Renold Plc - Trading Update and Impact of Coronavirus
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("Renold", "the Company" or "the Group")
Impact of the Coronavirus
28 February 2020
Renold, a leading international supplier of industrial chains and related power transmission products, is today providing a trading update reflecting the Board's current assessment of the impact of the Coronavirus outbreak on the Group's performance in the year ending 31 March 2020.
As set out in Renold's interim results, announced on 13 November 2019, the Group experienced challenging market conditions in the first half of the year. As anticipated, these challenging conditions have continued into the second half of the year, with the greatest weakness evident in the US and European markets. Despite the negative effect of this subdued demand on revenues, the Group has continued to be effective in mitigating the impact of this through improved operational efficiency and utilising flexibility within cost structures. As a result, the Group had been on track to deliver an adjusted operating profit for the year in line with current market expectations.
Notwithstanding this robust performance, the outbreak of the Coronavirus is having a direct impact on certain of the Group's operations. Most notably, this resulted in an extension of the Spring Festival shutdown of our Chinese factory by almost a month. Whilst we are pleased to report that the Chinese factory has reopened, staffing levels are not yet fully recovered due to continuing limitations on the movement of employees. In addition, the extensive disruption and the limited visibility of third party supply chains into both the Chinese factory and our Australasian Chain business, means that there remains uncertainty as to the performance of these business units over the coming months.
We are working closely with customers and suppliers to mitigate the impact of these factors but now expect there will be a profit drag across February and March that will not be recoverable before the end of the year. As a result and whilst mindful of the ongoing uncertainty, the Board estimates, based on current information, that the effects described above are likely to reduce adjusted operating profit by approximately £1m in the year to 31 March 2020.
Robert Purcell, Chief Executive, said:
"While the current year has been a challenging one, with difficult underlying markets, the improvements being delivered within the business are supporting our profitability.
"However, the impact of Coronavirus, with the extended shutdown of one of our major factories and continuing uncertainty over Chinese supply chains, has happened close to the end of our financial year and there is no opportunity to recover the operating profit shortfall before March 31st.
"Whilst market conditions remain challenging in the near term and a level of uncertainty remains over the longer-term implications of Coronavirus on our business, we are encouraged by the positive impact of our ongoing strategic initiatives."