Renold on track despite continued market deterioration

Industrial chain and power transmission products supplier Renold said it remained on course to deliver a full-year result in line with its expectations on Monday, noting its ongoing focus on operational efficiency was helping to offset the impact of a challenging market environment.

The AIM-traded firm said that following a stable first quarter of the year, macroeconomic conditions weakened during the second quarter, with group underlying revenue for the first half declining by 3.2% compared to the same period last year.

On a reported basis, revenue benefited from a strengthening of the US dollar and declined by 0.7% in the six months ended 30 September.

The underlying decline in revenue most significantly reflected a deterioration in the industrial goods sector, the board said, impacting demand from distributors and original equipment manufacturers in its key European and US industrial chain markets during the late summer period.

Order intake in the period also reflected the more challenging market conditions, Renold said, with a decline of 8.5% on an underlying basis, with orders 2.4% behind revenue for the period.

Despite the backdrop, the group said it was continuing to see the benefits of improved operational efficiency as a result of its strategic initiatives and ongoing investment.

In addition, proactive cost action was underway to align the business with demand levels and help mitigate the impact of market weakness.

As part of the focus on optimising returns, Renold disposed of its non-strategic South African Torque Transmission business unit to its management team in late September, for nominal consideration.

That business unit, which generated revenue of £0.8m and a small operating loss in the first half, had continued to struggle in an increasingly challenging South African market and would require “significant” capital investment and management input to make meaningful progress, the board claimed.

The disposal to management would provide a continuing channel to market for products sourced from elsewhere in the group.

Recent order intake trends suggested that current market weakness would continue into the second half of the year.

However, as the company had previously indicated, it was expecting the second half to benefit from an increasing contribution from the ongoing ramp-up in efficiency at the new China factory, together with further cost reduction activities across the group resulting in a more equal weighting between the first and second halves of the year.

As a result, and assuming no significant further deterioration in trading conditions, the group said it remained on track to deliver an overall result for the full year in line with the board's expectations.

“Our ongoing focus on delivering improvements in the underlying business structure and operations has helped to mitigate the impact of volatile market conditions,” said chief executive officer Robert Purcell.

“The sale of our South African business unit to management secures a continued route to market for the group's products in the region permitting us to focus our capital investment in other markets with greater opportunities.

“Whilst market conditions remain challenging in the near term, we are encouraged by the positive impact of our ongoing strategic initiatives and this underpins our confidence in the long term opportunity for Renold.”

Renold said it would announce its interim results on 13 November.