Renold : Renold FY Results YE 31 March 2016

Renold plc

('Renold' or the 'Group')

Preliminary results for the year ended 31 March 2016

Renold, a leading international supplier of industrial chains and related power transmission products, today announces its preliminary results for the year ended 31 March 2016, together with an update on the progress of the Group's Strategic Plan.

Performance highlights

· RoS% of 8.6% up 0.1%

· As previously announced, revenue down 8.9% driven by external market headwinds

· Breakeven sales point lowered for third consecutive year

· Increase in Chain division operating profit and further improved RoS% to 12.1% from 10.2%

· Significant £4.0m increase in capital investment to £9.5m equating to 1.6x depreciation

· Integration proceeding well for the Tooth Chain acquisition which will be earnings enhancing in first full year of ownership

· Further significant pensions de-risking projects completed in the UK, Germany and Australia

· Banking facility amended and extended to May 2020 with rate savings and flexibility for acquisitions

Financial Summary	Year ended 31 March
	2016		2015
	£m		£m
Underlying revenue	165.2		181.4
Adjusted operating profit	14.2		15.5
Statutory operating profit	11.1		12.1
Profit before tax	7.4		7.7
Basic earnings per share	2.4p		2.5p
Adjusted earnings per share	4.7p		5.0p

Robert Purcell, Chief Executive of Renold plc, said:

'Ongoing success in implementingour STEP 2020 Strategic Plan has enabled us to maintain our operating margins. This was achieved despite external market challenges which resulted in a fall in revenue, as we expected. At the same time we have improved a number of our core business processes, developed new products ready for market launch, and enhanced customer service.

Our acquisition of the Tooth Chain business was our first under STEP 2020 and is an excellent strategic fit. The integration process is proceeding well with customer relationships being successfully transferred to Renold Group companies. Management bandwidth is now available for further acquisitions in the highly fragmented chain market.

Looking ahead, we are hopeful that market headwinds will moderate around the end of the first half of the new financial year. All three phases of STEP 2020 are now in progress. We are confident that the steps we are taking to improve our business will generate significant shareholder value, particularly when market conditions improve.'

31 May 2016

ENQUIRIES:

Renold plc	Tel: [phone]
Robert Purcell, Chief Executive
Brian Tenner, Group Finance Director
Arden Partners (Broker)	Tel: [phone]
Chris Hardie
Instinctif Partners (Public Relations)	Tel: [phone]
Mark Garraway Helen Tarbet

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 and distributors. 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 on their website at:www.renold.com

Chairman's Letter

'We remain committed to modernising and improving everything we do as we re-engineer the business to deliver our STEP 2020 Strategic Plan.'

Overview

The Group has continued to make excellent progress in delivering the self-help measures that underpin our STEP 2020 Strategic Plan. Our acquisition of the Tooth Chain business in Gronau, Germany, has been a particular highlight as we see the first activity in the Acquisitions phase of STEP 2020.

STEP 2020 has also delivered many continuous improvements in our business processes and manufacturing facilities, significantly reducing the adverse financial impact of market driven falls in our revenue. Against a backdrop of an 8.9% (£16.2m) fall in sales, the impact on our adjusted operating profit was limited to £1.3m. This is clear evidence of the success of STEP 2020 in lowering our breakeven point and also in starting to break away from the extreme cyclicality of the past. Even at the current reduced levels of revenue, we remain confident that double digit operating margins are achievable over the short term as demonstrated by the continuing improvement in the Chain division this year. Mid-teens margins remain our medium term STEP 2020 goal based on a return to GDP+ levels of growth, supplemented by potential acquisitions.

STEP 2020 Strategic Plan

I reported last year on the successful delivery of key projects in Phase One of our Step 2020 Strategic Plan, the Restructuring Phase. Our work in this area has continued and we have also commenced Phases Two (Organic Growth) and Three (Acquisitions) of the Strategic Plan.

Deliverables in Phase One last year included the closure of our Bredbury manufacturing facility ahead of time and budget, the full annual benefits of which have been realised this year. During the past year we have also continued to progress and complete other Restructuring activities, most notably the ongoing project to implement a new ERP system throughout the business with the first facility to go live being our Cardiff plant in March 2016. This is a key strategic objective and we expect that it will be successfully completed in a rolling programme over the next three years.

We also continue to invest in modern manufacturing which includes new 'state of the art' machines installed in our US Chain facility and Couplings facility in Cardiff. Our total investment in the year was £9.5m, reflecting continued scope for self-help measures to deliver further margin gains.

The strengthening of our management team is another continuing element of Phase One with recruitment to additional senior posts. We have appointed a new Managing Director for the Chain division which has allowed Robert Purcell to take a more active role in the Torque Transmission division. We also appointed new MDs for our Chain business in the Americas and our Torque Transmission business in South Africa. Other new hires in the year have been focused around commercial and marketing activities as we entered the Organic Growth Phase. I am pleased to report that the acquisition of the Tooth Chain business in Gronau, Germany, was completed on time and the integration into the business was well planned and is proceeding smoothly. Tooth Chain business performance has also been in line with expectations.

Importantly, we have also seen further improvements in our health and safety culture and performance, and I am pleased that our hard work in the last three years is now being rewarded with strong improvement in the accident statistics. Health and safety rightly remains the number one priority for the Board and the Group and we remain confident that ongoing and new initiatives in this area will keep driving further improvements.

Our People

I wish to express my sincere gratitude to everyone who works for Renold for their continued hard work during the year. In these extremely challenging market conditions your ongoing commitment to support the changes required by STEP 2020 is much appreciated.

A highlight in our commitment to investing in our people now and in the future has been the welcoming of the first recruits under our Graduate Programme. Five graduates have joined the Group in its commercial, engineering and finance functions. We are also committed to our Values, rolled out across all of our units in the past year, and these continue to become embedded throughout the Group. As I reported last year, our aim is to set standards of behaviour and expectations for all of our employees that will shape and inform the manner in which we implement STEP 2020 now and in the future.

An important part of our commitment to a new Group culture was the completion of our head office move in July 2015. Our head office is now located in new local premises in Manchester which are not only more suited to the size of our business today and reduce our fixed overhead base but also better reflect the more modern and agile culture that we are seeking to create in Renold.

The Board

The Board continues to support the Executive team in reviewing and monitoring all activities under STEP 2020. The Board remains closely involved in the oversight of the major project deliverables. All Board members have continued to give additional time and support on a wide range of issues during the year.

Dividend

The Board fully recognises the importance of dividends to shareholders. However, given the need to balance this with our continuing focus on planned capital investments to improve the longer term performance of the business, the Board has decided not to recommend the payment of a dividend in the current financial year. This will remain under active review as market conditions stablise and performance improves further.

Outlook

Externally, most of our end markets remain volatile. Undoubtedly, much of this is due to broad based macro-economic uncertainty in a number of regions. This in turn has led to significant fluctuations in capital and foreign currency markets.

In these turbulent times, the strategic objectives set out in our STEP 2020 Strategic Plan remain wholly relevant and critical to the long term delivery of value to all of our stakeholders. The business will continue to identify and deliver on the wealth of internal efficiencies and growth initiatives available to us. Significant opportunities for continuous improvement remain in all aspects of our business, in our sales and service offering, our manufacturing facilities and our supporting functions.

We are also devoting more resources to Organic Growth activities, with a particular emphasis on our commercial, product development and marketing functions. This work will position us well to exploit opportunities to grow our top line when market conditions stabilise. Our progress in STEP 2020 Restructuring activities is also now freeing up management bandwidth to consider future acquisition opportunities which can support business growth.

Our ability to draw on our self-help initiatives gives confidence that we remain well placed to deliver sustainable gains in shareholder value. As a result of the recent improvements in operating margins, supported by our long term re-financing of the business to 2020, we retain the resources and operating flexibility to maintain our expanded capital investment programme and fund initiatives that will ultimately enable the business to grow when market conditions improve.

Mark Harper

Chairman

Chief Executive's Review

Operational highlights

· Over 50% improvement in Health and Safety accident rate KPIs. All major manufacturing sites now certified to OHSAS 18001.

· The Group's breakeven point further reduced by widespread re-engineering of business processes and hence our cost base across all units.

· Significant increase in the Group's capital investment programme in the year to £9.5m. Key projects supported the reduction of costs, the enhancement of service and the further lowering of our breakeven point.

· Successful transaction and integration firmly underway of the Group's first acquisition in Phase 3 of STEP 2020. The newly named Renold Tooth Chain is an excellent strategic fit with a high specification product range whose addressable market can be actively expanded through Renold's international footprint.

· Fully de-risked 50% of current UK pension liabilities. Major de-risking also delivered through closing German scheme to future accrual and liquidating the Australian scheme.

· Benefits delivered in our financing charges as a result of the amended refinancing agreed in the first quarter of the financial year.

Our Strategy

Underpinning STEP 2020 is the concept of driving shareholder value by the sum of multiple incremental gains. It is this continuous improvement philosophy that we are instilling in all aspects of our business. Ultimately, the increase in shareholder value is greater than the sum of the individual steps as improvements in one area lead directly or indirectly to improvements in others.

Three Phases of STEP 2020

Our initial focus was very much on internally focused self-help initiatives to improve many of our business processes, structures, cost base and under invested manufacturing facilities. We refer to this as Phase 1 or the 'Restructuring' phase of STEP 2020. At its heart, the scale of the challenge required a major change in the culture of our business to one based on a professional 'can do' attitude that seeks

to continuously find smarter, faster, safer and more efficient ways of delivering better service and higher quality products and solutions to our customers.

As Phase 1 improvements took hold and we were sure that volume growth would not simply dilute margins and expand working capital needs, our focus would then expand to activities to generate organic growth in Phase 2 of STEP 2020. This would include geographical, market sector and product expansion as well as improving the capability of our commercial teams to seek out and win new business.

Finally, having established a robust and replicable operating platform and organic growth having taken root, we would turn our attention to Phase 3 of STEP 2020, 'Acquisitions' where we would exploit our position to be a consolidator in the Chain division and expand our product niches in Torque Transmission. It is worth noting that the three Phases would be layered on top of each other and not in sequence so that even when in the Acquisition Phase, we would still be implementing 'Restructuring' activities and also pursuing 'Organic Growth' opportunities.

Our place in the market

Renold often operates in invisible but mission or safety critical applications in a whole host of industries and market sectors. Our Market Overview in the Annual Report and Accounts illustrates the extremely diverse and the low sales concentration of our business, whether by market sector, geography, or product. The nature of our markets is such that any supplier who wants to be a major player needs both extensive geographical reach and a very broad range of the products demanded by the customers.

Therefore a key part of our strategy is to ensure the widest range of customer requirements are met and to do this active product management and new product launches are essential additions to our commercial proposition. It also flows from the market dynamics that we will ultimately need to expand further our geographic footprint into territories where we are currently under represented.

STEP 2020 Progress

The first two years of STEP 2020 to March 2015 saw us deliver significant progress in the Restructuring Phase. The biggest achievement was the successful delivery of an 18 month project to close a major chain manufacturing facility in the UK and to transfer its production to other Renold factories without any significant loss of business. This delivered the goals of eliminating surplus capacity, reducing our fixed overheads and lowering our breakeven point, reducing our working capital and allowing more concentrated value enhancing capital spend in a smaller number of facilities.

During those two years our adjusted net operating margin increased by 4.7% to 8.5%, closing much of the gap between our starting point and our intermediate objective of a 10.0% margin. Towards the end of the financial year (2015) we started to transition into the second phase of STEP 2020, Organic Growth, by switching some management time and resource to enhance our commercial process.

Unfortunately, volatility increased significantly in most global industrial markets and geographies over the last year and the timing of the development of this strong headwind has not helped our progress on our organic sales. However, given the robust improvements in our operating margin and ongoing efficiency improvements in our factories and overheads, we were able to protect and grow early investments in additional costs in support of our longer term growth goals. So while the top line has contracted in response to lower demand in the market, we have maintained our adjusted net operating margin at 8.6% while supporting additional expenditure on growth activities and a 73% higher capital expenditure program to generate further efficiencies in the future.

Acquisitions

Acquisitions were due to be the key defining feature of Phase 3 of STEP 2020. In Phase 3 we would consciously and pro-actively go in search of the right acquisition opportunities to significantly increase our scale.

We group our acquisition opportunities into three broad categories based on the main drivers:

· New product niche or range expansion

· Geographical expansion

· Consolidation and synergy

Product or range expansion was more likely to be a shorter term proposition with geographical expansion and consolidation both more medium term prospects, with the latter dependent on the recipient businesses being ready to absorb the target.

Acquisitions and their timing, however, are not always under the control of management. We have said in the past that if an interesting opportunity presented itself then we would consider it pragmatically, even if we did not see ourselves as being in Phase 3 of our Plan. So, when an excellent strategic fit small bolt-on opportunity arose in the Tooth Chain business we assessed it carefully and then made the acquisition, completing on 4 January 2016.

Renold Tooth Chain

Renold acquired the business and trading assets of Aventics Tooth Chain in January 2016, an operating division of Aventics Gmbh based in Germany and the market leader in the manufacture of inverted tooth chain for industrial applications. Tooth chain is a specialist product which was not being manufactured by Renold at the time of the acquisition and is typically seen in applications such as bottling plants and other manufacturing facilities and equipment. Key business facts are set out below:

· Sales of approximately €9.0m, double digit margins

· Based in a self-contained factory in Gronau, Hanover (40km from Einbeck) with 62 employees

· Sold into a variety of industrial markets with more than 80% of sales in Germany

· High value added product, ideally suited to high speed, high load and high temperature applications

· Opportunity to extend geographic footprint by leveraging Renold global supply chain

· Market leading manufacturer of tooth chain products in terms of design, engineering and performance

· Opportunities for supply chain and back office synergies

· As a niche chain business, will benefit from joining a wider chain group

The acquisition completed smoothly in January 2016. Initial integration activities to bring on board the new employees and rebrand the business all completed according to plan. Planning for the transfer of all back office support functions and systems to Renold is well underway. Customer relationships with the vendor's wider group are being successfully transferred to Renold and we are already seeing some additional, unprompted sales pull through in our existing commercial network. In addition, the proximity of the factory to our existing plant in Einbeck, Germany, is already allowing the business to share resources and expertise as well as some infrastructure services ahead of plan within the more substantial Renold Group.

Renold Chain performance review

Underlying external revenue of £126.8m was £8.8m (6.5%) down on the prior year. Underlying external revenues (excluding acquisitions) were £10.3m (7.6%) behind against a backdrop of difficult macroeconomic conditions in most of the territories in which we operate. Whilst some regions fared better than others, all were impacted by a combination of reduced activity amongst larger OEM accounts and destocking by larger distribution partners, particularly in Europe and the US.

Europe underlying sales declined by £4.0m (7.9%) although this performance was impacted by the large one-off contract in Switzerland in the prior year, with adjusted underlying performance £1.0m (2.0%) behind. The business in the Americas finished £1.6m (3.0%) down after a flat first half, primarily due to Canadian weakness in the second half as a result of depressed mining and mineral extraction demand. India finished £0.6m (7.7%) down. However, ongoing investment in production capabilities position the business well to deliver future growth. Underlying revenue in Australasia was down by £2.1m (11.3%) and China finished the year down £0.4m (11.3%). Recent investments in the commercial teams in both should improve growth rates in the coming year.

Order intake declined by £13.7m (10.1%), broadly in line with the sales performance. At a regional level, European underlying order intake was down by £3.8m (7.6%) and in the Americas it was down by £5.8m (10.6%). Overall order intake in Australasia was down £2.5m (12.9%). Our order books now tend to have shorter profiles which reflects customer caution but also reflects the increased stock availability of key lines, shorter lead times within our factories and less reliance being placed on large one off orders which have previously had an adverse impact by disrupting our production processes.

Contribution margins, the margin after all variable production costs, improved significantly during the year by 3.4%. In addition to structural cost reductions within our manufacturing base, this is also a reflection of continued focus on cost reductions in both material and labour, coupled with a focus on higher quality products.

Underlying net overheads were reduced by a further £0.9m in the year as we continue to streamline our processes and structures. This reduction was achieved despite a number of key appointments to upgrade our commercial capabilities across the division.

Despite the difficult market conditions, and largely as a result of these continuing cost reductions and improvements in the quality of our margins, underlying adjusted operating profit of £15.4m finished ahead of last year (2015: £13.8m), delivering a Return on Sales of 12.1% (2015: 10.2%). Performance was particularly strong in Europe, which had at one time been the underperforming region of the division. The Bredbury closure was instrumental in the turn around.

As a sign of the growing robustness of the chain division, in January 2016 the business successfully completed the acquisition, the 'Tooth Chain' business of Aventics GmbH based in Gronau, Germany. Now trading as Renold Tooth Chain, the business had sales revenues of £6.9m in 2015 within niche chain markets in which Renold previously had no product offering and is above 80% concentrated in Germany. It also offers numerous operational and purchasing synergies which will improve competitiveness and enhance margins. The integration of this business is proceeding in line with plans and will be completed during calendar year 2016 following migration to the Renold IT platform.

A new Managing Director was appointed towards the end of the year for the Chain division as a whole. This has allowed myself who was performing the role to focus more of my time on Torque Transmission. Other new appointments include the MD for our Americas business and a number of new appointees in commercial and marketing functions to support our Organic Growth activities.

Service improvement will drive future growth

A key element of the growth strategy centres on improvements to our delivery capabilities and customer service. A number of initiatives have been successfully completed during the year.

Product availability has been dramatically improved through the introduction of strategic inventory on core product lines within each region. The adverse impact on working capital ratios should be a short term phenomenon only.

Investments in new state of the art machinery in the US and India have not only removed production bottlenecks but also enabled the in-sourcing of key processes, thus reducing lead times and costs on manufactured to order products and boosting overall productive capacity to support future growth. Other similar projects had already been committed at year end.

The Malaysian factory is planned to relocate during calendar year 2016, effectively more than quadrupling the potential output in what is a key growth region.

The successful introduction of a rapid response cell in the UK to deliver attachment transmission chain in market-leading response times has subsequently been replicated in Germany, the US and Australia. A similar blueprint will be rolled out in China and South East Asia in the coming year.

Significant progress has been made in laying solid foundations which will underpin future growth and the challenge is now to build on this platform despite ongoing economic headwinds. Commercial coverage has been enhanced through 2016 office openings in Spain, Thailand and Indonesia, all of

which should yield solid growth going forward. Further openings are planned in Eastern Europe and to expand geographic coverage in the Americas in the coming year.

Commercial activities are being focused around core market sectors which offer the right mix of product and opportunities for growth. As a result, the overall chain business will become less reliant on some of the more cyclical industries (e.g. mineral extraction, heavy construction) in which it has traditionally operated in the past. We are confident that the Division will attain the STEP 2020 Group target of mid-teens operating margins by 2020 with only modest growth required to do so.

Renold Torque Transmission performance review

Underlying external revenue of £38.4m was £7.4m (16.2%) below the prior year primarily as a result of the division's exposure to poor performing sectors (particularly in the Americas region for oil and gas, raw material extraction and the steel industry). Successful contract wins for escalator drives in Europe and USA partly offset this exposure.

During the year, the business exited from the low margin automotive helical gear industry which had been underpinned by a long term supply agreement at our Milnrow plant. The customer decided to offshore production and in response to the loss of approximately £2.0m of annual revenues (£1.0m in the current year) the site significantly reduced its headcount.

Underlying order intake was weak and down £4.5m (10.7%) which is consistent with the revenue decline. The division is increasingly focusing on other industries with orders being received within the renewable energy sector and the recycling sector. The division now has an increased product focus which has in turn started to deliver with investments in new machinery and an increased customer focus as explained on the following pages.

Contribution margins, the margin after all variable production costs, improved by 1.2% during the year driven by a more focused sales effort on the higher performance products in the portfolio. The exit from the low margin automotive helical gear contract contributed to the improved margins with cost saving initiatives being taken to ensure that the loss of these sales did not impact operating profit.

Continuous improvement activities in the factories also contributed to the margin gains with labour and material costs reducing by higher proportions than the underlying external revenue decline. Further benefits will be achieved as the businesses implement more efficient manufacturing processes using new plant and equipment as above. The Group ERP system was rolled out in the Cardiff manufacturing site with benefits expected to be realised from this during the next financial year.

Underlying net overheads in the division reduced for the third consecutive year with £0.7m savings as a result of a number of initiatives in each location rather than one major restructuring project.

The combination of the gains in our variable margins and ongoing overhead reductions led to a reduction in the revenue breakeven point of approximately £2.2m (7.2%). However, this was less than the actual reduction in underlying sales of £7.4m. As a result, the division's return on sales fell from 16.4% to 13.0%.

Focus Areas

In the fourth quarter I stepped in as the Managing Director of the division, having appointed a new MD for the Chain division as a whole (a new role). This has brought additional strategic top down thinking to the division with the goal of accelerating the performance improvement measures we are undertaking.

Health and Safety performance remains a top priority at all of our facilities. We are proud to report that all key production facilities received a 2015 Annual Health & Safety Award, acknowledging our on-going programme of improvements in this key area.

The Division has had an increased focus on meeting customer needs whether this is through introducing innovative new products with higher torque capabilities or simply through ensuring that the right products are available off the shelf for immediate dispatch.

New product development is becoming a more prominent feature in a number of our units. In couplings we are developing a new range that delivers more torque per unit of weight or cost per coupling. In gears we have seen sales benefits from strategic shareholdings of certain products.

The leadership team is tasked with continuing to improve business efficiency and deliver growth within the framework of STEP 2020. Significant investment in the latest technology that is now coming on line will provide additional capacity and capabilities. These will provide shorter lead times and tighter tolerance production and also allow the division to respond to customer demands for innovative products in a faster and more efficient manner. The division remains capable of generating operating margins well in excess of the mid-teens Group target. Our goal is to return to the mid-teens margins generated in the prior year.

Outlook

Ongoing success in implementing our STEP 2020 Strategic Plan has enabled us to maintain our operating margins. This was achieved despite external market challenges which resulted in a fall in revenue, as we expected. At the same time we have improved a number of our core business processes, developed new products ready for market launch, and enhanced customer service.

Our first STEP 2020 acquisition of the Tooth Chain business is an excellent strategic fit. The integration process is proceeding well with customer relationships being successfully transferred to Renold Group companies. Management bandwidth is now available for further acquisitions in the highly fragmented chain market.

Looking ahead, we are hopeful that market headwinds will moderate around the end of the first half of the new financial year. All three phases of STEP 2020 are now in progress. We are confident that the sum of the individual steps we are taking to improve our business will generate significant shareholder value when market conditions improve.

Robert Purcell

Chief Executive

Finance Director's Review

We have taken a cautious approach to managing the business in the current volatile market conditions. This has allowed us to maintain our operating margin while still increasing revenue and capital investment expenditure to support delivery of our strategic goals. We also made excellent progress in strengthening our balance sheet through the amended re-financing with our existing banking partners and completion of a number of significant pension de-risking projects in three different countries.

Overview

Volatile demand in most of our end markets emphasised the need to maintain our focus on further lowering our breakeven point. This has been achieved for the third successive year. At the same time, work continues to improve our balance sheet and maintain cash generation that will fund further potential acquisitions, our capital investment programme and, in turn, support future growth in revenue and operating margins.

Orders and revenue

Order intake during the year in the Chain division was slightly lower than revenue with the underlying ratio of orders to revenue (book to bill) being 96.4% (2015: 100.2%). All regions had similar book to bill ratios as the division as a whole with the exception of Europe which delivered a result of 99.3%. All five Chain regions showed falls in underlying external order intake ranging from 7.6% down to 15.2% down and a reduction for the division as a whole of 10.1%.

In Torque Transmission, weaker demand for Hi-Tec products for a number of commodity related markets was the key driver for a year on year fall in underlying order intake of £4.5m (10.7%). Performance was mixed though with two of eight units within the division showing growth on the prior year. The overall book to bill ratio for the division was 97.5% (2015: 91.6%).

Operating result

		2016		2015
	Order intake £m	Revenue £m	Operating profit £m	Order intake £m	Revenue £m	Operating profit £m
As reported	159.7	165.2	11.1	177.9	181.4	12.1
Impact of FX translation	-	-	-	(0.1)	-	0.2
Exceptional items	-	-	2.4	-	-	2.9
Pension administration costs	-	-	0.7	-	-	0.5
Underlying/adjusted	159.7	165.2	14.2	177.8	181.4	15.7

Group revenue for the year decreased by £16.2m (8.9%) to £165.2m both in absolute and on an underlying basis (2015: 1.4% or £2.6m decrease and 2.1% or £3.7m respectively). The reduction in underlying revenue was concentrated in the second and third quarters with the first and fourth quarters down 4.0% and 7.1% respectively.

The Chain division saw underlying revenue down 6.5% with Torque Transmission weaker, 16.2% down. Divisional performance is explained in more detail in the Chief Executive's Review.

The Group generated £7.9m of adjusted operating profit in the first half (2015: £7.5m) and £6.3m in the second half (2015: £8.0m) with a full year result of £14.2m (2015: £15.5m). The second half result was achieved on 6.3% (£5.4m) lower underlying revenue than the first half with ongoing cost reduction initiatives providing some mitigation of the reduction in sales. This reflects our continuing drive to improve margins and reduce our costs as we continue to lower our breakeven point.

Trends in Adjusted Operating Profit and RoS%

Progress on operating profit and operating margins were significantly impacted by this year's reduced revenues but it is still notable that the RoS% was slightly improved.

Foreign exchange rates have been extremely volatile during the year. In H1, £GBP had appreciated against three of our four major currencies. By the end of the year this had more than reversed with £GBP finishing the year weaker than its opening position in all four currencies. The natural hedge normally provided by the Group's diverse operating currencies therefore did not operate in the year as £GBP strengthened or weakened against almost all global currencies at the same time.

The net impact of this volatility was an operating charge of £0.1m in the year (2015: £0.2m income). All else being equal, there would be an estimated increase of £7.7m to revenue if the year end exchange rates had applied throughout the year. The potential impact on operating profit is harder to predict given changes in sales mix but could be in the region of £0.5m. Fluctuations are continuing with £GBP actually strengthening again since the year end so these figures are illustrative at best.

Exceptional items

Net exceptional charges of £2.2m were £0.7m lower than the prior year figure. Gross charges of £3.5m related to various restructuring and redundancy costs incurred as part of STEP 2020 or in response to falls in demand. The more significant items were the downsizing of the Milnrow facility following the end of a long term supply agreement (offshored by the customer), the re-location of our head office and server room, and other redundancies where the individual business unit headcount was reduced by 10% or more in response to lower demand. The Milnrow restructuring fully offset the impact of the loss of £2.0m of annualised volume (£1.0m in the current year) and the Head Office re-location will deliver savings between £0.1m and £0.2m p.a.

The Group also incurred £0.4m of acquisition related costs in respect of the purchase of the Tooth Chain business in Gronau, Germany. The charges were partially offset by a £1.3m curtailment credit arising on the closure to future accrual and future salary inflation of the German defined benefit pension scheme. The charges are detailed further in Note 2(c) to the Group financial statements.

Other adjusting items

These include legacy pension scheme administration costs of £0.7m (2015: £0.5m) and amortisation of acquired intangible assets £0.2m (2015: £nil). Administration cost increased slightly due to changes in the Pension Protection Fund Levy regime. We aim to reverse this increase in future.

Financing costs

External net interest costs in the year were £1.5m (2015: £1.7m). The annual charge includes £0.2m (2015: £0.3m charge) in respect of amortisation of the residual refinancing costs paid in 2012 and the new costs incurred in 2015 which are being expensed over the five year term of the facility, delivering non-cash savings of £0.1m p.a. Financing costs also include £0.2m of unwinding discounts on onerous lease provisions established in the prior year (the Bredbury factory onerous lease provision).

The new facility terms were agreed in May 2015, include lower interest rates and were delivered at a lower one off cost of refinancing than previously (saving approximately £0.8m). The annual amortisation charge is therefore £0.1m p.a. lower as noted above.

Net IAS 19 finance charges (which are a non-cash item) were £2.0m (2015: £2.5m), the net movement being due to lower interest rates on a higher opening liability figure. In the current year, the actual return on assets was £13.9m lower than the return used in the interest calculation as specified in IAS 19 due primarily to weaker equity markets and the offsetting impact of higher corporate bonds yields on the value of corporate bond portfolios.

Result before tax

Profit before tax was £7.4m (2015: profit of £7.7m). Adjusted profit before tax, which excludes exceptional items, IAS 19 financing costs, amortisation of acquired intangible assets and legacy pension scheme costs, was £12.7m (2015: £13.8m).

Taxation

The current year tax charge of £2.0m (2015: charge £2.1m) is made up of a current tax charge of £1.5m (2015: charge of £1.4m) and a deferred tax charge of £0.5m (2015: charge of £0.7m). The Group cash tax paid was much lower at £1.0m (2015: £1.4m). The difference between cash charges and cash tax is due to the utilisation of tax losses and other tax assets in various parts of the Group.

Group results for the financial period

Profit for the financial year ended 31 March 2016 was £5.4m (2015: profit of £5.6m). The basic and diluted earnings per share was 2.4p and 2.3p respectively (2015: 2.5p for both). The basic and diluted adjusted earnings per share was 4.7p and 4.6p respectively (2015: earnings 5.0p for both).

Tooth Chain Acquisition

During the year the Group acquired the Tooth Chain business of Aventics Gmbh. An overview of key performance indicators and the acquisition balance sheet are summarised in the tables below (translated at year end exchange rates).

Pre-acquisition financial KPI's
Sales y/e 31 December 2015			£6.9m
Operating margin			Mid-teens%
Acquisition balance sheet			£'m
Tangible assets			0.6
Intangible assets			4.0
Goodwill			0.2
Total acquired assets			4.8
Satisfied by:
Initial consideration			3.6
Working capital adjustment			0.1
Deferred consideration			1.1
Total consideration			4.8

Balance sheet

Net assets at 31 March 2016 were £10.5m (2015: £11.6m). The fall was driven by the increase in the net pension deficit as a result of falling equity values which were only partly offset by a marginal increase in corporate bond yields used to value the schemes liabilities.

The net liability for pension benefit obligations was £68.1m (2015: £61.2m) after allowing for a net deferred tax asset of £14.8m (2015: £14.5m). Overseas schemes now account for £24.2m (36%) of the post tax pension deficits and £20.5m of this is in respect of the German scheme which is not required to be prefunded.

Cash flow and borrowings

Cash generated from operations was £10.8m (2015: £12.8m). Capital expenditure was significantly up in the year at £9.5m (2015: £5.5m) an increase of 73%. This reflects the ample opportunities for attractive payback capital investments in our manufacturing facilities as well as catch up expenditure to upgrade our infrastructure.

Capital expenditure in the new financial year is expected to exceed £10.0m. A number of major projects totalling approximately £5.0m are already committed as at the date of this report and include one $2.8m project in the US and £1.2m in respect of the roll out of our global IT system.

Investments were also made in a number of stock lines to support new sales initiatives and new product launches. This in part explains the small rise in our working capital KPI (average working capital as a ratio of rolling 12 month sales from 19.1% to 20.3%) which was also adversely impacted by the slow down in demand. The absolute level of working capital was £1.0m higher than in the prior year (which excludes the impact of the Tooth Chain acquisition).

Group net borrowings at 31 March 2016 of £23.5m were £4.0m higher than the opening position of £19.5m comprising cash and cash equivalents of £13.5m (2015: £12.6m) and borrowings (which include £0.5m of preference stock) of £37.0m (2015: £32.1m). The increase in net debt is almost wholly explained by the initial cash payment for the Tooth Chain acquisition.

Debt facility and capital structure

In May 2015, the group completed a process to amend and extend it's core banking facility. The facility had been due to mature in October 2016 and was renewed with Lloyds Bank plc and Svenska Handelsbanken AB.

The amended facility comprises an unchanged committed £41m Multi- Currency Revolving Credit Facility (MCRF), but now also includes a £20.0m accordion feature. This can be used in the event of a significant investment or acquisition opportunity. Given that the amended facility has a five year term (matures in May 2020), it is likely to be an important foundation as the Group delivers the third, Acquisition, phase of STEP 2020.

The principal covenants remain unchanged, being the Net Debt/Adjusted EBITDA ratio (calculated on a rolling 12 months basis), which remains at a maximum of 2.5 times until maturity, and minimum Adjusted EBITDA/Interest cover which is also unchanged at 4.0 times until maturity.

The Net Debt/Adjusted EBITDA ratio as at 31 March 2016 is 1.1 times (2015: 0.9 times), based on the reported figures for the period as adjusted for the banking agreement. The Adjusted EBITDA/interest cover as at 31 March 2016 is 13.6 times (2015: 12.1 times), again on a banking basis.

At 31 March 2016 the Group had unused credit facilities totalling £5.2m and cash balances of £13.5m. Total Group credit facilities amounted to £43.5m, all of which were committed.

Treasury and financial instruments

The Group's treasury policy, approved by the Directors, is to manage its funding requirements and treasury risks without undertaking any speculative risks. Treasury and financing matters are assessed further in the section on Principal risks and uncertainties.

To manage foreign currency exchange risk on the translation of net investments, certain US Dollar denominated borrowings taken out in the UK to finance US acquisitions are designated as a hedge of the net investment in US subsidiaries. At 31 March 2016 this hedge was fully effective. The carrying value of these borrowings at 31 March 2016 was £6.1m (2015: £5.8m).

At 31 March 2016, the Group had 1% (2015: 2%) of its gross debt at fixed interest rates. Cash deposits are placed short term with banks where security and liquidity are the primary objectives. The Group has no significant concentrations of credit risk with sales made to a wide spread of customers, industries and geographies. Policies are in place to ensure that credit risk on individual customers is kept to a minimum.

Pensions assets and liabilities

The Group's retirement benefit obligations increased from £75.7m (£61.2m net of deferred tax) at 31 March 2015 to £82.9m (£68.1m net of deferred tax) at 31 March 2016. The main reason for the change was the fall in UK liabilities being more than offset by the fall in the value of UK assets. In particular, growth assets such as equities and dynamic diversified growth funds, all suffered weak performance in the year.

The closure of the unfunded German scheme to future accrual and salary inflation reduced the liabilities by a further £1.6m. This was then offset by adverse foreign exchange movements of £2.4m. It is important to note that the change in discount rates used to value the schemes' liabilities balance has no impact on the cash contributions paid to the schemes and these remain stable. This stability is produced by the long term funding agreement put in place in 2013 when the previous three UK pension schemes merged to form the Renold Pension Scheme ('RPS').

The Group's Australian defined benefit scheme had all of its member liabilities paid out in full while in a net surplus. The scheme is now undergoing a formal liquidation process following a similar project for one of the three US pension schemes in the prior year.

The aggregate expense of administering the pension schemes was £0.7m (2015: £0.5m) and is now included in operating costs but is excluded in arriving at adjusted operating profit.

UK pension schemes merger and asset backed funding structure

The detailed structure and mechanics of the merger and underpinning asset backed funding structure are set out in Note 20 to the Annual Report and Accounts. The most recent triennial actuarial valuation of the RPS was completed with an effective date of 5 April 2013 and no additional contributions in excess of those generated by the asset backed funding structure were deemed necessary. The next triennial valuation is now underway with an effective date of 5 April 2016.

Total cash costs for UK deficit repair payments and UK administrative expenses in the period were £3.4m (2015: £3.1m). The current year figure includes the £2.7m noted above in connection with the SLP, and a further £0.7m in administration costs. The main de-risking initiatives implemented in the year included two medically underwritten insured buy-ins, each of which fully de-risked approximately 25% of current pensioner liabilities. Approximately 50% of current UK liabilities for pensions already in payment (approximately £50m) are therefore fully de-risked.

		2016		2015
	Assets £m	Liabilities £m	Deficit £m	Assets £m	Liabilities £m	Deficit £m
Defined benefit schemes
UK funded	137.7	(191.3)	(53.6)	156.6	(201.5)	(44.9)
Overseas funded	11.4	(16.2)	(4.8)	14.7	(19.5)	(4.8)
Overseas unfunded	-	(24.5)	(24.5)	-	(26.0)	(26.0)
	149.1	(232.0)	(82.9)	171.3	(247.0)	(75.7)
Deferred tax asset			14.8			14.5
Net deficit			(68.1)			(61.2)

Summary

In difficult trading conditions we have managed to keep on track with our STEP 2020 Strategic Plan. Our breakeven point has been lowered further and our operating margin maintained despite the 8.9% fall in underlying Group revenue.

We continue to make revenue expenditure and capital investments to support further progress. We were also able to fund our first bolt on acquisition from our existing financial resources. Further de- risking of pension schemes was achieved in three separate territories and our new five year financing facility is an excellent platform for future developments.

Brian Tenner

Finance Director

Principal risks and uncertainties

Risk is inherent in our business activities. We take steps at both a Group and subsidiary level to understand and evaluate potential risks and uncertainties which could have a material impact on our performance in order to mitigate them. Accordingly, a risk aware environment is promoted and encouraged throughout the Group. Details of the principal risks and uncertainties are summarised below and set out in more detail in the Annual Report.

Macro-economic and political volatility

We operate in 18 countries and sell to customers in over 100 and therefore we are necessarily exposed to the economic and political risks in these territories. Of particular note at present is the ongoing feature of suppressed commodity prices which have a negative impact on demand in the whole supply chain. This ranges from extraction or production of raw materials (such as iron ore mines) to the processing industries associated with them (such as steel mills) and also to those supporting the supply chain (such as electricity production or plant maintenance companies). Foreign exchange volatility is also a current active risk that can also impact customer buying patterns, leading to lower demand or the need to rapidly switch supply chains. The political issues affecting the UK and Europe are also impacting business sentiment and hence demand additional consideration.

Our diversified geographic footprint inherently exposes us to more countries where risks arise but conversely mitigates the risk of over-exposure in any one country, and actions to lower the Group's overall breakeven point also serve to reduce the impact of any global economic slowdown.

Strategy execution

The Group's strategy requires the co- ordinated delivery of a number of complex projects. These often require collaboration across geographies, markets and functions and depend on the capabilities of our people, processes and systems. The inter-linked nature of many of the projects means that issues on one project can impact many others and either lead to additional cost and/or slow down the delivery of the anticipated benefits.

The Step 2020 Strategic Plan has been developed to deliver a turnaround in performance and to make that performance more stable and less exposed to revenue volatility.

Acquisition and business development

While not currently actively pursuing acquisitions, the Board has stated that where an opportunity arises, Renold will consider it on a case by case basis. This was the situation with the Aventics Tooth Chain acquisition during the year.

Health and safety in the workplace

The risk of death or serious injury to employees or third parties associated with Renold's worldwide operation. A lack of robust safety processes and procedures could result in accidents involving Renold employees and others on Renold premises.

Group wide health and safety policies contained within a documented management system, 'the Framework', have been rolled out across the Group. In addition, health and safety audits and enhanced reporting have been implemented at all sites, with senior management training globally.

Effective deployment and utilisation of information technology systems

Like all modern businesses, Renold relies on IT systems in all aspects of our activities. From engineering design, to computer controlled manufacturing, to time and attendance payroll, and to monitoring and reporting performance. The Group is presently implementing a global ERP system to replace numerous legacy systems which inherently brings with it the risks associated with a large scale change programme. The risk that IT is not effectively utilised in support of delivering the Group's Strategic objectives e.g. process standardisation and to underpin active and accurate management decisions.

Prolonged loss of a manufacturing site

A catastrophic loss of the use of all or a portion of any of Renold's factories or distribution centres. This could result from an accident, a strike by employees, fire, severe weather or other cause outside management control.

People and change

The Group's operations are dependent upon the ability to attract and retain the right people with an appropriate range of skills and experience. In order to implement the many challenging change initiatives required by our STEP 2020 Strategic Plan, including growing the business, the Group needs fit for purpose incentives and retention mechanisms to ensure key employees will remain with the Group.

Liquidity, foreign exchange and banking arrangements

A lack of sufficient liquidity and flexibility in banking arrangements could inhibit the Group's ability to invest for the future or, in extremes, restrict day to day operations. In the past, banking markets and Renold's own performance have made access to debt facilities difficult. Volatility in foreign exchange rates can have a direct impact on profitability in the short term and longer term can impact competitiveness and demand for the Group's products.

Pensions deficit volatility

The principal pensions risk is that short term cash funding requirements of legacy pension scheme diverts much needed investment away from the Group's operations. Secondly, the size of the reported balance sheet deficit can operate as a disincentive to potential investors. Thirdly, balance sheet deficits can fluctuate based on market conditions outside the control of management.

Regulatory and legal compliance

The risk of censure, fine or business prohibition as a result of any part of the Group failing to comply with regulatory or legal obligations. Risks related to regulatory and legislative changes include the inability of the Group to comply with current, changing or new requirements. Many of the Group's business activities are subject to increasing regulation and enforcement by relevant authorities.

Consolidated balance sheet as at 31 March 2016	Note	2016 £m			2015 £m
ASSETS
Non-current assets
Goodwill			22.7		21.9
Other intangible assets			10.3		6.1
Property, plant and equipment			44.4		39.7
Investment property			-		-
Deferred tax assets			17.0		17.3
Retirement benefit surplus			-		0.2
			94.4		85.2
Current assets
Inventories			36.3		35.8
Trade and other receivables			30.5		30.6
Cash and cash equivalents			13.5		12.6
			80.3		79.0
Non-current asset classified as held for sale			1.0		1.4
			81.3		80.4
TOTAL ASSETS			175.7		165.6
LIABILITIES
Current liabilities
Borrowings			(0.9)		(0.7)
Trade and other payables			(36.2)		(36.6)
Current tax			(2.2)		(1.6)
Derivative financial instruments			(0.1)		(0.1)
Provisions			(1.7)		(2.1)
			(41.1)		(41.1)
NET CURRENT ASSETS			40.2		39.3
Non-current liabilities
Borrowings			(35.6)		(30.9)
Preference stock			(0.5)		(0.5)
Trade and other payables			(0.3)		(1.1)
Deferred tax liabilities			(0.3)		(0.2)
Retirement benefit obligations			(82.9)		(75.9)
Provisions			(4.5)		(4.3)
			(124.1)		(112.9)
TOTAL LIABILITIES			(165.2)		(154.0)
NET ASSETS			10.5		11.6
EQUITY
Issued share capital	7		26.6		26.6
Share premium account			29.9		29.9
Currency translation reserve			3.3		2.3
Other reserves			1.0		1.0
Retained earnings			(53.0)		(50.8)
Equity attributable to equity holders of the parent			7.8		9.0
Non-controlling interests			2.7		2.6
TOTAL SHAREHOLDERS' EQUITY			10.5		11.6

Approved by the Board on 31 May 2016 and signed on its behalf by:

Robert Purcell Brian Tenner

Chief Executive Finance Director

Consolidated statement of changes in equity for the year ended 31 March 2016

	Share capital £m	Share premium account £m	Retained earnings £m	Currency translation reserve £m	Other reserves £m	Attributable to owners of parent £m	Non- controlling interests £m	Total equity restated £m
At 31 March 2014	26.6	29.9	(44.6)	(1.7)	1.2	11.4	2.5	13.9
Profit for the year	-	-	5.5	-	-	5.5	0.1	5.6
Other comprehensive income/(expense)	-	-	(11.7)	4.0	(0.2)	(7.9)	-	(7.9)
Total comprehensive income /(expense) for the year	-	-	(6.2)	4.0	(0.2)	(2.4)	0.1	(2.3)
Employee share options:
- settled transactions	-	-	(0.2)	-	-	(0.2)	-	(0.2)
- value of employee services	-	-	0.2	-	-	0.2	-	0.2
At 31 March 2015	26.6	29.9	(50.8)	2.3	1.0	9.0	2.6	11.6
Profit for the year	-	-	5.3	-	-	5.3	0.1	5.4
Other comprehensive income/(expense)	-	-	(8.6)	1.0	-	(7.6)	-	(7.6)
Total comprehensive income/(expense) for the year	-	-	(3.3)	1.0	-	(2.3)	0.1	(2.2)
Employee share options:
- value of employee services	-	-	1.1	-	-	1.1	-	1.1
At 31 March 2016	26.6	29.9	(53.0)	3.3	1.0	7.8	2.7	10.5

Consolidated statement of cash flows for the year ended 31 March 2016

	2016 £m		2015 £m
Cash flows from operating activities (Note 9)
Cash generated from operations	11.8		14.2
Income taxes paid	(1.0)		(1.4)
Net cash from operating activities	10.8		12.8
Cash flows from investing activities
Purchase of property, plant and equipment	(7.9)		(3.8)
Purchase of intangible assets	(1.6)		(1.7)
Consideration paid for acquisition	(3.7)		-
Net cash from investing activities	(13.2)		(5.5)
Cash flows from financing activities
Financing costs paid	(1.8)		(1.4)
Proceeds from borrowings	4.5		1.0
Repayment of borrowings	(0.5)		(1.1)
Net cash from financing activities	2.2		(1.5)
Net (decrease)/increase in cash and cash equivalents	(0.2)		5.8
Net cash and cash equivalents at beginning of year	12.2		6.6
Effects of exchange rate changes	0.4		(0.2)
Net cash and cash equivalents at end of year	12.4		12.2

Notes to the Financial Information

1(a) Basis of preparation

The preliminary statement was approved by the Board on 31 May 2016. The preliminary statement does not represent the full consolidated financial statements of Renold plc and its subsidiaries which will be delivered to the Registrar of Companies following the Annual General Meeting. The audited consolidated financial statements of Renold plc for the year ended 31 March 2016 have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.

The preliminary statement has been prepared on a consistent basis using the accounting policies set out in the Renold plc annual report for the year ended 31 March 2015. The financial information for the year ended 31 March 2015 has been extracted from the Renold plc annual report for that year as filed with the Registrar of Companies.

The 2015 and 2016 financial statements both carry unqualified audit reports which do not contain an emphasis of matter reference and do not contain a statement under section 237(2) or 237(3) of the Companies Act 1985 or section 498(2) or 498(3) of the Companies Act 2006.

Changes in accounting policies and disclosures

The Group has adopted all applicable amendments to standards with an effective date from 1 April 2015. Adoption of these standards did not have any material impact on financial performance or position of the Group.

1(b) Basis of preparation - Going Concern

The 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 Directors have assessed the future funding requirements of the Group and the Company and compared them to the level of available borrowing facilities. The assessment included a detailed review of financial and cash flow forecasts, financial instruments and hedging arrangements for at least the twelve month period from the date of signing the Annual Report and Accounts. The Directors consider a range of potential scenarios within the key markets the Group serves and how these might impact on the Group's cash flow, facility headroom and banking covenants. The Directors also considered what mitigating actions the Group could take to limit any adverse consequences. The Group's forecasts and projections, taking account of reasonably possible scenarios show that the Group should be able to operate within the level of its borrowing facilities and covenants.

Having undertaken this work, the Directors are of the opinion that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly they continue to adopt the going concern basis in preparing the consolidated financial statements.

1(c) Responsibility statement of the Directors on the annual report and financial statements

The responsibility statement below has been prepared in connection with the company's full annual report for the year ending 31 March 2016. Certain parts thereof are not included within this announcement.

We confirm to the best of our knowledge:

· the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole;

· the strategic report includes a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face; and

· the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the company's performance, business model and strategy.

2. Segmental information

For management purposes, the Group is organised into two reportable operating segments according to the nature of their products and services and these are considered by the Directors to be reportable operating segments of Renold plc as shown below:

· The Chain segment manufactures and sells power transmission and conveyor chain and also includes sales of Torque Transmission products through Chain National Sales Companies (NSCs);

· The Torque Transmission ('TT') segment manufactures and sells torque transmission products such as gearboxes and couplings.

No operating segments have been aggregated to form the above reportable segments.

The Chief Operating Decision Maker (CODM) for the purposes of IFRS 8: 'Operating Segments' is considered to be the Board of Directors of Renold plc. Management monitor the results of the separate reportable operating segments based on operating profit and loss which is measured consistently with operating profit and loss in the consolidated financial statements. The same segmental basis applies to decisions about resource allocation. However, Group net financing costs, retirement benefit obligations and income taxes are managed on a Group basis and are not allocated to operating segments.

Transfer prices between operating segments are on an arm's length basis in a manner similar to transactions with third parties.

Year ended 31 March 2016	Chain £m	Torque Transmission £m	Head Office costs and eliminations £m	Consolidated £m
Revenue
External customer	126.8	38.4	-	165.2
Inter-segment	-	2.7	(2.7)	-
Total revenue	126.8	41.1	(2.7)	165.2
Adjusted operating profit/(loss)	15.4	5.0	(6.2)	14.2
Pension administration costs	-	-	(0.7)	(0.7)
Exceptional items	(0.4)	(1.2)	(0.6)	(2.2)
Amortisation of acquired intangible assets	(0.2)	-	-	(0.2)
Operating profit/(loss)	14.8	3.8	(7.5)	11.1
Net financing costs				(3.7)
Profit before tax				7.4
Other disclosures
Working capital	23.7	8.8	(2.2)	30.3
Capital expenditure	5.1	1.9	1.8	8.8
Depreciation and amortisation	3.5	1.1	1.4	6.0

Year ended 31 March 2015 (restated)	Chain £m	Torque Transmission £m	Head Office costs and eliminations £m	Consolidated £m
Revenue
External customer	136.3	45.1	-	181.4
Inter-segment	-	4.6	(4.6)	-
Total revenue	136.3	49.7	(4.6)	181.4
Adjusted operating profit/(loss)	13.9	7.2	(5.6)	15.5
Pension administration costs	-	-	(0.5)	(0.5)
Exceptional items	(2.1)	(0.2)	(0.6)	(2.9)
Operating profit/(loss)	11.8	7.0	(6.7)	12.1
Net financing costs				(4.4)
Profit before tax				7.7

Other disclosures
Working capital	22.2	9.4	(3.0)	28.6
Capital expenditure	4.4	0.9	1.3	6.6
Depreciation and amortisation	3.0	1.1	1.2	5.3

On 1 April 2015, the French Chain business unit was split and re-categorised to show both Chain and TT business separately. As a result, the segmental analysis for the comparative period has been restated to ensure consistent reporting. The impact of this re-categorisation was to reduce Chain revenue by £2.0m, operating profit by £0.3m and working capital by £0.1m with corresponding increases in the TT division. All other amounts were unchanged.

The Board reviews the performance of the business using information presented at consistent exchange rates ('underlying'). The prior year results have been retranslated using this year's exchange rates as follows:

Year ended 31 March 2015 (restated)	Chain £m	Torque Transmission £m	Head Office costs and eliminations £m	Consolidated £m
Revenue
External customer	136.3	45.1	-	181.4
Foreign exchange	(0.7)	0.7	-	-
Underlying external sales	135.6	45.8	-	181.4
Adjusted operating profit/(loss)	13.9	7.2	(5.6)	15.5
Foreign exchange	(0.1)	0.3	-	0.2
Underlying adjusted operating profit/(loss)	13.8	7.5	(5.6)	15.7

i. Inter-segment revenues are eliminated on consolidation.

ii. Included in Chain external sales is £3.8m (2015: £5.2m restated) of Torque Transmission product sold through the Chain NSCs. The Torque Transmission businesses may use the Chain NSC framework in countries where it does not have its own presence.

iii. The measure of segment assets reviewed by the CODM is total working capital, defined as inventories and trade and other receivables, less trade and other payables. Working capital is also measured as a ratio of rolling annual sales.

iv. Capital expenditure consists of additions to property, plant and equipment, and intangible assets

The UK is the home country of the parent company, Renold plc. The principal operating territories, the proportions of Group external revenue generated in each (customer location), external revenues, non-current assets (asset location) and average employee numbers in each are as follows:

	Revenue ratio		External revenues		Non-current assets		Employee numbers
	2016 %	2015 %	2016 £m	2015 £m	2016 £m	2015 £m	2016	2015
United Kingdom	9.1	9.3	15.0	16.9	14.0	12.7	364	372
Rest of Europe	27.3	27.8	45.2	50.5	17.6	10.8	523	503
North America	38.8	36.8	64.2	66.7	30.4	28.3	341	351
Australasia	10.2	11.5	16.8	20.8	6.6	6.6	144	152
China	4.4	3.8	7.3	6.8	3.0	3.5	342	350
India	3.8	3.9	6.2	7.1	5.1	4.9	459	481
Other countries	6.4	6.9	10.5	12.6	0.6	0.9	59	68
	100.0	100.0	165.2	181.4	77.3	67.7	2,232	2,277

All revenue relates to the sale of goods and services. No individual customer, or group of customers, represents more than 10% of Group revenue (2015: none).

Non-current assets consist of goodwill, other intangible assets, property, plant and equipment and investment property. Other non-current assets and deferred tax assets are not included above.

3. Adjusting and exceptional items

Included in operating costs	2016 £m		2015 £m
Acquisition costs - Renold Tooth Chain	0.4		-
Pension administration costs	0.7		0.5
Head Office relocation costs	0.6		-
Net pension settlement gains	(1.2)		-
Property impairments	0.5		1.2
Amortisation of acquired intangible assets	0.2		-
Bredbury factory closure costs	-		0.7
Impairment of software licences	-		0.2
Other restructuring costs	1.9		0.8
	3.1		3.4
Included in net financing costs
Discount unwind on onerous lease provisions	0.2		0.2
Net IAS 19 financing costs	2.0		2.5
	2.2		2.7

The current year saw £0.4m of costs incurred in relation to the acquisition of the Tooth Chain business.

During the period the Group Head Office was relocated to new premises. Costs of £0.6m were incurred including £0.3m of dilapidations and the cost of the move itself. Annual benefits in excess of £0.1m per annum will now be delivered.

An impairment charge of £0.5m was made in relation to a property currently held for sale located in Seclin, France, writing down the value of the property to £1.0m. In the prior year, an impairment charge of £1.2m was made in relation to an investment property located in Calais, France, writing down the value of the property to a net book value of £nil.

The prior year saw £0.7m of residual costs incurred in relation to the completion of the Bredbury closure project such as additional redundancy costs and lease termination costs.

The impairment of software licences reflects the decision to change the Group's planned global ERP system and consequently not to make use of previously acquired licences.

Other restructuring costs include £0.5m incurred at the Milnrow facility, where the business was downsized following the end of a long term supply agreement (off-shored by the customer) and £1.4m of other STEP 2020 restructuring costs incurred in the year.

4. Net financing costs

	2016 £m			2015 £m
Financing costs:
Interest payable on bank loans and overdrafts	(1.3)			(1.4)
Amortised financing costs	(0.2)			(0.3)
Total financing costs	(1.5)			(1.7)
Net IAS 19 financing costs	(2.0)			(2.5)
Discount unwind on provisions	(0.2)			(0.2)
Net financing costs		(3.7)			(4.4)

5.Taxation

Analysis of tax charge in the year

	2016 £m		2015 £m
United Kingdom
UK corporation tax at 20% (2015: 21%)	-		-
Overseas taxes
Corporation taxes	1.4		1.3
Withholding taxes	0.1		0.1
Current income tax charge	1.5		1.4
Deferred tax
UK - origination and reversal of temporary differences	(0.3)		(0.3)
Overseas - origination and reversal of temporary differences	0.8		1.0
Total deferred tax charge	0.5		0.7
Tax charge on profit on ordinary activities	2.0		2.1

	2016 £m		2015 £m
Tax on items taken to other comprehensive income
Deferred tax on changes in net pension deficits	(0.5)		3.4
Tax (charge)/credit in the statement of other comprehensive income	(0.5)		3.4

Factors affecting the Group tax charge for the year

The Government has announced that it intends to reduce the rate of corporation tax to 17% with effect from 1 April 2020. As this legislation was not substantively enacted as at year end, the impact of the anticipated rate change is not reflected in the tax provisions reported in these accounts. The Finance Act 2015 (No.2), which was substantively enacted in October 2015, included provisions to reduce the rate of corporation tax to 19% with effect from 1 April 2017 and 18% from 1 April 2020. Accordingly, deferred tax balances have been revalued to the lower rate of 18% in these accounts which has resulted in a £0.8m charge through the Statement of Comprehensive Income.

The Group's tax charge in future years will be affected by the profit mix, effective tax rates in the different countries where the Group operates and utilisation of tax losses. No deferred tax is recognised on the unremitted earnings of overseas subsidiaries.

The actual tax on the Group's profit before tax differs from the theoretical amount using the UK corporation tax rate as follows:

	2016		2015
	£m		£m
Profit on ordinary activities before tax	7.4		7.7
Theoretical tax charge at 20% (2015: 21%)	1.5		1.6
Effects of:
Permanent differences	0.9		0.8
Overseas tax rate differences	0.7		0.8
Prior year adjustments	0.2		-
Deferred tax utilised	(1.3)		(1.1)
Total tax charge	2.0		2.1

6. Earnings per share

Earnings per share (EPS) is calculated by reference to the earnings for the year and the weighted average number of shares in issue during the year as follows:

	2016				2015
		Earnings £m	Shares (Thousands)	Per share amount (pence)	Earnings £m	Shares (Thousands)	Per share amount (pence)
Basic EPS
Earnings attributed to ordinary shareholders		5.3	223,065	2.4	5.5	223,065	2.5
Basic EPS		5.3	223,065	2.4	5.5	223,065	2.5

	2016						2015
	Earnings £m		Shares (Thousands)		Per share amount (pence)		Earnings £m		Shares (Thousands)		Per share amount (pence)
Adjusted EPS
Basic EPS	5.3		223,065	2.4			5.5		223,065		2.5
Effect of adjusting items, after tax:
Exceptional items in operating costs		2.5		1.1		2.8					1.3
Pension administration costs included in operating costs		0.7		0.3		0.5					0.2
Discount unwind on exceptional items		0.2		0.1		0.2					0.1
Amortisation of acquired intangible assets		0.2		0.1		-					-
Net pension financing costs		1.5		0.7		2.1					0.9
Adjusted EPS		10.4	223,065	4.7		11.1			223,065		5.0

Inclusion of the dilutive securities, comprising 4,097,000 (2015: 2,489,000) additional shares due to share options in the calculation of basic and adjusted EPS changes the amount shown above to 2.3p and 4.6p respectively (2015: no change).

The adjusted EPS numbers have been provided in order to give a useful indication of underlying performance by the exclusion of exceptional items. Due to the existence of unrecognised deferred tax assets, there was no associated tax credit on some of the exceptional charges and in these instances exceptional costs are added back in full.

7. Called up share capital		Issued
		2016 £m		2015 £m
Ordinary shares of 5p each		11.2		11.2
Deferred shares of 20p each		15.4		15.4
		26.6		26.6

At 31 March 2016, the issued ordinary share capital comprised 223,064,703 ordinary shares of 5p each (2015: 223,064,703) and 77,064,703 deferred shares of 20p each (2015: 77,064,703).

8. Acquisition of business

On 4 January 2016 the Group acquired the business and trading assets of Aventics Tooth Chain, an operating division of Aventics GmbH, a German based market leading manufacturer of inverted tooth chain products that are distributed worldwide. The primary reason for the acquisition was to add a high value-added product not currently offered by the Group and expand sales through the existing Group sales network.

Identifiable net assets acquired:
		Book Value £m		Provisional fair value £m
Intangible assets		-		4.0
Property, plant and equipment		0.6		0.5
Inventories		0.9		1.0
Deferred tax asset (on retirement benefit obligations)		-		0.1
Retirement benefit obligations		(0.4)		(0.4)
Other creditors		(0.2)		(0.6)
		0.9		4.6
Goodwill				0.2
Total consideration				4.8

Goodwill is denominated in Euro's in line with the functional currency of the subsidiary that purchased the business (Renold GmbH - existing Group company registered in Germany) and is recorded at the closing Euro exchange rate as at 31 March 2016.

Satisfied by:
			£m
Cash paid on 4 January 2016			3.6
Working capital adjustment paid in February 2016			0.1
Contingent consideration			1.1
			4.8

The fair value of the contingent consideration arrangement of £1.1m was calculated using management's best estimate of the achievement of revenue targets for the next two financial years. The payout is expected over the next two years in line with the maturity analysis but timing is dependent upon the achievement of these targets.

Full detail is available in the Annual Report and Accounts.

9. Additional cash flow information

Reconciliation of operating profit to net cash flows from operations: Cash generated from operations:	2016 £m		2015 £m
Operating profit	11.1		12.1
Depreciation and amortisation	6.0		5.3
Impairment of intangible assets	-		0.2
Property impairment	0.5		1.2
Equity share plans	1.1		-
Decrease in inventories	1.7		0.7
Decrease/(increase) in receivables	0.7		(0.2)
(Decrease)/increase in payables	(2.1)		0.9
Decrease in provisions	(1.6)		(1.5)
Past service credit - German pension scheme	(1.3)		-
Movement on pension plans	(4.3)		(4.4)
Movement in derivative financial instruments	-		(0.1)
Cash generated from operations	11.8		14.2

Reconciliation of net change in cash and cash equivalents to movement in net debt:		2016 £m				2015 £m
(Decrease)/increase in cash and cash equivalents		(0.2)				5.8
Change in net debt resulting from cash flows		(4.0)				0.1
Foreign currency translation differences		(0.1)				(0.3)
Non-cash movement - refinancing costs capitalised		0.5				-
Non-cash movement - amortisation of refinancing costs		(0.2)				(0.3)
Change in net debt during the period		(4.0)				5.3
Net debt at start of year		(19.5)				(24.8)
Net debt at end of year		(23.5)				(19.5)
Net debt comprises:
Cash and cash equivalents		13.5				12.6
Total borrowings		(37.0)				(32.1)
		(23.5)				(19.5)

10. Post balance sheet events

There were no significant post balance sheet events to report.