise the key actions
required in order to address both the short
and longer term issues that were identified.
This process will be repeated each year,
enabling us to create a straightforward and
practical continuous improvement ethos in
the area of talent development.
The new graduates were recruited in
September 2016 into diverse functions,
including business systems, engineering,
commercial and manufacturing operations.
Including the Future Leaders we recruited
in September 2015 we now have eleven
employees in this important programme.
It is particularly pleasing that, to date, we
have had no turnover in our Future Leaders
cohort.
We expect this programme to be one of the
key processes through which the business
continues to ensure that we internally
develop our leaders of the future. The
intention in the next financial year is to seek
to broaden the geographic scope of the
programme beyond Europe.
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CORPORATE SOCIAL RESPONSIBILITY
Our Values
Operate with integrity
Value our people
Work together to
achieve excellence
Accept accountability
Be open-minded
Values, behaviour and engagement
The Renold Values and Behaviours continue
to act as an important standard to which
we hold both ourselves and our employees.
Since the launch of the Renold Values we
have continued the work of embedding
these in the business.
The Values and Behaviours are clearly
communicated across the Group and are
increasingly becoming integrated into the
way in which we do things. In particular,
we have focused on ensuring that our
recruitment methodology incorporates
our Values and Behaviours and that we
specifically seek future hires who are able to
demonstrate alignment with these desirable
traits. The Company has also incorporated
an evaluation of senior manager
awareness and adherence to our Values
and Behaviours into our Performance and
Development Review Process.
Across our global locations we continue
to align the requirement to embed
Organisational Values and Behaviours in
the terms and conditions of employment.
The importance of our Values is emphasised
during the induction process for new
employees.
We plan to continue to focus on the
process of further embedding our Values
and Behaviours in the business as Renold
continues to develop, ensuring that, for the
long-term, our Values and Behaviours shape
our evolving culture.
Creating a high performance culture
Given the importance of setting clear
expectations and targets for employees
and regularly reviewing them, the Company
launched in 2016, a new Performance and
Development Review process. The process
initially focused on senior managers and
other key role holders and has generated
positive feedback from both groups.
The process supports the setting and
recording of goals and expectations and
provides a consistent mechanism for
measuring and monitoring employee
performance against these expectations.
Simultaneously, this process will encourage
the identification of development needs
(including coaching, training and other
development opportunities) to enable
enhanced performance against expectations
in the future. Straightforward action plans
to address issues arising from these reviews
will be created and regularly reviewed to
ensure progress.
Renold will continue to develop the process,
cascading it throughout the business. We
will also seek ways of gathering feedback to
refine and improve the process.
The Company has developed a bespoke
management skills programme designed to
provide our managers with the necessary
knowledge and skills to be able to more
effectively manage their teams and deliver
their business objectives. This programme
will be implemented over the coming
months in a modular fashion. Action plans
for each individual will be created within
each module to ensure that the learning is
embedded in the day to day activity of the
attendees. The line managers of attendees
will also be given training to ensure that
they are in a position to support the
development of managers as they return
from each training session.
The pilot will be evaluated as it is
implemented with the intention to further
refine the content and delivery and enable
continued roll out of the programme to a
wider audience.
The delivery of targeted development
activities and programmes designed to
enhance the capability and performance
of our employees is clearly a growing
priority as we strive to develop our high
performing culture. During the coming
financial year we will further develop our
capability to identify and deliver a broader
suite of programmes for a wider geographic
audience.
Compliance
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.
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.
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.
We monitor developments in employment
law that may affect our employees in the
regions in which we operate and make
adjustments as necessary.
We are also aware of the necessity to
develop proposals to enable the Group to
be compliant with gender pay gap reporting
legislation requiring employers to calculate
their gender pay gap from April 2017 and
formally report the details by April 2018.
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
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PICTURED: 40% OF OUR TEAM IN
GRONAU, GERMANY ARE FEMALE.
STRATEGIC REPORT
Male 6
Female 0
Board*
Male
Female
* The Non-Executive
Directors are not employees.
Other Employees
Male
Female
Male 1,729
Female 364
Group Executive
Male
Female
Male 3
Female 1
Senior Management
Male
Female
Male 33
Female 3
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 2017, the Group
employed 2,139 people including
348 in the UK. Of the total number
of employees 368 (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.
Set out in the charts opposite is 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 2017. A senior manager is
defined in the legislation as an employee
who has responsibility for planning,
directing or controlling the activities of
a company or a strategically significant
part of a company. Whilst falling within
the definition of ‘senior manager’, the
most senior leadership population
(below the Board), the Group Executive,
is shown in a separate chart.
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.
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.
Each business unit is required to maintain
a register of gifts and hospitality which
is submitted and reviewed by the Group
Finance and Legal functions on a biannual
basis. Sites will be challenged where any
gift or hospitality appears in the first
instance to have been given or received
outside of the terms of the Gifts and
Hospitality Policy.
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.
The underlying objective in all these
measures is to maintain the highest
standards of integrity throughout the
business and ensure that all business
dealings are transparent.
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 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.
Following the introduction of the UK
Modern Slavery Act 2015, we have
published a statement on our website
which sets out the steps being taken by the
Group to ensure that slavery and human
trafficking are not taking place in the
business or the supply chain relating to our
goods. The Group is committed to ensuring
that our business and business partners
do not undertake any activity which
contravenes the Modern Slavery Act.
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25290-04 AR 2017 Proof 3Our community We aim to be a part of the communities in which we work and seek to assist local projects with support where possible. Although the Group is limited in our ability to provide extensive financial support to projects, we do seek to provide support where we can in a number of ways. During this financial year the Company agreed to support The Outward Bound Trust. The Trust is an educational charity that uses the outdoors to help develop young people from all walks of life. They run adventurous and challenging outdoor learning programmes that equip young people with valuable skills for education, work and life. This helps participants to become more confident, more effective and more capable at school, college and in the workplace. Although in the early stages of this partnership, in addition to providing some financial support to the Trust, we are in discussions with them about how we can arrange for a number of our employees to become involved in the activities of the Trust, in particular acting as mentors to the young people attending the outdoor learning programmes. As well as supporting the amazing work that the Trust does, this will help with the engagement and development of our own employees, particularly those that participate in the mentoring opportunities. We plan to continue our relationship with The Outward Bound Trust into the next financial year. CORPORATE SOCIAL RESPONSIBILITY Also this year, in a pro-active response to the Broad-Based Black Economic Empowerment (BBBEE) legislation in South Africa, Renold South Africa has implemented its own BBBEE trust. Renold South Africa has sold a new special class of share to the trust, the Renold SA Development Trust, by way of loan funding.The BBBEE Act 2003 was introduced as a form of economic empowerment initiated by the South African Government in response to criticism of earlier statutory changes that had failed to lead to the enrichment of disadvantaged individuals. The goal of BBBEE is to distribute wealth across as broad a spectrum of previously disadvantaged South African citizens as possible.Companies operating in South Africa are required to transform their businesses by operating according to the Codes of Good Practice implemented to give force to the BBBEE Act. Based on the Codes, companies receive a rating indicating the level of compliance. The objectives of the Renold SA Development Trust are to provide training and development and/or further education in industrial manufacturing, engineering and general business fields and to assisting other BBBEE initiatives of Renold SA’s customers. Beneficiaries can therefore be employees (e.g. paying for studies or training of employees) and customers' own BBBEE initiatives.We are delighted to be a supporter of the Museum of Science and Industry in Manchester, having been involved in the Manchester Science Festival Supporters’ Circle for a further year. The Museum of Science and Industry is one of the most visited cultural attractions in the North West, with 700,000 visitors a year. A member of the Science Museum Group’s family of world-class museums, its mission is to inspire all visitors with the story of how ideas can change the world, from the industrial revolution to today and beyond.One of the flagship events in the Museum’s cultural calendar, bringing science to life for people of all ages, is the eleven day Manchester Science Festival, which takes place across the city. Each October, it attracts the best scientists from Manchester and beyond to showcase current research and promote the region’s rich heritage of innovation.As a supporter, the Company provides financial support to enable the Museum to deliver a programme of exciting events, exhibitions, talks and performances. In 2016, the Festival celebrated its ten year anniversary and set a new visitor record. Renold plc Annual Report and Accounts 2017 for the year ended 31 March 201754Renold AR2017-Proof3.indd 546/7/2017 3:01:07 PM Our environment
The environmental impact of our activities
is at the forefront of our strategy. Across
all our operations, we meet all legislative
requirements concerning environmental
issues, including those relating to energy
usage. As a part of the Group’s commitment
to minimising the impacts of its business
operations on the environment, we
co-operate with regulators, suppliers,
neighbours and customers to develop
and achieve improved standards of
environmental protection. All of our
production facilities either hold or are
working towards ISO 14001.
During the year, a range of projects
have delivered further environmental
improvements. These include emission
reductions at our Hangzhou site, waste
reduction initiatives across a number of
sites and insulation improvements from
new and modified roofing structures. Our
ongoing programme of investment in new
equipment will bring further efficiencies
over the coming year.
Energy Saving Opportunities Scheme
(ESOS)
ESOS is a mandatory energy assessment
scheme for organisations in the UK
that meet the qualification criteria. The
Environment Agency is the UK scheme
administrator.
Renold qualifies for ESOS and must carry
out ESOS assessments every four years.
These assessments are audits of the energy
used in our buildings, industrial processes
and transport to identify cost-effective
energy saving measures.
To deliver our obligations under phase 1 of
the ESOS legislation, we opted to undertake
an ESOS Energy Survey. A specialist
consultancy was appointed to assist the
Company in completing the survey in June
2015. The reported findings are being used
to inform the development of a series
of energy reduction and management
measures.
Greenhouse gas (GHG) emissions
Renold continues to comply with its
obligations under the carbon reporting
requirements of The Companies Act 2006
(Strategic Report and Directors’ Report)
Regulations 2013.
As reported last year, legislation in India
requires companies of a certain size to spend
a percentage of profit on Corporate Social
Responsibility initiatives. As a result, this
year Renold India has been working with
communities and relevant stakeholders
to assist local government schools in
the provision of better infrastructure
and educational facilities. Renold India’s
'Corporate Social Responsibility Vision' has
been formulated in connection with the
statutory requirement in India. The areas
listed in the statute include promoting
education.
Renold India believes that education is the
tool for creating an empowered, enlightened
society. More than 60% of children in India
are enrolled in government schools, however,
the infrastructure and facilities and quality
of the education are often below acceptable
levels. Through better facilities and higher
quality education all round it is anticipated
there will be a reduction in the dropout rate
of students.
The programme has been developed
following discussions with local school
management and covers the following:
Æ To support government schools with
basic access to infrastructure.
Æ To support government schools with
digital learning and teaching systems,
capacity building of teachers, career
orientation and counselling.
Æ Life skills and spoken English projects,
supporting the vocational skills
sessions in the schools.
Æ Providing lighting facilities for schools
through solar energy.
Æ Contributions have been made to
change certain basic infrastructures
including the building of walls to
improve security, installation of
electrical facilities such as fans and
lights and the building of rest rooms
for female students which are often
lacking in local schools.
STRATEGIC REPORT
Energy usage across the Group is collated
using data captured through the Group’s
Integrated Risk Management web based
IT system. This energy consumption
database makes data readily available.
Data is actively reviewed in order to target
additional energy reduction programmes.
The main contributors to GHG emissions
arise from our use of electricity and fuels,
such as natural gas and fuel oil, burnt on
our premises.
The table below shows the Group’s GHG
data in tonnes for the last four financial
years across all locations, derived from the
consumption data collected and the DEFRA
and International Energy Agency published
conversion factor tables.
Renold continues to sustain an underlying
reduction in energy usage. Related cross
site initiatives include:
Æ New roof and insulation projects;
Æ Low energy lighting; and
Æ More efficient production arising from
investment.
Scope1
Scope2
Emissions
Intensity3
2015
2016
2014
2017
11,175 9,750 8,097 5,432
21,353 20,503 18,012 19,264
176.8 165.8 158.1
134.5
Total annual GHG
emissions4 on
(tCO2e)
32,528 30,253 26,109 24,695
Strategic Report approval
The Strategic Report, on pages 8 to 55,
incorporates: Our Customer Journey, Our
Business Model, Our Key Performance
Indicators, Chief Executive's Review, Our
Performance, Finance Director’s Review, Our
Risks and Principal Risks and Uncertainties,
Viability Statement, Health and Safety and
Corporate Social Responsibility and was
approved by the Board on 30 May 2017.
For and on behalf of the Board
Louise Brace
Company Secretary
30 May 2017
Notes
1 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.
2 Scope 2 emissions comprise 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). An amendment
made during 2015 to the Greenhouse Gas Protocol incorporates two calculation methodologies for scope 2
emissions. There are no contractual instruments in place for the purchase of renewable energy. Hence, we report the
same figure when applying the market and location based methodologies.
3 The UK Government guidance was considered when selecting the Company’s chosen intensity measurement which is
total emissions reported normalised to £m external revenue for the financial year ending 31 March 2017.
4 The calculation methodology is based on the Greenhouse Gas Protocol developed jointly by the World Resources
Institute and the World Business Council for Sustainable Development.
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GOVERNANCE25290-04 AR 2017 Proof 356Renold plc Annual Report and Accounts 2017 for the year ended 31 March 2017Renold AR2017-Proof3.indd 566/7/2017 3:01:26 PM CONTENTSCorporate Governance Report: Chairman’s Letter 58Board of Directors 60Board composition, responsibilities and activities 62Governance structure 66Communications with shareholders 69Audit Committee Report 70Nomination Committee Report 76Directors’ Remuneration Report: Annual Statement 78Directors’ Remuneration Report: Directors’ Remuneration Policy 82Directors’ Remuneration Report: Annual Report on Remuneration 89Directors’ Report 95Directors’ Responsibilities Statement 95Shareholder Information 99Governance in ActionThe UK Corporate Governance Code is based on underlying principles of accountability, transparency, probity and focus on the success of a company over the longer term. These principles are equally applicable to effective board practice as they are to all aspects of our business.25290-04 AR 2017 Proof 3www.renold.com Stock code: RNO57Renold AR2017-Proof3.indd 576/7/2017 3:01:39 PM CORPORATE GOVERNANCE REPORT
Chairman's Letter
“The Board is ever mindful of the
requirements of the UK Corporate
Governance Code. The highest
standards of corporate governance
and behaviour must and do underpin
the way the Board works.”
Tone from the top
The Board will continue to set the right ‘tone from the top’ and
firmly believes in operating to the highest standards of ethical
business conduct. These principles are reflected in the statement of
our Values and Renold requires the same from all employees in the
performance of their duties.
Aside from matters of corporate governance and ethics, the key
priority for the Board remains the delivery of the STEP 2020
Strategic Plan. At page 64 of our Corporate Governance report
we set out the areas of focus for the Board this year and highlight
the links between the issues considered and the Group’s Strategic
Objectives.
Annual General Meeting
Our AGM will be held at 11.00am on Wednesday 19 July 2017 at the
Manchester International Office Centre, Styal Road, Wythenshawe,
Manchester, M22 5WB. We are pleased to receive feedback from
shareholders at all times and I would encourage our shareholders
to attend the AGM.
OUR NEWLY CONSTITUTED BOARD IS SHOWN ON
PAGES 60 AND 61
MARK HARPER
CHAIRMAN
Introduction
I am pleased to present the Corporate Governance report for the
year ended 31 March 2017 on behalf of the Board.
The Board continues to give priority to consideration of corporate
governance matters, good and effective corporate governance
being critical to long-term business success.
A detailed list of contents of the Corporate Governance report can
be found on page 57. The Group’s principal risks and uncertainties
are described in the Strategic Report and this section of the Annual
Report and Accounts also forms part of the Corporate Governance
report.
Board changes
This year has seen significant changes to the Board which
demonstrate the Board’s commitment to orderly succession
planning. In January 2017, we welcomed our new Group Finance
Director, Ian Scapens, to the Board and a further Non-Executive
Director, David Landless. Both new Directors will play vital roles as
we continue to implement our STEP 2020 Strategic Plan.
Ian joined the Company from Keepmoat Group and brings
extensive experience in all aspects of finance in large complex
organisations. David was most recently Group Finance Director of
Bodycote plc for 17 years and has significant experience at senior
levels of international businesses in the industrials sector. David’s
appointment was a successful step in Renold’s succession planning
process for Board members which was outlined in the Nomination
Committee Report in the 2016 Annual Report and Accounts.
David will become Chairman of the Audit Committee on completion
of the AGM on 19 July 2017, succeeding John Allkins who will step
down after nine years in the role. John is also currently Senior
Independent Director and Ian Griffiths will step into this role after
the AGM. John will continue as a Non-Executive Director until the
conclusion of the 2018 AGM, facilitating a valuable handover period
to David in particular. I would like to take this opportunity to thank
John for his extremely valuable contribution to the Board and his
Chairmanship of the Audit Committee to date.
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GOVERNANCE
Compliance with the UK Corporate Governance 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.
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 2014 (2014 Code) which
applies to the Company for this reporting period. The Board’s
compliance statement is therefore provided against the
requirements of the 2014 Code.
The 2014 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
UK listed companies to disclose 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 considers that the Company
has complied with all provisions set out in the 2014 Code that
are applicable to it throughout the year ended 31 March 2017,
except where highlighted in this report.
The 2014 Code is available to view on the FRC’s website at
www.frc.org.uk.
The Board continues to be mindful of the requirements of
corporate governance and reviews its compliance regularly
along with all revisions to the UK Corporate Governance Code
made by the Financial Reporting Council. During the year,
the Board has considered the provisions of the UK Corporate
Governance Code 2016, which applies to reporting periods
commencing after 17 June 2016, and therefore against which
disclosure will be given in the 2018 Annual Report.
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59
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.
MARK HARPER CHAIRMAN
ROBERT PURCELL CHIEF EXECUTIVE
Committee memberships
Appointment to the Board: May 2012
Committee memberships
Appointment to the Board: January 2013
Experience
Mark, aged 61, 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 AGM 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.
Experience
Robert, aged 55, 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.
IAN SCAPENS FINANCE DIRECTOR
IAN GRIFFITHS NON-EXECUTIVE DIRECTOR
Committee memberships
Committee memberships
Appointment to the Board: January 2017
Appointment to the Board: January 2010
Experience
Ian, aged 43, joined the Group on 3 January 2017 as Group Finance Director.
Ian has extensive experience in all aspects of finance in large complex
organisations. He joined Renold from Keepmoat Group, where he had been
Deputy Chief Financial Officer since June 2015. Previously, Ian spent ten
years at Speedy Hire Plc, latterly as Group Financial Controller, from 2010 to
2015.
60
Experience
Ian, aged 66, 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 2016. Ian was appointed as Non-Executive
Director of Autins plc, a company admitted to trading on the AIM Market
of the London Stock Exchange, in March 2016. He has also been a Non-
Executive Director and Chairman of Hydro International plc and a Non-
Executive Director of Ultra Electronics Holdings plc. Ian has also previously
held Executive Director roles at Royal Mail Letters where he was Managing
Director and was a Director of Royal Mail Holdings plc and at GKN plc and
GKN Holdings plc where he was Group Managing Director, GKN Automotive.
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GOVERNANCE
JOHN ALLKINS SENIOR INDEPENDENT
NON-EXECUTIVE DIRECTOR
Committee memberships
Appointment to the Board: April 2008
Experience
John, aged 67, 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.
DAVID LANDLESS NON-EXECUTIVE DIRECTOR
Committee memberships
Appointment to the Board: January 2017
Experience
David, aged 57, was appointed to the Board as Non-Executive Director on
9 January 2017. David, a fellow of the Chartered Institute of Management
Accountants, has significant experience at senior levels of international
businesses in the industrials sector. He was most recently Group Finance
Director of Bodycote plc from 1999 until his retirement on 1 January 2017.
Prior to that, he held a range of finance roles for 15 years at Courtaulds in the
UK and US, latterly as Finance Director of Courtaulds Coatings (Holdings) Ltd,
from 1997 to 1999. David is currently a Non-Executive Director and chair of
the Audit Committee of both Luxfer Holdings plc and Innospec Inc.
LOUISE BRACE GROUP LEGAL MANAGER
AND COMPANY SECRETARY
Appointment as Company Secretary
November 2012
Experience
Louise, aged 44, is a qualified solicitor and was appointed Company
Secretary in November 2012. Louise also acts as secretary to all four
Committees of the Board.
FURTHER DETAILS OF THE APPOINTMENTS OF THE NEW DIRECTORS
AND CHANGES TO THE ROLES IN THE BOARD CAN BE FOUND IN THE
NOMINATION COMMITTEE REPORT ON PAGES 76 AND 77.
Committee memberships key:
Audit Committee
Nomination Committee
Remuneration Committee
Executive Risk Management and
Monitoring Committee
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GOVERNANCE
Board composition, responsibilities and activities
Membership of the Board
During the year ended 31 March 2017, there have been several changes
to the Board.
Brian Tenner, Group Finance Director since September 2010, left the
Company on 18 November 2016 to pursue new opportunities. Ian
Scapens subsequently joined the Company as Group Finance Director
on 3 January 2017. In the interim period, Louise Brace, Company
Secretary, was appointed to the Board for a short period of time in
order to maintain the minimum number of five Directors as required
by the Company’s Articles of Association1. In addition, David Landless
joined the Board as a Non-Executive Director on 9 January 2017.
David will become Chairman of the Audit Committee on completion of
the AGM on 19 July 2017 succeeding John Allkins who will step down
after nine years in the role. John will continue as a Non-Executive
Director until the conclusion of the 2018 AGM.
The newly constituted Board continues to have a balance of Executive
and Non-Executive Directors. Currently, the Board comprises a Non-
Executive Chairman, three Non-Executive Directors and two Executive
Directors as shown below.
1
Non-Executive
Chairman
Non-Executive
Directors
3
6
Members
2
Executive
Directors
The Board’s consideration of its composition in the context of its
diversity is set out in the Nomination Committee Report on pages 76
and 77.
Experience of the Board
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 below graphic shows the number of Directors with significant
experience in the areas listed.
Financial management
and corporate finance
HSE
3
4
Manufacturing
and engineering
sector
5
6
Strategy
development
International
experience
5
HR
2
0
Sales and marketing
4
Corporate governance
62
Responsibilities of the Board
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.
The Board has approved a schedule of reserved matters 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.
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.
Individual Directors’ key responsibilities
The roles of Chairman and Chief Executive are separated with a
clear division of responsibilities set out in writing and agreed by the
Board.
Title
Responsibility
Chairman
Mark Harper
Chief Executive
Robert Purcell
Finance Director
Ian Scapens
To ensure the effectiveness of the Board in setting the
direction of the Company and the agenda of the
Board.
To manage the business and implement the strategy
agreed by the Board.
To ensure sound financial management of the Group’s
business and provide strategic and financial guidance
to ensure that the Company’s financial commitments
are met.
Senior Independent
Non-Executive Director
John Allkins
In addition to this role as an independent Non-
Executive Director, to ensure that the views of each
Non-Executive Director are given due consideration
and act as a sounding board for the Chairman.
Independent Non-
Executive Directors
Ian Griffiths
David Landless
To constructively challenge the Executive Directors
and help develop proposals on strategy including
satisfying themselves on the integrity of financial
information and ensuring financial controls and
systems of risk management are robust and
defensible.
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.
1. A resolution will be put to shareholders at the 2017 AGM to adopt new Articles
of Association of the Company. The proposed new Articles of Association will
change the minimum number of Directors to three which is in accordance with
market practice. The full text of the resolution and an explanatory statement
are included in the 2017 AGM Notice.
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Board and Committee membership and attendance
The Board meets on a regular basis with an agenda and necessary
papers for discussion distributed electronically in advance of each
meeting via board portal software, Diligent. Agenda items are
agreed in advance and set out in an annual planning schedule.
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 Board’s responsibilities are discharged by way of scheduled
Board meetings. In addition, the Board reviews written reports in
months where there is no meeting and convenes ad hoc meetings
during the year in order to resolve matters by written resolutions to
deal with specific business requirements.
GOVERNANCE
The table below 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. Eight core meetings
have been held this year. In addition, the Board met for a separate
full day to discuss the further evolution of the STEP 2020 Strategic
Plan. All Directors attended all core scheduled Board meetings, as
can be seen in the table of attendance below, other than the March
2017 meeting: David Landless joined the Board in January 2017
and was unable to attend the March meeting due to a pre-existing
schedule conflict.
8 meetings
Board
5 meetings
Audit
Committee
4 meetings
Nomination
Committee
7 meetings
Remuneration
Committee
5 meetings
ERMM
Committee
Mark Harper*
Robert Purcell*
Ian Scapens‡
Brian Tenner†
John Allkins
Ian Griffiths
David Landless
8
5
4
7
–
8
5
4
7
5
2
1
1
2
1
5
4
1
3
3
**
8
10
8
5
4
7
–
5
4
7
–
1
0
1
1
–
* Robert Purcell, Mark Harper, Brian Tenner and Ian Scapens attended Audit and Remuneration Committee meetings or parts thereof by invitation.
† Brian Tenner attended all Board, Audit and Executive Risk Management and Monitoring Committee meetings prior to his resignation on 18 November 2016 other than one
Executive Risk Management and Monitoring Committee meeting. He did not attend Remuneration and Nomination Committee meetings which dealt with the appointment
of his successor.
‡ Ian Scapens has attended all meetings since his appointment.
Risk monitoring
The Board has overall responsibility for implementing the Group’s
system of internal control including financial, operational and
regulatory compliance controls and risk management systems.
The Board is also responsible for reviewing internal control
effectiveness and compliance in accordance with the FRC’s ‘Internal
Control: Revised Guidance for Directors on the Combined Code
(October 2005)’.
The ongoing process for the review of the system of internal
controls by the Directors has been in place for the whole of the year
ended 31 March 2017 and up to the date of approval of this report
and the financial statements.
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 about the composition and activities of the ERMMC
and the Group’s risk management framework can be found on
pages 40 to 46 of the Strategic Report. A description of the Audit
Committee’s oversight of the ERMMC can be found in the Audit
Committee Report on page 70.
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25290-04 AR 2017 Proof 3GOVERNANCE Board composition, responsibilities and activitiesBoard focus during the yearDuring the year ended 31 March 2017, the Board has provided its main focus on the following matters: ÆMonitoring health and safety performance. ÆSuccession planning in relation to the Board and senior management. ÆSupport to ongoing organisational development.Leadership ÆResponsibility for the overall leadership of the Group and setting the Group's Values. ÆSetting the 'tone at the top'. ÆApproval of the annual operating and capital expenditure budgets. ÆReview of monthly business performance reports. ÆReview of dividend policy. ÆReview and approval of the half year and full year results and related announcements. ÆReview and approval of the delegated authorities matrix. ÆReview and approval of the Group tax strategy. ÆReview of pension scheme de-risking initiatives. ÆSpecific approval for major capital investment projects. ÆReview of matters affecting the Group involving material litigation or disputes.Financial stewardship ÆApproval of financial reporting and controls. ÆApproval of relevant policies.Shareholder relations ÆReceived and discussed a presentation in relation to feedback from roadshows and presentations to shareholders. ÆApproval of Annual Report and Accounts and information to shareholders for the AGM. ÆEnsuring a satisfactory dialogue with shareholders, including approval of key information to shareholders.Strategy ÆBoard Strategy day held to debate and discuss the STEP 2020 Strategic Plan. ÆContinued review of STEP 2020 and supporting the Chief Executive in the evolution of the Group’s Strategic Plan. ÆReview of ERP effectiveness and monitoring progress of new ERP implementation. ÆReview of customer service enhancement initiatives including European Distribution Centre consolidation into sister facility in Germany. ÆReviewed and agreed strategy to relocate Chain manufacturing facility in China. ÆMonitoring of planning and execution of merger of the two UK Torque Transmission couplings businesses. ÆConsidered and concluded on the sales of property in Australia for £9.3m and France for £1.1m. ÆCompletion of sub-lease of Bredbury facility. ÆOversight over the Tooth Chain acquisition integration. ÆReceived presentations from Group senior management on operations and continued implementation of STEP 2020 across the divisions and functions. ÆResponsibility for approval of the Group's strategic aims and objectives and review of performance. ÆApproval of major capital projects and oversight of benefits expectation and delivery.OverviewActivity in yearStrategic Objective ÆConsideration of the 2016 Corporate Governance Code. ÆConsideration of the Viability Statement and agreeing the Group’s risk profile, principal risks and uncertainties. ÆReview of the effectiveness of the risk management and internal control systems. ÆConducting and reviewing an evaluation of the effectiveness of the Board and its Committees. ÆImplementation and reviewing compliance with the requirements of the UK Corporate Governance Code. ÆEnsure a sound system of internal control and risk management including review of the Group risk profile.Governance and riskKEY ON PAGE 1511234567167572Renold plc Annual Report and Accounts 2017 for the year ended 31 March 201764Renold AR2017-Proof3.indd 646/7/2017 3:02:12 PM 25290-04 AR 2017 Proof 3Expected Board focus for next yearThe Board will continue to review the areas set out in the chart on page 64. In addition, it is anticipated that the following areas will receive focus by the Board for the year ending 31 March 2018: ÆReview of Board practice seeking input from new Board members. ÆInitiatives to support organic growth. ÆReview of progress on initiatives to enhance customer service. ÆAny potential acquisitions. ÆAny new major restructuring projects arising in the year. ÆReview of the medium term capital structure and financing of the Company to ensure it is fully supportive of the corporate strategy. ÆReview of governance structures for major projects including the development of new manufacturing facilities in China. Director induction and developmentThe 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 the Company Secretary in relation to the 2016 Code. Remuneration advisers, PwC, have also presented updates to the Remuneration Committee in relation to market trends in executive remuneration.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, as well as site visits and face-to-face meetings with senior executives. Throughout the year the Executive Directors have continued to visit Renold sites around the world including: the USA, India, France, South Africa, Germany and Australia. The Board itself also met during the year at both of Renold’s manufacturing sites in Germany and at a UK manufacturing site.Non-Executive Director independenceThe Non-Executive Directors are considered to be independent in character and judgement, notwithstanding in the case of John Allkins that he has served on the Board for more than nine years. 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 making. The balance between Non-Executive and Executive Directors allows independent challenge to the Executive Directors and senior management.Board evaluation and effectivenessThe Board is supportive of the principle of evaluation of the Board, as set out in paragraph B.6 of the 2014 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. In addition, evaluations of the Audit Committee, the Nomination Committee and the Remuneration Committee were also carried out during the year.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 subsequent Board discussion highlighted a number of areas where objectives might be set by the Board and practical issues for consideration. The Board has continued to allocate separate time for review and consideration of the STEP 2020 Strategic Plan.In accordance with the 2014 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 DirectorsThe 2014 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 practical, all Non-Executive Directors are subject to annual election. Strategic Objective Board effectiveness review issuedDECEMBERBoard effectiveness review – SID sessionJANUARYIndividual feedback to the Board ChairmanFEBRUARYBoard effectiveness review: results and feedbackMARCHBoard objectives set for the coming yearAPRILBoard Evaluation Cycle2016/17www.renold.com Stock code: RNO65GOVERNANCERenold AR2017-Proof3.indd 656/7/2017 3:02:15 PM 25290-04 AR 2017 Proof 3GOVERNANCEGovernance structureGroup management teamImplementation of the Group policiesChief ExecutiveThe Chief Executive has responsibility for managing the business and implementing the strategy agreed by the BoardFunctional leadersBusiness unit leadersFinance DirectorBusiness unit teamsFunctional teamsExecutive CommitteeBoard CommitteesSupport the Board in its work with specific areas of review and oversightAudit CommitteeRemuneration CommitteeNomination CommitteeExecutive Risk Management and Monitoring CommitteeOversees the Company’s financial reporting and internal controls and their effectiveness, together with the procedures for identifying, assessing and reporting risks and mitigation. 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.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. Includes monitoring progress of the implementation of mitigating actions and controls.REPORT AT PAGES 70 TO 75REPORT AT PAGES 78 TO 94REPORT AT PAGES 76 AND 77SEE FURTHER AT PAGE 40BoardThe Board has ownership of global policies and is responsible for strategic business planningStrategic ObjectivesPolicies and ProceduresInternal ControlBiographical and experience details of the current Directors appear on page 60. Further details of the Directors’ service contracts and letters of appointment are set out in the Directors’ Remuneration Report.Renold plc Annual Report and Accounts 2017 for the year ended 31 March 201766Renold AR2017-Proof3.indd 666/7/2017 3:02:18 PM 25290-04 AR 2017 Proof 3The key features of the Group’s governance structures, as shown in the schematic on the prior page, are as follows: ÆThe 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; ÆThe ERMMC which oversees, on behalf of the Audit Committee and ultimately the Board, that appropriate policies are implemented to identify and evaluate risks; ÆAn 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; ÆAn organisational structure which supports clear lines of communication and tiered levels of authority; ÆA schedule of matters reserved for the Board’s approval to ensure it maintains control over appropriate strategic, financial, organisational and compliance issues; ÆThe preparation of detailed annual financial plans covering profit and cash flow and the balance sheet, which are approved by the Board; ÆThe review of detailed regular reports comparing actual performance with plans and of updated financial forecasts; ÆProcedures for the appraisal, approval and control of capital investment proposals; ÆProcedures for the appraisal, approval and control of acquisitions and disposals; and ÆAccess 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.The Board and its Committees ÆThe Board delegates authority to various Committees to deal with specific aspects of corporate governance. ÆThese Committees are summarised above. Details about the structure and activities of each are set out in the separate Committee reports. The Committees communicate and work together where required. ÆCommittee 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. ÆTerms 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. ÆLouise Brace, the Company Secretary, has acted as secretary to the Committees during the year ended 31 March 2017.Renold InternalControl Statement ÆAuthorisations: legal, treasury, financial signing authorities ÆSigning authorities ÆContracting principles statement ÆClaims and disputes statement ÆOur Values ÆEthics statement ÆPolitical donations statement ÆLobbying activity ÆConfidential information statement ÆFraud response statement ÆShare dealing policy ÆCommunications policy ÆCorporate social responsibility policy ÆCharitable donations and sponsorship policy ÆTreasury dealing statement ÆAppointment of external advisers and consultants ÆPensions statementWORKING TOGETHER TO ACHIEVE EXCELLENCEOur Values www.renold.com Stock code: RNO67GOVERNANCERenold AR2017-Proof3.indd 676/7/2017 3:02:25 PM 25290-04 AR 2017 Proof 3GOVERNANCE Governance structureDisclosure CommitteeFair,Balanced,Understandable ÆContributors to the Annual Report and Accounts (ARA) briefed on the requirements of the governance code with specific emphasis on the FBU requirement. Æ'Cold readers' (senior managers knowledgeable about the business but otherwise not significantly involved in the preparation of the ARA) review and feedback comments which are incorporated accordingly. ÆA documented verification file of all substantive facts and assertions is maintained and reviewed for completeness prior to finalisation of the ARA. ÆDisclosure committee presents its findings and recommendations to the Audit Committee. Audit Committee ÆReview of draft ARA and provides comments. ÆAdvises the Board on the adequacy of the processes required to confirm the FBU requirement for the ARA.Board ÆReview of draft ARA and provides comments. ÆResponsibility for final FBU statement (on page 98) of the ARA.READ MORE IN THE AUDIT COMMITTEE REPORT ON PAGES 70 TO 75Fair, balanced and understandable (FBU requirement)Internal control During the year ended 31 March 2017, the responsibility to review internal control effectiveness was delegated to the Audit Committee and reported to the Board as follows: ÆReceiving and considering regular reports from the internal audit function on the status of internal control across the Group; ÆReviewed the internal audit function’s findings, annual audit plan and the resources available to it to perform its work; ÆReviewing the external Auditor’s findings on internal financial control; and ÆMonitoring the adequacy and timeliness of management’s response to identified audit findings.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. In addition, the Renold Internal Control Statement (summarised in the chart on page 67) 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.Financial reportingThere are also established 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: relate 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.Governance in action: Fair, balanced and understandable The Annual Report and Accounts taken as a whole must be fair, balanced and understandable. The fair, balanced and understandable requirement is reviewed in the first instance by the Disclosure Committee and subsequently the Audit Committee and the Board as shown below.Renold plc Annual Report and Accounts 2017 for the year ended 31 March 201768Renold AR2017-Proof3.indd 686/7/2017 3:02:28 PM Communications with shareholders
GOVERNANCE
Annual General Meeting
The AGM provides an opportunity for communication with private
and institutional investors. shareholders are encouraged to attend
the AGM and we welcome their participation.
At the AGM, the Chairman of the Board and the three Non-
Executive Directors (including therefore the chairmen of 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 AGM 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 AGM will be held at 11.00am on Wednesday 19 July 2017 at the
Manchester International Office Centre, Styal Road, Wythenshawe,
Manchester, M22 5WB.
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 encouraged 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 91%, the majority receiving votes in support
exceeding 99%.
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, can 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 40 to 46.
The Company continues to keep shareholders informed of its
strategy and progress at other times during the year, with 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 Chief Executive and Finance Director meet with major
shareholders and potential investors to discuss Group strategy
and performance 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 2014
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.
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AUDIT COMMITTEE REPORT
“We continue to focus on enhancements
to the control environment within
our business and to the governance
principles applied to the major business
change programmes of the STEP 2020
Strategic Plan.”
JOHN ALLKINS
AUDIT COMMITTEE CHAIRMAN
Key objectives
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, financial
reporting, 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.
We monitor that effective control structures operate over major
change initiatives and targeted benefits are delivered. 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 risk management operates to pre-empt potential
business issues and that embedded proactive financial controls
prevent or mitigate unnecessary losses that may arise if a business
risk does crystallise.
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 and advising
the Board on the Viability Statement;
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 by 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, reappointment 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);
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; and
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. Ian Griffiths,
also an independent Non-Executive Director, was a member of the
Committee throughout the year. Upon joining the Board in January
2017, David Landless became the third member of the Committee.
On his appointment, David received an extensive induction tailored
in particular to his future role as Chairman of the Committee.
As a result of David’s appointment, the composition of the
Committee changed during the year, but at all times complied
with the requirements of the UK Corporate Governance Code for
a smaller company, this being to have two independent Non-
Executive members.
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Audit Committee members and meetings attended
Names
Position
Meetings attended
John Allkins
Ian Griffiths
David Landless*
Chairman
Non-Executive Director
Non-Executive Director
5 of 5
5 of 5
0 of 1
* David Landless was unable to attend the March meeting (the only meeting of
the Committee subsequent to his appointment) due to a schedule conflict that
existed prior to his joining the Committee.
Biographical details and experience of members are set out on
pages 60 and 61.
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 UK Corporate 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 2017 the Committee met five times. This was one
fewer meeting than was held in the prior year when an additional
meeting took place to complete the tender process for global
audit and tax advisory services. 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 63.
From time to time, other members of the Group’s management
team are invited to attend to present or respond to queries on
particular areas of focus. Our external Auditor, Deloitte, also
attended the majority of Committee meetings and receives all
papers submitted to the Committee. 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.
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 Group.
In this respect, the Committee also considers significant estimates
and judgements made by management in preparing the financial
statements.
The Committee’s considerations are supported by input from other
assurance providers, e.g. the Group’s actuarial advisers, the Group
Internal Audit and Assurance team as well as our external Auditor.
Summarised in the table 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. The table also sets out the KPIs impacted by each of
these issues in the financial statements, their relevance to the
financial statements and an assessment of the degree of judgement
required in concluding on each item.
Review matters
Exceptional items
Pension accounting and disclosure
Carrying value of intangible assets,
deferred tax assets and
investments in subsidiary
undertakings
Relevant KPIs
Adjusted results
RoS%
Financing charges
Net assets
Adjusted results
Net assets
Relevance
Judgement
required
Æ Adjusted operating profit impact £3.5m
Moderate
Æ RoS impact 1.9%
Æ IAS 19 finance charge £2.5m
Moderate
Æ Net pension liability £102.0m
Æ Amortisation charge £3.0m
High
Æ Net intangible assets £56.1m
Æ Deferred tax assets £20.6m
Æ Unrecognised deferred tax assets £26.2m
Æ Investments in subsidiary undertakings
(Company balance sheet) £144.4m
Inventory valuations
Inventory value
Average Working capital ratio
Net assets
Æ Net inventory value £40.4m
Moderate
Æ WC% of sales 22.2%
Æ Net assets £7.8m
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AUDIT COMMITTEE REPORT
Defined benefit pension accounting
(recurring annual item: see Note 18 to the financial statements)
Defined benefit pension scheme accounting is a complex matter.
The values disclosed can fluctuate materially, 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. This is illustrated in the table below.
Assumption sensitivity
Impact of 0.25% increase in UK discount rates
Impact of 0.25% decrease in UK discount rates
Impact of 0.25% increase in UK inflation rates
Impact of 0.25% decrease in UK inflation rates
Impact of 1 year higher life expectancy in UK
Change in liability
£7.7m decrease
£8.7m increase
£5.0m increase
£4.6m decrease
£10.3m increase
As has been the case for a number of years, the Committee reviews
management estimates which are produced following independent
actuarial advice and are compared to third party benchmarks
on the reasonableness of the assumptions used. We ensure the
Group’s underlying assumptions and methodology used in deriving
them are consistent year on year or are justified by experience of
the scheme or by third party metrics. In respect of the relatively
high mortality assumption, the Committee considered 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. Largely 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 and 39 of the Finance
Director’s Review.
The Committee considered again but 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.
Whilst the judgements on assumptions used in arriving at the
deficit numbers is judged to be low as these use known published
data/indices, there is more judgement in the nature of the
disclosure hence the overall judgement required is viewed as
moderate.
Review of carrying value of intangible assets, deferred tax
assets and investments in subsidiary undertakings
(recurring annual item: see Note 7, Note 8 and Note 17 to the
financial statements)
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 as carrying values are based on
discounted estimates of future profitability over a number of years
and hence are highly sensitive to the assumptions used.
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 performed
are in Note 7. Short-term cash flows are confirmed by reference
to the Board approved budget for the following year and sense
checked against the longer term Strategic Plan. 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, 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 expectations of
future taxable profitability.
Review of inventory valuation and provisioning
(recurring annual item: see Note 11 to the financial statements)
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 overall process is governed by understood accounting
methodologies for the absorption of labour and overheads into
stock. Whilst these methodologies help to reduce risk, based on the
scale of inventory holdings and the extensive product range, the
overall level of judgement required is assessed as moderate.
The Committee 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 reviews both the rules
governing the automatic generation of provisions based on the
age of stock and any management judgemental overrides. The
Committee is satisfied that the net book value shown in Note 11
is appropriate and that any management judgements formed in
arriving at those values are reasonable.
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did review cyber security risk. It reviewed policies and current
mitigation strategies as well as third party testing of aspects of
cyber security.
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.
The Committee considers the number and nature of reports
received in the year to be small in number and scale of 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 at each meeting. The audit
plan, which contains mandatory, risk-based and cyclical reviews,
was approved by the Committee in March 2016, and was built
around focus areas such as organisational change, major projects,
IT security, business resilience and capital spend.
In the new financial year, the plan will include site financial control
audits, site health and safety audits and project assurance.
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 Auditor for the year, including
audit services, audit related services and other non-audit services,
can be found in Note 2(b) to the consolidated financial statements.
Review of the Viability Statement
(recurring annual item: see page 47)
In accordance with provision C2.2 of the UK Corporate Governance
Code, the Board is required to assess the prospects of the Company
over a period longer than 12 months from the approval of the
financial statements.
In addition to the Going Concern report, the Committee has helped
the Board prepare the viability statement and the period over
which it will apply. The Committee considered the STEP 2020
Strategic Plan and sensitivities against the Plan in preparing the
Viability Statement as well as the appropriateness of the three year
review period. The Company’s current position and principal risks
were also reviewed in detail by the Committee prior to advising the
Board.
The Company’s full Viability Statement can be found on page 47 of
the Strategic Report.
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; and
Æ The ongoing programme to improve the efficiency of financial
control processes in the business.
Reporting of exceptional items
(current year focus item: see Note 2(c) to the financial statements)
The STEP 2020 Strategic Plan envisages and requires a number
of years of restructuring activity within the Group. Each year the
Committee focuses on and challenges management’s allocation of
costs and credits between exceptional items and ordinary items.
We ensure that the exceptional charges genuinely need to be
excluded so as to allow users of the accounts to form an accurate
assessment of the performance of the underlying business.
We concluded that the net charges were sufficiently material and
not related to the underlying business so as to require separate
disclosure.
Internal control, risk and compliance
We regularly evaluate 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.
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.
Further details of our internal control and risk management
systems, including the financial reporting process, can be found on
pages 40 and 41 and page 68. Our primary risk factors are shown in
the Strategic Report on pages 42 to 46. Even though cyber security
is not considered a key risk, due to the devolved and diffuse nature
of the systems environment and the IT estate, the Committee
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AUDIT COMMITTEE REPORT
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 was appointed during the audit tender process
in June 2015 and this is therefore the second year end they have
been in post.
Non-audit services provided by the external Auditor
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 2017, 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 2018.
Total non-audit services provided by Deloitte during the year ended
31 March 2017 were £nil (2016: £nil). Total audit and audit related
fees include the statutory audit fee and fees paid to Deloitte for
other services which the external Auditor is required to perform.
Examples might 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 Deloitte not
included in the above. There were no significant non-audit services
provided by Deloitte in the year.
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.
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 Deloitte 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 Auditor. 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 Deloitte’s response to
accounting, financial control and audit issues as these arise.
The Committee conducts an annual review 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.
Æ The results of the questionnaire process noted above.
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 reappoint Deloitte as the Group’s
external Auditor and a resolution to that effect will be included in
the ordinary business of the AGM scheduled on Wednesday 19 July
2017. There are no contractual obligations restricting the choice of
external Auditor nor has the Company entered into any Auditor
liability agreements.
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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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’ requirement 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), the Group Finance Director, the
Group Chief Accountant and the Company Secretary.
Committee evaluation
The Committee’s effectiveness is assessed annually and on the
basis of a programme of continuous improvement. Lessons from
the assessment are used to try to improve the process, but the
Committee has concluded that it acts within its terms of reference
and carried out its responsibilities effectively.
We welcome feedback from shareholders on this report and I will
be available at the AGM to answer questions.
The consideration of the fair, balanced and understandable
requirement is shown in the graphic on page 68. In summary, the
Disclosure Committee carried out the following activities:
John Allkins
On behalf of the Audit Committee
30 May 2017
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
requirement;
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 of the draft Annual Report. The
feedback and comments received as a result were reviewed and
amendments made 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.
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NOMINATION COMMITTEE REPORT
“The Nomination Committee’s
primary focus during the year
has been to lead the process
for the appointment of two
new directors.”
MARK HARPER
NOMINATION COMMITTEE CHAIRMAN
I am pleased to present the Nomination Committee Report for the
year ended 31 March 2017 and to provide shareholders with an
overview of the work carried out during the year under review.
This year has seen the first changes to our Board since 2012 and
the Committee has led the recruitment processes for a new Group
Finance Director and new Non-Executive Director in accordance
with provision B2.1 of the 2014 UK Corporate Governance
Code (2014 Code). Comprehensive recruitment processes were
undertaken for both posts and are described below.
The Committee and the Board believe that the appointments of Ian
Scapens and David Landless will be key to support the achievement
of the STEP 2020 Strategic Plan.
Succession planning and recruitment of new Directors
David Landless’ appointment to the Board forms a part of Renold’s
orderly succession planning process for Board members which I
outlined in the Committee’s report last year. David will become
Chairman of the Audit Committee on completion of the 2017
AGM succeeding John Allkins who will step down after nine years
in the role.
An independent recruitment consultancy, Odgers Berndston
(Odgers), was retained to assist in the recruitment of the new
Non-Executive Director. At the commencement of the recruitment
process a role description was defined and agreed by the
Committee detailing the skills and experience required for the
position. The requirements for the role were finalised following my
meetings with Odgers, who also considered the criteria proposed
by the Chief Executive. A list of candidates was identified and
interviewed. This ultimately led to the appointment of David
Landless.
Following the resignation of Brian Tenner, Odgers was also retained
to assist in the recruitment of his replacement. Again, at the
commencement of this recruitment, the Committee agreed the
requirements for the role with Odgers. A longlist of candidates
was refined to a shortlist and interviews were held with the
Chief Executive and Group HR Director in the initial stages and
subsequently myself as Chairman of the Nomination Committee
and the Audit Committee Chairman. The Committee considered
Ian Scapens to be the most suitable candidate for the role and
accordingly made a recommendation of appointment to the Board.
Extension of John Allkins’ appointment
John Allkins was first appointed to the Board and as Chairman of
the Audit Committee in 2008. He completed a nine year term in
April 2017 and, after rigorous review, the Committee proposed
that his appointment as Non-Executive Director be extended for a
further year from the 2017 AGM. John Allkins will at the same time
step down from the roles of Chairman of the Audit Committee and
Senior Independent Director.
Having given careful consideration to the matter, the Committee
and the Board concluded that John Allkins continues to
demonstrate the qualities of independence in character and
judgement notwithstanding the fact that the extension to his
appointment means he will serve a term of more than nine
years. Whilst service on the Board for more than nine years is a
circumstance listed in provision B1.1 of the 2014 Code, none of
the other relationships or circumstances listed in B1.1 exists. John
Allkins has made a significant and valued contribution to the Board
during his tenure and his continued appointment is considered to
be in the best interests of the Company.
Appointment of Senior Independent Director
As a result of the above changes, the Committee also considered
the appointment of a new Senior Independent Director. The
Committee recommended to the Board the appointment of Ian
Griffiths to this role which will commence from the completion of
the 2017 AGM.
Ian Griffiths has been an independent director since his
appointment in 2010 and has chaired the Remuneration Committee
since that date.
John Allkins and Ian Griffiths did not participate in the discussions
or voting in the Committee which related to their own positions.
Other succession planning
I reported last year that the Board is mindful of its obligations
under the 2014 Code in relation to succession planning and a
detailed review of succession planning for the Board and senior
management took place. The discussion, as it relates to senior
management, concluded that good progress had been made on
succession planning as a result of the continued strengthening of
the management team led by the Chief Executive but that further
progress was required. This will continue to be an area of focus for
the Committee.
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Board composition
The Committee considers that the current capability and financial
burden imposed by the Board has been appropriate in the current
reporting period. This view reflects the need to deliver excellent
corporate governance while balancing the need for cost control as
we continue to progress the STEP 2020 Strategic Plan.
Diversity
The Board is aware of the need to consider the benefits of diversity
on the Board in all its aspects and the Board and Committee
undertook both recruitments this year mindful of the issue of
diversity, including gender, the formal Board diversity policy having
been adopted and set out in the 2015 Annual Report. The overriding
objective has and will always be to appoint the best possible
candidate for the role. This year, the new appointments have not
changed the Board’s diversity profile.
The Board continues to believe that it is not appropriate to set
measurable objectives for the implementation of the Diversity
policy at this time.
Effectiveness review
During the year, the Committee has also carried out its annual
evaluation. Again, this has proved a useful exercise in reviewing
the Committee’s work and concluding that it continues to work
effectively.
Mark Harper
On behalf of the Nomination Committee
30 May 2017
Role of the Nomination Committee
The Committee has delegated authority from the Board. In
accordance with the 2014 Code, the Committee is responsible
for the following:
Æ Reviewing the structure, size and composition of the
Board. This includes assessing skills, knowledge, experience
and diversity of Board members and any resulting
recommendations for change;
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 Giving full consideration to succession planning for
Directors and other senior executives, taking account of the
challenges and opportunities facing the Company.
The Committee’s terms of reference are available on the
Company website at www.renold.com.
Composition of the Nomination Committee
Æ The Committee is chaired by Mark Harper, Chairman of the
Board.
Æ The three Non-Executive Directors are members of the
Committee and have been so throughout the year or since
their appointment.
Æ The Committee meets during the year as required.
THE BIOGRAPHIES OF THE DIRECTORS CAN BE FOUND ON PAGES 60 AND 61
OF THE GOVERNANCE REPORT
Names
Position
Meetings attended
Nomination Committee members and meetings attended
AN ANALYSIS OF THE GENDER OF ALL EMPLOYEES IS SET OUT IN THE
STRATEGIC REPORT ON PAGE 53
Mark Harper
John Allkins
Ian Griffiths
David Landless*
Chairman
Non-Executive Director
Non-Executive Director
Non-Executive Director
4 of 4
4 of 4
4 of 4
1 of 4
* David Landless joined the Board in January 2017. There has been one Committee
meeting since his appointment.
Appointments to the Board
In accordance with the provisions of the 2014 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 shortlist for any appointment,
the Board always considers candidates from a wide range of
backgrounds and on merit and against objective criteria.
Other than in relation to gender and ethnicity, 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 further
information, see the chart on page 62.
A formal and rigorous process is followed during the
recruitment process for a new Director. The process for
making appointments commences with the evaluation process
described in the recent Board recruitments. 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. Odgers is a signatory to the Voluntary Code
of Conduct. Odgers does not have any other connection to the
Company.
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www.renold.com Stock code: RNO
77
DIRECTORS' REMUNERATION REPORT
Annual Statement
“The Directors’ Remuneration Policy was
amended last year and approved by over 90%
of voting shareholders at the 2016 AGM. The
Committee believes that the policy ensures
remuneration arrangements are aligned with
the interests of our shareholders and current
best practice whilst supporting the delivery of the
Company’s STEP 2020 Strategic Plan.”
IAN GRIFFITHS
REMUNERATION
COMMITTEE CHAIRMAN
As Chairman of the Remuneration Committee I present the
Directors’ Remuneration Report1 for the year ended 31 March 2017.
I summarise the main outcomes in the year for the remuneration
of the Executive Directors and also the continued application of the
remuneration policy.
Key remuneration outcomes for the year
All fixed elements of pay were unchanged for the Executive
Directors for a further year, with base salaries having not increased
since 2013 and 2010 in relation to the Chief Executive and Group
Finance Director respectively. This continues to further the strategic
aim of lowering the Group’s breakeven point and also reflects the
ongoing Group wide pay restraint.
The key outcomes under the elements of variable pay for the year are:
Æ Annual bonus: The Company has again faced challenging market
conditions during the year which resulted in a performance
below the levels required to trigger bonus payments. As a
result, no annual bonus payments were earned by the Executive
Directors for the year ended 31 March 2017.
The Committee determined this outcome having formally
assessed performance against EBITDA and Net Debt targets set
at the beginning of the year as follows. The adjusted EBITDA2
for the year ended 31 March 2017 of £20.3m was below the
threshold of £24.24m required for any payment of bonus.
Average Net Debt2 during the year was £30.4m, which was also
above the threshold of £29.81m.
Æ Performance Share Plan (PSP): The first awards granted under
the PSP, which was approved by shareholders at the 2013 AGM,
vested in full in July 2016. The awards granted in 2013 required
50% growth per year in adjusted EPS3 for maximum vesting.
Growth of 50% per annum in adjusted EPS was achieved in
the three year period ended 31 March 2016 and therefore the
awards vested in full.
Æ The performance period for the second tranche of PSP awards
made in June 2014 ended on 31 March 2017. The performance
conditions required growth of 20% per year in adjusted EPS for
threshold vesting. Growth of 12.9% per annum in adjusted EPS
was achieved in the three year period ended 31 March 2017 and
therefore the awards will not vest.
1 The remuneration report has been prepared in accordance with Schedule 8 to
the Large and Medium-sized Companies and Groups (Accounts and Reports)
Regulations 2008.
2 At constant budgeted rates in accordance with rules of the scheme.
3 Refer to the Glossary on page 157 for definition of EPS.
Remuneration policy
The Directors’ Remuneration Policy was amended last year and
approved by over 90% of voting shareholders at the 2016 AGM. The
remuneration policy will continue to apply until its expiry in July
2019 unless otherwise amended. As I stated in last year’s Directors’
Remuneration Report, it is the Committee’s intention to undertake a
full review of the remuneration policy prior to its expiry.
The Committee continues to believe that the remuneration policy
ensures remuneration arrangements are aligned with the interests
of our shareholders and current best practice whilst supporting the
delivery of the Company’s STEP 2020 Strategic Plan.
Market conditions remain challenging; however, the Committee
firmly believes that the focus on LTIP opportunity appropriately
incentivises the Executive Directors and aligns with the delivery
of the STEP 2020 Strategic Plan. In addition, the shareholding
requirement (which was increased last year for the Chief Executive
from 100% of salary to 200% of salary to reflect the increased LTIP
award) continues to align management’s interests with those of
shareholders.
The Committee believes that the total remuneration package is
market competitive with companies of a similar size, while avoiding
worsening the Company’s cash position through higher salaries
and/or bonuses. The LTIP opportunity will only become payable if
the minimum threshold EPS improvement target is delivered. This
is consistent with the Group’s objective of delivering improving
operating margins.
The Committee continues to focus on clear reporting of past
remuneration and future policy. We are also aware that the
landscape for executive pay is changing and we will respond
appropriately to changes and best practice as they develop.
I will be available at the AGM to answer any questions about the
Committee and its work. I would be pleased to welcome feedback
from shareholders.
Ian Griffiths
Remuneration Committee Chairman
30 May 2017
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DIRECTORS' REMUNERATION REPORT
The Committee and its Activities
GOVERNANCE
78
79
81
82
82
82
82
86
86
86
86
86
87
87
87
88
88
88
89
89
89
91
92
93
93
93
93
93
94
94
94
Our report is structured in the following sections
after the Annual Statement:
Æ The Committee and its Activities which sets out the
responsibilities and work undertaken by the Remuneration
Committee.
Æ At a Glance section which gives an easily accessible
overview of this year’s Directors’ Remuneration Report.
Æ The Directors’ Remuneration Policy sets out the Company’s
policy on Directors’ remuneration and is intended to apply
for three years from the 2016 AGM.
Æ The Annual Report on Remuneration shows the
implementation of the Directors’ Remuneration Policy in
2017 and how it is proposed to be applied in 2018. The
Annual Report on Remuneration together with this letter is
subject to an advisory shareholder vote at the 2017 AGM.
Annual Statement
The Committee and its Activities
At a Glance
Directors’ Remuneration Policy
Introduction
Remuneration principles for Executive Directors
Policy table
Shareholder views
Discretion of the Committee
Differences in remuneration policy for all employees
Statement of consideration of employment conditions
elsewhere in the Group
Total remuneration opportunity
Service contracts, remuneration and exit payments
This section of our report describes the membership of the
Committee, its key responsibilities and principal activities during the
year. It forms part of the Annual Report on Remuneration section of
the Directors’ Remuneration Report.
Committee membership
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 pages 60 and 61:
Æ Ian Griffiths (Chairman)
Æ John Allkins
Æ David Landless1
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 below. 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 2017 and 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.
1 David Landless joined the Board and the Committee on 9 January 2017.
Change of control
Leavers
Approach to recruitment remuneration
External Non-Executive Directorships
Non-Executive Directors
Annual Report on Remuneration
Introduction
Directors’ remuneration including
single total figure table
Directors’ shareholding and share interests
Performance graph and table
Chief Executive’s remuneration
Chief Executive pay and employee pay
Relative importance of spend on pay
Statement of implementation of remuneration
policy in next financial year
Base salary
Annual bonus
Long-Term Incentive Plan – PSP
Statement of shareholder voting
Key responsibilities of the Committee
Æ 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.
Æ The key aim is to ensure that executive pay is strongly aligned
to the Company’s business priorities and the interests of
shareholders. The remuneration 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 the Executive Directors’
remuneration.
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DIRECTORS' REMUNERATION REPORT
The Committee and its Activities
Adviser to the Committee
During the year, the Committee received independent advice
from PwC in relation to remuneration reporting, operation of the
Company’s share plans, advice on long-term incentive performance
measurement and information on market trends in executive
remuneration. Total fees for services provided over the year
amounted to £21,250.
PwC was appointed by the Committee in 2014 following an
assessment and interview process and has advised on various
issues including remuneration policy, the regulations governing
reporting on remuneration 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, tax 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 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.
Committee activities
The Committee’s terms of reference require meetings to be held at least twice a year. This year, the Committee met on seven occasions to
discuss the following themes and agenda items in accordance with its terms of reference:
Theme
Agenda items
Best practice
Reviewing the current UK corporate governance environment and the implications for the Company
Annual Report on
Remuneration
Considering and approving of the Annual Report on Remuneration to be put to shareholders
Executive Directors
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 2017
Approving the annual bonus structure and performance targets for the financial year ending 31 March 2018
Committee
performance
Performance of
external advisers
Approving the awards made under the Company’s PSP during the year
Reviewing the Committee’s performance
Reviewing the performance of PwC and retaining them as external remuneration consultants
Policy
Reviewing and determining of the quantum of annual bonus and PSP awards for Executive Directors
In addition, the Executive Directors and the Chairman reviewed the remuneration arrangements of the Non-Executive Directors.
80
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25290-04 AR 2017 Proof 3DIRECTORS' REMUNERATION REPORTAt a GlanceHow we have performed this yearElementMeasureThreshold targetMaximum targetActual*BonusAdjusted EBITDA Average Net Debt£22.7m£29.8m£24.3m£28.3m£20.3m£30.4mPSPGrowth in adjusted EPS20% p.a. growth30% p.a. growth12.9% p.a. growth* The 'actual' amounts disclosed are calculated using constant budgeted exchange rates in accordance with the rule of the Scheme.Directorate changesAs previously announced, Brian Tenner left the business on 18 November 2016. By mutual agreement, the requirement for Brian to serve a 12 month notice period was waived and Brian was paid six months’ basic salary, car allowance and pension allowance in lieu of notice upon leaving the Company. He did not receive a bonus payment for the financial year ending 31 March 2017. Brian held a number of outstanding LTIP awards, and he was treated as a good leaver. Further detail on the treatment of individual LTIP awards is provided within this report.Brian Tenner’s successor, Ian Scapens, joined the Company in January 2017. His remuneration package was determined in accordance with the Directors’ Remuneration Policy and is in line with Brian Tenner’s package. Further information is given in the Directors’ Remuneration Report.Single total figure of remuneration for Executive DirectorsExecutive DirectorsSalary (£’000)Benefits (£’000)Bonus (£’000)LTIP (£’000)Pensions (£’000)Total 2017(£’000)Total 2016 (£’000)Robert Purcell30018––453631,0151Brian Tenner*1318––181574832Ian Scapens†463––756–* Brian Tenner left the Company on 18 November 2016.† Ian Scapens joined the Company on 3 January 2017.1 The figure has been restated to include the actual value of the vested LTIPs in 2016: further details are in footnote 3 of the Total Remuneration table on page 89.2 The figure has been restated to include the actual value of the vested LTIPs in 2016: further details are in footnote 4 of the Total Remuneration table on page 89.Our remuneration principles and elements of remuneration OVERARCHING PRINCIPLES OF SIMPLICITY AND TRANSPARENCYPrincipleAttract, retain and motivate executives to deliver high performanceAlign executive pay to company strategy and performanceElementsPurpose ÆProvide appropriate level of minimum pay commensurate with role ÆDrive annual company performance ÆAlign to earnings generation and shareholder valueShort term variable ÆAnnual bonusLong term variable ÆPSP ÆFixed pay ÆBase salary ÆPension ÆOther benefitswww.renold.com Stock code: RNO81GOVERNANCERenold AR2017-Proof3.indd 816/7/2017 3:03:07 PM DIRECTORS' REMUNERATION REPORT
Directors' Remuneration Policy
Introduction
This section of the Directors’ Remuneration Report (from pages 82
to 88) sets out the Company’s policy for the remuneration of its
Directors. The application of the policy is set out in the next section
on pages 89 to 94.
This is consistent with the key Strategic Objective of lowering
our breakeven point – 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.
Following a review of remuneration carried out during the year
ended 31 March 2016, the Directors’ Remuneration Policy was
approved by shareholders at the AGM on 20 July 2016 and took
effect from that date. The Directors’ Remuneration Policy will
therefore apply for three years beginning on that date.
Remuneration principles for Executive Directors
Our Directors’ Remuneration Policy has been designed to deliver
two key aims, which remain unchanged since the policy was first
approved by shareholders at the 2014 AGM:
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.
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
shareholders’ interests, while continuing to motivate and engage
the Executive team to achieve stretching targets.
In addition, we aim to make the remuneration framework for
Executive Directors relatively simple – the incentive plans are
therefore limited to an annual bonus and the PSP.
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.
Purpose and link to corporate strategy
Operation of the element
Maximum potential value
and payment at threshold/review basis Performance metrics
Base salary
Competitive salaries to attract,
retain and motivate those
responsible for executing
strategy while ensuring the
Company pays no more than is
necessary.
Paid in 12 equal monthly
instalments during the year.
The policy is to provide
fourth quartile base 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.
Reviewed annually and
typically set on 1 August
each year.
None.
Annual rate for each Executive
Director is set out in the Annual
Report on Remuneration.
Salaries have been frozen for
a number of years and this will
continue compared to modest
inflation linked increases for
the wider employee population.
Higher increases may be
awarded following recruitment
into a role at a below-market
rate until the individual is
aligned with market levels
or due to a change in role or
responsibilities.
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GOVERNANCE
Purpose and link to corporate strategy
Operation of the element
Maximum potential value
and payment at threshold/review basis Performance metrics
Benefits
As base salary above. Benefits
are non-pensionable.
Pension
As base salary above.
Annual bonus
To incentivise delivery of
the corporate strategy and
reward delivery of superior
performance.
Bonuses are not pensionable.
Paid monthly or as required for
one-off events, consisting of:
Æ Fully expensed company car
(or cash equivalent).
Æ Private medical insurance.
Æ Lump sum death-in-service
benefit of five times base
salary.
The same level of death-in-
service benefit is available to
most UK staff and at two times
for those opting out of the
Company pension scheme.
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
business needs.
The Executive Directors are
not members of the Company
pension scheme and have their
own pension arrangements.
The Company makes pension
provision in the form of annual
contributions to personal
pension arrangements or cash
supplements in lieu of pension.
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
share based deferral if deemed
appropriate.
Maximum bonus payments are
made only on the achievement
of outstanding performance.
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.
Part or all of the cash bonus
may be forfeited or clawed
back should exceptional
circumstances occur. Such
circumstances would include:
fraud, misconduct, significant
misstatement of financial
results or incorrect calculation of
performance conditions.
None.
Car benefit is reviewed annually
and set on 1 August each year
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.
Maximum annual bonus
payable is 100% of base salary.
No bonuses will be payable
unless a minimum level of
financial performance has been
achieved.
Threshold performance results
in nil bonus being awarded and
on-target performance results
in up to 50% of the maximum
bonus being awarded.
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 targets will be
set out in the Annual Report
on Remuneration following the
end of each financial year.
The Committee has the right
to exercise its discretion fairly
and reasonably in assessing
the bonus outcome, including
making adjustments for
exceptional events occurring
during the year.
The Committee has the
discretion to vary the
performance metrics over the
life of this policy.
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DIRECTORS' REMUNERATION REPORT
Directors' Remuneration Policy
Purpose and link to corporate strategy
Operation of the element
Maximum potential value
and payment at threshold/review basis Performance metrics
PSP
To incentivise delivery of long-
term shareholder value.
Shareholding requirement
To strengthen the alignment
between the interests of
Executive Directors and those
of shareholders.
A maximum annual grant is
permitted of 200% of base
salary each year.
Vesting is dependent on
performance conditions. On
achievement of threshold
performance 25% of the award
vests.
For the Chief Executive, there
is an absolute TSR condition
that will account for 50% of
the total award. The adjusted
EPS minimum targets will be
a threshold trigger for the TSR
condition to be measured.
The performance condition for
the Group Finance Director is
based on growth 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.
Chief Executive – 200% of
base salary. Other Executive
Directors – 100% of base
salary.
None.
Key features of the PSP are:
Æ Conditional share awards or
nil-cost options.
Æ Outstanding commitments
to issue new shares under
all share plans 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 Part or the whole of the PSP
award can be recovered
prior to vesting should
exceptional circumstances
occur. Such circumstances
would include: fraud,
misconduct, significant
misstatement of financial
results or incorrect
calculation of performance
conditions.
Executive Directors have five
years to build the minimum
holding.
Unvested PSP or deferred
shares are not taken into
account. Share price is
measured at the end of each
financial year.
All PSP or deferred share
awards vesting (net of income
tax and National Insurance
contributions) must be
retained until the shareholding
requirement is met.
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GOVERNANCE
Notes to the Policy table
Performance measures and targets for the annual bonus plan and the PSP
The performance targets are determined annually by the Committee. The following table sets out the performance measures for the
annual bonus and PSP, together with relevant definitions and how each measure supports strategy.
Performance measure
Definition
How measure supports strategy
Annual bonus
Adjusted EBITDA
Average net debt
Earnings before interest, tax, depreciation,
amortisation, closed defined benefit
pension scheme charges and costs and
excludes exceptional items.
The net sum of external borrowings,
finance leases and cash and cash
equivalents, measured each month end to
produce a simple annual average (excludes
preference stock from targets and results)
Æ Central to overall strategy.
Æ Aligned to Strategic Objective of
delivering improving operating margins.
Æ Driver of shareholder value.
Æ Adjustments ensure areas outside
management control are excluded.
Æ Ensures continuous focus on cash
and working capital management
throughout year.
PSP
Compound Annual Growth Rate (CAGR) in
adjusted EPS
EPS excluding exceptional items, pension
administration costs, IAS 19 financing
charges and the tax thereon.
Æ Align executives with goals for long-
term growth.
Æ EPS is a driver of shareholder value.
Total shareholder returns
Based on absolute share price targets.
Æ TSR is a measure of increases in
shareholder value.
Æ Transparent and accessible measure for
assessing corporate performance.
Æ Award in shares ensures further
alignment with shareholders
The Committee considers that the annual bonus performance targets are commercially and price sensitive in respect of the Group and that
it would be detrimental to the interests of the Group to disclose them in advance. Performance targets will be disclosed retrospectively.
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85
DIRECTORS' REMUNERATION REPORT
Directors' Remuneration Policy
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 amendments made to
remuneration policy where thought necessary.
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 the implementation of 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.
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 or nil-cost options are only available to
senior executives and Executive Directors.
Statement of consideration of employment conditions
elsewhere in the Group
The Committee invites the Group 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 has frozen any salary
increases for Executive Directors which is therefore lower than the
increases available to employees.
The Group 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 PSP
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 Group Finance
Director, Ian Scapens, under the proposed remuneration policy
for the year ending 31 March 2018 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.
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
)
’
0
0
0
£
(
n
o
i
t
a
r
e
n
u
m
e
R
1,400
1,200
1,000
800
600
400
200
0
£1,263
47%
24%
£663
23%
23%
£363
100%
54%
29%
£594
31%
31%
38%
£363
13%
26%
61%
£224
100%
Minimum On-target
Maximum
Minimum
On-target
Maximum
Robert Purcell
Ian Scapens
PSP
Annual bonus
Salary, benefits and pension
PSP
Annual bonus
Salary, benefits and pension
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GOVERNANCE
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 prevailing market practice. Details of the Executive Directors’ terms of appointment and notice periods are as follows:
Robert Purcell
Ian Scapens
Date of contract
21 January 2013
3 September 2017
Expiry date of current term/notice period
No specified term/terminable on
12 months’ notice
No specified term/terminable on
12 months’ notice
Other than normal payments due during 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. None of the Executive Directors’ contracts provide for compensation in the event of a change of control of the Company. Copies
of the 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 PSP 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
Annual bonus
PSP
A maximum of 12 months’ salary, pension and benefits
may be payable.
Payments may be subject to mitigation if the leaver finds
alternative employment.
No annual bonus normally payable, unless the Committee
uses its discretion to treat as a good leaver.
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, retirement, ill-health or disability, an
individual will be treated as a good leaver.
Bad leavers will forfeit outstanding PSP awards.
Good leavers are entitled to receive a bonus based on
performance to date of termination, pro-rated for the period of
service to termination.
Good leavers’ awards shall ordinarily vest at the normal vesting
date, pro-rata based on the proportion of the vesting period
completed and based on the extent to which the performance
condition has been met.
In the event of death, awards vest immediately subject to time
pro-rating and assessment of performance. The Committee has
discretion to accelerate vesting to date of cessation for other
good leavers.
Awards may be exercised within a six month period following
date of leaving or vesting if later. 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.
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DIRECTORS' REMUNERATION REPORT
Directors' Remuneration Policy
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
82 to 85 in accordance with the Company’s remuneration policy and be subject to the same discretions.
The Committee’s approach to recruitment remuneration is to set the base 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 value, timing of
vesting and type of these awards with replacement awards. Any buy out awards would be an additional element of remuneration to the
normal maxima as set out in the Policy table on pages 82 to 85.
Details of the Company’s approach to the remuneration of Non-Executive Directors are set out below.
External Non-Executive Directorships
The Board encourages Executive Directors to broaden their experience outside the Company by taking up a non-executive directorship.
Non-Executive Directors
Appointment details and fees of the Non-Executive Directors are set out below:
Name
Mark Harper
John Allkins
Ian Griffiths
David Landless
Date of appointment
1 May 20121
17 April 20082
13 January 20104
9 January 2017
Unexpired term
(months)
13
15
21
33
Date of election/
last re-election
20 July 2016
20 July 2016
20 July 2016
Not applicable5
Contractual fees
£110,000
£43,0003
£38,000
£35,500
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 last substantive review of Non-Executive Directors’ fees took place in 2011. Given the period since the last review, a full review of the
fees for Non-Executive Directors will be undertaken by the Board during the financial year ending 31 March 2018; the results of that review
will be reported in the 2018 Directors’ Remuneration Report.
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.
1 Mark Harpers appointment was renewed with effect from 1 May 2015 for a period of three years in line with best practice guidelines.
2 John Allkins appointment was renewed with effect from 17 April 2017 until the 2018 AGM.
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 2016 for a period of three years in line with best practice guidelines.
5 David Landless will be subject to first election by shareholders at the 2017 AGM.
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DIRECTORS' REMUNERATION REPORT
Annual Report on Remuneration
GOVERNANCE
Introduction
This section of the Directors’ Remuneration Report sets out the remuneration paid to Directors for the financial year ending 31 March 2017.
This section, together with the description of the composition of the Committee, which is set out on page 79 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
19 July 2017.
Directors’ remuneration
Total remuneration – single total figure table (audited information)
The total remuneration for each Director for the period and for the prior year is set out below:
Executive Directors
Robert Purcell
Brian Tenner*
Ian Scapens†
Salary
(£’000)
Benefits
(£’000)
Bonus
(£’000)1
LTIP
(£’000)2
Pensions
(£’000)
2017
2016
2017
2016
2017
300
300
131
185
46
18
16
8
11
3
–
–
–
–
–
–
6543
–
2595
–
45
45
18
28
7
Total
(£’000)
363
1,0154
157
4836
56
* Brian Tenner left the Company on 18 November 2016. Payments made to Brian Tenner on leaving the Company are set out on page 91.
† Ian Scapens joined the Company on 3 January 2017.
Non-Executive Directors’ fees
Mark Harper
John Allkins
Ian Griffiths
David Landless‡
‡ David Landless joined the Board on 9 January 2017.
2017
£’000
110
43
38
8
2016
£’000
Change
£’000
110
43
38
–
–
–
–
8
(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. The Chief Executive’s annual salary therefore remained at £300,000 and the
Group Finance Director’s annual salary at £185,000. These figures are outlined in the Total remuneration table above.
The proportion of the Group’s basic salary bill attributable to the Executive Directors’ base salaries for the year ended 31 March 2017 was
0.80% (2016: 0.95%).
(ii) Pension
The Executive Directors’ only pension entitlements are Company contributions equivalent to 15% of base salary. During the year ended 31
March 2017, a cash payment of £45,000 (2016: £45,000) was made by the Company to Robert Purcell. Cash payments of £17,682 (2016:
£27,750) and £6,866 were made to Brian Tenner, the outgoing Group Finance Director, and his successor, Ian Scapens, respectively. These
figures are shown in the Total remuneration table above.
1 Further details in relation to the annual bonus arrangements in place for the Executive Directors in the year ended 31 March 2017 are on page 90 within the Directors’
Remuneration Report.
2 Further details of awards to the Executive Directors under the 2004 Option Plans and PSP are on pages 90 and 91. The LTIP uses the closing share price on the day of
vesting less the option exercise price to calculate the value of the award.
3
3
(a) Of the 1,145,038 options awarded to Robert Purcell on 21 January 2013 under the 2004 Options Plan with an exercise price of 26.20p, 100% (the maximum award)
vested on 21 January 2016 as the mid-market price of the Company’s shares on the five preceding trading days was 49.70p. The closing mid-market price on
20 January 2016, which was the last trading day prior to vesting on 21 January 2016, was 46.75p, the total value therefore being £235,000.
(b) Of the 1,065,089 options awarded to Robert Purcell on 25 July 2013 under the PSP, 100% (the maximum award) vested on 25 July 2016, the performance
conditions measured to 31 March 2016 having been achieved in full. The figure has been restated in the table above to be the actual value of the awards on vesting of
£419,326. This is based on the closing mid-market share price of 39.37p on 22 July 2016 which was the last trading day prior to vesting.
4 The figure has been restated to include the actual value of the vested LTIPs in 2016: further details are in footnote 3 above.
5 Of the 656,805 options awarded to Brian Tenner on 25 July 2013 under the PSP, 100% (the maximum award) vested on 25 July 2016, the performance conditions
measured to 31 March 2016 having been achieved in full. The figure has been restated in the table above to be the actual value of the awards on vesting of £258,584.
This is based on the closing mid-market share price of 39.37p on 22 July 2016 which was the last trading day prior to vesting.
6 The figure has been restated to include the actual value of the vested LTIPs in 2016: further details are in footnote 4 above.
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DIRECTORS' REMUNERATION REPORT
Annual Report on Remuneration
(iii) Benefits
Benefits received by the Executive Directors during the period included company car or car allowance and private healthcare. These figures
are outlined in the Total remuneration table on page 89.
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 of up to
100% of base salary on achievement of adjusted EBITDA and average net debt targets. For the year ended 31 March 2017 the annual bonus
targets for Executive Directors were based upon the matrix below.
Adjusted EBITDA (£m)
22.7
23.1
23.5
23.9
24.3
29.8
–
20.0%
40.0%
60.0%
70.0%
Average Net Debt (£m)
29.3
10.0%
30.0%
50.0%
70.0%
80.0%
28.8
20.0%
40.0%
60.0%
80.0%
90.0%
28.5
30.0%
50.0%
70.0%
90.0%
95.0%
28.3
40.0%
60.0%
80.0%
95.0%
100.0%
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 impact of acquisitions are excluded.
The two metrics shown were structured as a matrix such that failure to deliver a minimum result in either metric 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.
For the year ended 31 March 2017, the Adjusted EBITDA for the year was £20.3m and the Average Net Debt was £30.4m (measured at
budget exchange rates in accordance with the annual bonus rules). As both metrics were below the threshold targets, no bonus was
payable.
(ii) PSP awards performance testing
The performance period for PSP awards granted on 5 June 2014 completed on 31 March 2017. The performance conditions applying to
these awards are as follows:
Threshold
Maximum
Award date
5 June 2014
EPS CAGR
20%
% Vesting
25%
EPS CAGR
30%
% Vesting
100%
Performance period
3 years to 31 March 2017
The annual growth in EPS between 2014 and 2017 was 12.9%. As this is below the threshold growth of 20% p.a., none of the awards will
vest.
(3) Variable elements of pay – awards made in year
Awards made to Executive Directors during the year under the PSP and associated performance conditions are set out below. Awards
equal to 200% and 100% of salary were made respectively to the Chief Executive and Group Finance Director. No award was made to Brian
Tenner in the year ended 31 March 2017.
Robert Purcell
Ian Scapens
Type of award
Nil price Option
Nil price Option
Face value
£600,000
£185,000
Number of shares1
Date of award
1,643,836
368,465
21 July 2016
16 January 2017
The year ended 31 March 2017 was the fourth year in which awards were made under the PSP. The performance conditions attaching to
options granted under the PSP during the year are:
Æ For the Group Finance Director, 100% of the award is based on the compound annual growth rate in adjusted EPS over a three year
period (EPS CAGR).
Æ For the Chief Executive, 50% of the award is based on this EPS condition and 50% is based on TSR.
1 The number of shares is based on the average mid-market share price for the three business days preceding the date of grant (36.50 pence and 50.21 pence
respectively).
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GOVERNANCE
The targets applying to the awards are as follows:
Threshold
Maximum
Award date
EPS CAGR
% Vesting
EPS CAGR
% Vesting
Performance period
21 July 2016 and
16 January 2017
10%
25%
15%
100%
3 years to 31 March 2019
Threshold
Maximum
Award date
21 July 2016
TSR
62.1p
% Vesting
25%
TSR
106.5p
% Vesting
100%
Performance period
3 years to 31 March 2019
On achievement of threshold performance 25% of the award vests. Straight line vesting occurs between threshold and maximum
performance.
(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
Brian Tenner resigned and left the Company on 18 November 2016. By mutual agreement, the requirement for Brian Tenner to serve
a 12 month notice period was waived and he was paid six months’ basic salary, car allowance and pension allowance (a cash payment
of £111,375 in total : £92,500, £5,000 and £13,875 respectively) in lieu of notice upon leaving the Company. He did not receive a bonus
payment for the financial year ending 31 March 2017. Brian Tenner held 807,422 share options under the Company Share Option Plan
2004 (CSOP) which had already vested in full in June 2014. The Committee agreed that, in accordance with the CSOP Plan rules, Brian
Tenner would have six months from the end of his employment with the Company to exercise these options. Brian Tenner also held three
PSP share awards. The Committee used its discretion and agreed that, in accordance with the Directors’ Remuneration Policy, Brian
would be treated as a good leaver. The first PSP award made on 24 July 2013 of 656,805 nil cost options had already vested in full in
March 2016 and the Committee agreed that, in accordance with the PSP Plan rules and the Directors’ Remuneration Policy, Brian Tenner
would have six months from cessation of employment to exercise these options. In exercising its discretion, the Committee agreed that
the second subsisting PSP award of 283,887 nil-cost options made on 4 June 2014 would be pro-rated from the date of the grant to the
date of cessation (232,601 nil cost options); vesting will remain subject to the original performance conditions measured over the original
performance period. The Committee agreed that, due to the short length of time elapsed from the date of award to the date of cessation of
employment, and, the extent to which the performance condition has been met at the date of cessation of employment, and in accordance
with the Directors’ Remuneration Policy and the PSP Plan rules, the subsisting award of 241,830 nil-cost options, made on 4 June 2015,
would lapse in their entirety upon cessation.
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 and PSP over the last five years as a percentage of the total award
to Executive Directors.
Award 2009/10
Vesting 2012/13
Award 2010/11
Vesting 2013/14
Award 2011/12
Vesting 2014/15
Award 2012/13
Vesting 2015/16
Award 2013/14
Vesting 2016/17
Vesting %
Nil
47.9%
100%
100%
Nil
The vested awards relate to options awarded to Brian Tenner in years ended 31 March 2011 and 2012 and options awarded to Robert
Purcell in the year ended 31 March 2013. Further details are set out on page 100 in the 2015 Directors’ Remuneration Report.
(2) Directors’ interests
The beneficial interest of each of the Executive and Non-Executive 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 2017 and the date of this report.
Executive Directors
The Chief Executive and Finance Director are required to build up a shareholding as shown below over a five year period. This includes
beneficially owned shares and vested but unexercised options. Unvested shares are not counted within the shareholding requirement. The
table below sets out the extent to which this requirement was met as at 31 March 2017. Ian Scapens joined the Company on 3 January 2017
and does not currently hold shares. No such minimum shareholding requirement exists for Non-Executive Directors.
Robert Purcell
Ian Scapens (target required to be satisfied by 2022)
Shareholding
requirement
(% of salary)
Holding as per
Remuneration Policy at
31 March 2017
Shareholding
at 31 March 2017
(% of salary)
200%
100%
5,958,653
–
1,100%
–
Non-Executive Directors
Mark Harper
John Allkins
Ian Griffiths
David Landless
31 March 2017
511,924
144,500
10,000
–
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DIRECTORS' REMUNERATION REPORT
Annual Report on Remuneration
(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 2017 and the date of this report.
Robert Purcell
2004 Options Plan
Total 2004 Options Plan
PSP
Total PSP
Total
Brian Tenner
2004 Options Plan
Total 2004 Options Plan
PSP
Total PSP
Total
Ian Scapens
PSP
Total
Options
held at
1 April
2016
1,145,038
1,145,038
1,065,089
460,358
392,157
–
1,917,604
3,062,642
Options
held at
1 April
2016
311,444
495,978
807,422
656,805
283,887
241,830
1,182,522
1,989,944
Options
held at
1 April
2016
–
–
Number of share options
Granted
in year
Lapsed
in year
Exercised
in year
Options
held at
31 March
2017
Options
vested at
31 March
2017
–
–
–
–
–
1,643,836
1,643,836
1,643,836
–
–
–
–
–
–
–
–
–
1,145,038
–
1,145,038
–
1,065,089
–
460,358
– 392392,157
1,643,836
–
–
3,561,440
–
4,706,478
1,145,038
1,145,038
1,065,089
–
–
–
1,065,089
2,210,127
Number of share options
Granted
in year
Lapsed
in year
Exercised
in year
Options
held at
31 March
2017
–
–
–
–
–
–
–
–
–
311,444
495,978
–
807,422
–
656,805
–
–
283,887
–
241,830
–
525,717
525,717 1,464,227
–
–
–
–
–
–
–
–
Options
vested at
31 March
2017
–
–
–
–
–
–
656,805
1,464,227
Number of share options
Granted
in year
368,465
368,465
Lapsed
in year
Exercised
in year
–
–
–
–
Options
held at
31 March
2017
368,465
368,465
Options
vested at
31 March
2017
–
–
Option
price (p)
Date from
which
exercisable
Expiry
date
26.20
21.01.2016
21.01.2023
Nil
Nil
Nil
Nil
25.07.2016 25.07.2023
05.06.2017 05.06.2024
05.06.2018 05.06.2025
21.07.2019 21.07.2026
Option
price (p)
27.25
37.30
Date from
which
exercisable
Expiry
date
27.09.2013 26.09.2020
08.06.2014 07.06.2021
Nil
n/a
n/a
25.07.2016
n/a
n/a
18.05.2017
n/a
n/a
Option
price (p)
Date from
which
exercisable
Expiry
date
Nil
16.01.2020 16.01.2027
The performance conditions for the share options are disclosed on pages 90 and 91 and are included in this audited information section by
reference. None of the terms and conditions of the share options were varied in the year.
Performance graph and table
The graph on page 93 shows the Company’s total shareholder return (share price growth plus dividends reinvested where applicable) for
each of the last eight 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.
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The market capitalisation of the Company at 31 March 2017 was £126.8m and the lowest and highest share prices during the year were
33.13p and 59.75p respectively, with a share price on 31 March 2017 of 56.25p.
700
GOVERNANCE
Renold plc
FTSE All-Share Industrial Engineering Index
Mar 09
Sept 09
Mar 10
Sept 10
Mar 11
Sept 11
Mar 12
Sept 12
Mar 13
Sept 13
Mar 14
Sept 14
Mar 15
Sept 15
Mar 16
Sept 16
Mar 17
600
500
400
300
200
100
0
Chief Executive’s remuneration for the years ended 31 March 2012 to 2017
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 eight years.
Chief Executive’s total remuneration1 £’000
Annual bonus as % of maximum awarded
LTI as % of maximum vesting
2010
337
–
100%
2011
667
81%
–
2012
494
44%
–
2013
311
16%
–
2014
659
100%
N/A
2015
561
67%
N/A
2016
1015
–
100%
2017
363
–
–
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 89).
Chief Executive
Workforce2
Percentage change
in salary
Percentage change
in benefits
Percentage change
in annual bonus
0%
<2%3
7%
0%
–
3%
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 89) 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.
2017
2016
Difference (%)
Employee
remuneration
Shareholder
distributions
Market
capitalisation
£67.5m
£59.1m
(14%)
Nil
Nil
Nil
£126.8m
£74.7m
70%
Revenue4
£183.6m
£165.2m
11%
Adjusted
operating
profit5
£14.5m
£14.2m
2%
Executive
Directors’ total
remuneration
£0.6m
£1.5m
(60%)
EBITDA6
£21.3m
£20.2m
5%
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 82 to 85 for three years from
the date of the 2016 AGM.
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. The next review will take place in July 2017 and any change
implemented from 1 August 2017. The current base salaries for the Executive Directors are set out on page 89 and below:
Robert Purcell £’000
Ian Scapens £’000
2017
300
185
1 The values use the same methodology as that shown in calculating the single figure basis of remuneration in the table on page 89.
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.
4 Note 2 to the Company financial statements sets out the calculation of revenue (total operating costs) and adjusted operating profit.
5 Note 2 to the Company financial statements sets out the calculation of revenue (total operating costs) and adjusted operating profit.
6 EBITDA is adjusted operating profit before depreciation and amortisation charges.
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DIRECTORS' REMUNERATION REPORT
Annual Report on Remuneration
Annual bonus
The performance measures for the 2016/17 annual bonus are unchanged from 2015/16. As set out on page 90, the performance measures
are based upon a metric of EBITDA and net debt performance conditions.
The performance targets for the annual bonus are based on internal targets and considered commercially sensitive. Performance targets
will continue to be disclosed retrospectively in the Remuneration Report in the interests of transparency.
Long-Term Incentive Plan – PSP
The performance conditions attaching to options that will be granted under the PSP in the year commencing 1 April 2017 are in line with
those granted during 2016 and are as follows:
Æ For the Group Finance Director, 100% of the award will be based on the compound annual growth rate in adjusted EPS over a three
year period (EPS CAGR).
Æ For the Chief Executive, 50% of the award will be based on this EPS condition and 50% will be based on TSR.
The targets applying to the award will be as follows:
Threshold Maximum
EPS CAGR
10%
% Vesting
25%
EPS CAGR
15%
Threshold Maximum
TSR
83.9p
% Vesting
25%
TSR
109.9p
% Vesting
100%
% Vesting
100%
Performance period
3 years to 31 March 2020
Performance period
3 years to 31 March 2020
Performance under the EPS condition will be measured from an adjusted EPS figure of 4.6p for the year to 31 March 2017.
On achievement of threshold performance 25% of the award vests. Straight line vesting occurs between threshold and maximum
performance.
Statement of shareholder voting
The Directors’ Remuneration Report received significant shareholder support at the AGM held on 20 July 2016. Votes cast in respect of this
resolution at the 2016 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
Approved by the Board and signed on its behalf by:
Ian Griffiths
Remuneration Committee Chairman
30 May 2017
2016 AGM
170,204,238
5,745,449
175,949,687
51,639
2016 AGM
160,871,566
14,174,772
174,898,256
954,988
%
96.73
3.27
%
91.90
8.10
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DIRECTORS' REPORT
GOVERNANCE
The Directors submit their report and the financial statements as
set out on pages 100 to 155.
The Directors’ Report, which comprises pages 95 to 97, 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.
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 76 and 77.
Shareholders may also appoint a Director by ordinary resolution.
The Strategic Report provides an overview of the performance
of the business in the year ended 31 March 2017 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 97 and therefore incorporated by
reference.
Group
The Company is a public limited company incorporated in England,
registered number 249688, with its registered office at Trident 2,
Trident Business Park, Styal Road, Wythenshawe, Manchester,
M22 5XB.
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 2017 is £6.7m
compared with a profit of £7.4m for the year ended 31 March 2016.
Dividends
Details about dividend policy are set out in Note 6 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 2017, 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 2016 and 1 January 2017.
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 AGM following their appointment. In addition, all Non-
Executive Directors are subject to annual election: please refer to
the Corporate Governance report on page 65 for further details.
As a result, Mark Harper, John Allkins, Ian Griffiths, Ian Scapens
and David Landless will be standing for election/re-election at the
2017 AGM.
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 89 to 94. 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
AGM, 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 2017, the issued share capital of the Company
was £27,264,309 divided into 225,417,740 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 increase
in the issued share capital (2016: £27,146,657) follows the issue of
2,353,037 ordinary shares of 5p each in July 2016 to the Company’s
Employee Benefit Trust to facilitate the exercise of share options by
employees across the Company.
The ordinary shares represent 41.34% of the Company’s total share
capital, the preference stock represents 2.13% and the deferred
shares represent 56.53%. The Company’s ordinary shares and
preference stock are listed on the London Stock Exchange.
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DIRECTORS' REPORT
The deferred shares have no voting or dividend rights and are not
able to be traded. As stated in the Company’s interim results for
the half year ended 30 September 2016, it is intended that the
deferred shares be cancelled given they have had no value or voting
rights since their issue. In accordance with the rights granted to
the Company in 2009 when the shares were issued in connection
with a placing, it is proposed that the Company will purchase all
the deferred shares for 1p in aggregate and they are subsequently
cancelled. Shareholder approval will be sought accordingly at the
2017 AGM.
The Company obtained shareholder authority at the 2016 AGM
to make market purchases of up to 22,306,470 ordinary shares
in the Company, which remains outstanding until the conclusion
of the 2017 AGM. 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 AGM for the Company to
purchase, in the market, up to 22,541,774 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.
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 were first
adopted on 30 July 2008 and last amended on 15 July 2010. A
special resolution will be proposed at the 2017 AGM to change the
current articles in order to reflect developments in practice and
legislation, including shareholder association guidance, which have
arisen since they were last amended.
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 AGM are set out in the Notice of AGM.
Major shareholdings
As at 31 March 2017, the Company had been notified or is aware
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
Limited1
Prudential plc group of companies,
of which 11% is managed by M&G
Investment Funds 32
Henderson Global Investors Limited
JP Morgan Asset Management
BlackRock Investment Mgt (UK)
Limited3
Discretionary Unit Fund Managers
Limited
AXA Investment Managers UK
Number of
voting rights
% of total number
of voting rights
33,829,851
15.01
32,264,466
25,995,747
20,792,723
13,374,465
12,020,405
11,812,605
14.31
11.53
9.22
5.93
5.33
5.24
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
£557,661.75, being equal to 5% of the aggregate nominal amount
of the Company’s ordinary share capital in issue as at the date of
the Notice of the Company’s 2016 AGM. The authority will expire
at the forthcoming AGM. The Directors will seek authority from
shareholders at the AGM 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 £563,544.35.
1 Subsequent to the year ended 31 March 2017, the Company was notified of
reductions in the share holding of Schroder Investment Management Limited
to 27,719,851 ordinary shares.
2 M&G Investment Funds 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.
3 Subsequent to the year ended 31 March 2017, the Company was notified of
an increase in the share holding of BlackRock Investment Management (UK)
Limited to 13,831,258 ordinary shares.
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In addition, the Directors have authority to allot shares up
to a maximum nominal amount of £7,428,054, representing
approximately two thirds of the issued ordinary share capital
as at the date of the Notice of the Company’s 2016 AGM. The
authority will expire at the forthcoming AGM. The Directors will
seek authority from shareholders at the AGM to allot shares
up to a maximum nominal amount of £7,506,410, representing
approximately 66.6% of the issued ordinary share capital as at the
date of the Notice of the AGM.
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 (e.g. 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
GOVERNANCE
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 132 to 137
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 87 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 113 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 2017
Note 26 to the Group financial statements
Statement on disclosure to Auditor
Statement of Directors’ responsibilities
60 and
61
50 to 52
52
141 to
145
55
145
98
98
The Directors’ Report was approved by the Board on 30 May 2017.
For and on behalf of the Board:
Louise Brace
Company Secretary
30 May 2017
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DIRECTORS'
DIRECTORS' RESPONSIBILITIES STATEMENT
RESPONSIBILITIES
STATEMENT
The Directors are responsible for preparing the Annual 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 are required
to prepare the Group financial statements in accordance with
International Financial Reporting Standards (IFRSs) as adopted by
the European Union and Article 4 of the IAS Regulation and have
elected to prepare the Parent Company financial statements in
accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards and applicable
law), including FRS 101 'Reduced Disclosure Framework'. Under
company law, the Directors must not approve the accounts 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 the Parent Company financial statements, the
Directors are required to:
Æ Select suitable accounting policies and then apply them
consistently;
Æ Make judgements and accounting 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.
In preparing the Group financial statements, International
Accounting Standard 1 requires that Directors:
Æ Properly select and apply accounting policies;
Æ Present information, including accounting policies, in a manner
that provides relevant, reliable, comparable and understandable
information;
Æ Provide additional disclosures when compliance with the
specific requirements in IFRSs are insufficient to enable users to
understand the impact of particular transactions, other events
and conditions on the entity’s financial position and financial
performance; and
Æ Make an assessment of the Company’s ability to continue as a
Going Concern.
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 are responsible for the maintenance and integrity of
the corporate and financial information included on the Company’s
website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
Responsibility statement
We confirm that to the best of our knowledge:
Æ The financial statements, prepared in accordance with the
relevant financial reporting framework, give a true and fair view
of the assets, liabilities, financial position and profit or loss of
the Company and the undertakings included in the consolidation
taken as a whole;
Æ The Strategic Report includes a fair review of the development
and performance of the business and the position of the
Company and the undertakings included in the consolidation
taken as a whole, together with a description of the principal
risks and uncertainties that they face; and
Æ The Annual Report and financial statements, taken as a
whole, are fair, balanced and understandable and provide the
information necessary for shareholders to assess the Company’s
performance, business model and strategy.
This responsibility statement was approved by the Board of
Directors on 30 May 2017 and is signed on its behalf by:
Robert Purcell
Chief Executive
Ian Scapens
Finance Director
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SHAREHOLDER INFORMATION
GOVERNANCE
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 156. 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
Æ 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.
Æ Do not get into a conversation, note the name of the person and
firm contacting you and then end the call.
Æ Check the Financial Services Register (the Register) from
www.fca.org.uk to see if the person and firm contacting you is
authorised by the FCA.
Æ Beware of fraudsters claiming to be from an authorised firm,
copying its website or giving you false contact details.
Æ Use the firm’s contact details listed on the Register if you want
to call it back.
Æ 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.
Æ Search the list of unauthorised firms to avoid at
www.fca.org.uk/scams.
Æ 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.
Æ Think about getting independent financial and professional
advice before you hand over any money.
Æ Remember: if it sounds too good to be true, it probably is!
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.
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25290-04 AR 2017 Proof 3FINANCIAL STATEMENTSRenold plc Annual Report and Accounts 2017 for the year ended 31 March 2017100Renold AR2017-Proof3.indd 1006/7/2017 3:03:36 PM 25290-04 AR 2017 Proof 3CONTENTSFinancial Statements 100Independent Auditor’s Report to the Members of Renold plc 102Consolidated Statement of Comprehensive Income 108Consolidated Balance Sheet 109Consolidated Statement of Changes in Equity 110Consolidated Statement of Cash Flows 111Accounting Policies 112Notes to the Consolidated Financial Statements 116Group Five Year Financial Review 146Company only Financial Statements Accounting Policies 147Company Balance Sheet 148Company Statement of Changes in Equity 149Notes to the Company Financial Statements 150Additional InformationCorporate Information 156Glossary 157STEP 2020 in ActionManufacturing efficiencyDuring the year we completed the transfer of our European Distribution Centre from France to a new logistics centre near the Einbeck facility in Germany. This increases manufacturing capacity in the Einbeck facility through the availability of additional space for manufacturing. We also completed the consolidation of our two UK Couplings facilities into one site in Cardiff. Both of these projects should realise significant savings going forward further lowering the breakeven point.READ MORE ABOUT STEP 2020 STRATEGIC PLAN IN THE CHIEF EXECUTIVE'S REVIEW ON PAGES 16 TO 25www.renold.com Stock code: RNO101Renold AR2017-Proof3.indd 1016/7/2017 3:03:40 PM INDEPENDENT AUDITOR'S REPORT
to the Members of Renold plc
Opinion on financial statements of Renold plc
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 2017
and of the Group’s profit for the year then ended;
Æ the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (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, including FRS 101 ‘Reduced Disclosure Framework’; 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.
The financial statements that we have audited comprise:
Æ the consolidated statement of comprehensive income;
Æ the consolidated and parent company balance sheets;
Æ the consolidated and parent company statements of changes in equity;
Æ the consolidated statement of cash flows;
Æ the related Group accounting policies and Notes 1 to 26; and
Æ the related Parent Company Notes i to xiv.
The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law and 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), including FRS 101 ‘Reduced Disclosure Framework’.
Summary of our audit approach
Key risks
The key risks that we identified in the current year were:
Æ The carrying value of inventory
Æ Impairment of goodwill and intangible assets
Æ Defined benefit pension scheme accounting
Æ Deferred tax asset recognition
Materiality
Scoping
We determined materiality for the Group to be £455,000 which is 5% of adjusted pre-tax profit.
We focused our Group audit scope primarily on the audit work at 14 locations (2016: 14 locations). 7 (2016:
7) of these were subject to a full audit, 5 (2016: 5) were subject to an audit of specified account balances and
the remaining 2 (2016: 2) were subject to review procedures.
Significant changes in our
approach
Apart from the acquisition risk from the prior year which has not been included in the current year, there
have been no significant changes in our audit approach.
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FINANCIAL STATEMENTS
Going Concern and the directors’ assessment of the principal risks that would threaten the solvency or liquidity
of the Group
As required by the Listing Rules we have reviewed the directors’ statement regarding
the appropriateness of the Going Concern basis of accounting contained within the
Accounting Policies on page 113 to the financial statements and the Directors’ statement
on the longer-term viability of the Group contained within the Strategic Report on page
47.
We are required to state whether we have anything material to add or draw attention to
in relation to:
Æ the Directors’ confirmation on page 47 that they have carried out a robust assessment
of the principal risks facing the Group, including those that would threaten its business
model, future performance, solvency or liquidity;
Æ the disclosures on pages 40 to 47 that describe those risks and explain how they are
being managed or mitigated;
Æ the Directors’ statement in the accounting policies to the financial statements about
whether they considered it appropriate to adopt the Going Concern basis of accounting
in preparing them and their identification of any material uncertainties to the Group’s
ability to continue to do so over a period of at least twelve months from the date of
approval of the financial statements; and
Æ the Directors’ explanation on page 47 as to how they have assessed the prospects of
the Group, over what period they have done so and why they consider that period to
be appropriate, and their statement as to whether they have a reasonable expectation
that the Group will be able to continue in operation and meet its liabilities as they fall
due over the period of their assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
Independence
We are required to comply with the Financial Reporting Council’s Ethical Standards for
Auditors and confirm that we are independent of the Group and we have fulfilled our other
ethical responsibilities in accordance with those standards.
We confirm that we have nothing material to
add or draw attention to in respect of these
matters.
We agreed with the Directors’ adoption
of the Going Concern basis of accounting
and we did not identify any such material
uncertainties. However, because not all
future events or conditions can be predicted,
this statement is not a guarantee as to
the Group’s ability to continue as a Going
Concern.
We confirm that we are independent of
the Group and we have fulfilled our other
ethical responsibilities in accordance with
those standards. We also confirm we have
not provided any of the prohibited non-audit
services referred to in those standards.
Our assessment of risks of material misstatement
The assessed risks of material misstatement described below are those that had the greatest effect on our audit strategy, the allocation of
resources in the audit and directing the efforts of the engagement team.
The acquisition of Aventics Tooth Chain is a risk which we commented on in our 2016 report which we have not included in 2017 due to no
further acquisitions being made by the Group.
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INDEPENDENT AUDITOR'S REPORT
to the Members of Renold plc
The carrying value of inventory
Risk description
As shown in Note 11 the Group holds inventory of £40.4m (2016:£36.3m). As discussed on page 72, management
judgement is applied to the cost of inventories in order to accurately reflect the manufacturing costs incurred in
bringing them to their current condition and physical location. This primarily relates to the assessment of direct
labour costs incurred, manufacturing overheads to be absorbed and other relevant production costs.
How the scope of our
audit responded to
the risk
A risk surrounding the carrying value of inventory when compared to the net realisable value as a result of
inadequate provisioning has also been identified. Establishing a provision for slow-moving, obsolete and damaged
inventory involves estimates and judgements, taking into account forecast sales and historical usage information.
We evaluated the design and implementation of key controls relating to the assessment of inventory valuation
and inventory provisioning;
On a sample basis, we have performed the following audit procedures:
Æ Agreed the cost of raw materials to third party supplier invoices;
Æ For work in progress and finished goods, we obtained the bill of material and tested the underlying costs
within each stock item. We challenged the key assumptions concerning overhead absorption by assessing the
appropriateness of costs included in the calculation;
Æ Reviewed the overheads absorbed to determine whether they were allowable under IAS 2 and appropriately
recognised. We agreed the estimated overheads to actual overheads incurred in the year to assess whether
they were materially different;
Æ Assessed the net realisable value (NRV) on a sample basis of stock items by agreeing their subsequent sales
price to customer invoices to ensure that the items were being held at the lower of cost and NRV;
Æ Gained an understanding of the movements in the inventory provision year on year and an assessment of the
scale of the provision in comparison to the gross stock value, to determine whether there are any unusual
transactions;
Æ Recalculated the value of the provision based on a sample of items; and
Æ Where manual adjustments have been made to the provision, we have understood these by gaining supporting
documentation.
Impairment of goodwill and intangible assets
Risk description
The goodwill £26.4m (2016: £22.7m) and intangible assets £9.7m (2016: £10.3m) balance shown in Note 7
principally relates to Jeffrey Chain and are supported by an annual impairment review. Other intangibles as shown
in Note 8 amount to £9.7m comprising largely of computer software of £6.5m (2016: £6.1m).
As discussed on page 72, the risk identified is in respect of Management’s judgements in relation to the financial
forecasts of the business units, discount rates and perpetuity growth rates used to determine the value in use of
the cash generating units which are subjective and could lead to an impairment charge if incorrect.
How the scope of our
audit responded to
the risk
Æ We assessed the design and implementation of key controls concerning management’s impairment review
process;
Æ We have evaluated the future cash flow forecasts and the process by which they are drawn up, including
confirming the accuracy of the underlying calculations and checking whether the forecasts are consistent with
the latest Board approved forecasts;
Æ We assessed the historical accuracy of management’s budgets and forecasts by comparing them to actual
performance and verifying the mathematical accuracy of the cash flow models;
Æ We utilised our specialists to assess the appropriateness of the discount rate derived from a Weighted Average
Cost of Capital (WACC) applied by management in their discounted cash flows;
Æ We challenged the underlying assumptions and significant judgements used in management’s impairment
model by examining the results of management’s sensitivity analysis around long-term growth rates
and discount rates to ascertain the extent of change in those assumptions that would be required for an
impairment to be recognised; and
Æ We also assessed whether the disclosures in the accounting policies of the financial statements appropriately
disclose the key judgements taken so that the reader of the financial statements is aware of the impact of the
financial statement of changes to key assumptions that may lead to impairment.
104
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FINANCIAL STATEMENTS
Defined benefit pension scheme accounting
Risk description
The Group have a number of defined benefit pension schemes that are in a net deficit position of £102.0m as
shown in Note 18 which is significant both in the context of the overall balance sheet and the results of the Group.
As described on page 72, the valuation of the pension liability requires significant levels of judgement and
technical expertise in choosing appropriate assumptions, a number of which can be volatile. Changes in the
number of the key assumptions (including salary increases, inflation, discount rates and mortality) can have a
material impact on the calculation of the liability.
How the scope of
our audit responded
to the risk
Æ We assessed the design and implementation of key controls concerning management’s valuation process;
Æ We challenged the discount rate and inflation rates used in the valuation of the pensions liabilities by
comparison to our internally developed expectations using our actuarial expertise and compared the
assumptions around salary increases and mortality to national and industry averages; and
Æ We evaluated the sensitivity of the pension scheme deficits to differences between our independent
judgements and those made by the Directors, both individually and in aggregate.
Deferred tax asset recognition
Risk description
The Group has a net deferred tax asset (DTA) of £20.6m (2016: £16.7m) and an unrecognised DTA of £26.2m (2016:
£21.7m). IAS 12 states that a DTA shall be recognised for the carry forward of unused tax losses and unused tax
credits to the extent that it is probable that future taxable profit will be available against which the unused tax
losses and unused tax credits can be utilised.
How the scope of
our audit responded
to the risk
As described on page 72, the key judgement in this area is that there will be sufficient future taxable profits
available against which the unused tax losses and future pension deductions can be utilised.
Æ We evaluated the design and implementation of key controls relating to the assessment of the future
profitability of the Group;
Æ We challenged management’s assumptions used in the forecast model by using our knowledge of the Group
and the industry in which it operates;
Æ In assessing Management’s judgements we have considered, amongst other things, historical levels of taxable
profits, the historical accuracy of forecasts, and the growth forecasts used by the Group. This included critically
assessing the assumptions and judgements made by the Directors in those growth forecasts, by using our
knowledge of the Group and the industry in which it operates;
Æ We used our own tax specialists to assist in assessing and challenging the assumptions and judgements made
by the Directors; and
Æ We also assessed the adequacy of the Group’s disclosures setting out the basis of the deferred tax balance and
the level of estimation involved.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and
we do not provide a separate opinion on these matters.
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of
a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and
in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group materiality
£455,000 (2016: £480,000)
Basis for determining
materiality
5% of adjusted pre-tax profit (as defined on page 108) was the basis for which materiality was determined,
which is consistent with the prior year. Pre-tax profit has been adjusted for exceptional items of £1.7m
(2016: £2.2m) which are considered to be one-off in nature as per Note 2(c).
Rationale for the
benchmark applied
We have used adjusted pre-tax profit as we deem this an appropriate benchmark which better reflects the
underlying performance of the business and reduces the risk of volatility.
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105
INDEPENDENT AUDITOR'S REPORT
to the Members of Renold plc
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £23,000 (2016: £20,500),
as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. The change in the reporting
threshold has been made following our reassessment of what matters require communicating. We also report to the Audit Committee on
disclosure matters that we identified when assessing the overall presentation of the financial statements.
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide controls, and
assessing the risks of material misstatement at the Group level. Based on that assessment, we focused our Group audit scope primarily on
the audit work at 14 locations (2016: 14 locations). 7 (2016: 7) of these were subject to a full audit, 5 (2016: 5) were subject to an audit of
specified account balances where the extent of our testing was based on our assessment of the risks of material misstatement and of the
materiality of the Group’s operations at those locations. The remaining 2 (2016: 2) were subject to review procedures. These 14 locations
represent the principal business units and account for 100% (2016: 100%) of the Group’s revenue. They were also selected to provide an
appropriate basis for undertaking audit work to address the risks of material misstatement identified above. Our audit work at the 14
locations was executed at levels of materiality applicable to each individual entity which were lower than Group materiality and ranged
from £225,000 to £247,500.
At the Parent entity level we also tested the consolidation process and carried out analytical procedures to confirm our conclusion that
there were no significant risks of material misstatement of the aggregated financial information of the remaining components not subject
to audit or audit of specified account balances.
The Group audit team follow a programme of planned visits that has been designed so that a senior member of the Group audit team visits
each of the locations where the Group audit scope was focused at least once every two years and the most significant of them at least
once a year. In years when we do not visit a significant component we will include the component audit team in our team briefing, discuss
their risk assessment, and review documentation of the findings from their work. During the current year audit, a senior member of the
Group audit team visited two locations in the US and Germany.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
Æ the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006;
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; and
Æ the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not
identified any material misstatements in the Strategic Report and the Directors’ Report.
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
Æ we have not received all the information and explanations we require for our audit; or
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 are not in agreement with the accounting records and
returns.
We have nothing to report in
respect of these matters.
Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of
directors’ remuneration have not been made or the part of the Directors’ Remuneration Report to be
audited is not in agreement with the accounting records and returns.
We have nothing to report
arising from these matters.
Corporate Governance Statement
Under the Listing Rules we are also required to review part of the Corporate Governance Statement
relating to the company’s compliance with certain provisions of the UK Corporate Governance Code.
We have nothing to report
arising from our review.
106
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FINANCIAL STATEMENTS
Our duty to read other information in the Annual Report
Under International Standards on Auditing (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
We confirm that we have
not identified any such
inconsistencies or misleading
statements.
acquired in the course of performing our audit; or
Æ 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.
Respective responsibilities of directors and auditor
As explained more fully in the Directors’ Responsibilities Statement, 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). We also comply with International
Standard on Quality Control 1 (UK and Ireland). Our audit methodology and tools aim to ensure that our quality control procedures are
effective, understood and applied. Our quality controls and systems include our dedicated professional standards review team and
independent partner reviews.
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.
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 and the parent company’s circumstances and have been consistently
applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall
presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report 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.
Simon Manning FCA
(Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
Leeds, United Kingdom
30 May 2017
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107
CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
for the year ended 31 March 2017
Revenue
Operating costs
Operating profit
Operating profit is analysed as:
Before adjusting items
Exceptional costs
Amortisation of acquired
intangible assets
Pension administration costs
Operating profit
Financial costs
Net IAS 19 financing costs
Discount on provisions
Net financing costs
Profit before tax
Taxation
Profit for the financial year
Note
1
2
2
3
4
Other comprehensive income/(expense):
Items that may be reclassified to the
income statement in subsequent
periods:
Foreign exchange translation
differences
Foreign exchange differences on loans
hedging the net investment in foreign
operations
Items not to be reclassified to the
income statement in subsequent
periods:
Remeasurement losses on retirement
benefit obligations
Tax on remeasurement losses 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
Earnings per share
Basic earnings per share
Diluted earnings per share
5
All results are from continuing operations.
2017
Statutory
£m
183.4
(172.4)
11.0
2017
Adjustments
£m
–
3.5
3.5
2017
Adjusted1
£m
183.4
(168.9)
14.5
2016
Statutory
£m
165.2
(154.1)
11.1
2016
Adjustments
£m
–
3.1
3.1
2016
Adjusted1
£m
165.2
(151.0)
14.2
11.0
–
–
–
11.0
(1.7)
(2.5)
(0.1)
(4.3)
6.7
(1.9)
4.8
9.8
(0.9)
8.9
(19.0)
2.1
(16.9)
(8.0)
(3.2)
(3.2)
–
(3.2)
2.1p
2.1p
–
1.7
1.1
0.7
3.5
–
2.5
0.1
2.6
6.1
(0.4)
5.7
–
–
–
–
–
–
–
5.7
5.7
–
5.7
2.5p
2.5p
11.0
1.7
1.1
0.7
14.5
(1.7)
–
–
(1.7)
12.8
(2.3)
10.5
9.8
(0.9)
8.9
(19.0)
2.1
(16.9)
(8.0)
2.5
2.5
–
2.5
4.6p
4.6p
11.1
–
–
–
11.1
(1.5)
(2.0)
(0.2)
(3.7)
7.4
(2.0)
5.4
1.2
(0.2)
1.0
(8.1)
(0.5)
(8.6)
(7.6)
(2.2)
(2.3)
0.1
(2.2)
2.4p
2.3p
–
2.2
0.2
0.7
3.1
–
2.0
0.2
2.2
5.3
(0.2)
5.1
–
–
–
–
–
–
–
5.1
5.1
–
5.1
2.3p
2.3p
11.1
2.2
0.2
0.7
14.2
(1.5)
–
–
(1.5)
12.7
(2.2)
10.5
1.2
(0.2)
1.0
(8.1)
(0.5)
(8.6)
(7.6)
2.9
2.8
0.1
2.9
4.7p
4.6p
1 Adjusted for the after tax effects of pension administration costs, exceptional items, changes in the provision discounts, IAS 19 financing costs, and amortisation of
acquired intangible assets.
108
Renold plc Annual Report and Accounts 2017 for the year ended 31 March 2017
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CONSOLIDATED BALANCE SHEET
as at 31 March 2017
FINANCIAL STATEMENTS
ASSETS
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Deferred tax assets
Current assets
Inventories
Trade and other receivables
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 30 May 2017 and signed on its behalf by:
Robert Purcell
Chief Executive
Ian Scapens
Finance Director
Note
7
8
9
17
11
12
13
10
14
15
25
16
14
14
15
17
18
16
19
21
21
21
2017
£m
26.4
9.7
47.2
20.9
104.2
40.4
36.8
16.4
93.6
0.3
93.9
198.1
(0.8)
(41.9)
(4.2)
(0.1)
(3.6)
(50.6)
43.3
(32.5)
(0.5)
(0.3)
(0.3)
(102.0)
(4.1)
(139.7)
(190.3)
7.8
26.7
30.1
12.2
1.0
(64.9)
5.1
2.7
7.8
2016
£m
22.7
10.3
44.4
17.0
94.4
36.3
30.5
13.5
80.3
1.0
81.3
175.7
(0.9)
(36.2)
(2.2)
(0.1)
(1.7)
(41.1)
40.2
(35.6)
(0.5)
(0.3)
(0.3)
(82.9)
(4.5)
(124.1)
(165.2)
10.5
26.6
29.9
3.3
1.0
(53.0)
7.8
2.7
10.5
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109
CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY
for the year ended 31 March 2017
At 31 March 2015
Profit for the year
Other comprehensive income/(expense)
Total comprehensive income/(expense) for the year
Employee share options:
– value of employee services
At 31 March 2016
Profit for the year
Other comprehensive income/(expense)
Total comprehensive income/(expense) for the year
Proceeds from share issue
Employee share options:
– value of employee services
At 31 March 2017
Share
capital
£m
Note 19
26.6
–
–
–
Share
premium
account
£m
29.9
–
–
–
Retained
earnings
£m
Note 21
(50.8)
5.3
(8.6)
(3.3)
Currency
translation
reserve
£m
Note 21
2.3
–
1.0
1.0
Other
reserves
£m
Note 21
1.0
–
–
–
Attributable
to owners
of parent
£m
Note 21
9.0
5.3
(7.6)
(2.3)
Non-
controlling
interests
£m
2.6
0.1
–
0.1
–
26.6
–
–
–
0.1
–
26.7
–
29.9
–
–
–
0.2
–
30.1
1.1
(53.0)
4.8
(16.9)
(12.1)
–
0.2
(64.9)
–
3.3
–
8.9
8.9
–
–
12.2
–
1.0
–
–
–
–
–
1.0
1.1
7.8
4.8
(8.0)
(3.2)
0.3
0.2
5.1
–
2.7
–
–
–
–
–
2.7
Total
equity
£m
11.6
5.4
(7.6)
(2.2)
1.1
10.5
4.8
(8.0)
(3.2)
0.3
0.2
7.8
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CONSOLIDATED STATEMENT
OF CASH FLOWS
for the year ended 31 March 2017
Cash flows from operating activities (Note 24)
Cash generated from operations
Income taxes paid
Net cash from operating activities
Cash flows from investing activities
Proceeds from property disposals
Purchase of property, plant and equipment
Purchase of intangible assets
Consideration paid for acquisition
Net cash from investing activities
Cash flows from financing activities
Financing costs paid
Proceeds from share issue
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)
FINANCIAL STATEMENTS
2017
£m
8.4
(1.0)
7.4
10.2
(8.4)
(1.2)
–
0.6
(1.5)
0.2
–
(4.5)
(5.8)
2.2
12.4
0.8
15.4
2016
£m
11.8
(1.0)
10.8
–
(7.9)
(1.6)
(3.7)
(13.2)
(1.8)
–
4.5
(0.5)
2.2
(0.2)
12.2
0.4
12.4
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ACCOUNTING POLICIES
To aid the reader of the financial statements, certain accounting
policies can be found in the relevant notes.
Basis of preparation
Statement of compliance
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's 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 Parent Company has elected to prepare its parent company
financial statements in accordance with FRS 101; these are
presented on pages 147 to 155. The financial statements were
approved by the Board on 30 May 2017.
Basis of accounting
The consolidated financial statements have been prepared under
the historical cost convention, except where otherwise indicated.
The accounting policies as set out below have been applied
consistently to all periods presented in these consolidated financial
statements.
Functional and presentation currency
These consolidated financial statements are presented in Pounds
Sterling which is the Group’s functional currency.
Foreign currency translation
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
Pounds Sterling at the exchange rates ruling at the end of the
financial year. Income statements and cash flows are translated
at the appropriate average rates of exchange for the year.
Differences on exchange arising on the retranslation of net assets
in overseas subsidiaries, 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.
Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the Company and the entities controlled by the
Company made up to 31 March each year.
Business combinations are accounted for using the acquisition
method. The consideration transferred for the acquisition of a
subsidiary is the fair value of the assets transferred, the liabilities
incurred and equity interests issued by the Group in exchange
for control of the acquired entity. Consideration transferred also
includes the fair value of any asset or liability resulting from a
contingent consideration arrangement. Acquisition related costs are
expensed in operating costs as incurred. All identifiable assets and
liabilities acquired and contingent liabilities assumed are initially
measured at their fair values at the acquisition date.
The excess of the consideration transferred, the amount of any
non-controlling interest and the acquisition date fair value of any
previously held equity interest in the acquired entity as compared
with the Group’s share of the identifiable net assets are recognised
as goodwill. Where the Group’s share of identifiable net assets
acquired exceeds the total consideration transferred, a gain from
a bargain purchase is recognised immediately in the income
statement after the fair values initially determined have been
reassessed.
(a) Subsidiaries
Subsidiaries are entities that are controlled by the Group. Control
is exerted where the Group has the power to govern, directly
or indirectly, the financial and operating policies of the entity
so as to obtain economic benefits from its activities. Typically, a
shareholding of more than 50% of the voting rights is indicative of
control. However, the impact of potential voting rights currently
exercisable is taken into consideration.
The financial statements of subsidiaries are included in the
consolidated financial statements of the Group from the date that
control is obtained to the date that control ceases. The accounting
policies of new subsidiaries are changed where necessary to align
them with those of the Group.
Non-controlling interests in the net assets of consolidated
subsidiaries are identified separately from the Group’s equity
therein. They are initially measured at the non-controlling interest's
share of the net fair value of the assets and liabilities recognised or
at fair value, as determined on an acquisition by acquisition basis.
Subsequent to acquisition, non-controlling interests consist of
the amount of those interests at the date of the original business
combination and the non-controlling interest’s share of the changes
in equity since the date of the combination.
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FINANCIAL STATEMENTS
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 (xiv) 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 Renold Pension Scheme
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 pension scheme
is 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.
(b) Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income
and expense arising from intra-group transactions, are eliminated
in preparing the consolidated financial statements. Unrealised
gains arising from transactions with equity accounted investments
are eliminated to the extent of the Group’s interest in that
investment. Unrealised losses are eliminated in the same way as
unrealised gains, but only to the extent that there is no evidence of
impairment.
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 8 to 55.
The financial position of the Group, its cash flows, liquidity position
and borrowing facilities are described in the Strategic Report on
pages 8 to 55. In addition, Note 25 to the financial statements
includes the Group’s objectives, policies and processes for managing
its capital, its financial risk management objectives, details of its
financial instruments and hedging activities and its exposure to
foreign exchange, credit and interest rate risk. Further details of the
Group’s cash balances and borrowings are included in Notes 13, 14
and 25 of the financial statements. There were no significant post
balance sheet events to report (see Note 26).
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.
Revenue
Revenue comprises the invoiced value for the sale of goods net of
sales rebates, discounts, VAT and other sales related taxes and after
eliminating sales within the Group. Revenue is recognised when the
outcome of a transaction can be measured reliably and when it is
probable that the economic benefits from the transaction will flow
to the Group. Revenue is recognised on the following basis:
(a) Sale of goods
Revenue is recognised on the sale of goods when the risks and
rewards of ownership have transferred from the Group to the
customer. This is normally the point of despatch to the customer
when title passes.
(b) Sales rebates and discounts
These comprise customer discounts and rebates which are sales
incentives to customers to encourage them to purchase increased
volumes and are related to total volumes purchased and sales
growth or incentives for early payment. They are recognised in
the same period as the sales to which they relate based upon
management’s best estimate of the amount necessary to meet
claims made by the Group’s customers in respect of these rebates
and discounts.
(c) Discounts received from suppliers
These comprise rebates and discounts received from suppliers as
incentives to purchase increased volume or early settlement of
amounts payable. They are recognised within operating costs over
the period to which the contract or purchase relates.
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ACCOUNTING POLICIES
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 which 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.
(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. An additional
onerous lease provision was created in the year following the sale
and leaseback of the Australian Mulgrave facility. For further details
refer to Notes 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.
Adoption of new and revised standards
(i) New and revised accounting standards adopted by the Group
During the year, the Group has adopted the following new and
revised standards and interpretations. Their adoption has not had
any significant impact on the amounts or disclosures reported in
these financial statements.
Æ IAS 1 (amended) ‘Presentation of Financial Statements’. The
amendment addresses perceived impediments to preparers
exercising their judgement in presenting their financial reports.
Æ IAS 16 (amended) ‘Property, Plant and Equipment’. This
amendment clarifies that depreciation methods based on
revenue are inappropriate and adds guidance that expected
future reductions in the selling price of an item produced
using an asset could indicate the expectation of technological
or commercial obsolescence, which, in turn, might reflect a
reduction of the future economic benefits embodied in the asset.
Æ IAS 19 (amended) ‘Employee Benefits’. As part of the 2012–2014
cycle of the Annual Improvements Project, this standard was
amended to clarify that the high quality corporate bonds used
in estimating the discount rate for post-employment benefits
should be denominated in the same currency as the benefits to
be paid.
Æ IAS 27 (revised) ‘Separate Financial Statements’. This revision
introduces new disclosure requirements for investment entities.
Æ IAS 28 (amended) ‘Investments in Associates and Joint Ventures
(2011)’. This amendment clarifies that, when applying the equity
method to an associate or a joint venture, a non-investment
entity investor in an investment entity may retain the fair value
measurement applied by the associate or joint venture to its
interests in subsidiaries.
Æ IAS 38 (amended) ‘Intangible Assets’. This amendment clarifies
that amortisation methods based on revenue are inappropriate
except in limited circumstances.
Æ IFRS 5 (amended) ‘Non-current Assets Held for Sale and
Discontinued Operations’. As part of the 2012–2014 cycle of the
Annual Improvements Project, this standard was amended to
add specific guidance for cases in which an entity re-classifies an
asset from held for sale to held for distribution or vice versa and
cases in which held for distribution accounting is discontinued.
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FINANCIAL STATEMENTS
Æ IFRS 7 (amended) ‘Financial Instruments: Disclosures’. As part of
the 2012–2014 cycle of the Annual Improvements Project, this
standard was amended to clarify whether a servicing contract is
continuing involvement in a transferred asset, and clarification
on offsetting disclosures in condensed interim financial
statements.
Æ IFRS 10 (amended) ‘Consolidated Financial Statements’.
This amendment clarifies the exemptions from preparing
consolidated financial statements for a parent entity that is a
subsidiary of an investment entity.
Æ IFRS 11 ‘Joint Arrangements’. This standard establishes the
principles for financial reporting by entities that have an interest
in arrangements that are controlled jointly.
Æ IFRS 12 (amended) ‘Disclosure of Interests in Other Entities’. This
amendment clarifies that a subsidiary that provides services
related to the parent’s investment activities should not be
consolidated if the subsidiary is an investment entity. In addition,
the amendment clarifies that an investment entity measuring
all of its subsidiaries at fair value should provide the disclosures
relating to investment entities.
(ii) New and revised accounting standards and interpretations
which were in issue but were not yet effective and have not been
adopted early by the Group
At the date of publishing these financial statements the following
new and revised standards and interpretations were in issue
but were not yet effective (and in some cases had not yet been
adopted by the EU). None of these new and revised standards and
interpretations have been adopted early by the Group:
Æ Annual improvements 2012–2014 cycle
Æ Annual improvements 2014–2016 cycle
Æ IAS 7 (amended) ‘Statement of Cash Flows’
Æ IAS 12 (amended) ‘Income Taxes’
Æ IFRS 2 ‘Share-based Payment’
Æ IFRS 9 ‘Financial Instruments’
Æ IFRS 14 ‘Regulatory Deferral Accounts’
Æ IFRS 15 ‘Revenue from Contracts with Customers’
Æ IFRS 16 (amended) ‘Leases’
Æ IFRIC 22 ‘Foreign Currency Transactions and Advance
Consideration’.
The Directors are in the process of assessing the potential impact
of IFRS 15 on both revenue recognition and disclosure requirements
and the impact of IFRS 16 on liability recognition and disclosure
requirements. With the exception of IFRS 15 and 16, the Directors
do not expect that the adoption of the standards listed above will
have a material impact on the financial statements of the Group in
future periods.
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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
products 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. Disclosure has not been included in respect of the operating assets of each segment as they are
not reported to the CODM on a regular basis. 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 2017
Revenue
External customer
Inter-segment(1)
Total revenue
Adjusted operating profit/(loss)
Pension administration costs
Exceptional items
Amortisation of acquired intangible assets
Operating profit/(loss)
Net financing costs
Profit before tax
Other disclosures
Working capital(3)
Capital expenditure(4)
Depreciation and amortisation
Year ended 31 March 2016
Revenue
External customer
Inter-segment(1)
Total revenue
Adjusted operating profit/(loss)
Pension administration costs
Exceptional items
Amortisation of acquired intangible assets
Operating profit/(loss)
Net financing costs
Profit before tax
Other disclosures
Working capital(3)
Capital expenditure(4)
Depreciation and amortisation
Torque
Transmission
£m
Head office
costs and
eliminations
£m
Consolidated
£m
37.3
4.1
41.4
3.9
–
(3.1)
–
0.8
10.0
4.0
1.2
–
(4.4)
(4.4)
(6.0)
(0.7)
(0.1)
–
(6.8)
(1.5)
1.1
1.8
183.4
–
183.4
14.5
(0.7)
(1.7)
(1.1)
11.0
(4.3)
6.7
35.0
10.9
7.9
Torque
Transmission
£m
Head office
costs and
eliminations
£m
Consolidated
£m
38.4
2.7
41.1
5.0
–
(1.2)
–
3.8
8.8
1.9
1.1
–
(2.7)
(2.7)
(6.2)
(0.7)
(0.6)
–
(7.5)
(2.2)
1.8
1.4
165.2
–
165.2
14.2
(0.7)
(2.2)
(0.2)
11.1
(3.7)
7.4
30.3
8.8
6.0
Chain(2)
£m
146.1
0.3
146.4
16.6
–
1.5
(1.1)
17.0
26.5
5.8
4.9
Chain(2)
£m
126.8
–
126.8
15.4
–
(0.4)
(0.2)
14.8
23.7
5.1
3.5
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FINANCIAL STATEMENTS
1. Segmental information continued
The Group uses a variety of alternative performance measures, which are non-IFRS, to assess the performance of its operations. The
Group considers these performance measures to provide useful historical financial information to help investors evaluate the underlying
performance of the business by adjusting for volatility created by one-off items and non-trading performance related costs such as
amortisation and legacy pensions costs.
The two consistently applied performance measures which are disclosed within this annual report and accounts include adjusted results
and underlying results.
Adjusted results exclude the impact of exceptional items, pension financing charges, pension administration costs and the amortisation
of acquired intangible assets and the tax thereon. A reconciliation of these results is shown on the face of the consolidated statement of
comprehensive income and in the tables opposite. Adjusted profit of £14.5m is derived from the statutory profit of £11.0m.
Underlying results are retranslated to current year exchange rates and therefore only prior year comparatives would be deemed an
alternative performance measure. A reconciliation is provided below.
Year ended 31 March 2016
Revenue
External customer
Foreign exchange
Underlying external sales
Adjusted operating profit/(loss)
Foreign exchange
Underlying adjusted operating profit/(loss)
Chain(2)
£m
Torque
Transmission
£m
Head office
costs and
eliminations
£m
Consolidated
£m
126.8
16.2
143.0
15.4
2.4
17.8
38.4
3.3
41.7
5.0
0.2
5.2
–
–
–
(6.2)
–
(6.2)
165.2
19.5
184.7
14.2
2.6
16.8
1.
2.
3.
Inter-segment revenues are eliminated on consolidation.
Included in Chain external sales is £4.7m (2016: £3.8m) 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.
4. Capital expenditure consists of additions to property, plant and equipment and intangible assets.
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
2017
%
7.5
31.0
37.0
10.0
3.9
4.2
6.4
100.0
2016
%
9.1
27.3
38.8
10.2
4.4
3.8
6.4
100.0
2017
£m
13.8
56.9
67.9
18.3
7.1
7.7
11.7
183.4
2016
£m
15.0
45.2
64.2
16.8
7.3
6.2
10.5
165.2
2017
£m
14.8
18.8
37.2
3.0
3.1
5.7
0.7
83.3
2016
£m
14.0
17.6
30.5
6.6
3.0
5.1
0.6
77.4
2017
364
576
327
133
293
425
65
2,183
2016
364
523
341
144
342
459
59
2,232
All revenue relates to the sale of goods and services. No individual customer, or group of customers, represents more than 10% of Group
revenue (2016: Nil).
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.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
2. Operating costs and exceptional items
(a) Operating profit is stated after charging/(crediting):
Change in finished goods and work in progress
Raw materials and consumables
Other external charges
Employee costs
Gross wages and salaries
Social security costs
Pension costs
– defined benefit (Note 18)
– defined contribution (Note 18)
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
Loss on disposal of property, plant and equipment
Research and development expenditure
Auditor's remuneration (Note 2(b))
Trade receivables impairment
Foreign exchange
Operating costs before adjusting items
Adjusting items and exceptional items (Note 2(c))
Pension administration costs
Amortisation of acquired intangible assets
Exceptional items
Adjusting items
Total operating costs
(b) Auditor's remuneration
Audit of the Group’s annual financial statements
Audit of the Company’s subsidiaries
Total audit fees
This is analysed in the following captions in the financial statements:
Operating costs
2017
£m
59.8
6.0
0.3
1.3
0.2
0.5
1.3
2017
£m
(0.9)
63.8
27.5
67.6
4.9
1.9
1.8
–
0.3
1.0
0.5
–
0.5
168.9
0.7
1.1
1.7
3.5
172.4
2016
£m
51.2
5.4
0.1
1.3
1.1
0.3
0.8
2017
£000
Total
200
283
483
483
483
2016
£m
0.4
57.3
25.8
59.1
4.2
1.6
1.1
(0.4)
0.2
1.1
0.4
0.1
0.1
151.0
0.7
0.2
2.2
3.1
154.1
2016
£000
Total
160
192
352
352
352
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FINANCIAL STATEMENTS
2. Operating costs and exceptional items continued
(c) Adjusting items and exceptional items
Accounting Policy
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 an 'adjusting item' on the face of the income statement.
Included in operating costs
Acquisition costs – Renold Tooth Chain
STEP 2020 restructuring costs
Net gain on sale of Australian property
Net pension settlement gains (Note 18)
Property impairments
Exceptional items
Pension administration costs
Amortisation of acquired intangible assets (Note 8)
Adjusting items
Included in net financing costs
Discount unwind on onerous lease provision
Net IAS 19 financing costs
2017
£m
0.3
4.3
(2.9)
–
–
1.7
0.7
1.1
3.5
2017
£m
0.1
2.5
2.6
2016
£m
0.4
2.5
–
(1.2)
0.5
2.2
0.7
0.2
3.1
2016
£m
0.2
2.0
2.2
As part of the acquisition of the Renold Tooth Chain business completed in the prior year, the Group was obliged to pay for some
transitional services provided by the seller’s group until the business migrated to Renold's IT systems. Costs of £0.3m were incurred until
migration was completed in December 2016 and have now ceased.
Various restructuring costs were incurred in the year as part of the STEP 2020 Strategic Plan. The European distribution and sales
operations were relocated with the sales functions transferred to a nearby rented office in Lille, France and the European distribution
operations moved to a new warehouse in Uslar, Germany located close to the Einbeck Chain manufacturing factory. These moves resulted
in redundancy and restructuring costs of £0.6m. The former European distribution site at Seclin, France was sold for £1.0m resulting in no
gain or loss on disposal following the £0.5m impairment charge incurred in the prior year.
Also in the year, redundancy and restructuring costs of £2.5m were incurred transferring the HiTec Couplings business, located in Halifax,
to our existing Couplings facility in Cardiff. As a result of this transfer, the Halifax property is now held for sale at a value of £0.3m (sold on
15 May 2017 - see Note 10). The increased manufacturing capability at the Cardiff site permitted the closure of the China Couplings facility
with manufacturing moving to Cardiff and South Africa. This incurred redundancy and restructuring costs of £0.6m in the year.
A further restructuring cost of £0.4m was incurred in the year as we commenced a multi-year project to transfer the China Chain
manufacturing facility from leased premises in Hangzhou to a purpose-built facility near Changzhou in Jiangsu province. Other
restructuring costs included £0.1m incurred following the relocation of the Malaysian manufacturing facility into larger premises and £0.1m
of other STEP 2020 restructuring incurred in the year.
In March 2017, the Mulgrave manufacturing facility in Australia was sold realising net proceeds of £9.3m resulting in a gain on disposal net
of associated costs of £2.9m. As part of the sale agreement, Renold can remain as a tenant and retain full use of the property for three
years until March 2020 at which point the property must be vacated.
Prior year restructuring costs included £0.5m incurred at the Milnrow facility, where the business was downsized following the end of a
long-term supply agreement (offshored by the customer), £0.6m of costs related to the relocation of the head office and £1.4m of other
STEP 2020 restructuring costs incurred in the year.
Also in the prior year, a past service credit of £1.3m arose in Germany following the confirmation that the pension scheme was properly
closed to future accrual with effect from 2014. This was offset by a £0.1m settlement loss relating to the liquidation of the Australian
pension scheme.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
2. Operating costs and exceptional items continued
(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:
Statutory Directors’ remuneration
Share-based payments
Social security costs
Total
2017
£000
892
(57)
114
949
2016
£000
777
531
144
1,452
The remuneration listed in the table above differs from the single total figure table in the Directors’ Remuneration Report on page 89 for
the following reasons:
Æ Only pensions payable directly to pension schemes are included in the post employment benefits in the table on page 89. £70,000
(2016: £73,000) of additional cash payments for pensions paid indirectly were included in Directors’ remuneration;
Æ it excludes LTIPs vested in the form of share options; and
Æ it includes £111,375 in respect of payments on leaving the Company.
Further details of the remuneration of Directors are provided in the Directors’ Remuneration Report on pages 78 to 94.
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 2017 was 2,139 (2016: 2,187).
3. Net financing costs
Accounting Policy
Borrowing costs are expensed in the period they occur and consist of interest and other costs that an entity incurs in connection with the
borrowing of funds.
Financing 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
2017
£m
(1.5)
(0.2)
(1.7)
(2.5)
(0.1)
(4.3)
2016
£m
(1.3)
(0.2)
(1.5)
(2.0)
(0.2)
(3.7)
4. Taxation
Accounting Policy
The tax charge included in the income statement 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 using the liability method, providing for temporary differences arising between the tax bases of assets
and liabilities and their carrying amounts in the consolidated financial statements. The amount of deferred tax provided is calculated
using tax rates enacted or substantively enacted at the balance sheet date.
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 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 tax balances are analysed in Note 17.
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4. Taxation continued
Analysis of tax charge in the year
United Kingdom
UK corporation tax at 20% (2016: 20%)
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 (credit)/charge
Tax charge on profit 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
FINANCIAL STATEMENTS
2017
£m
–
2.8
0.1
2.9
(0.3)
(0.7)
(1.0)
1.9
2017
£m
(2.1)
(2.1)
2016
£m
–
1.4
0.1
1.5
(0.3)
0.8
0.5
2.0
2016
£m
0.5
0.5
Factors affecting the Group tax charge for the year
The UK Government announced that it intends to reduce the main rate of corporation tax to 17% with effect from 1 April 2020. This change
was substantively enacted in September 2016. Accordingly, deferred tax balances have been revalued to the lower rate of 17% in these
financial statements which has resulted in a £0.5m deferred tax charge to the statement of other comprehensive income.
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 before tax differs from the theoretical amount using the UK corporation tax rate as follows:
Profit on ordinary activities before tax
Theoretical tax charge at 20% (2016: 20%)
Effects of:
Permanent differences
Overseas tax rate differences
Prior year adjustments
Deferred tax utilised
Total tax charge
2017
£m
6.7
1.3
0.5
–
1.5
(1.4)
1.9
2016
£m
7.4
1.5
0.9
0.7
0.2
(1.3)
2.0
Effective tax rate
The effective tax rate of 28% (2016: 27%) is higher than the UK tax rate of 20% (2016: 20%) due to the following factors:
Æ Permanent differences including items that are disallowed from a tax perspective such as entertaining and certain employee costs;
Æ Prior year adjustments arising as tax submissions are finalised and agreed in specific jurisdictions; and
Æ Differences in overseas tax rates, typically being higher than the rates in the UK.
Tax payments
Cash tax paid in the year of £1.0m (2016: £1.0m) is lower than the total tax charge due to the utilisation of tax losses in various jurisdictions.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
5. Earnings per share
Earnings per share (EPS) is calculated by reference to the earnings for the year and the weighted average number of shares in issue during
the year as follows:
Basic EPS
Profit attributed to ordinary shareholders
Basic EPS
Adjusted EPS
Basic EPS
Effect of adjusting items, after tax:
Exceptional items in operating costs
Pension administration costs included in
operating costs
Discount unwind on exceptional items
Amortisation of acquired intangible assets
Net pension financing costs
Adjusted EPS
2017
2016
Earnings
£m
Shares
(thousands)
4.8
4.8
224,830
224,830
2017
Earnings
£m
Shares
(thousands)
4.8
2.3
0.6
0.1
0.7
2.0
10.5
224,830
224,830
Per share
amount
(pence)
2.1
2.1
Per share
amount
(pence)
2.1
1.0
0.3
–
0.3
0.9
4.6
Earnings
£m
Shares
(thousands)
5.3
5.3
223,065
223,065
2016
Earnings
£m
Shares
(thousands)
5.3
2.5
0.7
0.2
0.2
1.5
10.4
223,065
223,065
Per share
amount
(pence)
2.4
2.4
Per share
amount
(pence)
2.4
1.1
0.3
0.1
0.1
0.7
4.7
Inclusion of the dilutive securities, comprising 3,293,000 (2016: 4,097,000) additional shares due to share options in the calculation of basic
and adjusted EPS does not change the amounts shown above (2016: 2.3p and 4.6p respectively).
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
Accounting Policy
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.
No ordinary dividend payments were paid or proposed in either the current or prior year.
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FINANCIAL STATEMENTS
7. Goodwill
Accounting Policy
(i) Initial recognition
Goodwill arises on business combinations and represents the excess of the cost of an acquisition over the Group’s share of the identifiable
net assets of the acquiree at the acquisition date. Where the cost is less than the Group’s share of the identifiable net assets, the difference
is immediately recognised in the income statement as a gain from a bargain purchase.
Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previous UK GAAP amounts subject to being
tested for impairment at that date.
(ii) Subsequent measurement
Goodwill is measured at cost less accumulated impairment losses. In respect of equity accounted investments, goodwill acquired directly
is included in the carrying amount of the investment.
(iii) Impairment
Goodwill is not amortised but is tested at least annually for impairment and carried at cost less accumulated impairment losses. Goodwill
is allocated to cash generating units for the purpose of impairment testing. The cash generating units to which the goodwill has been
allocated is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from
other assets or group of assets. Any impairment charge is recognised immediately in the income statement.
Cost
At 1 April 2015
Exchange adjustment
Arising on acquisition of Tooth Chain business
At 1 April 2016
Exchange adjustment
Fair value adjustment arising on the acquisition of the Tooth Chain business
At 31 March 2017
Accumulated amortisation and impairment
At 1 April 2015
At 1 April 2016
At 31 March 2017
Net book amount at 31 March 2017
Net book amount at 31 March 2016
Net book amount at 31 March 2015
Goodwill
£m
23.3
0.6
0.2
24.1
3.4
0.3
27.8
1.4
1.4
1.4
26.4
22.7
21.9
The Group performed its annual impairment test of goodwill at 31 March 2017 which 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
Renold Tooth Chain, Germany
Growth rates
CGU discount rates
Carrying values
2017
%
1.6
2.8
8.1
1.2
2016
%
2.1
2.9
7.7
–
2017
%
16.2
10.3
30.1
12.8
2016
%
12.4
13.2
30.5
–
2017
£m
23.2
0.5
2.2
0.5
26.4
2016
£m
20.2
0.5
1.8
0.2
22.7
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
7. Goodwill continued
Key assumptions used in the value in use calculations:
Sales volumes, selling prices and cost changes
The Group prepares cash flow forecasts based on the latest management estimates for the next two financial years. The expected sales
prices and volumes reflect management’s experience of how sales will develop at this point of the economic cycle. The expected profit
margin reflects management’s experience of each CGU’s profitability at the forecast level of sales and incorporates the impact of any
restructuring that took place during the year ended 31 March 2017.
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 values to materially
exceed each CGU’s recoverable amount.
Provisional fair value adjustment – Renold Tooth Chain
During the year, the provisional fair values calculated at the Tooth Chain acquisition date have been reassessed, resulting in an adjustment
to the provisional fair values of inventories (£0.2m reduction) and provisions (£0.2m increase) calculated at the date of acquisition.
Furthermore, the contingent consideration paid in the year was lower than the provisional amount anticipated at the acquisition date
(£0.1m). These adjustments have been reflected in goodwill arising upon acquisition resulting in a £0.3m increase.
8. Intangible assets
Accounting Policy
(i) 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 programs are recognised as an expense as
incurred.
(ii) Other intangible assets
Other intangible assets, such as those identified on acquisition by the Group that have finite useful lives, are recognised at fair value and
measured at cost less accumulated amortisation and impairment losses. The estimated useful lives for the Group’s finite life intangible
assets are between one and seven years.
Intangible assets 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.
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FINANCIAL STATEMENTS
8. Intangible assets continued
Cost
At 1 April 2015
Exchange adjustment
Additions
Arising on acquisition of Tooth Chain business
Disposals
At 1 April 2016
Exchange adjustment
Additions
Disposals
At 31 March 2017
Accumulated amortisation and impairment
At 1 April 2015
Amortisation charge
Disposals
At 1 April 2016
Exchange adjustment
Amortisation charge
Disposals
At 31 March 2017
Net book amount at 31 March 2017
Net book amount at 31 March 2016
Net book amount at 31 March 2015
Customer
orderbook
£m
Customer
lists
£m
Technical
know-how
£m
Computer
software
£m
–
–
–
0.3
–
0.3
–
–
–
0.3
–
–
–
–
–
0.3
–
0.3
–
0.3
–
–
0.4
–
3.5
–
3.9
0.1
–
–
4.0
–
0.2
–
0.2
–
0.8
–
1.0
3.0
3.7
–
–
–
–
0.2
–
0.2
–
–
–
0.2
–
–
–
–
–
–
–
–
0.2
0.2
–
12.7
–
1.6
–
(0.4)
13.9
0.3
1.2
(0.4)
15.0
6.6
1.6
(0.4)
7.8
(0.8)
1.9
(0.4)
8.5
6.5
6.1
6.1
Total
£m
12.7
0.4
1.6
4.0
(0.4)
18.3
0.4
1.2
(0.4)
19.5
6.6
1.8
(0.4)
8.0
(0.8)
3.0
(0.4)
9.8
9.7
10.3
6.1
The acquisition of the Tooth Chain business in January 2016 brought significant benefit to the Group in terms of new customers,
relationships and technical 'know-how'. These benefits have been valued under IFRS 3 using estimates of useful lives and discounted cash
flows of expected income. The values are being amortised as follows:
Customer orderbook
Customer orderbook is amortised when the orderbook at the date of acquisition has been fulfilled. This is now fully amortised.
Customer lists and technical know-how
Customer lists and technical know-how is being amortised over five years as the benefits are likely to crystallise over a longer period.
No brand names were acquired as part of the acquisition.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
9. Property, plant and equipment
Accounting Policy
Tangible assets are stated at cost, being purchase cost plus any incidental costs of acquisition, less accumulated depreciation and
impairment.
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. No depreciation has been charged on freehold land. 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.
Gains and losses on disposals are determined by comparing proceeds with carrying amounts and are included in operating profit.
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 and 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.
Cost
At 1 April 2015
Exchange adjustment
Additions
Arising on acquisition of Tooth Chain business
Disposals
At 1 April 2016
Exchange adjustment
Additions
Transfer to assets held for sale (Note 10)
Disposals
At 31 March 2017
Accumulated depreciation and impairment
At 1 April 2015
Exchange adjustment
Charge for the year
Disposals
At 1 April 2016
Exchange adjustment
Transfer to assets held for sale (Note 10)
Charge for the year
Disposals
At 31 March 2017
Net book amount at 31 March 2017
Net book amount at 31 March 2016
Net book amount at 31 March 2015
Land and
buildings
£m
Plant and
equipment
£m
18.7
1.1
1.6
0.1
(0.4)
21.1
1.8
0.6
(0.4)
(5.0)
18.1
3.5
0.1
0.5
(0.4)
3.7
0.4
(0.1)
0.3
(0.8)
3.5
14.6
17.4
15.2
105.1
3.6
5.6
0.4
(4.1)
110.6
9.4
9.1
–
(12.4)
116.7
80.6
3.3
3.7
(4.0)
83.6
7.7
–
4.6
(11.8)
84.1
32.6
27.0
24.5
Total
£m
123.8
4.7
7.2
0.5
(4.5)
131.7
11.2
9.7
(0.4)
(17.4)
134.8
84.1
3.4
4.2
(4.4)
87.3
8.1
(0.1)
4.9
(12.6)
87.6
47.2
44.4
39.7
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FINANCIAL STATEMENTS
9. Property, plant and equipment continued
Future capital expenditure
At 31 March 2017 capital expenditure contracted for but not provided for in these accounts amounted to £2.6m (2016: £2.0m).
Asset held for sale
In the current year the former HiTec Couplings manufacturing site located in Halifax, UK was reclassified as an asset held for sale
(see Note 10).
10. Asset Held for Sale
Accounting Policy
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 and are measured at the lower of their carrying amount or fair value less costs to sell.
At 1 April
Exchange adjustment
Disposal
Transferred from tangible fixed assets (see Note 9)
Impairment charge
At 31 March
2017
£m
1.0
–
(1.0)
0.3
–
0.3
2016
£m
1.4
0.1
–
–
(0.5)
1.0
In October 2016, the asset held for sale, the former Chain manufacturing facility located in Seclin, France was sold for £1.0m. Proceeds of
£0.9m have been received to date with a further £0.1m receivable subject to environmental tests due to be completed in December 2017.
During the year, the HiTec Couplings business was transferred from the manufacturing facility based in Halifax to the existing UK Couplings
facility in Cardiff. The Halifax site was sold on 15 May 2017 for net proceeds of £0.5m realising a gain of £0.2m to be recognised in the first
half of the next financial year.
11. Inventories
Accounting Policy
Inventories are stated at the lower of cost and estimated net realisable value, after due allowance for obsolete or slow moving items.
Cost includes all direct expenditure and attributable overhead expenditure incurred in bringing goods to their current state under normal
operating conditions. The first in, first out method of valuation is used. Net realisable value is the estimated selling price in the ordinary
course of business, less the costs of completion and selling expenses. In the Group accounts, unrealised profit on sales within the Group is
deducted from inventories.
Raw materials
Work in progress
Finished products and production tooling
Inventories pledged as security for liabilities amounted to £32.8m (2016: £30.2m).
2017
£m
5.9
4.6
29.9
40.4
2016
£m
6.0
4.0
26.3
36.3
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
12. Trade and other receivables
Accounting Policy
Trade and other 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.
Trade receivables1
Less: impairment provision
Trade receivables: net
Other receivables1
Prepayments
1 Financial assets carried at amortised cost.
2017
Current
£m
31.2
(0.3)
30.9
2.6
3.3
36.8
2017
Non-current
£m
–
–
–
–
–
–
2016
Current
£m
26.9
(0.4)
26.5
1.5
2.5
30.5
2016
Non-current
£m
–
–
–
–
–
–
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:
2017
2016
Movement on impairment provision
Opening provision
Net charge to income statement
Utilised in year through assets written off
Closing provision
Neither past
due nor
impaired
£m
26.7
22.0
Total
£m
31.2
26.9
Past due but not impaired
<30 days
£m
30–60 days
£m
60–90 days
£m
>90 days
£m
3.1
3.4
0.4
0.7
0.3
0.2
2017
£m
0.4
–
(0.1)
0.3
0.7
0.6
2016
£m
0.5
0.1
(0.2)
0.4
13. Cash and cash equivalents
Accounting Policy
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.
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
2017
£m
16.4
(1.0)
15.4
2016
£m
13.5
(1.1)
12.4
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FINANCIAL STATEMENTS
2017
£m
1.0
(0.2)
0.8
32.9
(0.4)
0.5
33.0
33.8
2016
£m
1.1
(0.2)
0.9
36.1
(0.5)
0.5
36.1
37.0
14. Borrowings
Amounts falling due within one year:
Overdrafts
Capitalised costs
Amounts falling due after more than one year:
Bank loans
Capitalised costs
Preference Stock
Total borrowings (Note 25(d))
All financial liabilities above are carried at amortised cost.
Core banking facilities
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 revised facility replicates the previous £41m Multi-Currency Revolving Facility (MCRF) but also adds a £20m
accordion feature that can be accessed 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 MCRF is fully committed and available until
maturity.
At the year end the undrawn facility was £5.3m (2016: £3.4m). 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 1.91% for Sterling denominated facility and LIBOR plus 1.82% for the
Euro and US Dollar denominated facility (2016: LIBOR plus 1.79% for Sterling denominated facility and LIBOR plus 1.81% for the Euro and
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 £2.2m.
Secured borrowings
Included in Group borrowings are secured borrowings of £32.3m (2016: £35.0m). 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 2017 there were 580,482 units of Preference Stock in issue (2016: 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.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
15. Trade and other payables
Trade payables1
Other tax and social security
Other payables1
Accruals1
1 Financial liabilities carried at amortised cost.
2017
Current
£m
23.6
2.1
1.9
14.3
41.9
2017
Non-current
£m
–
–
–
0.3
0.3
2016
Current
£m
18.5
2.1
1.6
14.0
36.2
2016
Non-current
£m
–
–
–
0.3
0.3
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
Accounting Policy
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, e.g. 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.
At 1 April 2016
Exchange
Arising during the year
Utilised in the year
Discount unwind on provision
At 31 March 2017
Allocated as:
Current provisions
Non-current provisions
Business
restructuring
£m
0.3
–
3.2
(2.1)
–
1.4
Onerous
lease
£m
4.0
–
1.6
(0.9)
0.1
4.8
Contingent
consideration
£m
1.9
0.2
–
(0.6)
–
1.5
2017
£m
3.6
4.1
7.7
Total
provisions
£m
6.2
0.2
4.8
(3.6)
0.1
7.7
2016
£m
1.7
4.5
6.2
Business restructuring
This provision relates to the reorganisation and restructuring of various parts of the business: £0.6m relates to the Chinese Torque
Transmission facility closure initiated in March 2017 and £0.8m relates to the remaining UK HiTec Couplings redundancy costs due to be
paid in the first half of the next financial year. See Note 2(c) on exceptional charges for more details.
Onerous lease
This provision relates to onerous lease costs in respect of the lease of the Bredbury plant in the UK and the Mulgrave facility in Australia.
The Bredbury lease expires in May 2030. A lease was agreed in August 2016 to sublet a significant part of the property for a five year term
for an annual rent of £0.6m. £0.9m of the provision was utilised in the year leaving a provision of £3.2m in respect of this lease.
In addition, as part of the sale agreement of the Mulgrave facility in Australia completed in March 2017, it was agreed that the business
could remain in the property for a maximum of three additional years for an annual rent of £0.5m. This lease was deemed to be onerous
and as a result a provision was established in relation to the total lease cost of £1.6m. This charge was included in the net exceptional gain
on the sale of the property of £2.9m (see Note 2(c)).
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FINANCIAL STATEMENTS
16. Provisions continued
Contingent consideration
Renold (Hangzhou) Co Limited: China
A provision of £0.8m (2016: £0.7m) 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.
Renold Tooth Chain, Germany
A provision of £1.1m was established on the acquisition of the Tooth Chain business in January 2016. The contingent consideration is
expected to be paid over the first two years based upon achieving certain sales targets (up to a maximum of €1.5m). The first year target
resulted in consideration of £0.5m (€0.6m) becoming payable. This was paid in April 2017. The reduction has been adjusted though goodwill
(see Note 7). Management expect that the second year target will be met and therefore the amount has been provided in full.
17. Deferred tax
Accounting Policy
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 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.
Accelerated capital allowances
Pension plans
Tax losses
Other temporary differences
Tax assets/(liabilities)
Net off (liabilities)/assets
Net deferred tax assets
Assets
Liabilities
Net
2017
£m
–
17.2
5.3
(1.6)
20.9
(0.3)
20.6
2016
£m
(1.8)
14.8
6.0
(2.0)
17.0
(0.3)
16.7
2017
£m
(0.3)
–
–
–
(0.3)
0.3
–
2016
£m
(0.3)
–
–
–
(0.3)
0.3
–
2017
£m
(0.3)
17.2
5.3
(1.6)
20.6
–
20.6
The net deferred tax asset recoverable within one year is £1.3m (2016: £2.2m) and recoverable after more than one year is £19.3m
(2016: £14.5m).
The movement in the net deferred tax balance relating to assets is as follows:
2017
Accelerated capital allowances
Pension plans
Tax losses
Other temporary differences
2016
Accelerated capital allowances
Pension plans
Tax losses
Other temporary differences
Opening
balance
£m
(1.8)
14.8
6.0
(2.0)
17.0
Opening
balance
£m
(1.6)
14.5
6.3
(1.9)
17.3
Exchange
adjustments
£m
(0.3)
0.5
0.8
(0.2)
0.8
Exchange
adjustments
£m
–
0.4
0.2
–
0.6
Recognised
in income
statement
£m
2.1
(0.2)
(1.5)
0.6
1.0
Recognised
in income
statement
£m
(0.2)
0.4
(0.5)
(0.1)
(0.4)
Recognised
directly in other
comprehensive
income
£m
–
2.1
–
–
2.1
Recognised
directly in other
comprehensive
income
£m
–
(0.5)
–
–
(0.5)
2016
£m
(2.1)
14.8
6.0
(2.0)
16.7
–
16.7
Closing
balance
£m
–
17.2
5.3
(1.6)
20.9
Closing
balance
£m
(1.8)
14.8
6.0
(2.0)
17.0
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
17. Deferred tax continued
The movement in the net deferred tax balance relating to liabilities in the year is as follows:
2017
Accelerated capital allowances
2016
Accelerated capital allowances
Opening
balance
£m
(0.3)
(0.3)
Exchange
adjustments
£m
–
–
Recognised
in income
statement
£m
–
–
Recognised
directly in other
comprehensive
income
£m
–
–
Opening
balance
£m
(0.2)
(0.2)
Exchange
adjustments
£m
–
–
Recognised
in income
statement
£m
(0.1)
(0.1)
Recognised
directly in other
comprehensive
income
£m
–
–
Closing
balance
£m
(0.3)
(0.3)
Closing
balance
£m
(0.3)
(0.3)
During the year the Group has reported an adjusted operating profit of £14.5m (2016: £14.2m). 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 £26.2m (2016: £21.7m) arising from unrecognised losses of £20.7m (2016: £14.5m)
(representing losses of £83.2m (2016: £52.3m)) and other timing differences of £5.5m (2016: £7.2m). 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
Accounting Policy
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 the income
statement as a normal operating cost. Administration costs, including the Pensions Protection Levy, are charged to operating costs.
However, plan asset management costs are included in the actual return on plan assets.
Remeasurement gains and losses, comprising 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. Actuarial gains and losses arise when actual
results differ from the assessment outcomes which are used to calculate defined benefit assets and liabilities at a particular point in time.
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
is in surplus, the asset recognised is limited to the value of any amount expected to be recoverable by the Group by way of refunds or
reduction in future contributions.
Under the Group’s UK pension scheme rules, any 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.
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FINANCIAL STATEMENTS
18. Pensions continued
Background information
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 usually required to agree a deficit recovery plan which can vary from country to country. 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 and can also include an allowance for future asset returns. 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 UK fund is the Renold Pension Scheme (RPS). The RPS was formed in June 2013 by the merger of three predecessor plans, all
of which were already closed to future accrual and to new members. The RPS is a funded defined benefit plan with assets held in separate
administered funds.
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.
The RPS is underpinned by a 25 year asset backed partnership structure (the Scottish Limited Partnership ‘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 pension 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 £2.7m 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 the
excess, if any arises). In the event that the RPS becomes fully funded on a buyout basis, the income stream will instead accrue to Renold
plc. 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
in June 2013. 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 RPS is not reported as a plan asset in the Group’s consolidated financial statements as it
is a non-transferable interest issued by the Group.
This arrangement replaced all other existing funding arrangements for the RPS. 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 adjusted 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. Prior to the SLP, the contributions had been at a higher level. However, the Trustees agreed to lower contributions for longer under
the SLP. The £1.0m increase matches the approximate £1.0m reduction agreed when the SLP was established. Finally, as part of the overall
agreement, Renold plc is not constrained from paying a dividend, other than by normal legal considerations. Renold 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 deficit will be
reduced as the cash contributions under the scheme are made, enhanced or offset by actual performance compared to asset returns and
actuarial assumptions.
Following the implementation of the two medically underwritten insured buy-ins that fully de-risked approximately 25% of current
pensioner liabilities implemented in the year ended 31 March 2016 the growth assets of the RPS represented over 90% of the remaining
invested assets of the scheme. Following review, a revised investment strategy has been adopted by the Trustees (with the agreement of
the Company) which will redress the balance to circa 67% growth assets and 33% protection assets whilst further diversifying the risk with
the introduction of multi-asset credit (MAC) and liability driven investments (LDI) to the portfolio.
Total cash costs for UK deficit repair payments and UK administrative expenses in the period were £3.7m (2016: £3.4m). The current year
figure includes the £2.7m noted above in connection with the SLP, £0.5m in respect of an additional payment from the Company towards
the medically underwritten buy-ins and a further £0.5m in respect of the costs of other pension projects that were carried out or initiated
during the year.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
18. Pensions continued
The latest triennial actuarial valuation of the RPS, with an effective date of 5 April 2016, was recently agreed. This process concluded that
contributions to the scheme should continue unchanged and no additional contributions in excess of the previously agreed asset backed
funding structure were deemed necessary. The next triennial valuation date will be 5 April 2019.
Overseas Pension Plans
Germany
In Germany, in addition to participating in the state backed pension scheme, the Group operates an unfunded defined benefit scheme
(no other Group company operates such a scheme). 'Unfunded' means that the scheme has no asset backing to pay benefits and instead
the Group pays member benefits as they fall due. The scheme closed to new members on 1 April 1992. A German court confirmed that
the pension scheme was properly closed to future accrual with effect from 31 March 2014. Following the acquisition of the Tooth Chain
business in the year, the unfunded defined benefit scheme operated by that business transferred to our German subsidiary. The IAS 19
liability at the acquisition date was £0.4m.
In aggregate, the two (2016: two) German pension schemes have a net liability of £25.5m (2016: £23.8m). The change in the net deficit is
due to a reduction in the discount rate 1.9% (2016: 2.0%) and the adverse impact of the change in the Euro foreign exchange rate.
United States of America
In the US the Group operates three defined benefit pension schemes in the US Torque Transmission business. In 2015, one of the three
schemes was formally terminated and members benefits secured in full. The remaining two schemes are closed to new members and
one is also closed to future accrual. Only the hourly paid scheme remains open to future accrual. Funds that had been earmarked for the
terminated 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 years. The US Chain business operates a defined contribution scheme.
In aggregate, the two (2016: two) defined benefit schemes in the US have combined assets of £11.2m (2016: £8.8m) and liabilities of £15.0m
(2016: £13.4m), giving a net deficit of £3.8m (2016: £4.6m). The change in the net deficit was due to an increase in the discount rate to 3.8%
(2016: 3.6%) offset by the adverse impact of the change in the US Dollar foreign exchange rate.
Other overseas schemes
In aggregate the other overseas defined benefit schemes have combined assets of £2.4m (2016: £2.0m) and liabilities of £3.0m (2016:
£2.7m) giving a net deficit of £0.6m (2016: net deficit of £0.7m).
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.
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 the UK pension scheme is 15 years (2016: 15 years) and 14 years (2016: 14 years) for the German
schemes. They can therefore be regarded as mature schemes.
Significant assumptions
The principal financial assumptions used to calculate plan liabilities as at 31 March 2017 are presented below. The assumptions adopted
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. The present values of the plans’ liabilities are derived from cash flow projections over long periods and
are thus inherently uncertain.
Rate of increase in pensionable salaries1
Rate of increase in pensions in payment and
deferred pensions
Discount rate
Inflation assumption2
UK
Germany
Other Overseas
2017
–
1.7%
2.5%
2.2%
2016
–
1.7%
3.5%
1.8%
2017
–
1.5%
1.9%
1.5%
2016
–
1.5%
2.0%
1.5%
2017
2.2%
–
3.7%
2.2%
2016
2.1%
–
3.5%
2.1%
1 No increase applies following the closure of the UK defined benefit pension schemes to future accrual and in Germany from 2016 onwards.
2 The inflation assumption used for UK schemes is a blend of RPI and CPI as well as reflecting that 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.
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FINANCIAL STATEMENTS
18. Pensions continued
The predominant defined benefit obligation for funded plans within the Group resides in the UK (£218.4m of the £236.4m 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
2017
21.2
20.3
23.4
22.3
2016
21.4
20.4
23.7
22.6
The post-retirement mortality tables used for the UK plan are the S2PA 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.
Sensitivity analysis on UK scheme:
Assumption
Discount rate
Rate of inflation
Rate of mortality
Change in assumption
Increase/decrease by 0.25%
Increase/decrease by 0.25%
Increase/decrease by 1 year1
Impact on plan liabilities
Decrease by £7.7m/increase by £8.7m
Increase by £5.0m/decrease by £4.6m
Increase by £10.3m/decrease by £10.5m
1 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 fair values of plan assets were:
Medically underwritten insurance policies
UK quoted equities
Overseas quoted equities
Hedge funds and diversified growth funds
Corporate bonds
Gilts
Liability driven investments (LDI)
Other
Total market value of assets
UK
£m
47.5
20.5
31.8
29.1
2.1
–
4.8
10.6
146.4
2017
Overseas
£m
–
–
6.9
–
3.1
2.1
–
2.1
14.2
Total
£m
47.5
20.5
38.7
29.1
5.2
2.1
4.8
12.7
160.6
UK
£m
47.0
16.8
27.2
37.2
3.3
–
4.6
1.6
137.7
2016
Overseas
£m
–
–
5.1
–
4.4
0.1
–
1.8
11.4
Total
£m
47.0
16.8
32.3
37.2
7.7
0.1
4.6
3.4
149.1
The medically underwritten insurance policies are shown at a value that exactly matches the estimated associated insured liabilities.
Equities are investments in quoted equities only. Hedge funds and diversified growth funds hold a range of assets which aim to deliver
returns above those of bonds but at lower volatility than equities. The assets held materially reflect 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.
Liability Driven Investments (LDI) are a portfolio of assets that are linked to the drivers of movements in pension liabilities such as inflation
and interest rates. These are assets designed to deliver geared movements in the underlying liabilities as they reflect changes to inflation
and interest rates.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
18. Pensions continued
Pension obligations
The movement in the present value of the defined benefit obligation is as follows:
Opening obligation
Arising on acquisition
Current service cost
Past service credit
Interest expense
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
(191.3)
–
–
–
(6.5)
2.7
2.7
(35.8)
–
9.8
–
(218.4)
(218.4)
–
(218.4)
2017
Overseas
£m
(40.7)
–
(0.3)
–
(1.1)
0.3
–
(0.2)
2.1
(4.3)
(44.2)
(18.0)
(26.2)
(44.2)
The UK liabilities above include £47.5m that are fully insured (2016: £47.0m).
Pension assets
The movement in the present value of the defined benefit plan assets is as follows:
Opening assets
Interest income
Remeasurement gains/(losses)
Employer contributions
Benefits paid
Assets distributed on settlement
Exchange adjustment
Closing assets
Balance sheet reconciliation:
Plan obligations
Plan assets
Net plan deficit
UK
£m
137.7
4.7
10.6
3.2
(9.8)
–
–
146.4
(218.4)
146.4
(72.0)
2017
Overseas
£m
11.4
0.4
0.7
0.9
(0.9)
–
1.7
14.2
(44.2)
14.2
(30.0)
Total
£m
(232.0)
–
(0.3)
–
(7.6)
3.0
2.7
(36.0)
11.9
(4.3)
(262.6)
(236.4)
(26.2)
(262.6)
Total
£m
149.1
5.1
11.3
4.1
(10.7)
–
1.7
160.6
(262.6)
160.6
(102.0)
UK
£m
(201.5)
–
–
–
(6.4)
–
–
3.5
–
13.1
–
(191.3)
(191.3)
–
(191.3)
UK
£m
156.6
5.0
(13.5)
2.7
(13.1)
–
–
137.7
(191.3)
137.7
(53.6)
2016
Overseas
£m
(45.5)
(0.4)
(0.1)
1.3
(0.9)
0.3
2.2
(0.2)
3.3
1.9
(2.6)
(40.7)
(16.2)
(24.5)
(40.7)
2016
Overseas
£m
14.7
0.4
(0.4)
0.8
(0.9)
(3.4)
0.2
11.4
(40.7)
11.4
(29.3)
Total
£m
(247.0)
(0.4)
(0.1)
1.3
(7.3)
0.3
2.2
3.3
3.3
15.0
(2.6)
(232.0)
(207.5)
(24.5)
(232.0)
Total
£m
171.3
5.4
(13.9)
3.5
(14.0)
(3.4)
0.2
149.1
(232.0)
149.1
(82.9)
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FINANCIAL STATEMENTS
18. Pensions continued
The net amount of remeasurement gains and losses taken to other comprehensive income is as follows:
Remeasurement gains/(losses)
On plan obligations
On plan assets
Net (losses)/gains
UK
£m
(30.4)
10.6
(19.8)
2017
Overseas
£m
0.1
0.7
0.8
Total
£m
(30.3)
11.3
(19.0)
UK
£m
3.5
(13.5)
(10.0)
2016
Overseas
£m
2.3
(0.4)
1.9
The actual return on plan assets was a gain of £16.4m (2016: loss £8.5m) which equates to 10.2% (2016: 5.7%) of plan assets.
An analysis of amounts charged to operating costs is set out below:
Operating costs
Pension administration costs
Current service cost
Past service credit
Settlement loss
2017
£m
(0.7)
(0.3)
–
–
(1.0)
Total
£m
5.8
(13.9)
(8.1)
2016
£m
(0.7)
(0.1)
1.3
(0.1)
0.4
The past service credit of £1.3m in the prior year arose in Germany following the confirmation that the pension scheme was properly
closed to future accrual with effect from 31 March 2014. Also in the prior year, the £0.1m settlement loss relates to the liquidation of the
Australian scheme when the net surplus was £0.1m. See Note 2(c) for further details.
The cost for the period of the various defined contribution schemes was £1.3m (2016: £1.3m) and was fully paid up.
19. Called up share capital
Ordinary shares of 5p each
Deferred shares of 20p each
Issued
2017
£m
11.3
15.4
26.7
2016
£m
11.2
15.4
26.6
At 31 March 2017, the issued ordinary share capital comprised 225,417,740 ordinary shares of 5p each (2016: 223,064,703) and 77,064,703
deferred shares of 20p each (2016: 77,064,703). The deferred shares noted above have had no value or voting rights since the Rights
Issue in late 2009 and it is intended to cancel these following approval at the 2017 AGM. The balance above will be transferred to a non-
distributable Capital Reserve at that time.
In July 2016, the Company issued 2,353,037 fully paid ordinary shares of 5p each (2016: nil) at a cost of £117,651.85 to its Employee Benefit
Trust to facilitate the exercise of share options by employees across the Company.
20. Share-based payments
Accounting Policy
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 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.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
20. Share-based payments continued
The fair value per option granted in the period and the assumptions used in the calculation are as follows:
Grant date
Share price 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
Fair value per option
16.01.17
50.21p
0.0p
1
368,465
3
39%
10
6
1.0%
Zero
50.21p
2017
Executive share
option scheme
2016
Executive share
option scheme
21.07.16*
36.50p
0.0p
1
821,918
3
43%
10
6
1.0%
Zero
36.50p
21.07.16*
36.50p
0.0p
1
821,918
3
43%
10
6
1.0%
Zero
11.24p
05.06.16
40.12p
0.0p
24
2,395,947
3
43%
10
6
1.0%
Zero
40.12p
05.06.15
76.50p
0.0p
25
1,678,327
3
58%
10
6
1.0%
Zero
76.50p
10.02.16
42.75p
0.0p
1
22,290
3
58%
10
6
1.0%
Zero
42.75p
* A single grant was made on 21 July 2016. The options are subject to market conditions and non-market conditions (50% each) so have been shown separately here due
to differing fair values.
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 2017
is shown below:
Executive share option schemes
Outstanding at 1 April
Granted
Exercised
Lapsed
Forfeited
Outstanding at 31 March
Exercisable at 31 March
2017
2016
Number
8,638,911
4,408,248
(1,992,926)
(111,534)
(668,776)
10,273,923
3,247,096
Weighted
average exercise
price
8.6p
0.0p
13.5p
71.3p
6.4p
3.4p
10.7p
Weighted
average exercise
price
9.9p
0.0p
–
–
0.0p
8.6p
36.0p
Number
7,454,402
1,700,617
–
–
(516,108)
8,638,911
2,303,973
For those share options exercised in the year, the weighted average share price at the date of exercise was 48.3p.
2017
Weighted average
remaining life
2016
Weighted average
remaining life
Range of exercise prices
Nil
20p to 30p
30p to 40p
40p to 100p
Weighted
average
exercise price
–
26.2p
37.3p
–
Number
of shares
9,004,221
1,145,038
124,664
–
Expected
8.2
5.8
4.2
–
Contractual
4.2
1.8
0.2
–
Weighted
average
exercise price
–
26.4p
37.3p
71.3p
Number
of shares
6,334,938
1,456,482
735,923
111,568
Expected
8.9
7.3
6.2
1.5
Contractual
4.9
3.3
2.2
–
1,992,926 options have been exercised in the period (2016: nil). The total charge for the year relating to employee share-based payment
plans was £0.2m (2016: £1.1m), all of which related to equity settled share-based transactions.
The middle market price of ordinary shares at 31 March 2017 was 56.25p and the range of prices during the year was 33.13p to 59.75p.
Details of the share-based payment arrangements for Executive Directors are provided in the Directors’ Remuneration Report on pages 78
to 94. At 31 March 2017, unexercised options for ordinary shares amounted to 10,273,923 (2016: 8,638,911).
138
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FINANCIAL STATEMENTS
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 2017 amounted to £3.5m (2016: £3.5m).
Included in retained earnings is an amount of £3.5m (net of tax) (2016: £5.4m) 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
Accounting Policy
Leases where a significant portion of the risk and reward of ownership is retained by the lessor are classified as operating leases.
Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a
straight-line basis over the period of the lease.
The Group 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
2017
2016
Properties
£m
2.8
8.3
10.2
21.3
Equipment
£m
1.0
2.5
–
3.5
Properties
£m
1.7
6.5
10.8
19.0
Equipment
£m
0.8
2.5
0.1
3.4
Certain of the leased properties have been sublet and the future minimum sublease payments expected to be received under non-
cancellable sublease agreements is £5.0m (2016: £2.7m).
An onerous lease provision of £3.2m (2016: £4.0m) (see Note 16) was established in 2014 following the closure of the Bredbury
manufacturing facility. The lease expires in May 2030 at a rental cost of £0.8m per annum and is included in the analysis above. A
significant proportion of this site is now sublet for a term of five years for a rent of £0.5m per annum.
An additional onerous lease provision of £1.6m was established in the year following the sale of the Mulgrave manufacturing facility. The
lease expires in March 2020 at a cost of £0.5m per annum.
23. Contingent liabilities and commitments
Performance guarantees given to third parties in respect of Group companies were £nil (2016: £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 employer's defaulted on the agreed deficit repair plan. As one of the sponsoring employer's of the UK
scheme is Renold plc, the continuing obligation is effectively unchanged and is to fully fund the member’s accrued benefits.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
24. Additional cash flow information
Reconciliation of operating profit to net cash flows from operations:
Cash generated from operations:
Operating profit
Depreciation and amortisation
Loss on disposals of plant and equipment
Exceptional gain on sale of Australian property
Property impairment
Equity share plans
(Increase)/decrease in inventories
(Increase)/decrease in receivables
Increase/(decrease) in payables
Decrease in provisions
Past service credit – German pension scheme (Note 18)
Movement on pension plans
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 – refinancing cost capitalised
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)
2017
£m
11.0
7.9
0.3
(2.9)
–
0.2
(0.4)
(3.4)
1.3
(0.5)
–
(5.1)
8.4
2017
£m
2.2
4.5
(0.4)
–
(0.2)
6.1
(23.5)
(17.4)
16.4
(33.8)
(17.4)
2016
£m
11.1
6.0
–
–
0.5
1.1
1.7
0.7
(2.1)
(1.6)
(1.3)
(4.3)
11.8
2016
£m
(0.2)
(4.0)
(0.1)
0.5
(0.2)
(4.0)
(19.5)
(23.5)
13.5
(37.0)
(23.5)
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FINANCIAL STATEMENTS
25. Financial instruments
Accounting Policy
The Group uses derivative financial instruments such as forward currency contracts to hedge its risks associated with foreign currency
and interest rate fluctuations. Derivative financial instruments are initially recognised at fair value on the date on which a derivative
contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive
and as liabilities when the fair value is negative.
The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar
maturity profiles.
For those derivatives designated as hedges and for which hedge accounting is desired, the hedging relationship is formally designated
and documented at its inception. This documentation identifies the risk management objective and strategy for undertaking the hedge,
the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how effectiveness will be measured
throughout its duration. Such hedges are expected at inception to be highly effective in offsetting changes in fair value or cash flows and
are assessed on an ongoing basis to determine that they actually have been highly effective throughout the reporting period for which
they were designated.
For the purpose of hedge accounting, hedges are classified as:
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.
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.
These notes should be read in conjunction with the narrative disclosures in the Finance Director’s review on pages 34 to 39.
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
25. Financial instruments continued
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$) (with all other variables held constant)
on the Group’s result before tax (due to the effect of foreign exchange on monetary assets and liabilities denominated in a different
currency to the functional currency of operation) and the Group’s equity (due to the effect on other comprehensive income of changes in
the fair value of forward exchange contracts and the effect of hedging borrowings). The impact of translating the net assets of foreign
operations into Sterling is excluded from the sensitivity analysis.
Change in US Dollar rate (an ‘increase’ being a fall in the value of Sterling compared to US$):
2017
2016
Increase/
(decrease) in
US$ rate
Effect on
profit
before tax
£m
Effect on
shareholders’
equity
£m
25%
(10%)
25%
(10%)
–
–
(0.1)
0.1
2.0
(1.1)
1.4
(0.7)
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:
Forward foreign currency contracts: cash flow hedge
Increase in
basis points
+150
+150
+150
+150
2017
Effect on profit
before tax
£m
(0.3)
(0.1)
(0.1)
–
(0.5)
2016
Effect on profit
before tax
£m
(0.4)
(0.1)
(0.1)
–
(0.6)
2017
£m
(0.1)
2016
£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
(2016: £nil) was transferred to operating costs in the income statement.
(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 2017 was £6.9m (2016: £6.1m). £0.9m of exchange loss (2016: £0.2m loss) 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.
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FINANCIAL STATEMENTS
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
2017
Fixed rate
£m
Floating rate
£m
–
0.5
–
–
–
0.5
21.2
–
6.9
4.2
1.0
33.3
Total
£m
21.2
0.5
6.9
4.2
1.0
33.8
2016
Fixed rate
£m
Floating rate
£m
–
0.5
–
–
–
0.5
26.5
–
6.1
3.9
–
36.5
Total
£m
26.5
0.5
6.1
3.9
–
37.0
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 2017
Cash at bank and in hand by currency
Sterling
Euro
US Dollar
Other
2017
£m
4.6
8.4
(0.8)
4.2
16.4
2016
£m
(1.1)
8.3
2.2
4.1
13.5
Cash balances are held with the Group’s bankers. These deposits are held largely in Germany 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:
2017
Interest bearing loans and borrowings
Interest paid on borrowings
Trade payables, other payables and accruals
Provisions – contingent consideration
Forward foreign exchange contracts – outflow
Preference Stock1
1. No fixed repayment date.
One year or less
on demand
£m
–
1.7
39.8
1.5
2.9
–
45.9
One to two
years
£m
–
–
–
–
–
–
–
Two to five
years
£m
33.3
–
–
–
–
–
33.3
More than five
years
£m
–
–
0.3
–
–
0.5
0.8
Total
£m
33.3
1.7
40.1
1.5
2.9
0.5
80.0
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NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
25. Financial instruments continued
2016
Interest bearing loans and borrowings
Interest paid on borrowings
Trade payables, other payables and accruals
Provisions – contingent consideration
Forward foreign exchange contracts – outflow
Preference Stock1
1 No fixed repayment date.
One year or less
on demand
£m
–
1.5
34.1
–
0.9
–
36.5
One to two
years
£m
–
–
–
1.9
–
–
1.9
Two to five
years
£m
37.0
–
–
–
–
–
37.0
More than five
years
£m
–
–
0.3
–
–
0.5
0.8
Total
£m
37.0
1.5
34.4
1.9
0.9
0.5
76.2
The Group has contracted forward contracts consisting of Euro forward contracts of £nil (2016: £nil) and US Dollar forward contracts of
£2.9m (2016: £0.9m). The US Dollar contracts are sell contracts, given that the UK Group tends to have a surplus in US Dollars and a deficit
in Euros.
(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
2017
£m
1.9
–
5.3
7.2
2016
£m
1.8
–
3.4
5.2
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 2017.
(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
2017
£m
16.4
1.0
32.3
0.5
2016
£m
13.5
1.1
35.4
0.5
2017
£m
16.4
1.0
32.3
0.5
2016
£m
13.5
1.1
35.4
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 opposite, the above financial instruments are level 2 except Preference Stock which is level 1.
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FINANCIAL STATEMENTS
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 2017, the Group held the following financial instruments measured at fair value:
Liabilities measured at fair value
Forward foreign currency contracts: cash flow hedge
As at 31 March 2016:
Liabilities measured at fair value
Forward foreign currency contracts: cash flow hedge
Total
£m
(0.1)
Total
£m
(0.1)
Level 1
£m
Level 2
£m
Level 3
£m
–
(0.1)
–
Level 1
£m
Level 2
£m
Level 3
£m
–
(0.1)
–
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 2017 and 31 March 2016.
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
Capital and net debt
Gearing ratio
Adjusted EBITDA1 (£m)
Net debt to adjusted EBITDA
1 Adjusted EBITDA is calculated as adjusted operating profit adding back depreciation and amortisation charges in the period.
26. Post balance sheet events
There were no significant post balance sheet events to report.
2017
£m
17.4
5.1
22.5
77%
2016
£m
23.5
7.8
31.3
75%
21.3
0.82 times
20.2
1.16 times
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GROUP FIVE YEAR FINANCIAL REVIEW
Group revenue
Adjusted operating profit
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
2017
£m
183.4
14.5
11.0
6.7
(1.9)
4.8
56.9
35.2
92.1
26.4
(17.4)
16.4
(7.7)
109.8
(102.0)
7.8
12.6
7.9
10.9
2.1
2,139
2016
£m
165.2
14.2
11.1
7.4
(2.0)
5.4
54.7
31.2
85.9
22.7
(23.5)
14.5
(6.2)
93.4
(82.9)
10.5
13.7
8.6
8.8
2.4
2,187
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
£m
184.0
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
2013
(restated3)
£m
190.3
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
1 Being adjusted operating profit divided by average operating assets and goodwill.
2 Based on adjusted operating profit 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.
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ACCOUNTING POLICIES
FINANCIAL STATEMENTS
A summary of the principal Company accounting policies is set out below. These have been applied on a consistent basis unless otherwise
indicated.
Basis of accounting
The Parent Company financial statements of Renold plc meets the definition of a qualifying entity under FRS 100 (Financial Reporting
Standard 100). The financial statements have therefore been prepared in accordance with Financial Reporting Standard 101 'Reduced
Disclosure Framework (FRS 101)'.
In these financial statements, the Company has applied the exemptions available under FRS 101 in relation to share-based payments,
financial instruments, capital management, presentation of a cash flow statement, presentation of comparative information in respect of
certain assets, standards not yet effective, impairment of assets and related party transactions.
The financial statements have been prepared on the historical cost basis and on the going concern basis. Historical cost is generally
based on the fair value of the consideration given in exchange for the goods and services. The principal accounting policies adopted and
significant accounting judgement, estimates and assumptions are the same as those set out in the notes to the consolidated financial
statements.
As permitted by section 408 of the Companies Act 2006, the Company has not presented its own statement of comprehensive income
(including the profit and loss account).
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COMPANY BALANCE SHEET
as at 31 March 2017
ASSETS
Non-current assets
Intangible assets
Property, plant and equipment
Investments in subsidiary undertakings
Trade and other receivables
Deferred tax assets
Current assets
Trade and other receivables
Cash and cash equivalents
TOTAL ASSETS
LIABILITIES
Creditors: amounts falling due within one year
Trade and other payables
Derivative financial instruments
NET CURRENT ASSETS/(LIABILITIES)
Creditors: amounts falling due after more than one year
Trade and other payables
Borrowings
Preference Stock
Retirement benefit obligations
TOTAL LIABILITIES
NET ASSETS
Capital and reserves
Issued and called up share capital
Share premium account
Currency translation reserve
Retained earnings
SHAREHOLDERS’ FUNDS
Note
i
ii
iii
v
iv
v
vi
viii
vi
ix
ix
x
xi
2017
£m
6.0
0.3
144.4
9.9
3.1
163.7
4.4
8.2
12.6
176.3
(4.2)
(0.1)
(4.3)
8.3
(62.5)
(17.1)
(0.5)
(18.0)
(98.1)
(102.4)
73.9
26.7
30.1
8.6
8.5
73.9
2016
£m
6.8
0.3
148.4
9.8
2.4
167.7
3.0
2.9
5.9
173.6
(3.8)
(0.1)
(3.9)
2.0
(65.8)
(20.6)
(0.5)
(13.4)
(100.3)
(104.2)
69.4
26.6
29.9
2.3
10.6
69.4
The Company reported a profit for the financial year ended 31 March 2017 of £2.1m (2016: loss of £0.2m). These financial statements were
approved by the Board on 30 May 2017 and signed on its behalf by:
Robert Purcell
Chief Executive
Ian Scapens
Finance Director
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COMPANY STATEMENT IN CHANGES IN EQUITY
for the year ended 31 March 2017
FINANCIAL STATEMENTS
At 31 March 2015 (restated)
Loss for the year
Other comprehensive income/(expense)
Total comprehensive income/(expense) for the year
Employee share options:
– value of employee services
At 31 March 2016
Profit for the year
Other comprehensive income/(expense)
Total comprehensive income/(expense) for the year
Proceeds from share issue
Employee share options:
– value of employee services
At 31 March 2017
All attributable to the equity shareholders of the Company.
Share
capital
£m
Note xi
26.6
–
–
–
–
26.6
–
–
–
0.1
–
26.7
Share
premium
account
£m
Retained
earnings
£m
Currency
translation
reserve
£m
29.9
–
–
–
–
29.9
–
–
–
0.2
–
30.1
10.8
(0.2)
(1.1)
(1.3)
1.1
10.6
2.1
(4.4)
(2.3)
–
0.2
8.5
(0.3)
–
2.6
2.6
–
2.3
–
6.3
6.3
–
–
8.6
Total
equity
£m
67.0
(0.2)
1.5
1.3
1.1
69.4
2.1
1.9
4.0
0.3
0.2
73.9
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NOTES TO THE COMPANY
FINANCIAL STATEMENTS
(i) Intangible assets
Cost
At beginning of year
Additions at cost
At end of year
Depreciation
At beginning of year
Depreciation for the year
At end of year
Net book value at end of year
Net book value at beginning of year
(ii) Property, plant and equipment
Cost
At beginning of year
At end of year
Depreciation
At beginning of year
At end of year
Net book value at end of year
Net book value at beginning of year
Total
£m
11.1
1.0
12.1
4.3
1.8
6.1
6.0
6.8
Property
£m
Equipment
£m
Total
£m
0.2
0.2
–
–
0.2
0.2
0.1
0.1
–
–
0.1
0.1
0.3
0.3
–
–
0.3
0.3
Future capital expenditure
At 31 March 2017, contracted capital expenditure not provided for in these financial statements for which contracts have been placed
amounted to £0.1m (2016: £nil).
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FINANCIAL STATEMENTS
(iii) Investments in subsidiary undertakings
Accounting Policy
Investments in subsidiary companies are accounted for at cost and reviewed for impairment on an annual basis. Where indicators of
impairment are present, the cash flows 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 (xiv) 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.
Subsidiary undertakings
Cost or valuation
At beginning of year
Net additions/(repayments)
At end of year
The subsidiary undertakings of the Company at 31 March 2017 are set out in Note (xiv).
Shares
£m
Advances
£m
Total
£m
62.0
–
62.0
86.4
(4.0)
82.4
148.4
(4.0)
144.4
(iv) Deferred tax assets
2017
Pension plans
Opening
balance
£m
2.4
2.4
Recognised
in income
statement
£m
–
–
Recognised
directly in other
comprehensive
income
£m
0.7
0.7
Closing
balance
£m
3.1
3.1
Unrecognised deferred tax assets amount to £0.3m (2016: £2.1m), arising from accelerated capital allowances of £0.3m (2016: £0.4m) and
£nil (2016: £1.7m) representing losses of £nil (2016: £9.6m).
(v) Trade and other receivables
Amounts owed by subsidiary undertakings
Other debtors
Prepayments
2017
Current
£m
3.4
0.1
0.9
4.4
2017
Non-current
£m
–
–
9.9
9.9
2016
Current
£m
1.7
0.1
1.2
3.0
2016
Non-current
£m
–
–
9.8
9.8
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NOTES TO THE COMPANY
FINANCIAL STATEMENTS
(vi) Trade and other payables
Amounts falling due within one year:
Trade creditors
Other taxation and social security
Accruals
Amounts falling due after one year:
Loan from subsidiary undertakings
2017
£m
1.7
0.2
2.3
4.2
2017
£m
62.5
2016
£m
1.7
0.3
1.8
3.8
2016
£m
65.8
A 25 year loan of £62.5m was established with Renold International Holdings Limited in 2014. 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.
(vii) Provisions
At beginning of year
Charge for the year
Utilised in the year
At end of year
2017
£m
–
–
–
–
In the prior year, a provision for Head Office restructuring costs of £0.4m was utilised. No movements in the current year.
(viii) Derivative financial instrument
Forward foreign currency contracts – cash flow hedge
2017
£m
(0.1)
2016
£m
0.2
0.2
(0.4)
–
2016
£m
(0.1)
The Group has contracted forward contracts consisting of US Dollar forward contracts £2.9m (2016: £1.8m). The US Dollar contracts are sell
contracts, given that the UK Group companies have a surplus in US Dollars.
(ix) 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
2017
£m
17.1
17.1
0.5
17.6
2016
£m
20.6
20.6
0.5
21.1
(x) Pensions
Employees of the Company include members of the principal UK defined benefit schemes. The basis used to determine the deficit in the
schemes is disclosed in Note 18 to the Group financial statements.
No contributions are outstanding at the year end.
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FINANCIAL STATEMENTS
Issued
2017
£m
11.3
15.4
0.5
27.2
2016
£m
11.2
15.4
0.5
27.1
(xi) Called up share capital
Equity interests
Ordinary shares of 5p each
Deferred shares of 20p each
Preference Stock1
1
Included in borrowings – see Note (ix).
At 31 March 2017, the issued ordinary share capital comprised 225,417,740 ordinary shares of 5p each (2016: 223,064,703) and 77,064,703
deferred shares of 20p each (2016: 77,064,703). The deferred shares noted above have had no value or voting rights since the Rights
Issue in late 2009 and it is intended to cancel these following approval at the 2017 AGM. The balance above will be transferred to a non-
distributable Capital Reserve at that time.
In July 2016, the Company issued 2,353,037 fully paid ordinary shares of 5p each (2016: nil) at a cost of £117,651.85 to its Employee Benefit
Trust to facilitate the exercise of share options by employees across the Company.
Disclosures in respect of capital management can be found in Note 25 to the consolidated financial statements.
(xii) Related party transactions
The following transactions were carried out with related parties:
(a) Transactions with key management personnel
Key management personnel are represented by the Board. Their aggregate emoluments are set out in Note 2(d) to the consolidated
financial statements.
(b) Transactions with subsidiaries
The Company has taken advantage of the disclosure exemptions in FRS 101 not to disclose transactions with its wholly owned subsidiaries.
During the year, the Company entered into transactions in the ordinary course of business with its 90% owned subsidiary, Renold
(Hangzhou) Co Limited and its 75% owned subsidiary, Renold Chain India Private Limited. Trading balances outstanding at 31 March with
Renold (Hangzhou) Co Limited and Renold Chain India Private Limited are as follows:
Amounts receivable as at 31 March
– Renold (Hangzhou) Co Limited
– Renold Chain India Private Limited
(c) Transactions with other related parties
The Company makes no transactions with other related parties.
(xiii) Post balance sheet events
There were no significant post balance sheet events to report.
2017
£m
4.9
–
4.9
2016
£m
4.4
–
4.4
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NOTES TO THE COMPANY
FINANCIAL STATEMENTS
(xiv) Subsidiary undertakings as at 31 March 2017
In accordance with Section 409 of the Companies Act 2006 a full list of subsidiary undertakings, the country of incorporation and the
effective percentage of equity owned, as at 31 March 2017 is disclosed below. Unless otherwise stated, the share capital disclosed
comprises ordinary or common shares which are held by subsidiaries of the Renold Group. The registered address of all offices is Trident 2,
Trident Business Park, Styal Road, Wythenshawe, Manchester, M22 5XB unless stated.
United Kingdom
Renold Power Transmission Limited*
Renold International Holdings Limited*
Renold Europe Limited*
Renold Holdings Limited*
United Kingdom (dormant companies)
Anchor Chain and Power Transmission Co Limited
Hans Renold Limited*
John Holroyd & Company Limited*
Jones & Shipman Limited*
United Kingdom (pension companies)
Renold Pensions Limited* (dormant)
Renold Group General Partner Limited*
Renold Scottish Limited Partnership
Europe (other than the United Kingdom)
3–5 Melville Street, Edinburgh, Scotland, UK, EH3 7PE*
Austria
Belgium
Denmark
France
Germany
Poland
Spain
Sweden
Switzerland
North America
Canada
USA
Renold GmbH
Renold Continental Limited
(incorporated in the United Kingdom)
Renold A/S
Brampton Renold SAS*
Renold GmbH*
Renold Holding GmbH*
Renold Automotive Systems Germany
Renold Polska sp. z o.o.
Renold Poland sp. z o.o.
Renold Hi-Tec Couplings SA
Renold Transmission AB (Sweden)
Renold (Switzerland) GmbH
Kärntner Ring 12, A-1010 Wien
Kaerup Alle 2, 1. Benlose, 4100, Ringstad
100 rue du Courbillon, 59175, Vendeville
Juliusmühle, 37574, Einbeck
Juliusmühle, 37574, Einbeck
Juliusmühle, 37574, Einbeck
ul. Mlyńska 11, 40-098 Katowice, Poland
ul. Mlyńska 11, 40-098 Katowice, Poland
C/ Antoni Gaudi 21, Bajos 2o, Gavá, Barcelona
Ringstrasse 16, CH-8600, Dübendorf 1
Renold Canada Limited*
Renold Inc
Jeffrey Chain LP
Renold Holdings Inc
Jeffrey Chain Acquisition Co Inc
Jeffrey Chain Corp
622 rue De Hull, Montreal, Quebec, H8R 1VG
100 Bourne Street, Suite 2, Westfield, NY 14787
2307 Maden Drive, Morristown, TN 37813
2307 Maden Drive, Morristown, TN 37813
2307 Maden Drive, Morristown, TN 37813
2307 Maden Drive, Morristown, TN 37813
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FINANCIAL STATEMENTS
(xiv) Subsidiary undertakings as at 31 March 2017 continued
Other countries
Australia
China
Renold Australia Proprietary Limited*
Renold Transmission (Shanghai) Company Limited
Renold Technologies (Shanghai) Company Limited
Renold (Hangzhou) Co Limited
India
Renold (China) Transmission Products Co Ltd
Renold Chain India Private Limited
Malaysia
Renold (Malaysia) Sdn Bhd
New Zealand
Renold New Zealand Limited*
Renold Retirement Trustee Limited
Singapore
South Africa
Renold Transmission Limited
(incorporated in the United Kingdom)
Renold Crofts (Pty) Limited*
Thailand
Renold (Thailand) Limited
* Directly held by Renold plc.
508-520 Wellington Road, Mulgrave, Victoria 3170
Section A, Floor 3 of Composite Building, No. 18 North Fute
Road, China (Shanghai) Pilot Free-Trade Zone, Shanghai
Building 3, No. 385 Zheng Zhong Xin Road, Beicai Town,
Pudong, Shanghai
No.82 Dongfang Road, Yiqiao Town, Xiaoshan District,
Hangzhou Municipality, Zhejiang Province
No. 168 Huacheng Road, Jintan District, Changzhou
S.F No: 568/1A, 569/1&2, D. Gudalur (P.O), Vedasanthur (T.K),
Dindigul (D.T), Tamil Nadu – 624 620
No. 2, Jalan Anggerik Mokara 31/44, Kota Kemuning, Seksyen
31, 40460 Shah Alam, Selangor, Malaysia
594 Rosebank Road, Avondale, Auckland
Melville Jessup Weaver, Level 5, 40 Mercer St, Wellington,
6142
Cnr Liverpool Road and Bolton Street, Nestadt Industrial
Sites, Benoni, 2007, Gauteng
399 Interchange Building, Unit 10, 24th Floor, Sukhumvit 21
Road, Klongtoey Nua Sub-District, Wattana District, Bangkok
All of our companies, with the exception of Renold (Hangzhou) Co Limited and Renold Chain India Private Limited, 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 below) interest in the equity shares and voting rights.
The Group has the following interests in the exceptions noted above:
Subsidiary undertaking
Renold (Hangzhou) Co Limited
Renold Chain India Private Limited
Our overseas companies are incorporated in the countries in which they operate except where otherwise stated.
Equity
shares
90%
75%
Voting
rights
90%
75%
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CORPORATE INFORMATION
Corporate Calendar
Annual General Meeting
Half year end 2016/17
19 July 2017
30 September 2017
Announcement of half year 2016/17 results
14 November 2017
Year end 2017/18
31 March 2018
Announcement of annual results 2017/18
29 May 2018
Payment of preference dividends
1 July 2017 and 1 January 2018
Registered number: 249688
Telephone: +44 (0)161 498 4500
Fax: +44 (0)161 437 7782
Email: enquiry@renold.com
Website: www.renold.com
Company details
Registered office
Trident 2, Trident Business Park
Styal Road
Wythenshawe
Manchester
M22 5XB
Company Secretary
Louise Brace
Auditor
Deloitte 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 8.30 am to 5.30 pm,
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.
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GLOSSARY
ADDITIONAL INFORMATION
2014 Code
Adjusted
AGM
Guidance, issued by the FRC in 2014, on how companies should be governed, applicable to UK
listed companies including Renold.
Add back pension administration costs, exceptional items, amortisation of acquired intangible
assets 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 month's closing working capital divided by rolling 12 months'
sales.
Board
CAGR
The Board of Directors of the Company (for more information see pages 60 and 61).
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
The Directors/Executive Directors and Non-Executive Directors of the Company whose names are
set out on pages 60 and 61 of this Report.
EBITDA
EPS
FCA
FRC
Financial Year
FRS
IAS or IFRS
LTA
Ordinary shares
PwC
PSP
Reasonable certainty
ROCE%
ROS%
Subsidiary
TSR
UK GAAP
Underlying
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.
Financial Conduct Authority.
Financial Reporting Council.
For Renold this is an accounting year ending on 31 March.
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.
Lost Time Accident.
Voting shares entitling the holder to part ownership of a company.
The Company’s external adviser, Price Waterhouse Coopers LLP.
2013 Performance Share Plan (approved by shareholders at the 2013 AGM).
Deferred tax assets are recognised if they can be utilised within three years of the balance sheet
date unless there are specific circumstances making it more or less likely that these assets will be
utilised.
Return on Capital Employed is calculated as follows: adjusted operating profit 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: adjusted operating profit divided by revenue.
A company or other entity that is controlled by Renold.
Total Shareholder Return which is share price growth plus dividends reinvested where applicable.
United Kingdom Generally Accepted Accounting Practice. Generally accepted accounting principles
in the UK. These differ from IFRS and from US GAAP.
Restate prior period information at current year exchange rates.
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Renold plc Annual Report and Accounts 2017 for the year ended 31 March 2017
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25290-04 AR 2017 Proof 325290-04 AR 2017 Proof 3Renold plc Annual Report and Accounts for the year ended 31 March 2017Renold plc Trident 2 Trident Business Park Styal Road Wythenshawe Manchester M22 5XBTelephone: +44 (0)161 498 4500www.renold.comRenold AR2017-Proof3.indd 16/7/2017 2:56:00 PM