Renold plc

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

Interim results for the half year ended 30 September 2024

Resilient trading; improved margin; underlying full year expectations unchanged

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 2024.

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.

⁴ Company compiled analyst consensus for FY25 is for revenue of £252.5m with a range of £252.4m to £252.6m and operating profit of £30.4m with a range of £29.5m to £31.2m.

Robert Purcell, Chief Executive of Renold, said:

"Renold continue to deliver improving results in what have been variable and generally difficult markets. The Renold business with its diversity of customers, geography, markets and applications has shown its strength in a period of considerable economic upheaval. Our STEP2 Strategy is being consistently executed and is delivering good results.

"In the first half we have made further progress with our inorganic growth strategy through the acquisition of Mac Chain, another excellent addition to the Group and one that enhances our market position in a number of sectors and geographies. Our strong cash generation means that we can accelerate the cadence of value enhancing bolt-on acquisitions.

"The floods in Valencia were devasting for the local communities and our factory was directly impacted. Our colleagues are all safe, and efforts are underway to restore business as usual, and they are doing a fantastic job despite operating in a very difficult environment. Whilst there will be a short term operational impact, we are, and will, cope with the challenges.

"Whilst we see no signs of the global economic conditions significantly improving in the second half, the resilience of the Group gives the Board confidence in delivering underlying full year results in line with market expectations⁴."

Reconciliation of reported, constant exchange rate and adjusted results

Investor Presentation

The Company will conduct a live presentation and Q&A session for investors on the same day as the release of the interim results, 20 November 2024, at 5:30 pm GMT. 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_zYZhNwhNQ3yc5j-SL4EDYA

There will be the opportunity for participants to ask questions at the end of the presentation. Questions can also be emailed to [email protected] 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 Group 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

Chief Executive's statement

The Group's performance in the first six months of the year was strong, when set against continued market weakness seen in Europe and China, a softening of the US market ahead of the US Presidential elections, and increased foreign exchange headwinds. Revenues reduced 1.5% to £123.4m (2023: £125.3m). At constant exchange rates, revenues increased 0.6%.

Group adjusted operating profit increased by 1.3% to £15.2m (2023: £15.0m), an improvement of 4.0% at constant exchange rates. The TT division materially improved its operating profit (up 10.9%) as the benefits of prior year productivity improvements, and the continuing impact of the long-term military contracts in the Couplings business are reflected in margin expansion of 120bps.

Group return on sales increased by 30bps, to 12.3% (2023: 12.0%), continuing the progress seen in previous years, and demonstrating the Group's ability to pass through cost inflation and improve productivity.

Statutory operating profit reduced to £13.4m (2023: £16.2m), as the exceptional profit in the prior year of £2.2m related to the assignment of the lease of the closed Bredbury site was a one-off, while acquisition costs increased to £1.2m. The statutory operating profit margin for the period was 10.9% (2023: 12.9%).

Net debt increased during the period to £42.2m (31 March 2024: £24.9m) following the acquisition of Mac Chain for an initial net cash consideration of £21.2m in September 2024. The Group made the final payment on the YUK acquisition of £1.7m, and also re-introduced a dividend of £1.0m, which was paid in the period. Excluding the impact of the above payments, underlying cash generation was some £6.6m, and would have resulted in a half year net debt position of £18.3m.

Order intake for the period was £122.3m, an increase of 11.5% (2023: £109.7m), or a 14.3% increase at constant exchange rates. Mac Chain contributed £1.2m to order intake in the period. The order book as at 30 September 2024 of £80.8m remains higher than historic levels, and represents a constant currency increase of 0.6% over the previous financial year.

Global markets continue to be uncertain, with activity levels in both mainland Europe and China recovering more slowly than initially anticipated. However, material and labour cost inflation is now reducing.

Overall, trading and profitability for the first half of the financial year was in line with the Board's expectations. The good trading performance in the period, coupled with the strong order book, underpins management's confidence in the outturn for the full financial year.

After the period end, our Chain manufacturing facility in Valencia was directly hit by the recent severe flooding in the region. Most importantly, the local team are all safe, but they, their families and communities have been, and continue to go through, a very difficult period. Fortunately, the Valencia logistics centre, which accounts for approximately 70% of our Spanish business, was completely unaffected. Our business continuity plans have worked well and we do not expect any medium term material impact. The Group is insured for asset and business interruption and we expect a full recovery of our costs, minus a deductible, although there will be some short term cash impact.

Acquisitions

On 9 September 2024, the Group acquired the trade and net assets of Mac Chain Company Ltd (U.S.) and the entire issued share capital of Mac Chain Company Limited (Canada) (together, "Mac Chain") for a total cash consideration of £23.8m.

With operations in the Pacific Northwest of the USA, British Columbia, and Quebec, Canada, Mac Chain is a manufacturer and distributor of high quality conveyor chain ("CVC") and ancillary products, with a significant presence in the forestry and broader industrial markets. The acquisition substantially increases the Group's access to the Western US and Canadian CVC markets, particularly forestry, which we have identified as a significant opportunity. With Renold's existing US and Canadian operational footprint, the acquisition presents significant opportunities for synergies upon integration.

The Mac Chain 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, expanding Renold's existing Chain business in North America by c.33%.

The Board is pleased with the performance of Mac Chain, which was in line with expectations in the weeks since completion of the acquisition and remains excited by the opportunities beginning to emerge.

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. Acquisitions are expected to be earnings accretive within the first year, whilst leverage is maintained at conservative levels.

Business and financial review

Chain

The Chain division's revenue at reported exchange rates reduced by 1.8% to £97.1m. Revenue at constant exchange rates increased by 0.5% to £99.4m. Mac Chain contributed revenue of £1.2m in the three weeks of ownership in the half year. Adjusted operating profit for the Chain division of £15.5m reduced by 1.9% at reported exchange rates, and at constant exchange rates adjusted operating profit increased by 0.6%. Return on sales for the Chain division was flat at 16.0% (2023: 16.0%). Due to the proximity to the half year end and the need to ensure the necessary valuations are completed, no profit (which is expected not to be material) has been included for Mac Chain in the period.

Revenue movements by region were as follows:

Order intake at constant exchange rates increased by 4.8% to £92.6m.

Torque Transmission ("TT")

TT divisional revenues, at constant exchange rates, of £29.6m were £0.8m (2.8%) higher than in the prior year. Continued growth in the US, Chinese and French markets, offset a slow down in activity in the Spanish and Gears business. The long-term military contracts continued in line with the production schedule, which led to an increase in profitability during the half year. Additionally, the division benefited from an increase in capacity due to capital investments in automated machines, and efficiency improvements driven by greater visibility as additional sites use M3, the Group standard ERP system.

As a result of increased sales activity, selling price rises and improved output, as well as a normalisation in product mix, divisional operating profit at constant exchange rates increased by £0.5m to £5.1m. Return on sales increased in the period by 150bps to 17.5% (2023: 16.0%).

The division benefitted from the receipt of a significant order (£10.6m) for the Royal Canadian Navy in the half year. Excluding this order, order intake at constant exchange rates increased by 3.6%. The closing order book for the division of £43.0m should ensure that momentum will continue into the second half.

Cash flow and net debt

¹ Includes £21.2m net consideration for the Mac Chain acquisition, together with £1.7m deferred consideration in relation to the acquisition of Industrias YUK S.A in FY23 and £0.4m of acquisition costs for Mac Chain.

Net Debt at £42.2m increased by £17.3m in the period (31 March 2024: £24.9m).

Working capital remained broadly flat during the half year, while net capital expenditure of £5.1m increased over the prior year, as investments in production capabilities, especially in our Indian, US and TT divisions continue apace, including expansion of press capabilities, improved heat treatment and continuing roll-out of the Group's standard ERP system.

Corporation tax payments on account of £2.9m were £1.6m higher than in the prior year. Following full utilisation of US tax loses, tax payments on account commenced during the half year.

Financing cash costs increased relative to the first half of last year reflecting the increase in market interest rates. The Group re-introduced a dividend, paying £1.0m in the period.

Retirement benefit cash costs were in line with expectations.

Post period end, on 29 October 2024, the Valencia region was hit by severe flooding. The Group's Valencia CVC manufacturing facility (approximately 30% of the Group's Spanish business) saw extensive flooding, but the nearby Valencia TRC distribution centre (approximately 70% of the Group's Spanish business) was unaffected. The Group is fully insured, including business interruption, and the insurance claim will cover all financial impacts on the Group, with the final amount still to be quantified. After paying the insurance deductible and certain other costs, the estimated net cost to the Group is expected to ultimately be approximately £1.0m. There will, however, be a short term financial impact on the Group. Against the still to be quantified, but currently estimated at £10.5m, insurance recovery expected in FY26 will be an exceptional write off of inventory and factory equipment, estimated at £4.2m, and an exceptional trading impact of £1.5m, split over the current financial year and FY26.

Retirement benefits

The Group has a number of closed defined retirement benefit arrangements. Cash payments to the UK pension scheme in the current financial year are expected to be £5.7m of which £3.0m was paid in the first half year. The cash cost of pensions in payment in Germany are expected to be £1.2m in FY25. This cash cost will remain at this level in the medium term.

The Group's IAS 19 deficit decreased from £52.7m at 30 September 2023 to £52.2m at 30 September 2024.

The yield on corporate bonds increased during the period. Consequently, the discount rates used for the UK scheme rose from 5.0% to 5.25%, and resulted in a net reduction in UK pension liabilities of £4.6m. The long term expectation for CPI inflation remained broadly stable at 3.15% (3.25% at March 2024).

Pre-tax liabilities in Germany reduced by £0.3m to £17.2m, also due in the main to an increase in discount rates.

The net IAS 19 financing expense (a non-cash item) was £1.2m (2023: £1.4m).

Borrowing Facilities

The Group refinanced its borrowing facilities in May 2023. The facilities consist of a £85.0m multi-currency revolving credit facility and a £20.0m accordion option, which will provide the Group access to additional funding in support of its acquisition programme. The principal facility covenant, being Net Debt / Adjusted EBITDA remains at 3.0x.

Dividend

The Board fully recognises the importance of dividends as part of the overall value creation proposition for shareholders. The Board has carefully reviewed its capital allocation priorities, and believes that significant organic and inorganic investment opportunities remain available to the Group. The Group has delivered continued and sustainable progress in terms of profitability and free cash flow generation in recent years. Consequently, for the year ended 31 March 2024, the Board re-introduced the payment of a final Dividend of 0.5p per share, which was payable to shareholders on the register as at 9 August 2024. At that time, the Group indicated its intention to continue with an annual final dividend, but that it would not declare an interim dividend.

Summary

We continue to deliver improving results in what have been variable but generally difficult markets. The Renold business with its diversity of customers, geography, markets and applications has shown its strength in a period of considerable economic upheaval. Our STEP2 Strategy is being consistently executed and is delivering good results.

The first half of FY25 saw the further delivery of our inorganic growth plans with the acquisition of Mac Chain, another excellent addition to the Group and one that enhances our market position in a number of sectors and geographies. Our growing operational cash generation means that we can continue the cadence of acquisitions which in turn enhance our sales, profit and margin growth.

Whilst global economic conditions remain uncertain, we remain confident of delivering full year results in line with market expectations.

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 wars in Ukraine and the Middle East alongside the continued improvement in the half year trading performance of the Group and the impact of the recent flooding of our facility in Valencia, 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 2024 remain appropriate. The risks and associated mitigation processes can be found on pages 48-55 of the 2024 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 2024. 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 2024

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.

All results are from continuing operations.

Condensed consolidated statement of comprehensive income

for the six months ended 30 September 2024