Renold plc (LON:RNO) Chief Executive Officer Robert Purcell caught up with DirectorsTalk for an exclusive interview to discuss final results, significant revenue growth, performance of the YUK acquisition, further acquisitions and how the company is positioned to deal with any challenges ahead.
Q1: Results for the year ended 31st March 2023 now published, first off congratulations, they appear to be a strong set of results. Could you just talk us through the highlights please?
A1: We’ve announced some very robust, indeed record results that have really exceeded the market expectations.
Revenue was up 26% at £247 million, adjusted operating profit up 58% at £24.2 million, return on sales was up 200 basis points at 9.8%, even with the high levels of cost inflation which we managed to pass on, and adjusted earnings per share up 51% to 6.5 pence.
Net debt did increase in the year but that was due to spending €20 million on our Spanish acquisition of YUK but if you back out of that €20 million, we were cash generative in the year. Net debt at the year ended finished at just 0.8 times EBITDA.
We closed the year with a high order book of £99.5 million, that’s up 15% at constant exchange rates from the same time last year. Order intake in the year was £257 million which, again, was a record and comfortably above our sales levels.
So, yes, all in all, we’re very pleased with the year indeed.
Q2: Just looking in a little more detail, could you take us through what’s behind the significant revenue growth and the improved order intake?
A2: We’ve been working on a two-step strategy now for a number of years, this focuses on growth, both organic and acquisitive, but also has an underlying business improvement element.
As you can see from the results, all parts of the strategy came together very much in the year. A number of our organic growth initiatives started to bear fruit, we bought the YUK business in Spain and the improvement programme built on investing in our factories globally continued to drive cost down whilst increasing productivity and efficiency.
On top of this, much of what is going on in the world provides a tailwind for us:
- Customers wanting to de-risk their supply chains by using our international footprint,
- Customers reshoring their manufacturing and looking for local production which we can indeed provide,
- Increasing labour costs around the world drive increased needs for automation which in itself is a key driver for demand for our products.
Customers’ environmental and sustainability requirements along with a greater understanding of total cost of ownership versus the initial purchase price is also adding to a stead move towards our product.
We make and sell high specification products that perform and have a long life and our sales message is very much hitting home in increasingly respective market.
Q3: You mentioned the acquisition of YUK in August last year, how is that performing and how has the acquisition benefited the group in the period?
A3: YUK is a great business which, as you say, Renold purchased in August last year, and it brings many benefits to us. It’s a Spanish manufacturer of conveyor chain, chain that is used to move product about as opposed to transmission chain which is our traditional strength in Europe. Revenue is approximately €18 million a year, it was about €10.8 I think in the period since we bought it, it’s trading well and still run by the same excellent management team.
The business considerably strengthens our position in Iberia where we’ve been underrepresented in the past. The business gives us a competitive conveyor chain offering to sell across Europe through out existing sales network and it also give YUK a range of high specification transmission solution chains to sell to their customers in Spain.
Additionally, we can use our international manufacturing capability to insource products and components which they traditionally outsourced and so take on board some extra margin in doing so.
The integration is going to plan and the business has been trading ahead of expectations, we’re absolutely delighted with it.
Q4: Are you looking to complete further acquisitions?
A4: Yes, we’re very clear, our strategy is about organic and acquisitive growth.
We have an active pipeline of opportunities which cover a number of geographic regions, market sectors, applications and different types of opportunities from purely folding to highly strategic.
If anyone’s interested in understanding more about our plans for acquisitions then the Capital Markets Day video, which is on our website now, is a good watch. We have a good and experienced management team in place who understand what they want from acquisitions and how to integrate them.
Our net debt levels are low, we finished the year I think they said net debt under £30 million and a leverage ratio of only 0.8 as a minimum. I would be disappointed if we don’t get to complete even another small chain acquisition in this calendar year.
Q5: Just looking forward, are there any areas that give you particular concern and do you think Renold is appropriately positioned to deal with any challenges ahead?
A5: There are always things in the future which could potentially cause problems or trouble. We take particular note of the increasingly difficult macroeconomic backdrop that everyone is facing however, the company has never been stronger or better prepared to deal with what comes down the line. We still have a lot of work to do and lots of opportunity and we have to stick to doing what we’re good at.
Our business is geographically widely spread, we don’t have a dependency on a particular customer, market sector, or application, our products are relatively low cost but essential items, about 75% of what we sell goes into repair and maintenance and the remaining 25% is what we class as first fit. This market positioning should give us some relative strength.
Market trends that I mentioned earlier in terms of reshoring automation etc. are definitely a tailwind for us so whilst we cannot escape the general economic trends, I believe we are as well placed as we can be to weather those cycles and to keep enhancing our performance.
We have good momentum and we are actually looking forward with optimism to the year ahead.
