7th Nov 2007 07:01
Fenner PLC07 November 2007 7 November 2007 Fenner PLC 2007 Preliminary Results Fenner PLC, the global engineer specialising in reinforced polymer technology, today announces its preliminary results for the year ended 31 August 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 • A year of excellent progress across the Group. • Pre-tax profit up 15% to £33.6m (2006: £29.3m). • Continuing growth and margin improvement by Advanced Engineered Products - strong performance by the Seals business in the mining, oil and gas and semiconductor sectors - EGC is integrating well, with initial results exceeding pre-acquisition expectations - Precision Polymers saw continued progress in hose and industrial markets. • Strong performance from Conveyor Belting - trading benefiting from buoyant mining conditions and a strong industrial sector - continued growth in Australia, China, North America and Europe. • The substantial capital investment programme underway will benefit future years' performance. This is being funded by strong cash flows. • The Group remains confident of continuing growth this year and beyond. Commenting on outlook, Colin Cooke, Chairman, said: "I am pleased to report that the performance achieved in 2006/7 has met ourambitious growth targets. The fundamentals of our core markets associated withenergy and power generation have remained strong. Against this backdrop, all ofour businesses have delivered robust returns which have culminated in a recordoperating profit for the Group. "In the first few weeks of 2007/8 trading has commenced in line with ourexpectations. Current order flow remains healthy and our markets are generallybuoyant. The effect of economic uncertainty, particularly in the US, has notbeen seen directly in our businesses, although we are alert to the possibilityof this occurring. The medium and longer term drivers remain strongly positiveand, we believe, endorse our customer led investment strategy. As a consequencewe remain confident of continuing growth this year." - ends - For Further Information: Fenner PLCMark Abrahams, Chief Executive 7 November 2007: 020 7067 0700Richard Perry, Finance Director Thereafter: 01482 626501 Weber Shandwick FinancialNick Oborne / Stephanie Badjonat/ Hannah Marwood 020 7067 0700 CHAIRMAN'S STATEMENT Financial Highlights 2007 % increase £m on 2006________________________________________________________________________________Revenue 380.8 - Operating profit before amortisation of intangible assets acquired and exceptional items 39.0 +14%Operating profit 38.2 +13%Profit before taxation 33.6 +15%Adjusted earnings per share before amortisation of intangible assets acquired and exceptional items 15.1p +15%Basic earnings per share 15.0p +15%Dividend per share 6.225p + 4%________________________________________________________________________________ I am pleased to report that the performance achieved in 2006/7 has met ourambitious growth targets. The fundamentals of our core markets associated withenergy and power generation have remained strong. Against this backdrop, all ofour businesses have delivered robust returns which have culminated in a recordoperating profit for the Group. FINANCIAL HIGHLIGHTSGroup revenue for the year amounted to £380.8m (2006 £379.0m). The growth wouldhave been £21.0m higher at last year's currency rates. Increased revenue in the Advanced Engineered Products Division reflected both acquisitive and organic growth, particularly in our seals businesses. The Conveyor Belting Division benefited from a continued expansion in the Southern Hemisphere. After a slower first half because of mild winter weather conditions, order levels for the North American business normalised in the second half of the year, following the earlier temporary pausein demand for energy. Operating profit before amortisation of intangible assets acquired andexceptional items increased to £39.0m (2006 £34.1m) after absorbing the effectof £2.7m of adverse currency movements. The underlying growth of 24% has beenfacilitated by continuous improvement and development of our integrated serviceand product offering. Exceptional items of £0.2m (2006 £nil) comprised a charge of £2.7m and a gain of£2.5m. The charge of £2.7m related to the reorganisation associated with the expansion of the conveyor belting operations in North America and the integration of EGC, which was acquired in October 2006, into the seals business in Houston, Texas. The gain of £2.5m related to the profit generated from the Group's disposalduring the year of its non-core interest in KSB Pumps in South Africa. Operating profit increased to £38.2m (2006 £33.7m). Total net finance costsincurred were £4.6m (2006 £4.3m) with a resultant profit before taxation of £33.6m (2006 £29.3m). The headline and underlying taxation rates were 29% and 30% respectively.Adjusted earnings per share before amortisation of intangible assets acquiredand exceptional items was 15.1p per share (2006 13.1p). Basic earnings per shareamounted to 15.0p per share (2006 13.0p). The Group's ability to generate cash is evident from the net cash inflow fromoperating activities of £38.8m (2006 £26.3m) emanating from both profit andworking capital management. This has funded the Group's major expansion plans in the period as capital expenditure incurred rose to £32.0m (2006 £18.8m). The acquisition of EGC cost £8.8m and the divestment of KSB Pumps generated £5.2m. Net debt at the end of the year was £36.3m (2006 £33.1m). This benefited from borrowings being denominated in weaker foreign currencies, giving rise to a gain of £2.5m. The Board is recommending a final dividend of 4.15p per share which gives atotal distribution for the year of 6.225p per share (2006 6.0p), a 4% increaseon 2006. This is in line with our policy of paying a one-third interim dividendand a two-thirds final dividend. OPERATIONSThe Advanced Engineered Products Division had another strong year, particularlyour seals businesses, where high trading levels continued to be enjoyed in the mining, oil and gas and semi conductors sectors. These businesses have gone from strength to strength since their acquisition two years ago. The integration of EGC has progressed well and the initial results have exceeded pre-acquisitionexpectations. The precision polymers businesses saw healthy growth in both hoseand industrial markets, particularly in North America. The Conveyor Belting Division achieved a further year of growth as the strategicdevelopment of our market strengths progressed in accordance with our plans.Demand for belting benefited from both the buoyant mining conditions whichprevailed for much of the year and a strong industrial sector. In Australia, thenational coverage of the service businesses broadened to accommodate the needsof our widely spread customer base. The business in China continued to expand asthe belting requirement from the coal mining sector grew, driven by thisterritory's increasing demand for energy. In North America, the improved volumesin the second half enabled a good full year performance with operationalefficiencies assisting margins. Our substantial capital investment programmecommenced in earnest during the period, the benefits of which will be evidentfor years to come. Finally, results from the European businesses have been mostencouraging as economic conditions showed improvement and penetration of new andemerging markets continued. PEOPLEFenner employs over 3,500 people in its geographically diverse operations aroundthe world. We are fortunate to have strong teams of talented and dedicatedpeople throughout the Group. I recognise that the achievements to date could nothave happened without their support and therefore, on behalf of the Board, Iwould like to extend my appreciation and gratitude. OUTLOOKIn the first few weeks of 2007/8 trading has commenced in line with ourexpectations. Current order flow remains healthy and our markets are generallybuoyant. The effect of economic uncertainty, particularly in the US, has not been seen directly in our businesses, although we are alert to the possibility of this occurring. The medium and longer term drivers remain strongly positive and, webelieve, endorse our customer led investment strategy. As a consequence weremain confident of continuing growth this year. Colin CookeChairman CHIEF EXECUTIVE OFFICER'S REVIEW INTRODUCTIONFenner is a world leader in reinforced polymer technology. We will maintain orachieve leading positions in all our niche markets by continuing to concentrate on, and invest in, understanding our customers' needs and delivering superior value added products to satisfy those needs. The commitment and expertise of our workforce in both established and emerging markets provides a solid platform for profit and growth. The Conveyor Belting ("CB") Division continues to be a world leader in theglobal conveyor belting market with products including lightweight andheavyweight conveyor belting for the mining, power generation and industrialmarkets. The Advanced Engineered Products ("AEP") Division is involved in precisionmotion control products for the paper handling and mechanical equipment markets,silicon and EPDM hose production for non-automotive applications and thespecialist sealing business, which manufactures seals products for the mining,hydraulics, oil and gas, electronics, pumps, valves, compressors, and aerospaceindustries. As with CB, AEP demonstrates its market leadership through itscustomer responsiveness, product range, quality and the whole-life value of theproduct to the customer. The Group takes pride in being a manufacturer of world class products that areknown for quality and reliability and which provide value added solutions to our customers. From 3mm wide inkjet printer belts to 1500mm wide High-Vis conveyor belt for carrying potash, our reputation is key to the Group's success and hasbeen built up over many years of customer focused trading. Measuring our performance against customer requirements and their satisfaction, including appropriate "on time in full" measurement and customer surveys, is a key task throughout the Group. STRATEGIC OBJECTIVESStrategic reviews are held periodically and are embedded into the Group'scorporate processes, with the Board and Executive management team devoting a proportion of each of their meetings to discuss strategic issues. CB and AEP have separate strategic objectives, with common goals of continued investment and development in emerging markets, as well as expanding share where possible in established markets. The possibility of further expansion into other emerging markets is subject to regular review. Fenner continues to grow its reputation as a specialist polymer engineeringcompany, with global operations offering products focused on distinct marketsand managed through two operating divisions. The Group's head office promotesproactive local autonomy with well defined, timely reporting. Fenner has over3,500 employees based in 18 countries and where possible we recruit and developindigenous management. Acquisition opportunities are actively sought and evaluated. The capacity anddesire to grow by acquisition is tempered by availability and value ofappropriate targets. During the year, there was major organic investment across our CB and AEPoperations, demonstrating a clear commitment to achieving our strategic objectives. Good progress was made on the building work for our Port Clinton operation with thewide steel cord and fabric presses on track for installation in the first halfof 2008. The current phase of investment in the Toledo operation is complete andthe operational benefits are starting to flow through. Work has also started onthe new bespoke state of the art weaving facility in Georgia. Investment hasbeen made in South Africa and China to increase both the capacity and productrange of the CB operations in those countries. Major expansion of the Houston site to accommodate the recently acquired EGCbusiness has shown encouraging progress. AEP expanded in China with the opening of new facilities for both the sealing operation and the hose business. The businessalso continues to benefit from the new bespoke factory in Hampton which was completed in 2006. All investments in new production equipment are required to improve quality andreduce waste. The CB investments in North America will produce major savingsfrom reduced waste and improvements in conversion efficiencies. Overall the Group is addressing capacity constraints and continues to improve on production efficiencies.After a long and successful partnership with KSB Pumps in South Africa, Fennertook the opportunity to realise a good exit price for this non-core businessunit which will enable KSB Pumps to develop in the Black Economic Empowermentenvironment. CONVEYOR BELTINGCapacity and temporary weather related local market weakness constrained growthin the first half. Improved demand and a better mix of business led to anincrease in profitability in the second half. Internationally traded coal prices, one of the key indicators of the relative health of the market for conveyor belting, demonstrated by the McCloskey graph, rose steadily throughout the year. Coal prices are affected by, but not linked to, oil prices, but coal is seen as a more secure source of basic energy, especially in China and North America. High coal stocks and a warm winter depressed demand for Fenner Dunlop Americasin the first half. Volume recovered in the second half and the long term outlookremains positive. The slowdown in the North American housing market and concerns over sub-prime credit had little visible impact on our operations. With a dedicated sales team, the business strengthened its position with national accounts during the year which means the business is well placed to exploit both coal and industrial markets in future years. With recent international investment by American coal companies, Fenner Dunlop Worldwide is uniquely placed to service these customers. In industrial markets, continued high levels of construction activity provided demand for many material handling applications ranging from forestry to steel manufacturing. Our UK based operation made gains in market share in Western Europe andcontinues to penetrate into new markets opening up in Eastern Europe and theformer Soviet Union. Domestic industrial markets in Western Europe were steady for the first half ofthe year and grew in the second half. Building on the changes made last year,the European operation continued to improve its margins through the year and toexploit its diverse product range by improving customer perception of qualityand continuing with its improvements in manufacturing efficiencies. Operations in China, India and South Africa benefited from continued strength inthe coal industries in their domestic markets, primarily driven by the demand for power for both industrial and domestic use. New product launches are planned, including a steel cord line in South Africa to enable the business to expand beyond the coal dominated product range into such applications as overland conveying. In Australia, Fenner Dunlop experienced a positive trading year with aparticularly strong first half. The service business offers resilience to theotherwise cyclical nature of new belting projects. This counterbalancereinforces the Group's strategy to invest in value added services. TheAustralian iron ore market is booming with numerous projects coming on line toincrease production. The business is well placed to supply into these newprojects and to offer the value added after sales services. Work continued to develop rEscan alongside the Australian service business. Inthe Americas, and elsewhere, the service business has been reorganised and isbeginning to implement our successful service model whilst complementing ourexisting distribution channels. ADVANCED ENGINEERED PRODUCTSAEP is made up of four discrete businesses. They share the same broad strategicobjectives of seeking to provide engineered solutions to customers' needs usingmaterial science and design skills in niche applications which are usuallyperformance critical. The markets are very diverse and therefore each businesswithin AEP deploys different tactics and value propositions to achieve theirstrategic goals. Fenner Advanced Sealing Technologies ("FAST") had another record year due tostrong organic growth combined with the EGC acquisition. Demand continued to be strong for seals for oil, gas and mining applications. FAST continues to focus on niche performance critical and higher pressure applications for which a strong advanced materials capability is necessary. A key part of FAST's strategy is to continue to roll out the Six Sigma continuous improvement programme, with the primary objective of achieving market leading delivery performance and availability for its product range. The new facility in Shanghai is being used to develop business in Asia and there are new customer service operations in India and South America. To develop new business faster, all seals service subsidiaries have been equipped with CNC prototyping capability. The hose business, trading as James Dawson, is a world leading producer ofspeciality hoses for diesel engine, truck, bus and off road commercial vehicles.The hose business successfully relocated its Chinese manufacturing into a purpose built facility in Shanghai during the year and is now producing hose for the South East Asian market from the new bespoke factory. Domestic growth combined with exports increased the sales of our Chinese hose facility by 50%. Restructuring of the business in the previous year has brought improved marketfocus to Fenner Drives and Fenner Precision. Fenner Precision produces polymeric belts, tyres and rollers for the global office automation market, with increased focus on mission critical, document handling applications. Fenner Drives continues to develop a growing range of innovative, proprietary products which solve problemsin the power transmission, motion control and unit handling markets. The keygeographic markets for Fenner Precision and Fenner Drives are North America,Europe and Asia, where demand continues to be robust. Capacity at the Manheimfacility was increased in late 2006, enabling the business to meet customerdemand. AEP continues to look for acquisition opportunities to strengthen its currentoperating bases and develop its geographical reach. OUTLOOKThe new year has started in line with our expectations. Global commodity markets including oil, iron ore and coal remain strong in termsof price and demand. However, this must be tempered by the weak housing and infrastructure market in North America plus the, as yet unknown, fallout from the sub-prime mortgage losses. Although approximately half our business is in North America, overall our current order intake reflects commodity strength. Our organic investment programme continued throughout the year in support of ourcustomers' investments in new projects. The commissioning phase of these programmes will be completed in the next 6 to 18 months, providing growth in future years. Our intentions are not limited to organic investment and we continue to look forstrategic acquisition opportunities across all our businesses. The Fenner businesses are well invested and positioned in geographic locationswhere markets offer good growth prospects. We anticipate that the combination ofthese factors will enable us to continue our progress in 2008. FORWARD-LOOKING STATEMENTSCertain statements contained in this document, including those under the caption"OUTLOOK", constitute forward-looking statements. Such forward-lookingstatements involve risks, uncertainties and other factors which may cause theactual results, performance or achievements of Fenner, or industry results, tobe materially different from any future results, performance or achievementsexpressed or implied by such statements. Such risks, uncertainties and otherfactors include, among others: growth in the energy markets, general economicand business conditions, particularly in the US, competition and the ability toattract and retain personnel. Mark AbrahamsChief Executive Officer GROUP FINANCE DIRECTOR'S REVIEW REVENUE AND OPERATING PROFITReported Group revenue remained at a similar level to the prior year at £380.8m(2006 £379.0m). The adverse effect of currency movements was £21.0m which principally arose from the translation of revenues into sterling using a weaker US dollar. At constant exchange rates the underlying growth was 6%. Revenue in the CB Division was £255.8m (2006 £269.5m). The reduction wasprincipally due to the translation effect of weaker foreign currencies,particularly the US dollar and South African Rand. Underlying demand for ourproducts and services remained strong in the principal territories inwhich the Group operates. Revenue in the AEP Division increased to £125.0m (2006 £109.5m) mainly from theacquisition of EGC and underlying growth in the existing operations, particularly the seals business. Group operating profit before amortisation of intangible assets acquired andexceptional items increased by 14% to £39.0m (2006 £34.1m). At constant exchangerates the increase was 24%. Divisional profits contributed were £24.2m (2006£23.8m) from the CB Division and £20.0m (2006 £15.2m) from the AEP Division. Exceptional items of £0.2m (2006 £nil) comprised restructuring costs associatedwith the expansion of the conveyor belting businesses in North America of £1.9m, integration costs following the acquisition of EGC of £0.8m and a profit on disposal of joint venture of £2.5m. Amortisation of intangible assets acquired was £0.6m (2006 £0.4m). Group operating profit increased to £38.2m (2006 £33.7m). INTERESTThe net interest cost in the year was £4.6m (2006 £4.3m). By the year end, morethan three quarters of the Group's gross borrowings were at fixed interestrates. The remaining borrowings and deposits were at floating rates. Interestcover increased from 7.9 to 8.5 times. TAXATIONThe taxation rate for the year was 29% (2006 30%). The underlying taxation ratebefore amortisation of intangible assets acquired and exceptional items remainedat 30%. The taxation rate in the relatively higher taxation rate territories in North America increased after tax losses were mostly utilised in 2006. This was offset by the utilisation of tax losses not previously recognised for deferred taxation in Europe and by the benefit of a tax holiday in China. The net result of this was an unchanged underlying taxation rate. EARNINGS PER SHARE AND DIVIDENDSBasic earnings per share was 15.0p per share (2006 13.0p) and adjusted foramortisation of intangible assets acquired and exceptional items was 15.1p pershare (2006 13.1p). The interim dividend of 2.075p per share (2006 1.975p) was paid on 5 September2007. The Board is recommending a final dividend of 4.15p per share to make atotal dividend for the year of 6.225p per share (2006 6.0p). ACQUISITIONS AND DISPOSALSOn 1 October 2006, the Group acquired substantially all of the operating assetsand liabilities of EGC, a Houston based manufacturer of fluoroplastic seals and other related fluoroplastic precision components. EGC was acquired from Compagnie Plastic Omnium SA, a company quoted on the Paris Stock Exchange. It was acquired for a cash consideration of £8.8m, inclusive of acquisitioncosts. On 2 January 2007, the Group disposed of its 50% joint venture in KSB Pumps.This disposal was achieved via a share buyback in which KSB Pumps acquired andcancelled Fenner held shares for an aggregate value of £6.1m. After deducting£0.9m of cash and cash equivalents held by KSB Pumps, the net cash inflow was £5.2m. CASH FLOW, NET DEBT AND FINANCINGStronger profits and a reduction in working capital generated an increase in netcash from operating activities to £38.8m (2006 £26.3m). Capital expenditure increased to £32.0m (2006 £18.8m) which reflects the investment in the Group's major expansion programmes. This compares to a depreciation charge of £8.0m (2006 £8.4m). After funding these expansion programmes and disposing of fixed assets of £0.2m (2006 £0.1m), the free cash inflow was £7.0m (2006 £7.6m). The acquisition of EGC and the disposal of KSB Pumps gave a net outflow of £3.6m. Dividends paid amounted to £9.5m (2006 £8.2m) which, together with an inflow from other financing activities of £0.4m (2006 £0.3m), resulted in an increase in net debt before the effects of exchange rates of £5.7m (2006 £1.1m). The translation effect of weaker exchange rates reduced this amount by £2.5m (2006 £2.5m). Net debt increased in the year by £3.2m to £36.3m (2006 £33.1m). The Group is financed principally by a mix of equity, retained earnings, USdollar private placement loan notes and a committed bank facility. The principalloan facilities are raised centrally and advanced to operating companies on commercial terms. Operating companies supplement this funding with local overdraft and working capital facilities. Gross debt at the year end amounted to £102.4m, excluding derivatives. During the year, the Group raised a new $90m US dollar private placement with US basedinvestors led by Pricoa Capital. These Senior Notes are repayable in June 2017 and carry a fixed interest coupon of 5.78%. The notes are guaranteed by the Company and the Group's principal UK and North American subsidiaries. They carry net debt to EBITDA and interest cover covenants. The Group's older private placement notes stood at $34.1m (2006 $40.9m). These carry a fixed interest coupon of 7.29% and mature between 2008 and 2012. The Group has amended its committed revolving credit bank facility with threeleading UK banks during the year. The facility now stands at £75m and its maturity has been extended by two years to June 2012. Its covenants have also been amended and are now similar to the 2017 private placement. At 31 August 2007, £33.5m (2006 £45.3m) of this facility was drawn down. Cash and cash equivalents at the year end were £66.1m (2006 £41.4m). Themajority of this increase was from part of the proceeds of the new private placement placed on deposit which are available for investment. Net debt was £36.3m (2006 £33.1m). The Group is well placed with medium and long term debt finance and cash resources to fund its continuing expansion plans. ACCOUNTING POLICIESThe Group financial statements have been prepared in accordance with IFRS asadopted by the European Union. FINANCIAL RISK MANAGEMENTIn the normal course of business, the Group is exposed to certain financialrisks, principally foreign exchange risk, interest rate risk, liquidity risk andcredit risk. These risks are managed by the central treasury function inconjunction with the operating units, in accordance with risk managementpolicies that are designed to minimise the potential adverse effects of theserisks on financial performance. The policies are reviewed and approved by theBoard. The exposures are managed through the use of foreign currency and sterlingborrowings, derivatives and credit management procedures. The use of derivatives is undertaken only where the underlying interest or currency risk arises from theGroup's operations or sources of finance. No speculative trading in derivatives is permitted. In the normal course of business, derivatives have been used to hedge futurecash flows arising from trading transactions relating to the sale and purchaseof goods and services. The Group has chosen not to hedge account for suchtransactions under the requirements of IAS 39 'Financial Instruments: Recognition and Measurement', recognising that cash flows through to the maturity of the derivative are unaffected. In compliance with IAS 39, all financial instruments have been measured at their fair value as at the balance sheet date. A charge or credit to the income statement has been recognised for the loss or gain on these instruments. In addition, in accordance with IAS 21 'The Effects of Changes in Foreign Exchange Rates', all foreign currency monetary items have been re-translated at the closing rate, with changes in value charged or credited to the incomestatement. The interest rate swap entered into in 2006 to hedge interest rate cash flowscontinued during the year. This instrument fixes the interest rate on $40m of floating rate bank borrowings until 2011. At 31 August 2007, the fair value of this instrument was a liability of £0.7m (2006 £0.6m). During the year, the Group also swapped $27.2m of the 2017 private placementinto €20.0m, with cash flows mirroring the private placement at a fixed rate of5.05%. This swap matures in June 2017 when the private placement is repayable.These swaps have been accounted for as hedges in accordance with IAS 39, withthe charge or credit recognised directly in equity. POST-RETIREMENT BENEFITSThe Group operates a number of defined benefit post-retirement schemes forqualifying employees in operations around the world. The principal scheme is the Fenner Pension Scheme which is based in the UK. The total defined benefit post-retirement liability on the balance sheet, ascalculated by the schemes' actuaries in accordance with IAS 19 'EmployeeBenefits', reduced to £14.1m (2006 £29.1m). Of this amount, the Fenner PensionScheme represented £13.1m (2006 £26.9m) and the overseas schemes totalled £1.0m(2006 £2.2m). During the year, the fair value of assets in the schemes hasbenefited from rising equity markets whilst the present value of obligations hasreduced as bond yields increased. Richard PerryGroup Finance Director Consolidated income statementfor the year ended 31 August 2007 2007 2006 Notes £m £m________________________________________________________________________________Revenue 2 380.8 379.0Cost of sales (268.4) (269.8)________________________________________________________________________________Gross profit 112.4 109.2Distribution costs (36.9) (36.2)Administrative expenses (37.3) (39.3)________________________________________________________________________________Operating profit before amortisation of intangible assets acquired and exceptional items 39.0 34.1Amortisation of intangible assets acquired (0.6) (0.4)Exceptional items 4 (0.2) -________________________________________________________________________________Operating profit 2,3 38.2 33.7Finance income 1.4 1.6Finance costs (6.0) (5.9)Share of result of associate - (0.1)________________________________________________________________________________Profit before taxation 33.6 29.3Taxation 6 (9.7) (8.7)________________________________________________________________________________Profit for the year 23.9 20.6________________________________________________________________________________Attributable to:Equity holders of the parent 23.7 20.4Minority interests 0.2 0.2________________________________________________________________________________ 23.9 20.6________________________________________________________________________________Earnings per shareBasic 8 15.0p 13.0pDiluted 8 14.9p 12.8p________________________________________________________________________________The result for the year derives from continuing operations. Consolidated balance sheetat 31 August 2007 2007 2006 Notes £m £m________________________________________________________________________________Non-current assetsProperty, plant and equipment 90.2 68.7Intangible assets 66.5 65.8Other investments 0.6 0.6Deferred tax assets 12.5 15.7________________________________________________________________________________ 169.8 150.8________________________________________________________________________________Current assetsInventories 54.5 53.9Trade and other receivables 61.5 64.0Current tax assets 0.7 0.6Cash and cash equivalents 66.1 41.4Derivative financial instruments 0.2 0.5________________________________________________________________________________ 183.0 160.4________________________________________________________________________________Total assets 352.8 311.2________________________________________________________________________________Current liabilitiesBorrowings (10.2) (8.5)Trade and other payables (75.1) (67.7)Current tax liabilities (5.4) (5.7)Derivative financial instruments (0.7) (0.6)________________________________________________________________________________ (91.4) (82.5)________________________________________________________________________________Non-current liabilitiesBorrowings (92.2) (66.0)Retirement benefit obligations (14.1) (29.1)Provisions (6.9) (6.5)Deferred tax liabilities (5.5) (5.1)________________________________________________________________________________ (118.7) (106.7)________________________________________________________________________________Total liabilities (210.1) (189.2)________________________________________________________________________________Net assets 142.7 122.0________________________________________________________________________________EquityShare capital 39.6 39.2Share premium 51.7 49.6Retained earnings 54.0 33.5Exchange reserve (4.9) (2.1)Hedging reserve 0.4 -Other reserve 1.1 1.1________________________________________________________________________________Shareholders' equity 141.9 121.3Minority interests 0.8 0.7________________________________________________________________________________Total equity 10 142.7 122.0 The financial statements were approved by the Board of Directors on 7 November2007 and signed on its behalf by: C I CookeChairman R J PerryGroup Finance Director Consolidated cash flow statementfor the year ended 31 August 2007 2007 2006 Notes £m £m________________________________________________________________________________Profit before taxation 33.6 29.3Adjustments for:Depreciation of property, plant and equipment and amortisation of intangible assets 8.6 8.8Movement in retirement benefit obligations (2.7) (3.6)Movement in provisions 0.2 1.6Finance income (1.4) (1.6)Finance costs 6.0 5.9Share of result of associate - 0.1Profit on disposal of joint venture (2.5) -Other non-cash movements 0.7 0.1________________________________________________________________________________Operating cash flow before movement in working capital 42.5 40.6Movement in working capital 10.8 (2.4)________________________________________________________________________________Net cash from operations 53.3 38.2Interest received 1.6 1.5Interest paid (5.9) (5.9)Taxation paid (10.2) (7.5)________________________________________________________________________________Net cash from operating activities 38.8 26.3________________________________________________________________________________Investing activities:Purchase of property, plant and equipment (31.5) (18.6)Disposal of property, plant and equipment 0.2 0.1Purchase of intangible assets (0.5) (0.2)Purchase of investments - (0.3)Acquisition of businesses 5 (8.8) (0.2)Acquisition of subsidiary undertakings - (0.3)Disposal of joint venture 5 5.2 -________________________________________________________________________________Net cash used in investing activities (35.4) (19.5)________________________________________________________________________________Financing activities:Equity dividends paid (9.5) (8.2)Dividends paid to minority shareholders (0.1) (0.1)Issue of ordinary share capital 0.7 0.3Minority interest capital introduced - 0.1Loan repayment from associate - 0.1Repayment of finance leases (0.3) (0.2)Repayment of borrowings (34.1) (39.8)New borrowings 66.3 31.6________________________________________________________________________________Net cash from/(used in) financing activities 23.0 (16.2)________________________________________________________________________________Net increase/(decrease) in cash and cash equivalents 26.4 (9.4)Cash and cash equivalents at start of year 41.0 51.3Exchange movements (1.4) (0.9)________________________________________________________________________________Cash and cash equivalents at end of year 66.0 41.0________________________________________________________________________________ Consolidated statement of recognised income and expensefor the year ended 31 August 2007 2007 2006 £m £m________________________________________________________________________________Profit for the year 23.9 20.6Items recognised directly in equity:Currency translation differences (2.8) (4.3)Hedge of net investments in foreign currencies 0.5 0.6Hedge of interest rate risk (0.1) (0.6)Actuarial gains on defined benefit pension schemes 12.0 7.8Taxation on items taken directly to equity (4.3) (2.0)________________________________________________________________________________Net income recognised directly in equity 5.3 1.5________________________________________________________________________________Total recognised income and expense for the year 29.2 22.1________________________________________________________________________________Attributable to:Equity holders of the parent 29.0 21.9Minority interests 0.2 0.2________________________________________________________________________________Total recognised income and expense for the year 29.2 22.1 Notes 1. Basis of preparationThe preliminary results for the year ended 31 August 2007, which were approvedby the Board of Directors on 7 November 2007, have been prepared in accordancewith International Financial Reporting Standards as adopted by the EuropeanUnion. The preliminary results do not constitute the statutory accounts of the Companyas defined by section 240 of the Companies Act 1985. The preliminary results are abridged from the Group's audited financial statements. The auditors, PricewaterhouseCoopers LLP, have reported on those financial statements and given an unqualified opinion, which did not include a statement under section 237(2) or 237(3) of the Companies Act 1985. The Group financial statements will be filed with the Registrar of Companies in due course. The comparative financial information for the year ended 31 August 2006 is derived from the Group financial statements for that year. 2. Segment information Advanced Conveyor Belting Engineered Products Unallocated Total ________________ ________________ ________________ ________________ 2007 2006 2007 2006 2007 2006 2007 2006 £m £m £m £m £m £m £m £m________________________________________________________________________________________________________________________Revenue 255.8 269.5 125.0 109.5 - - 380.8 379.0________________________________________________________________________________________________________________________Operating profit before amortisation of intangible assets acquired and exceptional items 24.2 23.8 20.0 15.2 (5.2) (4.9) 39.0 34.1Amortisation of intangible assets acquired - - (0.6) (0.4) - - (0.6) (0.4)Exceptional items (1.9) - 1.7 - - - (0.2) -________________________________________________________________________________________________________________________Operating profit 22.3 23.8 21.1 14.8 (5.2) (4.9) 38.2 33.7 3. Operating profitOperating profit has been arrived at after charging/(crediting): 2007 2006 £m £m________________________________________________________________________________Depreciation of property, plant and equipment - owned assets 7.6 8.0Amortisation of intangible assets acquired 0.6 0.4Amortisation of other intangible assets 0.4 0.4Loss on disposal of property, plant and equipment 0.2 0.2Foreign exchange loss/(gain) 0.1 (0.2)Research and development costs 1.7 1.9Government grants (0.1) (0.1)Operating lease charges 3.1 3.1Onerous property lease charges - 1.4Litigation costs 0.5 2.4Defined benefit past service credit - (1.4)Exceptional items (note 4) 0.2 -Auditors' remuneration for audit services 0.5 0.5Auditors' remuneration for non-audit services- UK 0.1 0.2- Overseas - 0.1________________________________________________________________________________ 4. Exceptional itemsExceptional items of £0.2m (2006: £nil) comprised restructuring costs associatedwith the expansion of the conveyor belting businesses in North America of £1.9m,integration costs following the acquisition of EGC of £0.8m and a profit ondisposal of joint venture of £2.5m (note 5). 5. Acquisitions and disposalsOn 1 October 2006, the Group acquired substantially all of the operating assetsand liabilities of EGC, a Houston, Texas based manufacturer offluoroplastic seals and other related fluoroplastic precision components, fromCompagnie Plastic Omnium SA, a company quoted on the ParisStock Exchange. The cash consideration was £8.8m. Net assets acquired were £6.9mbefore deducting fair value adjustments of £0.7m, principally to align withGroup accounting policies and intangible assets acquired were £2.1m. Thisresulted in goodwill on acquisition of £0.5m. On 2 January 2007, the Group disposed of its 50% joint venture in KSB Pumps(S.A.) (Pty) Limited. This disposal was achieved via a sharebuyback in which KSB Pumps acquired and cancelled Fenner held shares for anaggregate value of £6.1m. After deducting cash balances held by KSB Pumps of£0.9m, the net cash flow was £5.2m. This resulted in a profit on disposal of£2.5m. 6. TaxationThe taxation charge, based on the profit for the year, comprises: 2007 2006 £m £m________________________________________________________________________________Current taxation:- UK corporation tax - (0.1)- Overseas tax 9.9 8.3Deferred taxation (0.2) 0.5________________________________________________________________________________ 9.7 8.7________________________________________________________________________________ 7. Dividends 2007 2006 £m £m________________________________________________________________________________Dividends paid or approved in the yearInterim dividend for the year ended 31 August 2006 of 1.975p (2005: 1.975p) per share 3.1 2.2Final dividend for the year ended 31 August 2006 of 4.025p (2005: 3.85p) per share 6.4 6.0________________________________________________________________________________ 9.5 8.2________________________________________________________________________________Dividends not paid or approved in the yearInterim dividend for the year ended 31 August 2007 of 2.075p (2006: 1.975p) per share 3.3 3.1Final dividend for the year ended 31 August 2007 of 4.15p (2006: 4.025p) per share 6.6 6.3________________________________________________________________________________ 9.9 9.4________________________________________________________________________________The interim dividend for the year ended 31 August 2007 was paid on 5 September2007. The proposed final dividend for the year ended 31 August 2007 is subject to approval by shareholders at the AGM. Consequently neither have been recognised as liabilities at 31 August 2007. If approved, the final dividend will be paid on 14 January 2008 to shareholders on the register on 14 December 2007. 8. Earnings per share 2007 2006 £m £m________________________________________________________________________________EarningsProfit for the year attributable to equity holders of the parent 23.7 20.4Amortisation of intangible assets acquired and exceptional items 0.8 0.4Taxation attributable to amortisation of intangible assets acquired and exceptional items (0.6) (0.2)________________________________________________________________________________Profit for the year before amortisation of intangible assets acquired and exceptional items 23.9 20.6________________________________________________________________________________ Number Number________________________________________________________________________________Average number of sharesWeighted average number of shares in issue 158,073,110 156,851,761Weighted average number of shares held by the Employee Share Ownership Plan Trust (131,859) (131,859)________________________________________________________________________________Weighted average number of shares in issue - basic 157,941,251 156,719,902Effect of share options and contingent long term incentive plans 766,733 2,076,873________________________________________________________________________________Weighted average number of shares in issue - diluted 158,707,984 158,796,775________________________________________________________________________________ Pence Pence________________________________________________________________________________Earnings per shareAdjusted - before amortisation of intangible assets acquired and exceptional items 15.1 13.1Basic 15.0 13.0Diluted 14.9 12.8________________________________________________________________________________Adjusted earnings per share has been presented to provide a clearer understanding of the underlying performance of the Group. 9. Reconciliation of net cash flow to movement in net debt 2007 2006 £m £m________________________________________________________________________________Net increase/(decrease) in cash and cash equivalents 26.4 (9.4)(Increase)/decrease in borrowings and finance leases resulting from cash flows (31.9) 8.4________________________________________________________________________________Movement in net debt resulting from cash flows (5.5) (1.0)New finance leases (0.2) (0.1)Exchange movements 2.5 2.5________________________________________________________________________________Movement in net debt in the year (3.2) 1.4Net debt at start of year (33.1) (34.5)________________________________________________________________________________Net debt at end of year (36.3) (33.1)________________________________________________________________________________Net debt is defined as cash and cash equivalents and current and non-currentborrowings. 10. Equity Share Share Retained Exchange Hedging Other Minority Total capital premium earnings reserve reserve reserve interests equity £m £m £m £m £m £m £m £m_______________________________________________________________________________________________________________At start of prior year 39.1 49.1 15.4 2.2 - 1.1 0.6 107.5Adoption of IAS 32 and IAS 39 on 1 September 2005 - - 0.1 - - - - 0.1Total recognised income and expense for the year - - 26.2 (4.3) - - 0.2 22.1Equity dividends paid - - (8.2) - - - - (8.2)Dividends paid to minority shareholders - - - - - - (0.1) (0.1)Shares issued in the year 0.1 0.5 (0.3) - - - - 0.3Share-based payments - - 0.3 - - - - 0.3_______________________________________________________________________________________________________________At start of year 39.2 49.6 33.5 (2.1) - 1.1 0.7 122.0Total recognised income and expense for the year - - 31.4 (2.8) 0.4 - 0.2 29.2Equity dividends paid - - (9.5) - - - - (9.5)Dividends paid to minority shareholders - - - - - - (0.1) (0.1)Shares issued in the year 0.4 2.1 (1.8) - - - - 0.7Share-based payments - - 0.4 - - - - 0.4_______________________________________________________________________________________________________________At end of year 39.6 51.7 54.0 (4.9) 0.4 1.1 0.8 142.7_______________________________________________________________________________________________________________ 11. Contingent liabilitiesIn 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 our conveyor belting operations in Charlotte and Atlanta, USAreceived notification from the Anti Trust Division of the US Department of Justice of their intention to enquire into possible anti trust violations by Fenner. Every co-operation has been given to date and will be given as and when required in order to help expedite the process. Consolidated income statement - half year analysisfor the year ended 31 August 2007 First half (unaudited) Second half (unaudited) Full year (audited) 2007 2006 2007 2006 2007 2006 £m £m £m £m £m £m________________________________________________________________________________________________________________Revenue 185.5 182.0 195.3 197.0 380.8 379.0________________________________________________________________________________________________________________Operating profit before amortisation of intangible assets acquired and exceptional items 16.2 14.5 22.8 19.6 39.0 34.1Amortisation of intangible assets acquired (0.3) (0.2) (0.3) (0.2) (0.6) (0.4)Exceptional items 2.1 - (2.3) - (0.2) -________________________________________________________________________________________________________________Operating profit 18.0 14.3 20.2 19.4 38.2 33.7Finance income 0.5 0.9 0.9 0.7 1.4 1.6Finance costs (2.6) (3.2) (3.4) (2.7) (6.0) (5.9)Share of result of associate - (0.1) - - - (0.1)________________________________________________________________________________________________________________Profit before taxation 15.9 11.9 17.7 17.4 33.6 29.3Taxation (4.8) (3.5) (4.9) (5.2) (9.7) (8.7)________________________________________________________________________________________________________________Profit for the year 11.1 8.4 12.8 12.2 23.9 20.6________________________________________________________________________________________________________________Attributable to:Equity holders of the parent 11.1 8.3 12.6 12.1 23.7 20.4Minority interests - 0.1 0.2 0.1 0.2 0.2________________________________________________________________________________________________________________ 11.1 8.4 12.8 12.2 23.9 20.6________________________________________________________________________________________________________________Earnings per shareAdjusted - before amortisation of intangible assets acquired and exceptional items 6.2p 5.4p 8.9p 7.7p 15.1p 13.1pBasic 7.0p 5.3p 8.0p 7.7p 15.0p 13.0pDiluted 7.0p 5.3p 7.9p 7.5p 14.9p 12.8p________________________________________________________________________________________________________________ This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Fenner PLC