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Renold works to cut costs amid Covid crisis
16th Jun 2020 08:27
(Sharecast News) - Industrial chains and power transmission products supplier Renold reported a fall in revenue to £189.4m in its final results on Tuesday, from £199.6m year-on-year.
The AIM-traded firm said its adjusted operating profit came in at £13.4m for the year ended 31 March, down from £14.8m in the prior year, as its adjusted operating margin narrowed to 7.1% from 7.4%.
Its statutory operating profit was £10.1m, down from £15.4m, while its basic earnings per share halved to 1.5p from 3p.
Adjusted earnings per share slipped to 2.9p, from 3.1p.
Looking at its trading, Renold reported "significant" disruption in the final months of the year from Covid-19-related factory closures.
It said it made continued improvements in operational efficiency through the period, in particular at its China chain facility, which was reflected in a "stable" adjusted operating margin despite the 5.1% revenue decline, due to challenging markets and the initial impact of the coronavirus pandemic.
The company reported "strong" activity in its torque transmission division, delivering revenue growth and profit improvement, and noted that it completed the £1.8m purchase of its joint venture partner's 25% share of the India chain business, which was now a wholly owned subsidiary operating in a market with "significant" potential.
A "substantial" multi-year infrastructure change programme was also completed successfully, with "significantly reduced" future costs of change expected, supporting higher free cash generation.
Renold also said that, in light of the Covid crisis, all of its sites were now operational, although some were at a reduced capacity.
It claimed that its supply chains remained "resilient", with the company able to continue to support customers.
Cost mitigation and cash preservation actions were said to have been taken rapidly, including the use of government support to maintain employment, temporary pay reductions, the curtailment of discretionary spend, reduced capital expenditure and the deferral of net UK pension scheme contributions.
Renold said its financial position was strengthened by an agreement with lenders to amend banking covenants, creating increased flexibility through to September 2021.
The board said its focus was on preserving the company's capability to ensure a strong response as markets recovered, and to maintain strategic momentum.
It said the company was cash generative and profitable in the first months of the new financial year.
"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," said chief executive officer Robert Purcell.
"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."
Purcell said Renold reacted quickly to those challenges, ensuring the safety and welfare of its employees, compliance with local restrictions and continuity of supply to customers, while also taking steps to reduce costs and preserve cash flow.
"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."
At 1615 BST, shares in Renold were up 27.34% at 9.2p.
The AIM-traded firm said its adjusted operating profit came in at £13.4m for the year ended 31 March, down from £14.8m in the prior year, as its adjusted operating margin narrowed to 7.1% from 7.4%.
Its statutory operating profit was £10.1m, down from £15.4m, while its basic earnings per share halved to 1.5p from 3p.
Adjusted earnings per share slipped to 2.9p, from 3.1p.
Looking at its trading, Renold reported "significant" disruption in the final months of the year from Covid-19-related factory closures.
It said it made continued improvements in operational efficiency through the period, in particular at its China chain facility, which was reflected in a "stable" adjusted operating margin despite the 5.1% revenue decline, due to challenging markets and the initial impact of the coronavirus pandemic.
The company reported "strong" activity in its torque transmission division, delivering revenue growth and profit improvement, and noted that it completed the £1.8m purchase of its joint venture partner's 25% share of the India chain business, which was now a wholly owned subsidiary operating in a market with "significant" potential.
A "substantial" multi-year infrastructure change programme was also completed successfully, with "significantly reduced" future costs of change expected, supporting higher free cash generation.
Renold also said that, in light of the Covid crisis, all of its sites were now operational, although some were at a reduced capacity.
It claimed that its supply chains remained "resilient", with the company able to continue to support customers.
Cost mitigation and cash preservation actions were said to have been taken rapidly, including the use of government support to maintain employment, temporary pay reductions, the curtailment of discretionary spend, reduced capital expenditure and the deferral of net UK pension scheme contributions.
Renold said its financial position was strengthened by an agreement with lenders to amend banking covenants, creating increased flexibility through to September 2021.
The board said its focus was on preserving the company's capability to ensure a strong response as markets recovered, and to maintain strategic momentum.
It said the company was cash generative and profitable in the first months of the new financial year.
"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," said chief executive officer Robert Purcell.
"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."
Purcell said Renold reacted quickly to those challenges, ensuring the safety and welfare of its employees, compliance with local restrictions and continuity of supply to customers, while also taking steps to reduce costs and preserve cash flow.
"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."
At 1615 BST, shares in Renold were up 27.34% at 9.2p.