Renold plc (RNO) Earnings Call Transcript & Summary

Well, good afternoon, and welcome to the Renold Full Year Results Investor Presentation. Following the release of the company's results for the year ended 31st of March 2023 earlier today. My name is Tim Metcalfe. I'm Managing Director of IFC Advisory, Renold's Financial PR and Investor Relations agency. With me today, I've got Robert Purcell, who's Renold's Chief Executive; and Jim Haughey, who's Renold's Finance Director. Robert and Jim are going to take you through a presentation, after which we'll have the opportunity for a question-and-answer session. I'd like to thank those who have taken the time to submit questions ahead of the presentation, which is very helpful. But we do welcome further questions. [Operator Instructions] Unfortunately, with the number of attendees we've got this evening, it's just not possible to go to people individually ask them to unmute and put their questions directly. So without further ado, I'm going to hand over to Robert to take you through the presentation. Robert?

Thank you very much, Tim. Good afternoon, everybody. Welcome to the presentation of Renold's results for the financial year ending 31st of March 2023. So I'm going to start on Page 2. It's already up there. Thank you very much. So just a summary from me before Jim takes you through some more of the detailed numbers. So I'm extremely pleased to announce a very robust, indeed, record full year performance. Renold has good momentum, and through a consistent application of the STEP2 strategy is making excellent progress. I've spoken a few times about the challenges that have been brought about in recent times by the pandemic and Russian invasion of Ukraine. These issues are well known, but the business has continued to execute well in this difficult and rapidly changing environment. Period's performance has been strong. Revenues up 26.6%, driven by volume and price as cost inflation has been passed through 100%, showing the strength of Renold's product and service proposition. Adjusted operating profit is up 58% to GBP 24.2 million. We've continued to execute on the Renold's STEP2 strategic plan and driven return on sales margins up 200 basis points to 9.8%. Adjusted EPS is up 51.2% at 6.5p. Order intake across the period was very strong at GBP 257 million considerably ahead of the prior year and revenue. Whilst net debt rose, it did so as we completed the acquisition of YUK in Spain, with an initial payment of EUR 20 million. We're delighted to have added this business to the Renold portfolio. It has been earning enhancing from day 1. It gives us many opportunities to accelerate our growth and is currently trading ahead of expectations. Even with the acquisition costs, net debt is only 0.8x EBITDA. All aspects of our STEP2 strategy are moving forward, and we've made particularly good progress in the period on a number of key projects, which have delivered excellent results and helped us offset inflation whilst constantly expanding the benefits of our international manufacturing footprint. So over to Jim and those detailed numbers.

Okay. Thanks, Robert. All right. So straight into the numbers. The numbers show a record performance for Renold, certainly over the last 25 years. Turnover is up GBP 61.9 million or 26.6%, following the continuation of the strong order intake seen in the first half of the year. Adjusted operating profit at GBP 24.2 million is up 58.2% or 46.4% at constant exchange rates. Statutory operating profit increased strongly to GBP 22.9 million but does include 2 adjusting items, transaction costs for the YUK acquisition of GBP 0.6 million and GBP 0.7 million amortization of acquired intangible assets. The prior year included an exceptional credit of GBP 1.7 million for forgiveness of loans under the U.S. government Paycheck Protection Program, COVID Release scheme and a charge of GBP 0.7 million related to a lease arrangements on closed sites. Excluding the adjusted items, return on sales was 9.8%. This shows a 200 basis point improvement from last year's 7.8%. Net debt finished the year at GBP 29.8 million. Last year's net debt stood at GBP 13.8 million and net reduction of GBP 2 million when the GBP 18 million of net consideration on acquisitions is taken into account. Gearing, i.e., the net debt-to-EBITDA ratio, stood at 0.8x, an increase of 0.3x since last year-end. Adjusted earnings per share at 6.5p increased by 51%. Basic earnings per share was up 21% to GBP 5.7p. The above numbers illustrate the results of this strategy over the past few years, which has delivered a more flexible business with a lower cost base. Moving on to the divisional summary. The Chain division's turnover increased by GBP 43.2 million or 27.1% to GBP 202.4 million, breaking the GBP 200 million barrier. Adjusted operating profit increased by 43.9% to GBP 27.2 million, with a ROS of 13.4%. That's an increase of 150 basis points over the prior year. Included with the Chain division is the impact of the YUK acquisition, which is performing ahead of our expectations. The business contributed GBP 10.4 million in sales and GBP 1.9 million of incremental profit including the impact of initial profit synergies. In the TT division, revenue increased by GBP 8.4 million or 20.8% to GBP 48.8 million. The division saw an increase in activity, especially in North America and Australasia. TT is a later cycle larger order business. And as expected, performance starts to pick up markedly in the second half of the financial year. Operating profit increased by GBP 1.3 million or 20.8% to GBP 5.4 million as a result of both increased volumes and pricing impacts. The group announced earlier in the year a further GBP 8.9 million long-term military contract for the Australian Navy's 3-year program. The military contracts provide a nice base level of business for the company's business over the longer term. And office costs increased due to a reduction in rental income on closed sites and also the impact of inflation and the impact of variable elements to pay. So moving on to the next slide, which shows our profit bridge. A quick note about turnover and sales increases. The group saw a strong growth in external revenue of GBP 51.9 million during the year. This increase is roughly split GBP 28.8 million from the impact of price and volume increases, mostly price; GBP 12.7 million from foreign exchange rate impact; and finally, GBP 10.4 million impact from the 8 months of ownership of the YUK acquisition. The net impact of price and volume and mix increased profitability by GBP 5.8 million during the year. Productivity improvements saw an increase in profitability in the year of circa GBP 2 million. While the impact of the YUK acquisition, including synergies, was to add GBP 1.9 million to operating profit, a drop through rate of 18.3%. Increases in variable elements of pay, bonuses and share-based payments added GBP 0.9 million to payroll costs. Other items, which includes the impact of labor and overhead movements in inventory, stock provision movements and allowances for claims, reduced profitability by GBP 0.8 million. Return on sales improved by 200 basis points during the year to 9.8%. Moving on to cash flow. We took the opportunity to invest in the future of the group with GBP 18 million spent in the year on the acquisition of YUK, our Spanish business. Excluding the impact of the group -- excluding the impact of the acquisition, the group generated net cash inflow of GBP 2 million, of which GBP 4.1 million was generated in the second half of the year. Net gearing, that's net debt to EBITDA increased to 0.8x. At the prior year end, this stood at 0.5x. EBITDA at GBP 36.2 million was particularly strong in the year. And as mentioned earlier, was some 40% higher than the prior year. Working capital increased by GBP 10.5 million which saw a GBP 4.5 million increase in inventory as the group finally was able to normalize inventory levels following recent supply chain disruption driven mostly by extended freight times, material inflation and increased OEM demand. AR and AP balances increased broadly in line with the increase in trading activity. Net CapEx at GBP 8.4 million picked up momentum in the second half of the year and has now reached a more stable run rate. A supply chain disruption seen in the first half of the year works its way through the supply chain. Strategic investments in production machinery and IT systems will continue in the new financial year, and Robert has a slide later on which details some examples of those. Pension costs return to more normal levels. During the pandemic, the pension trustees agreed to defer GBP 2.8 million of pension contributions. Those pension contributions are repaid or started to be repaid this year at GBP 0.6 million per annum, with repayments starting in FY '22 going through to FY '28. Going forward, the group has had a long-standing commitment to the U.K. pension scheme to increase pension contributions when adjusted operating profit went above GBP 16 million. These increased cash contributions will commence in the coming year. Restructuring spend was again 0 in the period. So moving on to the next slide. The next slide tries to explain the cash generation by the group and sort of breaks out the cash flow statement into those amounts, which can be trading, which are required spends and those amounts which are [ open ] to the discretionary of the directors to sit there and allocate cash. So let's take a step back to focus on cash generation over the last year. EBITDA was at GBP 36.2 million. Working capital was an outflow of GBP 9.2 million, and you'll notice a split out of that previous number, the repayment of our Chinese building, which is listed separately. So operations generated GBP 27 million in the year. Required spend pensions, interest, tax was GBP 15.3 million. So this leaves GBP 11.7 million of cash generation available for discretionary spend, volume reduction or strategic investments. The discretionary spend this year breaks down as follows: CapEx, the group chose to spend GBP 8.4 million on CapEx, capital investment. The Chinese building payment was GBP 1.3 million, and that pays the long-term creditor on the new factory in China and then the spend on acquisitions was GBP 18 million. So therefore, cash available to reduce net debt or for, in fact, strategic initiatives was GBP 11.7 million. Moving on to the next slide. I'd like to focus in on earnings per share. Adjusted earnings per share growth was 51.2% to 6.5p. The improvement can be broken down into 3 categories. The improvement from underlying profitability at 4.3p to earnings. The impact of pension and external interest reduced earnings by 0.6p. And obviously, with the recent interest rate increases as we go forward, that, again, will be a headwind on earnings growth. Tax increases reduced earnings by 1.5p. As we become more profitable, we do make a lot of our profits within higher tax jurisdictions such as Germany. So our broker forecast do include an increase in the ETR going forward. Basic earnings per share increased by 21% to 5.7p. This does include 0.8p of nonrecurring items mentioned earlier. The trend in earnings over recent reporting periods is up to a new underlying level of 6.5p is quite a marked increase. Okay. Moving on to the next slide. I'd like to talk about pensions. The group's IAS 19 pension deficit was GBP 62.2 million. This compares to last year's figure of GBP 87.1 million. This has reduced in the period by GBP 24.9 million as discount rates on the U.K. scheme increased from 2.75% to 4.85%. This was partially offset by an increase in CPI inflation to 2.85% from the prior year level of 3.25%. The vast majority, some GBP 44.2 million of the deficit rates to the U.K. scheme. We saw a corresponding reduction in the deficit of GBP 19.9 million. The group has in place a long-term funding arrangement with the scheme, a CAR or a central asset reserve, which seeks to repay the deficit over the next 15 years. Cash flows under the CAR provide a long-term, predictable and manageable funding arrangement to the scheme and the group at circa GBP 3.5 million per annum. These cash flows are not included within our IAS 19R scheme valuation. The strong relationship of the group has with the pension scheme and the alignment and objectives in ensuring the long-term viability of the group allowed agreement to be reached with the trustees to defer GBP 2.8 million of payments to the scheme during the COVID-19 pandemic. Repayment started in FY '22 and well -- at GBP 0.6 million per annum and will continue until FY '28. The latest triennial pension valuation of the scheme as of 31st of March 2022, showed a technical provisions, TP deficits of GBP 5.9 million. Recent movements in discount rates, the actuary assures me at the moment that the TP deficit actually shows a slight surplus at the moment. So the TP deficit is the measure that the pensions regulator uses to evaluate scheme. Going forward, the group has a long-standing agreement with the U.K. scheme to increase cash contributions by GBP 1 million per annum, if adjusted operating profit reaches GBP 16 million. The first contribution of GBP 1 million commenced on the 1st of April 2023 and will show an increase in pension scheme contributions going forward. Cash contributions to overseas schemes are again predictable and stable at approximately GBP 2 million per annum. Last year, we spent GBP 0.3 million and closing down the New Zealand pension scheme, but this payment was one-off in nature and will recur next year. In a change to our normal pension presentation, I've included 2 new graphs for this financial year. The first shows our actuaries' view of the current expected repayment period for the U.K. scheme. So the actuary issue -- actuary's calculation show that the U.K. IAS 19 deficit will be essentially 0 at the end of 8.5 years' time, which is roughly 2031. The second graph shows the discount to future payments under our German pension arrangements. You'll notice the liability at the moment is GBP 19 million. Again, by the end of 2031, the deficit in the German scheme will halve to roughly GBP 9 million. So broadly, at the end of 2031, the group IAS 19 pension deficit should be in total approximately GBP 9 million from the current deficit level of GBP 62.2 million. In summary, despite swings in the IAS 19 pension deficit, pension cash flows are sustainable and manageable over the mid- to long term. Now I'd like to hand back to Robert who will continue with the presentation.

Okay. Thank you very much. So I'm going to start here on Page 12. I'm giving a short commentary on what we're seeing in terms of trading conditions around the world. The macroeconomic environment continues to be variable is still constantly changing and is full of substantial and material issues. Cost inflation, whilst moderating is still widespread, supply chain constraints and costs are reducing, but still very real. And with increasing market uncertainty, there's a constant need for us to be on our toes and nimble. We anticipate paid pressures in some locations over the next 18 months or even more. The graph on the top left of the slide is public data. And as an index of energy prices, the global situation is very mixed. And in our experience, the big issues are in Europe and the U.K. Whilst energy costs are down, they are not back to where they were and we don't anticipate them getting back to pre-pandemic levels in the foreseeable future. We wait to see how European energy supplies stand up in the coming winter. The top right-hand graph shows an index of container costs on the purple line and transit times on the blue line. This is public data, but it reflects very well what we are experiencing in Renold. The bottom left graph is the Renold steel purchase price. This is based on our chain business only. It can be distorted by mix factors from month to month and the work we do to reduce our cost through our business improvement activities. Whilst we are seeing some slight improvement in Chinese and European steel prices, they are small, and we do not anticipate any major changes this financial year. I said 6 months ago that I thought inflation was becoming embedded in the economy, particularly in the U.K. I still believe that to be true. We anticipate high interest rates and wage cost pressures for some time. Whilst recruitment is difficult, it always has been. And I certainly don't recall anyone ever saying to me anything different. In the second half of the last financial year, we unwound the extra inventory we put in place to cover possible disruption in Europe due to the winter energy availability. We're watching carefully to see what happens this year. The Renold team have faced all these challenges and dealt with them very well, delivering increases in sales, orders and profits whilst completing a high-quality and earnings-enhancing acquisition. So if we turn over the page, please. A few comments on the divisional sales performance. This slide shows the Chain and TT divisional performance. Chain at the top, TT at the bottom. Whilst Jim talked you through last year's performance of Chain and TT, I thought I would just try and put this in some longer-term context. You can see the Chain adjusted operating profit is now well above the pre-pandemic period as our return on sales and return on average capital employed. Chain adjusted operating profit has grown by a compound rate of 10% over the last 4 years. So that's since the year before the pandemic. The situation for TT is very similar. But with this being a later-cycle business, the 2023 adjusted operating profit performance is not yet growing as quickly as Chain. Again, margins and return on average capital employed are developing nicely. The central graphs show revenue per employee. I wanted to include this stat so that you can see what we are achieving with our capital expenditure and also what is coming from our business improvement work stream. For Renold as a whole, if you back out the YUK acquisition, despite a substantial increase in revenue, group head count fell. And you can see this on the slide that both TT and Chain businesses improved. To try and illustrate what we've been doing across the business to generate these results, I thought it'd be useful to show you some examples. So if we go over on to the next slide, Slide 14. This slide shows some examples of what the businesses have been doing to generate growth will constantly drive efficiency and productivity. The top pictures show some equipment we've recently invested in. The top far right picture is the second new large Mazak machining center, which was commissioned in the year to enable us to keep up with the growing demand for our military and marine couplings in Cardiff. This machine will run in tandem with the first machine without any extra personnel. The bottom far right picture shows 3 of the 4 new cold extrusion machines that are now running in China. The fourth is due for delivery soon. All these machines are run by one person. The parts made here reduce costs and increase the specification and quality of what we can produce. The black and white picture from the bottom is a new EUR 750,000 laser cutter that we bought for YUK since acquisition. It's aimed at a number of benefits, but in particular, increasing service levels on small volume special parts. The top far left picture shows 2 of the 5 new integrated, automated assembly lines that we're in the process of installing. This reduces manning by 17 and increases output. In total, 5 lines when running at full speed are capable of producing 3,500 kilometers of chain a year. So that's 3.5 million meters of chain in a year. The all white line in the middle of the photo is dedicated to a chain that often goes into automated warehouses. Indeed, 3 of the new lines produce Chain, which is widely used in automated warehouse and logistics systems. The line with the blue doors, the left of the picture is for assembling more generally or broadly based Chain. We're steadily investing in a new generation of assembly machines that increase capacity, reduce labor, integrate multiple production stages that were previously done separately and improved product specification. The top middle picture is a new machine that has been commissioned in our American TT business at Westfield in New York State. This machine replaces 4 old machines, reduces our manning by 2 people and reduces the machining time on a single pinion component from 1 hour to just 10 minutes. This is typical of what we're trying to do replacing multiple old machines with single new machines that can work lights out. They reduce costs, improve quality and specification and improve service. This particular machine cost a little over $400,000. The 3 pictures at the bottom of the slide shows some investments we've been making in the Chain business to increase our geographic reach. By holding stock closer to the customer, giving them faster supply times whilst also giving us the possibility to configure or adapt the Chain just before dispatch, again, giving the customer a better and more tailored service. This is all about or part of increasing revenue. The far right is the site we opened in Nagpur in Central India a number of months ago. India is a big place and logistics can be troublesome. Our manufacturing site is in the south of the country, and so we opened this distribution center, the first of a series of openings in the center of the country. The left-hand photo shows our new location in Turkey. We've been building our business up organically for a few years in the country, and it's been going very well. We've now moved to the next phase of development and are therefore in the process of fitting out a new site, recruiting new personnel and getting ready to open towards the end of the first half. The central photo shows our new sites on the West Coast of the U.S. It's interesting to note that when you do the analysis and look at the density of sales geographically, they are always greatest close to a site, which gives good stock availability. The West Coast of America, where we have no such ability is a geographic gap, which this new site will fill. We're currently fitting the building out and recruiting the remaining members of the team. We should be opening in September, at which point we will reduce supply times from typical 5 or 7 days using standard freight down to a more useful 1 to 2 days. As you can tell, both TT and Chain are both pushing forward with activities to organically enhance their performance and as we've shown, producing good results from it. So if we flip over to Page 15. This slide is similar to ones I have shown in the past. The revenue and order growth by region on the top chart are combined TT and Chain, they are external only. Everything is at constant exchange rates. The top line of bar charts compared with period -- the reported period against the prior year. Compared to last year, the group revenue as a whole was up 18.8% at constant exchange rates, whilst orders were up 9.2%, normalized for last year's military contract. There is more variation in performance between regions in this period, and there has been for some time. From an order intake point of view, Europe and India were the laggards, though India was the only region that had a reduced order intake in the year. This was due to the exceptional level in the comparative period, unfavorable weather conditions for the agricultural MRO, maintenance repair chain business that we have in that country. Europe experienced a more difficult economic conditions earlier in 2022 than most other regions. And so though orders grew year-on-year, we had distributors destocking and some OEM customers slowing down later in the year. The anticipation of winter energy disruption did not help anyone. We saw high growth rates in China in both sales and orders. However, the Chinese market seems quiet and we're seeing many Western manufacturers, especially U.S. ones reducing their footprint. We saw good progress across the board, especially in our TT business. We anticipate China becoming quiet still as this new financial year progresses. Australasia, in particular, Australia and the Americas had good growth in orders and sales, both for TT and Chain. Both markets seem to be especially driven by reshoring and locally manufactured product. We, of course, with our international footprint can accommodate both requirements. Whilst I'm not showing a graphic for this today, we're seeing growth in all our customer groups, though distributors have grown considerably less quickly than end users and OEMs. As mentioned earlier, we believe some distributors to be destocking. Turning over to the next page. This slide focuses on revenue split by market sector. As I always say, the diversity of our end markets is far greater than this chart suggests. We, however, try to group things together to make it meaningful in the presentation. It should be noted that this analysis is for the non-distributor part of our business as this is what we can clearly track. As an added data point, broadly, we think that MRO is 75% of our entire business and 25% is first fit. All end market sectors grew in the year by double-digit percentage, except for material handling where we've seen some customers struggle with their supply chains and labor availability. Mining and quarrying more than doubled in the year, whilst our small environmental sector grew by 75%. Transportation-related sales grew by 39%, whilst agriculture, forestry and fishing grew by 30%. The food and drink sector grew by 27%. I've included pictures of a small selection of industries that use our products to remind people the breadth of applications and end markets. Industrial chain, in particular, is used very extensively and you will all come into contact on a daily basis with products and services that use industrial chain. Maybe the food you eat, the things you buy, the transport you use or indeed your leisure activities, industrial chain is a key component of delivering your lifestyle without you knowing it. Reshoring is a very real thing. Companies are looking to bring supply chains closer to home to derisk their operations, but also because the financial equations of the past have altered. The new ability to automate, to hold down costs in Western economies whilst using green energy and environmentally friendly production techniques mean that manufacturing is now not just acceptable but increasingly positively regarded. Automation to reduce costs and to mitigate labor shortages as an important driver of industrial chain demand. The need for suppliers to be sustainable and ethical has never been higher. This all plays to Renold's strengths. We have a diversified manufacturing footprint to derisk our own and customer supply chains. We produce a high specification, long life, low energy, sustainable product, the use of which is increased by the trend for automation. Global market trends are a tailwind for the Renold business. If we turn over again just to talk about strategy a bit. Our STEP2 strategy is unchanged. Whilst there is much work to do and lots of opportunities to develop the business in many ways, the core central element of STEP2 is growth. A single page version of the STEP2 strategy is shown in the top left corner of this slide, conveniently small so none of you can read it and ask me difficult questions. It is, however, unchanged from what we've shown you in the past. The strategy identifies 2 things: growth, split between organic and acquisitive and business improvement. The 2 other diagrams on this page are from our Capital Markets Day. If you weren't there, I do encourage you to watch the video, which is on our website. The top right diagram, whilst it's drawn here to represent the industrial chain market, could be used equally well to represent subsections of the TT business, such as couplings or gears. Across the bottom of the triangle, we have various product sectors within the market. Some we're in and some we aren't. Going up the triangle, the product performance requirements increase, i.e., the product is higher specification. The light blue area is the total industrial chain market, and the dark blue triangle is Renold's market position. We are a premium producer of product, which is graduated to indicate relative market position. The white or light blue circles are gaps in our product offering. The chart shows 3 ways to grow, and these are; firstly, by technically stretching the market upwards by developing and introducing ever higher specification products. This could be extending the life of a product or making it more sustainable or making it run without lubrication. This will maintain our technical leadership and is why we are constantly increasing our product development capabilities. Secondly, this is about market penetration, filling in the gaps in our market position. This could be through acquisition or organically. Thirdly is about range extension, moving sideways on this diagram into adjacent areas, which we don't currently play in. This could be organic, but is very likely to be through acquisition. The STEP2 strategy is still underpinned by a business improvement element and I've shown you some of the investments we're making as part of this. I could equally have drawn your attention to our business systems development, or other work streams. However, what I'd like to point out today is that our business improvement cycle, which I show on the bottom of this slide, works well for organic business development but acquisitions, turbocharge this process. Acquisitions provide extra fuel to drive the improvement cycle. With acquisitions, there is more to simplify, standardize and automate. The business improvement cycle does not just reduce costs. It facilitates commercial growth. Renold is an excellent business that can be developed without acquisition but due to the sticky nature of our products and the accelerator effect they have on our improvement cycle, acquisitions will enhance our growth. Acquisitions are a core part of our STEP2 strategy, and this leads me nicely on to our next slide, Slide 18. Though net debt rose due to the acquisition of YUK, it still stood at just 0.8x EBITDA at the end of the period. When this is combined with our strong market position and an experienced and capable management team, we are well set to drive the acquisitive phase of our strategy. I was very pleased in August to announce the acquisition of YUK. This is an excellent business with a very capable management and workforce. Since the acquisition, it's traded well and is ahead of our expectations. Whilst I've spoken in the past about various types of acquisitions that we might consider, YUK is a deal which incorporates 2 of these concepts. It enhances our position in the Iberian market, where we have traditionally been underrepresented and at the same time, it brings into the group a European CVC or conveyor chain manufacturing facility, which will enable our European sales force to sell a much wider range of products than has traditionally been possible. At the same time, you can offer a wider range of Renold transmission chain products, including our premium solution chains to their customers. On top of this, we're able to in-source product previously bought from third parties by YUK, thus enhancing our overall margins. This is a very good acquisition for us, and we see it as a wonderful example of how acquisitions can bring hard synergy savings and at the same time, accelerate range growth, product development and sales opportunities while strengthening our geographic position. We have an active pipeline of opportunities, including one particularly well advanced proposition, all of which are value-enhancing. We're looking at deals that come in a variety of sizes, which can bring a mixture of opportunities to the Renold business. So we go on to the last page, Slide 19, very quick summary. I am delighted with the group's robust performance during the last financial year, which delivered broad-based record results, reflecting the benefits of the strategic programs implemented in recent years. The YUK acquisition is working well and providing us with the many benefits we expected. Throughout the reported period, the business performance has been on an improving trend. Our order books continue to be healthy, but I do note that order patterns have been inconsistent in the early part of the new financial year. We recognize there are still considerable economic challenges in many parts of the world. Supply chain issues, although reducing in number and severity are still prevalent and inflation and prices remain high for both energy and materials. However, we've entered the new financial year with good momentum and confidence in the excellent fundamentals of the Renold business. Although macroeconomic trends do add a note to caution. Once again, our employees around the world have responded magnificently to the challenges we faced. And with their help on the strengthening performance of the business, we look forward to this new financial year with great optimism. Thank you very much for your attention. And back to you, Tim, to see if anyone has any questions.

Well, thank you very much, Robert, and thank you very much, Jim. We have had a few questions come in. And as I mentioned, there were questions submitted ahead which were much appreciated. The first question really is for you, Jim. It's a clarification on pensions. Obviously, we're in a rising interest rate environment at the moment. Can you clarify what the correlation is between the discount rate that's used and headline base rates? And also, is it possible to give any guidance as to what impact on the deficit there is from, say, a 1% increase in interest rates?

Okay. Well, that's absolutely fine. Obviously, the discount rate is linked into corporate bond yields. What we do is when I actually look at this I actually use a 10-year yield or rate as a clear indication of what those corporate bond yields will do. And it tracks very, very, very closely. From where we were at year-end, as I said, our discount rates were 4.85%. Bond yields sort of over that period since we closed at 31st of March, have increased by, I think, 85 basis points. So that's probably a clear indication that the discount rate is on the way, which means pension liability once again on the way there. So I -- if you look at the increase in the discount rate that we saw during last financial year, you see the movement there and the reduction of our approximately GBP 20-plus million because of that movement in rates. Going forward, we estimate that a 100 bps movement in that discount rate may well, if it tracked the same as the deficit as last year, reduce the deficit again by maybe GBP 10 million, GBP 11 million. That's where it could well [ land ]. Obviously, the detail of that, we would have to wait for the actuaries to give us a proper assessment of where that is, but that could well be an indication of where that deficit was to go, if we were to strike the balance at the moment as to where we are.

One thing -- sorry, one thing I'd just add to that quickly, Tim. For those that like reading detail in the annual report, there is quite a lot of information given in the annual report on these sorts of factors and the pension scheme deficit.

Yes. Very good point. I've had a couple of questions or actually a number of questions in the broad topic of dividends and whether dividends is something that the group is considering? And if so, are there any other impacts such as on the pension, if you were to pay a dividend? And finally, do we think that this is having an impact on the attractiveness of the share to certain classes of investor?

This is a very active discussion for the Board, and we had some long conversations with our advisers very recently about this as well. I think it's fair to say that some shareholders say to us they believe it would make a difference and another group of shareholders say they don't think it would make a difference and they don't favor it. And as a Board, we have to try and work out our own position and what we believe. Just another data point before I take that any further. At the moment, for the next 3 maybe 4 years actually, if we pay a dividend, then 50% of the value of that dividend needs to then go into the U.K. pension scheme. After that, it falls to 25% of any dividend payment. So there is indeed an impact on the total cost. The thing that the Board tries to weigh up, and we do have some very active debate about this is the value to shareholders of the dividend versus the value that we can create within the business by using that cash for other purposes. As we become more cash generative and the performance of the group improves, that debate and that balance becomes ever more difficult, actually. There was a period in history where the payment of the dividend really wasn't possible. It is possible. It's now more a balancing act. And that's what we're constantly trying to work out and decide. I think as time goes on, it's more likely we pay a dividend. But at this moment in time, particularly with some of the opportunities we have with capital investment and acquisitions, we believe we could add more value to shareholders by currently using that cash for the purposes.

That neatly brings me on to the next topic, which is acquisitions. You obviously outlined in the presentation, there are a number of opportunities. Can you give any more color on not specifically what you're looking at, but really the structure of the industry and the opportunities that are available? I.e., are there other YUK-type businesses out there that could possibly be acquired? Or is it fragmented as such, you're going to be looking at smaller deals mostly?