Shares in Renold (RNO) nudged up slightly after the company revealed half-year adjusted operating profit fell 21 per cent year on year to £6m. Investors may have expected worse. As foreshadowed, profitability has been constrained by measures taken to mitigate the impact on customers from mechanical failures at a production facility in Germany. In essence, Renold has opted for a short-term financial hit – partly brought about by the use of air freight to reduce customer supply disruption – rather than jeopardise long-term contracts. A wise move, but the supplier of industrial chains and power transmission products is also faced with raw material price increases, meaning near-term profitability will be predicated on how readily these are passed through to customers.
Together, the German breakdowns and the rising price of steel reduced the adjusted operating margin in the chain division to 8 per cent, from 12 per cent a year earlier. Despite the production issues, orders picked up in the second quarter, leading to an overall growth rate of 5.3 per cent and a book-to-bill ratio for the division of 102 per cent.
Operating cash flow, which recorded a £7.4m inflow in the last financial year, slipped into negative territory in the first half of 2017-18, due to reduced cash generation and a £3.4m tax outlay. However, the group’s pension deficit declined slightly to £101m with the benefit of increased discount rates.
Arden Partners expects adjusted profit of £14m for the March year-end, leading to EPS of 5p, against £12.8m and 4.6p in FY2017.
| RENOLD (RNO) | ||||
| ORD PRICE: | 47p | MARKET VALUE: | £106m | |
| TOUCH: | 46.5-47.3p | 12-MONTH HIGH: | 65p | LOW: 39p |
| DIVIDEND YIELD: | nil | PE RATIO: | 24 | |
| NET ASSET VALUE: | 1.3p* | NET DEBT: | £26m | |
| Half-year to | Turnover | Pre-tax | Earnings per | Dividend |
| 30 Sep | (£m) | profit (£m) | share (p) | per share (p) |
| 2016 | 88.3 | 2.7 | 0.9 | nil |
| 2017 | 95.4 | 2.4 | 0.8 | nil |
| % change | +8 | -11 | -11 | - |
| Ex-div: | - | |||
| Payment: | - | |||
| *Includes intangible assets of £33.8m, or 15p a share | ||||
