Renold plc

Interim results for the half year ended 30 September 2023

("Renold", the "Company" or, together with its subsidiaries, the "Group")

Strategic and operational progress driving record earnings growth

Renold (AIM: RNO), a leading international supplier of industrial chains and related power transmission products, announces its interim results for the six month period ended 30 September 2023.

Financial highlights

Business highlights

¹ See below for reconciliation of actual rate, constant exchange rate and adjusted figures.

² See Note 12 for definitions of adjusted measures and the differences to statutory measures.

³ See Note 8 for a reconciliation of net debt which excludes lease liabilities.

Robert Purcell, Chief Executive of Renold, said:

"I'm pleased to report continued progress which builds on the momentum the Group has enjoyed in recent periods, delivering a record half year result. Sales, margins, profits and cash generation have all progressed well. Global markets continue to be uncertain and we remain vigilant for changes in patterns of demand beyond the current order book shortening. We are delighted with the purchase of Davidson in Australia, which further builds our inorganic growth strategy and we remain well positioned to continue developing through acquisition. There remains uncertainty over the implication of global economic pressures in the medium term, however the Board is increasingly confident in delivering a result for the current year ahead of previous market expectations."

Reconciliation of reported, constant exchange rate and adjusted results

Investor Presentation

The Company will conduct a live presentation and Q&A session for investors at 5:30 pm GMT today, 15 November 2023. The presentation is open to all existing and potential shareholders. Those wishing to attend should register via the following link and they will be provided with log in details:

https://us02web.zoom.us/webinar/register/WN_DwsvKoYLQumb8x1YZg-klw

There will be the opportunity for participants to ask questions at the end of the presentation. Questions can also be emailed to renold@investor-focus.co.uk ahead of the presentation.

ENQUIRIES:

Cautionary statement regarding forward-looking statements

Some of the information in this document may contain projections or other forward-looking statements regarding future events or the future financial performance of Renold plc and its subsidiaries. You can identify forward-looking statements by terms such as "expect", "believe", "anticipate", "estimate", "intend", "will", "could", "may" or "might", the negative of such terms or other similar expressions. Renold plc (the Company) wishes to caution you that these statements are only predictions and that actual events or results may differ materially. The Company does not intend to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in projections or forward-looking statements of the Group, including among others, general economic conditions, the competitive environment as well as many other risks specifically related to the Group and its operations. Past performance of the Group cannot be relied on as a guide to future performance.

NOTES FOR EDITORS

Renold is a global leader in the manufacture of industrial chains and also manufactures a range of torque transmission products which are sold throughout the world to a broad range of original equipment manufacturers, distributors and end-users. The Company has a reputation for quality that is recognised worldwide. Its products are used in a wide variety of industries including manufacturing, transportation, energy, metals and mining.

Further information about Renold can be found at: www.renold.com

Certain information contained in this announcement would have constituted inside information (as defined by Article 7 of Regulation (EU) No 596/2014), as it forms part of domestic law by virtue of the European Union (Withdrawal) Act 2018) ("MAR") prior to its release as part of this announcement and is disclosed in accordance with the Company's obligations under Article 17 of those Regulations.

Chief Executive's statement

The Group's performance in the first six months of the year continued to be strong, delivering an increase in revenues of 7.7% to £125.3m (2022: £116.3m). At constant exchange rates, revenues increased 10.7%. The TT division, which saw revenue increase by 25.2%, has had an especially positive start to the year, as the benefit of the long-term military contracts within Couplings, along with increased capacity investments in Westfield, our North American TT operation, has allowed the business to capitalise on the current strong North American market.

Group adjusted operating profit increased by 56.3% to £15.0m (2022: £9.6m) as the benefits of increased sales and prior year productivity improvements translated into better financial results. Return on sales increased by 370bps, to 12.0% (2022: 8.3%), a record high for the Group, driven by increasing levels of productivity investments and projects, benefits of increased sales volumes both organic and through acquisition, passing on cost inflation and acquisition integration synergies. Statutory operating profit increased to £16.2m (2022: £8.8m), as an exceptional profit of £2.2m was recorded on the assignment of the lease of the closed Bredbury site, offset by costs associated with the acquisition of Davidson, with the statutory operating profit margin for the period increasing to 12.9% (2022: 7.6%).

Net debt reduced during the period by £1.5m to £28.3m (31 March 2023: £29.8m) despite the Group acquiring the trade and assets of Davidson for £3.1m, making a deferred consideration payment for the YUK acquisition of £1.7m, and bringing forward a UK pension scheme payment of £2.6m that was originally scheduled for the second half of the year. The accelerated pension payment will enable efficiencies in the evolution of the scheme's investment portfolio.

Order intake for the period was £109.7m, a decrease of 11.6% (2022: £124.1m), or a 9.0% decrease at constant exchange rates. YUK contributed £6.9m to order intake in the period. The order book as at 30 September 2023 of £83.6m remains higher than historic levels. However, there has been a normalisation of order intake following an improvement in global supply chains, with improvements to delivery times, allowing customers to reduce forward order placement as certainty of lead times increase. The order book at 30 September 2023 of £83.6m represents a constant currency decrease of 11.1% over the record high position at the end of the previous financial year.

The Group has continued to successfully manage a period of sustained cost inflation and changes to the supply chain, pursued efficiency gains and projects and passed on cost adjustments both up and down. The Group expects to experience further cost pressures through the second half of the year but the Board is confident that these will continue to be managed successfully.

Renold continues to focus efforts on driving and optimising performance through identified projects, some of which require capital investment, targeting better operational efficiency, improved design and standardisation of products, better asset utilisation, more flexible working practices, and leveraging improved procurement strategies.

Acquisitions

On 1 September 2023, the Group acquired the trading assets of Davidson, based in Melbourne, Australia, for a cash consideration of AU$6.0 million, enlarging the already established Australian Chain business by 26%. The Davidson acquisition demonstrates further strategic momentum, supplementing organic growth through high quality bolt-on acquisitions which can expand our geographic presence, grow our product offering and strengthen our market position in key end markets.

The Board is pleased with the performance of Davidson in the period since completion of the acquisition and remains excited by the opportunities beginning to emerge. Davidson has traded in line with the Board's expectations made at the time of the acquisition.

There remains an active pipeline of acquisition opportunities which the Group continues to review as part of its growth strategy. The Board adopts a disciplined approach to its acquisition strategy, with investments focussed on complementary industrial chain businesses, to supplement organic growth. Acquisitions are expected to be earnings accretive whilst leverage is maintained at conservative levels.

Business and financial review

Chain

The Chain division's revenue at constant exchange rates increased by 6.7% to £101.5m, and stayed above the psychologically important £100m milestone.

Revenue increased across all regions:

Divisional adjusted operating profit at constant exchange rates was £16.0m, £3.5m higher than the prior year. Return on sales increased by 270bps to 15.8% (2022: 13.1%).

Order intake at constant exchange rates decreased by 11.2% to £91.2m, resulting in a book to bill (ratio of orders to sales) for the first half of the year of 90.3% (2022: 105.0%).

Torque Transmission ("TT")

Divisional revenues at constant exchange rates of £29.8m were £6.8m (30%) higher than in the prior year, which continued the trend seen in the second half of the last financial year. This was due to increased demand for Military Couplings in the Cardiff business, and a further strengthening in demand in North America. Additionally, the division benefited from a significant increase in capacity primarily driven by capital investments in automated machines, and efficiency improvements driven by greater visibility following the implementation of M3.

As a result of the increased sales activity, selling price rises and improved operational output, as well as a normalisation in product mix, divisional operating profit at constant currency increased by £3.2m to £4.7m.

Return on sales increased in the period to 16.0% (2022: 6.5%). This is now beyond pre COVID pandemic level rates of return.

The closing order book for the division of £34.1m should ensure that momentum will continue into the second half of the year at similar rates, however, second half comparators are significantly stronger than those in H1.

Cash flow and net debt

¹ Includes £1.7m deferred consideration in relation to the acquisition of Industrias YUK S.A in the prior year and £0.2m of acquisition costs for Davidson Chain Pty.

Net Debt reduced from the prior financial year end by £1.5m in the period to £28.3m. Cash collections were strong, especially in North America, where receipts from significant orders shipped at the end of the last financial year were collected in the period. Offsetting this inflow, the Group paid £3.1m in cash consideration for the Davidson acquisition, and made the initial deferred payment of £1.7m for the YUK acquisition, along with associated acquisition and reorganisation costs of £0.5m.

Working capital increased during the period, with the Group increasing inventory levels especially in North America where demand continues to be strong, particularly in the Engineered chain segment.

Net capital expenditure of £2.1m remained broadly in line with prior years. Strategic investments in production capabilities, especially in our Chinese and Indian facilities continue apace, including expansion of press capabilities, improved heat treatment and continuing the roll-out of the group's standard business systems.

Corporation tax payments on account of £1.3m were at similar levels to the first half of last year.

Interest cash costs increased relative to the first half of last year reflecting the increase in market interest rates over the intervening period.

Pensions

The Group has a number of closed defined benefit pension schemes (accounted for in accordance with IAS 19 'Employee Benefits'). During the Covid-19 pandemic, the Group negotiated a £2.8m one-off deferral of contributions with the UK pension scheme trustees. Contributions have now returned to normal levels, with the second of five annual deferred payments of c.£0.6m being made. Additionally, the Group had a longstanding agreement with the UK scheme to pay an additional £1.0m of annual cash contributions, to the extent that the Group's adjusted operating profit exceeds £16.0m; the additional cash contributions commenced in the half year. The Group took the opportunity to bring forward £2.6m of contributions to the UK pension scheme from the second half of the year, in order to increase efficiency in the evolution of the investment portfolio. Excluding these amounts, underlying pension contributions reduced following the closure of the New Zealand pension scheme in FY23, and a reduction in administration costs. The cash contributions into the UK Scheme are known and stable, though increasing with RPI capped at 5%. In FY24 this cost is expected to be £5.3m. In addition there are administration and actuarial costs, including the PPF levy, which may vary. The cost of pensions in payment in Germany (there is no scheme or fund) are expected to be £1.2m in FY24. This amount will rise with inflation but the total will fall gradually over time.

The Group's IAS 19 deficit decreased from £61.3m at 30 September 2022 to £52.7m at 30 September 2023.

The yield on corporate bonds increased further during the period. Consequently the discount rates used for the UK scheme rose from 4.85% to 5.70%, and resulted in a net reduction in UK pension liabilities of £7.6m, and overseas pension liabilities of £1.9m. The long term expectation for CPI inflation remained broadly stable at 3.35% (3.30% at September 2022). Asset values were impacted as both the value of gilts and equities fell during the period. The scheme has insurance assets linked directly to the benefits of certain scheme members. As the liability to these members reduces, for example with an increase in discount rate, so does the value of the corresponding insurance asset.

Pension liabilities in overseas schemes reduced by £1.9m to £16.1m, again due in the main to an increase in discount rates.

The net pension financing expense (a non-cash item) was £1.4m (2022: £1.0m).

Borrowing Facilities

The Group refinanced its borrowing facilities in May 2023. The new facilities consist of a £85.0m multi-currency revolving credit facility and a £20.0m accordion option which will provide the Company access to additional funding in support of its acquisition programme. The principal facility term, being the Net Debt / Adjusted EBITDA covenant, was also improved from the previous level of 2.5 times Adjusted EBITDA to 3.0 times Adjusted EBITDA, with other key terms remaining unchanged.

Dividend

In line with recent policy based on enhancing Group performance through focussed investment in new equipment and earnings enhancing acquisitions the Board has decided not to declare an interim ordinary dividend. The dividend policy will remain under review as margin and cash flow performance continues to develop.

Summary

Sales in the first half remained strong. Margins rose markedly as better volumes, good cost management, complementary acquisitions and strong execution of productivity and efficiency programmes, aided by a consistent and coherent strategy all came together. The robust Renold business with a strengthening balance sheet and growing cash generation is positioned well for tackling whatever global economic headwinds may transpire in the upcoming period.

Going concern

The interim condensed consolidated 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.

The ongoing macro-economic uncertainty, and inflationary environment, together with the impact of the war in Ukraine alongside the continued improvement in the half year trading performance of the Group have been considered as part of the adoption of the going concern basis. The Group continues to closely monitor operating costs, and capital expenditure and other cash demands are being managed carefully.

As part of its assessment, the Board has considered downside scenarios that reflect the current uncertainty in the global economy, including significant material and energy supply issues and continuing inflationary pressures.

The Directors believe that the Group is well placed to manage its business risks and, after making enquiries including a review of forecasts and predictions, taking account of reasonably possible changes in trading performances and considering the existing banking facilities, including the available liquidity and covenant structure, have a reasonable expectation that the Group has adequate resources to continue in operational existence for the 12 months following the date of approval of the interim financial statements. Accordingly, they continue to adopt the going concern basis in preparing the consolidated financial statements.

Risks and uncertainties

The Directors have reviewed the principal risks and uncertainties of the Group. The Directors consider that the principal risks and uncertainties of the Group published in the Annual Report for the year ended 31 March 2023 remain appropriate. The risks and associated mitigation processes can be found on pages 50-57 of the 2023 Annual Report, which is available at www.renold.com.

The risks referred to and which could have a material impact on the Group's performance for the remainder of the current financial year relate to:

Responsibility statement

The Directors confirm that to the best of their knowledge:

The Directors of Renold plc are listed in the Annual Report for the year ended 31 March 2023. A list of current Directors is maintained on the Group website at www.renold.com.

By order of the Board

Condensed consolidated income statement

for the six months ended 30 September 2023

¹ Adjusted: In addition to statutory reporting, the Group reports certain financial metrics on an adjusted basis. Definitions of adjusted measures and reconciliations to statutory metrics are provided in Note 12 to the financial statements.

All results are from continuing operations.

Condensed consolidated statement of comprehensive income

for the six months ended 30 September 2023