Final Results

11 November 2014

Fenner PLC

Fenner PLC, a world leader in reinforced polymer technology, today announces its results for its financial year ended 31 August 2014.

1 Underlying operating profit is before amortisation of intangible assets acquired and exceptional items

2 Underlying profit before taxation and underlying earnings per share are before amortisation of intangible assets acquired, exceptional items and notional interest

3 Underlying earnings per share is based on the basic weighted average number of shares in issue

4 Underlying measures have been presented to provide a more meaningful measure of the underlying performance of the business

5 2013 restated following the adoption of IAS 19 (Revised) 'Employee Benefits'

· Results in line with revised expectations and impacted by currency movements

· Group revenue of £729.4 million, down 4 per cent at constant currency

· Underlying profit before taxation of £65.6 million and earnings per share of 23.3 pence

· Further progress by AEP, with record revenue at constant currency

· A resilient performance by ECS in difficult market conditions

· Increased final dividend of 8.0 pence making 12.0 pence for the year, an increase of 7 per cent

Nicholas Hobson, Chief Executive Officer, commented:

"The Group's results for the year, whilst below our expectations at the start of the year, reflect another encouraging performance by our AEP division and represent a creditable outcome taking into account the impact on ECS of the deterioration in trading conditions which took place in certain parts of the global mining industry during the year.

We have entered the financial year with the Group well placed to respond to the opportunities and challenges which we are facing. We are very aware of the potential impact on our end markets and the world economy generally from falls in the prices of energy and commodities and from forecasts of lower economic growth.

Overall, the strength and resilience of our businesses mean that, in a climate of increased economic and political uncertainties, we anticipate that growth in revenue and profitability in AEP is likely to be offset by weakness in the mining market."

A live audio webcast of the analyst presentation, hosted by Nicholas Hobson, Chief Executive Officer and Richard Perry, Group Finance Director, can be accessed at 9.30 am today on the Group's website www.fenner.com.

For further information please contact:

Notes to editors:

Fenner PLC is a world leader in reinforced polymer technology, providing local engineered solutions for performance-critical applications. The Group operates through two divisions:

Engineered Conveyor Solutions: the ECS division, trading under the Fenner Dunlop, Fenner and Dunlop brand names, is a recognised leader in the global conveying market. The division offers a unique, comprehensive suite of products and services, which serve the conveying needs of mining, power generation and bulk handling markets.

Advanced Engineered Products: the AEP division uses advanced polymeric materials and technical expertise to provide high value-added solutions to customers' most challenging engineering problems. Customers are spread across a variety of end-user segments, including oil & gas and medical which account for some 40 per cent of divisional revenue, together with construction, transportation, automation and general industrial. AEP's trading names are recognised globally and include CDI Energy Products, EGC Critical Components, Hallite, AIP Precision Machining, Fenner Precision, Fenner Drives, James Dawson, Mandals, Secant Medical and Xeridiem.

Certain statements contained in this Release constitute forward-looking statements. Such forward-looking statements involve risks, uncertainties and other factors which may cause the actual results, performance or achievements of Fenner, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such statements. Such risks, uncertainties and other factors include, among others, exchange rates, growth in the commodity markets, general economic conditions and the business environment.

Operating Review

A year of further progress by AEP and a resilient performance by ECS

Overview

The Group's results for the year, whilst below our expectations at the start of the year, reflect another encouraging performance by our AEP division and represent a creditable outcome taking into account the impact on ECS of the deterioration in trading conditions which took place in certain parts of the global mining industry during the year.

In our financial year to 31 August 2014, revenue was £729.4m (2013: £820.6m), underlying operating profit was £79.5m (2013: £101.5m) and underlying profit before taxation was £65.6m (2013: £86.9m). Profit before taxation was £29.2m (2013: £66.4m restated); this included net exceptional charges of £19.7m (2013: £nil). Underlying earnings per share was 23.3p (2013: 30.1p).

Our results reflect three key factors.

First, with the great majority of the Group's revenue and profits generated in overseas currencies, the strength of sterling over the period reduced our 2014 reported results against those of 2013 and earlier years. Because of this, we have - at appropriate places in this report - also presented our 2014 results against 2013 comparatives on a constant currency basis which we believe gives a better understanding of our underlying performance.

Second, I am delighted to report another encouraging performance by AEP, with revenue, when measured on a constant currency basis, reaching a new record. Those AEP businesses which serve the oil & gas industry, such as CDI, EGC and Mandals, all performed notably well, and other AEP businesses, including Secant and Fenner Drives, also delivered good results. The slight fall in the profit reported by AEP reflects our decision, announced last year, to increase expenditure on technology and people to support future growth.

Third, the ECS division produced a result below last year's, which primarily reflects difficult trading conditions in the USA and Australia. In the USA, sentiment within the coal mining industry was cautious in the first half of the year and deteriorated in the second half, whereas in Australia, ECS faced increased price pressure from its mining customers as they sought to offset the impact of lower commodity prices. In response, ECS took steps across its business to reduce costs and increase operational flexibility in order to reposition the business on a footing which is stronger and more appropriate to the current state of its markets.

Segmental analysis

Engineered Conveyor Solutions

In 2014, ECS generated revenue of £463.9m and an underlying operating profit of £45.7m. On a constant currency basis, revenue fell by 8 per cent and underlying operating profit fell by 21 per cent, with an underlying operating margin of 9.9 per cent (2013: 11.4 per cent).

In terms of regions, the Americas, principally the USA, generated 39 per cent of the division's revenue and Asia Pacific, principally Australia, accounted for 41 per cent of revenue. Europe, Middle East and Africa was responsible for the remaining 20 per cent.

Americas

In 2014, revenue was £179.5m, a decrease of 18 per cent at constant currencies.

The USA remains the largest single market for ECS with the majority of revenue being derived from the coal industry. The volume of coal produced in the USA was slightly less than the previous year and domestic prices for thermal coal remained soft. In addition to these factors, sentiment in the industry was also negatively impacted by low prices for coal in export markets and by uncertainty over the US government's policy towards the coal industry. Furthermore, capacity issues on certain railroads led to instances of disruption in the supply of coal to some users.

Throughout the year, US coal miners' reduced profitability and generally weak sentiment led to deferrals of belt servicing and replacement with an apparent increased willingness amongst miners to run belts closer to the point of failure, whilst stocks of belt held by mines against planned future use and as contingency against failure also reduced. Corporate activity amongst mine owners provided an additional incentive for mines to defer belt maintenance.

During the spring, there were favourable movements in various key US energy industry indicators, including coal's share of total electricity generation and falls in electricity generators' coal stocks. These led to expectations that a recovery in the coal mining industry, and consequently in the demand for belt, would take place during the second half of our financial year. However, this did not materialise and instead ECS's trading conditions deteriorated.

In response to this difficult trading environment, ECS has been working with its customers in the US coal mining industry to reduce their belting costs through, for example, re-configuring their belting systems. ECS has also taken action to reduce its own costs and increase the operational flexibility of its manufacturing and servicing activities.

Sales of belt to other mining and industrial customers in the USA and elsewhere in North America held up better, reflecting generally improved economic conditions.

ECS continued to develop its business in South America, where it is focused on the growing copper mining industry in Chile. However, the region's contribution to Group results was reduced by the depreciation of the Chilean peso against international currencies.

Asia Pacific

In 2014, revenue was £191.5m, a decrease of 3 per cent at constant currencies.

ECS's business in Asia Pacific, which is predominantly located in Australia, generated revenues only slightly reduced from last year when measured in constant currency terms, but operating profit and margins were lower which mainly reflected less favourable trading conditions in the key Australian market.

In Australia, ECS is the established market leader, having, over the years, made significant investments in its manufacturing facilities and in building a value-added service business. During the year, ECS's mining customers in Australia, which include some of the largest and lowest cost producers of thermal coal, metallurgical coal and iron ore in the world, extracted record amounts of material, mainly for the export market. Globally, growth in the supply of these commodities was faster than the growth in demand, leading to falls in their prices on international markets.

ECS's trading conditions have become more challenging as the potential benefit on the demand for belting product and services from higher commodity extraction has been offset by increased focus by ECS's Australian customers on all aspects of their costs, including more frequent and vigorous re-tendering processes for the supply of belting products and services.

In this environment, ECS has worked hard to increase efficiency and reduce costs in all aspects of its operations, the benefit of which has been shared with its customers. As part of these measures, ECS's skilled workforce, particularly within its value-added service business, has become more flexible in the ways it responds to customer requirements, including an enhanced ability to switch between different mining regions.

Also during the year, reductions in capital expenditure by Australian mines led to ECS's sales of belting products and services for new capacity being reduced from the levels seen in previous years which particularly impacted the relatively small part of ECS's business which is focused on this segment of the market.

We continue to see Australia as a long-term winner in the global mining industry and, through providing an excellent service to our customers, we intend to maintain and develop our market leadership there.

Elsewhere in Asia Pacific, ECS had a much improved result in China, with increased sales of high-performance belt for critical applications in underground coal mining. In India, where ECS has a smaller business, there was a reduced result, reflecting less favourable trading conditions in the local market.

Europe, Middle East & Africa ("EMEA")

In 2014, revenue was £92.9m, an increase of 5 per cent at constant currencies.

During the year, significant progress was made in some of our newer markets, for example in building up ECS's service business in Africa and the Middle East. However, the result for the year was held back by unfavourable trading conditions in other parts of EMEA.

Encouragingly, ECS has continued to gain market share in north and west Africa and the Middle East, with a number of major service contracts now in place, supported by a progressive build-up in the number of service engineers. ECS's result in South Africa reflected difficult conditions in the mining industry, caused by lower global commodity prices and national industrial unrest. However, Africa and the Middle East continue to be seen as target areas for further growth in the future.

Sales in Europe were generally subdued, reflecting the absence of a general economic recovery and further contractions in the UK coal industry. Demand from customers in Russia and Ukraine fell sharply as the depreciation of local currencies was compounded by political issues in these countries.

Advanced Engineered Products

In 2014, AEP generated revenue of £265.5m. On a constant currency basis, revenue grew by 4 per cent, which reflected encouraging performances across the division.

Underlying operating profit for the year was £42.3m. On a constant currency basis, underlying operating profit fell by 4 per cent, reflecting the cost of increased revenue investment in technology and people together with increases in overhead required to support future growth, with an underlying operating margin of 15.9 per cent (2013: 17.2 per cent).

As anticipated, the second half of the year saw a strong performance, with an underlying operating margin in the second half of 18 per cent.

The share of AEP's revenue accounted for by customers in the oil & gas industry and by our medical businesses continued to grow and reached 42 per cent (2013: 40 per cent) for the year as a whole.

AEP is organised into three product groups: Advanced Sealing Technologies (which generated 52 per cent of AEP's revenue in 2014); Precision Polymers (38 per cent); and Solesis Medical Technologies (10 per cent).

Advanced Sealing Technologies

Advanced Sealing Technologies, the largest product group within AEP, designs and manufactures performance-critical seals for use in oil & gas and fluid power applications. In 2014, revenue was £138.2m, an increase of 2 per cent at constant currencies.

CDI (principal activity: custom seals for upstream oil & gas) performed well in the USA and Singapore, as a result of its strong relationships with major oilfield services companies and OEMs, as well as generally buoyant conditions in the energy industry. However, CDI's business in Europe experienced some disruption. CDI is continuing to invest in the development of a range of specialised new materials and products for sealing applications to bring to market in the future.

EGC (seals and other components for mid-stream and down-stream oil & gas and the petrochemical industry) achieved a result for the year well ahead of last year, benefitting from a number of factors, including higher levels of investment in the petrochemical industry.

Hallite (seals for fluid power) achieved higher revenue in constant currency terms, as its North American businesses increased sales to customers in construction-related industries, although sales to customers supplying equipment into the coal mining industry were generally less favourable. The decision was taken to close Hallite's unprofitable business in Brazil.

AIP (precision machined polymer components) saw a strengthening performance as the year progressed. It also finished the year with an enhanced pipeline of products with applications across the oil & gas, power generation and medical industries.

Precision Polymers

Precision Polymers produces high value-added components, principally belts and hoses, for niche industrial markets. In 2014, revenue was £99.6m, an increase of 6 per cent at constant currencies.

Fenner Drives (belts for power transmission) continued its long-term record of revenue and profit progression and high returns on capital employed. This result reflected its enhanced go-to-market strategy, incorporating direct sales to OEMs, the use of manufacturers' representatives and consumer sales through the e-commerce platform on www.fennerdrives.com.

Mandals (lay-flat hoses) experienced strong demand, mainly from customers in the USA, for its lay-flat hoses for use in hydraulic fracturing applications. In the expectation of further growth in demand, additional capacity at the factory in Norway was successfully commissioned during the year, which is also intended to increase product quality whilst reducing manufacturing costs.

Fenner Precision (bespoke belts for printers, ATMs and other precision applications) saw a significantly weaker financial performance by Fenner Precision (Buffalo) which supplies rollers for digital printing applications where increased commoditisation has reduced selling prices and margin potential. In response, we are in the process of exiting some portions of the roller business and consolidating Fenner Precision's US manufacturing operations at a single facility. Its remaining businesses performed satisfactorily.

James Dawson (hoses for large specialist diesel engines) achieved an improved result as demand for equipment incorporating heavy duty diesel engines increased, reflecting higher demand for construction equipment in various regions.

Solesis Medical Technologies

Solesis Medical Technologies comprises Secant Medical and Xeridiem. Both are located in the USA and primarily sell to domestic customers. In 2014, revenue was £27.7m, an increase of 5 per cent at constant currencies.

Secant Medical (biomedical textile components and biomaterials) produced a strong result with revenue and underlying operating profit both ahead of the previous year. The result reflects the strength of the company's relationships with its customers, which include some of the larger US medical device companies. Pleasingly, this was achieved despite the deferral of various purchases by a principal customer. Secant has undertaken increased revenue investment which has considerably strengthened the company's product pipeline.

Xeridiem (single use medical devices) saw a much reduced result as significant industry disruption led to de-stocking and reduced orders for catheters throughout the period. The business has increased its expenditure on product development to assist future growth.

Group balance sheet and financing

The Group remains soundly financed with a strong balance sheet. The Group's ratio of net debt to EBITDA for the year was 1.2 times, a slight increase from last year but well within the range which we have determined as being a sustainable level. During the year, we took the opportunity to increase the Group's committed bank facilities by £25m to a total of £300m.

Capital expenditure for the year was £28m (of which 69% was invested in AEP), representing some 1.3 times depreciation. We anticipate expenditure of at least this amount in the current year, focused on AEP, as we continue our plans to grow the business.

During 2014, equity was reduced by net exceptional items of £20m. This amount comprised the impairment of intangible assets, offset by write-backs of contingent consideration, in each case relating to historic acquisitions, and certain restructuring costs. Further information is set out in the Finance Review and also in note 4.

Strategic development and outlook

Strategic development

The creation of long-term value for Fenner shareholders remains the fundamental driver of everything we do. Accordingly, the Board keeps Group and business strategy under review to ensure that it is consistent with meeting this goal.

We envisage the continuation of investment in both ECS and AEP, each of which has prospects of growth. Due to the superior growth, margins and returns which AEP is likely to achieve, we anticipate that future investment is likely to be weighted towards this business. Additionally, we anticipate continuing the increased investment in AEP's technology and people, particularly in those businesses serving the energy and medical industries.

Acquisitions will continue to be an important part of our growth strategy where they enable the Group to enter a new market or acquire new technology more expediently than can be done organically, provided that they meet our financial criteria which include return on sales and return on capital. Fenner has the financial capacity to maintain its bolt-on acquisition strategy in the medium term, utilising the Group's own resources and borrowing facilities. We expect acquisition activity to be focused on AEP.

On this basis, we anticipate that AEP may become the larger contributor of profit within the Group.

An important component of shareholder value is the dividend paid to the Company's shareholders. In recognition of this, the Board is recommending an increased final dividend of 8.0p per share (2013: 7.5p), which gives a total dividend for the year of 12.0p (2013: 11.25p), an increase of 7 per cent.

Outlook - 2015

We have entered the financial year with the Group well placed to respond to the opportunities and challenges which we are facing. We are very aware of the potential impact on our end markets and the world economy generally from falls in the prices of energy and commodities and from forecasts of lower economic growth.

Across ECS, we have not yet seen any significant changes in trading conditions or in the competitive landscape. We will continue to adapt ECS's businesses to maximise efficiency without losing the ability to respond positively to new opportunities.

In the USA, sentiment in the coal mining industry remains fragile. ECS has strong relationships with its principal coal mining customers and the volumes of coal produced by them are expected to be consistent with last year. There remain however significant potential uncertainties facing the industry, such as the direction of gas prices and US government policy. The timing of any recovery in demand for belting product and services is uncertain and, when it comes, is likely to be cautious.

In Australia, most commentators and producers expect the extraction and export of coal and iron ore to continue to grow, although not necessarily at rates seen historically. Global commodity prices are generally expected to remain relatively low, and we expect to continue to work closely with our mining customers to increase efficiency and reduce costs. With its well-invested and strategically located manufacturing facilities and skilled work-force, ensuring that its customers receive an excellent service, ECS is well placed to maintain its market leadership in this important region.

Elsewhere, ECS sees good opportunities for further progress in South America, China, the Middle East and the majority of Africa. Prospects of recovery for our operation in the United Kingdom (with its exposure to Russia and Ukraine) appear less certain. The outlook for the mining industry in west Africa is presently clouded by the outbreaks of Ebola in the region.

AEP expects revenue to grow, broadly in line with the rates it has achieved historically. The higher level of investment in technology and people undertaken last year will be maintained and will assist AEP in moving, over time, towards its target of achieving an underlying operating margin of at least 20 per cent.

Advanced Sealing Technologies expects a year of further progress. CDI should benefit from strong customer relationships and its success with new materials and products, although lower oil prices may impact investment activity in the industry. EGC is anticipating higher sales, as expenditure by its customers on new petrochemical capacity in North America increases, and its overall performance should benefit from recent investment in its technology. Hallite is expected to see a general improvement in sales to industrial markets, but offset by weaknesses in some parts of its business, most notably mining equipment.

Within Precision Polymers, Mandals should benefit from the additional capacity and improvements in product quality. Fenner Drives is expected to continue its record of revenue growth and the results of Fenner Precision will be improved by the consolidation of its US digital roller manufacturing operations.

We expect further progress in Solesis Medical Technologies, with Secant Medical increasing sales of medical textiles and introducing new polymers and processes and with some signs of a recovery in the markets served by Xeridiem. This will be a significant year for our medical business as we consolidate Secant's operations into two new, larger facilities and as we continue to strengthen our product pipeline across the division.

Overall, the strength and resilience of our businesses mean that, in a climate of increased economic and political uncertainties, we anticipate that growth in revenue and profitability in AEP is likely to be offset by weakness in the mining market.

Finance Review

Revenue and operating profit

Group revenue decreased by 11% to £729.4m (2013: £820.6m). In the current year, the strengthening of sterling against all of our overseas currencies has had a greater effect on our reported results than in recent years. The unfavourable translation effect of exchange rate movements amounted to £59.7m and therefore, on a constant currency basis, revenue decreased by 4%.

In the ECS division, revenue decreased by 16% to £463.9m (2013: £549.8m) and in the AEP division, revenue decreased by 2% to £265.5m (2013: £270.8m). On a constant currency basis, ECS revenue decreased by 8% while AEP revenue increased by 4%.

Underlying operating profit decreased by 22% to £79.5m (2013: £101.5m) or 15% on a constant currency basis.

Divisional profits contributed were £45.7m (2013: £63.0m) from the ECS division and £42.3m (2013: £46.8m) from the AEP division. On a constant currency basis, ECS profits decreased by 21% and AEP profits decreased modestly by 4%.

Amortisation of intangible assets acquired decreased to £15.0m (2013: £16.0m).

Exceptional items amounted to a net charge of £19.7m (2013: £nil). This comprised impairment costs relating to goodwill, intangible assets acquired and investments of £24.5m, restructuring costs, principally relating to the closure of the Fenner Precision (Buffalo) and Hallite Brazil sites, of £5.9m and a release of contingent deferred consideration on acquisitions, principally relating to American Industrial Plastics and Australian Conveyor Engineering, of £10.7m. Further details of exceptional items are given in note 4. The resultant Group operating profit decreased by 48% to £44.8m (2013: £85.5m).

Financing

The Group is financed principally by a mix of equity, retained earnings, US dollar private placement loan notes and committed bank facilities. The principal loan facilities are raised centrally while operating companies supplement this funding with local overdraft and working capital facilities.

The Group's principal committed loan facilities consist of US dollar private placement loan notes and bank facilities. The US dollar private placement loan notes total $290.0m (£174.7m). These mature between 2017 and 2023 and bear fixed interest rates averaging 5.4%.

The committed bank facilities, which total £125.0m (2013: £100.0m), are multi-currency revolving credit agreements. They comprise a £100.0m (2013: £80.0m) club facility with four major UK-based banks and a further bilateral facility of £25.0m (2013: £20.0m) with one of the banks. During the financial year, both facilities were increased and their maturity extended by a further two years through to July 2019. The increase and extension of the committed bank facilities further strengthens the Group's facility maturity profile, whilst underlining our banks' commitment and continuing support to the Group's strategy.

The Group's total committed loan facilities at 31 August 2014 were £300.0m (2013: £287.5m). At 31 August 2014, £93.3m (2013: £71.0m) of these facilities were not drawn down. Uncommitted facilities were in excess of £40.0m.

The principal financial covenants relating to the committed loan facilities are the ratio of net debt to EBITDA (net debt must be less than 3.5 times adjusted EBITDA) and interest cover for EBITDA (adjusted EBITDA must be at least 3 times the net interest charge). For compliance with loan covenants, reported EBITDA is adjusted for, inter alia, acquisitions and non-cash items, which improves the reported ratios.

Throughout the year under review, the Group complied with all of its loan covenants, with significant headroom available. At 31 August 2014, net debt to reported EBITDA was 1.2 times (2013: 0.9 times). Reported EBITDA interest cover was 7.3 times (2013: 8.8 times).

In normal circumstances, the Group aims to maintain significant headroom in its net debt to EBITDA ratio. The Board has indicated that it might allow net debt to increase for short periods when organic or acquisitive growth opportunities arise which are expected to enhance shareholder value.

The Group remains well placed to fund and support its operations, including further investment, with a diversified range of committed loan facilities, with a medium to long-term maturity profile, cash resources and, where necessary, shorter-term facilities.

Net finance costs

Finance costs, net of finance income, reduced by £3.5m to £15.6m (2013: £19.1m restated).

1 Including the cost of long-term cross-currency swaps.

2 Including the cost of shorter-term cross-currency swaps.

3 2013 restated following the adoption of IAS 19 (Revised) 'Employee Benefits'

The majority of the Group's net interest payable is at fixed interest rates, principally arising from the US dollar private placement loan notes and related cross-currency swaps. The remaining borrowings and cash deposits are at floating interest rates.

During the year, the Group's average borrowings (excluding cash) were £211.1m, at an average "all in" rate of 6.9% (5.9% excluding swap costs and facility fees). Fixed rate borrowings of £174.7m were at a rate of 5.8% (5.4% US dollar private placement notes and 0.4% in relation to long-term cross-currency interest rate swaps associated with the private placement cash flows). Floating rate debt averaged £36.4m, with associated finance costs of £3.0m. This includes the cost of trade finance (bank guarantees, letters of credit and supply chain finance), as well as a number of foreign currency loans where the interest rate is higher than equivalent borrowings in sterling.

Short-term currency swaps are used to provide a flexible and generally cost effective alternative to borrowing funds, at a cost this year of £1.1m.

The private placement notes of $290.0m are fully drawn down and used to fund or hedge Group operations, partly through the use of cross-currency swaps.

Notional interest comprises amounts related to defined benefit post-retirement schemes of £0.9m (2013: £1.8m restated) and amounts in respect of acquisitions, including the unwinding of the discount on deferred payments as well as revisions to estimates of the redemption liability on the purchase of non-controlling interests, of £0.8m (2013: £2.6m).

Average net borrowings during the year were £150.0m.

Taxation

The underlying tax rate for the year was 28.0% (2013: 28.8%), being the rate on the underlying profit before taxation. The tax rate for the year was 15.4% (2013: 27.7%). This rate results from the blending of the different rates of tax applied by each of the countries in which the Group operates and, in any financial year, will depend on the mix of profits made between those countries.

Although the underlying tax rate is similar to the prior year, the tax rate is significantly lower than both the prior year and the UK statutory corporation tax rate (currently 22.2% as applied to the profits for our financial year). This is principally due to an exceptional tax credit of £2.5m relating to tax losses in the Netherlands now recognised from the liquidation of German and Belgian subsidiaries, the businesses of which were closed following the Group's acquisition of the conveyor belting businesses of Unipoly SA in 2001.

Dividends

The interim dividend of 4.0p per share (2013: 3.75p) was paid on 8 September 2014. The Board is recommending a final dividend of 8.0p per share (2013: 7.5p) to make a total dividend for the year of 12.0p per share (2013: 11.25p). If approved by shareholders, the final dividend will be paid on 9 March 2015 to shareholders on the register on 30 January 2015.

The total dividend represents a distribution of 52% (2013: 37%) of underlying earnings.

Earnings per share

Underlying earnings per share was 23.3p (2013: 30.1p) and basic earnings per share was 11.7p (2013: 22.9p restated). Further details are given in note 9.

Financial risk management

In the normal course of business, the Group is exposed to certain financial risks, principally foreign exchange risk, interest rate risk, liquidity risk and credit risk. These risks are managed by the central treasury function in conjunction with the operating units, in accordance with risk management policies that are designed to minimise the potential adverse effects of these risks on financial performance. The policies are reviewed and approved by the Board.

The exposures are managed through the use of borrowings, derivatives and credit management procedures. The use of derivatives is undertaken only where the underlying interest or foreign exchange risk arises from the Group's operations or sources of finance. No speculative trading in derivatives is permitted. Further information on foreign exchange risk management is given below.

Foreign exchange translation risk

The Group has operations around the world, which report in their respective functional currencies.

The Group is exposed to translation risk in respect of its income statement. Principal average exchange rates applied on translation of the income statement for 2014 and 2013 were as follows:

The Group is also exposed to translation risk in respect of its net assets in foreign operations. Where cost effective, the Group hedges a proportion of its exposures through a combination of borrowings, cross-currency swaps and forward foreign currency contracts, principally in respect of net assets denominated in US dollars, Australian dollars and euros.

The Group has entered into cross-currency swaps linked to the US dollar private placement cash flows. In 2007, $27.2m was swapped into €20.0m at a fixed rate of 5.05%, maturing in 2017. In 2011, $44.7m was swapped into AUD$45.0m at a fixed rate of 8.43%, maturing in 2023. These swaps provide hedges against the Group's net investments in euros and Australian dollars, at fixed interest rates, and mirror the private placement cash flows. These swaps have been accounted for as hedges in accordance with IAS 39 'Financial Instruments: Recognition and Measurement', with the charge or credit recognised directly in other comprehensive income in equity.

Foreign exchange transaction risk

Transaction exposures arise where an operation sells or purchases goods and services in a non-functional currency. These transaction exposures are reduced by many of the Group's global operations serving local markets.

Material transaction exposures are hedged, principally with forward foreign currency contracts, once cash flows can be identified with sufficient certainty. Where derivatives are used to hedge transaction exposures, the Group does not hedge account for such transactions under the requirements of IAS 39, 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 retranslated at the closing rate, with changes in value charged or credited to the income statement.

Cash flow and net debt

The table below summarises the cash flows giving rise to the movement in net debt.

Net cash from operations was £86.3m (2013: £126.5m) and net cash from operating activities was £68.6m (2013: £102.0m), with the downturn being driven by the reduction in underlying operating profits and working capital absorption of £9.6m (2013: £6.4m reduction).

Net capital expenditure was £27.1m (2013: £27.0m) and net interest paid was £14.0m (2013: £14.9m). The resultant free cash inflow was £27.5m (2013: £60.1m).

The net cash outflow on acquisitions, net of debt acquired, and disposal activity was £7.5m (2013: £58.0m), of which £7.0m (2013: £8.4m) related to deferred and contingent amounts on prior year acquisitions and £0.5m (2013: £nil) related to an investment acquisition. Dividends paid increased to £24.4m (2013: £23.6m). The resultant cash outflow was £4.4m (2013: £21.5m).

After favourable exchange rate movements of £9.2m (2013: adverse £0.4m) and other increases in debt of £1.0m (2013: £1.5m), closing net debt decreased by £3.8m to £117.3m (2013: £121.1m).

Gross debt amounted to £213.2m (2013: £220.3m) while cash and cash equivalents were £95.9m (2013: £99.2m).

Return on gross capital employed

The return on gross capital employed has decreased to 14.9% (2013: 18.9%) largely due to the reduction in underlying operating profit.

Post-retirement benefits

The Group operates a number of defined benefit post-retirement schemes for qualifying employees in operations around the world. The UK scheme, which was closed to new entrants in 1997, and the scheme in the Netherlands, which is a career average plan, together represent 95% of the Group's total scheme assets and 96% of total scheme liabilities.

During the year, the fair value of assets of the schemes increased to £179.7m (2013: £164.5m), principally generated from actuarial gains in the UK scheme's investments and additional Group contributions paid to reduce the deficit. The present value of obligations increased to £209.7m (2013: £189.9m restated), largely due to a reduction in corporate bond yields used to determine the discount rate and, to a lesser extent, an improvement to longevity assumptions used for the UK scheme.

The total defined benefit post-retirement deficit, as calculated by the schemes' actuaries and recorded on the balance sheet at 31 August 2014, increased to £30.0m (2013: £25.4m restated). This comprised a deficit in the UK scheme of £21.9m (2013: £14.2m restated) and overseas scheme deficits, principally relating to the scheme in the Netherlands, of £8.1m (2013: £11.2m restated).

For the year ended 31 August 2014, the Group was required to adopt IAS 19 (Revised) 'Employee Benefits'. The principal impact of this standard is to replace the interest cost on defined benefit post-retirement scheme obligations and the expected return on scheme assets with a net interest amount that is calculated by applying the discount rate to the net defined post-retirement scheme deficit. In addition, administration costs are now recognised in the income statement when the services are performed. Comparative information for the year ended 31 August 2013 has been restated in the consolidated financial statements and related notes. The impact of the standard was to reduce profit before taxation by £1.5m and profit for the year by £1.2m and to increase net assets by £1.2m.

Further details of post-retirement benefits are disclosed in notes 2 and 12.

Accounting policies

The Group financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union.

Going concern

After making enquiries, the directors have formed a judgement at the time of approving the financial statements that there is a reasonable expectation that the Company and Group have adequate resources to continue in operational existence for the foreseeable future. For this reason, the directors continue to adopt the going concern basis in preparing the financial statements. In forming this view, the directors have reviewed the Group's budget and cash flow forecasts against availability of financing, including an assessment of sensitivities to changes in market conditions.

Consolidated income statement

for the year ended 31 August 2014

Consolidated statement of comprehensive income

for the year ended 31 August 2014

Consolidated balance sheet

at 31 August 2014

The financial statements were approved by the Board of Directors on 11 November 2014 and signed on its behalf by:

M S Abrahams R J Perry

Chairman Group Finance Director Registered Number: 329377

Consolidated cash flow statement for the year ended 31 August 2014

Consolidated statement of changes in equity

for the year ended 31 August 2014

Notes

1. Basis of preparation

The full year results for the year ended 31 August 2014 were approved by the Board of Directors on 11 November 2014. They are abridged from the Group's audited financial statements and do not constitute the statutory accounts of the Company within the meaning of section 434 of the Companies Act 2006. The auditors, PricewaterhouseCoopers LLP, have reported on the Group financial statements for each of the years ending 31 August 2014 and 31 August 2013 and given unqualified opinions, which did not include a statement under Section 498 of the Companies Act 2006. The Group financial statements for 2013 have been delivered to the Registrar of Companies and the Group financial statements for 2014 will be filed with the Registrar of Companies in due course.

The Group financial statements from which these results have been extracted have been prepared in accordance with International Financial Reporting Standards ("IFRS") and IFRIC interpretations as adopted by the European Union and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. They are prepared under the historical cost convention, as modified by the revaluation of land and buildings and financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.

2. Accounting policies

The accounting policies adopted are consistent with those for 2013, except for new standards, amendments or interpretations adopted by the Group and effective for the first time for the financial year ended 31 August 2014. These are detailed below.

IAS 19 (Revised) 'Employee Benefits'

The principal impact of this standard is to replace the interest cost on defined benefit post-retirement scheme obligations and the expected return on scheme assets with a net interest amount that is calculated by applying the discount rate to the net defined benefit post-retirement scheme deficit. In addition, administration costs are now recognised in the income statement when the services are performed. Comparative information for the year ended 31 August 2013 has been restated in the Consolidated income statement, Consolidated statement of comprehensive income, Consolidated balance sheet, Consolidated cash flow statement, Consolidated statement of changes in equity and related notes. The impact of this standard is to reduce profit before taxation by £1.5m and profit for the year by £1.2m and to increase net assets by £1.2m.

IFRS 13 'Fair Value Measurement'

 This standard provides a single source of guidance for the measurement and disclosure requirements in respect of fair value. The standard does not itself extend to accounting for fair value, but instead provides guidance on how this should be applied when fair value is required by other standards. This has no material impact on the Group.

There were no other new standards, amendments of interpretations adopted by the Group and effective for the first time for the year ended 31 August 2014 that have had a material impact on the Group.

A number of new standards, amendments or interpretations are effective for accounting periods beginning on or after 1 January 2014 and

consequently have not yet been applied in preparing the financial statements. None of these are expected to have a material impact on the Group.

Exceptional items and non-GAAP performance measures

Certain items of income and expense are classified as exceptional items due to their nature or size. These are presented separately on the face on the income statement in order to provide a better understanding of the Group's financial performance. Such exceptional items may include impairments of intangible or tangible assets, business restructuring costs, profits or losses arising from the disposal or closure of a business and adjustments to fair values in respect of acquisitions, such as changes to contingent consideration, together with the associated taxation.

Exceptional items, together with amortisation of intangible assets acquired and notional interest, are excluded from underlying performance

measures in order to present a more meaningful measure of the underlying performance of the business. These measures are consistent with how underlying business performance is measured internally.

3. Segment information

IFRS 8 'Operating Segments' requires segment information to be presented on the same basis as that used for internal management reporting.

For the purposes of managing the business, the Group is organised into two reportable segments: Engineered Conveyor Solutions and Advanced Engineered Products.

Operating segments within these reportable segments have been aggregated where they have similar economic characteristics with similar

products and services, production processes, methods of distribution and customer types.

The Chief Operating Decision Maker ("CODM") for the purpose of IFRS 8 is the Board of Directors. The financial position of the segments is

reported to the CODM on a monthly basis and this information is used to assess the performance of the Group and to allocate resources on an appropriate basis.

Segment performance is reviewed down to the operating profit level. Financing costs and taxation are managed on a Group basis so these costs are not allocated to operating segments.

Transfer prices on inter-segment revenues are on an arm's length basis in a manner similar to transactions with third parties. 

Segment information for the years ended 31 August 2014 and 31 August 2013 is as follows:

4. Exceptional items

The impairment of goodwill and intangible assets acquired relates to Australian Conveyor Engineering (£7.2m), Allison (£12.3m), Fenner Precision (Buffalo) (£2.3m), Xeridiem (£1.7m) and Conveyor Belting (India) (£0.5m), with impairment of investments of £0.5m. The impairments were triggered by a reduction in the projected cash flows in these cash-generating units. The methodology for impairment testing was consistent with that adopted in the year ended 31 August 2013.

The release of contingent deferred consideration on acquisitions relates to a reduction in the estimated amounts payable in respect of the acquisitions of Australian Conveyor Engineering, American Industrial Plastics and Xerdiem.

Restructuring costs principally relate to costs associated with the closures of Fenner Precision (Buffalo) and Hallite Brazil.

The exceptional tax credit relates to tax losses now recognised in Fenner Dunlop BV following recent agreement with the tax authorities in the Netherlands. The credit arises from the liquidation of German and Belgian subsidiaries, the businesses of which were closed following the Group's acquisition of the conveyor belting businesses of Unipoly SA in 2001.

In the year ended 31 August 2013, impairment of intangible assets of £3.9m was charged and profit on disposal of businesses of £2.7m credited to operating profit before amortisation of intangible assets acquired. These amounts were not classified as exceptional items since they were not considered to be material given their size in the context of overall operating profit.

5. Finance income

6. Finance costs

7. Taxation

The taxation charge includes a credit of £8.7m (2013: £nil) in respect of exceptional items (note 4), £4.8m (2013: £5.3m) in respect of the amortisation of intangible assets acquired and £0.4m (2013: £1.3m) in respect of notional interest.

8. Dividends

The interim dividend for the year ended 31 August 2014 was paid on 8 September 2014. The proposed final dividend for the year ended 31 August 2014 is subject to approval by shareholders at the AGM. Consequently, neither has been recognised as liabilities at 31 August 2014. If approved, the final dividend will be paid on 9 March 2015 to shareholders on the register on 30 January 2015.

9. Earnings per share 

Underlying earnings per share measures have been presented to provide a more meaningful measure of the underlying performance of the Group.

10. Property, plant and equipment

The decrease in property, plant and equipment in the year of £10.3m comprises depreciation of £21.0m, transfers to non-current assets held for sale of £2.9m, impairments of £0.6m, disposals of £0.3m and exchange movements of £11.3m less additions of £25.8m.

11. Intangible assets

The decrease in intangible assets in the year of £50.2m comprises amortisation of £16.0m, impairments of £24.3m and exchange movements of £12.6m less additions of £2.7m. The impairment charge principally relates to goodwill and intangible assets acquired in Australia Conveyor Engineering, Allison, Fenner Precision (Buffalo), Xeridiem and Conveyor Belting (India) These impairments were triggered by a reduction in the projected cash flows in these cash-generating units.

12. Post-retirement benefits

The Group operates a number of defined benefit post-retirement schemes for qualifying employees in operations around the world; the principal schemes are based in the UK and the Netherlands. The assets of all the schemes are held in separate trustee-administered funds. The cost of all the schemes are assessed in accordance with the advice of independent qualified actuaries using the projected unit credit method. The actuarial valuations for all schemes were updated as at 31 August 2014 by independent qualified actuaries.

The increase in retirement benefit obligations in the year of £4.6m comprises amounts charged to the income statement of £1.8m and remeasurements of £8.8m less employer contributions of £5.3m and exchange movements of £0.7m. The present value of obligations increased by £19.8m, principally due to a reduction in corporate bond yields used to determine the discount rate and the fair value of assets of the schemes increased by £15.2m, principally due to returns on assets of the UK scheme and additional Group contributions paid to reduce the deficit.

Comparative information for the year ended 31 August 2013 has been restated following the adoption of IAS 19 (Revised) 'Employee Benefits' for the first time during the year. The effects of this restatement are to reduce profit before taxation by £1.5m and profit for the year by £1.2m and to increase net assets by £1.2m.

13. Provisions

Provisions comprise current provisions of £9.2m (2013: £8.9m) and non-current provisions of £20.5m (2013: £37.3m).

14. Reconciliation of net cash flow to movement in net debt

Net debt comprises cash and cash equivalents of £95.9m (2013: £99.2m), current borrowings of £34.6m (2013: £14.4m) and non-current borrowings of £178.6m (2013: £205.9m).

15. Contingent liabilities

In the normal course of business the Group has given guarantees and counter indemnities in respect of commercial transactions.

The Group is involved as defendant in a small number of potential and actual litigation cases in connection with its business, primarily in North America. The directors believe that the likelihood of a material liability arising from these cases is remote.

16. Related party transactions

Other than the remuneration of the Group's executive and non-executive directors and members of the Executive Committee, there were no related party transactions during the year to disclose.

17. Acquisitions

Contingent and deferred consideration paid in the year of £7.0m relates to acquisitions completed in previous periods.

Contingent deferred consideration payable is re-assessed on all acquisitions at the balance sheet date. During the year, as a result of decreases in estimated future profitability in the respective earn-out periods, the estimated deferred amounts payable reduced by £10.7m. This comprised: £5.0m on the acquisition of American Industrial Plastics, which was acquired on 1 September 2012; £5.4m on the acquisition of Australian Conveyor Engineering, which was acquired on 30 November 2012; and £0.3m on the acquisition of Xeridiem, which was acquired on 7 July 2010. These amounts have been recognised as a credit within exceptional items in the Consolidated income statement (note 4).

18. Principal risks

Fenner's operations around the world are exposed to a number of risks which could, either on their own, or in combination with others, have an adverse effect on the Group's results, strategy, business performance and reputation which, in turn, could impact upon shareholder returns. The principal risks are detailed in the Strategic Report in Fenner's Annual Report. Additional risks and uncertainties not presently known to Fenner or that Fenner currently consider immaterial may also have an adverse effect on its business.