Renold warns of deteriorating trading conditions

published 2 August 2012

Industrial chains maker Renold suffered a significant drop in its share price on Thursday after warning of deteriorating trading conditions in a number of territories.

The group reported a 'marginal' overall reduction in sales, pushing profits lower. Despite this, the firm stressed that the level of available near term opportunities in Torque Transmission and Chain, combined with continuing reductions in its cost base, will enable it to maintain some positive momentum in profitability in the year as a whole, albeit at a level which is below current market expectations.

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"Against this backdrop, Chain delivered strong double digit growth in North America which, combined with mixed positions elsewhere in the world, resulted in a marginal overall reduction in sales," the statement continued.

The strength of the Swiss franc is proving particularly painful for the Chain division, and accounted for Chain sales as a whole being below the level achieved in the same quarter of the prior year.

"The Torque Transmission [division] currently has a healthy pipeline of active tenders and sales opportunities that give confidence the division will achieve good growth for the year as a whole. Although it delivered sales growth in a number of geographical locations, a reduction in South Africa led to a slight overall decline.

More positively, the key market sectors of Power Generation and Mass Transit delivered strong double digit growth on the comparative period in the prior year," the firm added.

"Ongoing cost control has partially mitigated the impact of the lost contribution from lower sales. This includes the European back-office restructuring programme which continues to progress well.

"Our continuous improvement programme, covering all aspects of working capital, combined with careful management of the other components of cash flow, delivered cash generation and debt levels better than expectations and significantly better than the same period in the prior year."

However, investors clearly weren't buying it and the share price tumbled 14.66% to 24.75p by 09:35.

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