Renold plc (LON:RNO) Chief Executive Officer Robert Purcell caught up with DirectorsTalk for an exclusive interview to discuss final results, performance during the pandemic, growth in order books, their Chinese factory, and the outlook for the company.
Q1: First off, congratulations on your final results. Could you just talk us through the highlights?
A1: Clearly, last year was an eventful year with the pandemic striking from the very beginning, however, Renold took swift action and implemented some extra cost controls. This meant that we had a very strong cash generation with net debt reducing by circa 50% to £18.4 million from £36.6 million.
Due to the cost controls, even though we had a 12.7% reduction in revenue driven by the pandemic, return on sales was resilient at 6.8% compared to the prior 7.1%. So, adjusted operating profit was £11.2 million down from the 2020 results of £13.4 million, due to the actions we took, the impact on profit was far less than you would expect for that type of revenue contraction. We’d had significant material cost pressures and supply chain disruption and there still is to some degree.
Order intake has been improving throughout the period and into the new financial year with closing order books circa 10% ahead of the 31st of March 2020. Adjusted EPS was 2p against the prior year of 2.9p, however, basic EPS actually rose to 1.7p from 1.5p as we’ve completed all the major restructuring work that our strategy required in previous years.
Clearly, as a very international company, we saw very different timing of events around the world and quite considerably different market conditions. For instance, even with the pandemic, our Australasian business saw sales rise 8.1% last year, and our new Chinese factory continued to develop and was increasingly profitable.
Generally, the shape of the year for us was a big hit up front in sales and orders with gradual improvement through the year we and our customers learned how to deal with the pandemic and markets are returning to more normal conditions.
Q2: Now, as you mentioned, you performed resiliently really during the pandemic, can you just provide a little bit more colour on how it was impacted?
A2: The company has been hit like many businesses and the first few months saw that major downturn in orders. However, as a business, we had a great strength in our geographic spread along with no great customer concentration or industry or sector concentration. With our wide international manufacturing footprint, we’ve been able to move production between sites as lockdowns rolled around the world, we were also deemed to be an essential supplier in nearly all countries. Therefore we stayed open to supply those industries so people like the food, power, medical, water, transport sectors, they’re all people that rely on us and that means we’ve stayed largely open as the pandemic has gone on.
Everyone in the business has done a fantastic job and without all our staff playing their part, we could not have managed as we have. Our factories to stay open means our customers got what they needed but it’s required our teams to find ways to safely operate. We’ve obviously done a lot of things around the world to develop safe operating procedures and this usually means asking people to work in a different way.
As the year rolled on, order intake and sales have picked up but supply chain and material issues have developed throughout and continue. I’d not foreseen the major changes in steel and transport costs, or indeed the shortages of things like containers, however, we’ve dealt with these things well so far, and this has unfortunately also meant we’ve had to pass price increases through to customers.
So, whilst the pandemic has been tough, and issues persist, we are exiting in good shape with low leverage ready for the recovery.
Q3: You mentioned, growth in the order books this year, what’s that down to?
A3: I think I’ve mentioned, our products are a critical component in so many different applications, industries, and geographies. We’re a premium supplier of high quality and high specification products that perform exceptionally well, they’re reliable and long lasting. When people have applications that are demanding, then they turn to us, we supply both maintenance and capital applications.
We’ve been working extremely hard for a number of years to make sure that the market understand this and with the pressure on many customers, this seems to resonate particularly well through the pandemic within our markets, no name or brand is stronger than that of Renold.
We’re working hard to make sure that customers are aware how much we can help them meet their sustainability objectives alongside their productivity and operational targets and this is also increasingly got traction, I think, over the last 12 or 18 months.
Additionally, I think we’re seeing the benefit of the years of work we’ve been putting into our product management and development along with a focus on service improvements. All these comments would apply to the start of the current financial year, as well as the order input trends that have continued. Just a few days ago, for instance, we announced a new £11 million order for couplings for the Type 26 frigates so as you can tell from all the different industries I’ve mentioned, we really do have a very diverse business indeed.
Q4: You mentioned the Chinese factory, can you give us an update on that?
A4: We’ve manufactured and operated in China for well over a decade, however, we built a brand new industrial chain factory in our 2019 financial year and at the same time, bought out our joint venture partner. We have ambitions not just to manufacture in China, but also to be a bigger player in the domestic Chinese market.
The factory has been developing and improving ever since we first opened, and in the period that’s just finished, it took another big step forward with the improvement in profitability, helping the entire group.
Whilst the new factories operating well ahead of the levels of the old factory, we still have major ambitions for it and in the last few weeks, we’ve signed off some more investments which will help take the performance and capability and capacity to another level.
So excellent progress, but much more to come and lots more opportunity.
Q5: Just looking forward, how would you describe the outlook for the company?
A5: Renold is coming out of the pandemic in good shape. I’m pleased with the group’s robust performance through the pandemic, which reflected the benefits of the strategic developments which we’ve completed over the prior years.
Throughout the year, the business performance has been on an improving trend and we exit the year with good order books that have continued to improve in the early part of the new financial year. Whilst there remain considerable COVID-19 related challenges in some parts of the world, with supply chain issues and rising costs, we’re well-placed to deal with these and our performance over the last 12 months gives me confidence that we’ll return to growth in the new financial year.
Major restructuring work is complete and with the reduction in leverage, together with increased cash generation, acquisitions and strategic growth investment opportunities are now being actively explored. Post year-end, for instance, we completed the very small bolt-on acquisition of the conveyor chain business of Brooks.
So, whilst the pandemic has not been easy for any business, including us, we’re feeling confident and we are well positioned for the next phase of our development.