‘Resilient’ half year as industrial chains maker Renold eyes investment strategy
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Manchester-based industrial chains manufacturer, Renold, reported a ‘resilient’ first half for the six months to September 30, today, and outlined plans for future investment and acquisitions.
Revenues, at constant exchange rates, fell 17% to £81.5m, while pre-tax profits of £2.8m compared with £3.5m the previous year.
Given the difficult trading environment and continuing investment in equipment and revenue expenditure, the board has decided not to declare an interim dividend. It said the dividend policy will remain under review as margin and cash flow performance continues to develop.
The business said it enjoyed strong cash generation resulting in a £10.2m reduction in net debt to £26.4m, compared with £36.6m at March 31, 2020. The adjusted operating margin was 7.1%, against 7.9% a year ago.
Renold said its resilient margin performance and strong cash generation were a result of focused working capital management, completion of its restructuring programme and careful reduction of costs.
The impact of the COVID-19 pandemic on revenue is being partly mitigated by improved efficiency and productivity from recent years’ capital investments and operational improvements, it added.
Order intake at the start of the period reflected customer destocking, however, trends through the period end suggest a continued modest improvement, albeit at levels below the prior year in the near term. This was most evident in India, South East Asia and, to a lesser extent, parts of Europe
Its new factory in China continues to improve on time delivery, efficiency and productivity
Chief executive, Robert Purcell, said: “Whilst the market environment continues to be challenging, the strategic actions taken in recent years, augmented by the measures taken earlier this year in response to the COVID-19 pandemic, have resulted in a more resilient business that is better placed to overcome today’s challenges.
“Renold reacted quickly to the sharp decline in order intake arising from the pandemic and, as a result, delivered a robust operating margin and substantial reduction in net debt.
He added: “The tight focus on cost and cash management in the first half has created a platform from which we can manage through short-term disruption. We are focused on ensuring Renold can respond strongly as markets recover.”
Speaking to TheBusinessDesk.com, he also highlighted possible acquisition opportunities as a result of disruption caused by the coronavirus pandemic.
“We definitely foresee that the difficulties in the market will throw up some small opportunities as in things that have to happen, shall we say.
“Obviously, over time it loosens, particularly, private individuals’ intentions in staying in the market.
“I think people steadily decide that they don’t want to go through something like this again and decide to get out on the other side of it. In my opinion that normally happens on the other side because people tend not to get out in the middle of an issue, unless there’s dire needs.
“But we certainly see signs that there will be opportunities in the coming months and years.”
He also outlined plans to invest in the business, saying now is the time to recognise the gains such moves can provide a business like Renold.
“We have been talking for years about the opportunity to re-equip the Renold business.
“Renold, traditionally, was under-invested and we have been ramping that investment up over time.
“It’s one of the things that gave us the headroom to make short-term tactical decisions in the last six months to help our cash flow.
“Historically, that would have been very difficult, but, because we have been investing properly it gave us a little bit of space.
“But looking forward we expect to continue to invest, and that’s around manufacturing technology. There’s a shift in manufacturing technology occurring away from traditional methods to better ways of doing things, more economic ways of doing things, things that can produce better products, better specification products and there’s a big shift in information technology, so one of the big investments we have been making, and continue to make, is in our systems and there’s major gains for that in us.”
He added: “Over the years Renold systems were not invested in, so we have too many and too many old systems, but we’re steadily running through that programme and heading towards one system, one set of systems, including things like engineering systems, business intelligence tools, as well as proper planning systems.
“The benefits of that are substantial.
“People think it’s just about doing things a little bit faster, but it isn’t, it’s about actually getting competitive advantage and fundamentally doing things better than you’ve done them in the past.”