Manchester manufacturer sells loss-making division for nominal amount

Renold

A Manchester manufacturing firm said trading is in line with expectations despite tough market conditions.

Renold, an international supplier of industrial chains and related power transmission products, published a trading update covering the last six months.

The company said it had put a number if cost cutting measures in place including the disposal of a loss making South African business.

The firm has had to cope with an accounting issue which overstated the value of its business by £1.8m.

The issue had affected its past three financial years and the company was forced into postponing its AGM.

As a result shares took a sharp tumble and have failed to recover following the announcement.

The firm said its ongoing focus on operational efficiency is helping to offset the impact of a challenging market environment.

Assuming there is no significant further deterioration in trading conditions the business remains on course to deliver a result for the full-year in line with the board’s expectations.

Following a stable first quarter of the year, macro-economic conditions weakened during the second quarter and underlying revenue for the period fell by 3.2% versus the same period in the prior year.

On a reported basis, revenue benefited from a strengthening of the US dollar and declined by 0.7%.

The underlying decline in revenue most significantly reflects a deterioration in the industrial goods sector, impacting demand from distributors and OEMs in the group’s key European and US industrial chain markets during the late summer period.

Order intake in the period also reflected the more challenging market conditions with a decline of 8.5% on an underlying1 basis, with orders 2.4% behind revenue for the period.

Despite the backdrop, the group continues to see the benefits of improved operational efficiency.

Proactive cost action is underway to align the business with demand levels and help mitigate the impact of market weakness.

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

This business unit, which generated revenue of £0.8m and a small operating loss in the period, has continued to struggle in an increasingly challenging South African market and would require significant capital investment and management input to make meaningful progress.

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

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

However, the group expects the second half to benefit from an increasing contribution from the ongoing ramp-up in efficiency at the new Chinese factory, together with further cost reduction measures.

As a result, and assuming no significant further deterioration in trading conditions, the group remains on track to deliver an overall result for the full year in line with the Board’s expectations.

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

“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.”

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