Renold plc (LON:RNO), a leading international supplier of industrial chains and related power transmission products, announced today its results for the year ended 31 March 2021.
Financial highlights
| Adjusted results at constant exchange rates1 | 2021 | 2020 |
| Revenue at constant exchange rates | £165.3m | £187.6m |
| Adjusted operating profit at constant exchange rates | £11.2m | £13.1m |
| Return on sales2 at constant exchange rates | 6.8% | 7.0% |
| Adjusted earnings per share | 2.0p | 2.9p |
| Net debt3 | £18.4m | £36.6m |
| Results at actual exchange rates | ||
| Revenue | £165.3m | £189.4m |
| Adjusted operating profit | £11.2m | £13.4m |
| Return on sales2 | 6.8% | 7.1% |
| Operating profit | £10.5m | £10.1m |
| Profit before tax | £5.9m | £4.9m |
| Basic earnings per share from continuing operations | 1.7p | 1.5p |
| • | Strong cash generation, with net debt reducing by c.50% to £18.4m (2020: £36.6m) |
| • | Resilient return on sales 6.8% (2020: 7.1%) despite a reduction in revenues |
| • | Adjusted operating profit of £11.2m (2020: £13.4m); operating profit of £10.5m (2020: £10.1m) |
| • | Order intake improving, with closing order book c.10% ahead of 31 March 2020 |
| • | Adjusted EPS of 2.0p (2020: 2.9p); Basic EPS from continuing operations 1.7p (2020: 1.5p) |
| • | Revenue down 12.7% (11.9% at constant exchange rates), impacted by Covid-19 pandemic |
Business highlights
| • | An effective strategy and responsible management have created an increasingly flexible Group, able to deliver a resilient performance through the pandemic and positioned to capitalise on the anticipated economic recovery |
| • | Covid-19 situation mixed; Europe, Americas and China recovering strongly, whilst India and SE Asia impacted by new variants in H2 |
| • | Swift decision making and cost discipline mitigated sales reduction, despite significant material cost pressures and supply chain disruption |
| • | New Chinese factory continuing to progress well |
| • | Leverage remains low, increased cash generation facilitates bolt-on acquisitions and strategic capital investment |
| • | Major restructuring complete and with the reduction in leverage, together with increased cash generation, acquisitions and strategic growth investment opportunities are now being actively explored |
| • | Post year end, on 8 April 2021, Renold completed the bolt-on acquisition of the conveyor chain business of Brooks Ltd |
1 See below for reconciliation of actual rate, constant exchange rate and adjusted figures
2 Adjusted operating profit divided by revenue
3 See Note 13 for a reconciliation of net debt which excludes lease liabilities
Robert Purcell, Renold plc Chief Executive, commented:
“I am pleased with the Group’s robust performance through the pandemic which reflected the benefits of the strategic development completed over prior years. In particular, our employees around the world have responded excellently to the challenges we have faced and I thank them for their dedication and commitment to the Company and our customers.
“Throughout the year the business performance has been on an improving trend and I am pleased to report that our order books have continued to grow in the early part of the new financial year. Whilst there remain considerable Covid-19-related challenges in some parts of the world, with supply chain issues and rising costs, we are well placed to deal with these and our performance over the last 12 months gives me confidence that we will return to growth in the new financial year.”
Meeting for analysts and institutional investors
A virtual meeting for institutional investors and analysts will be held today at 9.00am BST. If you wish to attend this meeting please contact [email protected] or call Tim Metcalfe of IFC Advisory Limited (020 3934 6632) before 8.45am to be provided with access details.
Retail Investor presentation and Q&A session
Renold management will be hosting an online presentation and Q&A session at 5.30pm BST on Monday 19 July 2021. This session is open to all existing and prospective shareholders. Those who wish to attend should email [email protected] and they will be provided with access details. Participants will have the opportunity to submit questions during the session, but questions are welcomed in advance and may be submitted to: [email protected].
Reconciliation of reported and adjusted results
| Revenue | Operating profit | Earnings per share | ||||
| 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | |
| £m | £m | £m | £m | pence | pence | |
| From continuing operations | 165.3 | 189.4 | 10.5 | 10.1 | 1.7 | 1.5 |
| Restructuring costs and other adjusting items | – | – | – | 2.4 | – | 1.1 |
| Amortisation of acquired intangible assets | – | – | 0.7 | 0.9 | 0.3 | 0.3 |
| Continuing adjusted | 165.3 | 189.4 | 11.2 | 13.4 | 2 | 2.9 |
| Exchange impact | – | -1.8 | – | -0.3 | – | – |
| Continuing adjusted at constant exchange rates | 165.3 | 187.6 | 11.2 | 13.1 | 2 | 2.9 |
Chairman’s Statement
This will be my final Annual Report as Chairman of Renold as, at the end of this year’s Annual General Meeting, I intend to step down from the Board and hand over the reins to my successor, David Landless. Accordingly, it is probably a good time to reflect on some of the strategic progress and changes that have been made over the last nine years whilst I have been Chairman.
The business back then was faced with many challenges including an inflexible cost base, where both the costs and the breakeven point were too high, the lack of a service ethos and a significantly underinvested manufacturing base. Despite possessing a portfolio of market leading products, these fundamental weaknesses led to a lack of both profitability and cash generation. Over the period of my tenure as Chairman, the Board has committed total expenditure of £31.5m in restructuring costs and £58.6m in capital expenditure which has contributed to addressing these weaknesses.
Due to the diligence of the executive team, our employees around the world, and the Board, the business is in a much better place than when I arrived as clearly illustrated by this year’s results; delivered in an economic and social environment, unparalleled in living memory, due to the Covid-19 pandemic. The Group is now capable of generating higher profits at much lower volumes, has strong cash generation, a comfortable level of liquidity, and again as this year demonstrates, has a much more flexible workforce who are service orientated. Over my tenure difficult decisions had to be made, especially concerning the closure of production facilities in the UK, the opening of a new factory in China and a complete shift in the Group’s IT strategy. Now that the period of substantial restructuring has come to a close, the Group will be able to commit higher levels of resources to develop at a faster rate, both organically and via strategically sound acquisitions.
It is pleasing to see the strategic progress that has been made over the past years, deliver a business which has the resilience to weather these storms, and any future economic shocks. This is true, both in terms of financial performance but also true for the flexibility and adaptability of our people across the world, who have continued to deliver an outstanding result for the Group in this unprecedented and difficult global environment.
Reaction to the Covid-19 pandemic
In the Chief Executive’s Review, Robert outlines the impact of the Covid-19 pandemic on Renold and the actions we have delivered to ensure the safety of our employees and continuity of supply to customers plus the cost and cash measures implemented to protect the financial strength of the Group.
With our manufacturing facilities in China, we gained early exposure to the operational changes required to ensure the safety of our employees in a Covid-19 environment. As Covid-19 spread across the world, particularly to Europe and America, we were well-placed to share best-practice and quickly implemented safe working environments in our other locations. Consequently, the temporary closure of a number of facilities, in particular in India, which has once again been closed in the new financial year due to the impact of the new variant, caused limited disruption to trading in the year. The welfare and safety of our employees have remained of paramount importance throughout the current crisis.
One of the key strengths of Renold is the significant geographic, customer and sector diversification, together with a broad spread of end-use applications for our products. Throughout the various geographic lockdowns across the world, we have sought, where appropriate and safe to do so, to keep our manufacturing operations open in support of various industries that are essential to the functioning of the global economy. Whether the end application is in agriculture, food processing, energy or a myriad of other essential industries (including internet-based and technology industries’ use of automated warehousing), Renold plays its part in ensuring our customers can continue to operate.
The Covid-19-related changes that we have implemented can only be successful with the support of our employees across the world. Their willingness to adapt and adopt new working practices, including where these incur personal hardships, has highlighted their commitment and loyalty to Renold. Whether that is changing shift patterns, reducing working hours or accepting temporary pay reductions, all of our employees have stepped forward to support us in addressing the current challenges.
Our markets and trading performance
At the half year we reported a pandemic related 17% reduction in revenue compared to the equivalent prior year period, highlighting the tougher market conditions, particularly in the European and US chain markets. As expected, these conditions continued but were less extreme in the second half of the year, where revenue was 8.1% lower compared to the prior year. The speed of recovery of revenue in the second half was constrained by the global supply chain difficulties emerging from the pandemic, and, to a lesser extent, the short-term impact of Brexit related import delays.
Over the year as a whole, Group revenue from continuing operations declined by 12.7% and adjusted operating profit reduced by 16.4%, reflecting the weakened market conditions. Encouragingly, Group order intake in Q4 was 10.0% ahead of the equivalent prior year period, and the order book at 31 March 2021 of £53.6m was 3.6% ahead of the prior year figure (9.2% at constant exchange rates).
The Chain division’s revenue from continuing operations declined by 12.8% (12.0% at constant exchange rates) as the Covid-19 pandemic-related demand reduction impacted the division. Adjusted return on sales increased in the year to 10.2% (2020: 9.3%) reflecting the impact of significant productivity gains achieved in the New Chinese Chain factory, which offset the negative margin impact of lower sales seen in other geographic regions.
The volatile market conditions impacted most acutely on the Torque Transmission (TT) division which experienced a revenue decline of 15.2% (14.3% at constant exchange rates) over the full year. In the second half of the year, a reduction in activity was expected and planned due to variation in demand for a significant long-term defence supply contract. Unsurprisingly, this revenue decline reduced profitability, but a strong improvement in returns from the Gears unit, and increased government support in terms of US PPP loan forgiveness, bolstered adjusted return on sales for the division to 12.8% (2020: 11.5%). TT is generally considered to be a later cycle business than the Chain division, which together with the lengthier order book means that we should see a continued strengthening of the division’s performance as the new financial year progresses.
During the year, cash generation outperformed initial expectations, as a strong focus on cash management resulted in a c.50% reduction of net debt to £18.4m (31 March 2020: £36.6m).
Strategic Developments
During the year, Renold made good progress in continuing to deliver strategic change across the Group.
The recently completed Chinese factory continued to make significant progress in terms of increased efficiency and productivity. This is clearly illustrated by a c.24% reduction in head count, from when the plant was originally opened back in March 2019, which has resulted in a step change in profitability of the Chinese business year-on-year.
A review of manufacturing capabilities is currently underway, which has identified opportunities for the upgrade of existing manufacturing processes in India and China to create higher specification, higher quality products. This review of supply chain optimisation will facilitate the incorporation of standardised manufacturing capabilities across all product lines and sizes which, in turn, will enable us to benefit from significant efficiencies and economies of scale. Furthermore, geographic diversification will allow flexibility between manufacturing locations, especially in light of customer supply chain diversification, and a changing tariff environment.
The completion of the major restructuring initiatives, together with the low level of financial leverage, puts the Group in an ideal position to capitalise on meaningful bolt-on acquisitions that augment our existing operations. This will allow us to accelerate the growth in revenue, including for our existing products into adjacent sectors, allow entry into new under-represented sectors and geographies and, most importantly, allow us to benefit from significant production synergies from acquired businesses.
On the 8 April 2021, the Group acquired the conveyor chain business of Brooks Limited, headquartered in Manchester, UK. This small bolt-on acquisition will augment our existing UK business.
Finally, I am pleased to announce that the Group is embracing a sustainability strategy, whereby Renold will make Sustainability one of its guiding principles. Over a period of time our new leader for Sustainability will help the Board to develop policies and strategies in this area.
The Board
Consistent with the cost actions being delivered across the Group, the Board elected to take a temporary reduction in fees/salary of 20% for Non-Executive Directors and 25% for Executive Directors during the year. These pay reductions lasted for a period of four months and commenced on 1 April 2020.
I would like to welcome Jim Haughey to the Board as Group Finance Director. Jim joined us in October 2020 and brings with him extensive experience in the engineering sector, having been Group Finance Director at Mpac Group plc, and holding senior finance roles at Bodycote plc, FKI plc and Bridon Group. I would also like to take this opportunity to thank Ian Scapens, who left the Board in June 2020 for the contributions made during his tenure.
In addition, I would like to welcome Andrew Magson to the Board as a Non-Executive Director. Andrew has career-long experience working in international industrial and manufacturing businesses and was previously Group Finance Director of The Alumasc Group plc, and prior to that he held senior finance roles at BPB plc.
As previously reported, at the conclusion of this year’s Annual General Meeting I will step down from the Board, retire as Chairman of the Company and as Chairman of the Nominations Committee, and David Landless will take over these responsibilities. Accordingly, David Landless will retire as Audit Committee Chairman and Senior Independent Director, with Andrew Magson taking on the responsibilities as Audit Committee Chairman and Tim Cooper, the Chair of the Remuneration Committee, taking on the responsibilities of Senior Independent Director.
We continually monitor the composition of the Board with the objective of maintaining, and broadening the range of expertise, experience and diversity. The Board continues to ensure that effective succession plans are in place.
Pensions
The latest triennial actuarial valuation of the UK pension scheme, with an effective date of 5 April 2019, was agreed in March 2020, and reported to The Pensions Regulator in June 2020, with no change to the contribution arrangements. This valuation assessed the deficit at 5 April 2019 to be £9.1m, with the shortfall to be recovered from expected asset outperformance.
The Group’s net retirement benefit obligations as determined by IAS 19R increased in the year to £102.4m (31 March 2020: £97.6m) due primarily to a reduction in bond yields offset by the recovery in asset prices during the year. At the last triennial pension valuation the technical provisions deficit of the UK scheme, which is how the trustees and regulator view the scheme, was only £9.1m. This compares to the IAS 19R deficit for the UK pension fund of £77.5m. The difference represents the valuation of the capital asset reserve (CAR), currently £50.8m, being a guaranteed set of future discounted cash contributions to the scheme for a fixed period of 25 years commencing in 2013. Cashflows under the CAR provide for long-term, predictable and sustainable funding to the UK scheme. The Group remains committed to progressively de-risking this position over time through a combination of agreed contributions to the schemes, the benefit of investment returns over time and other actions as they become viable.
At the start of the financial year, and due to the uncertainty in short-term outlook caused by the Covid-19 pandemic, Renold approached the Trustees of the Pension scheme with a request to defer £2.8m of contributions to the UK scheme for a 12 month period to 31 March 2021. The Trustees supported this proposal and it was agreed that the deferred contributions will be repaid over a five-year period commencing on 1 April 2022.
Dividend
The Board fully recognises the importance of dividends to shareholders. However, given the volatile operating environment created by the Covid-19 pandemic and with the corresponding impact on market demand, the Board has decided not to recommend the payment of a dividend on ordinary shares for the year ended 31 March 2021. This approach will remain under active review for future periods.
Summary
The Group has performed well in the face of the unprecedented economic and social turmoil created by the Covid-19 pandemic. Both divisions have performed with great credit in light of the demand reductions. Rapid management action to contain costs, governmental support and the benefits of previous restructuring, combined to substantially mitigate the impact of the revenue decline. Supply chain disruption and cost inflation will undoubtedly be key challenges in the new financial year but the strong financial performance this year, combined with the end of our strategic restructuring programme, has generated the financial freedom to exploit future organic and acquisition-related growth opportunities. I would like to thank all our employees around the world for their diligence and commitment in supporting the delivery of resilient results in the face of unprecedented adversity.
MARK HARPER
CHAIRMAN
16 July 2021
