Renold plc (RNO) Earnings Call Transcript & Summary

Well, good afternoon, everybody. If you can just bear with us a few moments while everybody joins, that would be much appreciated. We've got quite a lot of people attending this evening, and it does take a few moments for the Zoom system to let everybody in. You can see the attendee list is still rising. So just bear with us a few moments longer, and we'll get started. Well, good afternoon. My name is Tim Metcalfe. I run IFC Advisory, which is Renold's Financial PR and Investor Relations agency. With me, I've got Robert Purcell, Renold's CEO; and Jim Haughey, Renold Finance Director. Unfortunately, there is a little issue with the Zoom system today, and Jim's got Robert's name against him. But I can assure you they are two different people, and we do have both represented today. The format of today is that Jim and Robert will run through a presentation. This is a presentation that they've been using for analysts and institutional investors today, focusing on the full year results, but also giving you some more color on the rental business and how it's been performing. At the end of the presentation, we will have the opportunity for questions and answers. I'd like to thank those who provided questions in advance. That's really appreciated. But we do appreciate further questions. But given the number of people online, unfortunately, we won't be able to go to you individually, ask you to unmute and put your questions directly to Robert and Jim. So if you can use the question function at the bottom of your screen, type in your question, I will then put those questions to Robert and Jim at the end of the session. And hopefully, we will cover everything that people want answered. So without further ado, I will hand over to Robert to start the presentation. Robert?

Thank you very much, Tim. Good afternoon, everybody. Welcome to the presentation of the Renold full year results for the financial year ending 31st of March 2024. I am the real Robert Purcell, so the other one is an impostor. Our Jim gets on later on. Fine. Thank you very much. Right. Let's get on. To make sure everyone is familiar with the basics, I've been asked to spend a minute on a short overview of the group. We are a GBP 240 million revenue, 150-year-old international precision engineering business, 80% of sales are from industrial chain and 20% from Torque Transmission products. These products, in particular, these are couplings, wind gears and gear spindles. We have our own presence in 20 countries and selling to over 100 countries. Only about 7% of our sales are in the U.K. We have an international manufacturing footprint for both Chain and TT as shown on the map, providing the opportunity for customers and ourselves to derisk our supply chain. The size of the industrial chain market is at least GBP 3 billion, and we're #2 in this extremely fragmented sector. We're very niche in the even larger TT marketplace. We have no dependency on any one geography, product, customer or application, approximately 75% of sales are for repair and maintenance. Generally, our products are relatively low cost, but a critical component of the finish solution or product. This means they're very sticky in nature. We're renowned for our market-leading engineering. We produce premium, high-performance, high-quality products. So that was a very quick, very high-level view. If we'd like to go to the next slide, we'll kick off with the 2024 highlights. 2024 was another record year for Renold whilst revenue was up 1% at constant exchange rates. Adjusted operating profit was up 22.7% at actual rates at GBP 29.7 million. The full year return on sales was 12.3%, up 250 basis points on the prior year, but also up 30 basis points from the first half results. The margin and absolute profit improvement are the outcome of a number of factors, including the business improvement element of the STEP2 strategy, continued capital investment projects, successful acquisitions, and the impact of our intelligent pricing activities. Our net cash generation has continued to strengthen and should strengthen even further in the coming years. Net debt fell to GBP 24.9 million at year-end, a reduction of GBP 4.9 million despite acquisition payments. EBT share purchases and property payments, which totaled nearly GBP 12 million in the period. In addition, we increased our capital investment rate to GBP 10 million in the year to take advantage of a number of attractive opportunities. As our actual and expected cash generation continues to improve and our profitability and margins reached new highs. The Board has today announced [indiscernible] of a dividend payment. The proposed payment will be the first since 2005, and in my view, marks the end of the period of the company rehabilitation and the start of a more expansive phase. Our order book at year-end was close to historic highs and well above pre-pandemic levels. H2 order intake was 7.5% higher than H1. H2 book-to-bill ratio was greater than 1. We completed the acquisition of Davidson Chain in the year. The business is currently being integrated into our Melbourne site in Australia, and we're delighted that the Davidson Brothers continue to work within the business. bringing with them many years of knowledge and expertise, which will help grow us -- grow our Australian business. Industrial markets are not easy, and we carefully monitor the performance of our competitors. We believe we are growing our market share, and I think that this can continue our STEP2 strategy is delivering. And with an improving balance sheet, good internal improvement opportunities and an excellent acquisition pipeline. We look into the future with confidence. So there we are, just a summary of the highlights over to you Jim for some more detailed numbers.

Okay. Then moving on to Slide 4, which is the financial summary. The numbers once again show a record performance for Reynolds. Adjusted operating profit, GBP 29.7 million is up 22.7% or 27.3% at constant exchange rates. Turnover for the year increased year-on-year by 0.9% on a constant currency basis. Our actual exchange rates revenues fell by 2.3% and currency headwinds of GBP 7.9 million are included. Statutory operating profit increased strongly to GBP 30.5 million, but does include 3 adjusted items with the associated tax implications. The exceptional profit on the assignment of a lease of a closed site which was about GBP 2.3 million, transaction and reorganization costs for the Davidson acquisition in Australia of GBP 0.5 million and the amortization of acquired intangibles. Excluding interesting items, return on sales was 12.3%, which shows a 250 basis point improvement from last year's 9.8%. This continued to strengthen from the 12% reported at the half year. Net debt finished the year at GBP 24.9 million, last year, it stood at GBP 29.8 million, a reduction of GBP 4.9 million in the year. It should be remembered that the reduction took place despite making GBP 5.2 million of payments related to acquisitions repaying GBP 2.3 million related to the Chinese property purchases in prior years, the deferred payments and spending GBP 4.5 million in topping of the shares held in the EBT. We do buy shares on the market to hold in the EBT for all our share schemes and none of our share schemes in any way are dilutive. Adjusted earnings per share at 7.8p, increased 20%, while basic earnings per share was up 45.6% to 8.3p. The above numbers continue to illustrate the results of the strategy over the past few years, which has delivered a more flexible business with a lower cost base. Moving on to the divisional numbers. The Chain division's turnover reduced in the year by 1.6%, 4.7% when the impact of currency headwinds taken into account. We finished the year at GBP 192.8 million. Despite the reduction in turnover, productivity improvements led to 15.8% increase in adjusted operating profit to GBP 31.5 million. The constant currency increase being 18%. Return on sales for the Chain division is now 16.3%, an increase of 290 basis points in the year. Included within the chain numbers is the impact of the assignment of the [indiscernible] site of GBP 2.3 million, together with GBP 1 million adjustment for amortization of acquired intangible assets. The Davidson acquisition, which occurred partway through the year is performing in line with our expectations and being one of our bolt-on acquisitions is currently being rolled into our existing Melbourne facility. In the TT division, revenue increased by GBP 4.7 million or 9.6% to GBP 53.5 million. The division saw an increase in activity, especially in our North American facility and also within our Cardiff facility with the supply of large couplings to various navies around the world. TT is a later cycle, larger order business, and as expected, performance started to pick up markedly during the financial year. Operating profit increased by GBP 3 million or 55.6% to GBP 8.4 million as a result of both increased volumes, a positive mix of business and pricing impacts. The group announced in May, that's post year-end, a further GBP 13.1 million of military contracts which included a $10.6 million long-term military contract for the Canadian Navy's frigate program. This followed similar contracts in both prior year -- contracts in prior years for both the Australian and the U.K. navies. The military contracts provide a nice base load of business for the couplings business over the longer term. Head office cost increased due to the impact of inflation, variable elements of pay, investment in further IT support for the business and an then increase in professional fees. Moving on to Slide 6, our profit bridge. The group saw a strong growth in profitability during the year, with adjusted operating profit improving by GBP 5.5 million or 22.7% despite being [ credit based ] with currency headwinds of approximately GBP 1 million. The net impact of price volume mix during the year was a benefit of GBP 1.7 million. While productivity improvements saw an increase in profitability of GBP 3.3 million, primarily related to the impact of prior year capital investments. Increases in variable elements of pay, bonuses and share-based payments added GBP 0.5 million to payroll costs. While the incremental impact of both the Davidson and YUK acquisitions, including the impact of softer sales synergies was to add a further GBP 1.5 million to operating profit. Finally, the impact of other items. It's a bit of a group or what does include operating cost savings associated with the assignment of the lease on our closed [indiscernible] increased operating profit by a further GBP 0.5 million. Return on sales improved 250 basis points during the year to 12.3%. Moving on to cash flow. Net gearing, i.e., net debt-to-EBITDA reduced to 0.6x. Last year end, this stood at 0.8x. EBITDA of GBP 40.9 million was again strong being some 13% higher than the prior year. Working capital reduced by GBP 1.6 million inventory levels remaining broadly flat, while increased focus on aged AR led to a cash inflow from receivables. Payables move broadly in line with trading activity. Net CapEx at GBP 10.1 million continued to gather pace and is forecast to remain at the GBP 10 million level over the coming years. The level of GBP 10 million is slightly higher than our initial ROCA forecasts at the start of the year as the group is attempting to further capitalize on some relatively short payback automation opportunities. Strategic investments in production machinery and IT systems will continue in the new financial year. Pension costs continue at normal levels and continue to include an amount of GBP 0.6 million per annum for repayment of the deferred pension contribution that the group agreed with the U.K. pension scheme during the COVID period. These payments -- these repayments will continue to 2027, after which they will drop away. The group continues to pay GBP 1 million per annum of additional contributions agreed with the scheme for adjusted operating profit being in excess of GBP 16 million. Acquisition-related expenditure for both the Davidson acquisition and the deferred payment of the YUK acquisition totaled GBP 5.2 million, including costs. Restructuring spend was again 0 in the period. So moving on to the next slide. our 1-year cash generation bridge. Now we're trying to split the cash flows on this slide into 3 categories. As those cash flows from trading, those which are our required spend which include pension payments, tax interest, et cetera, and those which are discretionary spend. So that what's available in terms of cash to allow us to develop the business forward, pay down net debts, et cetera. So starting from the left-hand side, EBITDA was GBP 40.9 million to which you need to add working capital inflows of GBP 3.9 million. So generation -- operations generated GBP 44.8 million. Required spend, so pensions, tax interest was GBP 17.8 million. This leaves approximately GBP 27 million of cash generation available for discretionary spend borrowing reduction or strategic investment. So discretionary spend this breakdown as follows, so CapEx and it should be remembered that there is about 60% which is investment CapEx and 40% is maintenance CapEx. So CapEx was GBP 10.1 million that the Chinese building payment, so that's again at a further payment which is required when we move property, we deferred payments over a 3-year period. This is the second one of 3 is GBP 2.3 million. And the acquisition spends was GBP 5.2 million. The EBT share purchase, as I said, our schemes are nondilutive. We buy shares in the open market to fund all of our share schemes is GBP 4.5 million. That's a total of GBP 22.1 million. Therefore, cash available to reduce net debt and other strategic initiatives was GBP 4.9 million. Okay. Moving on to the next slide, which is our future cash generation. The slide on the left-hand side, that's based on our ROCA forecast. And what this slide is trying to show is that the GBP 4.9 million of cash, we've got some structural payments for next year. The acquisition payment for the final acquisition payment for the YUK acquisition and the final payment on the Chinese property purchase. They will be made next year to generate around about GBP 4.8 million worth of cash next year. After that, those 2 payments, they drop away and the cash generation improved significantly after those payments are made following years being in a region of around about GBP 10 million each. The second chart illustrates that not only as we projected cash generation going to increase over the coming years, but it's higher than the sector average in terms of cash flow yield. Moving on to Slide 9, the earnings per share. So focusing on earnings per share. Adjusted earnings per share grew by 20% to 7.8p and EPS performance is well ahead of pre-pandemic levels. Finally, moving on to Slide 9, which is the pension slide. The group IAS 19 pension deficit was GBP 57.1 million compared to last year's figure of GBP 62.2 million. This was a reduction of GBP 5.1 million in the year due primarily to a reduction -- an increase in discount rates from 4.85% to 5%. While CPI inflation has remained constant at 2.85%. The scheme, there's 2 main schemes in our pension world, the first one is the U.K. scheme, which has a GBP 39.7 million deficit. And that's sort of a corresponding reduction in deficit of GBP 4.5 million. The second largest scheme is the German scheme now has a deficit of GBP 17.5 million, but like other German schemes, it has no assets is unfunded scheme, which is a sort of pay as you go. It has no investments and it assumes that past employees remain on the payroll until that. In the U.K., the group has in place a long-term funding arrangement with the U.K. scheme, a car or a central asset reserve which seeks to repay the deficit over the next 14 years. Now that will not only bring us past IAS 19 deficit, but also it is hopefully into a place where the scheme is completely fully funded and could be in an insurance buyer world. Now those payments, as I said, is scheduled for the next 14 years, and due to end in 2038. If investment returns are better than we expect, those payments will finish earlier. Cash flow under the [ car ] provides a long-term, predictable and manageable funding level to the scheme. Base car contributions are running at 3.7 million per annum. The strong relationship that the group has with the U.K. scheme and the alignment and objectives ensuring that the long-term viability of the group allowed agreement to be reached with the trustees to differ GBP 2.8 million of payments to the scheme during that COVID-19 pandemic with repayment of circa GBP 0.6 million per annum scheduled between FY '23 and FY '27. 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 reached EUR 16 million. The first contribution of GBP 1 million commenced on the first of April 2023 and should be included in our cash projections going forward. In addition to this payment, the group agreed to pay additional contributions to the scheme, when a dividend was paid of approximately 25% of the dividend, given the group's intention to pay a dividend this coming financial year an additional cash flow of GBP 0.3 million is built into next year's projected cash flows. The last triennial pension valuation was at 31st of March 2022, which showed a technical provisions or a TP deficit of GBP 5.9 million. Currently, the TP deficit is actually a slight surplus and shows a surplus between GBP 1.5 million and GBP 2 million. Accordingly, we are not expecting any further cash demands from the scheme other than those that we've previously agreed. These cash flows are not included within the IAS 19 scheme valuation, but are included in the TP valuation, which is how both cash contributions are set and the regulated judges the scheme. Cash contributions to overseas schemes are again predictable, predicted to be stable, running at GBP 1.4 million per annum. Now moving on to the right-hand side of the chart, the first chart shows our U.K. actuaries view on the current expected repayment period given the group's current repayment profile and assumptions. So what we're projecting is that the IAS 19 pension deficit will be net 0 in 7.5 years' time, so roughly 2031. The second graph shows the bound reduction in our German pension deficit. If we continue to pay cash payments as expected. And again, by 2032, our deficit will have halved to roughly GBP 9 million. So broadly, at the end of 2032, the group's IAS 19 pension deficit should be in total approximately GBP 9 million from the current situation of GBP 57.1 million. Finally, the group is continuing its plan to try and terminate smaller foreign schemes where possible. In summary, despite swings in the IAS 19 pension deficit Pension cash flows are sustainable and manageable. Now I'd like to hand over to Robert to take you through the rest of the presentation.

Thank you very much. So if we go to my first slide, please. Thank you. I thought I'd start my section of the presentation by looking at the progress Renold has made over the last few years and in particular, to see how much progress there's been from pre-pandemic levels. This analysis shows that the current performance goes well beyond a bounce back. The business is developing and growing despite tough trading conditions. If we start on the top left graph, this shows the growth in adjusted operating profit. To be clear, this number excludes any exceptional profit. Adjusted operating profit is now approximately twice what it was pre-pandemic. The bottom left graph shows return on sales, operating margins have risen and now 12.3%, having been 12% in H1. Increased margins are not just due to revenue growth, our intelligent pricing work streams along with our standardization and simplification work, capital expenditure and productivity and efficiency projects have all contributed. The top right-hand graph shows sales per employee. I'm showing you this to demonstrate that we continue to drive productivity even when buying businesses that in the short term dilute the metric. Our investment programs continue to reduce costs and improve efficiency, but importantly, they also enhance productivity. The use of robotics and automation in our factories is growing quickly on the right-hand graph shows that we're producing a growing return on these investments. Automation and robotics do not just produce financial returns. They often improve quality and consistency whilst also removing the constraints that tight labor markets bring. So if we turn over again, please. A few comments on the divisional performance. Whilst Jim talked you through last year's performance of chain and TT, I'm going to put this in a longer-term context. The numbers on this slide break out the divisional performance in a similar way to the previous slide for the group. The chain divisional performance is shown on the top section. Chain adjusted operating profit has grown at a compound rate of 11% over the last 5 years the 2024 financial year adjusted operating profit is at a record level of GBP 31.5 million. This has been helped by acquisitions, but also by our own improvement activities, as Jim showed earlier on the group profit bridge. TT shown on the bottom section of the page has also produced an excellent step up in adjusted operating profit as we've ramped up our commercial activities and started to benefit from a number of the product initiatives and commercial wins. Return on sales for TT and Chain have both grown Chain ROS has now reached 16.3%, up from an H1 performance of 16%. The full year TT result is 15.7%. That's actually down slightly from the H1 result also of 16%, but still up markedly from 9.2% in 2019. Both divisions are producing ROS results well above the group level of 12.3%. Our central costs can support a business considerably larger than today's. And so as we grow the divisions, be it organically or by acquisition, central cost growth will not be proportionate allowing the extra trading business margin to fall to the bottom line. Therefore, even if we don't continue to increase the divisional return on sales, and I think we will, we will expand the group ROS simply by growing [ conventional ] revenue. Sales per employee have consistently grown in both divisions as we invest and automate. The automation is in our factories, but not only our factories. We are automating what we do in our engineering teams and elsewhere in our overhead structure, introducing new systems and processes. Our strategy is simplifying and standardizing is starting to make a material difference to our broad operational performance, and both divisions are benefiting. There is much further to go and many more improvements to come. My next slide will show some of the investments we've made over the last 12 months. However, you've done it too early, again, Tim, however, if you look at the return on capital employee metric on the right of this slide, you will see that both divisions despite making ongoing capital investments are improving returns on average capital employed. So rather than me make general statements. We will now go to the next slide please Tim and we'll talk about some of the specific projects we've done this year. So on this slide, we have photos of 6 capital investments all of which we made in the financial year 2024. So let's start by letting you know what these pictures are. Working from the top left and growing across the top row. We have a new CNC machining center, which is [ attendant ] robot in Westfield and our U.S. TT facility. In the center, we have 2 new CNC machining centers in Morristown, our U.S. chain facility. The 2 robot attendance for these machines are yet to be delivered, and we're currently running the machines manually, generating a good return but it will be even better when the automation arrives. Top right is a new machining center in our U.K. Gears factory at [indiscernible] with its robot attendant. On the bottom row starting on the left, we have 2 robots that are part of the new robot welding cells in Morristown in the U.S. In the center, we have a half built very large new machining center going into Westfield in the U.S. We hope this will be commissioned in the next few weeks. This is an especially large machine that will not only give us various savings but will also fundamentally move our capability to a new higher level. The last picture on the bottom row is a new flexible robot assembly cell, which we have designed, engineered and built internally in Einbeck, our German chain plant. This cell is the first of a number, which will allow us to automate assembly of products, which traditionally we've not been able to. Whilst we have had robot assembly sales for some time, this is different due to the in-built flexibility, this lets us automate assembly of a whole new group of products. So what are the common themes in [ these ] investments? I suppose the most obvious thing is that you've heard me say robot repeatedly, robotics and automation are increasingly important. This helps us the way it helps our customers. It reduces labor costs, but also removes the need for so many people. And to today's world where employing people in factories is difficult. It means that we can increase output as well as reduce costs. Other common themes amongst these investments, increased flexibility and capability is definitely part of the story. We, as a business, are able to make a wider range of products with these investments, but each piece of equipment is able to do a wider range of tasks or consequently make a wider range of products in one operation. This gives many benefits and adds to levels of utilization, and this, in turn, aids payback. These machines work to the finest of tolerances have high repeatability and high levels of output. The investments, therefore, helping enhance our product performance and build on our excellent reputation for outstanding engineering quality. Lastly, I would highlight the fact that many of these investments replace multiple older machines. This is many advantages, including less setting time, less waste, faster manufacturing times as well as enhancing our speed of service. These investments work on a stand-alone basis. However, with our strategy of standardization and acquisition, their value and payback is substantially enhanced. Our STEP2 strategy works in its individual elements but as a whole, it brings all the pieces together and they all reinforce and enhance each other. So if we go to the next slide, please, Tim. This slide shows the simple one-page representation of our Step 2 strategy. And I think new or nothing new has happened here, nothing has changed. The growth section of the strategy is split between organic and acquisitive growth. It is all underpinned by business improvement. As you saw earlier, we've been working hard on our cost base have made substantial improvements in the year of GBP 3.3 million of improved efficiency and productivity. This is just the start, the [ list ] of excellent projects. It's ever increasing. The step 2 strategy set out 4 key objectives: #1, organic GDP plus growth across the economic cycle. We've achieved this in the prior few years, but there is work to do to show that we can manage this through the economic cycle. We've therefore marked this as Amber on the chart. Objective 2 is annual cash generation, which backing out acquisitions we are definitely achieving. As you saw in the finance section of the presentation, we anticipate that our underlying cash generation will improve strongly over the next couple of years. As known, one-off cash cost wash out of the system. Higher margins take effect, and we continue to drive costs down. The third objective is operating profit expansion, operating profit margin expansion. In the period, we've achieved 12.3% ROS. And as I've highlighted, we should see this go further as the business grows. Our objective was double-digit margins. As this has been achieved, we have upgraded the objective to be mid-teens margins, which, of course, our trading businesses are already achieving. Our last objective for is EPS growth. As you have seen, earnings per share in the period was 7.8p, up 20%, and we anticipate progress continuing. We laid out the steps to strategy a number of years ago and still believe it is an exciting and effective way forward. We are steadily and relentlessly putting all the pieces in place. So if we turn over the page again, please turn on to Slide 18. This slide shows the breakdown of sales by market sector. The analysis is based on our sales that don't go through third-party distribution. We've added just a few application pictures to demonstrate the breadth of our markets. So that is everything from pipeline barges to recycling equipment or airport handling systems to warehouse automation then -- and this is my particular favorite, Marsh buggies to ethanol production. We do a huge variety of products. We saw absolute revenue growth in construction, energy, manufactured products, transportation and as usual, other products. The manufactured product sector continues to develop as we see ongoing reshoring and nearshoring, particularly in the U.S. Material handling remains a little soft as does mining and quarrying. It is still very much my belief that reshoring and derisking of supply chains is a top priority for many industrial groups. And we remain optimistic that we are well placed to benefit from these trends with our wide geographic supply and manufacturing base. Sorry, I'm struggling with my words now. Our customer and sector diversity remains a core strength of the Renold business model. We will all come in to contact on a daily basis with items and services that use our products either when they're made, transported, delivered, or stored. Our products help keep you cool, heat you up and move you about despite almost never seen them, our products are a key component in delivering your lifestyle without you ever knowing it. Automation to reduce costs and to mitigate labor shortage is an important driver of our product demand the need for suppliers to be sustainable and ethical has never been higher. This all plays the 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. So if we go over the page again, please, Page 19. In September 23, we completed the acquisition of Davidson Chain in Australia for AUD 6 million. This is a small but very nice addition to our business. As was the case with our YUK acquisition last year, the 2 brothers who have been running business have joined Renold and bring a wealth of industry knowledge along with their wider team. The business adds some weight to our core Australian conveyor chain business, but in particular, gives us an enlarged adaptive transmission chain offering. The Davidson business has traditionally operated in a similar fashion to the Renold service centers that we're establishing in key markets, and we'll therefore jump start this initiative in Australia. At the time of purchase, the business turned over AUD 4.2 million and is generating EBITDA of AUD 1.1 million. The deal enhances Renold's earnings from day 1. We paid an EBITDA to enterprise value multiple of 5.9x for the business. But after hard synergies, this is expected to fall to 5x. There are a number of savings, which we are already working on. These include cost reductions and in sourcing some of their previously outsourced purchases. On top of this, there are a number of commercial soft synergies, which we will garner over time. Renold net debt at the end of FY '24, GBP 24.9 million despite the acquisition of Davidson and other one-off cash expenses in the year. This net debt level gives a leverage ratio of just 0.6x EBITDA and therefore leaves room for us to make more sensible, conservative bolt-on deals that will continue to enhance the value of the group. We're very actively working on a good pipeline of acquisition opportunities each potential acquisitions has its own set of benefits, synergies and strategic rationale. Our interest is only in acquiring industrial chain businesses. We believe that there are clear deliverable synergies and benefits from these deals and when conservatively financed and carefully integrated there is also value creation for Renold. So if we go on to the next page, again, this is a new slide that we've put in the pack this year. This slide shows our medium-term growth framework, i.e., what will Renold look like in the medium term. Here, we assume one, GBP 15 million to GBP 25 million revenue chain acquisition per year, financed by debt. Base organic growth and business improvement activity in this period is as we lay that in the step 2 strategy. The medium-term framework keeps net debt below 2x EBITDA whilst working capital and levels of CapEx expenditure as a percentage of sales, both stay as they are. As you can see, we forecast the combination of these factors to deliver revenue of GBP 350 million in the medium term and that our operating profit margin will continue to improve, and it will get to our next milestone of mid-teens. I'll leave you to do the arithmetic based on these numbers, but the profitability of the business grows considerably. Renold is at a key moment in its strategy where we can now accelerate a number of our activities, driven by the strengthening balance sheet and a quality management team. So if we flip to the next page, which I believe is just a quick summary. Just before we get to a brief summaries of -- sorry, I apologize, I've lost okay. Sorry about that. I've been rolled pace. Okay. I'm very pleased that the group continued to perform strongly throughout the 2024 financial year, reflecting the hard work strategically, commercially and operationally that has been undertaken by our employees across the world. The business is now at an inflection point, where we're starting to see the compounding impact of the many initiatives we have in train. Profits, return on sales, EPS and cash generation have all improved markedly. We've comfortably produced double-digit ROS and net debt is still at just 0.6x EBITDA. The group's robust performance during the period has delivered broad-based record results. The building cash flow has enabled us to make the Davidson acquisition, which will bolster our Australian business. We retain a good amount of balance sheet capacity to make further acquisitions and to keep investing in capital projects. This year, in addition to these things, the Renold Board has announced a planned resumption of the Renold dividend for the first time since 2005. I'm sure you will all recognize the significance of this resumed payment. We're cognizant that there are still considerable economic challenges in many parts of the world. Many economies are subdued, while some components inflation remain high, particularly for labor and recently rising transport costs. Exchange rates are likely to be a headwind going forward. We have a very clear strategy and are executing it diligently. Our continuous improvement initiatives are building an increasingly efficient, productive and resilient business and are providing an ever-improving platform to support our commercial initiatives. Over recent years, the business performance has been on an improving trend despite the many economic and geopolitical difficulties. Renold continues to demonstrate the strength and resilience of its business, its market position and its business model. We expect the new financial year to be no less challenging, and we remain vigilant as to the environment in which we operate. However, we start the year from a positive position with good momentum and confidence in the capabilities and fundamentals of the Renold business and the markets that we serve. So thank you very much for your attention. Back to Tim. I think it's probably question time, if there are any.

Certainly. Thank you very much, Robert. Thank you very much, Jim. I apologize in advance that the questions of [ Trian Group ] but then we might got around a little bit. And I'm also conscious that a few of them have been answered during the course of the presentation. Just going to the first area. You obviously talk a lot about the potential to grow margins, the cash generative nature of the business. But the slide you showed flat cash generation over the next few years from the broker forecasts. And they seemed the brokers forecasting very modest increases in profitability. Is that just down to your conservative nature in guiding people or other concerns?

If I might just start answering that, I'm sure Jim will deal with some more of the detail. Yes, some of our forecasts are conservative. We like to be conservative. We've been conservative in the last few years, and we will continue to be conservative going forward. So that's part of the jigsaw. I think the other thing in the way people look at the forecast because we don't put acquisitions in the forecast, what you see is the very base numbers. And therefore, as we've said, we don't expect our organic growth to be particularly fast because of the sticky nature of the products. So we're talking about GDP plus a little bit in terms of organic growth across the cycle. And currently, the market we're all operating and everybody is operating in is somewhat flat and variable. So I think you've got those things in there. I think in terms of the table that Jim put up and also let him finish off answering this, I think that cash generation was at an intermediate level when you get to the bottom as in how much is our net debt going down, then that cash generation after next year doubles. So I think that net cash generation does go up. Over to you, Jim, if you want to add anything to that?

Yes. I think it was Slide 9 in the pack. We're trying to pull out the cash generation that we have this year and also the forecast that we projected going forward. And what that shows, as I said, is the CapEx is slightly increased over the same slide you showed it was last year. As we try and capitalize we ensure payback automation type CapExes. And those CapExes are in the sort of 2-year payback category, and they should give us some quite marked increase in profitability. There is some -- in the forecast we've got with the broker that by the way, there is some FX headwinds that we've talked about. So if you take out the impact of the FX headwinds, which are around about GBP 0.5 million for next year, you've got actually quite a further step not overly aggressive, but there is a further step up, which has been reduced by the FX headwinds that we see. Getting back on to the cash. We've introduced a dividend. So that dividend is a new payment compared to where we were this year. And we've still got those structural payments we talked about. So we paid $2.2 million for the Chinese property building repayment. There's a further payment next year. And then there's the final tranche of the UK acquisition consideration. So next year, yes, net cash in the broker forecast will be the same as this year GBP 4.9 million. After that period, you get the step-up in cash generation. It essentially doubles up to -- before the dividend, it's up to over GBP 10 million. which is double where we currently are at the moment. So we've got that step-up in cash generation going forward next year. So even though the headline looks like there's no progress. When those structural payments we've got next year fall away, you will see quite a step-up in cash generation.

I think that helps clarify things. A couple of things you mentioned there. Firstly, dividend. I had a number of people say, dividend very welcome. Thank you very much. But is there any guidance you can give on midterm dividend policy at this stage?

There are certain things we can say about it. One is we have not positioned this as a progressive dividend as in sort of automatic increases based around some metric or ratio. That is not what we've intended to do. We've introduced the dividend for the first time in 19 years. We think that's a very positive thing. We would not have introduced it unless we think we can continue to pay it. So it's not something we think we will dot in and out of. This is a dividend. We see it continuing. We wish as a Board to consider each year what we think the appropriate number is. We think it will go up over the time. Having said that, we wish to continue making the capital investments, which we think you have got good returns. We want to make prudent and sensible acquisitions. We want to be able to pay down any debt we incur from those acquisitions. So we're going to assess it on an annual basis and see where we are. Will it grow over time? Yes, we believe it will. Is it a fixed ratio of some sort? No, it's not. We'll consider it sensibly each year.

Thank you. I think that's pretty clear. I had a number of questions on acquisitions. Firstly, obviously, looking at the targets, it's one fairly sizable acquisition per annum. Are those there are opportunities in the market to acquire those sort of businesses. What's the structure of the market? Are there plenty of good available businesses out there.

Simple answer to all that is yes. There are the chain business and that's chain industry, and that's what we're interested in is at least GBP 3 billion. We're the second largest in the world. We've got somewhere around 6% or 7% market share is a highly, highly fragmented market. There are lots of privately owned geographically or product-specific businesses in that sort of GBP 5 million to GBP 25 million, GBP 30 million area. There's quite a lot in GBP 50 million area as well. But at the moment, we're probably looking at something slightly smaller than that. We've got a very active pipeline of opportunities that we believe fits within those parameters or they do fit within those parameters. So yes, there's plenty of opportunities out there. There's lots of people. There's lots of opportunities. It's just a matter of making sure that we get those over the line at the right time in the right price for us.

You mentioned price. Is it a challenge to acquire earnings-enhancing businesses given -- and this is the question -- I dont know, I agree with them, given the low multiple on which Renold currently trades.

Well, I think it depends on how you want to do your sums earning enhancing, yes, we can do earning enhancing, what we're doing, all the acquisitions we've done and we intend to do should be earning -- enhancing from day 1. That's in an EPS, Tim. If you want to say -- and again, it depends on what time scale you do your sums. We are paying a higher multiple for these businesses than we ourselves are on therefore, short term, on an EV basis, you could argue that we reduce the value of the company. Our own view is you've got to look on a slightly longer term than that. By the time -- we have got the synergies, hard and soft synergies. We believe we are enhancing the value of the group short term, medium term so to say. And long term, we're adding a lot of value into the group. What we're focused on is building the business, it would be easy for us in the short term to say we're not going to do any acquisitions, we'll take any excess cash and we'll pay it back to shareholders. And I can understand that from a sort of pure economic theory. But what you end up with is a declining business that's going now where we wish to build our business, invest in it, make acquisitions and improve the business over time, and that's our objective. So it depends on your valuation metrics, I think, is what I'm trying to say.

Makes sense to me. Question or comment on Torque Transmission. You mentioned that it's later cycle than chain. Is the influence from that the cycle for chain division has actually turned and turned in the wrong way?

I mean the -- again it depends on exactly what market you're talking about. There isn't an influence from that statement. We just generally used the term that is later cycle business. I mean indeed, is a later-cycle business. You saw it recovering from the pandemic is still -- was later going into the pandemic and it's later coming out of the pandemic on the chain. I'm sorry, the chain business, industry generally, I think isn't just not [indiscernible] think it's everywhere across all sectors is flatter, sturdier, slower than it was. There's no two ways about it. We do think we're growing our market share, but places like Germany are difficult territories at the moment. China is a difficult territory. And that was true for a large part of the year that we're reporting on. It's not something that just happened now. So I think it's -- it's a fact that international markets are generally flatter than they were 2 years ago. And I think at some point there we cover, but we're not thinking that's going to happen in the near future.

But to offset that, how exposed are you to high-growth sectors like automation, robotics?

Well, we are increasingly exposed to those sectors. And I've said it a lot of times today, sort of automation, robotics are things that we're exposed to higher labor costs, lack of labor are all things that benefit our products, urbanization. There's lots of things that are going on in the world that are beneficial to us. So whilst the market may be a bit soggy, in my language. And as I say, that's been owned for some time, we've continued to be able to move the business forward. And we broadly think that's going to be the case. We don't think the economies are going to help us. But we think some of those tailwinds as we call them, are going to boil us up and we end up in a flatter position, I think, over the next 12 months, but we still expect to be moving forward.