Renold machine break-down weighs on profits

Renold's operating profit for the year to 31 March 2018 is expected to be slightly below the lower end of analyst forecasts after the group suffered machine break-downs at its Einbeck facility and increases in raw material costs.

The company, an international supplier of industrial chains and related power transmission products, said trading in the six months to 30 September has been mixed.

The Torque Transmission division delivered growth in underlying revenue of 6.3%. Including the major project win for UK Couplings, underlying order intake increased by 27.4%.

The Chain division delivered year on year underlying revenue growth of 8.2% in the first quarter, but in the second quarter major machine break-downs at the Einbeck, Germany facility reduced the availability of key product lines.

This resulted in increased shipping and maintenance costs to mitigate the impact on key customers in Europe and the US and led to a Q2 revenue decline of 4.5% and underlying revenue growth of 1.8% for the period. Group revenue in the period grew by 8% and on an underlying basis by 2.7%, compared to the first half of the prior year.

The group, particularly the Chain division, experienced sustained increases in raw material costs, notably in respect of steel. Sales price increases have been implemented to pass on these costs and are visible in the order book. Margins in the period have been impacted by the lag between raw material increases being incurred and sales price rises working through the order book.

As a result of this, and the costs of machine break-downs, adjusted operating margin for the Chain division for the first half is expected to be around 8%.

Underlying order intake for the Chain division improved to 9% in Q2 resulting in an overall growth for the period of 5.3%. Performance in the division is expected to improve in the second half, with the issues at Einbeck now resolved and price increases in the order book feeding into revenues.

Robert Purcell, chief executive of Renold, said: "It has been a frustrating first half for the Chain division. Organic growth opportunities, particularly in Europe, have been converted but have failed to deliver the expected improvements in profitability due to issues at Einbeck and the rise in raw material prices. Management actions to address these issues are expected to benefit the second half of the year."