19 April 2017                                                                                                           

Fenner PLC

2017 Half Year Results

Fenner PLC, a world leader in reinforced polymer technology, today announces its results for the half year ended 28 February 2017.

Highlights

·    Revenue up 11% to £307.4m, assisted by market share gains and exchange rates

·    Underlying operating profit up 60% (27% at constant currencies)

·    Underlying operating margin strongly ahead in both divisions

·    Underlying earnings per share up 117% to 6.3p

·    Dividend per share up 40% to 1.4p

·    Strong cash flow resulted in net debt reducing to £144.7m (£28.7m lower than February 2016 at constant currencies) and net debt/EBITDA of 1.9 times (at constant currencies)

·    Expected outcome for the year above previous expectations at the operating profit level with a further benefit to earnings from a lower tax rate in the current financial year

Mark Abrahams, Chief Executive Officer, commented:

"It is pleasing that the restructuring of the Group has created a platform from which we are now growing and making steady market share gains. We look forward to maintaining this momentum."

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 and non-GAAP measures have been presented to provide a more meaningful measure of the underlying performance of the business. Reconciliations of these amounts from the most directly comparable measures recognised under International Financial Reporting Standards ("IFRS") are set out in note 1

A live audio webcast of the analyst presentation, hosted by Mark Abrahams, Chief Executive Officer, and John Pratt, 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:

Advanced Engineered Products. The AEP division is a group of nine businesses that use advanced polymeric materials and technical expertise to provide high value-added solutions to customers' most challenging engineering problems across a variety of markets, generally classified as specialist industrial, medical and oil & gas. AEP's trading names include Hallite, Fenner Precision, Fenner Drives, Secant Group, Charter Medical, CDI Energy Products and EGC Critical Components.

Engineered Conveyor Solutions. The ECS division, trading under the Fenner Dunlop, Fenner and Dunlop brand names, is an established global leader in the supply of heavyweight conveyor belting and related services to the mining, industrial and bulk materials markets. ECS has leading presences in the Northern Hemisphere (principally North America and Europe) and the Southern Hemisphere (principally Australia).

Interim management report

In January, we reported that the Group was performing well, benefiting from both the refocusing of our businesses and from market share gains. The Group's results for the first half of the financial year reflect the improvements indicated at that time. Momentum is being maintained in the second half of the financial year as the Group continues to deliver its strategy.

Revenue for the period was £307.4m (2016: £276.8m), an increase of 11%. Underlying operating profit was £24.0m           (2016: £15.0m), an increase of 60%. Underlying profit before taxation was £16.5m (2016: £8.1m), an increase of 104%. Underlying earnings per share was 6.3p (2016: 2.9p), an increase of 117%.

A particular feature of the results was the increase in underlying operating margin which increased to 7.8% (2016: 5.4%) reflecting operational improvements and efficiencies across many of the Group's operations. In addition, as the period progressed, there were increasing benefits from operational gearing as certain businesses generated revenue growth.
 
The Group's cash flow was again strong with higher profits and lower capital expenditure. Net borrowings ended the period at £144.7m (31 August 2016: £150.0m) despite currency movements of £5.4m. Measured at constant exchange rates, net debt at 28 February 2017 was £28.7m lower than at 29 February 2016.

During the period, the Group acquired the non-controlling interests in BBCS and LECS, each of which are conveyor service businesses located in Australia. The Group has no further deferred consideration payments outstanding. Also during the period, the Group disposed of Xeridiem Medical Devices and CDI Norway.

Advanced Engineered Products

AEP's revenue was £136.9m (2016: £139.8m at constant currencies). After adjusting for business disposals and closures, like-for-like revenue grew by 4%. Underlying operating profit was £17.9m (2016: £15.5m at constant currencies) and underlying operating margin increased to 13.1% (2016: 11.1%).

The division's results reflect improved operational performances across its businesses, driven by market share gains, new product introductions and prudent cost control. Whilst market indicators showed some softness at the start of the financial year, they gradually strengthened as the period progressed.

Advanced Sealing Technologies

Advanced Sealing Technologies generated a higher operating profit and operating margin on slightly increased revenue of £60.1m (2016: £59.9m at constant currencies). Excluding businesses which have been closed or sold (the former CDI operations in the UK and Norway), revenue increased by 7%.

During the period, there were progressive improvements in oil & gas industry lead indicators such as rig count, albeit from very low levels. Notwithstanding this, the average rig count in the period was below the average for the same period last year.

Both CDI and EGC have continued to make market share gains in their respective segments of the oil & gas industry, partly as a result of having introduced new products that reflect customer demand for higher technical specifications. As a result of both the improving market and the market share gains, order flow increased steadily throughout the period.

Hallite performed strongly, delivering revenue growth well ahead of industry indicators and even greater increases in terms of operating profit and margins. The strong performance reflects new product introductions as well as some re-stocking in the supply chain.

Precision Polymers

Precision Polymers' revenue increased to £52.2m (2016: £50.8m at constant currencies) and operating profit and margin were both well ahead of the previous period.

Precision US finished the period strongly after some softness in customer ordering in the autumn reflecting uncertainty around the outcome of the US election as well as normal seasonality patterns.

Precision UK continues to make good progress as it expands both its range of elastomeric products and its customer base.

Mandals achieved a modest improvement in revenue for the period; its order book has improved following management changes and new product introductions.

Solesis Medical Technologies

Revenue for the period was £24.7m (2016: £29.3m at constant currencies and including a contribution from Xeridiem Medical Devices sold in September 2016). Operating profit and operating margin were both well ahead of the prior period.

Secant Group is in the final validation phase of its relocation process. It achieved a strong operating result for the period, with some third party project delays offset by new developments and other efficiencies. The business' new product pipeline has been further strengthened.

Charter Medical continues to trade well following the managerial and operational changes made last year. Demand for cell therapy products has been strong.

Engineered Conveyor Solutions

ECS's revenue was £170.5m (2016: £188.6m at constant currencies). Underlying operating profit was higher at £10.4m      (2016: £7.0m at constant currencies) and underlying operating margin recovered to 6.1% (2016: 3.7%).

In the mining industry, whilst there was a general improvement in sentiment due to higher commodity prices and mineral extraction rates, this was not generally reflected in higher orders for replacement belt; the increased operating profit and margin were generated by the substantial operating improvements implemented across the business.

Northern Hemisphere

Revenue for the period was £89.8m (2016: £103.6m at constant currencies).

In ECS North America, industrial volumes continued to grow as a result of the refocusing commenced last year.  In mining, whilst below the corresponding period last year, volumes improved from recent lows which, when combined with significantly improved operating efficiencies, increased overall profitability.

In Europe, financial performance was constrained by the ongoing shortage of major project work.

Southern Hemisphere

Revenue for the period was £81.3m (2016: £86.7m at constant currencies).

In Australia, on flat volumes, ECS achieved a higher profit than in the corresponding period last year reflecting its strengthened market position and the operational improvements made across the business. Despite an improved sentiment within the mining industry, the business has not yet seen a general increase in order intake although there are now some indications that belt   de-stocking is coming to an end and that project work may resume next year.

ECS China continues to face significant pressures from the on-going re-organisation of the domestic coal industry.

Financial report

Revenue and profit

Group revenue for the period was £307.4m (2016: £276.8m or £328.4m at constant currencies). The 2016 amount includes £12.5m in respect of businesses which have been closed or sold. Underlying operating profit was £24.0m (2016: £15.0m or £18.9m at constant currencies).

Interest for the period (excluding notional interest) was £7.5m (2016: £6.9m or £8.0m at constant currencies). EBITDA interest cover, on a 12 month rolling basis, was 4.9 times (2016: 4.8 times).

Exceptional items during the period amounted to a profit of £2.6m (2016: loss of £25.1m); a net gain of £4.1m arising on business disposals was partly offset by a contractual payment due to the family of the former Chief Executive Officer following his passing away in January 2017.

Underlying profit before taxation was £16.5m (2016: £8.1m). The taxation rate on underlying profit before taxation was lower at 22% (2016: 25%) reflecting the utilisation of previous tax losses in the current financial year, most notably in the USA. Profit before taxation was £13.8m (2016: loss of £23.1m).

Underlying earnings per share amounted to 6.3p (2016: 2.9p). Basic earnings per share was 5.3p (2016: loss of 9.8p).

Cash flow and borrowings

The Group's cash flow in the period remained strong. Operating cash flow was £34.0m (2016: £19.1m) reflecting a higher operating profit and reduced capital expenditure. Free cash flow was £23.9m (2016: £7.2m). The net outflow on business acquisitions and disposals amounted to £8.6m. Dividend payments were much reduced.

Notwithstanding a further adverse currency movement in the period due to the continued weakening of sterling against the US dollar, net debt ended the period at £144.7m (31 August 2016: £150.0m). Measured at constant exchange rates, net debt at     28 February 2017 was £28.7m lower than at 29 February 2016.

Calculated on a rolling basis over the 12 months ended 28 February 2017 and at average exchange rates, net debt to EBITDA improved to 1.9 times (29 February 2016: 2.1 times).

Board of Directors

On 20 December 2016, the Group announced that Vanda Murray OBE had agreed to take up the role of Non-Executive Chairman of the Company with immediate effect having been the Acting Non-Executive Chairman since 8 June 2016.

At the same time, Chris Surch was appointed as Senior Independent Director and Geraint Anderson as Chairman of the Remuneration Committee.

Michael E. Ducey was appointed as a non-executive director on 11 January 2017.

The search for a new Chief Executive Officer is continuing. In order to preserve stability, Mark Abrahams has, as previously reported, agreed to remain as Chief Executive Officer until an appointment is made.

Principal risks and uncertainties

The principal risks and uncertainties affecting the Group remain those set out in the 2016 Annual Report and those which are most likely to impact the performance of the Group in the remaining months of the financial year are outlined below.

The Group has started to see positive movements in lead and current indicators of demand for its belting products and services but risks remain concerning the strength and durability of recovery which is likely to be uneven across the different territories in which the Group operates. Particular issues are recognised in the USA where the recent pick-up in coal mining may prove to be short lived and in China where the coal industry continues to be restructured. The oil & gas industry globally is recovering but long-term uncertainties remain over the supply and demand balance and how this will impact on the oil & gas industry in the USA. Considerable political uncertainty exists in many regions which may, in due course, have implications for global trade in commodities and finished goods and for exchange rates. 

Dividend

As the Group's earnings recover, it remains the Board's intention to adopt a progressive dividend policy and to maintain a     one-third/two-thirds split between the interim and final payments.

An increased interim dividend of 1.4p per share (2016: 1.0p) has been declared.

Outlook

The market drivers in many of the Group's businesses are starting to look more favourable although in many cases this is translating only slowly into growing markets for our products. In the case of oil & gas however, there is a clearly improving trend. In addition, across our businesses, progress made in new product development and market share gains remains a driver of revenue which, combined with a well-controlled cost base, is improving profitability.

As a result of our actions, we expect the results for the year to be above previous expectations at the operating profit level with a further benefit to earnings from a lower tax rate in the current financial year.

Forward-looking statements

Certain statements contained in this Report, in particular the Outlook statement, 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, the commodity markets, general economic conditions and the business environment.

Consolidated income statement                                         

for the half year ended 28 February 2017 (unaudited)

Consolidated statement of comprehensive income

for the half year ended 28 February 2017 (unaudited)

Consolidated balance sheet

at 28 February 2017 (unaudited)

Consolidated cash flow statement

for the half year ended 28 February 2017 (unaudited)