Renold plunges after profit warning

Renold, the chains and power transmission specialist, warned that full year profits would be 13% lower than last year after sales in recent months were hit by weakness in many of its end markets.

Sales are expected to fall 10% for the full year due to the significant volatility in most geographical territories Renold's chain and torque transmission divisions sells into.

This volatility extended to the North American markets which had experienced a flat first half, resulting in a "particularly weak" December, though January did improve.

In the Chain division, efficiency gains will deliver adjusted operating profit similar to the prior year, despite an expected 8% decline in sales.

In spite of efficiency gains at the Torque Transmission division, its smaller scale meant it has been unable to absorb the impact of the sales slump, which is forecast to result in a 14% fall.

Nevertheless, the balance sheet remains solid, with forecast net debt at the year end now expected to result in a leverage ratio of around 1.25 times, which is still comfortably within covenant limits of 2.5 times.

"The fact that international industrial end markets are volatile has been widely reported," said chief executive Robert Purcell.

He added that "rather than simply cost cutting to deliver short term gains at the expense of the group's future development", management remained focused on protecting capital and revenue investment in projects to support the medium term delivery of the longer-term strategic plan.

"Our focus remains on getting the business into the right shape to withstand the current volatility and to deliver growth in the longer term."

Broker Numis said a profit warning was "not a major surprise given the travails in industrial markets and their distributors" and hailed the actions taken by management as reducing the impact on the bottom line compared to earlier cycles.

"Whilst the news today will impact both numbers and confidence, we still believe that the company is on the right track and will deliver a higher margin growing business albeit end market weakness is creating a rather bumpier and longer route than previously anticipated."

Renold's shares, which had already retreated 50% in the last six months, initially fell to lows not seen since 2013 before bouncing slightly to 31.09 just before 1000 GMT, a fall of 27% on the day.