Preliminary results 2016 Robert Purcell CEO Brian Tenner CFO 31 May 2016 www.renold.com
Executive Summary STEP 2020 delivery lowered the breakeven point and maintained margins in volatile end markets pence Adjusted EPS 6.0 • Markets have been volatile in most sectors and geographies • Sales and order shortfalls were concentrated in Q2 and Q3 4.0 5.0 4.7 2.0 • Breakeven point lowered for the third consecutive year 3.2 1.4 • Underlying RoS maintained despite 8.9% fall in underlying sales 0.0 2013 2014 2015 2016 • Chain local service offices opened in Indonesia, Thailand, Spain % Return on Sales • Focus increasing on New Product Development and service 10.0 8.0 • Tooth Chain acquisition an excellent strategic fit 6.0 • Integration proceeding well and synergies starting to emerge 8.5 8.6 4.0 6.0 2.0 3.8 0.0 • Capital investment programme expanded by 73% to £9.5m 2013 2014 2015 2016 • First site now live on our new global ERP system Leverage ratio times 2.00x • Five year re-financing in place as foundation for STEP 2020 1.90x 1.50x • Leverage below 1.2x, scope for further bolt-on acquisitions 1.50x 1.00x 1.16x 0.94x • Major pensions de-risking projects executed in three territories 0.50x • Increasing value being extracted from accumulated tax assets 0.00x 2013 2014 2015 2016 * Throughout this document, ‘Underlying’ means after eliminating the impact of movements in foreign exchange rates. ‘Adjusted’ excludes exceptional items, pension costs, the amortisation of acquired intangible assets and any associated tax thereon. The leverage ratio is calculated as Net Debt / Adjusted EBITDA. Year ended 31 March 2016 2
Re-engineering our future: Financial Performance Brian Tenner, CFO Year ended 31 March 2016 3
Summary Group Income Statement Volatility was widespread across market sectors, geographies and sales channels • Underlying sales down 8.9% 2016 2015 Var £m £m £m • Book to bill ratio 96.4% Revenue as reported 165.2 181.4 • Variable margin gains (operational Impact of FX - - gearing) of 2.8% delivered in the year Underlying revenue 165.2 181.4 (16.2) • Net overhead savings of £1.1m Reported adjusted operating 14.2 15.5 (1.3) • Operating margins maintained - shows profit depth of self-help available Impact of FX - 0.2 £'m OP and RoS% Track Record Underlying adjusted operating 14.2 15.7 (1.5) RoS% profit 18.0 9.0% 16.0 8.0% Underlying Return on Sales % 8.6 8.6 - 14.0 7.0% 12.0 6.0% 10.0 Exceptional items (2.2) (2.9) 0.7 5.0% 8.0 4.0% 6.0 Profit before tax 7.4 7.7 (0.3) 3.0% 4.0 2.0 2.0% Adjusted EPS 4.7p 5.0p (0.3p) 2013 2014 2015 2016 OP RoS% Year ended 31 March 2016 4
Segmental analysis - Chain Strong advance in operating margins driven by investments in factory efficiency and overhead reductions • Orders lagged sales in the year delivering a 2016 2015 Var book to bill ratio of 96%. Weakness focussed £m £m % in Q2 and Q3 Underlying revenue 126.8 135.6 (6.5) • Divisional underlying sales were down 6.5%. Similar pattern in all geographical regions Underlying adjusted operating 15.4 13.8 11.6 profit • Most market sectors saw reductions with the distribution and OEM channels seeing the Underlying Return on Sales % 12.1 10.2 18.6 largest falls due to de-stocking • Factory costs benefitted from a full year of Bredbury Phase 1 closure savings % Return on Sales • Significant increase in capital spend in the 14.0% year in key manufacturing locations 12.0% • Overheads down £0.7m on lower payroll 10.0% overheads 8.0% 6.0% • Tooth Chain will contribute approximately 4.0% £1.0m to operating profit next year 2.0% • Chain target for operating margins remains 0.0% 2013 2014 2015 2016 mid-teens in a GDP+ growth environment Year ended 31 March 2016 5
Segmental analysis – Torque Transmission Challenging sales year in Torque Transmission partly mitigated by ongoing STEP 2020 continuous improvements 2016 2015 Var • Orders in TT saw their greatest weakness in £m £m % Q3 and Q4, the first two quarters combined having shown a modest fall (less than 2%) Underlying revenue 38.4 45.8 (16.2) • Sales followed a similar pattern with the Underlying adjusted 5.0 7.5 (33.3) reduction concentrated in the second half operating profit • Demand in extractive and commodity sectors weak also impacting associated industries Underlying Return on Sales % 13.0 16.4 (20.7) • Variable margin gains from STEP 2020 initiatives and focus on higher value products % Return on Sales 20.0% • Overheads cut by £0.7m in absolute terms primarily through payroll savings 15.0% • The overall fall in RoS% therefore reflects the reduction in sales outweighing variable 10.0% margin and overhead gains 5.0% • Our short term goal is to return the division to mid-teens operating margins and growth 0.0% 2013 2014 2015 2016 Year ended 31 March 2016 6
Segmental analysis: Torque Transmission More focus on Torque Transmission as Chain recovery builds momentum Operational CEO taken on divisional MD role Overheads cut gearing improved TT re-structured around products by £2.3m since by 6.2% since New MD’s in place in each unit March 2013 March 2013 Commercial re-focus of Cardiff manufacturing Return to the business capability growth with Expansion of sales Improving quality and > mid-teens force UK and USA margins lead time New Product Development a key theme in TT Focus on key market niches where we have clear USP’s Year ended 31 March 2016 7
Interest charges and tax Financing costs and tax charges have both benefitted from active management • The main exceptional items were: 2016 2015 Var o Tooth Chain acquisition costs £0.4m £m £m £m o STEP 2020 restructuring costs £1.9m Adjusted operating profit 14.2 15.5 (1.3) o Net pension gain £1.2m in Exceptional items (2.2) (2.9) 0.7 Germany and Australia o French property write down of Pension admin costs (0.7) (0.5) (0.2) £0.5m o Other restructuring charges £0.6m Amortisation of acquired (0.2) - (0.2) intangible assets • Pension scheme interest reduced due to Reported operating profit 11.1 12.1 (1.0) lower corporate bond rates • Financing charges lower due to: Pension scheme interest (2.0) (2.5) 0.5 o Lower rates agreed in the re- financing completed in May 2015 External financing charges (1.5) (1.7) 0.2 o Lower opening leverage: <1.0x Other interest charges (0.2) (0.2) - • The Group holds recognised and unrecognised tax assets Profit before tax 7.4 7.7 (0.3) • Tax assets becoming accessible as Taxation (2.0) (2.1) 0.1 profitability improves Profit after tax 5.4 5.6 (0.2) • The adjusted effective tax rate for the year was 17% (STEP 2020 target <20%) Year ended 31 March 2016 8
Summary Group Cash Flow Statement Operating cash flows support expanded capital programme and acquisition funding • EBITDA maintained at an historically robust 2016 2015 Var level to support Group’s expenditure. £m £m £m • Capital spend increased to improve efficiency Adjusted EBITDA 20.2 20.8 (0.6) and catch up infrastructure spend. Movement in working capital 0.3 1.4 • Pension cash spend reflects costs associated Pensions cash costs (5.4) (5.1) with UK de-risking projects and higher PPF levy under new regime – to be mitigated. Restructuring spend (3.8) (3.3) • Almost half of restructuring spend relates to Taxes and other (0.5) (1.0) Bredbury onerous lease and refurbishment Net cash from operating 10.8 12.8 (2.0) costs to enable potential sub-lease. activities • Balance of restructuring costs relate to STEP Consideration paid for (3.7) - 2020 initiatives and headcount reductions in acquisition response to slow down in demand. Investing activities (9.5) (5.5) • Cash tax £1.0m equivalent to 8.0% effective Financing costs paid (1.8) (1.4) rate on adjusted PBT. Other movements / FX 0.2 (0.6) • Initial acquisition consideration £3.7m paid. Change in net debt (4.0) 5.3 (9.3) Further potential £1.1m in 2 year earn out. Opening net debt (19.5) (24.8) • Financing includes £0.5m one off costs, saving £0.8m on the prior re-financing. Closing net debt (23.5) (19.5) (4.0) Year ended 31 March 2016 9
Summary Group Balance Sheet Improving quality of underlying assets offset by higher pension deficit • Balance sheet impacted by FX changes 2016 2015 Var £m £m £m • Intangible assets acquired with the Tooth Chain business in January 2016 Goodwill 22.7 21.9 1.2 Intangible assets 10.3 6.1 4.2 • Working capital includes Tooth Chain, underlying reduction Fixed assets 44.4 39.7 4.7 Deferred tax 16.7 17.1 (0.4) • Pension deficit driven by asset market values Inventories 36.3 35.8 0.5 • Leverage comfortable compared to 2.5x Receivables 30.5 30.6 (0.1) covenant Payables (36.2) (36.6) 0.4 times Leverage ratio Net working capital 30.6 29.8 0.8 2.00x Net Borrowings (23.5) (19.5) (4.0) 1.50x Provisions (6.2) (6.4) 0.3 1.00x Retirement benefit obligations (82.9) (75.7) (7.2) 1.90x 1.50x 1.16x Other (1.6) (1.4) 0.50x 0.94x Net assets 10.5 11.6 (1.1) 0.00x Leverage (1) ratio 1.16x 0.9x 2013 2014 2015 2016 (1) Leverage is calculated as Net debt / adjusted EBITDA Year ended 31 March 2016 10
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