10th May 2006 07:01
Fenner PLC10 May 2006 10 May 2006 Fenner PLC 2006 Interim Results Fenner PLC, the global engineer specialising in reinforced polymer technology,today announces its interim results for the six months ended 28 February 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: • Significant growth driven by buoyant energy markets and operational improvements introduced in recent years • Profit before taxation increased by 183% to £11.9m (2005: £4.2m), on revenue up 33% to £182.0m (2005: £137.1m) Conveyer belting • Significant growth in the coal sector driven by high demand throughout the world; unprecedented order intake for heavyweight conveyor belting • Strong performance in North America, Australia, China, South Africa and India • Productivity improvements achieved following recent investments Advanced engineered products • Strong oil and gas and mining sales, benefiting from thriving energy sector • The advanced sealing technologies businesses acquired in May 2005 have been successfully integrated and outperformed expectations • Outlook is positive Commenting on outlook, Colin Cooke, Chairman, said:"We have started the second half strongly as we see a continuation of theconditions we experienced in the first six months. "As demand from our customers has grown and many of our plants have become full,we have identified opportunities for expansion within our existing markets. As aconsequence, we have and will be purchasing significant amounts of new plantwhich we expect will start to benefit next year. "We are on track to meet our second half targets albeit that capacityconstraints in some areas are likely to limit second half profitability untilthe new investments come on stream." For Further Information: Fenner PLCMark Abrahams, Chief Executive 10 May 2006: 020 7067 0700Richard Perry, Finance Director Thereafter: 01482 626501 Weber Shandwick Square MileNick Oborne / Stephanie Badjonat 020 7067 0700 CHAIRMAN'S STATEMENT I am pleased to report excellent progress in the first half of the year.Operating profit increased by £8.4m to £14.3m and basic earnings per share grewby 107%. Our conveyor belting division continued to experience stronger demand in most ofthe markets in which it operates. North American volumes were particularlyencouraging with unprecedented activity in the coal sector. The advanced sealing technologies businesses (formerly Wellington Holdings plc),which were acquired in May 2005, have been integrated into the advancedengineered products division and the market synergies envisaged have started tobe realised. Post-acquisition performance has exceeded expectations, benefitingfrom the thriving energy sector. International Financial Reporting Standards The results for the half year ended 28 February 2006 have been prepared underInternational Financial Reporting Standards (IFRS) and the prior periodinformation contained within this report has been stated on a comparable basis. Revenue and Profits First half revenue increased by 33% to £182.0m (2005: £137.1m) reflecting strongorganic growth, particularly in our conveyor belting division, together with£19.8m relating to advanced sealing technologies. Operating profit increased by 141% to £14.3m (2005: £5.9m) which included acontribution from the advanced sealing technologies businesses of £3.0m. Profitbefore taxation increased to £11.9m (2005: £4.2m). Basic earnings per shareincreased to 5.34p per share (2005: 2.58p per share). Cash Resources and Investment Movements in exchange rates and a seasonal outflow of funds have resulted in anincrease in borrowings of £15.8m (2005: £12.7m) to £50.3m (2005: £52.7m).Capital investment has grown as we capitalise on the opportunities which havebeen created to expand our market positions in a number of territories. Thisinvestment during the period amounted to £7.7m (2005: £2.9m) against adepreciation charge of £4.0m (2005: £3.6m). Further significant capitalprogrammes are planned for the future. Dividends The Board has indicated that it intends to build dividend cover as earningsgrow. Accordingly we are declaring an interim dividend of 1.975p per share,maintained at last year's level. In the light of the significant improvement inperformance we intend to review the dividend level at the final stage, but tomaintain a conservative policy. Operations Our conveyor belting division continued to experience stronger demand in most ofthe markets in which it operates. In North America improvement was evident across all sectors. Significant growthwas achieved in the coal sector driven by sustained high coal demand in NorthAmerica and throughout the world amid further increases in oil and natural gasprices. These economic fundamentals are encouraging coal-based electricityplants to increase capacity and new generating plants are being developed at arecord pace across North America and around the world. As a consequence, orderintake for heavyweight conveyor belting reached unprecedented levels. Productivity improvements were achieved from recent investments to augmentoutput and manage lead times with plants running at higher capacity levels formuch of the period. Further raw material input cost increases have been incurredwhich required regular revisions to selling prices. In Europe, our UK operation's result improved with higher volumes of heavierproduct into export markets, whilst progress continued in developing ourcustomer base in the former Soviet Union and Eastern Europe. Our Dutch operationexperienced flat industrial demand from most of its major European markets. Thecombination of a competitive environment which constrained selling price reviewsand rising raw material costs caused an erosion of margin. This necessitatedaction to reduce the cost base and increase the focus of the business on valueadded products which will generate better levels of return. Operations in Australia, China, South Africa and India continued to benefit fromstrong mining markets in their respective territories which facilitated solidperformances. Our advanced engineered products division benefited from the inclusion of theadvanced sealing technologies result which outperformed expectations. Sales intothe oil and gas sectors were extremely strong against a backdrop of a thrivingenergy sector. Healthy sales into mining applications were achieved,particularly in Eastern Europe. The synergies identified from the acquisition toleverage the Group's existing presence in emerging markets have started to berealised with new business achieved. Our specialist hose businesses experienced softer demand from North Americawhich was somewhat offset by higher volumes from the next generation of siliconehoses supplied to a major customer. Start-up costs relating to this investmentproject and increasing material costs reduced margins, although improvedoperating efficiencies were evident as we approached the half year. Investment to increase capacity at our North American precision polymer businessenabled us to service stronger Asian demand from the computer equipment sector.Industrial activity at both the UK and North American plants made modestprogress, in line with sector indices. Outlook We have started the second half strongly as we see a continuation of theconditions we experienced in the first six months. As demand from our customers has grown and many of our plants have become full,we have identified opportunities for expansion within our existing markets. As aconsequence, we have and will be purchasing significant amounts of new plantwhich we expect will start to benefit next year. We are on track to meet our second half targets albeit that capacity constraintsin some areas are likely to limit second half profitability until the newinvestments come on stream. Colin CookeChairman Fenner PLCConsolidated income statementfor the half year ended 28 February 2006 (unaudited) Half year Half year ended ended Year ended 28 February 28 February 31 August 2006 2005 2005 Notes £'000 £'000 £'000__________________________________________________________________________________________Revenue 2 181,952 137,097 303,644__________________________________________________________________________________________Operating profit before amortisation of intangible assets acquired and exceptional items 14,535 6,484 20,845Amortisation of intangible assets acquired (221) - (1,046)Exceptional items - (556) (3,502)__________________________________________________________________________________________Operating profit 2 14,314 5,928 16,297Finance income 901 451 1,162Finance costs (3,201) (2,159) (4,945)Share of result of associate (107) (20) (49)Loss on disposal of associate 3 (20) - -__________________________________________________________________________________________Profit before taxation 11,887 4,200 12,465Taxation 4 (3,450) (1,318) (4,032)__________________________________________________________________________________________Profit for the period 8,437 2,882 8,433__________________________________________________________________________________________Attributable to:Equity holders of the parent 8,357 2,800 8,248Minority interests 80 82 185__________________________________________________________________________________________ 8,437 2,882 8,433__________________________________________________________________________________________Earnings per shareBasic 6 5.34p 2.58p 6.66pDiluted 6 5.28p 2.56p 6.62p__________________________________________________________________________________________ The result for the period derives from continuing operations Fenner PLCConsolidated balance sheetat 28 February 2006 (unaudited) 28 February 28 February 31 August 2006 2005 2005 £'000 £'000 £'000__________________________________________________________________________________________Non-current assetsProperty, plant and equipment 66,057 54,280 60,960Goodwill 57,910 20,573 57,157Other intangible assets 9,526 924 9,712Investment in associates - 306 247Other investments 291 262 262Deferred tax assets 19,514 15,535 18,771__________________________________________________________________________________________ 153,298 91,880 147,109__________________________________________________________________________________________ Current assetsInventories 58,094 47,092 52,767Trade and other receivables 71,883 56,376 61,505Current tax assets 774 631 693Cash and cash equivalents 50,177 19,215 51,509Derivative financial instruments 473 - -__________________________________________________________________________________________ 181,401 123,314 166,474__________________________________________________________________________________________Total assets 334,699 215,194 313,583__________________________________________________________________________________________ Current liabilitiesInterest bearing loans and borrowings (37,575) (18,172) (36,401)Trade and other payables (67,935) (54,746) (64,392)Current tax liabilities (5,109) (3,310) (5,138) (110,619) (76,228) (105,931) Non-current liabilitiesInterest bearings loans and borrowings (62,892) (53,766) (49,597)Retirement benefit obligations (40,977) (36,799) (41,068)Provisions (4,771) (3,601) (4,897)Other liabilities (74) - (144)Deferred tax liabilities (6,263) (2,912) (5,684)__________________________________________________________________________________________ (114,977) (97,078) (101,390)__________________________________________________________________________________________Total liabilities (225,596) (173,306) (207,321)__________________________________________________________________________________________Net assets 109,103 41,888 106,262__________________________________________________________________________________________ EquityShare capital 39,243 27,190 39,141Share premium 50,728 4,401 50,210Retained earnings 11,595 (10,823) 11,251Translation reserve 3,988 946 2,158Other reserve - 16,758 -Revaluation reserve 2,904 2,932 2,914__________________________________________________________________________________________Shareholders' equity 108,458 41,404 105,674Minority interests 645 484 588__________________________________________________________________________________________Total equity 109,103 41,888 106,262__________________________________________________________________________________________ Fenner PLCConsolidated cash flow statementfor the half year ended 28 February 2006 (unaudited) Half year Half year ended ended Year ended 28 February 28 February 31 August 2006 2005 2005 £'000 £'000 £'000__________________________________________________________________________________________Profit before taxation 11,887 4,200 12,465Adjustments for:Depreciation of property, plant and equipment and amortisation of intangible assets 4,198 3,560 9,148Decrease in retirement benefit obligations (132) (299) (940)(Decrease)/increase in provisions (141) 142 1,531Finance income (901) (451) (1,162)Finance costs 3,201 2,159 4,945Share of result of associate 107 20 49Loss of disposal of associate 20 - -Other non-cash movements 622 451 280__________________________________________________________________________________________Operating cash flow before movement in working capital 18,861 9,782 26,316Movement in working capital (11,279) (13,178) (5,936)__________________________________________________________________________________________Net cash from/(used in) operations 7,582 (3,396) 20,380Interest received 831 437 1,120Interest paid (2,823) (2,174) (4,575)Taxation paid (3,694) (1,669) (5,161)__________________________________________________________________________________________Net cash from/(used in) operating activities 1,896 (6,802) 11,764__________________________________________________________________________________________Investing activities:Purchase of property, plant and equipment (7,721) (2,927) (7,836)Disposal of property, plant and equipment 29 14 119Purchase of investments (29) - -Acquisition of subsidiary undertakings (65) (254) (44,199)Disposal of subsidiary undertakings - - (19)Disposal of associate 12 - -__________________________________________________________________________________________Net cash used in investing activities (7,774) (3,167) (51,935)__________________________________________________________________________________________Financing activities:Equity dividends paid (8,182) (6,324) (6,324)Dividends paid to minority shareholders (46) (43) (87)Issue of ordinary share capital 303 - 56,340Loan repayment from associate 113 34 70Repayment of finance leases (125) (6) (106)Repayment of borrowings (1,279) (197) (7,436)New borrowings 12,378 2,187 26,332__________________________________________________________________________________________Net cash from/(used in) financing activities 3,162 (4,349) 68,789__________________________________________________________________________________________Net (decrease)/increase in cash and cash equivalents (2,716) (14,318) 28,618Cash and cash equivalents at start of period 51,303 22,865 22,865Exchange movements 707 (117) (180)__________________________________________________________________________________________Cash and cash equivalents at end of period 49,294 8,430 51,30__________________________________________________________________________________________Cash and cash equivalents comprises:Cash and cash equivalents 50,177 19,215 51,509Bank overdrafts (883) (10,785) (206)__________________________________________________________________________________________ 49,294 8,430 51,303__________________________________________________________________________________________ Fenner PLCConsolidated statement of recognised income and expensefor the half year ended 28 February 2006 (unaudited) Half year Half year ended ended Year ended 28 February 28 February 31 August 2006 2005 2005 £'000 £'000 £'000__________________________________________________________________________________________Currency translation differences 1,854 915 2,173Actuarial losses on defined benefit pension schemes - - (115)Taxation on items taken directly to equity - - 86__________________________________________________________________________________________Net income recognised directly in equity 1,854 915 2,144Profit for the period 8,437 2,882 8,433__________________________________________________________________________________________Total recognised income and expense for the period 10,291 3,797 10,577__________________________________________________________________________________________Attributable to:Equity holders of the parent 10,187 3,746 10,377Minority interests 104 51 200__________________________________________________________________________________________ 10,291 3,797 10,577__________________________________________________________________________________________ Consolidated statement of changes in shareholders' equityfor the half year ended 28 February 2006 (unaudited) Half year Half year ended ended Year ended 28 February 28 February 31 August 2006 2005 2005 £'000 £'000 £'000__________________________________________________________________________________________Total recognised income and expense for the period 10,187 3,746 10,377Equity dividends paid (8,182) (6,324) (6,324)Share capital issued 620 - 57,760Share-based payments 159 375 254__________________________________________________________________________________________Movement in shareholders' equity in the period 2,784 (2,203) 62,067Shareholders' equity at start of period 105,674 43,607 43,607__________________________________________________________________________________________Shareholders' equity at end of period 108,458 41,404 105,674__________________________________________________________________________________________ Consolidated reconciliation of net cash flow to movement in net debtfor the half year ended 28 February 2006 (unaudited) Half year Half year ended ended Year ended 28 February 28 February 31 August 2006 2005 2005 £'000 £'000 £'000__________________________________________________________________________________________Net (decrease)/increase in cash and cash equivalents (2,716) (14,318) 28,618Increase in borrowings and finance leases resulting from cash flows (10,974) (1,984) (18,790)__________________________________________________________________________________________Movement in net debt resulting from cash flows (13,690) (16,302) 9,828Loans and finance leases acquired with subsidiaries - (31) (4,452)New finance leases (43) - (55)Exchange movements (2,068) 3,634 214__________________________________________________________________________________________Movement in net debt in the period (15,801) (12,699) 5,535Net debt at start of period (34,489) (40,024) (40,024)__________________________________________________________________________________________Net debt at end of period (50,290) (52,723) (34,489)__________________________________________________________________________________________ Fenner PLCNotes to the financial informationfor the half year ended 28 February 2006 1 Basis of preparationThe interim financial information for the half year ended 28 February 2006,including comparative financial information, has been prepared in accordancewith IFRS as adopted for use within the European Union (EU) that are expected tobe applicable at 31 August 2006, the Group's first annual reporting date atwhich it is required to adopt IFRS. The Group previously prepared its annual and interim consolidated financialstatements under UK GAAP. On 24 April 2006 the Group published the document'Restatement of financial information under International Financial ReportingStandards' which provided revised accounting policies under IFRS andreconciliations of financial information from UK GAAP to IFRS for the year ended31 August 2005 and the half year ended 28 February 2005. This is available fromthe Group's website at www.fenner.com. The IFRS that will be effective or available for adoption at 31 August 2006 aresubject to review by the International Accounting Standards Board (IASB) andendorsement by the EU. The failure of the EU to endorse all standards in time orthe issue of new interpretative guidance by the IASB could result in changes tothe comparative financial information and amendments may be required up to thepoint of preparation of the financial statements for the year ending 31 August2006. The Group has not adopted IAS 34 'Interim Financial Reporting' which is not yetmandatory for UK groups. The financial information is unaudited and does not constitute statutoryaccounts within the meaning of Section 240 of the Companies Act 1985. Thefinancial statements for the year ended 31 August 2005, which were prepared inaccordance with UK GAAP, have been filed with the Registrar of Companies. Theycontained an unqualified audit report and did not contain a statement underSection 237 (2) or (3) of the Companies Act 1985. 2 Segmental information Half year Half year ended ended Year ended 28 February 28 February 31 August 2006 2005 2005 £'000 £'000 £'000__________________________________________________________________________________________RevenueConveyor belting 129,645 108,463 230,837Advanced engineered products 52,307 28,634 72,807__________________________________________________________________________________________ 181,952 137,097 303,644__________________________________________________________________________________________Operating profitConveyor belting 7,974 2,829 9,124Advanced engineered products 6,340 3,099 7,173__________________________________________________________________________________________ 14,314 5,928 16,297__________________________________________________________________________________________ 3 Disposal of associateOn 31 December 2005 the Group sold its interest in associate, Rob Harvey PtyLimited, for a cash consideration of £12,000. This resulted in a loss ondisposal of £20,000. 4 Taxation Half year Half year ended ended Year ended 28 February 28 February 31 August 2006 2005 2005 £'000 £'000 £'000__________________________________________________________________________________________ UK taxation (412) 110 (389)Overseas taxation 3,862 1,208 4,421__________________________________________________________________________________________ 3,450 1,318 4,032__________________________________________________________________________________________ The tax charge is calculated based on the estimated effective tax rate for thefull year. 5 Dividends Half year Half year ended ended Year ended 28 February 28 February 31 August 2006 2005 2005 £'000 £'000 £'000__________________________________________________________________________________________Amounts recognised in the periodInterim dividend for the year ended 31 August 2005 of 1.975p (2004: 1.975p) per share 2,148 2,145 2,145Final dividend for the year ended 31 August 2005 of 3.85p (2004: 3.85p) per share 6,042 4,187 4,187Amount due to the Employee Share Ownership Plan Trust (8) (8) (8)__________________________________________________________________________________________ 8,182 6,324 6,324__________________________________________________________________________________________ The interim dividend for the year ending 31 August 2006 of 1.975p per share isdue for payment on 4 September 2006 and so has not been recognised as aliability at 28 February 2006. It will be paid to shareholders on the registeron 4 August 2006. 6 Earnings per share Half year Half year ended ended Year ended 28 February 28 February 31 August 2006 2005 2005 £'000 £'000 £'000__________________________________________________________________________________________EarningsProfit for the period attributable to equity holders of the parent 8,357 2,800 8,248Amortisation of intangible assets acquired and exceptional items 221 556 4,548Taxation attributable to amortisation of intangible assets acquired and exceptional items (66) (125) (733)__________________________________________________________________________________________Profit for the period before amortisation of intangible assets acquired and exceptional items 8,512 3,231 12,063__________________________________________________________________________________________ Number Number Number__________________________________________________________________________________________Average number of sharesWeighted average number of shares in issue 156,731,895 108,667,227 123,908,805Weighted average number of shares held by the Employee Share Ownership Plan Trust (131,859) (131,859) (133,769)__________________________________________________________________________________________Weighted average number of shares in issue - basic 156,600,036 108,535,368 123,775,036Effect of share options and contingent long term incentive plans 1,726,231 963,151 735,681__________________________________________________________________________________________Weighted average number of shares in issue - diluted 158,326,267 109,498,519 124,510,717__________________________________________________________________________________________ Pence Pence Pence__________________________________________________________________________________________Earnings per shareBasic 5.34 2.58 6.66Diluted 5.28 2.56 6.62Adjusted - before amortisation of intangible assets acquired and exceptional items 5.44 2.98 9.75__________________________________________________________________________________________ 7 ContingenciesThe Group has disposed of certain businesses in prior years, which includedobligations under certain property leases and grants. Should the purchasers ofthe businesses default on these commitments, the future obligation could revertto the Group. In the normal course of business the Group has given guarantees and counterindemnities in respect of commercial transactions and has entered into forwardcontracts for the sale and purchase of foreign currencies by reference to itsforecast requirements. Proceedings have continued against the Welsh Development Agency (WDA), claimingsubstantial damages in relation to the provision by the WDA of defectivemanufacturing facilities. The proceedings are now the subject of litigation. 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 early October 2004, our conveyor belt operations in Charlotte and Atlantareceived notification from the Anti Trust Division of the US Department ofJustice of their intention to enquire into possible anti trust violations byFenner. Every co-operation is being given in order to clarify and expedite theprocess. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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