Fenner PLC Regulatory News (FENR)

9 May 2007 07:01

Fenner PLC09 May 2007 9 May 2007 Fenner PLC 2007 Interim Results Fenner PLC, the global engineer specialising in reinforced polymer technology, today announces its interim results for the six months ended 28 February 2007. Fenner is the world leader in the global conveyor belting market. Its products include lightweight and heavyweight conveyor belting for the mining and power generation markets, precision motion control products for the computer, copier and mechanical equipment markets, and sealing products for the mining, hydraulics and oil and gas industries. Highlights • Robust performance across all operations. • After recognising a £2.5m profit on the sale of Fenner's interest in KSB, group profit before tax increased by 34% to £15.9m (2006: £11.9m). • Group operating profit (before amortisation of intangible assets acquired and exceptional items) increased 26% at constant exchange rates. After the impact of currency translation it increased 12% to £16.2m (2006: £14.5m). • Advanced Engineered Products saw further growth and encouraging sales performances throughout the period. Operating profit grew to £7.7m (2006: £6.3m). The underlying increase was 35% at constant currency. • Conveyor Belting saw an outstanding performance in Southern Hemisphere balanced with slower sales in North America. Underlying operating profit was up 11% but after £1m adverse currency effect was £7.8m (2006: £8.0m). • Investment programs to support substantial customer growth will fuel future progress. • Current trading is good with strong order flow in all our major operations. • Confident in a successful outturn for the year and medium to long term prospects are encouraging. Commenting on outlook, Colin Cooke, Chairman, said: "Trading during the initial months of the second half has been good. "In North America, the order flows in our heavyweight conveyor beltingoperations indicate accelerating demand in addition to strengthening marketsfor the summer months. Elsewhere, our belting operations are experiencingadvantageous trading conditions. Attractive market conditions for the sealsbusiness and a combination of efficiency improvements and increased outputcapability are expected to lead to the usual second half improvement for theadvanced engineered products division. "We remain confident of a successful outturn for our 2007 trading year and the prospects for medium to longer term growth are encouraging." For Further Information: Fenner PLCMark Abrahams, Chief Executive 9 May 2007: 020 7067 0700Richard Perry, Finance Director Thereafter: 01482 626501 Weber Shandwick FinancialNick Oborne / Stephanie Badjonat / Hannah Marwood 020 7067 0700 CHAIRMAN'S STATEMENT I am delighted to report on a period of further advancement for the Group.Operating profit before amortisation of intangible assets acquired andexceptional items advanced 12% to £16.2m (2006 £14.5m) after absorbing £1.6m ofcurrency translation effects compared to the equivalent period in 2006. The results have been driven by robust performances across all of ouroperations, as the strong growth in many of our businesses and marketsoutweighed the effects of currency, raw material cost increases and pockets ofmarket softness. The advanced engineered products division has seen further growth andencouraging sales performances throughout the period, particularly from ourrecently acquired and increasingly successful seals operations. The conveyorbelting division has balanced growth in the Southern Hemisphere with somewhatslower sales in the North American mining sector as a consequence ofunseasonably warm weather conditions in the winter months, temporarily slowingthe demand for coal. REVENUE AND PROFITSRevenue for the period increased to £185.5m (2006 £182.0m) after accommodatingadverse currency translation effects of £12.3m. Operating profit beforeamortisation of intangible assets acquired and exceptional items increased 12%to £16.2m (2006 £14.5m). At consistent exchange rates this increase would havebeen 26%. Operating profit increased to £15.5m (2006 £14.3m). After recognising a £2.5m profit on the sale of the Group's interest in KSBPumps in South Africa, profit before taxation increased by 34% to £15.9m (2006£11.9m). Earnings per share before amortisation of intangible assets acquired,exceptional items and profit on disposal of joint venture was 6.2p per share(2006 5.4p per share). This represented an increase of 15% over the equivalentperiod in 2006 and a 27% increase at consistent exchange rates. Basic earningsper share amounted to 7.0p per share (2006 5.3p per share). CASH RESOURCES AND INVESTMENTAs a result of our ongoing investment programmes and the seasonal first halfabsorption of funds, net borrowings increased by £23.3m (2006 £15.8m).Investments during the period included the continuing expansion of the Group'sbelting and seals businesses in North America, the Southern Hemisphere andChina giving rise to total capital expenditure of £14.1m (2006 £7.7m) comparedto depreciation of £3.9m (2006 £4.0m). Additionally, the Group invested £8.8mduring the period on the purchase of EGC, a Houston, Texas, USA basedmanufacturer of fluoroplastic seals and components. This complements the alreadysuccessful advanced sealing technologies oil and gas sector business based inthat location. DIVIDENDSIn accordance with the Group's stated policy of continuing to improve dividendcover, we are declaring an interim dividend of 2.075p per share (2006 1.975p pershare). As indicated in the Group Finance Director's Review in the 2006 AnnualReport, for comparative purposes an interim dividend of 2.0p for the previousperiod should be used, therefore the underlying increase is 4%. OPERATIONSIn conveyor belting the underlying performance of the division has beenencouraging. Headline revenue for the period amounted to £123.4m (2006 £129.7m),reflecting a £9.0m reduction arising from currency translation principally fromthe US dollar with contributory weakness in the Australian and South Africancurrencies. The resultant operating profit of £7.8m (2006 £8.0m) incorporatesadverse currency translation effects of £1.0m. The well documented temporary slowdown in demand for energy in the NorthAmerican marketplace created a pause in order flow from our major customers. Theneeds of the market for reliable supply supported by a full service haveprovided the opportunity for us to grow and strengthen the business in thefuture. Our previously announced capital investment programme for North Americahas advanced during this period in accordance with our plans. This will includethe expansion of our steelcord manufacturing operations during 2008 and thecommissioning of a new, state of the art weaving facility in Georgia. Oncecommissioned, the expansion will increase the product range capability, andprovide a more efficient operation. The first half has seen an outstanding performance from the Australianbusinesses where the strength of the service support teams has produced anexcellent result during the period. The perseverance and diligence of ourEuropean management team in the Netherlands has delivered productivityimprovements which now represent an extremely firm base from which to achievefurther improvements in the future. Our business development programmes inChina have continued and the underlying expansion of this market offerssignificant opportunity for future growth. The advanced engineered products division has experienced substantial growthduring the period, with revenue rising by £9.8m to £62.1m (2006 £52.3m) afteradverse currency movements of £3.3m. Operating profit advanced by £1.4m to £7.7m(2006 £6.3m) after incurring £0.6m of currency translation effects. The precision businesses have seen further growth in industrial and officeequipment markets and have delivered a strong trading performance, assisted by the plant extension in North America commissioned during 2006. The drives businesses have delivered sound performances against the backdrop of anunsettled North American industrial market. The specialist hose businesses havebenefited from healthy market conditions in the latter part of 2006. Thepredicted slowdown in early 2007 did not materialise following the transitionof its major customers' products to comply with new emissions regulations. The advanced sealing technologies operations have again outperformedexpectations with commendable trading performances arising from the mining,semi-conductor and oil and gas sectors. The acquisition of EGC, whilst dilutingoperating margins in the short term, presents the opportunity for major growthand sector penetration in the future. This complements our existing wellestablished CDI business in Houston and gives the additional benefit of sectordiversification to balance our portfolio in this region. OUTLOOKTrading during the initial months of the second half has been good. In North America, the order flows in our heavyweight conveyor belting operationsindicate accelerating demand in addition to strengthening markets for the summer months. Elsewhere, our belting operations are experiencing advantageous tradingconditions. This is supported by significant levels of further investment by our major customers. This provides encouragement for the medium to longer term. Attractive market conditions for the seals business and a combination ofefficiency improvements and increased output capability are expected to lead tothe usual second half improvement for the advanced engineered products division. We remain confident of a successful outturn for our 2007 trading year and theprospects for medium to longer term growth are encouraging. Colin CookeChairman Consolidated income statementfor the half year ended 28 February 2007 (unaudited) Half year ended Half year ended Year ended 28 February 28 February 31 August 2007 2006 2006 Notes £m £m £m__________________________________________________________________________________________________________Revenue 2 185.5 182.0 379.0Cost of sales (130.8) (129.7) (269.8)__________________________________________________________________________________________________________Gross profit 54.7 52.3 109.2Distribution costs (17.7) (17.4) (36.2)Administrative expenses (21.5) (20.6) (39.3)__________________________________________________________________________________________________________Operating profit before amortisation of intangible assets acquired and exceptional items 16.2 14.5 34.1Amortisation of intangible assets acquired (0.3) (0.2) (0.4)Exceptional items 3 (0.4) - -__________________________________________________________________________________________________________Operating profit 2 15.5 14.3 33.7Finance income 0.5 0.9 1.6Finance costs (2.6) (3.2) (5.9)Share of result of associate - (0.1) (0.1)Profit on disposal of joint venture 4 2.5 - -__________________________________________________________________________________________________________Profit before taxation 15.9 11.9 29.3Taxation 5 (4.8) (3.5) (8.7)__________________________________________________________________________________________________________Profit for the period 11.1 8.4 20.6__________________________________________________________________________________________________________Attributable to:Equity holders of the parent 11.1 8.3 20.4Minority interests - 0.1 0.2__________________________________________________________________________________________________________ 11.1 8.4 20.6__________________________________________________________________________________________________________Earnings per shareBasic 7 7.0p 5.3p 13.0pDiluted 7 7.0p 5.2p 12.8p__________________________________________________________________________________________________________The result for the period derives from continuing operations. Consolidated balance sheetat 28 February 2007 (unaudited) 28 February 28 February 31 August 2007 2006 2006 £m £m £m__________________________________________________________________________________________________________Non-current assetsProperty, plant and equipment 77.9 66.1 68.7Intangible assets 68.1 67.4 65.8Other investments 0.6 0.3 0.6Deferred tax assets 15.6 19.5 15.7__________________________________________________________________________________________________________ 162.2 153.3 150.8__________________________________________________________________________________________________________Current assetsInventories 57.3 58.1 53.9Trade and other receivables 69.2 71.8 64.0Current tax assets 1.0 0.8 0.6Cash and cash equivalents 19.7 50.2 41.4Derivative financial instruments - 0.5 0.5__________________________________________________________________________________________________________ 147.2 181.4 160.4__________________________________________________________________________________________________________Total assets 309.4 334.7 311.2__________________________________________________________________________________________________________Current liabilitiesBorrowings (9.0) (37.6) (8.5)Trade and other payables (68.0) (67.1) (67.7)Current tax liabilities (3.6) (5.1) (5.7)Derivative financial instruments (0.7) - (0.6)__________________________________________________________________________________________________________ (81.3) (109.8) (82.5)__________________________________________________________________________________________________________Non-current liabilitiesBorrowings (67.1) (62.9) (66.0)Retirement benefit obligations (27.5) (40.6) (29.1)Provisions (5.6) (4.8) (6.5)Deferred tax liabilities (5.1) (6.3) (5.1)__________________________________________________________________________________________________________ (105.3) (114.6) (106.7)__________________________________________________________________________________________________________Total liabilities (186.6) (224.4) (189.2)__________________________________________________________________________________________________________Net assets 122.8 110.3 122.0__________________________________________________________________________________________________________EquityShare capital 39.6 39.2 39.2Share premium 51.6 49.6 49.6Retained earnings 33.4 15.8 33.5Hedging reserve 0.3 - -Translation reserve (3.9) 4.0 (2.1)Other reserve 1.1 1.1 1.1__________________________________________________________________________________________________________Shareholders' equity 122.1 109.7 121.3Minority interests 0.7 0.6 0.7 __________________________________________________________________________________________________________Total equity 122.8 110.3 122.0__________________________________________________________________________________________________________ Consolidated cash flow statementfor the half year ended 28 February 2007 (unaudited) Half year ended Half year ended Year ended 28 February 28 February 31 August 2007 2006 2006 £m £m £m________________________________________________________________________________________________________Profit before taxation 15.9 11.9 29.3Adjustments for:Depreciation of property, plant and equipment and amortisation of intangible assets 4.2 4.2 8.8Movement in retirement benefit obligations (1.4) (0.1) (3.6)Movement in provisions (0.9) (0.1) 1.6Finance income (0.5) (0.9) (1.6)Finance costs 2.6 3.2 5.9Share of result of associate - 0.1 0.1Profit on disposal of joint venture (2.5) - -Other non-cash movements 0.5 0.6 0.1________________________________________________________________________________________________________Operating cash flow before movement in working capital 17.9 18.9 40.6Movement in working capital (6.3) (11.3) (2.4)________________________________________________________________________________________________________Net cash from operations 11.6 7.6 38.2Interest received 0.7 0.8 1.5Interest paid (3.4) (2.8) (5.9)Taxation paid (7.0) (3.7) (7.5)________________________________________________________________________________________________________Net cash from operating activities 1.9 1.9 26.3________________________________________________________________________________________________________Investing activities:Purchase of property, plant and equipment (13.8) (7.7) (18.6)Disposal of property, plant and equipment - - 0.1Purchase of intangible assets (0.3) - (0.2)Purchase of investments - - (0.3)Acquisition of subsidiary undertakings - (0.1) (0.3)Acquisition of businesses (8.8) - (0.2)Disposal of joint venture 5.2 - -__________________________________________________________________________________________________________Net cash used in investing activities (17.7) (7.8) (19.5)__________________________________________________________________________________________________________Financing activities:Equity dividends paid (9.5) (8.2) (8.2)Dividends paid to minority shareholders - - (0.1)Issue of ordinary share capital 0.5 0.3 0.3Minority interest capital introduced - - 0.1Loan repayment from associate - 0.1 0.1Repayment of finance leases (0.1) (0.1) (0.2)Repayment of borrowings (3.6) (1.3) (39.8)New borrowings 4.9 12.4 31.6__________________________________________________________________________________________________________Net cash (used in)/from financing activities (7.8) 3.2 (16.2)__________________________________________________________________________________________________________Net decrease in cash and cash equivalents (23.6) (2.7) (9.4)Cash and cash equivalents at start of period 41.0 51.3 51.3Exchange movements 1.4 0.7 (0.9)__________________________________________________________________________________________________________Cash and cash equivalents at end of period 18.8 49.3 41.0__________________________________________________________________________________________________________Cash and cash equivalents comprises:Cash and cash equivalents 19.7 50.2 41.4Bank overdrafts (0.9) (0.9) (0.4)__________________________________________________________________________________________________________ 18.8 49.3 41.0__________________________________________________________________________________________________________ Consolidated statement of recognised income and expensefor the half year ended 28 February 2007 (unaudited) Half year ended Half year ended Year ended 28 February 28 February 31 August 2007 2006 2006 £m £m £m__________________________________________________________________________________________________________Profit for the period 11.1 8.4 20.6Items recognised directly in equity:Currency translation differences (1.8) 1.9 (4.3)Hedge of net investments in foreign currencies 0.4 - 0.6Hedge of interest rate risk (0.1) - (0.6)Actuarial gains on defined benefit pension schemes - - 7.8Taxation on items taken directly to equity - - (2.0)__________________________________________________________________________________________________________Net (expense)/income recognised directly in equity (1.5) 1.9 1.5__________________________________________________________________________________________________________Total recognised income and expense for the period 9.6 10.3 22.1Adoption of IAS 32 and IAS 39 on 1 September 2005 - 0.1 0.1__________________________________________________________________________________________________________ 9.6 10.4 22.2__________________________________________________________________________________________________________Attributable to:Equity holders of the parent 9.6 10.2 21.9Minority interests - 0.1 0.2__________________________________________________________________________________________________________Total recognised income and expense for the period 9.6 10.3 22.1Adoption of IAS 32 and IAS 39 on 1 September 2005 - 0.1 0.1__________________________________________________________________________________________________________ 9.6 10.4 22.2__________________________________________________________________________________________________________ Notes to the interim financial information 1. Basis of preparationThe interim results have been prepared on the basis of the accounting policiesset out in the Group's Annual Report for 2006 and were approved by the Board ofDirectors on 9 May 2007. The interim results are not audited. The Group has notadopted IAS 34 'Interim Financial Reporting' which is not yet mandatory for UKgroups. The comparative financial information for the year ended 31 August 2006 does notconstitute statutory accounts within the meaning of Section 240 of the CompaniesAct 1985. It has been extracted from the Group's Annual Report for 2006 whichhas been filed with the Registrar of Companies. The Annual Report contained anunqualified audit report and did not contain a statement under Section 237 (2)or (3) of the Companies Act 1985. 2. Segment information Half year ended Half year ended Year ended 28 February 28 February 31 August 2007 2006 2006 £m £m £m__________________________________________________________________________________________________________RevenueConveyor belting 123.4 129.7 269.5Advanced engineered products 62.1 52.3 109.5__________________________________________________________________________________________________________ 185.5 182.0 379.0__________________________________________________________________________________________________________Operating profitConveyor belting 7.8 8.0 20.5Advanced engineered products 7.7 6.3 13.2__________________________________________________________________________________________________________ 15.5 14.3 33.7__________________________________________________________________________________________________________ 3. Exceptional itemsThe exceptional charge for the period of £0.4m (2006: £nil) comprised theinitial costs relating to the integration of the acquired EGC business andrestructuring of the conveyor belting business in North America. 4. Acquisitions and disposalsOn 1 October 2006, the Group acquired substantially all of the operating assetsand liabilities of EGC, a Houston, Texas, USA based manufacturer offluoroplastic seals and other related fluoroplastic precision components, fromCompagnie Plastic Omnium SA, a company quoted on the Paris Stock Exchange. Thecash consideration was US $15.7m which, together with $0.9m of acquisitioncosts, resulted in total cash flows of $16.6m (£8.8m). The value of net assetsacquired was $16.0m. Provisional fair value adjustments to align with Groupaccounting policies reduced this amount by $2.1m, resulting in goodwill onacquisition of $2.7m. On 2 January 2007, the Group disposed of its 50% joint venture shareholding inKSB Pumps (S.A.) (Pty) Limited. This disposal was achieved via a share buybackin which KSB Pumps acquired and cancelled Fenner held shares for an aggregatevalue of South African Rand 82.5m. After deducting cash balances of Rand 11.3m, the net cash flow was Rand 71.2m (£5.2m). This resulted in a profit on disposal of Rand 34.1m (£2.5m). 5. Taxation Half year ended Half year ended Year ended 28 February 28 February 31 August 2007 2006 2006 £m £m £m__________________________________________________________________________________________________________UK taxation (0.1) (0.4) (0.3)Overseas taxation 4.9 3.9 9.0__________________________________________________________________________________________________________ 4.8 3.5 8.7__________________________________________________________________________________________________________The tax charge is calculated based on the estimated effective tax rate for the full year. 6. Dividends Half year ended Half year ended Year ended 28 February 28 February 31 August 2007 2006 2006 £m £m £m__________________________________________________________________________________________________________Dividends paid or approved in the periodInterim dividend for the year ended 31 August 2006 of 1.975p (2005: 1.975p) per share 3.1 2.2 2.2Final dividend for the year ended 31 August 2006 of 4.025p (2005: 3.85p) per share 6.4 6.0 6.0__________________________________________________________________________________________________________ 9.5 8.2 8.2__________________________________________________________________________________________________________Dividends neither paid nor approved in the periodInterim dividend for the year ended 31 August 2007 of 2.075p (2006: 1.975p) per share 3.3 3.1 3.1__________________________________________________________________________________________________________The interim dividend for the year ending 31 August 2007 is due for payment on 5 September 2007 and so has not been recognised as a liability at 28 February 2007. It will be paid to shareholders on the register on 3 August2007. 7. Earnings per share Half year ended Half year ended Year ended 28 February 28 February 31 August 2007 2006 2006 £m £m £m__________________________________________________________________________________________________________EarningsProfit for the period attributable to equity holders of the parent 11.1 8.3 20.4Amortisation of intangible assets acquired, exceptional items and profit on disposal of joint venture (1.8) 0.2 0.4Taxation attributable to amortisation of intangible assets acquired, exceptional items and profit on disposal of joint venture 0.4 - (0.2)__________________________________________________________________________________________________________Profit for the period before amortisation of intangible assets acquired, exceptional items and profit on disposal of joint venture 9.7 8.5 20.6__________________________________________________________________________________________________________ Number Number Number__________________________________________________________________________________________________________Average number of sharesWeighted average number of shares in issue 157,655,351 156,731,895 156,851,761Weighted average number of shares held by the Employee Share Ownership Plan Trust (131,859) (131,859) (131,859)__________________________________________________________________________________________________________Weighted average number of shares in issue - basic 157,523,492 156,600,036 156,719,902Effect of share options and contingent long term incentive plans 812,820 1,726,231 2,076,873__________________________________________________________________________________________________________Weighted average number of shares in issue - diluted 158,336,312 158,326,267 158,796,775__________________________________________________________________________________________________________ Pence Pence Pence__________________________________________________________________________________________________________Earnings per shareAdjusted - before amortisation of intangible assets acquired, exceptional items and profit on disposal of joint venture 6.2 5.4 13.1Basic 7.0 5.3 13.0Diluted 7.0 5.2 12.8__________________________________________________________________________________________________________ 8. Reconciliation of net cash flow to movement in net debt Half year ended Half year ended Year ended 28 February 28 February 31 August 2007 2006 2006 £m £m £m__________________________________________________________________________________________________________Net decrease in cash and cash equivalents (23.6) (2.7) (9.4)(Increase)/decrease in borrowings and finance leases resulting from cash flows (1.2) (11.0) 8.4__________________________________________________________________________________________________________Movement in net debt resulting from cash flows (24.8) (13.7) (1.0)New finance leases - - (0.1)Exchange movements 1.5 (2.1) 2.5__________________________________________________________________________________________________________Movement in net debt in the period (23.3) (15.8) 1.4Net debt at start of period (33.1) (34.5) (34.5)__________________________________________________________________________________________________________Net debt at end of period (56.4) (50.3) (33.1)__________________________________________________________________________________________________________ 9. Reconciliation of movement in shareholders' equity Half year ended Half year ended Year ended 28 February 28 February 31 August 2007 2006 2006 £m £m £m__________________________________________________________________________________________________________Total recognised income and expense for the period 9.6 10.2 21.9Adoption of IAS 32 and IAS 39 on 1 September 2005 - 0.1 0.1Equity dividends paid (9.5) (8.2) (8.2)Shares issued in the period 0.5 0.6 0.3Share-based payments 0.2 0.1 0.3__________________________________________________________________________________________________________Movement in shareholders' equity in the period 0.8 2.8 14.4Shareholders' equity at start of period 121.3 106.9 106.9__________________________________________________________________________________________________________Shareholders' equity at end of period 122.1 109.7 121.3__________________________________________________________________________________________________________ 10. ContingenciesIn the normal course of business the Group has given guarantees and counterindemnities in respect of commercial transactions. The Group is involved as defendant in a number of potential and actuallitigation cases in connection with its business, primarily in North America.The directors believe that the likelihood of a material liability arising fromthese cases is remote. In October 2004, the conveyor belting operations in Charlotte and Atlanta, USAreceived notification from the Anti Trust Division of the US Department ofJustice of their intention to enquire into possible anti trust violations byFenner. Every co-operation is being given in order to clarify and expedite theprocess. This information is provided by RNS The company news service from the London Stock Exchange