Interim results 2015 Robert Purcell CEO Brian Tenner CFO 17 November 2015 www.renold.com
Executive Summary Successful delivery of self-help projects continues to improve margins while delivering key strategic building blocks on our STEP 2020 plan Adjusted EPS pence 3.0 • 8.7% growth in adjusted EPS to 2.5 pence 2.5 2.0 1.5 2.5 2.3 1.0 • Self-help measures delivered in STEP 2020 Strategic Plan 1.1 0.5 continued positive momentum in margins. More to come in H2 0.0 H1 2014 H1 2015 H1 2016 • Underlying adjusted operating profit grew 2.6% against a Return on Sales % backdrop of challenging and volatile end markets 10 8 • Recently signed agreement for our first bolt on acquisition with 6 9.3 an excellent strategic fit for the Group 8.5 4 4.6 2 0 • Continued good performance in operating cash flows allowed a H1 2014 H1 2015 H1 2016 significant increase in attractive capital investments Leverage ratio times 2.0x • New long term financing agreement delivering lower interest 1.5x charges and stable funding arrangements to 2020 1.0x 1.6x 1.3x • Completed significant de-risking of a higher risk section of the UK 0.5x <1.0x pension scheme 0.0x H1 2013 H1 2014 H1 2015 * Throughout this document, ‘Underlying’ means after eliminating the impact of movements in foreign exchange rates. ‘Adjusted’ excludes exceptional items, pension costs and the amortisation of acquired intangibles. The leverage ratio is calculated as Net Debt / Adjusted EBITDA. Half year ended 30 September 2015 2
Re-engineering our future: Financial Performance Brian Tenner, CFO Half year ended 30 September 2015 3
Summary Group Income Statement Self-help still driving improved margins in volatile end markets • EPS growth of 8.7% to 2.5 pence 2016 2015 Var Interim Interim • Margins improved again with RoS rising £m £m £m to 9.3% (8.6% in H2 PY) Revenue as reported 84.5 90.5 • Operating profit grew by 2.6% Impact of FX - 0.2 • Difficult end user markets saw a 6.8% Underlying revenue 84.5 90.7 6.2 decline in underlying sales Reported adjusted operating 7.9 7.5 • Manufacturing gains and overhead profit reductions more than offset sales fall Impact of FX - 0.2 £'m Margin Track Record Underlying adjusted operating 7.9 7.7 0.2 RoS% 9.0 10.0% profit 9.0% 8.0 8.0% Underlying Return on Sales % 9.3 8.5 0.8% 7.0 7.0% 6.0 6.0% Exceptional items (0.8) (0.6) 5.0 5.0% 4.0 4.0% Profit before tax 4.6 4.4 0.2 3.0 3.0% 2.0 2.0% H2 2013 H1 2014 H2 2014 H1 2015 H2 2015 H1 2016 Adjusted EPS 2.5p 2.3p 0.2p OP RoS% Half year ended 30 September 2015 4
Segmental analysis - Chain RoS continues to rise above 10.0% target threshold despite 7.0% fall in sales • Underlying external sales fell 7.0%, 2.7% 2016 2015 Var Interim Interim excluding the major non-recurring Swiss £m £m % contract in prior year Underlying revenue 64.0 68.8 7.0 • Europe 3.2% decline excluding large Swiss project. Mixed picture of growth in UK and Underlying adjusted operating 7.3 7.2 1.4 Germany, others down profit • Distributor de-stocking seen in Q2 Underlying Return on Sales % 11.4 10.4 1.0 • Americas remains subdued (flat on PY) • Australasia down 7.8% with SE Asia impacted by China slow down and palm oil harvest Return on Sales % 12.0% • Full £3.8m annual benefit from Bredbury 10.0% closure with excess costs now eliminated 8.0% • Factory efficiencies and £0.7m of further 6.0% overhead reductions more than offset the 4.0% impact of lower volumes 2.0% • Major investments in manufacturing assets 0.0% delivered and others under way 2013 2014 2015 H1 2016 Half year ended 30 September 2015 5
Segmental analysis – Torque Transmission Strategy to leverage value added products and self-help initiatives continues to deliver gains in operating margins 2016 2015 Var Interim Interim • Underlying external sales fell 6.4% £m £m % • Adjusted operating profit increased 2.9% Underlying revenue 20.5 21.9 6.4 • Two of six business units delivered growth in sales in the period: Underlying adjusted 3.6 3.5 2.9 operating profit • our high value added Hi-tec couplings facility in Halifax Underlying Return on Sales % 17.6 16.0 1.6 • a modest rebound in demand in the Chinese power generation market • Further factory efficiencies and a focus on Return on Sales % higher value products almost offset the 20.0% impact of the fall in sales 15.0% • Self-help initiatives further reduced overheads by £0.2m to give the £0.1m net 10.0% increase in adjusted operating profit 5.0% • Milnrow gears facility restructured to respond to the fall in volumes 0.0% 2013 2014 2015 H1 2016 Half year ended 30 September 2015 6
Summary Group Cash Flow Statement Operating cash flows allow significant investment in attractive capital projects 2016 2015 Var • EBITDA remains robust in generating positive Interim Interim operating cash flows £m £m £m • Investment in growth oriented activities Adjusted EBITDA 10.7 10.1 0.6 (stock holdings and operating costs) Movement in working capital (2.5) (0.9) • Restructuring spend in both years primarily Pensions cash costs (2.3) (2.4) relates to savings projects Restructuring spend (1.5) (2.3) • Near doubling in attractive capital Taxes and other (0.4) (0.4) investments to £5.2m Net cash from operating 4.0 4.1 0.1 Sources and uses of cash activities £m 12 10 Investing activities (5.2) (2.7) 8 Financing costs paid (1.1) (0.8) 6 4 Other movements / FX 0.2 (0.2) 2 0 Change in net debt (2.1) 0.4 2.5 -2 -4 Opening net debt (19.5) (24.8) Closing net debt (21.6) (24.4) 2.8 Half year ended 30 September 2015 7
Summary Group Balance Sheet Leverage and net debt maintained to deliver low interest rate 2016 2015 Var • Working capital investment in inventory to Interim Year End support growth initiatives £m £m £m • Provision spend relates to Bredbury onerous Goodwill 21.4 21.9 (0.5) lease and HO move in H1 Fixed assets 47.4 45.8 1.6 • Pension deficit driven by global gilt yields Deferred tax 16.3 17.1 (0.8) and equity market returns Inventories 36.0 35.8 • Leverage ratio maintained below 1.0x while Receivables 28.1 30.6 still increasing capital investments Payables (33.4) (36.6) Net working capital 30.7 29.8 0.9 Leverage ratio times 2.0x Net Borrowings (21.6) (19.5) 2.1 Provisions (5.8) (6.4) 1.5x Retirement benefit (76.0) (75.7) 0.3 1.0x obligations 1.9x 1.5x Other (1.1) (1.4) 0.5x <1.0x 0.9x Net assets 11.3 11.6 0.3 0.0x Leverage(1) ratio <1.0x 0.9x 2013 2014 2015 H1 2016 (1) Leverage is calculated as Net debt / adjusted EBITDA Half year ended 30 September 2015 8
Pensions Stable and predictable cash flows maintained while executing de-risking projects £m • High risk UK pension liabilities of £25m fully Group deficit pre-tax de-risked in Q1 90 85 80 • Consultation process completed to terminate 75 the Australian scheme 70 65 60 • UK scheme membership cut by 6% in small 55 pots exercise 50 • Active management of pension liabilities continues in key territories £m Reported pension deficit £m Company cash contributions 80 3.0 75 2.5 70 2.0 1.5 65 1.0 60 0.5 55 0.0 50 H1 2012 H1 2013 H1 2014 H1 2015 H1 2016 2012 2013 2014 2015 H1 2016 Half year ended 30 September 2015 9
Re-engineering our future: Next Steps Robert Purcell, CEO Half year ended 30 September 2015 10
Aventics TC First bolt-on acquisition agreed with excellent strategic fit • Sales of € 9.0m, double digit margins • Based in Gronau, Hanover (40km from Einbeck) with 65 employees • Leading manufacturer of high quality range of tooth chain products • Sold into a variety of industrial markets • Ideally suited to high speed, high load and high temperature applications • Very limited crossover with our traditional customer base and applications • Opportunity to extend geographic footprint by leveraging Renold global supply chain • Market leading products in terms of design, engineering and performance • Opportunities to share manufacturing knowledge and process capabilities • Supply chain synergies • As a niche chain business, Aventics will benefit from joining a wider chain group Half year ended 30 September 2015 11
STEP 2020: road map STEP 2020: road map for continued margin progression RoS% STEP 2020 target: mid-teens RoS% 9.3% +0.8% 8.5% +2.5% Phase III: Structural activities +2.4% 6.0% Phase II: Organic growth 3.6% Phase I: Restructuring March Yr1 March Yr2 H1 - 15 September March STEP 2020 - three phase Strategic Plan 2013 Progress 2014 Progress Progress 2015 2015 • Continued progress in margin gains for third consecutive year, ‘double digit’ margins in sight • STEP 2020 programme of detailed improvement initiatives underpins further planned gains Half year ended 30 September 2015 12
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