Shares in industrial chain maker Renold drop as it warns on profits

 
Courtney Goldsmith
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Renold makes chains, gears and other parts (Source: Getty)

Shares in industrials firm Renold dropped as much as 10 per cent today after the company warned on its profits due to high costs and issues with machines.

In a trading update for the six months to the end of September, the company said trading throughout the period was "mixed" as profitability at its chain division was affected by machine break-downs at a German facility and by sustained increases in raw material costs.

The board now expects adjusted operating profit for the year to be "slightly below the lower end" of analyst forecasts.

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Shares in Renold, which makes chains and gears, were down 8.74 per cent at 47p in late afternoon trading, leading the FTSE small cap fallers.

The firm's revenue in the period grew by eight per cent or by 2.7 per cent on an underlying basis compared with the previous year. Order intake grew by 9.9 per cent on an underlying basis or 6.1 per cent excluding a large order which extends beyond the current financial year.

While the chain division delivered strong year-on-year underlying revenue growth of 8.2 per cent in the first quarter, a major machine break down at the company's facility in Einbeck, Germany reduced the availability of key product lines, resulting in increased shipping and maintenance costs. That led to a second quarter revenue decline of 4.5 per cent.

As previously noted, the company, and particularly the chain division, experienced sustained increases in raw material costs - namely steel. Sales price increases have now been implemented to pass on these costs.

As a result of the higher costs and machinery issues in the second quarter, the adjusted operating margin for the chain division in the first half is expected to be around eight per cent.

The company will announce its interim results on 14 November.

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