Renault Annual Report 2018

FY2018 Annual Report · Renault

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Renold plc Annual Report and Accounts
for the year ended 31 March 2018

Re-shaping
for success.

www.renold.com Stock code: RNO
www.renold.com Stock code: RNO

25955-02 AR 2017 Proof Five25955-02 AR 2017 Proof Five

Introduction

Renold plc is an international group delivering high precision engineered
and power transmission products to our customers worldwide.
Our market-leading products can be seen in diverse applications from
cement making to chocolate manufacturing, subway trains to power
stations, escalators to quarries; in fact, anywhere something needs to be
lifted, moved, rotated or conveyed.

Our Values

Our key areas of focus
Our 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 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.

Operate with integrity

Value our people

Work together to
achieve excellence

Accept accountability

Be open-minded

READ MORE ABOUT OUR VALUES
ON PAGE 42

READ MORE ABOUT OUR STRATEGY
ON PAGES 12 AND 13

IFC

25955-02 AR 2017 Proof Five25955-02 AR 2017 Proof FiveOVERVIEWRenold plc Annual Report and Accounts for the year ended 31 March 2018Highlights

UNDERLYING1 REVENUE (£m)
£191.6m

REVENUE (£m)
£191.6m

203.9

199.8

191.6

184.0

181.4

183.4

191.6

185.5

184.6

165.2

2014

2015

2016

2017

2018

2014

2015

2016

2017

2018

ADJUSTED2 OPERATING
PROFIT (£m)
£14.2m

15.5

14.2

14.5

14.2

11.1

OPERATING PROFIT (£m)
£5.6m

12.1

11.1

11.0

(1.3)

5.6

2014

2015

2016

2017

2018

2014

2015

2016

2017

2018

ADJUSTED2 EARNINGS PER
SHARE (pence)
4.5p

5.0

4.7

4.6

4.5

3.2

EARNINGS PER SHARE (pence)
(1.0)p

2.5

2.4

2.1

2014

2015

2016

2017

2018

2014

2015

2016

2017

(4.9)

(1.0)

2018

1. Underlying results for prior years are retranslated to current year exchange rates for foreign currencies.

The Group uses alternative performance measures to provide useful historical financial information to
help investors evaluate the underlying performances of the business. A reconciliation to reported results
is included in Note 1 to the consolidated financial statements.

Contents

OVERVIEW
Introduction
Highlights
Group at a Glance
Chairman’s Letter

STRATEGIC REPORT
Market Review
Our Business Model
Our Customer Journey
Chief Executive’s Review
Our Key Performance Indicators
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
Chairman’s Letter
Board of Directors
Corporate Governance Report
Audit Committee Report
Nomination Committee Report
Directors’ Remuneration Report
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

IFC
01
02
04

06
08
10
12
18
20
22
24
30
32
37
38
40

46
48
50
60
66
68
86
90
91

101
102

103
104
105

109
143

144
145

146

147

IBC

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOOVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONGroup at a Glance

Renold plc is an international group delivering high precision engineered products
and solutions to our customers worldwide.

Chain

Torque Transmission

A global market leading supplier of chain for many applications
including heavy duty, high precision, indoor or outdoor, high or low
temperature and in clean or contaminated environments. 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, while 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.

A global manufacturer and developer of industrial 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. 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.

ADJUSTED
OPERATING
PROFIT

RETURN
ON SALES

EMPLOYEES AT
31 MARCH 2018

ADJUSTED
OPERATING
PROFIT

RETURN
ON SALES

EMPLOYEES AT
31 MARCH 2018

£14.7m

9.6%

1,641

£4.8m

12.5%

358

READ ABOUT OUR THE PERFORMANCE OF
OUR CHAIN DIVISION ON PAGES 20 AND 21

READ ABOUT OUR THE PERFORMANCE OF
OUR TORQUE TRANSMISSION DIVISION ON PAGES 22 AND 23

OVERVIEWRenold plc Annual Report and Accounts for the year ended 31 March 2018

Our international network includes eight countries where we both manufacture
and sell and a further eleven countries where we have sales companies,
strategically located to support our customers within our two operating divisions.

Renold employed an average of 2,049 people around the world in the last year,
with 52% of our staff engaged in direct production activities.

MAP KEY:

Manufacturing and sales company
Sales location

AMERICAS
Renold 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
from elsewhere in the Group.

Renold Ajax focuses on
gear spindles and other
HiTec coupling products.

EUROPE
Renold 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 PACIFIC
We operate manufacturing
plants in Australia and Malaysia.
These are supplemented by
additional sales centres in New
Zealand, Malaysia, 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
ECONOMIES
Our Chinese chain plant
primarily serves sister
companies with a range
of transmission chains and
has a smaller, but fast-growing,
local focus.

Our Indian business was
acquired in 2008 and
manufactures a broad range
of transmission and conveyor
chain with 81% of output
destined for the local market.

38%

of global sales*

39%

of global sales*

10%

of global sales*

* Remaining 5% relates to exports to other territories.

READ MORE ABOUT OUR MARKETPLACE
ON PAGES 6 AND 7

www.renold.com Stock code: RNOOVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONChairman’s Letter

Overview
During the year ended 31 March 2018,
Renold has continued to make progress
in the delivery of its strategic plan, with
the benefits evident in a number of areas
across the business. Organic growth has
been achieved for the first time in a number
of years as improving macroeconomic
conditions combine with progress in
developing the Group’s commercial and
sales operations. The financial benefit of
this organic growth, however, has been
absorbed this year by significant increases
in raw material costs. Despite
this, adjusted operating profit has been
held stable at levels consistent with
the previous two financial years, and
after increased depreciation from our
investment programme.

Our Markets
Market conditions improved through the
year as industrial customers returned to
growth following the challenging market
conditions experienced during the years
ended 31 March 2016 and 31 March 2017.
European markets moved first during the
latter part of the year ended 31 March
2017. The rate of growth in Europe slowed
through the year and has been superseded
by growth in the Americas, where Canada
has been particularly strong, and by India
and China. Australasia has lagged the cycle,
but recent orders suggest an improving
demand in heavy industry, such as the
mining and quarrying sectors.

Trading Performance
Revenue grew by 4.5% in the year (3.8%
excluding the impact of foreign exchange
movements), demonstrating the benefits
of the investment that has been made in
strengthening the commercial functions
across the world over the last few years.

Following a number of years of benign
and slowly reducing raw material prices,
the year to 31 March 2018 experienced
significant increases over a short period
of time, particularly for steel, the key raw
material for the Group. Sales price increases
have been implemented across all territories
to recover the additional costs being

incurred. However, continuing increases in
raw material prices, and the time required
for us to pass these on to customers,
resulted in a dilution of operating margins.

Adjusted operating profit of £14.2m was
broadly consistent with the £14.2m and
£14.5m delivered in the financial years
ended 31 March 2016 and 31 March 2017
respectively.

While this is disappointing, adjusted
operating profits have remained stable
despite the significant and rapid movement
in raw material costs. This demonstrates that
the strategic actions being delivered have
improved the resilience of the underlying
business and, as the impact of raw material
price increases abates, we expect to see
these improvements delivering increases in
adjusted operating margins.

Step 2020 Strategic Plan
I am pleased to be able to report that
we continue to make strong progress in
delivering key projects in support of the
Step 2020 Strategic Plan.

This time last year, I reported that we had
commenced a programme to relocate our
chain manufacturing facility in China from
Hangzhou to a purpose-built factory in
Jintan, near Changzhou in Jiangsu province.
I am pleased to confirm that construction of
the new facility is well advanced. The transfer
of manufacturing operations is scheduled to
take place over the coming months, with full
production from the new facility projected to
commence by the end of the financial year.

In addition to this major change project,
we also completed the closure of sub-scale
manufacturing facilities in China (Torque
Transmission) and New Zealand (Chain) with
both locations now focused on sales and
distribution. In the latter part of the year,
we also closed our sales office in Singapore,
transferring all customers to our existing
sales office in Kuala Lumpur, Malaysia, from
where they can be served more effectively.

We continue with our programme to roll
out our chosen business systems solutions,
including the ERP system and associated
scheduling and engineering systems.

“ We remain focused on
executing our STEP 2020
Strategic Plan, in order
to deliver sustainable
improvements in
performance. We have
delivered a third year
of consistent annual
adjusted operating
profits in volatile
market conditions.”

MARK HARPER
CHAIRMAN

READ MORE ABOUT OUR STRATEGY
ON PAGES 12 AND 13

READ MORE ABOUT OUR PERFORMANCE
ON PAGES 14 TO 29

READ MORE ABOUT OUR GOVERNANCE
ON PAGES 56 TO 58

25955-02 AR 2017 Proof FiveOVERVIEWRenold plc Annual Report and Accounts for the year ended 31 March 2018Summary
Market conditions improved through the
year and combined with strengthened
commercial teams to deliver organic growth
for the first time in a number of years.
While volatile raw material prices have
had a disruptive effect during the year,
we believe this to be a short term impact
which will recover over time. The improved
performance in the second half of the year is
evidence that this recovery has commenced.

We have not allowed this year’s challenges
to stand in the way of delivery of the STEP
2020 Strategic Plan and continue to deliver
significant business improvements. We
are making good progress and continue to
believe that mid-teens operating margins can
be delivered, supported by volume increases.

Mark Harper
CHAIRMAN

29 May 2018

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. For the first
time, we have awarded the Excellence
Award, the highest level of our Health and
Safety Award Schemes. Sites in Westfield
(US), Mulgrave (Australia) and Kuala Lumpur
(Malaysia) were awarded the Excellence
Award for their performance in the financial
year. Many congratulations to all of the
teams involved.

The third element of the STEP 2020
Strategic Plan addresses acquisitions and
the Group’s appetite to grow through
selective acquisitions. We continue to be
committed to this element of the strategy
and, in preparation for future acquisitions, we
exercised the accordion facility on the Group’s
Multi-Currency Revolving Credit Facility
during the year. The increased facility creates
additional headroom for opportunistic
acquisitions as and when they arise.

The Board and People
As previously reported, as part of a
programme of orderly succession, John
Allkins stepped down as Chairman of the
Audit Committee and Senior Independent
Director at the AGM in July 2017. David
Landless has taken up the role of Chairman
of the Audit Committee and Ian Griffiths
has been appointed as Senior Independent
Director. John will continue as a Non-
Executive Director until his retirement from
the Board at the 2018 AGM. I would like to
extend my thanks to John for his valuable
contributions during his tenure.

The Board continues to support the
Executive team in reviewing and monitoring
key activities under the STEP 2020 Strategic
Plan. The Board remains closely involved
in the oversight of the major project
deliverables and all Board members have
continued to give additional time and
support on a wide range of issues during
the year.

On behalf of the Board, I would like to thank
all our employees for their continued hard
work during the year as we progress the
Group’s strategy. The contribution of each
employee is valued and appreciated.

Pensions
The Group's retirement benefit obligations
decreased to £97.4m (2017: £102.0m), with
the largest element of the decrease relating
to contributions made to the schemes
through the year.

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 fully recognises the importance
of dividends to shareholders. However,
given the need to balance this with our
planned capital investments, particularly
in the new Chinese facility, the Board has
decided not to recommend the payment of a
dividend for the year ended 31 March 2018.
We continue to make major investments
in the Group’s infrastructure and
manufacturing plant and believe that this
ongoing investment provides the optimal
route to increasing shareholder value. This
approach will remain under active review
for future periods.

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOOVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONMarket Review

Renold is a leading manufacturer and distributor of power transmission
products and operates as two separate divisions: Chain and Torque
Transmission. The Chain division has eight production facilities and a local
presence in 18 countries, strategically placed to serve our customers on a
global basis. In Torque Transmission we operate a number of specialised
niche businesses that produce and sell a range of specialist products in both
the industrial couplings and industrial gear markets. The key elements of our
market proposition are common across both divisions: technical excellence,
value adding innovative product ranges and exceptional quality.

Global presence – local markets
Renold continues to benefit from
its presence in a wide spread of
geographic markets and even wider
range of diverse end user applications
across a myriad of industry sectors.

Our global manufacturing footprint not
only enables the business to control
product specification and quality, but
positions us well to service customers
with a rapid response in both our
traditional geographic territories and
within emerging markets. For example,
our facilities in India, China and
Malaysia combine to offer an excellent
platform for growth in Asia whilst also
supporting established markets in
Europe, the Americas and Australasia.

End-user markets
Power transmission products are used
within an extremely broad spread
of applications. With a very diverse
and numerically large customer
base, Renold’s reliance on any single
customer is relatively low. Our biggest
global customer represents 5% of
sales. Of our five largest customers,
three are themselves distributors
of a wide range of industrial power
transmission equipment and thus even
this limited concentration of our sales
is effectively sub-segmented into a
huge range of end customers.

Similarly, the business enjoys little
reliance on any one particular industry
with sales spread across most general

Our global sales and distribution
network is designed to offer local
commercial support and rapid
delivery, ensuring that we meet our
customers’ exacting specifications.
It also enables the aggregation of
overall demand to drive economies
of scale within our factories.
Whilst engineering and product
development is coordinated
globally, local support teams ensure
that we are able to rapidly
understand and provide solutions
for customers’ often technically
challenging power transmission and
conveying applications.

Revenue by geography

A
S

3
7
9
%

TOTAL OT H E R 2 3. 6

Other

China

India

4.2

5.0

4.1

USA

30.9

Australasia

10.3

18.0

Other
Europe

Sales by
geography
>100 countries
%

2.1

4.9

Canada

9.0

Other
Americas

Germany

3.7

7.8

France

L E

UROPE 38.5%

industrial markets such as construction
machinery, material handling,
transportation, mining and quarrying,
food processing, energy production,
agriculture, leisure and many more.

The chart demonstrates the spread of
revenue across a wide range of end-
customer markets. However, the data
only includes 57% of Renold’s revenue
as the remaining 43% is supplied
by Renold to distributor customers.
These distributors will in-turn supply
products to their end-customers who
are likely to further diversify the end-
customer base into which Renold’s
products are supplied.

Revenue by sector

Agriculture, forestry
and ﬁshing

Other

6.9

22.1

Construction
machinery

12.6

Mining and
quarrying

Transportation

4.4

5.1

Sales by end
user market
%

Energy

6.6

1.6

6.5

Environmental

Food and drink

Material handling

17.4

16.8

Manufactured products

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018STRATEGIC REPORT

Routes to market

In order to successfully target the diverse end-customer sectors,
Renold goes to market through three main customer channels:
Æ Original equipment manufacturers (OEMs);
Æ Distributors; and
Æ End-users.

This combined approach provides options to our end-user
customers to identify and select Renold products in a way that
most optimally aligns to their business model.

READ MORE ABOUT OUR PERFORMANCE
ON PAGES 14 TO 29

OEMs

DISTRIBUTORS

END-USERS

Customers in this segment typically value
the technical expertise that Renold can bring
to bear in providing solutions to increasingly
demanding applications as their own
products are developed. An example of this
are our gearbox solutions provided by the
Torque Transmission division to lower volume
manufacturers of original equipment.

In instances where, due to size or
specification requirements, standard
products are not suitable, Renold is able to
design a solution which becomes integral
to the equipment design.

In the year ended 31 March 2018, 38% of
revenue was through the OEM channel.

The sophistication and reach of distributor
networks varies greatly around the world.
In India, for example, distributors are
generally small single site operations, or
small local networks. They provide a local
inventory holding for standard products. At
the opposite end of the scale are the large
national US distribution networks who are
able to provide both standard product across
a very broad product range and are also able
to develop, along with their supply chain
partners, specialist solutions for customers.

In the year ended 31 March 2018, 43% of
revenue was through the distributor channel.

While not always a well-defined category,
end-user demand is generally to support
larger and more complex service and
MRO (maintenance, repair and overhaul)
applications where customers gain value
from dealing direct.

In the year ended 31 March 2018, 19% of
revenue was through the end-user channel.

38% OF REVENUE

43% OF REVENUE

19% OF REVENUE

Market summary
Performance in the year was against an improving backdrop of
macroeconomic conditions within our core geographic markets.
While the economic backdrop over the previous few years had been
challenging for industrial markets, market conditions have improved
with growth in industrial production and an improvement in the
number of capital projects.

In anticipation of improving market conditions, we had previously
strengthened the commercial team across all areas of the business.
Within Europe and the Americas, our sales teams have been

reorganised with dedicated teams adopting a more market focused
approach. Significant investment in additional sales resource has
also been made in higher growth Asian markets.

The combined effect of improving market conditions and the actions
implemented to ensure we were well positioned to take advantage
of the improvement has resulted in underlying revenue growth of
3.8% in the year ended 31 March 2018.

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOOVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONOur Business Model
The Renold business model is focused on leveraging the unique knowledge
and capabilities of our people and facilities to generate value for our
stakeholders. The continuous value generation cycle that underpins STEP
2020 is shown below.

KNOWLEDGE
of customer problems,
products and solutions

Æ Reviewing after-sales service means we

continue to learn and deliver.

Æ Deep understanding of metallurgy and
chemistry in real world scenarios.
Æ Practical application of engineering

excellence.

SERVICE
unique after-sales service
means we continue to learn and deliver

Æ After-sales service centres and product

performance monitoring.

Æ Rapid response offering on standard configured

chain and standard transmission chain.
Æ Getting closer to customers in more locations.

SKILLS AND
FACILITIES
the ability to conceive and
deliver these solutions

Æ Bringing our unparalleled engineering capability

to design customer solutions.

Æ Deploying over 100 years of manufacturing
know-how to create superior products.

Æ Manufacturing capability in most major regions.

LOGISTICS
the right product in the right
place at the right time

Æ Wide range of stocked products can
reduce supply chain complexity.
Æ Daily shipment options respond to

customer specific needs.

Æ Rapid response cells geared up

for swift deliveries.

Our business model is underpinned by...

People

We 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.

Assets

We are upgrading our
infrastructure and process
capability to be an
appropriate match for our
strategic goals. This will
support better quality and
service and also lower our
breakeven point.

Partners

We work in long-term
collaboration with a wide
range of general and
specialist suppliers.
This supports our ability
to source complex
materials for our leading
edge solutions.

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018STRATEGIC REPORT

Our business model creates
value for our customers...

End-users

Æ Expert knowledge
Æ Bespoke solutions
Æ Unique problems understood and solved
Æ The Renold brand and unparalleled

engineering capability

19% of sales

...and for our stakeholders

Our shareholders
Æ WE HAVE A DETAILED

STRATEGY FOR GROWTH

READ MORE ABOUT OUR STRATEGY
ON PAGES 12 AND 13

OEMs

Æ Range of facilities and capabilities
Æ Bespoke solutions
Æ Meeting their own customer needs
Æ The Renold brand and unparalleled

engineering capability

38% of sales

Distribution

Æ Trust and customer support
Æ Reliability
Æ Access to broad product range
Æ The Renold brand and unparalleled

engineering capability

43% of sales

READ ABOUT THE CUSTOMER JOURNEY
ON PAGES 10 AND 11

Our partners
Æ A LONG-TERM RELATIONSHIP
Æ A COLLABORATIVE PROCESS

Our employees
Æ DEVELOPMENT OF TALENT
Æ THE ABILITY TO WORK

FOR A BUSINESS WHOSE
VALUES ALIGN WITH THOSE
OF THE EMPLOYEE

READ ABOUT PEOPLE ON PAGES 40 AND 41

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOOVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONOur Customer Journey
Our activities range from diagnosing our customers’ specific power
transmission application challenges, to proposing the right material solutions,
to formulating their often complex properties, to cutting and heat treating the
components and finally to assembling the finished product.

1
Bringing our unparalleled
engineering capability to
design customer solutions

We have deep knowledge of the
performance characteristics of a number
of metals and surface treatments

Deploying over 100 years

of manufacturing know-how

to create superior products

Heat treatment expertise

is a key competency in

many locations

Analysing
customer
problems

Design

Material
speciﬁcation

Coating
speciﬁcation

Making

components

ENGINEERING CENTRE

Customer issues are
often challenging and
sometimes unique

Specifying the right grade
and composition
of metals is key

Material performance
can be enhanced with
the right coating

MANUFACTURING

Assembling

components

SERVICE

Ongoing performance
monitoring, ﬁeld support
and technical advice

WAREHOUSE

Sales
channels

Enhancing the customer
experience with after-sales service
and performance monitoring

After-sales
service

READ MORE ABOUT OUR STRATEGY
ON PAGES 12 AND 13

Treating

components

Heat treatment and

other applications to

optimise performance

Automated assembly

processes reduce lead times

Wide range of stocked

products and daily

shipment options

Shipping

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018STRATEGIC REPORTWe 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.

Bringing our unparalleled

engineering capability to

design customer solutions

We have deep knowledge of the

performance characteristics of a number

of metals and surface treatments

Deploying over 100 years
of manufacturing know-how
to create superior products

1
Heat treatment expertise
is a key competency in
many locations

Analysing

customer

problems

Design

Material

speciﬁcation

Coating

speciﬁcation

Making
components

ENGINEERING CENTRE

Treating
components

Heat treatment and
other applications to
optimise performance

Customer issues are

often challenging and

sometimes unique

Specifying the right grade

and composition

of metals is key

Material performance

can be enhanced with

the right coating

MANUFACTURING

Assembling
components

SERVICE

Ongoing performance

monitoring, ﬁeld support

and technical advice

WAREHOUSE

Sales

channels

Enhancing the customer

experience with after-sales service

and performance monitoring

After-sales

service

Automated assembly
processes reduce lead times

Wide range of stocked
products and daily
shipment options

Shipping

KNOWLEDGE

SKILLS &
FACILITIES

SERVICE

LOGISTICS

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOOVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONChief Executive’s Review

Our Strategy
Our three phase strategic plan...

PHASE 3

Acquisitions

The market for industrial chain
remains highly fragmented across
geographies and sector niches.
Acquisitions have the potential to
deliver value from:

Æ Accessing incremental growth
opportunities in new product
sectors or new end-user markets

Æ Providing routes to new

geographic markets for Renold’s
existing product range

Æ Consolidating volume into

facilities with efficient business
processes and efficient
manufacturing capabilities

Renold has the underlying
characteristics to make the Group a
natural consolidator in the industrial
chain market. Our reputation, broad
product range and geographic reach
provide a strong foundation for
integration.

PHASE 2

Organic Growth

Renold has strong market share in certain geographic
markets and product categories. However, the
fragmented nature of the power transmission
market and the diversity of end-user markets creates
significant opportunities for organic growth.

Improving our sales and marketing
We are targeting specific end-user markets where
growth opportunities can help to mitigate the
cyclicality experienced in industrial markets. Through
direct interaction with our end-customers, we will
reinforce our reputation for quality engineering
solutions and high performance products.

Enhanced customer service
Historical levels of customer service have not
been at sufficiently high standards and have not
matched our reputation for product quality. We are
working to evolve and enhance our service offer
for standard products and for highly engineered
bespoke solutions.

Optimise business processes
We aim to deliver business processes with the same
degree of flexibility that we are targeting for our
operations. By implementing simple, repeatable
and standardised business processes, we will lower
our costs.

Improve our product margins
We aim to achieve appropriate value for the highly
technical products we offer to the market.

Make the right hires to drive growth
We 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.

“ We continue to progress
our Strategic Plan.
Organic revenue growth
is being delivered,
and we continue with
restructuring and
investing in order to
sustainably improve
operating margins."

ROBERT PURCELL
CHIEF EXECUTIVE

PHASE 1

Restructuring

Restructuring is the area of greatest progress
to date since the commencement of the STEP
2020 Strategic Plan in 2013. While many projects
have been successfully implemented, numerous
opportunities remain to improve efficiency
and effectiveness.

Right size our cost base and improve
manufacturing efficiency
We aim to enhance flexibility of existing capacity
through enhanced automation, leading to a direct
improvement in variable and net margins.

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018STRATEGIC REPORT...is being implemented
through our staircases...

...to deliver our
strategic objectives...

Business
process efficiency

Manufacturing efficiency

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

Commercial positioning

DEVELOPING OUR PEOPLE

Corporate efficiency

Growth activities

READ MORE ABOUT
THE STAIRCASES ON PAGES 14 AND 15

STRENGTHENING AND DE-RISKING OUR
BALANCE SHEET

...in support of our
strategic goal

TO DELIVER MID-TEENS NET OPERATING
MARGINS THROUGH A COMBINATION OF
RESTRUCTURING THE GROUP, DELIVERING
ORGANIC GROWTH AND COMPLETING
VALUE ENHANCING ACQUISITIONS

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOOVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONChief Executive’s Review

In addition to the cost increases arising from
increasing raw material prices, margins
were also impacted by the effects of
major machine breakdowns in the second
quarter of the year at our facility in Einbeck,
Germany. These breakdowns temporarily
reduced manufacturing capacity, resulting in
reduced availability of key lines. In order to
mitigate the impact on key customers, the
business incurred increased shipping costs
as air-freight was used to reduce disruption
to supply.

On a reported basis, adjusted operating
profit decreased to £14.2m (2017: £14.5m).
Adjusting for the impact of foreign exchange
movements in the year, underlying adjusted
operating profit reduced by £0.7m, with a
£1.5m reduction for the first half of the year
offset by growth of £0.8m in the second
half. The increase in adjusted operating
profit from £6.0m in the first half of the year
to £8.2m for the second half demonstrates
progress against the factors impacting first
half profitability.

Order intake improved in both the Chain and
Torque Transmission divisions, with total
orders 5.4% ahead of revenue for the year
as a whole. Growth in Chain Europe has
been slower, following a strong second half
in the prior year. In other territories, order
intake grew as market conditions improved.

STEP 2020 Strategic Plan –
update on progress

PHASE I – Restructuring

Æ Manufacturing efficiency
In the latter part of the prior year, we merged
our UK Couplings manufacturing operations
to a single facility in Cardiff. The consolidated
business has been operating from the single
location from the start of the financial year
and is a key element in the improved trading
performance of Torque Transmission. Order
intake remains strong, and the decision
to focus manufacturing in one location,
justifying investment in state-of-the-art
production equipment, has been well
received by key customers.

During the year, we closed the manufacturing
activities of two small sub-scale operations:
New Zealand in the Chain Division and China
in the Torque Transmission Division. In both
cases, the manufacturing operations did not
have sufficient critical mass to be efficient
as stand-alone units and the manufacturing
has been absorbed into other sites around
the world. In both instances, sales functions
continue to operate in-country and act as
the point of contact for Renold’s products
manufactured elsewhere in the world.

We previously set out our plans to relocate
the Chinese chain manufacturing facility to
a purpose-built facility near Changzhou in
Jiangsu province. This is a significant factory
move which will take around 18 months to

We continue to progress our Strategic
Plan. Organic growth is being delivered,
benefiting from the structural changes
made over the last few years, combining
with improvements in the Group’s core
industrial markets. Adjusted operating
margins have been impacted by significant
raw material price increases during the year,
and by the pace with which we have been
able to pass these through to customers.
Action continues to be taken on customer
pricing to reflect continuing increases in
raw material costs and we expect to see the
benefit of these actions when raw material
prices stabilise. We have not allowed
these challenges to delay or obstruct our
strategic progress and continue to take
the actions required to deliver sustainable
improvements in performance.

Overview
The investment we have made in our
commercial teams is now starting to pay
off and is being supported by improving
market conditions in our end-user markets.
Organic growth has been delivered for the
year ended 31 March 2018, following two
years of declines in underlying revenue.
Underlying revenue increased by £7.0m to
£191.6m and it is particularly pleasing to note
that the revenue growth is spread across our
divisions and our geographic territories.

The improving economic backdrop amongst
other factors, has resulted in significant
price inflation for basic raw materials. For
Renold, the most important raw material
is steel and prices increased substantially
over the year in all our geographic regions.
The speed of change has been rapid and
at a faster rate than we have passed on to
customers through sales price increases.
In the year ended 31 March 2018, raw
material cost as a percentage of revenue
has increased by 200bps, directly impacting
upon the Group’s adjusted operating profit
margin which fell to 7.4% (2017: 7.9%).

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018STRATEGIC REPORTWhile there is much that remains to be done
to improve our business process efficiency
and progress is slower than originally
envisaged, I continue to believe that
significant opportunity exists to remove cost
and non-value adding processes in support
of improving our operating profit margins.

PHASE II – Organic Growth

Æ Growth activities
Over the last few years, Renold has been
restructuring and strengthening the
commercial and sales teams around the
world. This has coincided with sluggish
end-user markets; however, following an
improving economic back-drop in our core
industrial markets, the benefits of these
changes is being demonstrated in organic
growth across all Chain units and in certain
Torque Transmission business units.

Underlying revenue growth accelerated
through the year with 2.7% delivered for the
first half, increasing to 4.9% for the second
half as sales price increases combined with
volume growth to deliver organic growth in
underlying revenue of 3.8% for the year as
a whole.

We continue to target non-traditional
sectors where we believe Renold’s products
can provide a point of difference and
where we can reduce our exposure to the
cyclicality of core industrial markets. We
are seeing progress from this approach in
growth markets such as logistics and ports
and anticipate further benefits in the future.

two years to complete. During the year, we
have been coordinating the factory build
programme which is now well advanced.
The project remains on plan with the new
facility expected to open during the second
half of the year ending 31 March 2019.

Æ Business process efficiency
The most significant element of the
programme to improve business process
efficiency is the implementation of the
Group’s ERP system across all its sites.
Progress continues and our Swiss Chain
business unit was the latest to ‘go-live’.
This is the first of our European Chain
business units to implement the system
and a large proportion of the initial set-up
relates to the European Chain business as
a whole. As a result, we expect the roll out
programme to accelerate as the programme
progresses. Preparations for roll out to the
Chain businesses in China and India are well
progressed and they will both implement
the system during 2018.

While the ERP system is the base platform
for our business processes, there are a
number of ancillary applications which
interface with the ERP system, where we
continue to make progress. Warehousing
and scheduling are particular elements of
Renold’s operations that have historically
been reliant on individual knowledge with
limited standardised processes. We continue
to roll out tools and systems to support
operations in these areas and in the year
have implemented both scheduling and
warehousing solutions in Chain Americas
and the scheduling solution in the Torque
Transmission Gears business unit. In
addition, we continue to make progress with
our engineering systems, including our chain
design software and our CAD/CAM systems,
and in digitising our extensive library of
chain designs and specifications.

Æ Commercial positioning
Historically, Renold’s customer service
levels have not fully measured up to the
world class engineering excellence of our
products. In order to address this, we
have implemented a business wide ‘STEP
2 Service’ programme which seeks to
identify and address the specific underlying
issues which result in inadequate levels
of customer service. In addition, we are
using the programme to shine a light on
the cultural changes required at all levels
of our businesses if we are to put customer
service at the forefront of our business
model. We remain in the early stages of
this programme, but I believe that if we
can match our engineering excellence with
sector leading service, we will continue
to differentiate ourselves and reinforce
Renold’s position in the market.

PHASE III – Acquisitions

Acquisitions remain a core component
of our strategic plan. Acquisitions that
can deliver growth or enhance margin,
either through access to new markets
and products or through consolidation of
production facilities, have the opportunity
to deliver value whilst reinforcing Renold’s
reputation as a leading global supplier of
chain and torque transmission products.
We are actively pursuing acquisition
opportunities and during the year, we
recruited a Group Corporate Development
Director to accelerate our progress in
this area. By their nature, the timing
of acquisitions is unpredictable and is
dependent upon availability of suitable
targets. We have clear acquisition criteria
by which we will measure opportunities as
they arise.

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOOVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONChief Executive’s Review

Progress with Strategic Objectives

STRATEGIC
OBJECTIVE

CHANGE

KPI MEASURES
(SEE PAGES 19 AND 20)

PROGRESS IN
2017/18

Æ Lost time accident frequency rate

Æ Reportable injury rate

Æ Lost time days

Æ Safety improvements

Health and safety remains our top priority. Our lost time
accident frequency rates and our reportable injury rates
continue to demonstrate improvement from cumulative
efforts to implement a culture of safety across the Group.
For the first time we have awarded Excellence Awards –
our top category of Health and Safety Award Scheme.

Æ Return on sales

Æ Adjusted EPS

Organic revenue growth has been delivered for the
first time in a number of years. However, the impact of
unrecovered raw material price increases and machine
breakdowns at our site in Einbeck, Germany have
resulted in declines in the key profitability metrics of
return on sales and adjusted EPS.

Customer service improvements remain key to supporting
future organic growth. Customer service has historically
been a weak point of the Renold offering. The ‘STEP 2
Service’ programme launched in the year seeks to develop
a stronger customer service ethos across the Group.

Æ Sales per employee

We continue to make progress in creating more effective
processes and consistency of procedures in order to
lower the cost base of the business.

Æ Total overheads

The breakeven point has historically been measured as the
expected monthly sales revenue required to breakeven. As
a result of raw material price inflation in the year, the level
of revenue required to breakeven has increased.

The Group has continued to review and strengthen the
management team and organisation structures. We
continue to invest in future leaders and apprentices to
ensure the continuity and stability into the future.

Æ Cost of servicing legacy pensions

Æ Average working capital ratio

Æ Leverage ratio

Æ Net debt

We continue to invest in the business through
restructuring, capital investment and acquisition
(deferred consideration paid in the year) increasing net
debt and leverage from a low point at 31 March 2017,
which benefited from the disposal proceeds of our
Melbourne, Australia site.

1 Significantly

improving our
health and safety
performance

2 Generating

margin enhancing
growth from our
superior product
capability

3 Enhancing

customer service

4 Optimising
business
processes

5 Lowering our

breakeven point

6 Developing our

people

7 Strengthening
and de-risking
our balance sheet

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018STRATEGIC REPORTDespite the challenges this year, we have
delivered a third year of stable adjusted
operating profits at levels above those
delivered before we commenced the STEP
2020 strategic programme. We believe
that this demonstrates the benefits being
delivered by the programme. Having
overcome these short-term challenges, we
continue to believe that the STEP 2020
strategy is the correct approach to creating
and maintaining a more robust, higher
margin business.

Robert Purcell
CHIEF EXECUTIVE

29 May 2018

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 plans.

Outlook
Through a combination of strategic action
and improving market conditions, we have
delivered organic revenue growth for the
first time in a number of years. Order intake
continues to remain strong with order books
meaningfully ahead year-on-year.

In Europe, the Brexit process creates
uncertainty for Renold and for our
customers. However, with only 7.8% of our
Group revenues generated in the UK and
with the majority of export sales from our UK
Torque Transmission plants to non-European
destinations, we do not believe that we are
overly exposed to risk in this area.

In the US, which represents 31% of our
revenue, the recently introduced import
tariffs have the potential to disrupt the
markets in which we operate. The initial
programme of tariffs does not directly
impact our finished products, but does cover
a number of our raw materials, which we
largely source from US-based suppliers.
While it is too early to determine the impact
of these changes, or whether the scope of the
tariff arrangements will be further extended,
our operating model currently includes
US-manufactured product combined with
imports of products from other global Renold
manufacturing locations. As a result, we
have flexibility to adjust our manufacturing
strategy and adapt our approach if required
in response to longer term changes in the
competitive environment.

During the year ended 31 March 2018, raw
material costs increased significantly and
we were too slow to respond, resulting in
an ongoing lag in passing these increased
costs on to customers. This, combined with
factory disruption, impacted profitability in
the first half. Action to pass increased costs
to customers through sales price increases
has been implemented and, with the factory
disruption behind us, profitability increased
in the second half of the year.

For the year ahead, we expect growth to
continue as improving macroeconomic
conditions strengthen order intake. Those
same macroeconomic conditions are
resulting in inflationary pressures on raw
material costs and labour rates, which have
also been impacted by legislative changes
in some territories. Despite this, we expect
growth, recovery of material price increases
and continued efficiencies to overcome cost
pressures and deliver improved adjusted
operating profit margins.

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOOVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONOur Key Performance Indicators

Our financial and non-financial key performance indicators (KPIs) provide a
measure of our performance against the key drivers of our strategy. Their
relevance to our strategy and our performance against these measures are
explained on these pages.

NON-FINANCIAL KPIS

Health & safety measures

FINANCIAL KPIS

Profit measures

Relevance to strategy 1
Safety is our number one priority. We believe that every work-related
incident and injury is preventable and are committed to providing a
safe workplace

Lost time accident
frequency rate

15.6

14.0

7.0

7.1

5.8

Definition: Over a 12 month period,
this ratio shows the total number of
lost time accidents, irrespective of
severity, against the hours worked.
An internationally recognised
standard measure

Performance 5.8

Relevance to strategy 2
Profit measures give insight into cost management, performance
efficiency and growth. We are focused on increasing productivity,
reducing operating costs and delivering organic growth

Return on sales (%)

Definition: Adjusted operating profit
divided by sales

8.5% 8.6%

7.9%

7.4%

Performance 7.4%

6.0%

Change

2014

2015

2016

2017

2018

Change

2014

2015

2016

2017

2018

Reportable
injury rates

2,060

1,665

Definition: Over a 12 month period this
ratio shows the number of accidents
greater than three lost days, against the
average number of employees in the
same period. An internationally
recognised standard measure

887

777

Performance 455

455

2014

2015

2016

2017

2018

Change

Adjusted earnings per
share (p)

5.0

4.7

4.6

4.5

3.2

Definition: Earnings per share before
restructuring costs or adjusting items. This
is a key metric used by capital markets and
stakeholders in assessing performance
improvement and value generation

Performance 4.5p

Change

2014

2015

2016

2017

2018

Lost time days

806

587

Definition: The total number of lost
days attributable to all accidents in the
12 month period. An internationally
recognised standard measure

Performance 248

308

248

190

Change

2014

2015

2016

2017

2018

Safety improvements

1,723

1,466

1,304

1,233

n/a
2014 2015

2016

2017

2018

Definition: We drive all our sites
to capture and implement safety
improvements. An internationally
recognised concept with different
measures applied by different businesses

Performance 1,304

Change

READ MORE ABOUT HEALTH & SAFETY
ON PAGES 38 AND 39

STRATEGIC OBJECTIVES

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

READ MORE ABOUT OUR STRATEGY
ON PAGES 12 AND 13

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018STRATEGIC REPORTEfficiency measures

Capital and cash measures

Relevance to strategy 4
Delivering improved efficiency in everything we do is a core element
of our strategic goal of delivering mid-teens operating margins

Relevance to strategy 7
Capital and cash measures reflect how we are managing our cash
and balance sheet. A strong balance sheet is essential to remaining
robust through the economic cycle and creating the ability to deliver
appropriate shareholder returns

Sales per employee
(£000)

89.5

84.0

83.1

84.6

93.5

Definition: Total sales divided by the
average number of employees. A simple
way to assess the efficiency of our
business processes

Cost of servicing
legacy pensions (£m)

5.0

5.3

6.0

5.5

Performance £93,500

Change

Definition: Annual cash contributions
to closed legacy defined benefit
pension schemes, including associated
administrative costs. The goal is to maintain
stability and certainty of cash costs

Performance £5.5m

Change

2014

2015

2016

2017

2018

2014

2015

2016

2017

2018

Total overheads* (£m)

77.9

74.8

71.1

73.7

74.7

Definition: 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

Average working
capital ratio (%)

21%

Definition: Working capital as a ratio of
rolling 12 month sales. Calculated as a
simple average of the previous 12 months

18%

19%

Performance 21%

Performance £74.7m

Change

2014

2015

2016

2017

2018

2014

2015

2016

2017

2018

KEY:

KPI result is an improvement on the prior year

KPI result is unchanged on the prior year

KPI result is a deterioration on the prior year

* Overheads increased by c.£3.0m following acquisition

of Tooth Chain in late FY16.

Leverage ratio

1.5

1.1

0.9

0.8

Definition: Ratio of net debt to adjusted
EBITDA. ‘Banking’ leverage means the
figure reflects our banking agreements
which differ from IFRS (e.g. preference
shares are debt in IFRS but ignored in our
banking agreement)

Performance 1.1x

2014

2015

2016

2017

2018

Change

Net debt (£m)

Definition: Total borrowing less
cash balances

24.8

23.5

24.3

Performance £24.3m

19.5

17.4

Change

2014

2015

2016

2017

2018

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOOVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
Our Performance:
Chain

Renold Chain is a global market leading supplier of
differentiated and value added chain products for
a wide variety of end use applications. We create
innovative solutions for our customers and the
Renold name is known for industry leading design
and specification, high quality 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

Revenue

Foreign exchange

Underlying revenue

Adjusted operating profit

Foreign exchange

Underlying adjusted operating profit

2018
£m

153.1

–

153.1

14.7

–

14.7

2017
£m

146.1

1.1

147.2

16.6

0.5

17.1

Underlying revenue of £153.1m was £5.9m
(4.0%) ahead of the prior year. Improving
macroeconomic conditions have combined
with a restructured and expanded
commercial team to deliver organic
revenue growth across all Chain regions.
While regional performance has varied,
the fact that improvement is present in all
territories is reflective of a broad underlying
improvement in end market conditions.

European revenue improved strongly during
the second half of the prior year and growth
has continued through the year ended
31 March 2018, with an underlying revenue
increase of 1.8%. Revenue in the Americas
finished 5.7% ahead of the prior year on an
underlying basis, with improving demand in

the US from major distributors and larger
OEM accounts and strong demand from
Canadian customers. This is a positive sign
following challenging market conditions over
the previous few years.

Underlying revenue in Australasia increased
by 3.6%. Australia continued to see lower
levels of maintenance spend from key mining
customers and together with New Zealand,
revenues were broadly flat for the year.
The growth in Australasia was substantially
delivered in South East Asia, where key palm
oil markets recovered following weakness in
prior years.

Domestic revenues in our developing market
regions of China and India grew by 12.6% and
6.1% respectively.

Underlying order intake of £158.8m was up
by £8.3m (5.5%) on the previous year. At a
regional level, European underlying order
intake increased by 1.0% following a strong
second half of the prior year, and orders
remain ahead of revenue for the year. In the
Americas, order intake grew strongly with an
increase of 11.7% reflecting an improvement
in underlying market conditions and,
critically, a recovery of major project work
which has been absent until recently. Order
intake in Australasia followed a similar trend
to revenue and was marginally up by 0.5%.
Order intake increased by 13.0% in China
and 7.4% in India. Total orders for the year
finished £5.7m (3.7%) ahead of sales.

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018STRATEGIC REPORTAs a result of these disruptive factors,
underlying adjusted operating profit finished
at £14.7m compared to £17.1m last year, with
an adjusted operating profit margin of 9.6%
(2017: 11.4%).

Progress in mitigating the impact of raw
material cost increases through the year
is demonstrated by improvement in the
adjusted operating profit margin from 8.0%
in the first half of the year to 11.2% in the
second half.

Summary
A return to organic growth is a positive
sign and justifies the investment made in
strengthening the commercial and sales
teams across the Chain division. We have
worked hard to pass on the raw material
prices to our customers and good progress
has been made. We expect to continue this
work into the new financial year where the
financial benefit will help to offset headwinds
created by union and legislation driven labour
rate inflation in Germany and the impact of
the weakening US Dollar. 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.

Contribution margin, the margin after all
variable production costs, fell by 150bps
(as a percentage of revenue) as rapidly
increasing material prices impacted on the
cost of production, partially offset by direct
labour efficiencies. The key raw material is
steel, which we purchase in different forms
and to different specifications around the
world. Steel prices increased significantly
during 2017, initially in Europe, but with
other regions subsequently following the
same trend. While the value and timing of
increases varied across different territories
and different grades of steel, we estimate the
year-on-year increase in raw material costs
to be around 10%.

Programmes to increase selling prices were
implemented, but due to the variety of
customer arrangements and the lag as the
order book translated into sales, there was
a significant time delay in the new prices
being delivered in revenue. Raw material
prices have continued to increase in certain
territories necessitating further rounds of
sales price increases.

The pressure on operating margins created
by increasing raw material costs was
compounded by additional costs incurred due
to machine breakdowns in Einbeck, Germany
in the first half of the year. As factory output
was reduced for a period of time, increased
air-freight costs were incurred in order to
expedite deliveries and minimise the impact
on customers.

UNDERLYING REVENUE (£m)
£153.1m

156.1

151.6

153.1

147.2

143.8

2014

2015

2016

2017

2018

UNDERLYING ADJUSTED
OPERATING MARGIN (%)
9.6%

12.7%

11.6%

10.6%

9.6%

7.5%

2014

2015

2016

2017

2018

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOOVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONOur Performance:
Torque Transmission

Renold Torque Transmission is an
international manufacturer of high
integrity torque transmitting products.
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 industrial applications
across the world.

Torque Transmission performance review

Revenue

Foreign exchange

Underlying revenue

Adjusted operating profit

Foreign exchange

Underlying adjusted operating profit

2018
£m

38.5

–

38.5

4.8

–

4.8

2017
£m

37.3

0.1

37.4

3.9

(0.1)

3.8

Underlying external revenue of £38.5m
was £1.1m (2.9%) above the prior year
primarily reflecting growth of the Couplings
business unit.

The decision to consolidate the UK
Couplings manufacturing operations was
influenced by a number of factors, including
the potential to improve manufacturing
efficiency and to support investment that
was difficult to justify in separate smaller
locations. Following the successful execution
of the consolidation to our Cardiff facility at
the beginning of the year, the performance
of the Couplings business unit has improved,
combining operational efficiency with
revenue growth. This revenue growth has
been supported by key customers who
have reacted well to the changes and the

investment we have made in the business.
In the period, UK Couplings won a major
multi-year order from the marine industry,
which has contributed to revenue growth in
the year, but also enhances the order book
for future years.

Progress in the other Torque Transmission
business units has been slower. Our US
business, which has specific strength in
products for the steel and mass transit
sectors, has been stable in the year as these
markets remained subdued. It is too early
to determine whether the introduction of
US steel tariffs will stimulate US-based
steel manufacturers to reinvest in their
infrastructure which would create growth
opportunities for Renold in this market.

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018STRATEGIC REPORTA combination of growth in the Couplings
business unit, combined with strong cost
control in the other Torque Transmission
business units has resulted in adjusted
underlying operating profit increasing by
£1.0m to £4.8m (2017: £3.8m).

Underlying order intake was £5.3m (14.1%)
above the prior year, supported by the
multi-year order won by UK Couplings. Even
after removing the element of this contract
that was not delivered in the year, order
growth remained strong, increasing by
£1.5m (4.0%) above the prior year.

We continue with our programme of
product development, encompassing RBI
Couplings, escalator drives and bespoke
gearbox solutions for OEMs, amongst
others. The timeline for introducing new
products and for customers to adopt
those new products in industrial markets
is long, but we continue to believe that
these actions will deliver growth for Torque
Transmission over time.

Summary
The division has a strong portfolio of niche
products and a reputation in the market for
product performance and quality. Market
conditions improved during the year for
certain business units while remaining
subdued for others. We have made progress
in the year and have improved profitability,
but are not yet seeing demand recover to
historical levels. Continued focus on cost
control has been a key element contributing
to profit improvement for the division as
a whole.

While growth has returned, revenue
remains some way behind the levels
experienced in more buoyant market
conditions three to five years ago. As
market conditions improve over the medium
term, the division will be better placed to
maximise returns.

UNDERLYING REVENUE (£m)
£38.5m

48.2

47.7

41.7

37.4

38.5

2014

2015

2016

2017

2018

UNDERLYING ADJUSTED
OPERATING MARGIN (%)
12.5%

16.1%

13.3%

12.2%

12.5%

10.2%

2014

2015

2016

2017

2018

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOOVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONFinance Director’s Review

Overview
Organic growth in revenue has been delivered, building on investment in the commercial
teams and improving market conditions. Machine breakdowns and unrecovered raw material
price increases impacted profitability of the Chain division in the year, most significantly in the
first half. The actions delivered have mitigated the impact of these disruptive factors in the
second half of the year, resulting in improved adjusted operating margins.

Growing order books are being generated by strong order intake, which if sustained, will
support underlying organic growth into the new financial year. However, the weakening of
the US Dollar against Sterling in the latter part of the year will moderate the impact of this
growth in reported results in the next financial year.

Orders and revenue

Reconciliation to reported
results

As reported

Impact of foreign exchange

Pension administration
costs

Restructuring costs

Amortisation of acquired
intangible assets

Impairment of goodwill

2018

Revenue
£m

191.6

Order
intake
£m

201.9

–

Underlying adjusted

201.9

191.6

Operating
profit
£m

5.6

–

0.9

4.7

0.9

2.1

14.2

2017

Revenue
£m

183.4

1.2

Order
intake
£m

186.8

1.4

–

188.2

184.6

Operating
profit
£m

11.0

0.4

0.7

1.7

1.1

–

14.9

Order intake in the Chain division was higher than revenue with the underlying ratio of
orders to revenue (book to bill) being 103.7% in the year (2017: 102.2%). All Chain regions,
with the exception of Australasia, 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 4.7% over the second half of the prior year (2017: 12.0%). This compared to growth of
5.2% for the first half (2017: 4.9%), and together resulted in growth for the full year of 5.5%.

Underlying orders in the Torque Transmission division grew strongly, by 14.1% (2017: 7.0%
decline), benefiting from the win of a major multi-year order for UK Couplings to provide
large HiTec couplings for marine applications. Excluding the element of this order which
extends beyond 31 March 2018, underlying order intake remains strong, increasing by 4.0%.
The book to bill ratio for the division was 112.0% (2017: 100.8%).

Group revenue for the year increased by £8.2m (4.5%) to £191.6m. Underlying revenue
demonstrated a similar trend increasing by £7.0m (3.8%), with underlying growth of 2.7% for
the first half accelerating to 4.9% for the second half which benefited from greater progress
in passing sales price increases on to customers.

On a divisional basis, the Chain division saw underlying revenue increase by 4.0% and
Torque Transmission by 2.9%.

Operating profit
The Group generated £6.0m of adjusted operating profit in the first half (2017: £7.0m)
and £8.2m in the second half (2017: £7.5m), corresponding to a full year result of £14.2m
(2017: £14.5m).

At the half-year, we reported underlying adjusted operating profit down by £1.0m compared
to the first half of the prior year, impacted by the combined effects of machine break-downs
in Germany and increased raw material costs across the Group, most significantly in the Chain
Division. Adjusted operating profit of £8.2m in the second half represents underlying growth
of 36.7% over the first half and demonstrates significant progress against the disruptive
factors which impacted trading in the first half of the year.

“ A difficult year has
delivered broadly stable
adjusted operating
profits following
improved performance
during the second
half of the year.
As planned, we continue
to invest through
capital investment
and restructuring.”

IAN SCAPENS
FINANCE DIRECTOR

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018STRATEGIC REPORTUnderlying adjusted operating margins
fell during the year to 7.4% (2017: 7.9%).
However, this reflects a disappointing first
half margin of 6.3%, increasing to 8.5% for
the second half.

The volatility of the margin over the year is
largely driven by the Chain division where a
disappointing adjusted operating margin for
the first half of the year of 8.0% improved
to 11.2% for the second half of the year as
progress was made to mitigate the raw
material price and factory disruption factors
influencing the first half of the year.

Performance of the Torque Transmission
division was more stable with a first half
adjusted operating profit margin of 12.6%
compared with 12.4% for the second half of
the year.

Foreign exchange rates
Foreign exchange rates have remained
volatile during the year reflecting an
appreciation of Sterling against a number of
currencies. The most significant movement
for Renold has been the 12% weakening of
the US Dollar against Sterling. Due to the
phasing of movements over the current
and prior years, the impact on the weighted
average exchange rate used to translate
US Dollar trading results reflects a 2%
weakening of the US Dollar based on a rate
of 1.33 for the year ended 31 March 2018
(2017: 1.31).

The Sterling to Euro rate has remained
more stable than in the prior year, with
the Euro 3% stronger at 31 March 2018
when compared to 31 March 2017. Again,
due to the timing of the Brexit-vote related
deterioration of Sterling in the prior year,
the weighted average exchange rate used
to translate Euro trading results reflects a
5% average strengthening of the Euro based
on a rate of 1.13 for the year ended 31 March
2018 (2017: 1.19).

The effect of these two opposing
movements is that the natural hedge
provided by the Group’s diverse operating
territories and currencies reduced the
impact of individual foreign exchange
movements on the Group’s trading results
for the year.

FX Rates (% of Group
sales)

£GBP / Euro (31%)

£GBP / US$ (33%)

£GBP / C$ (5%)

£GBP / A$ (5%)

Mar 17
FX rate

Sep 17
FX rate

1.17

1.25

1.67

1.64

1.13

1.34

1.68

1.71

Sep 17
Var %

(3%)

Mar 18
FX rate

Mar 18
Var %

1.14

1.40

1.81

1.83

(3%)

12%

In addition, as a result of lower profitability
from our Chain Americas site and an
increase in the post-tax discount rate
used to discount future cash flows, the
annual impairment review has identified a
requirement to impair the goodwill relating
to the acquisition by £2.1m. The goodwill
relates to the acquisition of Jeffrey Chain
which was completed in 2000.

Financing costs
External net interest costs in the year
were £1.7m (2017: £1.7m). The annual
charge includes £0.3m (2017: £0.2m
charge) in respect of amortisation of the
residual refinancing costs paid in 2012,
2015 and 2017 (relating to the exercise
of the accordion). Financing costs also
include £0.1m of unwinding discounts on
onerous lease provisions established for the
Bredbury factory site.

The net IAS 19R finance charge (which is a
non-cash item) is £2.4m (2017: £2.5m). In the
current year, the actual return on assets was
£0.9m higher than the return used in the
interest calculation as specified in IAS 19R
due primarily to stronger equity markets.

Result before tax
Profit before tax was £1.4m (2017: £6.7m).
Adjusted profit before tax, which excludes
restructuring costs, IAS 19R financing costs,
amortisation of acquired intangible assets
and legacy pension scheme costs, was
£12.5m (2017: £12.8m).

If the year end exchange rates had applied
throughout the year, there would be an
estimated decrease of £5.8m to revenue
and £0.3m to operating profit, principally as
a result of the significant movement in the
US Dollar rate towards the end of the year.

Restructuring costs
Various restructuring costs were incurred
in the year as part of STEP 2020.
Redundancy and restructuring costs of
£0.8m were incurred across a number of
the restructuring activities completed in the
year. These included the closure of sub-scale
manufacturing operations in New Zealand
(Chain) and China (Torque Transmission),
the closure of the Singapore office and
final costs relating to the transfer of HiTec
Couplings to Cardiff. The completion of
the HiTec transfer enabled the sale in May
2017 of the Halifax facility for net proceeds
of £0.5m, generating a gain on disposal
of £0.2m, which has also been treated as
restructuring income.

The largest individual element of the
restructuring costs, which totals £3.9m,
relates to the multi-year project to transfer
the Chinese Chain manufacturing facility
to a purpose-built facility in Jintan, near
Changzhou. Of this value, £0.8m relates
to costs incurred in the year, with the
remaining £3.1m being a provision against
closure costs and other costs associated
with the transfer to be paid over the next
twelve months.

Other adjusting items
Other adjusting items include legacy pension
scheme administration costs of £0.9m
(2017: £0.7m) and amortisation of acquired
intangible assets of £0.9m (2016: £1.1m).

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOOVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONAt 31 March 2018, the Group had unused
credit facilities totalling £23.0m and cash
balances of £13.9m. Total Group credit
facilities amounted to £63.5m, 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 2018 this hedge was fully effective.
The carrying value of these borrowings at
31 March 2018 was £6.2m (2017: £6.9m).

At 31 March 2018, the Group had 1% (2017:
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.

Finance Director’s Review

Taxation
The current year tax charge of £3.6m (2017:
£1.9m) is made up of a current tax charge
of £1.1m (2017: £2.9m) and a deferred tax
charge of £2.5m (2017: credit of £1.0m). The
charge in the year is heavily impacted by
US tax reform which has reduced the tax
rate applied to the US deferred tax assets
and combined with a one-off deferred tax
charge relating to restrictions on interest
deductibility. The total effect of US tax
reform in the year is a deferred tax charge
of £2.4m.

The Group cash tax paid increased to £3.8m
(2017: £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 ended 31 March
2017. The effect of this was to increase
the current tax charge in the prior year,
which became payable in the year ended
31 March 2018 and combined with a move
to payments on account in this territory.

Group results for the financial period
A loss of £2.2m was incurred for the financial
year ended 31 March 2018 (2017: profit
of £4.8m). The basic and diluted adjusted
earnings per share were both 4.5p (2017:
earnings both 4.6p). Basic loss per share of
1.0p compares with earnings per share of
2.1p for the year ended 31 March 2017.

Balance sheet
Net assets at 31 March 2018 were £1.1m
(2017: £7.8m). The fall was driven by a
number of one-off factors including the
provision for costs of the China factory
move, the impairment of goodwill relating to
the Jeffrey Chain acquisition in the US and
the impact of US tax reform.

Net assets continue to be impacted by the
net pension deficit which reduced to £97.4m
(2017: £102.0m) as contributions to the
scheme combined with small increases in
discount rates. The net liability for pension
benefit obligations was £81.7m (2017:
£84.8m) after allowing for a net deferred
tax asset of £15.7m (2017: £17.2m). Overseas
schemes now account for £27.8m (28.5%) of
the net pension deficits and £25.1m of this
is in respect of the German scheme which is
not required to be funded.

Cash flow and borrowings
Cash generated from operations was £6.1m
(2017: £7.4m). Gross capital expenditure was
up in the year at £10.1m (2017: £9.6m). This
is lower than expected and partially reflects
capital expenditure for the new Chinese
factory now expected to be incurred in the
year ending 31 March 2019. Consequently,
capital expenditure in the new financial year
is expected to increase in support of the new
factory in China, the continued reinvestment
of plant and equipment and the ongoing
implementation of new IT systems.

The absolute level of working capital
was £2.6m higher than in the prior year,
reflecting increased raw material costs
being absorbed into inventory and a lower
level of capital creditors at 31 March 2018.
The net effect of these changes is that
our working capital KPI (average working
capital as a ratio of rolling 12 month sales)
remained stable at 21%.

Group net borrowings at 31 March 2018
of £24.3m were £6.9m higher than the
opening position of £17.4m comprising
cash and cash equivalents of £13.9m (2017:
£16.4m) and borrowings of £38.2m (2017:
£33.8m). The increase in net debt reflects
the cash restructuring costs and increased
tax payments made in the year in addition
to the £1.2m final payment of deferred
consideration for the Tooth Chain acquisition.

Debt facility and capital structure
The Group’s core banking facilities were
increased in the year through the exercise of
the accordion facility. Following the increase,
the Group’s committed Multi-Currency
Revolving Credit Facility (MCRF) totalled
£61.5m and borrowing under the facility
at 31 March 2018 was £38.5m. 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 2018
is 1.12 times (covenant requirement: up to
2.5 times; 2017: 0.82 times), based on the
reported figures for the period as adjusted
for the banking agreement. The adjusted
EBITDA/interest cover as at 31 March 2018
is 12.0 times (covenant requirement: greater
than 4.0 times; 2017: 12.1 times), again on a
banking basis.

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018STRATEGIC REPORTPension assets and liabilities
The Group has a mix of UK (84% of gross liabilities) and overseas (16%) defined benefit pension obligations as shown below.

Assets
£m

140.7

13.1

–

153.8

2018

Liabilities
£m

(210.3)

(15.8)

(25.1)

(251.2)

Deficit
£m

(69.6)

(2.7)

(25.1)

(97.4)

15.7

(81.7)

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)

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 £1.1m, benefiting from a
£0.5m reduction in net liability due to the
movement in foreign exchange rates. In
local currencies, the schemes benefited
from contributions to the scheme combining
with greater levels of asset return in order
to reduce the net deficit.

Æ Overseas unfunded schemes
This category largely relates to unfunded
German schemes. The local currency deficit
decreased by £1.6m as £1.3m of contributions
paid combined with smaller benefits from
actuarial remeasurements. A strengthening
of the Euro against Sterling resulted in an
increase in the deficit of £0.6m.

The aggregate expense of administering
the pension schemes was £0.9m (2017:
£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 agreed in May 2017. This
process concluded that contributions to
the UK Scheme should continue unchanged
with no additional contributions in excess
of contributions from the previously agreed
asset backed funding structure. The next
triennial valuation date will be 5 April 2019.
The detailed structure and mechanics of the
2013 scheme merger and the underpinning
asset backed funding structure are set out
in Note 18 to the accounts.

Total cash costs for UK deficit repair
payments were £2.9m (2017: £3.2m). For
overseas pension schemes, the Company
contributions in the period were £1.7m
(2017: £2.1m).

Ian Scapens
FINANCE DIRECTOR

29 May 2018

Defined benefit schemes

UK funded

Overseas funded

Overseas unfunded

Deferred tax asset

Net deficit

The Group’s retirement benefit obligations
decreased from £102.0m (£84.4m net of
deferred tax) at 31 March 2017 to £97.4m
(£81.7m net of deferred tax) at 31 March
2018. The largest element of the decrease
relates to the UK scheme where the deficit
decreased from £72.0m to £69.6m. The
decrease in the deficit of the overseas
schemes of £2.2m arises from an underlying
reduction in the deficit of £2.4m, offset
by a £0.2m increase arising from foreign
exchange movements in the year.

Æ UK funded scheme
The reduction in the UK scheme deficit
of £2.4m reflects a number of offsetting
factors. Decreases in the liability arise from
contributions to the scheme of £2.9m and
£3.0m arising from the increase in the
discount rate applied. Offsetting increases
in the deficit arise from the shortfall in asset
returns to offset the discount unwind of
the liabilities (net effect of £1.3m), changes
to commutation factors and the removal
of the Pension Increase Exchange Option,
which together increase liabilities by £2.2m.
The impact of changes in the mortality
assumptions are broadly neutral.

There was an increase in the benefits paid
by the scheme during the year, which
totalled £12.5m (2017: £9.8m). This largely
reflects an increase in transfers out of the
scheme arising from the introduction of
greater ‘pension freedoms’ in the UK.

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOOVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONFinance Director’s Review

Æ The net pension deficit decreased by 4.5% in the year to £97.4m.

Æ Contributions to the various schemes of £4.6m (including £1.3m
to the unfunded German scheme) are the key reason for the
deficit reduction.

Æ UK discount rates increased marginally to 2.6% (2017: 2.5%)

resulting in a reduction in liabilities for the UK scheme of £3.1m.

Æ Other actuarial movements arise from alignment of commutation
factors across the schemes and the removal of the PIE (Pension
Increase Exchange) option.

Æ For the overseas schemes, foreign exchange rates for the US

Dollar and the Euro moved in opposite directions against Sterling
resulting in a net foreign exchange deficit of £0.2m.

Æ Similar to the UK scheme, contributions to the overseas schemes

was the key reason for the reduction in the deficit.

Æ Across all the schemes, it is estimated that an increase in the

£m

discount rate of 0.25% (with all other factors being equal) would
reduce the net deficit by c.£8.5m.

Æ The bar chart shows the evolution of the total membership of
the UK scheme since 2005 and the numbers in each category.

Æ Total membership has fallen by 51% or 3,013 since 2010 or 63%

since 2005.

Æ The 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.

Æ Of the remaining 2,950 members, a number are expected

to have their benefits discharged as a lump sum on retirement
or dependency.

PENSION INSIGHTS

Drivers of pension deficit movement

2.9

3.1

UK
(••)
contributions

UK discount
rate

UK other
actuarial
remeasurements

UK
other

Overseas
contributions

Overseas
other

(2.2)

(1.3)

1.7

0.6

(3.0)

(2.0)

(1.0)

0.0

1.0

2.0

3.0

4.0

Deﬁcit up

Deﬁcit down

Trends in UK scheme membership

Pensioners
Deferred
Active

2005 2006

2007

2008

2009

2010

2011

2012

2013

2014

2015 2016 2017

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018STRATEGIC REPORTUK assets %

Cash and other

Equity 32

£140.7m
Assets

Gilts, bonds & LDI

Hedge funds &
diversiﬁed fund

Insurance policies

Æ Given the relative maturity of the scheme, and following

the medically underwritten insured buy-ins, 66% 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 £12m
including cash lump sums on retirement).

Æ The overall target for UK portfolio returns is 2.6% over gilts.

The actual UK return in the year was a gain of £3.9m (or 4.0%
gain on assets excluding insurance policies).

Æ It 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).

Mortality and mortality exposure

)
s
r
a
e
y

e
f
i
l
(

e
r
u
s
o
p
x
E

3,000

2,500

2,000

1,500

1,000

500

180

160

140

120

100

s
h
t
a
e
d

f
o

r
e
b
m
u
N

2012

2013

2014

2015

2016

2017

Exposure

Actual deaths

Expected deaths

Æ The chart to the left shows a comparison between expected and
actual mortality in the UK scheme based on the assumptions
underlying the March 2018 Annual Report and the actual
mortality experience.

Æ The chart also shows the number of life years that could be

expected to die each year (referred to as ‘Exposure’).

Æ The 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.

Æ The 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.

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOOVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION

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 environment,
with geopolitical and economic uncertainty, its relevance to safeguarding
shareholder value is even more critical.

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 from 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
address 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.

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 risk

management and solutions across
the Group.

GROUP RISK FUNCTION

Æ Facilitates the maintenance of
risk registers and action plans.

Æ Reviews status of risk
management actions.

Æ Performs internal audits on
areas of significant risk.

BUSINESS UNITS

Æ Maintain local risk registers

Æ Embedding Group culture and risk

and action plans.

Æ Ongoing action management

and tracking.

appetite at a local level.

Our approach to risk
Renold’s risk management framework is designed to identify
and assess the probabilities and consequences of risks occurring,
to manage the actions necessary to reduce those risks, and to
mitigate their potential impact.

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 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 Chief Executive and meets
at least four times per year.

The ERMMC comprises 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 to, 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.

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018STRATEGIC REPORTHow we assess risk
Our approach combines sharing best practice across sites, guidance
from the Group Head of Risk and Assurance, and local ‘on the
ground’ experience and knowledge of specific risk factors.

Risk workshops involving local and 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, adverse publicity and fines.

These are scored and then placed on the risk heat map below, 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 identify the impact of controls on the underlying
inherent risk.

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.

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 Group has deployed an online Integrated Risk Management
System (IRMS) across all locations. This is used to capture risk
profiles and action plans are maintained across the Group. The IRMS
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.

RISK HEAT MAP

AS AT 31 MARCH 2018

Impact

Likelihood

KEY: RISK HEAT MAP

Macroeconomic and political volatility

Strategy execution

Acquisitions/business development

Health and safety in the workplace

Effective deployment and utilisation of information
technology systems

Prolonged loss of a manufacturing site

People and change

Liquidity, foreign exchange and banking arrangements

Pensions deficit volatility

Regulatory and legal compliance

Key: – Residual risk after mitigation

Likelihood

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOOVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONPrincipal Risks and Uncertainties

The 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 32 to 36 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.

MACROECONOMIC AND POLITICAL VOLATILITY

FY17

FY18

DETAILED RISK

Material 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.

Link to strategic objectives

POTENTIAL IMPACT

Potential touchpoints include:

Æ Commodity prices which have a negative impact on demand in the
whole supply chain or a direct impact on raw material purchases.

Æ Foreign exchange volatility can impact customer buying patterns,

leading to lower demand or the need to rapidly switch supply chains.

EXISTING MITIGATION CONTROLS
Æ Our diversified geographic footprint inherently exposes us to more countries where risks arise but conversely provides some degree

of resilience.

Æ Actions to lower the Group’s overall breakeven point also serve to reduce the impact of any global economic slowdown.

Æ A focus on ‘predict and respond’, e.g. sales forecasting and raw material price monitoring.

Æ Strong core banking group with multi-currency debt facility.

Æ Operation of a net cash flow hedging strategy approved by the Board.

STRATEGY EXECUTION

DETAILED RISK

The 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 and are in the
process of moving others.

Link to strategic objectives

EXISTING MITIGATION CONTROLS

FY17

FY18

POTENTIAL IMPACT
Æ While these projects are designed to deliver targeted benefits, if not
appropriately managed, they have the potential to negatively impact
the Group’s operations.

Æ The 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.

Æ The 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.

Æ Major 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.

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018STRATEGIC REPORTSTRATEGIC OBJECTIVES

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

ACQUISITIONS/BUSINESS DEVELOPMENT

FY17

FY18

DETAILED RISK

Part 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

POTENTIAL IMPACT
Æ Any acquisition involves risks at various stages of the project

life cycle.

Æ 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
Æ Monitoring 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.

Æ Use of third party specialists to address risks specific to each acquisition.

Æ Formation of top-down cross functional business integration project teams and plans coordinated by the newly appointed Group

Corporate Development Director. These specifically address any issues or risks identified during the acquisitions phase.

Æ Deployment of detailed benefits realisation plans.

HEALTH AND SAFETY IN THE WORKPLACE

FY17

FY18

DETAILED RISK

The 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

POTENTIAL IMPACT
Æ Accidents 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 financial loss or reputational damage.

EXISTING MITIGATION CONTROLS
Æ Group policies and a Group-wide management system known as the Framework, to set control expectations, with a support training

programme for all managers.

Æ The Group operates a rolling programme of health and safety audits to assess compliance against the Framework.
Æ Continual hazard assessments to ensure awareness of risks.
Æ Live tracking of accident rates and root cause analysis via the IRMS plus monthly Board reporting focused on a range of KPIs.
Æ Specific initiatives include the BAT (Be safe; Act safe; Think safe) safety logo and the Annual Health and Safety Awards Scheme to

recognise success.

SEVERITY

TREND DIRECTION

High

Medium

Low

increasing

unchanged

decreasing

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOOVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
Principal Risks and Uncertainties

EFFECTIVE DEPLOYMENT AND UTILISATION OF INFORMATION TECHNOLOGY SYSTEMS

FY17

FY18

DETAILED RISK

We 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 objectives

POTENTIAL IMPACT
Æ Interruption or failure of IT systems (including the impact

of a cyber attack) would negatively impact or prevent some
business activities from occurring. If the interruption was long
lasting, significant damage could be done to the business.

Æ 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.

Æ An unsuccessful implementation of the global ERP system has
the potential to materially impact that site’s, and possibly the
Group’s, performance.

Æ The risk is assessed as stable as we have already successfully

implemented the ERP at three locations.

EXISTING MITIGATION CONTROLS
Æ Short-term stabilisation of existing hardware and legacy software platforms.

Æ Governance and control arrangement operating over the Group’s ERP implementation programme.

Æ Use of specialist external consultants and recruitment of experienced personnel.

Æ Phased implementation rather than ‘big bang’.

Æ Project assurance and ‘lessons learned’ reviews to continuously improve the quality of successive roll outs.

Æ Template blueprint agreed to form the basis of the implementations.

Æ Steering Committee in operation with cascading project management disciplines.

Æ A range of preventative and detective controls to manage the risk of a cyber attack.

PROLONGED LOSS OF A MANUFACTURING SITE

FY17

FY18

DETAILED RISK

A 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 objectives

POTENTIAL IMPACT
Æ In the short or long term, a related risk event could adversely

affect the Group’s ability to meet the demands of its customers.

Æ 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
Æ Preventative maintenance programmes and new investments to reduce risk of interruption of manufacturing.

Æ A Group Fire Safety Policy mandating preventive, detective and containment controls.

Æ Alternate manufacturing capacity exists for a substantial portion of the Group’s product range.

Æ Core sites are required to maintain a Business Continuity Plan for use in the event of a serious business disruption.

Æ Inventory maintained to absorb and flatten out raw material supply and production volatility.

Æ The Group has comprehensive insurance policies to mitigate the impact of a number of these risks.

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018STRATEGIC REPORT 7

PEOPLE AND CHANGE

DETAILED RISK

The Group’s operations are dependent upon the ability to attract
and retain the right people with an appropriate range of skills
and experience, which is a greater challenge in an increasingly
competitive environment.

Succession planning and the ability to swiftly replace staff retiring
or leaving is also critical.

Link to strategic objectives

FY17

FY18

POTENTIAL IMPACT
Æ Failure 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
Æ Competitive reward programmes, focused training and development, and a talent retention programme.

Æ Ongoing reviews of succession plans based on business needs.

Æ Performance management and training programmes in operation. Formal personal development review process to be

rolled out in the new financial year.

Æ Management team strengthened with new capability from external hires and internal promotions.

Æ The Renold Values, launched in 2015, continue to be embedded.

LIQUIDITY, FOREIGN EXCHANGE AND BANKING ARRANGEMENTS

FY17

FY18

DETAILED RISK

A 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 objectives

POTENTIAL IMPACT
Æ Potentially cause under-investment and sub-optimal short-

term decision making.

Æ Limiting investment could prevent efficiency savings and

reduce competitiveness.

Æ In an extreme situation, the Group’s ability to operate as a

Going Concern could also be jeopardised.

EXISTING MITIGATION CONTROLS
Æ The Group’s primary banking facility expires in May 2020 and is fully available given current levels of profitability.

Æ The facility includes additional drawdown capability, accessible as long as financial covenants are complied with.

Æ Rolling foreign exchange forward contracts covering expected future cashflows.

SEVERITY

TREND DIRECTION

High

Medium

Low

increasing

unchanged

decreasing

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOOVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION

Principal Risks and Uncertainties

PENSIONS DEFICIT VOLATILITY

FY17

FY18

POTENTIAL IMPACT
Æ Given 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.

Æ 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.

DETAILED RISK

The principal pensions risk is that short-term cash funding
requirements of legacy pension scheme diverts much needed
investment away from the Group’s operations, particularly in an
increasingly regulated environment in the UK.

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 objectives

EXISTING MITIGATION CONTROLS
Æ The Pension Strategy has been updated to 2020.

Æ The 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.

REGULATORY AND LEGAL COMPLIANCE

FY17

FY18

DETAILED RISK

The 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 objectives

EXISTING MITIGATION CONTROLS
Æ Communication of a clear compliance culture.

POTENTIAL IMPACT
Æ Failure by the Group or its representatives to abide by

applicable laws and regulations could result in:

— Administrative, civil or criminal liability.

— Significant fines and penalties.

— Suspension of the Group from trading.

— Reputational damage.

Æ Risk assessments and ongoing compliance reviews at least annually at all major locations.

Æ Published up to date policies and procedures with clear guidance and training issued to all employees.

Æ Monitoring of compliance with nominated accountable managers in each business unit.

SEVERITY

TREND DIRECTION

High

Medium

Low

increasing

unchanged

decreasing

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018STRATEGIC REPORT
Viability Statement
The 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
which is used as the basis for assessing
Going Concern.

The Group’s Strategic Plan covers the three
year period to March 2021. 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 2021 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 uncertainties
and progress on actions to mitigate the
probability and impact of risks crystallising.
The internal control structures and
processes described on pages 56 to 58
also serve to mitigate exposure 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:

Æ Strategy 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.

Æ Macroeconomic and political volatility:
uncertainty driven by global events is
undoubtedly creating volatility. These
events range from Brexit, increased
protectionism to geopolitical uncertainty.
As an international manufacturing
business, the Group is dependent
on stable trading environments to
deliver our products and the resulting
shareholder value. Significant changes
in global trading dynamics have the
potential to 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 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 2018 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 seeks to
operate within an internally imposed 2.0x
leverage limit which ensures there is access
to short-term borrowing to cope with any
short-term financial shocks.

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, subject to the
successful renewal of the Group’s banking
facilities which expire in May 2020, that the
Group will be able to continue in operation
and meet its liabilities as they fall due over
the period of assessment.

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOOVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONHealth and Safety

Our focus on improving our health and safety performance has been
unwavering and despite the improvement in our health and safety KPIs,
we remain resolutely focused on striving 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

Hazard
Assessment

Assessment, Assurance
and Improvement

The
Framework

2
Training and
Behaviours

Incident
Analysis and
Prevention

Information and
Documentation

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

Key Strategic Objective
Significantly improving our health and safety performance remains
a key Strategic Objective and all Renold’s locations across the
world operate against a Group Health and Safety Management
Framework (the Framework).

In 2014, an annual Health and Safety Awards Scheme was
introduced and the rules of the scheme encourage continuous
improvement aligned to the framework. Recognising the further
improvements being made across the Group, ten awards were made
in 2018 (eight in 2017), including, for the first time, three ‘Excellence’
awards, the highest level of award currently available.

Health and safety governance
Governance structures are clearly defined and 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
Framework 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.

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018STRATEGIC REPORTThe Framework consists of seven core
components, which include setting a
supportive leadership tone, with sub-
processes covering 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 to
track all improvement actions. 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
support a robust assessment of compliance
against the Framework. The assurance
results, along with other typical KPIs, are
reported each month to the Board. There
is particular focus on any serious accidents
and the quality of accident investigations,
ensuring that 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 Renold's BAT logo 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.

LOST TIME ACCIDENT
FREQUENCY RATES1

Æ All core production sites have

15.6

standardised health and safety
information boards, which include
themes which align to the Framework
and the Health and Safety Awards.

Æ Replacement guarding fitted to

machinery to prevent strike hazards
from materials, with best practice shared
across the Group.

Æ Mandated standards relevant to fire
safety have been developed and are
being rolled out.

7.0

7.1

5.8

2015

2016

2017

2018

TREND OF REPORTABLE
INCIDENTS2

Æ Guidance regarding workplace transport

hazard management.

2,060

Improved Group-wide performance
The Group uses a number of KPIs to monitor
performance. Each Board meeting considers
a comprehensive report from the Group
Risk and Assurance 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 four years to 31 March 2018. Some
key highlights during the year include:

Æ A year on year reduction of 41% in our
reportable accident rate (greater than
three lost days).

Æ A total of 1,304 employee generated
safety improvement opportunities.

887

777

2015

2016

2017

455

2018

LOST TIME DAYS

806

308

190

248

2015

2016

2017

2018

1. 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 while accidents
greater than seven days are reportable
events in the UK, Renold monitors both
three and seven lost day categories.

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOOVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONCorporate Social Responsibility

We remain committed to ensuring that our business activities are conducted
in a responsible manner for the benefit of our customers, our people, our local
communities, our partners and our investors.

Our Commitments

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

The Board is mindful of the importance
to the business of its responsibility to
stakeholders and the wider community. 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 38 and 39 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 50 to 59.

Our People
The Group requires motivated, talented
employees, with a clear understanding of
their role within the business to deliver our
Strategic Objectives. Consequently, Renold
remains actively focused on the delivery of
actions in the following 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 the Managing Director
– Global Chain and the Group Corporate
Development Director. 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.

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018STRATEGIC REPORTWe continue to evolve and broaden our
Talent Review Process through a review of
our people in critical areas of the business.
We assess both the performance and the
longer term potential of key individuals and
their teams. Based on these assessments,
we prioritise meaningful actions to
enable organisational improvement. In
future years, this process will continue
to evolve, taking into account the global
nature of our business, enabling us to
create a straightforward and practical
continuous improvement ethos in
the area of talent development.

During the year, we have continued to
evolve 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. We focus on the key
competencies and capacities that are
critical to the job role and seek to measure
potential candidates against these factors.
We continue to apply 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. We will continue to
refine and standardise our capability in this
area in the coming financial year.

As in the past, Renold invests in
programmes to develop ‘home grown’
talent and we continue to operate our
apprenticeship programmes, particularly in
the UK and Germany.

The UK currently has seven apprentices
within our Torque Transmission business.
Our Chain business in Einbeck, Germany,
has 17 apprentices working across a broad
range of levels and disciplines including
engineering, technical, administration and
logistics functions.

Renold continues to support our Future
Leaders Graduate Programme. This year,
the business celebrated the ‘graduation’
of our first intake. 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.

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 is to continue to invest in this
programme and we expect another intake
of Future Leaders in the next financial year.

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOOVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONCorporate 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 Values and Behaviours have also
been incorporated 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.

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, national origin, religion, age, disability,
gender, marital status, sexual orientation or
political affiliation.

We monitor developments in employment
law that may affect our employees in the
regions in which we operate and make
adjustments as necessary.

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018STRATEGIC REPORTGifts and Hospitality policy, both of which
are designed to assist Renold employees in
meeting corporate and individual obligations
under anti-corruption laws and specifically
the UK Bribery Act.

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.

Business integrity and ethics
We operate the business in an ethical and
responsible manner and we expect our
employees and business operations to
conduct themselves ethically, and to be
honest, fair and courteous in their dealings.

The highest standards of ethical business
conduct are required of our employees in
the performance of their duties. Employees
may not engage in conduct or activity that
may raise questions as to Renold’s honesty,
impartiality, reputation or otherwise
cause embarrassment to the Group. Our
employees are required to neither offer
nor accept improper and/or illegal gifts,
hospitality or payments in accordance with
the Group Gifts and Hospitality policy.

Every Renold employee has the
responsibility to ask questions, seek
guidance and report suspected violations
of the Group’s code of ethics. A free of
charge, independent whistle-blowing hotline
continues to be available to all employees
across the Group, enabling them to report
any concerns about theft, fraud and other
malpractice in the workplace.

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.

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.

Across the Group we have a well-
established employee whistle-blowing
procedure. This is provided and managed
by an external third party. Through this
process employees are able to pass
information to the senior leaders in the
business about areas of concern to them.
This can be done with full anonymity. The
number of reports, the nature of them and
the business response is regularly reviewed
at senior management and Board level.

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

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

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.

READ MORE ON OUR WEBSITE
www.renold.com

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOOVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONCorporate Social Responsibility

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 2018, the Group employed 2,044 people including 350 in the UK. Of the total number of employees, 354 (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 table below is a breakdown of the gender of employees as at 31 March 2018.

Board of Directors

Executive Management Team (excluding Directors)

Other Senior Managers1

Other employees

Total

As at 31 March 2018

As at 31 March 2017

Male

100%

83%

90%

1,651

83%

1,690

83%

Female

Total

–

17%

10%

350

17%

354

17%

2,001

2,044

Male

100%

75%

92%

1,729

83%

1,771

83%

Female

Total

–

25%

364

17%

368

17%

2,093

2,139

1. 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. While falling within the definition of ‘senior manager’, the most senior leadership population (below the Board), the Executive
Management Team, is shown in a separate category.

Our 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.

We continue to support The Outwardbound
Trust, an educational charity that uses the
outdoors to help develop young people
from all walks of life. In addition to providing
some financial support to the Trust, a
number of our employees are 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 are delighted to have been a supporter
of the Museum of Science and Industry
in Manchester over many years, and
particularly through the support of

the Manchester Science Festival. Each
October, it attracts the best scientists
from Manchester and beyond to showcase
current research and promote the region’s
rich heritage of innovation.

In India, Renold 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.

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 Einbeck, Germany
site following investment in a new heat
treatment line, 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
continue to bring further efficiencies over
the coming year.

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018STRATEGIC REPORT
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.

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 five 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

2014

11,175

2015

9,750

21,353

20,503

2016

8,097

18,012

2017

9,104

19,264

Total annual GHG emissions3 on (tCO2e)
Emissions Intensity4

32,528

30,253

26,109

28,368

176.8

165.8

158.1

154.5

2018

8,258

17,667

25,925

135.3

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 calculation methodology is based on the Greenhouse Gas Protocol developed jointly by the World

Resources Institute and the World Business Council for Sustainable Development.

4. 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 ended
31 March 2017.

Strategic Report approval
The Strategic Report, on pages 6 to 45, incorporates: Market Review, Our Business Model,
Our Customer Journey, Our Key Performance Indicators, Chief Executive’s Review, Our
Performance, Finance Director’s Review, Our Risks, Principal Risks and Uncertainties,
Viability Statement, Health and Safety and Corporate Social Responsibility and was
approved by the Board on 29 May 2018.

For and on behalf of the Board
Ian Scapens
DIRECTOR

29 May 2018

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOOVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONChairman’s Letter

Tone from the top
The Board continues to strongly believe in
operating to the highest standards of ethical
business conduct and in the importance of
setting the right ‘tone from the top’. These
principles are reflected in the statement
of our Values and Behaviours and Renold
requires the same from all employees in the
performance of their duties.

We continue to be mindful of developments
in legislation, regulations and codes
of practice of relevance to corporate
governance and ethics. We are particularly
alert to the Financial Reporting Council’s
proposed reforms to the UK Corporate
Governance Code and that resultant
reforms will need to be taken into account in
planning for the future.

In addition to matters of corporate
governance and ethics, the key priority
for the Board remains the delivery of
the STEP 2020 Strategic Plan. On page
53 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 18 July 2018 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.

Mark Harper
CHAIRMAN

29 May 2018

Dear Shareholder,
On behalf of the Board I am pleased to
present the Governance Report for the year
ended 31 March 2018.

This section of the Annual Report and
Accounts highlights the Group’s governance
processes, alongside the work of the Board
and Board Committees. We explain our
approach to corporate governance and
provide the information required of us
by the UK Corporate Governance Code
2016 (2016 Code) which applies to the
Company for this reporting period. The
Group’s principal risks and uncertainties are
described in the Strategic Report and that
section of the Annual Report and Accounts
also forms part of the Governance Report.

We appreciate the importance of
upholding the principles of good corporate
governance, not only for compliance
purposes, but because we recognise that
good governance reduces risk and adds
value to the business.

Board composition
This year has been a period of consolidation
for the Board and transition of some roles.
Prior to the start of the financial year we
welcomed Ian Scapens to the Board as our
Group Finance Director, and David Landless
joined as a Non-Executive Director.

David Landless became Chairman of the
Audit Committee on completion of the AGM
on 19 July 2017, succeeding John Allkins
who stepped down after nine years in the
role. John was also our Senior Independent
Director and Ian Griffiths stepped into this
role after the AGM. John has continued as a
Non-Executive Director, facilitating a valuable
handover period to David in particular.

As John Allkins will retire from the
Board at the 2018 AGM I would like
to take this opportunity to thank John
for his extremely valuable contribution
to the Board, his chairmanship of the
Audit Committee and assistance during
this period of orderly transition.

“ The Board is committed
to maintaining high
standards of corporate
governance and
behaviour and recognises
that good governance
is critical to long-term
business success.”

MARK HARPER
CHAIRMAN

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018GOVERNANCECompliance 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
2016 (2016 Code) which applies to the Company for this
reporting period. The Board’s compliance is therefore
provided against the requirements of the 2016 Code.

The 2016 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

Financial Conduct Authority (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 2016 Code that are applicable
to it throughout the year ended 31 March 2018, except
where highlighted in this section.

The 2016 Code is available to view on the Financial
Reporting Council (FRC) website, www.frc.org.uk.

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOOVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONBoard 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.

Mark Harper
Chairman

Robert Purcell
Chief Executive

Ian Scapens
Finance Director

Committee memberships
Appointment to the Board: May 2012

Committee memberships
Appointment to the Board: January 2013

Committee memberships
Appointment to the Board: January 2017

Experience
Robert, aged 56, 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.

Experience
Ian, aged 44, 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. Ian
is a member of the Institute of Chartered
Accountants of England and Wales.

Experience
Mark, aged 62, 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 2018 to May 2021. 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.

Committee memberships key:

A Audit Committee N Nomination Committee

N R Remuneration Committee E Executive Risk Management and Monitoring Committee

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018GOVERNANCEIan Griffiths
Senior Independent
Non-Executive Director

John Allkins
Non-Executive Director

David Landless
Non-Executive Director

Committee memberships
Appointment to the Board: January 2010

N R
A N

Committee memberships
Appointment to the Board: April 2008

N R
A N

Committee memberships
Appointment to the Board: January 2017

N R
A N

Experience
Ian, aged 67, was appointed to the Board
in January 2010 and to the chair of the
Remuneration Committee in November
2010. His appointments to both were
extended in January 2016 and on 19 July
2017 he became the Senior Independent
Non-Executive Director. Ian is a Non-
Executive Director of Autins plc, a company
listed on the AIM Market of the London
Stock Exchange. 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.

Experience
John, aged 68, 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. He stepped down from the
chair of the Audit Committee and as Senior
Independent Non-Executive Director on
19 July 2017. John brings strong Executive
Director experience to the Board and Audit
Committee, 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 Punch Taverns plc and
Nobina AB. John is a fellow of the Chartered
Institute of Management Accountants.

Experience
David, aged 58, was appointed to the
Board as Non-Executive Director on
9 January 2017 and became chair of the
Audit Committee from 19 July 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 of
European Metal Recycling Limited, a large
private scrap metal recycling company, and
a Non-Executive Director and chair of the
Audit Committee of both Luxfer Holdings plc
and Innospec Inc.

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOOVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONCorporate Governance Report

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 2016 (2016 Code) which applies to
the Company for this reporting period. The Board’s compliance is
therefore provided against the requirements of the 2016 Code.

The 2016 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 Financial Conduct Authority

(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 2016 Code that are
applicable to it throughout the year ended 31 March 2018, except
where highlighted in this report.

The 2016 Code is available to view on the Financial Reporting
Council (FRC) website, www.frc.org.uk.

Board composition, responsibilities and activities
Membership of the Board
During the year ended 31 March 2018, there have been no changes
to the composition of the Board, whilst there have been two
transitions in roles of Board members.

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

Manufacturing
and engineering
sector

International
experience

Strategy
development

–

Sales and marketing

4
Corporate governance

Prior to the end of the previous financial year, Ian Scapens joined
the Company as Group Finance Director and David Landless joined
the Board as a Non-Executive Director. As part of a programme of
orderly succession, John Allkins stepped down as Chairman of the
Audit Committee and as Senior Independent Director at the AGM
in July 2017. David Landless took up the role of Chairman of the
Audit Committee and Ian Griffiths assumed the responsibilities of
Senior Independent Director. John will continue as a Non-Executive
Director until his retirement from the Board at the 2018 AGM.

The 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.

Non-Executive
Chairman

Non-Executive
Directors

6
Members

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
66 and 67.

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018GOVERNANCEResponsibilities 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 and 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

SENIOR INDEPENDENT
NON-EXECUTIVE DIRECTOR
Ian Griffiths

INDEPENDENT
NON-EXECUTIVE DIRECTORS
John Allkins
David Landless

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.

In addition to the role of 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.

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 a Company Secretary, who ensures that Board procedures are
complied with.

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOOVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONCorporate Governance Report

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.

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. Seven 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.

1
Mark Harper

2
Robert Purcell

Ian Scapens

Ian Grifﬁths

John Allkins

David Landless

BOARD

7 meetings

AUDIT
COMMITTEE

4 meetings

NOMINATION
COMMITTEE

4 meetings

REMUNERATION
COMMITTEE

6 meetings

ERMM
COMMITTEE

5 meetings

–

1. Mark Harper attended Audit and Remuneration Committee meetings or part thereof by invitation.

2. Robert Purcell and Ian Scapens attended Audit, Nomination and Remuneration Committee meetings or part thereof by invitation.

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 and accords with the FRC’s ‘Guidance
on Risk Management, Internal Control and Related Financial and
Business Reporting’.

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 2018 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 30 to 36 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 60.

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018GOVERNANCEBoard focus during the year
During the year ended 31 March 2018, the Board has provided its main focus on the following matters:

OVERVIEW

ACTIVITY IN YEAR

STRATEGIC
OBJECTIVE*

GOVERNANCE
AND RISK

STRATEGY

Æ Implementation and

reviewing compliance with the
requirements
of the UK Corporate
Governance Code.

Æ Ensure a sound system of
internal control and risk
management including review
of the Group risk profile.

Æ Responsibility for approval
of the Group’s strategic
aims and objectives and
review of performance.
Æ Approval of major capital
projects and oversight
of benefits expectation
and delivery.

LEADERSHIP

Æ Responsibility for the overall
leadership of the Group and
setting the Group’s Values.
Æ Setting the ‘tone from the top’.

FINANCIAL
STEWARDSHIP

Æ Approval of financial reporting

and controls.

Æ Approval of relevant policies.

Æ Consideration of the 2016 Corporate Governance Code.
Æ Consideration of the Viability Statement and agreeing the Group’s risk

profile, principal risks and uncertainties and risk appetite.

Æ Review of the effectiveness of the risk management and internal control

systems.

Æ Conducting and reviewing an evaluation of the effectiveness of the Board

and its Committees.

Æ Board Strategy day held to debate and discuss the STEP 2020 Strategic

Plan.

Æ Continued review of STEP 2020 and supporting the Chief Executive in the

evolution of the Group’s Strategic Plan.

Æ Review of ERP effectiveness and monitoring progress of new ERP

implementation.

Æ Review of customer service enhancement initiatives including the ‘STEP 2

Service’ service improvement programme.

Æ Oversight of programme to relocate Chain manufacturing facility in China.
Æ Considered and approved the plans to close manufacturing operations in

New Zealand (Chain) and China (Torque Transmission).

Æ Considered and approved capital availability through exercise of

accordion on the Group’s borrowing facilities.

Æ Received presentations from Group senior management on operations
and continued implementation of STEP 2020 across the divisions and
functions.

Æ Monitoring health and safety performance.
Æ Succession planning in relation to the Board and senior management.
Æ Support to ongoing organisational development.

Æ Approval of the annual operating and capital expenditure budgets.
Æ Review of monthly business performance reports.
Æ Review of dividend policy.
Æ Review and approval of the half year and full year results and related

announcements.

Æ Review and approval of the delegated authorities matrix.
Æ Review and approval of the Group tax strategy.
Æ Review of pension scheme de-risking initiatives.
Æ Specific approval for major capital investment projects.
Æ Review of matters affecting the Group involving material litigation or

disputes.

SHAREHOLDER
RELATIONS

Æ Ensuring a satisfactory

Æ Received and discussed a presentation in relation to feedback from

dialogue with shareholders,
including approval of key
information to shareholders.

roadshows and presentations to shareholders.

Æ Approval of Annual Report and Accounts and information to

shareholders for the AGM.

* See key on page 18.

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Expected Board focus for next year
The Board will continue to review the areas set out in the chart on
page 53. In addition, it is anticipated that the following areas will
receive focus by the Board for the year ending 31 March 2019:

Æ Consider Board composition and succession planning in

conjunction with proposed changes to the regulatory landscape.

Æ Review the Group's governance structures to align with
regulatory developments and evolving market practice.

Æ Review the Group’s capital structure to ensure it supports the

acquisition strategy.

Æ Continue to monitor progress and governance of the programme

to establish new manufacturing facilities in China.

Æ Monitor the progress of the ‘STEP 2 Service’ programme against

delivery of the programme objectives.

Director induction and development
The training needs of the Board are discussed as part of the Board
performance evaluation process. Updates are provided to the Board
at regular intervals in order to refresh the Directors’ knowledge.
Training is arranged primarily by the Company Secretary or the
Group Finance Director in consultation with the Chairman. The Board
has received an update from Deloitte LLP in relation to corporate
governance best practice and developments. Remuneration advisers,
PwC, have also provided 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 each 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, Malaysia, South Africa,
Germany and Australia. The Board itself also met during the year at
Renold’s manufacturing site in China, including a visit to the location
of the new manufacturing facility, and at Cardiff, the UK Couplings
manufacturing site.

Non-Executive Director independence
The 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.

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018GOVERNANCEIn accordance with the 2016 Code, the evaluation process also
included a number of discussions during the year between the
Chairman and the Non-Executive Directors, without the Executive
Directors present, to discuss feedback arising from the process and
the performance of each Executive Director. The Senior Independent
Director also met with the other Directors as part of the Chairman’s
performance evaluation process.

Election of Directors
The 2016 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 2016 Code where
practical, all Non-Executive Directors are subject to annual election.

Board evaluation and effectiveness
The Board is supportive of the principle of evaluation of the Board,
as set out in paragraph B.6 of the 2016 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.

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOOVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONCorporate Governance Report

Governance structure

STRATEGIC OBJECTIVES

BOARD
The Board has ownership of global policies and is
responsible for strategic business planning

L
O
R
T
N
O
C
L
A
N
R
E
T
N

BOARD COMMITTEES
Support the Board in its work with specific areas of review and oversight

AUDIT COMMITTEE

REMUNERATION COMMITTEE

NOMINATION COMMITTEE

EXECUTIVE RISK MANAGEMENT
AND MONITORING COMMITTEE

Oversees 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 its 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
60 TO 65

REPORT AT PAGES
68 TO 85

REPORT AT PAGES 66 AND 67

SEE FURTHER AT PAGE 30

GROUP MANAGEMENT TEAM
Implementation of the
Group policies

CHIEF EXECUTIVE
The Chief Executive has responsibility for managing
the business and implementing the strategy agreed
by the Board

EXECUTIVE COMMITTEE

BUSINESS UNIT
LEADERS

FUNCTIONAL
LEADERS

FINANCE
DIRECTOR

BUSINESS UNIT TEAMS

FUNCTIONAL TEAMS

POLICIES AND PROCEDURES

Biographical and experience details of the current Directors appear on pages 48 and 49. Further details of the Directors’ service contracts
and letters of appointment are set out in the Directors’ Remuneration Report.

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018GOVERNANCE
Our Values

Working together to achieve excellence

Key features of governance structures
The key features of the Group’s governance structures, as shown in
the schematic on the prior page, are as follows:

Æ The review of detailed regular reports comparing actual

performance with plans and of updated financial forecasts;

Æ Procedures for the appraisal, approval and control of capital

Æ The Board has approved a Corporate Governance Compliance
Statement which contains terms of reference for the Board
and each of the Board Committees. The terms of reference are
available on the Company’s website, www.renold.com. Internal
controls are in place at both local and Group level;

Æ The ERMMC which oversees, on behalf of the Audit Committee

and ultimately the Board, that appropriate policies are
implemented to identify and evaluate risks;

Æ An internal audit function which assists management and the
Audit Committee in the fulfilment of the Board’s responsibility
for ensuring that the Group’s financial and accounting systems
provide accurate and up-to-date information about its current
financial position whilst also permitting the accurate preparation
of financial statements;

Æ An organisational structure which supports clear lines of

communication and tiered levels of authority;

Æ A schedule of matters reserved for the Board’s approval to

ensure it maintains control over appropriate strategic, financial,
organisational and compliance issues;

Æ The preparation of detailed annual financial plans covering

profit and cash flow and the balance sheet, which are approved
by the Board;

investment proposals;

Æ Procedures for the appraisal, approval and control of acquisitions

and disposals; and

Æ Access for all Group employees to a free of charge, independent
whistle-blowing hotline enabling them to report any concerns
about theft, fraud or other malpractice in the workplace.

The Board and its Committees
Æ The Board delegates authority to various Committees to deal

with specific aspects of corporate governance.

Æ These Committees are summarised on the prior page. Details
about the structure and activities of each are set out in the
separate Committee reports. The Committees communicate and
work together where required.

Æ Committee membership may not be refreshed as frequently as
would be the case for a company with a larger board. However,
the Board is satisfied that no undue reliance is placed on
particular individuals.

Æ Terms of reference for each Committee, together with the

schedule of matters reserved for the Board, are available on the
Company’s website, www.renold.com.

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Internal control
During the year ended 31 March 2018, the responsibility to review
internal control effectiveness was delegated to the Audit Committee
and reported to the Board as follows:

Æ Receiving and considering regular reports from the internal audit

function on the status of internal control across the Group;

Æ Reviewed the internal audit function’s findings, annual audit plan

and the resources available to it to perform its work;

Æ Reviewing the external Auditor’s findings on internal financial

control; and

Æ Monitoring the adequacy and timeliness of management’s

response to identified audit 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.

Financial reporting
There 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:

Æ relate to the maintenance of records that, in reasonable detail,
accurately and fairly reflect transactions and dispositions of
assets;

Æ provide reasonable assurance that transactions are recorded as
necessary to permit the preparation of financial statements in
accordance with IFRS;

Æ 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

Æ review and reconcile reported data.

The Audit Committee is responsible for overseeing these internal
control systems.

Fair, balanced and understandable reporting
The Annual Report and Accounts taken as a whole must be fair,
balanced and understandable (FBU). The process for ensuring the
Annual Report and Accounts meets the FBU requirement involves it
being reviewed in the first instance by a Disclosure Committee and
subsequently the Audit Committee and the Board. Further details
on this process are in the Audit Committee Report on page 65 and
the Board’s responsibility statement for the FBU requirement is on
page 90.

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018GOVERNANCECommunications with shareholders

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 18 July 2018 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 98%.

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 30 to 36.

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, 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 2016 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. Brokers’ briefings are
also 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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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 measured and
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’s
website, www.renold.com.

Responsibilities
The primary function of the Audit
Committee is to assist the Board in fulfilling
its responsibilities with regard to financial
reporting, external and internal audit, risk
management and controls. The Committee’s
responsibilities include:

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
and its effectiveness 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, and
effectiveness of, 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);

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
John Allkins was Chairman of the
Committee until he stepped down as
Chairman at the AGM in July 2017, but
continues as a Committee member. At this
point, I became Chairman of the Committee.
Ian Griffiths, also an independent Non-
Executive Director, was a member of the
Committee throughout the year.

As a result of John stepping down as
Chairman, the individual roles played by
members 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 at least two independent
Non-Executive members.

“ During the year, the
Committee’s focus
has centred upon the
integrity of the Group’s
financial reporting
and the continuing
development of
the internal control
environment and
risk management
processes.”

DAVID LANDLESS
AUDIT COMMITTEE CHAIRMAN

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018GOVERNANCEAudit Committee members and meetings attended

Names

Position

Meetings attended

David Landless

Chairman (since July 2017)

John Allkins

Non-Executive Director
(Chairman until July 2017)

Ian Griffiths

Non-Executive Director

4 of 4

Biographical details and experience of members are set out on
pages 48 and 49.

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 2018 the Committee met four times. The meetings
are attended by the independent Non-Executive Directors (the
members), the Company Secretary and, by invitation, the Chairman,
the Chief Executive, the Group Finance Director, the Group Head of
Risk and Assurance and the Group Financial Controller. Full details
of Director attendance during the year are set out in the table of all
Committee meetings on page 52.

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 and the
Group Head of Risk and Assurance, as well as our external Auditor.

Summarised in the table on page 62 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 key performance indicators
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.

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOOVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONAudit Committee Report

Review matters

Relevant KPIs

Relevance

Pension accounting and disclosure

Financing charges

Æ IAS 19R finance charge £2.4m

Carrying value of intangible assets,
deferred tax assets and investments in
subsidiary undertakings

Net assets

Adjusted results

Net assets

Æ Net pension liability £97.4m

Æ Amortisation charge £0.9m

Æ Goodwill impairment £2.1m

Æ Net intangible assets £8.3m

Æ Deferred tax assets £20.6m

Æ Unrecognised deferred tax assets £24.3m

Æ Investments in subsidiary undertakings

(Company balance sheet) £157.6m

Judgement
required

Moderate

High

Inventory valuations and provisioning

Inventory value

Æ Net inventory value £41.0m

Moderate

Restructuring costs

Average working capital ratio

Æ Working capital percentage of sales 21%

Net assets

Adjusted results

RoS%

Æ Net assets £1.1m

Æ Adjusted operating profit impact £4.7m

Moderate

Æ RoS impact 2.5%

The Committee has also encouraged additional disclosure of
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 28 and 29 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 level of judgement 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.

Pension accounting and disclosure
(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

Change in liability

Impact of 0.5% increase in UK discount rates

£14.7m decrease

Impact of 0.5% decrease in UK discount rates

£16.5m increase

Impact of 0.5% increase in UK inflation rates

£9.3m increase

Impact of 0.5% decrease in UK inflation rates

£10.3m decrease

Impact of 1 year higher life expectancy in UK

£10.1m 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 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.

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018GOVERNANCECarrying value of intangible assets, deferred tax assets
and investments in subsidiary undertakings
(recurring annual item: see Notes 7, 8 and 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. 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. Specific focus was given to
the carrying value of goodwill of Jeffrey Chain and the associated
impairment charge in the year ended 31 March 2018. This was 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 related deferred tax assets. 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.

Inventory valuations 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
includes the allocation of amounts for labour and overhead costs
which require the exercise of management judgement. The overall
process is governed by accepted 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.

Viability Statement
(recurring annual item: see page 37)
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 assessing that the Going Concern basis remains
appropriate for the financial statements, 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 it 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 37 of
the Strategic Report.

Other recurring 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.

Restructuring costs
(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 adjusting and ordinary items. We ensure
that the adjusting items 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 Committee reviews 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.

The ERMMC receives 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 meetings to the Committee.

Further details of our internal control and risk management
systems, including the financial reporting process, can be found on
pages 30 to 31 and 58.

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOOVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONAudit Committee Report

Our primary risk factors are shown in the Strategic Report on pages
32 to 36. Even though cybersecurity is not considered a key risk,
due to the devolved and diffuse nature of the systems environment
and the IT estate, the Committee did review cybersecurity risk. It
reviewed policies and current mitigation strategies as well as third
party testing of aspects of cybersecurity.

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 Integrated Risk Management System
at each meeting. The audit plan, which contains mandatory, risk-
based and cyclical review, has been built around focus areas such as
organisational change, major projects, IT security, business resilience
and capital spend.

In the new financial year, the internal audit plan will include
site financial control audits, site health and safety audits and
project assurance.

The Committee also undertakes an annual review of the
effectiveness of the internal audit function.

External audit
The Committee is responsible for overseeing relations with
the external Auditor, including the approval of their terms of
engagement, and makes recommendations to the Board on
their remuneration and 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.

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 2015 and
this is therefore the third year end he has 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 of
the Financial Reporting Council. 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 Company’s website, www.renold.com.

During the year ended 31 March 2018, 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 2019.

Total non-audit services provided by Deloitte during the year ended
31 March 2018 were £nil (2017: £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.

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018GOVERNANCEAudit 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; and

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 18 July
2018. 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.

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 UK
Corporate Governance Code, the Group maintains a Disclosure
Committee whose membership includes the Chairman of the
Audit Committee (as Chair), the Group Finance Director, the Group
Financial Controller and the Company Secretary.

The consideration of the fair, balanced and understandable
requirement is detailed on page 58. In summary, the Disclosure
Committee carried out the following activities:

Æ All those contributing to the Annual Report and Accounts were
briefed on the requirements of the UK Corporate 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 and Accounts.
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.

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.

David Landless
CHAIRMAN OF THE AUDIT COMMITTEE

29 May 2018

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOOVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONNomination Committee Report

Key objectives
In support of the Board’s duty of good
stewardship, the Committee aims to
ensure appropriate corporate governance
is applied to considering the structure,
size and composition of the Board and the
Board’s Committees. Succession planning is
at the top of the Committee’s agenda, with
processes in place to ensure the Board has a
broad skill set and a diverse make-up.

Governance

The Committee’s terms of reference are
available on the Company's website,
www.renold.com.

Responsibilities
The Committee has delegated authority
from the Board, in accordance with the
UK Corporate Governance Code. The
Committee’s responsibilities include:

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.

Composition of the Nomination
Committee
I chair the Committee, and our three Non-
Executive Directors are members of the
Committee and have been so throughout
the year. The Committee meets during the
year as required.

Nomination Committee members
and meetings attended

Names

Position

Mark Harper

Chairman

John Allkins

Ian Griffiths

David Landless

Non-Executive
Director

Meetings
attended

4 of 4

Policy on appointments to the Board
and diversity
In accordance with the provisions of the
UK Corporate Governance 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 its current stage
of development. 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.

“ Following a year when
we welcomed two new
Directors to our Board of
six, we have experienced
a year of stability. We
are confident that our
current Board is both
balanced and diverse,
in a broad sense, with
a range of relevant
skills, knowledge
and experience. We
are committed to
maintaining and building
on this broad base of
skills, and continue to
focus on enhancing our
succession planning.”

MARK HARPER
NOMINATION COMMITTEE CHAIRMAN

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018GOVERNANCESuccession planning and responsibilities of Directors
As previously reported, as part of a programme of orderly
succession, John Allkins stepped down as Chairman of the Audit
Committee and Senior Independent Director at the AGM in July
2017. David Landless took up the role of Chairman of the Audit
Committee and Ian Griffiths assumed the responsibilities of Senior
Independent Director. John will continue as a Non-Executive
Director until his retirement from the Board at the 2018 AGM.

Other succession planning
I reported last year that the Board is mindful of its obligations
under the UK Corporate Governance Code in relation to succession
planning and a detailed review of succession planning for the Board
and senior management took place. The review, as it related to
senior management, concluded that the continued strengthening of
the management team, led by the Chief Executive, is ongoing and
will continue to be an area of focus for the Committee. In relation
to succession planning for the Board, the Committee noted the
Financial Reporting Council’s proposed reforms to the UK Corporate
Governance Code and acknowledges that resultant reforms will
need to be taken into account in further Board succession planning.

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 concluded that it continues to work
effectively.

Mark Harper
CHAIRMAN OF THE NOMINATION COMMITTEE

29 May 2018

The Board is aware of the need to consider the benefits of diversity
on the Board in all its aspects, with a Board diversity policy having
been adopted and described in the 2014 Annual Report. The Board
continues to believe that it is not appropriate to set measurable
objectives for the implementation of the diversity policy at this time.
In any future changes to its composition, the Board will continue
to be mindful of the issues of diversity, including gender, and these
factors will be taken into account alongside the overriding objective
of appointing the best possible candidate for the role.

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 with
most of the Board members having worked and lived overseas for
significant periods. For further information, see the chart on
page 50.

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 above. The
Committee will then seek to identify suitable candidates usually
with the use of external recruitment consultants or, where
appropriate, the use of open advertising. The Board supports the
engagement of executive search firms who have signed up to the
Voluntary Code of Conduct on gender diversity and best practice
and who do not have any other connection with the Company.

Board composition
During the current reporting period, we experienced a period of
stability and continuity of the current Board. This followed a period
during the previous financial year when two new Directors, David
Landless and Ian Scapens, joined our Board of six.

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.

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOOVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONDirectors’ Remuneration Report
Annual Statement

As Chairman of the Remuneration
Committee I present the Directors’
Remuneration Report for the year ended
31 March 2018.

Structure of our Directors’
Remuneration Report
Our report is structured in the following
sections after this 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,

which 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,

which shows the implementation of the
Directors’ Remuneration Policy during
the year ended 31 March 2018 and how it
is proposed to be applied
for the year ending 31 March 2019.

Other than the Directors’ Remuneration
Policy, all of our Directors’ Remuneration
Report is subject to an advisory shareholder
vote at the 2018 AGM.

In this Annual Statement 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
In line with the Group’s ongoing strategy
of lowering the Group’s breakeven point
through pay restraint, the Chief Executive’s
salary has remained unchanged since 2013.
In accordance with the approved Directors’
Remuneration Policy, the Group Finance
Director’s salary was increased by 8.1%
during the year, to bring it more into line
with market benchmarks and recognise his
progression in the role.

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 an
adjusted EBITDA 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 2018.

Æ The Committee determined this outcome
having formally assessed performance
against adjusted EBITDA and net
debt targets (both based on constant
budgeted exchange rates) set at the
beginning of the year, as follows. The
adjusted EBITDA for the year ended
31 March 2018 of £22.0m was below the
threshold of £23.6m required for any
payment of bonus. Average net debt
during the year was £29.4m, which
was within the target range of £28.7m
to £30.2m.

Æ The performance period for the PSP
awards granted in June 2015 ended
on 31 March 2018. The performance
conditions required growth of 10%
per year in adjusted EPS for threshold
vesting. EPS declined over the testing
period from 5.0p for the period ended
31 March 2015 to 4.5p for the period
ended 31 March 2018, and therefore the
awards will not vest.

" The Directors’
Remuneration Policy
was most recently
amended and approved
by shareholders at
the 2016 AGM. The
Committee believes
that the current policy
continues to align
executive remuneration
arrangements with
the interests of our
shareholders whilst
supporting the delivery
of the Company’s STEP
2020 Strategic Plan."

IAN GRIFFITHS
REMUNERATION COMMITTEE CHAIRMAN

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018GOVERNANCERemuneration policy
The Directors’ Remuneration Policy was
amended and approved by over 90% of
voting shareholders at the 2016 AGM and
it is intended that it will continue to apply
until its expiry in July 2019. The Committee
is planning to undertake a full review
of remuneration and established best
practice prior to proposing a replacement
remuneration policy for shareholder
approval at the 2019 AGM.

The Committee continues to believe that
the current remuneration policy aligns
executive remuneration arrangements with
the interests of our shareholders whilst
supporting the delivery of the Company’s
STEP 2020 Strategic Plan.

Market conditions remain challenging;
however, the Committee firmly believes
that the Long Term Incentive Plan (LTIP)
appropriately incentivises the Executive
Directors and supports the delivery of the
STEP 2020 Strategic Plan. In addition, the
shareholding requirements for Executive
Directors continue to align management’s
interests with those of shareholders.

The Committee believes that the structure
and implementation of total remuneration
for the Executive Directors is market
competitive with companies of a similar
size, and consistent with maintaining
support for the Company's cash position.
The LTIP opportunity will only become
payable if the minimum threshold
EPS improvement target is delivered.
This supports 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 of the Financial
Reporting Council’s proposed reforms to the
UK Corporate Governance Code and that the
landscape for executive pay is changing. We
will respond appropriately to changes and
best practice as they develop.

We welcome feedback from shareholders
and I will be available at the AGM to answer
any questions.

Ian Griffiths
REMUNERATION COMMITTEE CHAIRMAN

29 May 2018

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOOVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONDirectors’ Remuneration Report
The Committee and its Activities

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.

Remuneration Committee composition and
meetings attended
The members of the Committee are the Non-Executive Directors, all
of whom are considered by the Board to be independent. Members
of the Committee during the year are set out below and further
biographical details can be found on pages 48 and 49.

The Committee’s terms of reference require meetings to be held at
least twice a year. This year, the Committee met on six occasions

Remuneration Committee members and meetings attended

Names

Position

Ian Griffiths

Chairman

John Allkins

Non-Executive Director

David Landless

Non-Executive Director

Meetings attended

6 of 6

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.

Governance
The terms of reference of the Committee are available on the
Company’s website, www.renold.com. None of the Committee
members have 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.

An evaluation of the Committee was undertaken during the year
ended 31 March 2018 and this review concluded the Committee has
operated effectively.

The Company’s Auditor is required to report on certain parts of
the Directors’ Remuneration Report and to state whether in its
opinion those parts of the report have been properly prepared
in accordance with the relevant accounting regulations. Audited
sections of the report are indicated accordingly.

Key responsibilities of the Committee
The Committee has delegated authority from the Board. In
accordance with the UK Corporate Governance Code, the
Committee’s responsibilities include:

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.

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 £26,750.

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.

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018GOVERNANCEMain activities of the Committee during the year
This year, the Committee discussed the following themes and agenda items in accordance with its terms of reference:

Theme

Agenda items

Best practice

Annual Report on
Remuneration

Executive
Directors

Considering the current UK corporate governance environment and the implications for the Company

Considering and approving of the Annual Report on Remuneration to be put to shareholders

Reviewing the base salaries payable to each of the Executive Directors

Reviewing performance under the annual bonus and consideration of any bonuses payable for the financial year ended
31 March 2018

Approving the annual bonus structure, quantum and performance targets for the financial year ending 31 March 2019

Approving the awards made under the Company’s Performance Share Plan (‘PSP’) during the year

Chairman

Reviewing the fee payable to the Chairman

Committee performance

Reviewing the Committee’s performance

Performance of external
advisers

Reviewing the performance of PwC and considering whether to retain them as external remuneration consultants

Policy

Reviewing and determining administrative amendments to the Company’s PSP scheme rules

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOOVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONDirectors’ Remuneration Report
At a Glance

Our remuneration principles and elements of remuneration

Principle

Elements

Attract, retain and motivate executives to deliver
high performance

Align executive pay to Company
strategy and performance

Fixed pay

Æ Base salary

Æ Pension

Æ Other benefits

Short-term variable

Æ Annual bonus

Long-term variable

Æ PSP

Purpose

Æ Provide appropriate level of minimum pay

Æ Drive annual Company performance

commensurate with role

Æ Align to earnings generation and shareholder value

How we have performed this year

Element

Bonus*

PSP

Measure

Adjusted EBITDA
Average net debt

Threshold target

Maximum target

£23.6m
£30.2m

£26.6m
£28.7m

Actual

£22.0m
£29.4m

Growth in adjusted EPS

10% p.a. growth

15% p.a. growth

3.2% p.a. decline

* The ‘actual’ amounts disclosed are calculated using constant budgeted exchange rates in accordance with the rule of the Scheme.

Single total figure of remuneration for Executive Directors

Executive Directors

Robert Purcell

Ian Scapens*

Salary
(£’000)

300

195

Benefits
(£’000)

Bonus
(£’000)

LTIP
(£’000)

Pensions
(£’000)

Total 2018
(£’000)

Total 2017
(£’000)

–

364

237

363

* Ian Scapens joined the Company on 3 January 2017.

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018GOVERNANCEDirectors’ Remuneration Report
Directors’ Remuneration Policy

Introduction
This section of the Directors’ Remuneration Report (from pages
73 to 79) sets out the Company’s policy for the remuneration of its
Directors. The application of the policy is set out on pages 80 to 85.

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.

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.

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

BASE SALARY

Competitive salaries to
attract, retain and motivate
those responsible for
executing strategy while
ensuring the Company pays
no more than is necessary.

Operation of the element

Maximum potential value
and payment at threshold/
review basis

Performance metrics

Paid in 12 equal monthly instalments
during the year.

Reviewed annually and typically set
on 1 August each year.

None.

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.

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.

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOOVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONDirectors’ Remuneration Report
Directors’ Remuneration Policy

Operation of the element

Maximum potential value
and payment at threshold/
review basis

Performance metrics

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.

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.

None.

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.

Purpose and link to
corporate strategy

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.

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018GOVERNANCEPurpose and link to
corporate strategy

Operation of the element

Maximum potential value
and payment at threshold/
review basis

Performance metrics

PERFORMANCE SHARE PLAN

To incentivise delivery of
long-term shareholder
value.

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.

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.

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.

SHAREHOLDING REQUIREMENT

To strengthen the
alignment between the
interests of Executive
Directors and those of
shareholders.

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.

Chief Executive – 200% of base
salary. Other Executive Directors –
100% of base salary.

None.

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOOVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONDirectors’ Remuneration Report
Directors’ Remuneration Policy

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

PSP

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 the year

Compound Annual Growth Rate (CAGR)
in adjusted earnings per share (EPS)

EPS excluding exceptional items, pension
administration costs, IAS 19R 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 (TSR)

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.

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 may be 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 the 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.

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018GOVERNANCEService 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:

Date of contract

Expiry date of current term/
notice period

Robert Purcell

21 January 2013

Ian Scapens

18 July 2017

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.

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 2019 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.

1,400

1,200

1,000

800

600

400

£364

£1,264

47%

24%

£664

23%

)

’

0
0
0
£
(
n
o
i
t
a
r
e
n
u
m
e
R

100%

54%

29%

200

£641

31%

38%

£391
13%
26%

61%

£241

100%

Minimum On-target

Maximum

Minimum

On-target

Maximum

Robert Purcell

Ian Scapens

PSP

Annual bonus

Salary, beneﬁts and pension

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOOVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATION
Directors’ Remuneration Report
Directors’ Remuneration Policy

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.

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
73 to 76 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 73 to 76.

Details of the Company’s approach to the remuneration of Non-Executive Directors are set out on page 79.

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018GOVERNANCEExternal 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

Unexpired term
(months)

Date of election/
last re-election

Contractual fees

1 May 2012 1

17 April 2008 2

13 January 2010 4

9 January 2017

19 July 2017

£114,500

£37,0003

£42,5005

£42,5006

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.

Given the period since the last review in 2011, a full review of the fees for Non-Executive Directors was undertaken by the Board during
the year, with reference to fees paid in comparable organisations and the time commitments required. The Chairman’s remuneration was
reviewed by the Committee on a similar basis to the review of the fees for the other Non-Executive Directors. The determined fee levels for
the Non-Executive Directors and Chairman are set out in the above table and the Board resolved to review fee levels annually.

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 Harper’s appointment was renewed with effect from 1 May 2018 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 decreased with effect from 19 July 2017 as a result of him stepping down as the Senior Independent Non-Executive Director and Chairman of the

Audit Committee.

4. Ian Griffiths’ appointment was renewed on 14 January 2016 for a period of three years in line with best practice guidelines.

Ian Griffiths’ fee includes an additional £2,500 paid with effect from 19 July 2017 as a result of his appointment as the Senior Independent Non-Executive Director.

6. David Landless’ fee includes an additional £5,000 paid with effect from 19 July 2017 as a result of his appointment as Chairman of the Audit Committee.

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOOVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONDirectors’ Remuneration Report
Annual Report on Remuneration

Introduction
This section of the Directors’ Remuneration Report sets out the remuneration paid to Directors for the financial year ending 31 March 2018.
This section, together with the description of the composition of the Committee, which is set out on page 70 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
18 July 2018.

Directors’ remuneration (audited information)
Total remuneration – single total figure table
The total remuneration for each Director for the period and for the prior year is set out below:

Salary
(£’000)

Benefits
(£’000)

Bonus
(£’000)

LTIP
(£’000)

Pensions
(£’000)

Total
(£’000)

2018

2017

2018

2017

300

195

–

Executive Directors

Robert Purcell

Ian Scapens*

* 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.

–

2018
£’000

113

364

363

237

2017
£’000

Change
£’000

110

(4)

(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,
the Chief Executive did not receive an increase in his annual salary during the period, which remained at £300,000. The Group Finance
Director’s annual salary was increased from £185,000 to £200,000, to reflect his development in the role and to bring it more into line with
market benchmarks. These figures are reflected in the single total figure of 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 2018 was
0.80% (2017: 0.80%).

(ii) Pension
The Executive Directors’ only pension entitlements are Company contributions equivalent to 15% of base salary. During the year ended
31 March 2018, cash payments of £45,000 (2017: £45,000) and £29,000 (2017: £6,866) were made by the Company to Robert Purcell and
Ian Scapens, respectively. These figures are shown in the Total remuneration table above.

(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 above.

Non-Executive Directors do not receive any benefits.

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018GOVERNANCE(2) Variable elements of pay – awards vested in the 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 2018, the annual bonus
targets for Executive Directors were based upon the matrix below.

Adjusted EBITDA (£m)

23.6

24.6

25.6

26.1

26.6

Average Net Debt (£m)

30.2

–

20.0%

30.0%

45.0%

60.0%

29.7

15.0%

30.0%

45.0%

62.5%

80.0%

29.2

20.0%

35.0%

50.0%

70.0%

90.0%

29.0

30.0%

50.0%

70.0%

82.5%

95.0%

28.7

40.0%

65.0%

90.0%

95.0%

100.0%

Adjusted EBITDA is defined as earnings before interest, tax, depreciation, amortisation, closed defined benefit pension scheme charges and
restructuring costs. 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 2018, the adjusted EBITDA for the year was £22.0m and the average net debt was £29.4m (measured at budget
exchange rates in accordance with the annual bonus rules). As adjusted EBITDA was below the threshold target, no bonus was payable.

(ii) PSP awards performance testing
The performance period for PSP awards granted on 5 June 2015 completed on 31 March 2018. The performance conditions applying to
these awards are as follows:

Threshold

Maximum

Award date

5 June 2015

EPS CAGR

10%

% Vesting

25%

EPS CAGR

% Vesting

Performance period

15%

100%

3 years to 31 March 2018

EPS declined by 3.2% per annum between 2015 and 2018. As this is below the threshold growth of 10% p.a., none of the awards will vest.

(3) Variable elements of pay – awards made in the 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.

Robert Purcell

Ian Scapens

Type of award

Face value

Number of
shares1

Date of award

Nil-cost option

£600,000

1,095,090

5 June 2017

Nil-cost option

£185,000

337,653

5 June 2017

The year ended 31 March 2018 was the fifth 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 (54.79 pence).

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOOVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONDirectors’ Remuneration Report
Annual Report on Remuneration

The targets applying to the awards are as follows:

Award date

5 June 2017

Award date

5 June 2017

Threshold

Maximum

EPS CAGR

10%

% Vesting

25%

EPS CAGR

% Vesting

Performance period

15%

100%

3 years to 31 March 2020

Threshold

Maximum

TSR

83.9p

% Vesting

25%

TSR

109.9p

% Vesting

Performance period

100%

3 years to 31 March 2020

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. No payments for
loss of office were made to any Directors during the year.

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 Plan and PSP over the last five years as a percentage of the total award
to Executive Directors.

Award 2010/11
Vesting 2013/14

Award 2011/12
Vesting 2014/15

Award 2012/13
Vesting 2015/16

Award 2013/14
Vesting 2016/17

Award 2014/15
Vesting 2017/18

Vesting %

Nil

100%

Nil

The vested awards relate to options awarded to Robert Purcell in the year ended 31 March 2013. Further details are set out on page 100 in
the 2016 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 2018 and the date of this report.

Robert Purcell

Ian Scapens (target required to be satisfied by 2022)

* Comprised of 3,748,526 beneficially owned shares and 2,210,127 vested but unexercised options.

Non-Executive Directors

Mark Harper

John Allkins

Ian Griffiths

David Landless*

* David Landless joined the Board on 9 January 2017.

Shareholding
requirement
(% of salary)

200%

100%

Holding as per
Remuneration
Policy at
31 March 2018

5,958,653*

–

Shareholding
at 31 March 2018
(% of salary)

576%

–

Holding at
31 March 2018

511,924

144,500

10,000

–

There have been no changes in the interests of any current Director in the share capital of the Company between 1 April 2018 and the date
of this report.

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 2018. 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.

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018GOVERNANCE(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 2018 and the date of this report.

Robert Purcell

Number of share options

Options
held at
1 April
2017

Granted
in year

Lapsed
in year

Exercised
in year

2004 Options Plan

1,145,038

Total 2004 Options Plan

1,145,038

PSP

1,065,089

460,358

392,157

1,643,836

–

1,095,090

–

(460,358)

–

Total PSP

Total

3,561,440

1,095,090

(460,358)

4,706,478

1,095,090

(460,358)

–

Options
held at
31 March
2018

Options
vested at
31 March
2018

Option
price (p)

Date from
which
exercisable

Expiry
date

1,145,038

26.20 21.01.2016

21.01.2023

1,145,038

1,065,089

Nil

25.07.2016 25.07.2023

–

392,157

1,643,836

1,095,090

–

Nil 05.06.2017 05.06.2024

Nil 05.06.2018 05.06.2025

Nil

21.07.2019 21.07.2026

Nil 05.06.2020 05.06.2027

4,196,172

1,065,089

5,341,210

2,210,127

Ian Scapens

PSP

Total

Number of share options

Options
held at
1 April
2017

Granted
in year

Lapsed
in year

Exercised
in year

368,465

–

337,653

368,465

337,653

–

Options
held at
31 March
2018

368,465

337,653

706,118

Options
vested at
31 March
2018

–

Option
price (p)

Date from
which
exercisable

Expiry
date

Nil

16.01.2020 16.01.2027

Nil 05.06.2020 05.06.2027

The performance conditions for the share options are disclosed on pages 81 and 82 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 below shows the Company’s total shareholder return (share price growth plus dividends reinvested where applicable) for each of
the last nine 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.

Renold plc
FTSE All-Share Industrial Engineering Index

800

700

600

500

400

300

200

100

Mar 09

Mar 10

Mar 11

Mar 12

Mar 13

Mar 14

Mar 15

Mar 16

Mar 17

Mar 18

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOOVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONDirectors’ Remuneration Report
Annual Report on Remuneration

Chief Executive’s remuneration for the years ended 31 March 2010 to 2018
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 nine years.

Chief Executive’s total remuneration1 £’000

Annual bonus as % of maximum awarded

LTIP 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

–

2018

364

–

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 on page 80).

Chief Executive

Workforce2

Percentage
change
in salary

Percentage
change
in benefits

Percentage
change
in annual bonus

–

<3%3

–

0.2%

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 80) 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.

2018

2017

Difference (%)

Employee
remuneration

Shareholder
distributions

Market
capitalisation

£70.2m

£67.5m

4.0%

Nil

£65.4m

£126.8m

(48.4%)

Revenue4

£191.6m

£183.4m

4.5%

Adjusted
operating
profit4

£14.2m

£14.5m

(2.1%)

Executive
Directors’ total
remuneration

£0.6m

–

EBITDA5

£21.5m

£21.3m

0.9%

Statement of implementation of remuneration policy in the next financial year
The Committee intends to operate the remuneration policy as set out in the Policy table and notes on pages 73 to 76 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 2018 and any change
implemented from 1 August 2018. The current base salaries for the Executive Directors are set out on page 80 and below:

Robert Purcell

Ian Scapens

£’000

300

200

1. The values use the same methodology as that shown in calculating the single figure basis of remuneration in the table on page 80.

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 and adjusted operating profit.

5. EBITDA is adjusted operating profit before depreciation and amortisation charges.

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018GOVERNANCEAnnual bonus
The performance measures for the 2018/19 annual bonus are unchanged from 2017/18. As set out on page 81, the performance measures
are based upon a matrix 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 for 2018/19 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 2018 are in line with
those granted during 2017 and are as follows:

Æ For the Group Finance Director, 100% of the award will be based on the Compound Annual Growth Rate (CAGR) 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%

TSR

42.2p

Threshold

% Vesting

25%

% Vesting

25%

EPS CAGR

15%

TSR

72.2p

% Vesting

100%

% Vesting

100%

Maximum

Performance period

3 years to 31 March 2021

Performance period

3 years to 31 March 2021

Performance under the EPS condition will be measured from an adjusted EPS figure of 4.5p for the year to 31 March 2018.

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 19 July 2017. Votes cast in respect of this
resolution at the 2017 AGM are detailed in the table below.

Remuneration Policy

Votes cast for

Votes cast against

Total

Votes withheld*

2017 AGM

170,578,499

1,182,259

171,760,758

35,531

99.31

0.69

The Directors’ Remuneration Policy 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 Policy

Votes cast for

Votes cast against

Total

Votes withheld*

* A vote withheld is not a vote in law and is not counted in the calculation of the proportion of votes cast ‘for’ and ‘against’ a resolution.

Approved by the Board and signed on its behalf by:

Ian Griffiths
REMUNERATION COMMITTEE CHAIRMAN

29 May 2018

91.90

8.10

2016 AGM

160,871,566

14,174,772

175,046,338

954,988

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOOVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONDirectors’ Report

The Directors submit their report and the financial statements as
set out on pages 101 to 152.

The Directors’ Report, which comprises pages 86 to 89, sets out
certain information in relation to the Company in accordance with
the requirements of the Companies Act 2006 and the FCA’s Listing
and Disclosure and Transparency Rules.

The Strategic Report provides an overview of the performance of
the business in the year ended 31 March 2018 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 89 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 2018 is £1.4m,
compared with a profit of £6.7m for the year ended 31 March 2017.

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 2018, 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 2017 and 1 January 2018.

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, any Director who
was not elected or re-elected at either of the two preceding AGMs
must retire and seek re-election. The Board has decided that all
Non-Executive Directors are subject to annual election; please refer
to the Corporate Governance Report on page 55 for further details.
John Allkins is retiring from the Board at the 2018 AGM and not
seeking re-election.

As a result, Mark Harper, Ian Griffiths, and David Landless will be
standing for election/re-election at the 2018 AGM.

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 on pages 66 and 67.

Shareholders may also appoint a Director by ordinary resolution.

Directors’ interests
Details of the interests of the Directors and their connected persons
in the Company’s share capital and in options held under the
Company’s share option schemes, along with any changes in such
interests since the end of the year, are detailed in the Directors’
Remuneration Report on pages 80 to 85. 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.

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018GOVERNANCENo 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 the date of this report, 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

M&G Investment Funds

Discretionary Unit Fund Managers
Limited

Janus Henderson Investors Limited

Tellworth Investments, LLP

Schroder Investment Management
Limited

JP Morgan Asset Management

Hargreave Hale

AXA Investment Managers UK

Royal London Asset Management

Number of
voting rights1

33,581,907

27,000,000

25,995,747

15,148,021

14,464,253

11,226,179

10,757,319

10,403,334

7,867,947

% of total
number of
voting rights1

14.9%

12.0%

11.5%

6.7%

6.4%

5.0%

4.8%

4.6%

3.5%

1. The number of voting rights and the percentage of voting rights are as at

22 May 2018.

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.

Shares
Share capital
As at 31 March 2018, the issued share capital of the Company was
£11,851,369 divided into 225,417,740 ordinary shares of 5p each
and 580,482 units of 6% cumulative preference stock of £1 each.
The decrease in the issued share capital (2017: £27,264,310) follows
the purchase by the Company of 77,064,703 deferred shares of
20p each and the cancellation of them, in accordance with the
shareholder approval obtained at the 2017 AGM.

The ordinary shares represent 95.1% of the Company’s total share
capital and the preference stock represents 4.9%. The Company’s
ordinary shares and preference stock are listed on the London
Stock Exchange.

Purchase of own shares
The Company obtained shareholder authority at the 2017 AGM to
make market purchases of up to 22,541,774 ordinary shares in the
Company, which remains outstanding until the conclusion of the
2018 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 19 July 2017.

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.

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOOVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONDirectors’ Report

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
£563,544.35, 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 2017 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.

In addition, the Directors have authority to allot shares up to a
maximum nominal amount of £7,506,410, representing approximately
two-thirds of the issued ordinary share capital as at the date of
the Notice of the Company’s 2017 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, Svenska Handelsbanken AB and HSBC plc contains a
change of control provision. This requires the Company to provide
notification to the agent in the event of a change of control. The
banks may then demand cancellation and repayment of the
commitments and the loans.

The share subscription and shareholders’ agreement between
L. G. Balakrishnan & Bros Ltd, Renold International Holdings
Limited and Renold Chain India Private Limited dated 24 June 2008
contains certain change of control provisions. On the change of
control of a shareholder (being one of the parties to the agreement),
the other shareholder has a right to terminate the agreement and/
or to require the shareholder suffering the change of control to sell,
at a fair price, all of its equity shares to the terminating shareholder
or a nominee of such shareholder.

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018GOVERNANCEGoing 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 106 which is incorporated by reference here.

Other disclosures

Directors’ biographical details and date of appointment

48 and 49

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
2018 Note 26 to the Group financial statements

Statement on disclosure to Auditor

Statement of Directors’ responsibilities

40 to 42

137 to 142

142

The Directors’ Report was approved by the Board on 29 May 2018.

For and on behalf of the Board:

Ian Scapens
DIRECTOR

29 May 2018

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 128 to 133
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 77 within
the Directors’ Remuneration Report.

Annual General Meeting
The Annual General Meeting (‘AGM’) of the Company will be
held at the Manchester International Office Centre, Styal Road,
Wythenshawe, Manchester M22 5WB on 18 July 2018 at 11.00am.

The resolutions being proposed at the 2018 AGM will be general
in nature, including the renewal for a further year of the limited
authority of the Directors to allot the unissued share capital of
the Company and to issue shares for cash other than to existing
shareholders (in line with the Pre-Emption Group’s Statement
of Principles). A resolution will also be proposed to renew the
Directors’ authority to purchase a portion of the Company’s own
shares. The Company will again seek shareholder approval to hold
general meetings (other than AGMs) at 14 days’ notice. Resolutions
will be proposed to renew these authorities, which would otherwise
expire at the 2018 AGM.

One of the areas of special business to be addressed at this AGM is
the proposal to extend the authority to disapply pre-emption rights
by a further 5% of the issued ordinary share capital, such additional
authority to be used only for limited purposes, which will be set out
in the Notice of Meeting of the AGM.

Auditor
Deloitte LLP has confirmed its willingness to continue in office as
Auditor of the Company. In accordance with section 489 of the
Companies Act 2006, separate resolutions for the reappointment of
Deloitte LLP as Auditor of the Company and for the Directors
to determine the Auditor’s remuneration will be proposed at the
2018 AGM.

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOOVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONDirectors’ 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,

relevant 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 consistently;

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 Group and Company’s ability to

continue as a Going Concern disclosing, as applicable, matters
related to 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 responsible for such internal control as they determine
is necessary to enable the preparation of the financial statements
that are free from material misstatement, whether due to fraud or
error, and 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.

Under applicable law and regulations, the Directors are also
responsible for preparing a Strategic Report, Directors’ Report,
Directors’ Remuneration Report and Corporate Governance
Statement that complies with that law and those regulations.

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; and

Æ The management report required by DTR 4.1.8R (contained in the
Strategic Report and the Directors’ 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.

We consider the Annual Report and Financial Statements, taken
as a whole, is fair, balanced and understandable and provides 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 29 May 2018 and is signed on its behalf by:

Robert Purcell
CHIEF EXECUTIVE

Ian Scapens
FINANCE DIRECTOR

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018GOVERNANCE

Shareholder Information

The Company’s website, 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.

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.

If you wish to advise a change of name, address, or dividend
mandate, please contact the Company’s registrar, Link Asset
Services, whose contact details appear on page 151. Alternatively,
you can view up-to-date information and manage your shareholding
through Link’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.signalshares.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!

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOOVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTSADDITIONAL INFORMATIONIndependent Auditor’s Report

to the Members of Renold plc

Opinion
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 2018 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 Financial Reporting Standard 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.

We have audited the financial statements of Renold Plc (the ‘parent company’) and its subsidiaries (the ‘group’) which 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 accounting policies;

Æ the related notes 1 to 26 to the group financial statements; and

Æ the related notes 1 to 13 to the parent company financial statements

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, including FRS 101 “Reduced Disclosure Framework”
(United Kingdom Generally Accepted Accounting Practice).

Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the auditor’s responsibilities for the audit of the financial statements section of our report.

We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our
other ethical responsibilities in accordance with these requirements. We confirm that the non-audit services prohibited by the FRC’s Ethical
Standard were not provided to the group or the parent company.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018FINANCIAL STATEMENTSSummary of our audit approach

Key audit matters

The key audit matters 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

These key audit matters are consistent with prior year.

Materiality

Scoping

We determined materiality for the Group to be £592,000 which is 6.5% of statutory pre-tax profit of £1.4m, adjusted
for adding back restructuring costs, impairment of goodwill, and pension administration costs to give a revised pre-
tax profit which reflects underlying performance of £9.1m.

We focused our Group audit scope primarily on the audit work at 15 locations (2017: 14 locations). 5 (2017: 7) of these
were subject to a full audit, 5 (2017: 5) were subject to an audit of specified account balances and the remaining 5
(2017: 2) were subject to review procedures.

These locations covered 99% of the Group’s revenue, 92% of the Group’s pre-tax profit and 99% of the Group’s
net assets.

Significant changes to our
approach

Our approach is consistent with the previous year, with no significant changes identified.

We confirm that we have nothing
material to report, add or draw
attention to in respect of these
matters.

Conclusions relating to going concern, principal risks and viability statement

Going concern
We have reviewed the directors’ statement within the Accounting Policies on page 106 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 and company’s ability to continue to do so over a period of at least twelve months from
the date of approval of the financial statements.

We are required to state whether we have anything material to add or draw attention to in
relation to that statement required by Listing Rule 9.8.6R(3) and report if the statement is
materially inconsistent with our knowledge obtained in the audit.

Principal risks and viability statement
Based solely on reading the directors’ statements and considering whether they were consistent
with the knowledge we obtained in the course of the audit, including the knowledge obtained in
the evaluation of the directors’ assessment of the group’s and the company’s ability to continue
as a going concern, we are required to state whether we have anything material to add or draw
attention to in relation to:

Æ the disclosures on pages 32 to 36 that describe the principal risks and explain how they are

being managed or mitigated;

Æ the directors’ confirmation on page 37 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; or

Æ the directors’ explanation on page 37 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.

We are also required to report whether the directors’ statement relating to the prospects of the
group required by Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in
the audit.

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOSTRATEGIC REPORTGOVERNANCEADDITIONAL INFORMATIONFINANCIAL STATEMENTSOVERVIEWIndependent Auditor’s Report

to the Members of Renold plc

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements
for the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we
identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit;
and directing the efforts of the engagement team.

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.

The carrying value of inventory

Key audit matter
description

As shown in note 11 the Group holds inventory of £41.0m (2017: £40.4m). As discussed on the Audit Committee
report on page 63 and in the accounting policies on page 107 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 key audit
matter

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 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.

Key observations

We have concluded that the group inventory balance is materially correct as at 31 March 2018.

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018FINANCIAL STATEMENTSImpairment of goodwill and intangible assets

Key audit matter
description

The goodwill £21.6m (2017: £26.4m) and intangible assets £8.3m (2017: £9.7m) 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 £8.3m comprising largely of computer software of £5.8m (2017: £6.5m).

How the scope of
our audit responded
to the key audit
matter

We have determined that as a result of the range of potential outcomes with regards to the carrying value of the
CGUs (Jeffrey Chain in particular), we have identified this key audit matter as a potential fraud risk area. During the
year, management have recorded an impairment charge of £2.1m in relation to goodwill held at Jeffrey Chain.

As discussed on the Audit Committee report on page 63, and in the accounting policies on page 107, the key audit
matter identified is in respect of Management’s judgements in relation to the financial forecasts of the business
units. These include 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.

Æ We assessed the design and implementation of key controls concerning management’s impairment review process;

Æ We have evaluated the future cash flows 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.

Key observations

Whilst we note that further actions are required by the Group to achieve the forecasts within the Jeffrey Chain cash
generating unit specifically over the medium term, we are satisfied that the assumptions in the impairment models
were within an acceptable range and that the overall level of impairment recognised was reasonable.

We note that reasonably possible changes in performance could result in further impairment as set out in note 7. We
consider the Group’s description of these sensitivities to be appropriate.

Defined benefit pension scheme accounting

Key audit matter
description

The Group have a number of defined benefit pension schemes with a total defined benefit obligation of £251.2m
and a net deficit position of £97.4m 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 62, 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
key audit matter

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.

Key observations

We have concluded that the valuation of the defined benefit obligation is materially correct as at 31 March 2018.

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOSTRATEGIC REPORTGOVERNANCEADDITIONAL INFORMATIONFINANCIAL STATEMENTSOVERVIEWIndependent Auditor’s Report

to the Members of Renold plc

Deferred tax asset recognition

Key audit matter
description

The Group has a net deferred tax asset (“DTA”) of £16.4m from unused tax losses (2017: £20.7m) and an
unrecognised DTA of £24.3m (2017: £20.5m). 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.

As described on page 63, 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.

How the scope of our
audit responded to the
key audit matter

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 the knowledge and experience of 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.

Key observations

We have concluded that the recognised portion of deferred tax is materially correct as at 31 March 2018.
Furthermore, we have concluded that the disclosures on the unrecognised portion of deferred tax is appropriate as
at 31 March 2018.

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018FINANCIAL STATEMENTSOur 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 financial statements

Parent company financial statements

Materiality

£592,000

£473,200

Basis for
determining
materiality

We have determined materiality by considering a range of
possible benchmarks and the figures derived from those,
with a particular focus on selecting a materiality within
the range that we considered appropriate. These included
revenue, EBITDA, and profit before tax, as well as the scale
of the balance sheet and overall size of the business.

We have capped materiality at 80% of the materiality
identified for the Group. This is a judgement and
represents the significant value of investments held
on the balance sheet at the year-end. Parent company
materiality equates to approximately 0.7% of net assets.

Our selected materiality represents approximately 6.5%
of statutory pre-tax profit of £1.4m adjusted for adding
back restructuring costs, impairment of goodwill and
pension administration costs to give a revised pre-tax
profit which reflects underlying performance of £9.1m.
This equates to approximately 0.3% of revenue.

Rationale for the
benchmark applied

When determining materiality, we have considered
the size and scale of the business and the nature of its
operations.

When determining materiality, we considered the net
assets of the company as its principal activity is as an
investment holding company for the group.

We considered the decline in statutory profits this year
and at present do not consider that this decline is likely
to reflect a long-term reduction in the size and scale of
the business.

We have also considered which benchmarks would be of
relevance to the users of the financial statements.

We agreed with the directors that we would report to them all audit differences in excess of £30,000 (2017: £23,000) for the parent
company and group, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We have
reported to management and those charged with governance on disclosure matters that we identified when assessing the overall
presentation of the financial statements.

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOSTRATEGIC REPORTGOVERNANCEADDITIONAL INFORMATIONFINANCIAL STATEMENTSOVERVIEWIndependent Auditor’s Report

to the Members of Renold plc

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 15 locations (2017: 14 locations). 5 (2017: 7) of these were subject to a full audit, 5 (2017: 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 5 (2017: 2) were subject to review procedures. These locations covered 99% of
Group’s revenue, 92% of the Group’s pre-tax profit and 99% of the Group’s net assets. 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 15 locations was
executed at levels of materiality applicable to each individual entity which were lower than Group materiality, being between £225,000
to £284,000 (excluding the parent company component materiality which is disclosed separately above). In the prior year component
materiality 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.

Our audit work has included the use of component auditors, which form part of the Deloitte member firm network. We planned and revised
the component auditor’s work, including issuing referral instructions to them and evaluating the results of the work performed. 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 on a rotation basis 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, attend
key meetings via conference call, and review documentation of the findings from their work. During the current year audit, a senior member
of the Group audit team visited three locations across the US and Germany.

We have nothing to report in respect
of these matters.

Other information
The directors are responsible for the other information. The other information comprises the
information included in the annual report, other than the financial statements and our auditor’s
report thereon.

Our opinion on the financial statements does not cover the other information and, except to
the extent otherwise explicitly stated in our report, we do not express any form of assurance
conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the audit or otherwise appears to be
materially misstated.

If we identify such material inconsistencies or apparent material misstatements, we are required
to determine whether there is a material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are required to report that fact.

In this context, matters that we are specifically required to report to you as uncorrected material
misstatements of the other information include where we conclude that:

Æ Fair, balanced and understandable – the statement given by the directors that they

consider the annual report and financial statements taken as a whole is fair, balanced and
understandable and provides the information necessary for shareholders to assess the group’s
position and performance, business model and strategy, is materially inconsistent with our
knowledge obtained in the audit; or

Æ Audit committee reporting – the section describing the work of the audit committee does not

appropriately address matters communicated by us to the audit committee; or

Æ Directors’ statement of compliance with the UK Corporate Governance Code – the parts of the

directors’ statement required under the Listing Rules relating to the company’s compliance with
the UK Corporate Governance Code containing provisions specified for review by the auditor
in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant
provision of the UK Corporate Governance Code.

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018FINANCIAL STATEMENTSResponsibilities of Directors

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, and for such internal control as the directors determine is necessary
to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue
as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website
at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

Use of our report

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.

Report on other legal and regulatory requirements

Opinions on other matters prescribed by the Companies Act 2006

In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the Companies
Act 2006.

In our opinion, based on the work undertaken in the course of the audit:

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 group and of the parent company and their environment obtained in the course of
the audit, we have not identified any material misstatements in the strategic report or 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 in respect
of these matters.

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOSTRATEGIC REPORTGOVERNANCEADDITIONAL INFORMATIONFINANCIAL STATEMENTSOVERVIEWIndependent Auditor’s Report

to the Members of Renold plc

Other matters

Auditor tenure
Following the recommendation of the audit committee, we were appointed by the Board on 21 July 2015 to audit the financial statements
for the year ending 31 March 2016 and subsequent financial periods. The period of total uninterrupted engagement including previous
renewals and reappointments of the firm is 3 years, covering the years ending 31 March 2016 to 31 March 2018.

Consistency of the audit report with the additional report to the audit committee
Our audit opinion is consistent with the additional report to the audit committee we are required to provide in accordance with ISAs (UK).

Simon Manning FCA
(Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom

29 May 2018

100

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018FINANCIAL STATEMENTSConsolidated Statement of
Comprehensive Income

for the year ended 31 March 2018

2018
Statutory
£m

2018
Adjustments
£m

2018
Adjusted1
£m

2017
Statutory
£m

2017
Adjustments
£m

2017
Adjusted1
£m

Note

Revenue

Operating costs

Operating profit

Operating profit is analysed as:

Before adjusting items

Restructuring costs

Amortisation of acquired intangible assets

Impairment of goodwill

Pension administration costs

Operating profit

Financial costs

Net IAS 19R financing costs

Discount on provisions

Net financing costs

Profit before tax

Taxation

(Loss)/Profit for the financial year

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

Gains arising on cash flow hedges

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 expense for the year, net of tax

Total comprehensive expense for the year, net of tax

Attributable to:

Owners of the parent

Non-controlling interest

(Loss)/earnings per share

Basic (loss)/earnings per share

Diluted (loss)/earnings per share

–

8.6

–

4.7

0.9

2.1

0.9

8.6

–

2.4

0.1

2.5

11.1

1.3

12.4

191.6

(186.0)

5.6

–

5.6

(1.7)

(2.4)

(0.1)

(4.2)

1.4

(3.6)

(2.2)

(5.9)

0.8

0.4

(4.7)

2.8

(1.6)

1.2

(3.5)

(5.7)

(5.8)

0.1

(5.7)

191.6

(177.4)

14.2

183.4

(172.4)

11.0

5.6

4.7

0.9

2.1

0.9

14.2

(1.7)

–

(1.7)

12.5

(2.3)

10.2

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)

2.1p

–

3.5

–

1.7

1.1

–

0.7

3.5

–

2.5

0.1

2.6

6.1

(0.4)

5.7

183.4

(168.9)

14.5

11.0

1.7

1.1

–

0.7

14.5

(1.7)

–

(1.7)

12.8

(2.3)

10.5

4.6p

(1.0p)

4.5p

All results are from continuing operations.
1. Adjusted for the after tax effects of pension administration costs, restructuring costs, changes in the provision discounts, IAS 19R financing costs, impairment of

goodwill and amortisation of acquired intangible assets.

101

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOSTRATEGIC REPORTGOVERNANCEADDITIONAL INFORMATIONFINANCIAL STATEMENTSOVERVIEW

Consolidated Balance Sheet

as at 31 March 2018

ASSETS
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Deferred tax assets

Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents

Non-current asset classified as held for sale

TOTAL ASSETS
LIABILITIES
Current liabilities
Borrowings
Trade and other payables
Current tax
Derivative financial instruments
Provisions

NET CURRENT ASSETS
Non-current liabilities
Borrowings
Preference stock
Trade and other payables
Deferred tax liabilities
Retirement benefit obligations
Provisions

TOTAL LIABILITIES
NET ASSETS
EQUITY
Issued share capital
Share premium account
Capital redemption reserve
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 29 May 2018 and signed on its behalf by:

Robert Purcell
CHIEF EXECUTIVE

Ian Scapens
FINANCE DIRECTOR

102

Note

7
8
9
17

11
12
25
13

14
15

25
16

14
14
15
17
18
16

21
21
21
21

2018
£m

21.6
8.3
47.7
20.6
98.2

41.0
36.4
0.4
13.9
91.7
–
91.7
189.9

(1.3)
(39.6)
(1.2)
–
(4.6)
(46.7)
45.0

(36.4)
(0.5)
(0.3)
(4.2)
(97.4)
(3.3)
(142.1)
(188.8)
1.1

11.3
30.1
15.4
7.1
1.4
(66.2)
(0.9)
2.0
1.1

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

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018FINANCIAL STATEMENTS

Consolidated Statement of Changes in Equity

for the year ended 31 March 2018

Share
capital
£m
Note 19

Share
premium
account
£m

Retained
earnings
£m
Note 21

Currency
translation
reserve
£m
Note 21

Capital
redemption
reserve
£m
Note 21

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

Profit for the year

Other comprehensive income/(expense)

Total comprehensive income/(expense)
for the year

Reclassification for cancellation of
deferred shares

Employee share options:

– value of employee services

At 31 March 2018

26.6

29.9

–

0.1

0.2

–

26.7

–

(15.4)

–

11.3

–

30.1

–

30.1

(53.0)

4.8

(16.9)

(12.1)

–

0.2

(64.9)

(2.3)

1.2

3.3

–

8.9

–

12.2

–

(5.1)

(1.1)

(5.1)

–

(0.2)

(66.2)

–

7.1

15.4

–

15.4

Other
reserves
£m
Note 21

1.0

–

1.0

–

0.4

–

1.4

Attributable
to owners
of parent
£m
Note 21

7.8

4.8

(8.0)

(3.2)

0.3

0.2

5.1

(2.3)

(3.5)

Non-
controlling
interests
£m

2.7

–

2.7

0.1

(0.8)

Total
equity
£m

10.5

4.8

(8.0)

(3.2)

0.3

0.2

7.8

(2.2)

(4.3)

(5.8)

(0.7)

(6.5)

–

(0.2)

(0.9)

–

2.0

–

(0.2)

1.1

103

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOSTRATEGIC REPORTGOVERNANCEADDITIONAL INFORMATIONFINANCIAL STATEMENTSOVERVIEW2018
£m

9.9

(3.8)

6.1

0.5

(8.7)

(1.4)

(1.2)

(10.8)

(1.7)

–

3.9

(0.1)

2.1

(2.6)

15.4

(0.5)

12.3

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

FINANCIAL STATEMENTS

Consolidated Statement of Cash Flows

for the year ended 31 March 2018

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 (decrease)/increase 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)

104

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018FINANCIAL STATEMENTSAccounting Policies

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 144 to 152. The financial statements were
approved by the Board on 29 May 2018.

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 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.

105

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOSTRATEGIC REPORTGOVERNANCEADDITIONAL INFORMATIONFINANCIAL STATEMENTSOVERVIEWAccounting Policies

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 (xiii) 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
6 to 45.

The financial position of the Group, its cash flows, liquidity position
and borrowing facilities are described in the Strategic Report on
pages 6 to 45. 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).

106

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.

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.

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018FINANCIAL STATEMENTS(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 following the sale and
leaseback of the Australian Mulgrave facility in March 2017. 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 International Accounting Standards Board and
International Financial Reporting Interpretations Committee have
issued the following standards, amendments and interpretations,
which are considered relevant to the Group. Their adoption has not
had any significant impact on the amounts or disclosures reported
in these financial statements.

Æ IAS 7 (amended) ‘Statement of Cash Flows’. This amendment
requires entities to provide disclosures that enable users of
financial statements to evaluate changes in liabilities arising from
financing activities.

Critical judgements in the application of the
Group’s Accounting Policies
In the course of the preparing the financial statements, no
judgements have been made in the process of applying the Group’s
accounting policies other than those involving estimations (below),
that have had a significant effect on the amounts recognised in the
financial statements.

Key sources of estimation and uncertainty
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.

107

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOSTRATEGIC REPORTGOVERNANCEADDITIONAL INFORMATIONFINANCIAL STATEMENTSOVERVIEWIFRS 16 ‘Leases’
Under the new standard all leases, except short term (under 12
months) and low value leases, are accounted for on balance sheet
(similar to previous ‘finance lease’ accounting) with a ‘right of use’
asset and lease liabilities reflecting the discounted value of lease
payments.

Information on the undiscounted amount of the Group’s non-
cancellable operating lease commitments as defined under IAS 17,
the current leasing standard, as at 31 March 2018 is disclosed in
Note 22.

The project to review the impact of IFRS 16 is ongoing. The Group
has collated details of all relevant leases across the Group (taking
advantage of the transition option to rely on classification as a
lease under IAS 17). These leases have an annual cash cost of
£3.6m before onerous lease provision accounting. The total future
amount payable under these leases is £23.5m (undiscounted)
although the population of leases will change before transition.
The Group currently intends to apply the modified retrospective
transition basis when adopting IFRS 16 from 1 April 2019 but has not
completed the calculations of the exact impact as this will require
the relevant discount rates at that date.

The impact of adoption will be to increase EBITDA and Operating
Profit as operating lease costs currently charged under IAS 17 will
be reclassified to depreciation and interest expenses which are
excluded from EBITDA (although included in profit before tax). The
interest cost will be front-end loaded which will result in higher
costs earlier in the lease than under IAS 17 and lower costs towards
the end of the lease. The expected amount to be reclassified is
between £2m and £3m after adjusting for the impact of onerous
lease provisions with a net impact on profit of less than £1m per
annum (calculations based on using an illustrative discount rate of
5% for all leases).

Operating cash flow will increase under IFRS 16 as the payments are
reclassified as financing cash flows for interest and principal. The net
increase/decrease in cash and cash equivalents will remain the same.

IFRS 16 contains a number of practical expedients, one of which
permits the retention of the classification of existing contracts as
leases under current accounting standards instead of reassessing
whether existing contracts are or contain a lease at the date of
initial application of the new standard.

Accounting Policies

(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, which are
considered relevant to the Group, 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 2015–2017 cycle

(not yet endorsed by the EU)

Æ Amendments to IAS 19R ‘Employee Benefits’

(not yet endorsed by the EU)

Æ Amendments to IFRS 2 ‘Share-based Payment’

Æ IFRS 9 ‘Financial Instruments’

Æ IFRS 15 ‘Revenue from Contracts with Customers’

Æ IFRS 16 ‘Leases’

Æ IFRIC 22 ‘Foreign Currency Transactions and Advance

Consideration’

Æ IFRIC 23 ‘Uncertainty over Income Tax Treatments’.

The above standards and interpretations will be adopted
in accordance with their effective dates and have not been
adopted in these financial statements. An impact assessment
has been performed for each of the standards, amendments and
interpretations effective from 31 March 2018, with no significant
financial impact being identified. Further details are provided below
in relation to the two new standards effective from 2018:

IFRS 15 ‘Revenue from Contracts with Customers’
IFRS 15 Revenue from Contracts with Customers was issued in
2014 and replaces IAS 18 Revenue. It provides a single model of
accounting for revenue arising from contracts with customers based
on the identification and satisfaction of performance obligations,
and revenue from contracts with customers will be distinguished
from other sources. The Group will adopt IFRS 15 with effect from
1 April 2018, to be reported in the 2019 financial statements, and
has elected to apply the modified retrospective transition approach.

IFRS 15 does not represent a material change from the Group’s
current practice as the point of revenue recognition on transfer of
ownership of goods is unchanged. Accounting for revenue from
long term contracts will not change materially. As these do not
have a material effect on the Group’s accounting or disclosures, no
transition adjustments will be presented.

108

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018FINANCIAL STATEMENTSNotes 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 2018

Revenue

External customer

Inter-segment1

Total revenue

Adjusted operating profit/(loss)

Pension administration costs

Restructuring costs

Impairment of goodwill

Amortisation of acquired intangible assets

Operating profit/(loss)

Net financing costs

Profit before tax

Other disclosures

Working capital3

Capital expenditure4

Depreciation and amortisation included in adjusted operating profit/loss

Amortisation of acquired intangibles

Total depreciation and amortisation

Chain2
£m

Torque
Transmission
£m

Head office
costs and
eliminations
£m

Consolidated
£m

153.1

1.4

154.5

14.7

–

(3.9)

(2.1)

(0.9)

7.8

25.9

7.2

4.8

0.9

5.7

38.5

3.9

42.4

4.8

–

(0.2)

–

4.6

11.6

0.9

1.6

–

1.6

–

(5.3)

(0.9)

(0.6)

–

(6.8)

0.1

1.3

0.9

–

0.9

191.6

–

191.6

14.2

(0.9)

(4.7)

(2.1)

(0.9)

5.6

(4.2)

1.4

37.6

9.4

7.3

0.9

8.2

109

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOSTRATEGIC REPORTGOVERNANCEADDITIONAL INFORMATIONFINANCIAL STATEMENTSOVERVIEWNotes to the Consolidated
Financial Statements

1. Segmental information continued

Year ended 31 March 2017

Revenue

External customer

Inter-segment1

Total revenue

Adjusted operating profit/(loss)

Pension administration costs

Restructuring costs

Amortisation of acquired intangible assets

Operating profit/(loss)

Net financing costs

Profit before tax

Other disclosures

Working capital3

Capital expenditure4

Depreciation and amortisation included in adjusted operating profit/(loss)

Amortisation of acquired intangibles

Total depreciation and amortisation

Chain2
£m

Torque
Transmission
£m

Head office
costs and
eliminations
£m

Consolidated
£m

146.1

0.3

146.4

16.6

–

1.5

(1.1)

17.0

26.5

5.8

4.7

1.1

5.8

37.3

4.1

41.4

3.9

–

(3.1)

–

0.8

10.0

4.0

1.5

–

1.5

–

(4.4)

(6.0)

(0.7)

(0.1)

–

(6.8)

(1.5)

1.1

0.6

–

0.6

183.4

–

183.4

14.5

(0.7)

(1.7)

(1.1)

11.0

(4.3)

6.7

35.0

10.9

6.8

1.1

7.9

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 restructuring costs, pension financing charges, pension administration costs, impairment of goodwill
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 £14.2m is derived from the statutory profit
of £5.6m.

110

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018FINANCIAL STATEMENTS1. Segmental information continued
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 2017

Revenue

External customer

Foreign exchange retranslation

Underlying external sales

Adjusted operating profit/(loss)

Foreign exchange retranslation

Underlying adjusted operating profit/(loss)

Chain2
£m

Torque
Transmission
£m

Head office
costs and
eliminations
£m

Consolidated
£m

146.1

1.1

147.2

16.6

0.5

17.1

37.3

0.1

37.4

3.9

(0.1)

3.8

–

(6.0)

–

(6.0)

183.4

1.2

184.6

14.5

0.4

14.9

1. Inter-segment revenues are eliminated on consolidation.
2. Included in Chain external sales is £4.9m (2017: £4.7m) of Torque Transmission product sold through the Chain NSCs, usually in countries where Torque Transmission

does not have its own presence.

3. 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

Americas

Australasia

China

India

Other countries

Revenue ratio

External revenues

Non-current assets

Employee numbers

2018
%

7.8

30.7

38.0

10.3

4.1

4.2

4.9

2017
%

7.5

31.0

37.0

10.0

3.9

4.2

6.4

2018
£m

15.0

58.9

72.8

19.7

7.9

8.0

9.3

2017
£m

13.8

56.9

67.9

18.3

7.1

7.7

11.7

100.0

191.6

183.4

2018
£m

13.9

19.0

30.1

2.8

5.7

5.0

1.1

77.6

2017
£m

14.8

18.8

37.2

3.0

3.1

5.7

0.7

83.3

2018

2017

355

557

323

128

258

379

364

576

327

133

293

425

2,049

2,183

All revenue relates to the sale of goods and services. No individual customer, or group of customers, represents more than 10% of Group
revenue (2017: None).

Non-current assets consist of goodwill, other intangible assets, property, plant and equipment and investment property. Other non-current
assets and deferred tax assets are not included above.

111

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Notes to the Consolidated
Financial Statements

2. Operating costs and adjusting 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

– 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))

Foreign exchange

Operating costs before adjusting items

Adjusting items and restructuring costs (Note 2(c))

Pension administration costs

Amortisation of acquired intangible assets

Impairment of goodwill

Restructuring costs

Adjusting items

Total operating costs

112

2018
£m

62.0

6.9

0.2

1.3

(0.2)

0.7

1.6

2018
£m

(0.2)

72.9

24.0

70.2

5.2

2.1

2.3

(0.1)

–

0.9

0.6

(0.5)

177.4

0.9

2.1

4.7

8.6

186.0

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

168.9

0.7

1.1

–

1.7

3.5

172.4

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018FINANCIAL STATEMENTS

2. Operating costs and adjusting items continued
(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

2018
£000

174

300

474

2017
£000

200

283

483

(c) Adjusting 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 – China factory relocation

STEP 2020 restructuring costs – other

Net gain on sale of Australian property

Restructuring costs

Pension administration costs

Impairment of goodwill (Note 7)

Amortisation of acquired intangible assets (Note 8)

Adjusting items

Included in net financing costs

Discount unwind on onerous lease provision

Net IAS 19R financing costs

2018
£m

–

3.9

0.8

–

4.7

0.9

2.1

0.9

8.6

2018
£m

0.1

2.4

2.5

2017
£m

0.3

–

4.3

(2.9)

1.7

0.7

–

1.1

3.5

2017
£m

0.1

2.5

2.6

Various restructuring costs were incurred in the year as part of the STEP 2020 Strategic Plan. A restructuring cost of £3.9m was incurred
in the year as we continued 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. The cost includes £0.8m of costs incurred in the year in addition to £3.1m as a
provision for future costs associated with the closure and relocation.

Also in the year, final redundancy and restructuring costs of £0.3m were incurred transferring the HiTec Couplings business, located in
Halifax, to our existing Couplings facility in Cardiff. On May 2017, the Halifax property was sold resulting in a gain on disposal of £0.2m. 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 further redundancy and restructuring costs of £0.3m in the year. Both projects are now completed.

A further £0.4m was incurred in relation to other projects including restructuring the European distribution and sales operations, the
cessation of manufacturing operations in New Zealand, and in relation for the closure of our Singapore site.

Prior year restructuring costs included £0.3m of final transitional services relating to the acquisition of the Renold Tooth Chain business,
£0.6m of costs relating to relocation of the European distribution and sales operations and £2.5m of costs incurred on the transfer of the
HiTec Couplings business. As noted above, this enabled the closure of the China Couplings facility and a provision of £0.6m was made
against closure costs.

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Notes to the Consolidated
Financial Statements

2. Operating costs and adjusting items continued
Also in the prior year, other restructuring costs totalling £0.6m were incurred in preparation for the China Chain relocation, the relocation of
the Malaysian manufacturing facility into larger premises and other STEP 2020 restructuring programmes.

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.

(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 payment charge/(credit)

Social security costs

Total

2018
£m

841

106

955

2017
£m

892

(57)

114

949

The Statutory Directors’ remuneration listed in the table above differs from the single total figure table in the Directors’ Remuneration
Report on page 80 in the prior year as it includes £168,000 in respect of payments on to a former Director who has left the Company and is
no longer included in the single total figure table.

Further details of the remuneration of Directors are provided in the Directors’ Remuneration Report on pages 68 to 85.

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 2018 was 2,044 (2017: 2,139).

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.

2018
£m

(1.4)

(0.3)

(1.7)

(2.4)

(0.1)

(4.2)

2017
£m

(1.5)

(0.2)

(1.7)

(2.5)

(0.1)

(4.3)

Financing costs:

Interest payable on bank loans and overdrafts

Amortised financing costs

Loan financing costs

Net IAS 19R financing costs

Discount unwind on provisions

Net financing costs

114

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018FINANCIAL STATEMENTS4. 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.

Analysis of tax charge in the year

United Kingdom

UK corporation tax at 19% (2017: 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

Effect of changes in corporate tax rates

Adjustments in respect of prior periods

Total deferred tax charge/(credit)

Tax charge on profit on ordinary activities

Tax on items taken to other comprehensive income

Deferred tax on changes in net pension deficits

Tax charge/(credit) in the statement of other comprehensive income

2018
£m

–

1.0

0.1

1.1

0.2

–

2.4

(0.1)

2.5

3.6

2018
£m

1.6

2017
£m

–

2.8

0.1

2.9

(0.3)

(0.7)

–

(1.0)

1.9

2017
£m

(2.1)

Factors affecting the Group tax charge for the year
The US Government has enacted substantial tax reforms during the year. The impact on our US operations is to reduce the value of
deferred tax assets and liabilities in relation to the reduced tax rate, and to increase the restrictions on interest deductibility which has led
to the derecognition of the related deferred tax asset given the current capital structure of our US operations. Accordingly, the US deferred
tax balances have been reduced by £2.4m.

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 in accordance with IAS 12.39.

115

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOSTRATEGIC REPORTGOVERNANCEADDITIONAL INFORMATIONFINANCIAL STATEMENTSOVERVIEWNotes to the Consolidated
Financial Statements

4. Taxation continued
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 19% (2017: 20%)

Effects of:

Permanent differences

Overseas tax rate differences

Effect of changes in corporate tax rates

Adjustments in respect of prior periods

Movement in unrecognised deferred tax

Total tax charge

2018
£m

1.4

0.3

(0.3)

0.3

2.4

(0.1)

1.0

3.6

2017
£m

6.7

1.3

0.5

–

1.5

(1.4)

1.9

Effective tax rate
The effective tax rate of 225% (2017: 28%) is higher than the UK tax rate of 19% (2017: 20%) due to the following factors:

Æ US tax reform causing the de-recognition of deferred tax assets in respect of interest deduction restrictions and the devaluing of the net

US deferred tax asset due to the change in tax rate;

Æ Losses in jurisdictions where, due to uncertain future profitability, deferred tax assets are not recognised;

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 £3.8m (2017: £1.0m) is higher than the current tax charge as payments on account have commenced in Germany
following the utilisation of tax losses there.

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:

2018

2017

Earnings
£m

Shares
(thousands)

Per share
amount
(pence)

Earnings
£m

Shares
(thousands)

Per share
amount
(pence)

Basic EPS

Profit attributed to ordinary shareholders

Basic EPS

(2.2)

225,418

(1.0)

4.8

224,830

2.1

116

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018FINANCIAL STATEMENTS5. Earnings per share continued

Adjusted EPS

Basic EPS

Effect of adjusting items, after tax:

Restructuring costs in operating costs

Pension administration costs included in
operating costs

Discount unwind on restructuring costs

Amortisation of acquired intangible assets

Impairment of goodwill

US tax reform

Net pension financing costs

Adjusted EPS

2018

2017

Earnings
£m

Shares
(thousands)

Per share
amount
(pence)

Earnings
£m

Shares
(thousands)

Per share
amount
(pence)

(2.2)

225,418

(1.0)

4.6

0.8

0.1

0.6

1.7

2.4

2.2

10.2

225,418

2.0

0.4

–

0.3

0.8

1.0

4.5

4.8

2.3

0.6

0.1

0.7

–

2.0

10.5

224,830

2.1

1.0

0.3

–

0.3

–

0.9

4.6

Inclusion of the dilutive securities, comprising 4,367,312 (2017: 3,293,000) additional shares due to share options in the calculation of basic
and adjusted EPS does not change the amounts shown above (2017: 2.1p 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 adjusting
items. Due to the existence of unrecognised deferred tax assets, there was no associated tax credit on some of the adjusting items and in
these instances adjusting items 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.

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.

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Financial Statements

7. Goodwill continued
(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 2016

Exchange adjustment

Fair value adjustment arising on the acquisition of the Tooth Chain business

At 1 April 2017

Exchange adjustment

At 31 March 2018

Accumulated amortisation and impairment

At 1 April 2016

At 1 April 2017

Impairment charge

Exchange adjustment

At 31 March 2018

Net book amount at 31 March 2018

Net book amount at 31 March 2017

Net book amount at 31 March 2016

Goodwill
£m

24.1

3.4

0.3

27.8

(2.8)

25.0

1.4

2.1

(0.1)

3.4

21.6

26.4

22.7

The Group performed its annual impairment test of goodwill at 31 March 2018 which compares the current book value to the recoverable
amount from the continued use or sale of the related business.

At 31 March 2018, before impairment testing, goodwill and associated assets of $30.2m was held in relation to Jeffrey Chain. Recent
performance has been below historical levels and consequently a more detailed impairment review has been performed. Whilst there is no
expectation that there should be a long-term deterioration in the future prospects of Jeffrey Chain, the Group has applied a sensitivity to
the speed of recovery of Jeffrey Chain, decreasing the cash generation in the early years, but assuming greater growth in order to recover
the business back to the same historic level by the end of the forecast period. Jeffrey Chain has therefore been reduced to its recoverable
amount of $27.5m through recognition of an impairment loss against goodwill of $2.7m.

No impairment charge has been recognised in the period for any other CGUs.

118

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018FINANCIAL STATEMENTS
7. Goodwill continued
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

2018
%

1.4

2.8

8.1

1.2

2017
%

1.6

2.8

8.1

1.2

2018
%

14.9

11.6

25.0

15.5

2017
%

16.2

10.3

30.1

12.8

2018
£m

18.7

0.5

1.9

0.5

21.6

2017
£m

23.2

0.5

2.2

0.5

26.4

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 2018.

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, other than for Jeffrey Chain, no reasonably possible change in any of the key assumptions would cause the
recoverable amount of any CGU to fall below the relevant carrying values.

Sensitivity analysis for Jeffrey Chain impairment review
The carrying value of the goodwill in respect of Jeffrey Chain is most sensitive to the discount rate used in the calculation of the recoverable
amount and the value of the free cash flow in the year used for calculation of the terminal value perpetuity. A 1% increase in the discount
rate used would result in an additional impairment of $2.7m. A $0.5m reduction in the value of the free cash flow in the year used for the
calculation of the terminal value perpetuity would result in an additional impairment of $3.2m.

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.

119

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOSTRATEGIC REPORTGOVERNANCEADDITIONAL INFORMATIONFINANCIAL STATEMENTSOVERVIEWNotes to the Consolidated
Financial Statements

8. Intangible assets continued

Customer
orderbook
£m

Customer
lists
£m

Technical
know-how
£m

Computer
software
£m

Cost

At 1 April 2016

Exchange adjustment

Additions

Disposals

At 1 April 2017

Exchange adjustment

Additions

Disposals

At 31 March 2018

Accumulated amortisation and impairment

At 1 April 2016

Exchange adjustment

Amortisation charge

Disposals

At 1 April 2017

Exchange adjustment

Amortisation charge

Disposals

At 31 March 2018

Net book amount at 31 March 2018

Net book amount at 31 March 2017

Net book amount at 31 March 2016

0.3

–

0.3

–

0.3

–

0.3

–

0.3

–

0.3

–

0.3

3.9

0.1

–

4.0

0.2

–

4.2

0.2

–

0.8

–

1.0

–

0.8

–

1.8

2.4

3.0

3.7

0.2

–

0.2

–

0.2

–

0.1

–

0.1

0.2

13.9

0.3

1.2

(0.4)

15.0

(0.2)

1.4

(0.3)

15.9

7.8

(0.8)

1.9

(0.4)

8.5

(0.2)

2.1

(0.3)

10.1

5.8

6.5

6.1

Total
£m

18.3

0.4

1.2

(0.4)

19.5

–

1.4

(0.3)

20.6

8.0

(0.8)

3.0

(0.4)

9.8

(0.2)

3.0

(0.3)

12.3

8.3

9.7

10.3

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.

120

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018FINANCIAL STATEMENTS9. 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 years or the period
of the lease if less

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.

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25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOSTRATEGIC REPORTGOVERNANCEADDITIONAL INFORMATIONFINANCIAL STATEMENTSOVERVIEW
Notes to the Consolidated
Financial Statements

9. Property, plant and equipment continued

Cost

At 1 April 2016

Exchange adjustment

Additions

Transfer to assets held for sale (Note 10)

Disposals

At 1 April 2017

Exchange adjustment

Additions

Disposals

At 31 March 2018

Accumulated depreciation and impairment

At 1 April 2016

Exchange adjustment

Transfer to assets held for sale (Note 10)

Charge for the year

Disposals

At 1 April 2017

Exchange adjustment

Charge for the year

Disposals

At 31 March 2018

Net book amount at 31 March 2018

Net book amount at 31 March 2017

Net book amount at 31 March 2016

Land and
buildings
£m

Plant and
equipment
£m

21.1

1.8

0.6

(0.4)

(5.0)

18.1

(0.3)

2.8

–

20.6

3.7

0.4

(0.1)

0.3

(0.8)

3.5

0.3

–

4.1

16.5

14.6

17.4

110.6

9.4

9.1

–

(12.4)

116.7

(3.8)

5.3

(4.6)

113.6

83.6

7.7

–

4.6

(11.8)

84.1

(2.2)

4.9

(4.4)

82.4

31.2

32.6

27.0

Total
£m

131.7

11.2

9.7

(0.4)

(17.4)

134.8

(4.1)

8.1

(4.6)

134.2

87.3

8.1

(0.1)

4.9

(12.6)

87.6

(1.9)

5.2

(4.4)

86.5

47.7

47.2

44.4

Property, plant and equipment pledged as security for liabilities amounted to £34.8m (2017: £36.5m).

Future capital expenditure
At 31 March 2018 capital expenditure contracted for but not provided for in these accounts amounted to £2.7m (2017: £2.6m).

Asset held for sale
In the prior year the former HiTec Couplings manufacturing site located in Halifax, UK was classified as an asset held for sale
(see Note 10).

122

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018FINANCIAL STATEMENTS10. 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)

At 31 March

2018
£m

0.3

–

(0.3)

–

2017
£m

1.0

–

(1.0)

0.3

During the year, the HiTec Couplings’ Halifax site was sold for net proceeds of £0.5m realising a gain of £0.2m.

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

2018
£m

8.1

4.8

28.1

41.0

2017
£m

5.9

4.6

29.9

40.4

Inventories pledged as security for liabilities amounted to £33.0m (2017: £32.8m).

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.

2018
Current
£m

2017
Current
£m

31.0

(0.5)

30.5

3.4

2.5

36.4

31.2

(0.3)

30.9

2.6

3.3

36.8

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.

123

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOSTRATEGIC REPORTGOVERNANCEADDITIONAL INFORMATIONFINANCIAL STATEMENTSOVERVIEWNotes to the Consolidated
Financial Statements

12. Trade and other receivables continued
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:

2018

2017

Movement on impairment provision

Opening provision

Net charge to income statement

Utilised in year through assets written off

Closing provision

Total
(not impaired)
£m

30.5

30.9

Neither past
due nor
impaired
£m

24.9

26.7

Past due but not impaired

<30 days
£m

30–60 days
£m

60–90 days
£m

>90 days
£m

3.5

3.1

0.8

0.4

0.3

2018
£m

0.3

0.2

–

0.5

1.0

0.4

2017
£m

0.4

–

(0.1)

0.3

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

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.

124

2018
£m

13.9

(1.6)

12.3

2018
£m

1.6

(0.3)

1.3

36.7

(0.3)

0.5

36.9

38.2

2017
£m

16.4

(1.0)

15.4

2017
£m

1.0

(0.2)

0.8

32.9

(0.4)

0.5

33.0

33.8

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018FINANCIAL STATEMENTS

14. Borrowings continued
Core banking facilities
On 13 May 2015 the Group renewed its banking facilities with its existing banking partners, Svenska Handelsbanken AB and Lloyds Bank
plc. This facility replicated the previous £41m Multi-Currency Revolving Facility and introduced a £20m accordion feature. During the year,
the accordion was exercised with HSBC joining the facility, increasing the facility size to £61.5m. The facility matures in May 2020 and is
fully committed and available until maturity.

At the year end the undrawn core banking facility was £23.0m (2017: £5.3m). 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 1.94% for the Sterling denominated facility and
LIBOR plus 1.84% for the Euro and US Dollar denominated facility (2017: LIBOR plus 1.91% for the Sterling denominated facility and LIBOR
plus 1.82% 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 £2.0m (2017: £2.2m) with availability at year end of £1.8m.

Secured borrowings
Included in Group borrowings are secured borrowings of £36.1m (2017: £32.3m). 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. Certain
Group companies have provided cross-guarantees in respect of these borrowings.

Finance leases
The Group has no obligations under finance leases.

Preference Stock
At 31 March 2018, there were 580,482 units of Preference Stock in issue (2017: 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.

15. Trade and other payables

Trade payables1

Other tax and social security

Other payables1

Accruals1

1. Financial assets carried at amortised cost.

2018
Current
£m

2018
Non-current
£m

2017
Current
£m

2017
Non-current
£m

20.7

1.9

0.9

16.1

39.6

–

0.3

23.6

2.1

1.9

14.3

41.9

–

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.

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25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOSTRATEGIC REPORTGOVERNANCEADDITIONAL INFORMATIONFINANCIAL STATEMENTSOVERVIEWNotes to the Consolidated
Financial Statements

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 2017

Exchange

Arising during the year

Utilised in the year

Discount unwind on provision

At 31 March 2018

Allocated as:

Current provisions

Non-current provisions

Business
restructuring
£m

Onerous
lease
£m

Contingent
consideration
£m

Total
provisions
£m

1.4

–

3.0

(1.2)

–

3.2

4.8

(0.1)

–

(0.8)

0.1

4.0

1.5

–

(0.1)

(0.7)

–

0.7

2018
£m

4.6

3.3

7.9

7.7

(0.1)

2.9

(2.7)

0.1

7.9

2017
£m

3.6

4.1

7.7

Business restructuring
At 31 March 2017, a provision was held against costs associated with the planned closure of the Chinese Torque Transmission facility and
costs associated with the final stages of the relocation of the UK HiTec Couplings operations to our existing Cardiff site.

At 31 March 2018, a provision of £3.1m has been made against costs to be incurred as part of the closure and relocation of our Chinese
Chain manufacturing facility. See Note 2(c) on adjusting items and restructuring costs for more details.

Restructuring provisions are expected to be utilised within 12 months.

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. In August 2016, it was agreed to sublet a significant part of the property for a five year term for
an annual rent of £0.6m. £0.2m of the provision was utilised in the year (2017: £0.9m) leaving a provision of £3.0m in respect of this lease
(2017: £3.2m).

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. Costs of £0.5m were incurred in the year along with
exchange £0.1m, resulting in a provision at 31 March 2018 of £1.0m.

Contingent consideration
Renold (Hangzhou) Co Limited, China
A provision of £0.7m (2017: £0.8m) 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. This payment is expected to be settled as part
of the programme to relocate the Chinese Chain manufacturing facility within 12 months.

Renold Tooth Chain, Germany
A provision of £1.1m was established on the acquisition of the Tooth Chain business in January 2016 against the expected future value of
contingent consideration. The contingent consideration was paid in the year ended 31 March 2018 following achievement of the sales targets.

126

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018FINANCIAL STATEMENTS17. 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 within the
foreseeable future (assessed to be 3 years). 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

2018
£m

–

15.7

2.9

2.0

20.6

–

20.6

2017
£m

–

17.2

5.3

(1.6)

20.9

(0.3)

20.6

2018
£m

(1.5)

–

(2.7)

(4.2)

–

(4.2)

2017
£m

(0.3)

–

(0.3)

0.3

–

2018
£m

(1.5)

15.7

2.9

(0.7)

16.4

–

16.4

The net deferred tax asset recoverable within one year is £1.0m (2017: £1.3m) and recoverable after more than one year is £15.4m
(2017: £19.3m).

The movement in the net deferred tax balance relating to assets is as follows:

2018

Accelerated capital allowances

Pension plans

Tax losses

Other temporary differences

2017

Accelerated capital allowances

Pension plans

Tax losses

Other temporary differences

Opening
balance
£m

Exchange
adjustments
£m

Recognised
in income
statement
£m

Recognised
directly in other
comprehensive
income
£m

(2.7)

17.2

5.3

0.8

20.6

0.2

–

(0.4)

0.1

(0.1)

1.0

–

(2.0)

(1.5)

(2.5)

–

(1.5)

–

(0.1)

(1.6)

Opening
balance
£m

Exchange
adjustments
£m

Recognised
in income
statement
£m

Recognised
directly in other
comprehensive
income
£m

(2.1)

14.8

6.0

(2.0)

16.7

(0.3)

0.5

0.8

(0.2)

0.8

(0.3)

(0.2)

(1.5)

3.0

1.0

–

2.1

–

2.1

2017
£m

(0.3)

17.2

5.3

(1.6)

20.6

–

20.6

Closing
balance
£m

(1.5)

15.7

2.9

(0.7)

16.4

Closing
balance
£m

(2.7)

17.2

5.3

0.8

20.6

During the year the Group has reported an adjusted operating profit of £14.2m (2017: £14.5m). The businesses in all jurisdictions where
deferred tax assets have been recognised will, more likely than not, generate suitable profits based on approved management forecasts
from which the future reversal of the underlying timing differences can be deducted.

Unrecognised deferred tax assets amount to £24.3m (2017: £20.5m) arising from unrecognised losses of £15.4m (2017: £15.0m)
(representing gross losses of £52.3m (2017: £49.6m)) and other temporary differences of £8.9m (2017: £5.5m). Based on available evidence,
it is considered unlikely that these amounts will be recovered within the foreseeable future. The significant majority of these losses are not
subject to time limits.

127

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOSTRATEGIC REPORTGOVERNANCEADDITIONAL INFORMATIONFINANCIAL STATEMENTSOVERVIEWNotes to the Consolidated
Financial Statements

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.

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. Mechanisms are
available in all of the Renold schemes to return that surplus to, or utilise it for the benefit of, the Group.

128

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018FINANCIAL STATEMENTS18. Pensions continued
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 £2.9m 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 2018,
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 2017 the growth assets of the RPS represented over 90% of the remaining
invested assets of the scheme. Following a review in the prior year, 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 £3.3m (2017: £3.7m). The current year
figure includes the £2.9m noted above in connection with the SLP, and a further £0.4m in respect of the costs of other pension projects that
were carried out or initiated during the year.

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 19R liability at
the acquisition date was £0.4m.

In aggregate, the two (2017: two) German pension schemes have a net liability of £24.9m (2017: £25.5m). The change in the net deficit is due
to contributions made by the employer to the scheme, off-set by the adverse impact of the change in the Euro foreign exchange rate.

129

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOSTRATEGIC REPORTGOVERNANCEADDITIONAL INFORMATIONFINANCIAL STATEMENTSOVERVIEWNotes to the Consolidated
Financial Statements

18. Pensions continued
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 (2017: two) defined benefit schemes in the US have combined assets of £10.4m (2017: £11.2m) and liabilities of £12.9m
(2017: £15.0m), giving a net deficit of £2.5m (2017: £3.8m). The change in the net deficit was due to contributions to the scheme combined
with the beneficial 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 £2.7m (2017: £2.4m) and liabilities of £3.1m (2017: £3.0m)
giving a net deficit of £0.4m (2017: net deficit of £0.6m).

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 (2017: 15 years) and 14 years (2017: 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 2018 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

Germany

Other Overseas

2018

–

1.9%

2.6%

2.2%

2017

–

1.9%

2.5%

2.2%

2018

–

1.5%

2.0%

1.5%

2017

–

1.5%

1.9%

1.5%

2018

2.0%

–

3.8%

2.0%

2017

2.2%

–

3.7%

2.2%

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.

The predominant defined benefit obligation for funded plans within the Group resides in the UK (£210.3m of the £226.1m 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

130

2018

21.5

20.4

23.6

22.3

2017

21.2

20.3

23.4

22.3

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018FINANCIAL STATEMENTS18. Pensions continued
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. Historically, the RPS experiences mortality 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

Impact on plan liabilities

Increase/decrease by 0.5%

Decrease by £14.7m/increase by £16.5m

Increase by £9.3m/decrease by £10.3m

Increase/decrease by 1 year1

Increase by £10.1m/decrease by £10.4m

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

Quoted equities

Hedge funds and diversified growth funds

Corporate bonds

Gilts and liability driven investments

Other

Total market value of assets

UK
£m

44.2

45.1

15.4

9.4

24.7

1.9

140.7

2018

Overseas
£m

–

6.6

–

0.1

4.3

2.1

13.1

Total
£m

44.2

51.7

15.4

9.5

29.0

4.0

153.8

UK
£m

47.5

52.3

29.1

2.1

4.8

10.6

146.4

2017

Overseas
£m

–

6.9

–

3.1

2.1

Total
£m

47.5

59.2

29.1

5.2

6.9

12.7

14.2

160.6

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.

131

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOSTRATEGIC REPORTGOVERNANCEADDITIONAL INFORMATIONFINANCIAL STATEMENTSOVERVIEWNotes 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

Current service cost

Interest expense

Remeasurement gains/(losses) by changes in:

– Experience

– Demographic assumptions

– Financial assumptions and expenses

Benefits paid

Exchange adjustment

Closing obligation

The total defined benefit obligation can be
analysed as follows:

Funded pension plans

Unfunded pension plans

UK
£m

(218.4)

–

(5.2)

–

(2.2)

3.0

12.5

–

2018

Overseas
£m

(44.2)

(0.2)

(1.1)

0.9

0.1

2.3

1.2

Total
£m

(262.6)

(0.2)

(6.3)

0.9

(2.1)

3.1

14.8

1.2

(210.3)

(40.9)

(251.2)

(210.3)

–

(210.3)

(15.8)

(25.1)

(40.9)

(226.1)

(25.1)

(251.2)

The UK liabilities above include £44.2m that are fully insured (2017: £47.5m).

Pension assets
The movement in the present value of the defined benefit plan assets is as follows:

UK
£m

146.4

3.5

0.4

2.9

(12.5)

–

140.7

(210.3)

140.7

(69.6)

2018

Overseas
£m

14.2

0.5

0.4

(1.0)

(1.5)

13.1

(40.9)

13.1

(27.8)

Total
£m

160.6

4.0

0.9

3.3

(13.5)

(1.5)

153.8

(251.2)

153.8

(97.4)

Opening assets

Interest income

Remeasurement gains/(losses)

Employer contributions

Benefits paid

Exchange adjustment

Closing assets

Balance sheet reconciliation:

Plan obligations

Plan assets

Net plan deficit

132

UK
£m

(191.3)

–

(6.5)

2.7

(35.8)

9.8

–

(218.4)

–

(218.4)

UK
£m

137.7

4.7

10.6

3.2

(9.8)

–

146.4

(218.4)

146.4

(72.0)

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)

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)

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018FINANCIAL STATEMENTS18. 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 gains/(losses)

UK
£m

0.8

0.4

1.2

2018

Overseas
£m

1.1

0.5

1.6

Total
£m

1.9

0.9

2.8

UK
£m

(30.4)

10.6

(19.8)

2017

Overseas
£m

0.1

0.7

0.8

The actual return on plan assets was a gain of £4.9m (2017: gain £16.4m) which equates to 3.2% (2017: 10.2%) of plan assets.

An analysis of amounts charged to operating costs is set out below:

Operating costs

Pension administration costs

Current service cost

19. Called up share capital

Ordinary shares of 5p each

Deferred shares of 20p each

2018
£m

(0.9)

(0.2)

(1.1)

Issued

2018
£m

11.3

–

11.3

Total
£m

(30.3)

11.3

(19.0)

2017
£m

(0.7)

(0.3)

(1.0)

2017
£m

11.3

15.4

26.7

At 31 March 2018, the issued ordinary share capital comprised 225,417,740 ordinary shares of 5p each (2017: 225,417,740). During the year,
the 77,064,703 deferred shares of 20p each were cancelled, in accordance with the terms of those shares and as approved at the 2017 AGM.
The balance has been transferred to a non-distributable Capital Reserve.

Preference stock of £1 each

Issued

2018
£m

0.5

2017
£m

0.5

133

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOSTRATEGIC REPORTGOVERNANCEADDITIONAL INFORMATIONFINANCIAL STATEMENTSOVERVIEWNotes to the Consolidated
Financial Statements

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.

The fair value per option granted in the period and the assumptions used in the calculation are as follows:

Grant date

Share price at date of grant

Exercise price

Number of employees

Shares under option

Vesting period (years)

Expected volatility

Option life (years)

Expected life (years)

Risk free interest rate

Assumed dividends expressed as a dividend yield

2018
Executive share option scheme

05.06.17*

54.79p

0.0p

54.79p

0.0p

2017
Executive share option scheme

16.01.17

50.21p

0.0p

21.07.16*

36.50p

0.0p

21.07.16*

36.50p

0.0p

05.06.16

40.12p

0.0p

2,279,491

547,545

368,465

821,918

2,395,947

66%

1.0%

Zero

66%

1.0%

Zero

39%

1.0%

Zero

43%

1.0%

Zero

43%

1.0%

Zero

43%

1.0%

Zero

Fair value per option

54.79p

19.81p

50.21p

36.50p

11.24p

40.12p

* Single grants to the Chief Executive Officer were made on 21 July 2016 and 05 June 2017. Half of the options are subject to market conditions and half to non-market

conditions so the two parts of the award have been shown separately due to differing fair values.

134

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018FINANCIAL STATEMENTS20. Share-based payments continued
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 2018
is shown below:

Executive share option schemes

Outstanding at 1 April

Granted

Exercised

Expired

Lapsed

Forfeited

Outstanding at 31 March

Exercisable at 31 March

2018

2017

Number

10,273,923

2,827,036

–

(1,279,762)

–

(687,447)

11,133,750

3,247,096

Weighted
average
exercise price

3.4p

0.0p

–

0.0p

–

0.0p

3.1p

10.7p

2017

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

Range of
exercise prices

Nil

20p to 30p

30p to 40p

40p to 100p

Weighted
average exercise
price

Number of
shares

Weighted average
remaining life

Expected

Contractual

Weighted
average exercise
price

Number of
shares

Weighted average
remaining life

Expected

Contractual

–

9,864,048

26.2p

37.3p

–

1,145,038

124,664

–

6.8

4.8

3.2

–

2.8

0.8

–

9,004,221

26.2p

37.3p

–

1,145,038

124,664

–

8.2

5.8

4.2

–

4.2

1.8

0.2

–

No options have been exercised in the period (2017: 1,992,926). The total credit/(charge) for the year relating to employee share-based
payment plans was £0.2m credit (2017: £0.2m charge), all of which related to equity settled share-based transactions.

The middle market price of ordinary shares at 31 March 2018 was 29.00p and the range of prices during the year was 27.70p to 64.00p.

Details of the share-based payment arrangements for Executive Directors are provided in the Directors’ Remuneration Report on pages 68
to 85. At 31 March 2018, unexercised options for ordinary shares amounted to 11,133,750 (2017: 10,273,923).

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.

The capital redemption reserve represents the nominal value of the deferred shares repurchased and cancelled during the year ended
31 March 2018. The reserve is not distributable.

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 2018 amounted to £3.5m (2017: £3.5m).

Included in retained earnings is an amount of £3.6m (net of tax) (2017: £3.5m) 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.

135

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOSTRATEGIC REPORTGOVERNANCEADDITIONAL INFORMATIONFINANCIAL STATEMENTSOVERVIEWNotes to the Consolidated
Financial Statements

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

2018

2017

Properties
£m

Equipment
£m

Properties
£m

Equipment
£m

2.6

5.7

8.2

16.5

1.1

2.7

–

3.8

2.8

8.3

10.2

21.3

1.0

2.5

–

3.5

Certain of the leased properties have been sublet and the future minimum sublease payments expected to be received under non-
cancellable sublease agreements is £1.7m (2017: £5.0m).

An onerous lease provision of £3.0m (2017: £3.2m) (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 prior year following the sale of the Mulgrave manufacturing facility.
The lease expires in March 2020 at a cost of £0.6m per annum.

23. Contingent liabilities and commitments
Performance guarantees given to third parties in respect of Group companies were £nil (2017: £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.

24. Additional cash flow information
Reconciliation of operating profit to net cash flows from operations:

Cash generated from operations:

Operating profit

Depreciation and amortisation

Impairment of goodwill

Loss on disposals of plant and equipment

Restructuring gain on sale of Australian property

Equity share plans

Increase in inventories

Increase in receivables

Increase in payables

Decrease in provisions

Movement on pension plans

Cash generated from operations

136

2018
£m

5.6

8.2

2.1

–

(2.6)

(1.1)

1.1

1.0

(4.4)

9.9

2017
£m

11.0

7.9

–

0.3

(2.9)

0.2

(0.4)

(3.4)

1.3

(0.5)

(5.1)

8.4

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018FINANCIAL STATEMENTS
24. Additional cash flow information continued
Reconciliation of net change in cash and cash equivalents to movement in net debt:

(Decrease)/increase 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)

2018
£m

(2.6)

(3.8)

(0.5)

0.3

(0.3)

(6.9)

(17.4)

(24.3)

13.9

(38.2)

(24.3)

2017
£m

2.2

4.5

(0.4)

–

(0.2)

6.1

(23.5)

(17.4)

16.4

(33.8)

(17.4)

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.

137

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOSTRATEGIC REPORTGOVERNANCEADDITIONAL INFORMATIONFINANCIAL STATEMENTSOVERVIEWNotes to the Consolidated
Financial Statements

25. Financial instruments continued
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 24 to 29.

Foreign currency risk and sensitivity
As a result of the significant operations in the US, Europe and China, the Group’s balance sheet can be affected significantly by movements
in the US Dollar/Sterling, Euro/Sterling, US Dollar/Euro and Chinese Renminbi/Sterling exchange rates.

The following table demonstrates the impact of reasonably possible changes in the US Dollar against Sterling (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 increase in the value of Sterling compared to US Dollar):

2018

2017

Increase/
(decrease) in
US$ rate

Effect on
profit
before tax
£m

Effect on
shareholders’
equity
£m

25%

(10%)

25%

(10%)

–

1.2

(0.7)

2.0

(1.1)

Interest rate sensitivity
The following table demonstrates the sensitivity to a reasonably possible change in the basis points of the Group’s floating interest rates:

Increase in
basis points

2018
Effect on profit
before tax
£m

2017
Effect on profit
before tax
£m

+150

(0.4)

(0.1)

(0.6)

(0.3)

(0.1)

(0.5)

Sterling

US Dollar

Euro

138

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018FINANCIAL STATEMENTS25. Financial instruments continued
(a) The balance sheet position on financial instruments is set out below:

Current assets:

Forward foreign currency contracts: cash flow hedge

Current liabilities:

Forward foreign currency contracts: cash flow hedge

2018
£m

0.4

–

2017
£m

–

(0.1)

The cash flow hedges of the expected future transactions in US Dollars and Euros in the prior year were assessed to be highly effective. In
the period £nil (2017: £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 2018 was £6.2m (2017: £6.9m). £0.7m of exchange gain (2017: £0.9m 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.

(d) Currency and interest rate profile of financial liabilities of the Group

Currency

Sterling

– Financial liabilities

– Preference Stock

US Dollar

Euro

Other

2018

2017

Fixed rate
£m

Floating rate
£m

Total
£m

Fixed rate
£m

Floating rate
£m

–

0.5

–

0.5

25.6

–

7.2

4.3

0.6

37.7

25.6

0.5

7.2

4.3

0.6

38.2

–

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

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.

139

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOSTRATEGIC REPORTGOVERNANCEADDITIONAL INFORMATIONFINANCIAL STATEMENTSOVERVIEW
Notes to the Consolidated
Financial Statements

25. Financial instruments continued
(e) Currency and interest rate profile of financial assets at 31 March 2018

Cash at bank and in hand by currency

Sterling

Euro

US Dollar

Other

2018
£m

0.9

6.4

1.3

5.3

13.9

2017
£m

4.6

8.4

(0.8)

4.2

16.4

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:

2018

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.

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

One to
two years
£m

–

1.8

39.6

0.7

11.8

–

53.9

–

One year or less
on demand
£m

One to
two years
£m

–

1.7

39.8

1.5

2.9

–

45.9

–

Two to
five years
£m

37.7

–

37.7

Two to
five years
£m

33.3

–

33.3

More than
five years
£m

–

0.3

–

0.5

0.8

More than
five years
£m

–

0.3

–

0.5

0.8

Total
£m

37.7

1.8

39.9

0.7

11.8

0.5

92.4

Total
£m

33.3

1.7

40.1

1.5

2.9

0.5

80.0

The Group has contracted forward contracts consisting of Euro forward contracts of £nil (2017: £nil), Chinese Renminbi of £4.0m (2017: £nil),
US Dollar forward contracts of £nil (2017: £2.9m) and US Dollar/Euro forward contracts of £7.8m (2017: £nil). 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. The Chinese Renminbi contracts are to meet
the short-term cash requirements for the construction of the new Chinese chain manufacturing facility. The US Dollar/Euro contracts cover the
intra-group purchases in Euros by our US operations.

140

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018FINANCIAL STATEMENTS25. Financial instruments continued
(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

2018
£m

1.8

–

23.0

24.8

2017
£m

1.9

–

5.3

7.2

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 2018.

(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

2018
£m

13.9

(1.3)

(37.7)

(0.5)

2017
£m

16.4

(1.0)

(32.3)

(0.5)

2018
£m

13.9

(1.3)

(37.7)

(0.5)

2017
£m

16.4

(1.0)

(32.3)

(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.

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.

141

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOSTRATEGIC REPORTGOVERNANCEADDITIONAL INFORMATIONFINANCIAL STATEMENTSOVERVIEWNotes to the Consolidated
Financial Statements

25. Financial instruments continued
As at 31 March 2018, the Group held the following financial instruments measured at fair value:

Assets measured at fair value

Forward foreign currency contracts: cash flow hedge

As at 31 March 2017:

Liabilities measured at fair value

Forward foreign currency contracts: cash flow hedge

Total
£m

0.4

Total
£m

(0.1)

Level 1
£m

Level 2
£m

Level 3
£m

–

0.4

–

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 2018 and 31 March 2017.

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.

2018
£m

24.3

(0.9)

23.4

104%

21.5

2017
£m

17.4

5.1

22.5

77%

21.3

1.1 times

0.82 times

142

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018FINANCIAL STATEMENTSGroup 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 (%)1

Return on sales (%)2

Capital expenditure (£m)

Basic earnings/(loss) per share (p)

Employees at year end

1. Being adjusted operating profit divided by average operating assets and goodwill.
2. Based on adjusted operating profit divided by revenue.

2018
£m

191.6

14.2

5.6

1.4

(3.6)

(2.2)

56.0

37.9

93.9

21.6

(24.3)

15.2

(7.9)

98.5

(97.4)

1.1

12.4

7.4

9.5

(1.0)

2,044

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

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

2,187

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

143

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOSTRATEGIC REPORTGOVERNANCEADDITIONAL INFORMATIONFINANCIAL STATEMENTSOVERVIEWAccounting Policies

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).

144

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018FINANCIAL STATEMENTSCompany Balance Sheet

as at 31 March 2018

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

Borrowings

Derivative financial instruments

NET CURRENT (LIABILITIES)/ASSETS

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 share capital

Share premium account

Capital redemption reserve

Currency translation reserve

Retained earnings

SHAREHOLDERS’ FUNDS

The Company’s profit for the year ended 31 March 2018 was £1.3m (2017: £2.1m).

Approved by the Board on 29 May 2018 and signed on its behalf by:

Robert Purcell
CHIEF EXECUTIVE

Ian Scapens
FINANCE DIRECTOR

Note

2018
£m

2017
£m

iii

viii

vii

viii

5.4

0.3

157.6

9.4

3.0

175.7

4.5

0.1

4.6

180.3

(4.9)

(2.3)

–

(7.2)

(2.6)

(62.5)

(20.9)

(0.5)

(17.4)

(101.3)

(108.5)

71.8

11.3

30.1

15.4

5.2

9.8

71.8

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

145

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOSTRATEGIC REPORTGOVERNANCEADDITIONAL INFORMATIONFINANCIAL STATEMENTSOVERVIEW

Company Statement of Changes in Equity

for the year ended 31 March 2018

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

Profit for the year

Other comprehensive income/(expense)

Total comprehensive income/(expense) for the year

Capital redemption

Employee share options:

– value of employee services

At 31 March 2018

Share
capital
£m
Note x

26.6

–

0.1

–

26.7

–

(15.4)

–

11.3

Share
premium
account
£m

29.9

–

0.2

–

30.1

–

30.1

Capital
redemption
reserve
£m

Retained
earnings
£m

Currency
translation
reserve
£m

–

15.4

–

15.4

10.6

2.1

(4.4)

(2.3)

–

0.2

8.5

1.3

0.2

1.5

–

(0.2)

9.8

2.3

–

6.3

–

8.6

–

(3.4)

–

5.2

Total
equity
£m

69.4

2.1

1.9

4.0

0.3

0.2

73.9

1.3

(3.2)

(1.9)

–

(0.2)

71.8

All attributable to the equity shareholders of the Company.

146

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018FINANCIAL STATEMENTSNotes to the Company
Financial Statements

(i) Intangible assets – software

Cost

At beginning of year

Additions at cost

Disposals

At end of year

Depreciation

At beginning of year

Depreciation for the year

Disposals

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

Additions

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

Total
£m

12.1

1.2

(0.1)

13.2

6.1

1.8

(0.1)

7.8

5.4

6.0

Total
£m

0.3

0.1

0.4

–

0.1

0.3

Property
£m

Equipment
£m

0.2

–

0.2

–

0.2

0.1

0.2

–

0.1

Future capital expenditure
At 31 March 2018, contracted capital expenditure not provided for in these financial statements for which contracts have been placed
amounted to £0.1m (2017: £0.1m).

(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 cashflows of the underlying entities are reviewed to determine whether the investment value is recoverable.

The results and financial position of Renold Scottish Limited Partnership (SLP) have been consolidated in the consolidated financial
statements of Renold plc. Renold plc is a parent undertaking of the general partner in the SLP (see Note (xiii) 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.

147

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOSTRATEGIC REPORTGOVERNANCEADDITIONAL INFORMATIONFINANCIAL STATEMENTSOVERVIEWNotes to the Company
Financial Statements

(iii) Investments in subsidiary undertakings continued

Subsidiary undertakings

Cost or valuation

At beginning of year

Impairment

– Renold Transmission Limited

– Renold Crofts (Pty) Limited

Net additions/(repayments)

At end of year

Shares
£m

Loans
£m

Total
£m

62.0

82.4

144.4

–

62.0

(0.2)

(1.0)

14.4

95.6

(0.2)

(1.0)

14.4

157.6

During the year to 31 March 2018, the decision was made to close the Singapore branch of Renold Transmission Limited resulting in an
impairment of the investment held by Renold plc. The annual impairment test of investments indicated that the investment in Renold
Crofts (Pty) Limited exceeded the recoverable amount derived from the net present value of forecast cashflows resulting in the recognition
of an impairment.

The subsidiary undertakings of the Company at 31 March 2018 are set out in Note (xiii).

(iv) Deferred tax assets

Pension plans

Opening
balance
£m

3.1

Recognised
in income
statement
£m

Recognised
directly in other
comprehensive
income
£m

–

(0.1)

Closing
balance
£m

3.0

Unrecognised deferred tax assets amount to £0.5m (2017: £0.3m) arising from accelerated capital allowances.

(v) Trade and other receivables

Amounts owed by subsidiary undertakings

Other debtors

Prepayments

(vi) Trade and other payables

Amounts falling due within one year:

Trade creditors

Other taxation and social security

Accruals

Amounts owed to subsidiary undertakings

148

2018
Current
£m

2018
Non-current
£m

2017
Current
£m

2017
Non-current
£m

3.4

0.2

0.9

4.5

–

9.4

3.4

0.1

0.9

4.4

2018
£m

1.4

0.3

1.5

1.7

4.9

–

9.9

2017
£m

1.7

0.2

2.3

–

4.2

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018FINANCIAL STATEMENTS(vi) Trade and other payables continued

Amounts falling due after one year:

Loan from subsidiary undertakings

2018
£m

62.5

2017
£m

62.5

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) Derivative financial instrument

Forward foreign currency contracts – cash flow hedge

2018
£m

–

2017
£m

(0.1)

The Company has contracted forward contracts consisting of US Dollar forward contracts nil (2017: £2.9m). The US Dollar contracts are sell
contracts, given that the UK Group companies have a surplus in US Dollars and a deficit in Euros.

(viii) Borrowings

Amounts falling due after one year:

Bank loans repayable in two to five years

Summary of total borrowings:

Bank loans

Overdraft

Preference stock

Total borrowings

2018
£m

20.9

2.3

0.5

23.7

2017
£m

17.1

–

0.5

17.6

(ix) 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 in the Group financial statements.

No contributions are outstanding at the year end.

(x) Called up share capital

Ordinary shares of 5p each

Deferred shares of 20p each

Issued

2018
£m

11.3

–

11.3

2017
£m

11.3

15.4

26.7

Preference stock of £1 each1

1. Included in borrowings – see Note (viii).

Issued

2018
£m

0.5

2017
£m

0.5

149

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOSTRATEGIC REPORTGOVERNANCEADDITIONAL INFORMATIONFINANCIAL STATEMENTSOVERVIEWNotes to the Company
Financial Statements

(x) Called up share capital continued
At 31 March 2018, the issued ordinary share capital comprised 225,417,740 ordinary shares of 5p each (2017: 225,417,740). During the year,
the 77,064,703 deferred shares of 20p each were cancelled, in accordance with the terms of those shares and as approved at the 2017 AGM.
The balance has been transferred to a non-distributable Capital Reserve.

The Employee Benefit Trust holds 364,879 fully paid ordinary shares of 5p each (2017: 2,353,037) to its to facilitate the exercise of share
options by employees across the Company.

Disclosures in respect of capital management can be found in Note 25 of the consolidated financial statements.

(xi) 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) of 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) Company Limited, its 75% owned subsidiary, Renold Chain India Private Limited and its 50% jointly controlled entity, Renold
Transmission Technology (Jiangsu) Inc. Transactions entered into and trading balances outstanding at 31 March 2018 (and 2017) with Renold
Transmission Technology (Jiangsu) Inc. are not material. Transactions entered into and trading balances outstanding at 31 March with Renold
(Hangzhou) Company Limited and Renold Chain India Private Limited are as follows:

Amounts receivable as at 31 March

– Renold (Hangzhou) Company Limited

– Renold Chain India Private Limited

(xii) Post balance sheet events
There were no significant post balance sheet events to report.

2018
£m

4.3

–

4.3

2017
£m

4.9

–

4.9

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25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018FINANCIAL STATEMENTS(xiii) Subsidiary undertakings as at 31 March 2018
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 2018 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 UK subsidiaries are incorporated in England and Wales and 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)

Address: 3-5 Melville Street, Edinburgh, Scotland, EH3 7PE
Address: 3-5 Melville Street, Edinburgh, Scotland, EH3 7PE

Austria

Belgium

Denmark

France

Germany

Poland

Spain

Sweden

Renold GmbH

Kärntner Ring 12, A-1010 Wien

Renold Continental Limited
(incorporated in the United Kingdom)

Renold A/S

Brampton Renold SAS*

Renold GmbH*

Renold Holding GmbH*

Kaerup Alle 2, 1. Benlose, 4100, Ringstad

100 rue du Courbillon, 59175, Vendeville

Juliusmühle, 37574, Einbeck

Renold Automotive Systems Germany

Juliusmühle, 37574, Einbeck

Renold Polska sp. z o.o.

Renold Poland sp. z o.o.

Renold Hi-Tec Couplings SA

Renold Transmission AB (Sweden)

ul. Mlyńska 11, 40-098 Katowice, Poland

C/ Antoni Gaudi 21, Bajos 2o, Gavá, Barcelona

Switzerland

Renold (Switzerland) GmbH

Ringstrasse 16, CH-8600, Dübendorf 1

North America

Canada

USA

Renold Canada Limited*

622 rue De Hull, Montreal, Quebec, H8R 1VG

Renold Inc

Jeffrey Chain LP

Renold Holdings Inc

100 Bourne Street, Suite 2, Westfield, NY 14787

2307 Maden Drive, Morristown, TN 37813

Jeffrey Chain Acquisition Co Inc

2307 Maden Drive, Morristown, TN 37813

Jeffrey Chain Corp

2307 Maden Drive, Morristown, TN 37813

151

25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOSTRATEGIC REPORTGOVERNANCEADDITIONAL INFORMATIONFINANCIAL STATEMENTSOVERVIEWNotes to the Company
Financial Statements

(xiii) Subsidiary undertakings as at 31 March 2018 continued

Other countries

Australia

China

Renold Australia Proprietary Limited*

508-520 Wellington Road, Mulgrave, Victoria 3170

Renold Transmission (Shanghai) Company Limited

Renold Technologies (Shanghai) Company Limited

Renold (Hangzhou) Co Limited

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

Renold (China) Transmission Products Co Ltd

No. 168 Huacheng Road, Jintan District, Changzhou

India

Renold Chain India Private Limited

Malaysia

Renold (Malaysia) Sdn Bhd

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

New Zealand

Renold New Zealand Limited*

594 Rosebank Road, Avondale, Auckland

Renold Retirement Trustee Limited

Melville Jessup Weaver, Level 5, 40 Mercer St,
Wellington, 6142

Singapore

Renold Transmission Limited
(incorporated in the United Kingdom)

South Africa

Renold Crofts (Pty) Limited*

Thailand

Renold (Thailand) Limited

* Directly held by Renold plc.

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) Company 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 above) interest in the equity shares and voting rights. Renold
Power Transmission Limited, Renold International Holdings Limited and Renold Europe Limited are registered in England and Wales.

The Group has the following interests in the exceptions noted above:

Subsidiary undertaking

Renold (Hangzhou) Company Limited

Renold Chain India Private Limited

Our overseas companies are incorporated in the countries in which they operate except where otherwise stated.

Equity
shares

Voting
rights

90%

75%

90%

75%

152

25955-02 AR 2017 Proof FiveRenold plc Annual Report and Accounts for the year ended 31 March 2018FINANCIAL STATEMENTSCorporate Information

Company details
Registered office
Trident 2, Trident Business Park
Styal Road
Wythenshawe
Manchester
M22 5XB

Auditor
Deloitte LLP

Broker and financial adviser
Arden Partners

Financial PR consultants
Instinctif Partners Limited

Registrars
Link Asset Services
34 Beckenham Road
Beckenham
Kent
BR3 4TU

Registered number: 249688
Telephone: +44 (0)161 498 4500
Fax: +44 (0)161 437 7782
Email: enquiry@renold.com
Website: www.renold.com

Telephone: If calling from the UK: 0371 664 0300 (lines are open 9.00 am to 5.30 pm, Monday to Friday)

If calling from overseas: +44 371 664 0300

Email: www.signalshares.com/help-centre/

Website: www.signalshares.com

If you receive two or more copies of this report please write to Link Asset Services, 34 Beckenham Road, Beckenham, Kent, BR3 4TU and
ask for your accounts to be amalgamated.

This Annual Report is printed by an FSC® (Forest Stewardship Council)
certified printer using vegetable-based inks.

This report has been printed on Magno silk, a white coated paper and
board using 100% EFC pulp.

IBC

25955-02 AR 2017 Proof Five25955-02 AR 2017 Proof Fivewww.renold.com Stock code: RNOSTRATEGIC REPORTGOVERNANCEADDITIONAL INFORMATIONOVERVIEWFINANCIAL STATEMENTSR

Renold plc
Trident 2
Trident Business Park
Styal Road
Wythenshawe
Manchester
M22 5XB

Telephone: +44 (0)161 498 4500
www.renold.com

25955-02 AR 2017 Proof Five25955-02 AR 2017 Proof Five