Shares in manufacturer tumble by quarter after £1.8m accounting mistake revealed
Chain manufacturer Renold has been forced to delay its AGM after a £1.8m black hole was discovered in its accounts.
Shares in the Manchester firm fell by 25% after the news was announced this morning.
The firm, which recently moved from the main markets to AIM, revealed it has delayed its annual general meeting after it identified accounting mistakes in previous results that led to an overstatement of profits.
The accounting errors took place in the last three financial years.
Renold said the mistakes arose from an overstatement of certain asset values and profit in its gears unit, which was part of the torque transmission division.
The firm issued its full year figures in May. Operating profits for the year to March 31 increased to £16.2m, up from £5.6m in 2018.
The company also achieved its highest adjusted operating profit for more than 15 years reporting a 15.5 per cent growth to £16.4m, up from £14.2m in 2018.
Renold will now revise the financial statements for the year ending 31 March 2019, which will be subject to audit by Deloitte.
The company’s AGM was due to take place on 17 July.
The mistakes were identified in an internal reviews and subsequently confirmed by an independent audit.
The internal audit investigation, supported by PwC, to verify the findings and identify any contributory control weaknesses was ongoing.
A statement from the firm said: “Following an internal review of the gears business unit, an overstatement of certain asset values and an under-recognition of certain liabilities totalling up to £1.8m has been identified in the balance sheet as at 31 March 2019, with certain issues dating back to 31 March 2017.
“Upon identifying a potential issue, the board immediately initiated an independent investigation and now believes that adjusted operating profit for the Torque Transmission division, and therefore the Group, was overstated by £0.5m for the year to 31 March 2017, by £0.4m for the year to 31 March 2018 and by £0.9m for the year to 31 March 2019.
“The overstatement of £0.9m for the year ended 31 March 2019 represents 5.5% of the adjusted operating profit reported in the preliminary results statement dated 28 May 2019. The overstatement relates predominantly to working capital balances and the impact on the Group’s net debt as at 31 March 2019 is limited to an increase of £0.3m.
“The independent internal audit investigation, supported by PwC, to verify the above findings and to identify any contributory control weaknesses, is ongoing. The findings of this review will be delivered to the Audit Committee in due course.
“These issues relate solely to the Gears business unit and the Board’s investigation indicates that the overstatement of profit has arisen from the intentional mis-statement of the financial reports at a local level.
The board’s expectation of performance in the year to 31 March 2020 was based on profit at the reported levels.
The shortfall in the gears business unit also undermines the ability of this operating unit to make the short-term progress that was originally anticipated.
The company said: “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.”
