Renold plc
Final results for the year ended 31 March 2023
(“Renold”, the “Company” or, together with its subsidiaries, the “Group”)
Record trading performance and order book….Significant revenue and earnings growth….Successful integration of significant strategic acquisition
Renold (AIM: RNO), a leading international supplier of industrial chains and related power transmission products, is pleased to announce its audited results for the year ended 31 March 2023.
Financial highlights
| £m | 2023 | 2022 | Change | Change (constant currency)1 |
| Revenue | 247.1 | 195.2 | +26.6% | +18.8% |
| Adjusted operating profit2 | 24.2 | 15.3 | +58.2% | +46.4% |
| Return on sales2 | 9.8% | 7.8% | +200bps | +190bps |
| Adjusted profit before tax2 | 18.6 | 11.5 | +61.7% | |
| Net debt3 | 29.8 | 13.8 | ||
| Adjusted earnings per share2 | 6.5p | 4.3p | +51.2% | |
| Additional statutory measures | ||||
| Operating profit | 22.9 | 16.2 | +41.4% | |
| Profit before tax | 17.3 | 12.4 | +39.5% | |
| Basic earnings per share | 5.7p | 4.7p | +21.3% |
| • | Revenue up 26.6% to £247.1m (18.8% at constant exchange rates) (2022: £195.2m) |
| • | Adjusted operating profit of £24.2m (2022: £15.3m), up 58.2%; return on sales 9.8%, up 200bps |
| • | Reported operating profit up 41.4% to £22.9m (2022: £16.2m) |
| • | Net debt £29.8m, £16.0m increase in the year, facilitating successful YUK acquisition; ratio to adjusted EBITDA 0.8x (31 March 2022: 0.5x) |
| • | Adjusted EPS up 51.2% to 6.5p (2022: 4.3p); Basic EPS 5.7p (2022: 4.7p) |
Business highlights
| • | The Group delivered record results despite the difficult trading and macroeconomic backdrop, with the well-publicised inflation and global supply chain challenges |
| • | Order intake of £257.5m (2022: £223.9m), up 15.0% |
| • | Closing order book £99.5m, up 18.3% against 31 March 2022 |
| • | Significant £8.9m long-term military contract win, following a similar contract win of £11.0m in FY22 |
| • | Acquisition of Industrias YUK S.A. (“YUK”) in August 2022, for €24m, increases the Group’s access to the Iberian Chain and wider European Conveyor Chain markets. YUK is performing ahead of expectations |
| • | Successful capital investment; improving efficiency and capability of manufacturing locations |
1 See below for reconciliation of actual rate, constant exchange rate and adjusted figures
2 See Note 21 for definitions of adjusted measures and the differences to statutory measures
3 See Note 17 for a reconciliation of net debt which excludes lease liabilities
Robert Purcell, Chief Executive, commented:
“I am delighted with the Group’s robust performance during the last financial year which delivered record results and exceeded market expectations, reflecting the benefits of the strategic programmes implemented in recent years. Throughout the reported period, the business performance has been on an improving trend and our order books continue to be healthy though order patterns have been inconsistent in the early part of the new financial year. We recognise that there are still considerable economic challenges in many parts of the world; supply chain issues, although reducing in number and severity, are still prevalent and inflation and prices remain high, for both energy and materials. However, we have entered the new financial year with good momentum and confidence in the excellent fundamentals of the Renold business, although macroeconomic trends add a note of caution. Once again, Renold employees around the world have responded magnificently to the challenges we have faced and I thank them for their dedication and commitment to the Group and our customers.”
Meeting for analysts and institutional investors
A virtual meeting for institutional investors and analysts will be held today at 9.30am BST. If you wish to attend this meeting please contact renold@investor-focus.co.uk 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 today, 12 July 2023. This session is open to all existing and prospective shareholders. Those who wish to attend should register via the following link and they will be provided with access details:
https://us02web.zoom.us/webinar/register/WN_eNb9SaJGRC-dlORaIZPwqg
Participants will have the opportunity to submit questions during the session, but questions are welcomed in advance and may be submitted to: renold@investor-focus.co.uk.
Reconciliation of reported and adjusted results
| Revenue | Operating profit | Earnings per share | ||||
| 2023£m | 2022£m | 2023£m | 2022£m | 2023pence | 2022pence | |
| Statutory reported | 247.1 | 195.2 | 22.9 | 16.2 | 5.7 | 4.7 |
| Amortisation of acquired intangible assets | – | – | 0.7 | 0.1 | 0.3 | 0.1 |
| Acquisition costs | – | – | 0.6 | – | 0.3 | – |
| Tax adjustments relating to prior year | – | – | – | – | 0.2 | – |
| US PPP loan forgiveness | – | – | – | (1.7) | – | (0.8) |
| New lease arrangements on sublet properties | – | – | – | 0.7 | – | 0.3 |
| Adjusted | 247.1 | 195.2 | 24.2 | 15.3 | 6.5 | 4.3 |
| Exchange impact | (15.3) | – | (1.8) | – | (0.9) | – |
| Adjusted at constant exchange rates | 231.8 | 195.2 | 22.4 | 15.3 | 5.6 | 4.3 |
I am pleased to report that 2022/23 was an excellent year for Renold in which we delivered a record financial performance and completed a significant strategic acquisition in Europe. I have also been impressed by the flexibility and adaptability of our people across the world, who have delivered an outstanding result despite the complexities resulting from the Russian invasion of Ukraine and challenging international supply chain and trading conditions.
Our turnover continued to grow strongly through the significant commercial and operational benefits delivered by the execution of our organic growth strategy, while the Group’s acquisition strategy bore fruit in the year, and it is pleasing to see that our new acquisition, Industrias YUK S.A. (“YUK”) performed ahead of our initial expectations.
Markets and trading performance
Over the year, Group revenue increased by 26.6% to £247.1m (2022: £195.2m), and adjusted operating profit improved by 58.2% to £24.2m (2022: £15.3m).
Return on sales improved by 200bps to 9.8% (2022: 7.8%), as the Group demonstrated its ability to successfully recover inflationary cost increases, whilst also benefiting from cost reduction and efficiency programmes, and the benefit of operational gearing.
Encouragingly, Group order intake at £257.5m was 15.0% ahead of the equivalent prior year period, and 16.8% ahead excluding the previously announced £8.9m long-term military contracts (2022: £11.0m), with YUK contributing £10.5m or 4.5% to the increase. The order book at 31 March 2023 of £99.5m was 18.3% ahead of the prior year figure.
Net debt increased during the period to £29.8m (31 March 2022: £13.8m) as the Group invested €20.0m to satisfy the initial cash consideration for the acquisition of YUK, whilst managing the impact of organic sales growth and inflation on working capital.
Strategic Developments
During the year, the Renold strategic change programmes across the Group once again delivered meaningful benefits, particularly in standardising and simplifying the business.
The completion of several major strategic restructuring initiatives, together with the relatively low level of net debt, puts the Group in a strong position to capitalise on accretive bolt-on acquisitions that augment our existing market position. This will allow us to accelerate growth in revenue, including for our existing products, adjacent sectors and by entry into under-represented applications and geographies. Most importantly, the Group will also benefit from significant production synergies by integrating acquired businesses.
The continuing review of capabilities across the Group has identified opportunities for the upgrade and development of existing manufacturing processes across our international footprint to create higher specification, higher performance products. This review will also facilitate standardisation across more product lines, which, in turn, will enable us to benefit more comprehensively from our geographic footprint and economies of scale. In addition, flexibility between manufacturing locations will aid increasing customer expectations for supply chain diversification for risk mitigation and a changing tariff environment, improving even further our value proposition.
Sustainability
During the year, the Group continued to develop a long-term sustainability strategy, including reduced energy consumption, raw material waste, packaging use and carbon dioxide emissions, whereby Renold is ensuring sustainability is one of its guiding principles. Renold is focussed on making a difference through real actions which, over a period of time, will deliver discernible benefits for the environment, our customers and the business. Our leader for sustainability is helping the Board to develop policies and strategies in this area, aimed at reducing the Group’s environmental impact and enhancing social development whilst also ensuring that the Company maintains its existing commitments to its communities and stakeholders. Renold is well positioned to contribute to a more sustainable future; our technical, product development and commercial teams are actively developing a more efficient and environmentally sustainable product offering which helps customers to reduce their carbon footprint by providing highly engineered chains that give longevity and life cycle benefits, or by being cleaner through reducing the need for product lubrication.
The Board
The Chair of the Board is primarily responsible for the composition of the Board and for ensuring high standards of governance. As Chair, I place great importance on the breadth of relevant experience, diversity and complementary skills amongst the Group’s Directors and management and on the continued development of the strategy for the Renold business. With this in mind, we welcomed Vicki Potter to the Board as a Non-Executive Director during the financial year. Vicki has broad operational and HR experience in multinational engineering and manufacturing companies. She is currently the Chief Human Resources Officer and Customer Services Director for Oxford Instruments plc; a global FTSE 250 technology and manufacturing business.
Going forward, the Board will continue to ensure that effective succession plans are in place.
Dividend
The Board fully recognises the importance of dividends as part of the overall value creation proposition for shareholders. However, the Board has carefully reviewed its capital allocation priorities, and believes that both organic and inorganic investment opportunities that are available to the Group will deliver higher levels of shareholder return over the medium term than the payment of dividends in the near term. The Board will continue to review this approach over the coming periods. As such, the Board is not recommending the payment of a dividend on the ordinary shares of the Company for the year ended 31 March 2023.
Summary
The Group has performed well in the face of significant economic and social turmoil and continuing inflationary pressures on materials, energy and labour that the war in Ukraine and the pandemic have caused. These pressures will undoubtedly remain in the new financial year. However, the strong financial performance for the year, combined with positive operating cash flow, has generated the 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, which have been key to delivering the strong results for the Group.
DAVID LANDLESS
CHAIR
12 July 2023
Chief Executive’s review
The strong momentum that the Group achieved in the previous financial year continued in financial year 2023, despite the economic headwinds experienced due in part to the Russian invasion of Ukraine, the subsequent impact on European energy prices and the tail-end pandemic-related economic issues.
In August 2022, the Group acquired YUK for €24m, which increases the Group’s access to the Iberian Chain and wider European Conveyor Chain markets. The business is performing ahead of the Board’s expectations at the time of the acquisition.
Group order intake during the year was £257.5m, an increase of 15.0% on a reported basis and 7.8% at constant exchange rates over the prior year. Encouragingly, the Group has now seen order intake grow for each of the last six sequential half year reporting periods. Excluding the recently announced £8.9m long-term military contract, and the £11.0m military contract announced in the prior year, order intake for the year increased by 16.8%, or 9.2% at constant exchange rates. YUK contributed £10.5m (or 4.5%) of Group order intake. The resultant year end order book of £99.5m gives the Group a strong foundation upon which to build in the new financial year (31 March 2022: £84.1m).
The growth in Group revenue to £247.1m was also encouraging, representing a year-on-year increase of 26.6% on a reported basis and 18.8% at constant exchange rates. Excluding the impact of the YUK acquisition, turnover increased by 21.2%, or 13.5% at constant exchange rates. Final quarter revenues at £70.0m were particularly strong and were £17.0m (32.1%) ahead of the comparable quarter last year, with North America especially delivering a particularly strong performance.
Group adjusted operating profit1 at £24.2m (2022: £15.3m) was 58.2% ahead of prior year on a reported basis, and 46.4% ahead on a constant currency basis. Profitability was particularly strong in the second half of the financial year, where the Group reported a return on sales of 11.2%. The incremental operating profit gearing2 was a creditable 17.1%, despite the impact of the widely reported economic headwinds, impacting raw material availability and inflation. The operating profit gearing was helped significantly by the swift action to pass on cost inflation. Statutory operating profit increased to £22.9m (2022: £16.2m).
The Group continued to benefit from the impact of the significant efforts undertaken in the year, and previous years, to lower the fixed cost base, increasing flexibility and operational leverage. The Group has successfully managed a period of significant supply chain disruption to materials and transportation, in terms of availability, lead times and increased input costs. Cost increases have been successfully recovered through selling price increases as well as cost reduction, simplification and standardisation programmes. We expect cost pressure on material, labour, energy and transportation to persist in the current financial year.
Renold continues to drive increased performance through specific projects aimed at better levels of operational efficiency and productivity, through automation, improved design and standardisation of products, better utilisation of machinery and people, including more flexible working practices, and leveraging the benefits of improved procurement strategies. The Group’s capital investments returned to more normal levels following a period of lower spend in the prior year as a result of the pandemic, and have concentrated on increased automation within all of our facilities. The Group’s operational capabilities are steadily improving as consistent levels of investment come to fruition, and we continue to develop our in-house technologies and investments, allowing us to produce higher specification and better performing chain that maintains our market leadership.
The strong focus on cash management remains a key priority for management. Closing net debt was £29.8m (31 March 2022: £13.8m), with the increase attributable to the £17.8m of initial acquisition cash consideration paid during the year for YUK. Excluding this acquisition consideration, the level of net debt reduced during the year by £1.8m and in the second half of the year by £4.2m. The resulting net debt to EBITDA ratio of 0.8x (2022: 0.5x) affords significant headroom against the Group’s banking covenants and, in turn, provides greater flexibility and funding capabilities to transact quickly on investment decisions, both organic and through acquisitions, to drive growth, efficiency and productivity.
Activity in the Chain division continues to be robust, with H2 external order intake showing a 17.4% improvement over the strong levels seen in H2 of the last financial year. Output has also continued to improve with H2 constant currency turnover increasing by 22.3% in comparison to the same period last year. In a similar vein the adjusted profitability of the Chain business in H2 has increased by 69.5% at constant rates, when again compared to the equivalent period in the last financial year, and return on sales for the year at 13.4% (2022: 11.9%) continues to show progress.
The Torque Transmission division is generally a longer lead time, later cycle business. External order intake continued to grow, with the H2 order intake some 44.7% higher than the equivalent prior year comparator. Excluding the impact of the long-term military contract of £8.9m announced in January 2023, underlying order intake improved by 14.2%. Similarly, turnover has improved, with sales in H2 30.3% up on the prior year equivalent figure, as the base load work that the military contracts provide is taken to turnover. The return on sales for the division was 11.1% (2022: 10.1%).
1 See Note 21 for definitions of adjusted measures and the differences to statutory measures
2 Operational gearing is defined as the year-on-year change in adjusted operating profit, divided by the year-on-year change in revenue.