8th Nov 2006 07:01
Fenner PLC08 November 2006 8 November 2006 Fenner PLC 2006 Preliminary Results Fenner PLC, the global engineer specialising in reinforced polymer technology,today announces its preliminary results for the year ended 31 August 2006. Fenner is the world leader in the global conveyor belting market. Its productsinclude lightweight and heavyweight conveyor belting for the mining and powergeneration markets, precision motion control products for the computer, copierand mechanical equipment markets, and sealing products for the mining,hydraulics and oil and gas industries. Highlights • Strong performance for the year benefiting from: - our major markets throughout the world, associated with energy and power generation, remaining consistently strong - major infrastructure and consumables spending by both private and public entities • Record pre-tax profit, which increased by 136% to £29.3m (2005: £12.4m) on turnover up 25% to £379.0m (2005: £303.6m) • The Conveyor Belting division performed strongly with margin recovery and growth in North America and improved performances in the southern hemisphere and the far east. Operating profit more than doubled to £20.5m • A successful year for the Advanced Engineered Products division; Wellington Holdings (renamed Fenner Advanced Sealing Technologies), acquired in May 2005, exceeded expectations. Operating profit increased by 83% to £13.2m • Strong cash flows helped fund our major organic expansion programme • The current year has started well and outlook is positive Commenting on outlook, Colin Cooke, Chairman, said:"The new year has started well and in accordance with our expectations. "The weaker US dollar, combined with a gradually rising rate of taxation, slowsthe rate of growth in the short term. However, the strength of our markets andthe benefits derived from our investment programme should enable us to makefurther progress this year. "Over the medium term we expect our capital expenditure plans to broaden ourmarket exposures and accelerate growth." For Further Information: Fenner PLCMark Abrahams, Chief Executive 8 November 2006: 020 7067 0700Richard Perry, Finance Director Thereafter: 01482 626501 Weber Shandwick Square MileNick Oborne / Hannah Marwood 020 7067 0700 CHAIRMAN'S STATEMENT FINANCIAL HIGHLIGHTS 2006 % increase £m on 2005_______________________________________________________________________________Revenue 379.0 +25%Operating profit 33.7 +107%Profit before taxation 29.3 +136%Basic earnings per share 13.0p +97%Dividends per share 6.0p +3%_______________________________________________________________________________ The completion of the 2006 trading year marked an important milestone for ourGroup. Operating profit rose by 107% to £33.7m, an all-time record. Our majormarket sectors throughout the world, associated with energy and powergeneration, have remained consistently strong. Additionally, majorinfrastructure and consumables spending by both private and public entities hashelped our growth. The new year has started well and our organic investmentprogrammes continue to progress. These, complemented by acquisition activity instrategically important areas, are expected to continue to fuel advances in ourperformance. REVENUE AND PROFITS Revenue for the year amounted to £379.0m (2005 £303.6m) generating an increasedoperating profit of £33.7m (2005 £16.3m). Profit before taxation rose 136% to£29.3m (2005 £12.4m) delivering increased basic earnings per share of 13.0p(2005 6.6p). DIVIDENDS The strong profit performance and prospects for further growth have enabled theBoard to recommend an increase in the final dividend to 4.025p (2005 3.85p)which, together with the interim dividend of 1.975p (2005 1.975p), represents atotal for the year of 6.0p (2005 5.825p) and a 3% increase over the prior year.On a full year basis our dividend is covered 2.2 times. REVIEW OF OPERATIONS The conveyor belting businesses have performed strongly with margin recovery andgrowth being major factors in our North American operations. We have seen signsof recovery in Europe and improved performances in the southern hemisphere andthe Far East. The first full year of profit contribution from the former Wellington Holdingsplc businesses, now operating under the banner of Fenner Advanced SealingTechnologies ("FAST"), exceeded our expectations and strengthened our advancedengineered products division in furthering our strategic aim of balancing theGroup's major divisional activities. A successful year for the precision polymeractivities has complemented the acquired FAST operations to generate increasedprofitability and strong cash flows for the division. CASH RESOURCES AND INVESTMENT The higher operating margins in our larger businesses have generated a strongeroperating cash flow. This enables us to fund our major organic expansionprogramme in heavyweight belting manufacture and support our existing customers.The advanced engineered products division has benefited from capacity investmentin order to grow our global market share. Despite this expenditure, whichrepresents in excess of twice the rate of depreciation, our gearing level hasfallen to 27.3% (2005 32.3%). The acquisition of EGC after the year end is designed to broaden and strengthenthe technical offering of our FAST process business. In the medium term thisshould offer the opportunity for profitable growth. PEOPLE I am indebted to my non-executive directors who have provided invaluable counselto me during the course of the year. I am particularly grateful to TomGlucklich, who retired from the Board at our AGM in January after 10 yearsservice, nine of which were as Chairman of our Remuneration Committee. The record results for the year could not have been achieved without thededication and support of all of our employees. The geographical diversity ofthe Group's investments relies on exceptional performances from excellent peopleand I take this opportunity to thank them all for their contribution to oursuccess. OUTLOOK The new year has started well and in accordance with our expectations. The weaker US dollar, combined with a gradually rising rate of taxation, slowsthe rate of growth in the short term. However, the strength of our markets andthe benefits derived from our investment programme should enable us to makefurther progress this year. Over the medium term we expect our capital expenditure plans to broaden ourmarket exposures and accelerate growth. Colin CookeChairman CHIEF EXECUTIVE OFFICER'S REVIEW INTRODUCTION Fenner is a world leader in reinforced polymer technology. We will maintain orachieve leading positions in all our niche markets by continuing to concentrateon understanding our customers' needs and delivering superior value addedproducts to satisfy those needs. The commitment and expertise of our workforcein both established and emerging markets provides a solid platform for growth. With 21 factories on five continents plus 27 dedicated sales and distributionbranches, Fenner is a specialist polymer engineering group with globaloperations offering products focused on distinct markets. Managed through twooperating divisions, the Group has a small but experienced head office with aflat management structure and promotes proactive local autonomy with welldefined, timely and financially focused reporting. Fenner has close to 3,500employees based in 18 countries. Where possible we develop and recruitindigenous management. Through its conveyor belting division ("CB"), Fenner is the 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 division ("AEP") manufactures anddistributes precision motion control products for the computer, copier,mechanical equipment markets, silicon and EPDM hose production fornon-automotive applications and specialist seals. The recently acquired FennerAdvanced Sealing Technologies ("FAST") businesses manufacture specialist sealsproducts for the mining, hydraulics, oil and gas, electronics, pumps, valves,compressors and aerospace industries. As with CB, AEP demonstrates its marketleadership through its customer responsiveness, product range, quality and thewhole-life value of the product to the customer. Whether it is supplying to a coal mine in Spitzbergen with a conveyor belt thatoperates at temperatures as low as minus 60degreesC or designing a specialistseal for a peanut butter manufacturer, the Group takes pride in being amanufacturer of world-class products that are known for their quality andreliability which provide value added solutions to our customers. Thisreputation is key to the Group's success and has been built up over many yearsof customer-focused trading. STRATEGIC OBJECTIVES During the year the Board and the Executive Management team carried out a reviewof the Group, developing a series of strategic and operational initiatives whichprovide the framework within which operational budgets and projects are set. Themajor project approved this year was an investment programme in the NorthAmerican conveyor belting business over the next 18 months. Such reviews areheld periodically and are embedded into the Group's corporate processes. CB and AEP have separate strategic objectives, with common goals of continuedinvestment and development in emerging markets as well as expanding share wherepossible in established markets. The Group has recently established conveyorbelting manufacturing capability in China and India primarily to service thelocal demand. Thesebusinesses also provide the infrastructure to develop our AEP businesses,particularly seals and hose, in these important markets. The possibility offurther expansion into other emerging markets is subject to regular review. During June this year, in response to South Africa's broad based Black EconomicEmpowerment ("BEE") programme, Fenner welcomed Peotona Group Holdings (Pty)Limited as a 25% shareholder in the South African conveyor belting business.Peotona was selected as the partner who could best contribute to optimising thelong term economic future of that business. CONVEYOR BELTING All of the mining markets in which CB operates remain buoyant, driven by globalenergy requirements and demand for minerals. Sold principally under the FennerDunlop brand with the most complete range of fire retardant rubber and PVCconveyor belts, coal extraction and handling are our most significant markets.Internationally traded coal prices are one of the key indicators of the relativehealth of the market for conveyor belting. This is demonstrated by the McCloskeygraph. Coal prices are affected by, but not linked to, oil prices, but coal isseen as a more secure source of basic energy, especially in both China and NorthAmerica. As a result of these factors we have a positive outlook on the futureprospects for CB. Fenner Dunlop Americas' coal mining customers continued to invest in replacementbelting and new projects in order to meet their sales opportunities. Thisenabled us to develop long term supply agreements with the largest miningcompanies. In industrial markets, continued high levels of construction activityprovided demand for many material handling applications ranging from forestry tosteel manufacturing. With a strong distributor service network and newcommercial arrangements, we have been successful in achieving full plantutilisation, thereby delivering improved sales and margin. The European operations suffered a weak first half but a new management team wassuccessful in improving factory output and control of costs which, together witha focus on selling prices in a slightly improved market, resulted in a strongersecond half. Our solid woven PVC businesses in China, India and South Africa enjoyedconsistent sales growth and strong operating performances. A new press in SouthAfrica enabled us to satisfy the demand for high performance nitrile coveredproducts in that market. A high level of demand for underground belting in Chinahas resulted in an acceleration of our expansion plans. Continued growth inIndia is dependent on development of the indigenous government controlled mines.Our UK based operation has seen steady demand from its traditional WesternEuropean and North American customers with growth coming from furtherpenetration into Russia and Eastern Europe. In Australia, Fenner Dunlop saw continued growth over the previously reportedrecord sales, fully justifying the manufacturing investment in prior years.Installation and belt maintenance provided through our extensive service branchnetwork placed Fenner Dunlop in a unique position to continue to benefit fromthe growth in Australian coal and iron ore exports. Capital investment projects designed to enhance the existing operations enablethe division to take full advantage of the increasing order volumes, whilst atthe same time protecting the businesses against any future downturn in themarkets. These projects will also enable us to service growth areas such as theCanadian oil sands, coal mining in the Powder River Basin (Wyoming, USA), SouthAmerican copper mining, Russian coal production and modernisation of Indian andChinese coal production. Work on expanding the service side of the business isunderway with the aim of reproducing the successful service model operated inAustralia into areas where there is no established distributor. The recentacquisition of rEscan in Australia enables Fenner to broaden its productoffering with an innovative belt monitoring technology, the application of whichwill be introduced to other territories. ADVANCED ENGINEERED PRODUCTS As the AEP businesses offer niche products to a broad range of customers, it isdifficult to identify overall market trends other than general industrialdemand; however energy markets (mainly oil and gas) are a driver for asignificant portion of our seals business. The FAST businesses acquired in May 2005 had a record year due primarily to thecontinuing strong demand for seals for oil, gas and mining equipment markets.The seamless relocation of the main factory in Hampton, UK into a bespoke modernfacility resulted in a 50% improvement in productivity. Other manufacturingsites benefited from smaller capital projects and a Six Sigma continuousimprovement programme has been launched across all FAST locations. Sales ofseals used in semiconductor production applications reached 5% of FAST's outputin the year. FAST's strategy is to use our new facility in Shanghai to developbusiness in Asia and to continue the growth of customer service subsidiaries inother emerging markets. To develop new business faster, all seals sales anddistribution subsidiaries have been equipped with CNC prototyping capability. The strategy for the Hose business, trading as James Dawson, is to become theworld's leading supplier of speciality hoses for commercial vehicles. Salesincreased year on year, significantly so in China, but new product introductionsduring the first half had a negative impact on financial results overall. Earlyin 2007 the Chinese operation will relocate into its purpose built factory inShanghai which will provide adequate capacity for the continued sales focus inSouth East Asia. During the year the Fenner Drives business was restructured to bring improvedmarket focus throughout the organisation. Fenner Precision provides solutions todrive and paper handling applications including precision timing belts. FennerDrives Industrial designs and manufactures power transmission and motiontransfer components. The key geographical markets for Fenner Drives are NorthAmerica, Europe and Asia, where robust demand enabled both businesses to deliveryet another year of steady growth. Available capacity has been increased by 25%at the Precision plant in Manheim, Pennsylvania, USA with further increases tocome on line in late 2006. AEP continues to look for acquisition opportunities to strengthen its currentoperating bases and develop its geographical reach. This applies to all of thebusinesses operating under the AEP aegis. This is demonstrated by theacquisition in early October 2006 of the EGC business in Houston, Texas, USA.This is an expansion of AEP's successful seals business in North Americabringing improved market coverage across a range of industries. KSB, our South African centrifugal pump and water handling business, benefitedfrom healthy market conditions and grew during the year. The strategy to addressthe risks and opportunities of Black Economic Empowerment ("BEE") is underdevelopment. OUTLOOK The new year has started well and in accordance with our expectations. Approximately one half of our business operates in North America and istherefore susceptible to the forces associated with the economic conditions inthat territory. The North American markets that we serve continue to exhibitsigns of confidence despite the effects of a weakening housing andinfrastructure sector. In addition to experiencing slowly improving conditionsin Continental Europe, the global nature of our investments confers the benefitof opportunities to participate in the growth of a variety of customer drivenexpansion projects throughout the southern hemisphere and China. These help tobalance our view of trading prospects for the near term. We have already announced our intention to embark on major organic investmentprojects in our heavyweight conveyor belting business in North America insupport of our customers' intentions to develop new operations. These projectsare planned to be commissioned during the next 6 to 24 months and will provideearnings growth in future years. Our intentions are not limited solely to organic investment. In October 2006, weannounced the acquisition of a small, but strategically important bolt-onbusiness for our Houston, Texas, USA based speciality seals company. Again, thisis an investment for the medium term with many advantages which will bothmaintain and develop our seals manufacturing operations around the world. Our businesses are well invested and positioned in geographical locations whoseeconomies offer good growth prospects. We anticipate the combination of thesefactors will enable us to make progress in the current year. FORWARD-LOOKING STATEMENTS Certain statements contained in this document, including those under the"OUTLOOK" heading, 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 United States, competition and theability to attract and retain personnel. Mark AbrahamsChief Executive Officer GROUP FINANCE DIRECTOR'S REVIEW INTERNATIONAL FINANCIAL REPORTING STANDARDS The Group's financial results for the year ended 31 August 2006 have beenprepared in accordance with International Financial Reporting Standards ("IFRS")and the prior period information has been stated on a comparable basis. REVENUE AND OPERATING PROFIT Group full year revenue increased by 25% to £379.0m (2005 £303.6m) reflectingstrong organic growth, particularly in the conveyor belting division, and anexcellent first full year performance from the FAST businesses acquired in May2005. Revenue in the second half reached £197.0m (2005 £166.5m) with strongerunderlying volumes in the majority of the key territories in which the Groupoperates. In the conveyor belting division, sales volumes into the miningsectors accelerated, notably in North America, whilst improved volumes inpreviously static European industrial markets were evident. Operating profit increased by 107% to £33.7m (2005 £16.3m) with a contributionfrom the conveyor belting division of £20.5m (2005 £9.1m) and the advancedengineered products division of £13.2m (2005 £7.2m). Operating profit for the second half was £19.4m (2005 £10.4m) with strongprogress in both divisions. INTEREST The net interest cost in the year was £4.3m (2005 £3.8m). This increaseprincipally reflects increases in short term US dollar interest rates and thetranslation effect of the average exchange rate for the US dollar being strongerthan in 2005. To mitigate the effects of increasing short term interest rates,US$40m of floating rate bank borrowings were converted to a fixed rate by meansof an interest rate swap towards the end of the year. Interest cover increased from 4.6 to 7.9 times. TAXATION The tax rate for the year was 30% (2005 32%). The principal reason for thisreduction in the tax rate relates to the utilisation of tax losses in the USAand Canada, which were not previously fully recognised in the financialstatements. As most of these losses have now been utilised the tax rate willtend to increase going forward. EARNINGS PER SHARE Basic earnings per share was 13.0p (2005 6.6p) and adjusted for amortisation ofintangible assets acquired the amount was 13.1p (2005 7.1p). DIVIDENDS The interim dividend of 1.975p (2005 1.975p) was paid on 4 September 2006. TheBoard is recommending a final dividend of 4.025p (2005 3.85p) to make a totaldividend for the year of 6.0p (2005 5.825p). The Board intends to revert to a one-third : two-thirds split of the dividend infuture years. The recommended total for the year therefore represents a basis ofa 2.0p interim and 4.0p final for the purpose of future comparison. ACQUISITIONS AND DISPOSALS On 31 December 2005 the Group sold its interest in associate Rob Harvey PtyLimited. Both the cash consideration received and the loss on disposal werenegligible amounts. On 30 June 2006 the Group disposed of a 25% minority interest in its SouthAfrican conveyor belting business at fair value to Peotona Group Holdings (Pty)Limited, a black controlled enterprise. This transaction has been undertaken forthe purposes of South Africa's broad based BEE programme. The business willcontinue to be consolidated in the Group financial statements. On 17 August 2006 the Group acquired for £0.3m, the business and assets ofrEscan Pty Ltd, a provider of non-destructive testing and remote non-destructivetesting products and services to the materials handling sector. After the balance sheet date, on 1 October 2006, the Group acquiredsubstantially all of the operating assets and liabilities of EGC, a Houston,Texas, USA based manufacturer of fluoroplastic seals and other relatedfluoroplastic precision components. EGC was acquired from Compagnie PlasticOmnium SA, a company quoted on the French Stock Exchange. EGC was acquired for acash consideration of US$15m, excluding acquisition costs, with an adjustmentdependent upon the level of working capital of the business at completion. CASH FLOW, NET DEBT AND FINANCING The stronger operating profit resulted in an increased net cash inflow fromoperations of £38.2m (2005 £20.3m). Capital expenditure increased to £18.8m(2005 £7.8m) reflecting the ongoing expansion programmes across the Group. The Group is financed principally by a mix of equity, retained earnings, USdollar private placement loan notes and a committed bank facility. The loanfacilities are raised centrally and advanced to operating companies oncommercial terms. Operating companies supplement this funding with localoverdraft and working capital facilities. Gross debt at the year end amounted to £74.5m (2005 £86.0m), excludingderivatives. The US dollar private placement of $40.9m carries a fixed interestcoupon of 7.29% and matures between 2007 and 2012. The Group has entered into acommitted bank facility of £60m with three leading UK banks maturing in June2010. At 31 August 2006, £45.3m of this was drawn down. Cash and cashequivalents at the year end were £41.4m (2005 £51.5m) resulting in net debt of£33.1m (2005 £34.5m). FINANCIAL RISK MANAGEMENT In 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 derivativesis undertaken only where the underlying interest or currency risk arises fromthe Group's operations or sources of finance. No speculative trading inderivatives is permitted. In the normal course of business, currency derivatives have been used to hedgefuture cash flow arising from trading transactions relating to the sale andpurchase of goods and services. The Group has chosen not to hedge account forsuch transactions under the requirements of IAS 39 'Financial Instruments:Recognition and Measurement' recognising that cash flows through to the maturityof the derivative are unaffected. In compliance with IAS 39, all financialinstruments 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 orgain on these instruments. In addition, in accordance with IAS 21 'The Effectsof Changes in Foreign Exchange Rates' all foreign currency monetary items havebeen re-translated at the closing rate with changes in value charged or creditedto the income statement. The aggregate effect of the above for the year ended2006 was a credit to the income statement of £0.2m (2005 credit of £0.1m). During the year an interest rate swap to hedge interest rate cash flows wasentered into. At 31 August 2006 the fair value of this instrument was aliability of £0.6m. This swap has been accounted for as a hedge in accordancewith IAS 39 with the charge recognised directly in equity. PENSIONS The Group now accounts for pensions in accordance with IAS19 'EmployeeBenefits'. At 31 August 2006 the deficits were £26.9m (2005 £37.0m) in the UKdefined benefit scheme and £2.2m (2005 £3.6m) in the overseas schemes. During the year the UK pension obligations taken on as a result of theacquisition of Wellington Holdings plc have been merged into the Group's mostsignificant defined benefit arrangement, the Fenner Pension Scheme. Contributions paid to the UK scheme increased to £2.8m (2005 £2.1m) with higherpayments implemented to further reduce the deficit. The current service cost ofthe scheme charged to the income statement was £1.1m (2005 £1.0m) whilst theinterest amount was neutral (2005 charge of £0.4m). As a result of a change in pension legislation during the year, some benefitchanges are being introduced for members of the defined benefit section of theUK scheme. This includes a members' option to take a higher level of tax-freecash at the point of retirement. The Group has made an allowance for the take-upof this option in the valuation of its pension liabilities. This has resulted ina reduction in liabilities of around £3m, of which £1.4m is recognised as acredit to the income statement in the year. Richard PerryGroup Finance Director FENNER PLC CONSOLIDATED INCOME STATEMENTfor the year ended 31 August 2006 2006 2005 Notes £m £m_______________________________________________________________________________Revenue 2 379.0 303.6Cost of sales (269.8) (223.9)_______________________________________________________________________________Gross profit 109.2 79.7Distribution costs (36.2) (29.0)Administrative expenses (39.3) (34.4)_______________________________________________________________________________Operating profit before amortisation ofintangible assets acquired 34.1 17.3Amortisation of intangible assets acquired (0.4) (1.0)_______________________________________________________________________________Operating profit 2,3 33.7 16.3Finance income 1.6 1.2Finance costs (5.9) (5.0)Share of result of associate (0.1) (0.1)_______________________________________________________________________________Profit before taxation 29.3 12.4Taxation 4 (8.7) (4.0)_______________________________________________________________________________Profit for the year 20.6 8.4_______________________________________________________________________________Attributable to:Equity holders of the parent 20.4 8.2Minority interests 0.2 0.2_______________________________________________________________________________ 20.6 8.4_______________________________________________________________________________Earnings per shareBasic 6 13.0p 6.6pDiluted 6 12.8p 6.6p_______________________________________________________________________________ The result for the year derives from continuing operations. FENNER PLC CONSOLIDATED BALANCE SHEETat 31 August 2006 2006 2005 Notes £m £m_______________________________________________________________________________Non-current assetsProperty, plant and equipment 68.7 61.0Intangible assets 65.8 66.9Investment in associates - 0.2Other investments 0.6 0.3Deferred tax assets 15.7 18.8_______________________________________________________________________________ 150.8 147.2_______________________________________________________________________________Current assetsInventories 53.9 52.8Trade and other receivables 64.0 61.4Current tax assets 0.6 0.7Cash and cash equivalents 41.4 51.5Derivative financial instruments 0.5 -_______________________________________________________________________________ 160.4 166.4_______________________________________________________________________________Total assets 311.2 313.6_______________________________________________________________________________Current liabilitiesBorrowings (8.5) (36.4)Trade and other payables (67.7) (63.8)Current tax liabilities (5.7) (5.1)Derivative financial instruments (0.6) -_______________________________________________________________________________ (82.5) (105.3)_______________________________________________________________________________Non-current liabilitiesBorrowings (66.0) (49.6)Retirement benefit obligations (29.1) (40.6)Provisions (6.5) (4.9)Deferred tax liabilities (5.1) (5.7)_______________________________________________________________________________ (106.7) (100.8)_______________________________________________________________________________Total liabilities (189.2) (206.1)_______________________________________________________________________________Net assets 122.0 107.5_______________________________________________________________________________EquityShare capital 39.2 39.1Share premium 49.6 49.1Retained earnings 33.5 15.4Translation reserve (2.1) 2.2Other reserve 1.1 1.1_______________________________________________________________________________Shareholders' equity 121.3 106.9Minority interests 0.7 0.6_______________________________________________________________________________Total equity 8 122.0 107.5_______________________________________________________________________________ FENNER PLCCONSOLIDATED CASH FLOW STATEMENTfor the year ended 31 August 2006 2006 2005 £m £m_______________________________________________________________________________Profit before taxation 29.3 12.4Adjustments for:Depreciation of property, plant and equipment andamortisation of intangible assets 8.8 9.1Movement in retirement benefit obligations (3.6) (0.9)Increase in provisions 1.6 1.5Finance income (1.6) (1.2)Finance costs 5.9 5.0Share of result of associate 0.1 0.1Other non-cash movements 0.1 0.3_______________________________________________________________________________Operating cash flow before movement in working capital 40.6 26.3Movement in working capital (2.4) (6.0)_______________________________________________________________________________Net cash from operations 38.2 20.3Interest received 1.5 1.2Interest paid (5.9) (4.6)Taxation paid (7.5) (5.2)_______________________________________________________________________________Net cash from operating activities 26.3 11.7_______________________________________________________________________________Investing activities:Purchase of property, plant and equipment (18.6) (7.6)Disposal of property, plant and equipment 0.1 0.1Purchase of intangible assets (0.2) (0.2)Purchase of investments (0.3) -Acquisition of businesses (0.2) -Acquisition of subsidiary undertakings (0.3) (44.2)_______________________________________________________________________________Net cash used in investing activities (19.5) (51.9)_______________________________________________________________________________Financing activities:Equity dividends paid (8.2) (6.3)Dividends paid to minority shareholders (0.1) (0.1)Issue of ordinary share capital 0.3 56.3Minority interest capital introduced 0.1 -Loan repayment from associate 0.1 0.1Repayment of finance leases (0.2) (0.1)Repayment of borrowings (39.8) (7.4)New borrowings 31.6 26.3_______________________________________________________________________________Net cash (used in)/from financing activities (16.2) 68.8_______________________________________________________________________________Net (decrease)/increase in cash and cash equivalents (9.4) 28.6Cash and cash equivalents at start of year 51.3 22.9Exchange movements (0.9) (0.2)_______________________________________________________________________________Cash and cash equivalents at end of year 41.0 51.3_______________________________________________________________________________ FENNER PLCCONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSEfor the year ended 31 August 2006 2006 2005 £m £m______________________________________________________________________________Profit for the year 20.6 8.4Items recognised directly in equity:Currency translation differences (4.3) 2.2Hedge of net investments in foreign currencies 0.6 -Hedge of interest rate risk (0.6) -Actuarial gains/(losses) on defined benefit pension schemes 7.8 (0.1)Taxation on items taken directly to equity (2.0) 0.1______________________________________________________________________________Net income recognised directly in equity 1.5 2.2______________________________________________________________________________Total recognised income and expense for the year 22.1 10.6Adoption of IAS 32 and IAS 39 on 1 September 2005 0.1 -______________________________________________________________________________ 22.2 10.6______________________________________________________________________________Attributable to:Equity holders of the parent 21.9 10.4Minority interests 0.2 0.2______________________________________________________________________________Total recognised income and expense for the year 22.1 10.6Adoption of IAS 32 and IAS 39 on 1 September 2005 0.1 -______________________________________________________________________________ 22.2 10.6______________________________________________________________________________ NOTES 1. BASIS OF PREPARATION The preliminary results for the year ended 31 August 2006, which were approvedby the Board of Directors on 8 November 2006, have been prepared in accordancewith International Financial Reporting Standards ("IFRS") for use within theEuropean Union. The Group previously prepared its results under UK GenerallyAccepted Accounting Principles. The preliminary results do not constitute the statutory accounts of the Companyas defined by section 240 of the Companies Act 1985. The preliminary results areabridged from the Group's audited financial statements. The auditors,PricewaterhouseCoopers LLP, have reported on those financial statements andgiven an unqualified opinion, which did not include a statement under section237(2) or 237(3) of the Companies Act 1985. The Group financial statements willbe filed with the Registrar of Companies in due course. The comparative financial information for the year ended 31 August 2005 isderived from the Group financial statements for that year, except that theinformation has been restated as a result of the adoption of IFRS. 2. SEGMENT INFORMATION Advanced Conveyor Engineered Belting Products Total ______________ ______________ ______________ 2006 2005 2006 2005 2006 2005 £m £m £m £m £m £m____________________________________________________________________________Revenue 269.5 230.8 109.5 72.8 379.0 303.6____________________________________________________________________________Operating profit beforeamortisation of intangible assets acquired 20.5 9.1 13.6 8.2 34.1 17.3Amortisation of intangible assets acquired - - (0.4) (1.0) (0.4) (1.0)____________________________________________________________________________Operating profit 20.5 9.1 13.2 7.2 33.7 16.3____________________________________________________________________________ 3. OPERATING PROFIT Operating profit has been arrived at after charging/(crediting): 2006 2005 £m £m_______________________________________________________________________________Depreciation of property, plant and equipment - owned assets 8.0 7.6Amortisation of intangible assets acquired 0.4 1.0Amortisation of other intangible assets 0.4 0.5Loss on disposal of property, plant and equipment 0.2 0.2Foreign exchange gains (0.2) (0.1)Research & development costs 1.9 2.1Government grants (0.1) (0.2)Operating lease charges 3.1 2.7Onerous property lease charges 1.4 1.3Litigation costs 2.4 0.9Defined benefit past service credit (1.4) -_______________________________________________________________________________ 4. TAXATION The tax charge, based on the profit for the year, comprises: 2006 2005 £m £m_______________________________________________________________________________Current taxation:- UK corporation tax (0.1) 0.3- Overseas tax 8.3 4.7Deferred taxation 0.5 (1.0)_______________________________________________________________________________ 8.7 4.0_______________________________________________________________________________ 5. DIVIDENDS 2006 2005 £m £m_______________________________________________________________________________Dividends paid or approved in the yearInterim dividend for the year ended 31 August 2005 of 1.975p(2004: 1.975p) per share 2.2 2.1Final dividend for the year ended 31 August 2005 of 3.85p(2004: 3.85p) per share 6.0 4.2_______________________________________________________________________________ 8.2 6.3_______________________________________________________________________________Dividends not 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 6.3 6.0_______________________________________________________________________________ 9.4 8.2_______________________________________________________________________________ The interim dividend for the year ended 31 August 2006 was paid on 4 September2006. The proposed final dividend for the year ended 31 August 2006 is subjectto approval by shareholders at the Annual General Meeting. Consequently, neitherhave been recognised as liabilities at 31 August 2006. If approved, the finaldividend will be paid on 15 January 2007 to shareholders on the register on 15December 2006. 6. EARNINGS PER SHARE 2006 2005 £m £m_______________________________________________________________________________EarningsProfit for the period attributable to equityholders of the parent 20.4 8.2Amortisation of intangible assets acquired 0.4 1.0Taxation attributable to amortisation ofintangible assets acquired (0.2) (0.4)_______________________________________________________________________________Profit for the year before amortisation ofintangible assets acquired 20.6 8.8_______________________________________________________________________________ Number Number_______________________________________________________________________________Average number of sharesWeighted average number of shares in issue 156,851,761 123,908,805Weighted average number of shares held bythe Employee Share Ownership Plan Trust (131,859) (133,769)_______________________________________________________________________________Weighted average number of sharesin issue - basic 156,719,902 123,775,036Effect of share options and contingent longterm incentive plans 2,076,873 735,681_______________________________________________________________________________Weighted average number of shares inissue - diluted 158,796,775 124,510,717_______________________________________________________________________________ Pence Pence_______________________________________________________________________________Earnings per shareAdjusted - before amortisation of intangible assets acquired 13.1 7.1Basic 13.0 6.6Diluted 12.8 6.6_______________________________________________________________________________ Adjusted earnings per share has been presented to provide a clearerunderstanding of the underlying performance of the Group 7. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT 2006 2005 £m £m_______________________________________________________________________________Net (decrease)/increase in cash and cash equivalents (9.4) 28.6Decrease/(increase) in borrowings and finance leasesresulting from cash flows 8.4 (18.8)_______________________________________________________________________________Movement in net debt resulting from cash flows (1.0) 9.8Loans and finance leases acquired with subsidiaries - (4.4)New finance leases (0.1) (0.1)Exchange movements 2.5 0.2_______________________________________________________________________________Movement in net debt in the year 1.4 5.5Net debt at start of year (34.5) (40.0)_______________________________________________________________________________Net debt at end of year (33.1) (34.5)_______________________________________________________________________________ Net debt is defined as cash and cash equivalents and current and non-currentborrowings. 8. EQUITY Share Share Retained Translation Other Minority Total capital premium earnings reserve reserve interests equity £m £m £m £m £m £m £m___________________________________________________________________________________________________At start of prior year 27.1 4.2 (3.3) - 16.8 0.5 45.3Total recognised income and expense for theyear - - 8.2 2.2 - 0.2 10.6Equity dividends paid - - (6.3) - - - - (6.3)Dividends paid to minority shareholders - - - - - (0.1) (0.1)Shares issued in the year 12.0 44.9 (0.2) - 1.1 - 57.8Share-based payments - - 0.2 - - - 0.2Transfers - - 16.8 - (16.8) - -___________________________________________________________________________________________________At start of 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 theyear - - 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 end of year 39.2 49.6 33.5 (2.1) 1.1 0.7 122.0___________________________________________________________________________________________________ 9. CONTINGENT LIABILITIES In 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 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. CONSOLIDATED INCOME STATEMENT - HALF YEAR ANALYSISfor the year ended 31 August 2006 First half Second half Full year (unaudited) (unaudited) (audited) _______________ ______________ ______________ 2006 2005 2006 2005 2006 2005 £m £m £m £m £m £m_______________________________________________________________________________Revenue 182.0 137.1 197.0 166.5 379.0 303.6_______________________________________________________________________________Operating profit beforeamortisation ofintangible assetsacquired 14.5 5.9 19.6 11.4 34.1 17.3Amortisation ofintangible assetsacquired (0.2) - (0.2) (1.0) (0.4) (1.0)_______________________________________________________________________________Operating profit 14.3 5.9 19.4 10.4 33.7 16.3Finance income 0.9 0.5 0.7 0.7 1.6 1.2Finance costs (3.2) (2.2) (2.7) (2.8) (5.9) (5.0)Share of result ofassociate (0.1) - - (0.1) (0.1) (0.1)_______________________________________________________________________________Profit before taxation 11.9 4.2 17.4 8.2 29.3 12.4Taxation (3.5) (1.3) (5.2) (2.7) (8.7) (4.0)_______________________________________________________________________________Profit for the year 8.4 2.9 12.2 5.5 20.6 8.4_______________________________________________________________________________Attributable to:Equity holders of theparent 8.3 2.8 12.1 5.4 20.4 8.2Minority interests 0.1 0.1 0.1 0.1 0.2 0.2_______________________________________________________________________________ 8.4 2.9 12.2 5.5 20.6 8.4_______________________________________________________________________________Earnings per shareAdjusted - beforeamortisation ofintangible assetsacquired 5.4p 2.6p 7.7p 4.5p 13.1p 7.1pBasic 5.3p 2.6p 7.7p 4.0p 13.0p 6.6pDiluted 5.3p 2.6p 7.5p 4.0p 12.8p 6.6p This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Fenner PLC