9th Jul 2019 10:59
(Alliance News) - Renold PLC on Tuesday revealed what it called intentional financial misreporting by its Gears unit and suspended its annual general meeting in order to revise financial statements.
The stock was down 23% in London at 25.25 pence, giving the company a market capitalisation of GBP56.9 million.
The industrial chains and power transmission product supplier found historical accounting errors for its financial 2017, 2018, and 2019 years which all end March 31. The errors relate to its Gears unit and are the result of "an overstatement of certain asset values and profit" to the tune of GBP1.8 million over the three years.
Gears is part of Renold's Torque Transmission division, with no other business units involved in the error.
"The board's investigation indicates that the overstatement of profit has arisen from the intentional misstatement of the financial reports at a local level," said Renold.
Renold has decided to revise its financial statement for financial 2019 and has thus opted to postpone consideration of its AGM resolutions from July 17 to no later than September 30. Revised accounts will also be published before that date.
Renold has determined that Torque Transmission's operating profit was overstated by GBP500,000 in financial 2017, GBP400,000 for financial 2018, and GBP900,000 for financial 2019.
The 2019 overstatement accounts for 5.5% of Renold's adjusted operating profit as reported in its preliminary results announcement on May 28. This is mostly caused by working capital balances, and represents a GBP300,000 increase in March 31 net debt.
Renold gave its statutory operating profit for financial 2019 on May 28 as GBP16.2 million, up from GBP5.6 million in financial 2018.
Given that Renold had based its financial 2020 expectations on profit at the reported level, the company has now dropped its expectations for Gears by GBP1.1 million.
"Save for the reduction as a result of the revised forecast for Gears, outlined above, there are no other changes to the board's expectations for the current year. Whilst continuing to be mindful of uncertain global economic conditions, the board is confident in making further progress with its strategic initiatives. In line with previous guidance, the group's performance will be weighted towards the second half of the year, predominantly as a result of the ramp-up in efficiency at the new Chinese factory, which is progressing well," said Renold.
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