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Renold plays catch-up on pricing

The industrial chain maker saw its operating margin shrink, but the outlook isn't as dire as recent share price performance suggests
Renold plays catch-up on pricing

Full-year results from Renold (RNO) were littered with qualifications as the small-cap engineer sought to explain how a 3.8 per cent rise in constant-currency revenues gave way to an earnings loss. Management pointed to a marked step up in restructuring costs and it’s clear that an “improving economic backdrop” proved insufficient to mitigate the impact of “significant price inflation for basic raw materials”.

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The vagaries of global steel pricing are obviously beyond management’s control, but delays in passing through the price increases resulted in a dilution of operating margins. Unit profitability also suffered due to machine breakdowns at the group’s German manufacturing facility. The result was a 14 per cent contraction in adjusted operating profit to £14.7m, reflecting a 1.8 percentage point reduction in the underlying margin.

Meanwhile, the restructuring costs were driven by events in China, specifically the relocation of its regional chain manufacturing operations to a purpose-built facility in Jiangsu province. The group is up-scaling and centralising its manufacturing while rationalising its marketing and distribution channels in Asia. China contributes a relatively small proportion of group revenues, but the end market is immense, and growth prospects were buoyed by a 13 per cent increase in orders during the period.

Arden Partners gives adjusted pre-tax profit and EPS of £13.5m and 4.8p, respectively, in FY2019, against £12.5m and 4.4p last year.

RENOLD (RNO)   
ORD PRICE:26.1pMARKET VALUE:£58.8m
TOUCH:26.1-26.3p12-MONTH HIGH:60pLOW: 22p
DIVIDEND YIELD:nilPE RATIO:na
NET ASSET VALUE:*NET DEBT:£24.3m
Year to 31 MarTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
2014184-5.9-4.9nil
20151817.72.5nil
20161657.42.4nil
20171836.72.1nil
20181921.4-1.0nil
% change+5-79--
Ex-div:-   
Payment:-   
*Negative shareholder funds, including intangible assets of £29.9m, or 13p a share