Chains manufacturer overcomes disruption and eyes future opportunities
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Manchester-based industrial chain maker Renold saw its fortunes decline in the final quarter of its fiscal year as the coronavirus pandemic began to grip the world.
Consequently, revenues for the year to March 31, of £189.4m showed a decline from the £199.6m total achieved in 2019.
Statutory pre-tax profits of £4.9m dropped from £10.4m the previous year.
Renold reported significant disruption in the final months of the year from COVID-19 related factory closures.
This was against a background of continued improvement in operational efficiency, in particular at the Chinese chain facility, which was reflected in a stable adjusted operating margin, despite 5.1% revenue decline due to challenging markets and the initial impact of COVID-19.
There was strong activity in the torque transmission division delivering revenue growth and profit improvement.
During the year the group completed the £1.8m purchase of its JV partner’s 25% share of the Indian chain business, which is now a wholly-owned subsidiary operating in a market with significant potential.
It also noted its substantial, multi-year infrastructure change programme was completed successfully, with significantly reduced future costs of change expected, supporting higher free cash generation.
Regarding the impact of COVID-19, it said all its sites are now operational, although some at reduced capacity.
Cost mitigation and cash preservation actions were taken swiftly, including utilisation of government support to maintain employment, temporary pay reductions, curtailment of discretionary spend, reduced capital expenditure and deferral of net UK pension scheme contributions.
The group’s financial position was strengthened by an agreement with lenders to amend banking covenants, creating increased flexibility through to September 2021.
Its focus is on preserving capability to ensure a strong response as markets recover and to maintain strategic momentum.
Renold was cash generative and profitable in the first months of the new financial year.
Chief executive, Robert Purcell, said: “Prior to the COVID-19 pandemic, the group was on track to deliver improved adjusted operating margins, despite a challenging market backdrop resulting in a revenue decline.
“The combination of a number of strands of the strategic plan were expected to be sufficient to overcome the operational gearing effect of falling revenue.
“During the final quarter of the year, the initial impact of the COVID-19 pandemic created short-term disruption and a number of operational challenges.
“Renold reacted quickly to these challenges, ensuring the safety and welfare of all our employees, compliance with local restrictions and continuity of supply to customers, while at the same time taking steps to reduce costs and preserve cash flow.”
He added: “The uncertainty caused by the COVID-19 pandemic is likely to result in a period of volatile demand, preventing the board from giving specific guidance for the year ahead at this stage.
“The group’s financial position has been strengthened by the flexibility provided by our lenders and the Trustee of the UK pension scheme.
“Together with the cost and cash actions taken, this supports the board’s confidence that the group will be able to manage through the current period of disruption.”
Mr Purcell said: “Renold holds a leading position in many of its markets and the strategic programme that has been undertaken over the past years has delivered a business far more resilient and better placed to overcome the current challenges.
“Having successfully completed the substantial infrastructure change programme, we will have greater cash resources with which to accelerate our growth initiatives.
“As a result, the group is well positioned to capture the significant opportunities available to it as markets stabilise and demand recovers.”
The group has declined to pay a dividend to shareholders, given the volatile operating environment, and said this approach will remain under active review for future periods.