TIDMFENR
RNS Number : 8591S
Fenner PLC
13 November 2013
13 November 2013
Fenner PLC
2013 Full Year Results
Fenner PLC, a world leader in reinforced polymer technology,
today announces its results for the year ended 31 August 2013.
Highlights
2013 2012
------------------------------------- ---------- ----------
Revenue GBP820.6m GBP830.6m
Underlying operating profit 1 GBP101.5m GBP118.8m
Net cash from operations GBP126.5m GBP127.1m
Underlying profit before taxation 2 GBP86.9m GBP103.9m
Profit before taxation GBP67.9m GBP88.6m
Underlying earnings per share 2,3 30.1p 36.1p
Dividend per share 11.25p 10.5p
------------------------------------- ---------- ----------
1 Underlying operating profit is before amortisation of intangible assets acquired
2 Underlying profit before taxation and underlying earnings per
share are before amortisation of intangible assets acquired and
notional interest
3 Underlying earnings per share is based on the basic weighted average number of shares in issue
-- Group financial performance recovered strongly in the second half
-- Record revenues and profit performance by Advanced Engineered Products ("AEP")
-- Engineered Conveyor Solutions ("ECS") benefited from cost
reductions and, later in the year, signs of improvement in trading
conditions
-- Investment during the year of GBP90m to support future growth
-- Net cash from operations of GBP126.5m, representing 125% of underlying operating profit
-- Dividend per share increased by 7%, reflecting confidence in
the Group's prospects and strong financial position
-- Continue to expect a return to growth in the current year
Nicholas Hobson, Chief Executive Officer, commented:
"Our performance throughout the year reflects the strength and
resilience of the businesses we have built, with AEP achieving
record annual revenues and profit. The first half of the financial
year saw a robust response by both ECS and AEP to difficult trading
conditions in certain key markets. Our financial performance
recovered strongly in the second half of the year as conditions
showed some signs of improvement.
Fenner is well positioned as we enter our 2014 financial year,
with the benefit of the investments made in both divisions over
recent years, a strong financial position and a mixed but generally
improving global economic environment. Overall, we continue to
expect that the current financial year will see a return to
growth."
There will be a live audio webcast of the results presentation
with Nicholas Hobson, Chief Executive Officer and Richard Perry,
Group Finance Director. A recording of the presentation will be
made available on the Group's website www.fenner.com later in the
day.
For further information please contact:
Fenner PLC
Nicholas Hobson, Chief Executive today: 020 7067 0700
Officer thereafter: 01482 626501
Richard Perry, Group Finance Director
Weber Shandwick Financial
Nick Oborne / Stephanie Badjonat 020 7067 0700
Operating Review
OVERVIEW
The overall result for the year was, in terms of revenue,
operating profit and earnings, the second highest achieved by the
Group and was in line with the Board's expectations at the
mid-point of the year.
Revenue was GBP820.6m (2012: GBP830.6m), underlying operating
profit was GBP101.5m (2012: GBP118.8m), underlying profit before
taxation was GBP86.9m (2012: GBP103.9m) and underlying earnings per
share was 30.1p (2012: 36.1p).
Our performance throughout the year reflects the strength and
resilience of the businesses we have built, with AEP achieving
record annual revenues and profit. The first half of the financial
year saw a robust response by both ECS and AEP to difficult trading
conditions in certain key markets. Our financial performance
recovered strongly in the second half of the year as conditions
showed some signs of improvement.
Strong cash generation was also a feature of the year. Net cash
from operations was GBP126.5m, representing 125% of underlying
operating profit. Despite capital expenditure of GBP27.3m and
GBP62.5m spent on acquisitions, net debt at the year end increased
only moderately to GBP121.1m (2012: GBP97.7m).
ECONOMIC BACKGROUND
While the slow recovery in global growth continued throughout
the year under review, economic conditions during 2013 were
affected by lower than expected growth in emerging economies. In
China, which is the principal global driver of commodity demand,
weaker trade and soft manufacturing activity pulled economic growth
rates slightly below expectations, creating uncertainty over
commodity demand. However, with employment and income remaining
resilient, the Chinese government had room to continue structural
reform and, as a result, commodity volumes key to Fenner continued
to grow.
Current global economic forecasts for 2014 are positive, showing
stronger growth as advanced economies continue to recover,
supporting growth in the export driven emerging economies. Current
2014 growth forecasts have improved to 2.0% for advanced economies
and 5.1% for emerging and developing economies (IMF World Economic
Outlook, October 2013).
SEGMENTAL ANALYSIS
Engineered Advanced
Conveyor Engineered Unallocated
Solutions Products Corporate Total
-------------- -------------- ---------------- --------------
2013 2012 2013 2012 2013 2012 2013 2012
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- ------ ------ ------ ------ ------- ------- ------ ------
Revenue 549.8 593.4 270.8 237.2 - - 820.6 830.6
Underlying operating
profit 63.0 84.4 46.8 43.6 (8.3) (9.2) 101.5 118.8
Operating margin 11.5% 14.2% 17.3% 18.4% 12.4% 14.3%
ENGINEERED CONVEYOR SOLUTIONS
In 2013, ECS generated revenue of GBP549.8m (2012: GBP593.4m)
and underlying operating profit of GBP63.0m (2012: GBP84.4m). As in
previous years, the largest region by revenue was the Americas,
principally the USA, which accounted for 42% of the division's
revenue (2012: 44%), followed by Asia Pacific, principally
Australia, with 41% (2012: 38%).
ECS's results for the year were below those of the record
achieved in 2012 as the mining industries in the USA and then
subsequently in Australia saw markedly weaker trading environments
than in recent years, with lower commodity prices impacting
sentiment amongst ECS's customers. In the face of lower demand for
our conveyor belting and related services, we acted promptly to
reduce manned capacity and overhead costs. However, by the end of
the year, ECS's trading conditions in the USA had shown some signs
of recovery and, in Australia, conditions appeared to be
stabilising. In other regions, demand was generally stronger
throughout the year.
Americas
The USA is the largest market for ECS. In the last quarter of
the 2012 financial year, we saw markedly lower order intake as
exceptionally low prices for natural gas caused some short-term
switching away from coal as a source of energy for electricity
generation. Overall demand for electricity also reduced due to
economic uncertainty and subsequent milder winter weather.
ECS's order intake started to show some improvement from the
start of 2013 as natural gas prices rose and maintained levels
above those at which key US coal producing areas regained their
competitiveness in the supply of fuel for power generation. The
recovery in demand for coal for use in power generation was
assisted by generally improving economic conditions across the
USA.
Against this background, ECS's financial performance in the USA
in 2013 was behind the exceptional result achieved in 2012 but,
with the recovering trading conditions, relative performance
improved as the year progressed. Measures taken to reduce costs
helped to offset the impact on operating margins from lower
volumes.
Our business in Chile, which is focused on the buoyant copper
industry, performed well and continued to develop; we now have over
150 service engineers in place. With the expectation of continued
further growth in global demand for copper, we see considerable
potential for this region in the future.
Asia Pacific
ECS's business in Asia Pacific is predominantly located in
Australia, where ECS's customers are some of the largest and lowest
cost producers of thermal coal, metallurgical coal and iron
ore.
In Australia, the first quarter of the financial year saw a
continuation of the strong trading environment from the previous
year. However, from the second quarter onwards, prices of iron ore
and coal began to fall. Although volumes, particularly of iron ore,
remained strong, these price falls reduced profitability and
damaged the sentiment of our mining customers who responded by
seeking to reduce their operating costs and expenditure.
The immediate impact on our ECS business was a reduction in
demand for our products as miners deferred planned maintenance such
as belt renewals, even though this carried with it the increased
risk of failures at their facilities. There was a less pronounced
fall in demand for our services as miners increasingly sought to
"make do and mend", which helped to maintain the overall
performance of our business at this time, endorsing our focus on
the aftermarket.
As the year progressed, we increasingly worked with our mining
customers to help them achieve the cost reductions needed to enable
them to operate profitably in a lower price environment. This
included, for example, value engineering belt for less demanding
applications. As part of this process and in common with other
suppliers, we also agreed to certain price reductions, the impact
of which amounted to low, single digit percentages across the
Australian business as a whole, which we believe were appropriate
in the exceptional market conditions in order to maintain our
market leading position in the Australian mining industry. Through
careful management of our own costs, we were able to reduce the
impact of these price reductions on our own financial
performance.
Despite the commodity price falls, for most of the year, the
volume of iron ore and coal mined in Australia continued to grow.
Our products and services are critical to miners' ability to ship
the material extracted. By the end of the financial year, there was
some cautious resumption of expenditures deferred from earlier on
in the year.
In November 2012, we acquired Australian Conveyor Engineering
("ACE"). Services and non-belt products are important parts of our
business in Australia, accounting for around one-half of revenue,
and this acquisition has increased our ability to provide our
customers in Australia with a complete service offering.
We successfully commissioned the expansion of our Kwinana plant
in Western Australia. We believe that, over its life, this facility
will generate significant returns for shareholders.
We have continued to develop our presence in the growth
economies of India and China. In India, coal mining continues to
grow, although at a slower rate than some previous projections. In
China, the coal market has been characterised by excess supply and
falling coal prices which has led to many mine closures. In both
countries, the market for belting is competitive, with a large
number of local manufacturers producing low quality belt with a
considerable emphasis on price rather than the belt's performance
characteristics. We have been successful in extending and
maintaining our position as a supplier of high-performance belt for
certain critical applications.
Europe, Middle East & Africa
Overall, the outcome for the year was very pleasing, with
revenue from new customers and markets offsetting declines in our
more traditional markets and with margins showing a noticeable
improvement.
We experienced lower volumes in western and southern European
markets, caused by the continuing decline of coal mining in these
regions and generally unfavourable conditions in the construction
industry. These were offset by progress in export markets,
particularly in Africa and the Middle East, which was supported by
the opening of new service units in Dubai and Ghana.
In southern Africa, ECS continued to supply solid woven belt to
the domestic coal mining industry. Progress was also made in
increasing sales of steel cord belt to iron ore mines and expanding
the service offering.
A principal event of the year was the successful commissioning
of the steel cord belt plant in the Netherlands. This greatly
enhances our ability to serve customers outside our core markets of
the USA and Australia with a full range of heavyweight belts.
ADVANCED ENGINEERED PRODUCTS
In 2013, AEP generated record results with revenue of GBP270.8m
(2012: GBP237.2m) and underlying operating profit of GBP46.8m
(2012: GBP43.6m).
A particular feature of the year's result is that customers in
the oil & gas and medical industries accounted for 40% of AEP's
revenue (2012: 33%); we believe that these industries offer
superior growth and margin opportunities and we will continue to
invest in them.
The full year result reflects contrasting performances between
the first and second halves of the year. The first half of the year
saw general economic concerns in the USA, the division's principal
market. The US government's fiscal position and the overall pace of
economic recovery led to channel destocking amongst AEP's
distributors and end-user customers. This resulted in a half year
financial result which was behind that achieved in the first half
of 2012.
The division saw an improvement in trading conditions during the
second half of the year as the economic outlook in the USA
generally improved. When combined with measures taken to strengthen
the business, this led to a much improved financial performance.
Underlying operating profit for the second half was a record
GBP27.7m, compared to GBP19.1m in the first half. The underlying
operating margin in the second half was 19.1%.
At the beginning of the year, AEP made three acquisitions, all
of which have been successfully integrated and have performed ahead
of our expectations.
AEP is organised into three product groups: Fenner Advanced
Sealing Technologies; Precision Polymers; and Solesis Medical.
Fenner Advanced Sealing Technologies
Fenner Advanced Sealing Technologies ("FAST") designs and
manufactures performance-critical seals for original equipment
manufacturers ("OEMs") and for aftermarket applications in the oil
& gas, construction and mining equipment and other
industries.
During the first half of the year, there was reduced demand from
customers in the oil & gas industry, particularly as the
drilling of conventional gas wells was reduced by lower gas prices.
In addition, there was reduced demand for Hallite's seals from OEMs
located in the USA, partly reflecting conditions in export markets.
Trading subsequently recovered, particularly in relation to the oil
& gas industry, and FAST made a significant contribution to the
improvement in AEP's financial results in the second half of the
year.
The acquisition of Norwegian Seals has given us access to
additional subsea oil and gas technology and, together with our
existing presence in the USA and Singapore, extends our coverage of
subsea customers globally. We acquired American Industrial Plastics
to extend our precision machining capabilities to serve both the
oil & gas and medical device markets.
Precision Polymers
Precision Polymers comprises: Fenner Precision, which supplies
bespoke belts and similar components for office equipment; Fenner
Drives, which supplies belts and related components for power
transmission applications; James Dawson, which manufactures high
performance hoses for heavy-duty diesel engines; and Mandals, which
was acquired in September 2012 and which manufactures lay-flat
hoses for applications including "fracking".
Precision Polymers generated revenue and operating profit which
were appreciably ahead of the previous year. Mandals had a
particularly successful year, with a significant increase in demand
from oilfield operators for hoses for use in fracking applications
in the USA and Canada. The industry is switching from rigid pipes
to lay-flat hoses, which offer considerable advantages in terms of
ease of transportation and laying and in which field Mandals is a
market leader. As a result, Mandals achieved a financial outcome
for the year well ahead of expectations at the time it was acquired
and we have commenced expansion of Mandals' plant in Norway to meet
future demand.
Fenner Precision and Fenner Drives both experienced soft demand
for their products for most of the year, reflecting conditions
amongst their OEM customers, although some improvement was apparent
in the later months. James Dawson saw lower demand for hoses used
in large diesel engines for use in applications such as mining
equipment, although this situation improved through the second
half.
Solesis Medical
Solesis Medical comprises: Secant Medical, which manufactures
textile components for permanently implanted medical devices; and
Xeridiem, which manufactures complete, single use disposable
devices, mainly used for enteral feeding. Both businesses are
located in the USA and primarily sell to customers located
there.
We believe that both businesses serve segments of the medical
market which, with progressively ageing and sedentary populations
in the USA and other developed nations, are likely to offer
superior growth.
Secant is continuing to develop a strong pipeline of products
which are expected to reach the market in the next few years. A
number of existing products are currently being marketed and are
expected to achieve higher volumes in the future. However, Secant's
performance in 2013 was impacted by a customer's vertical
integration of a production process and another customer facing a
significant delay in obtaining Federal Drugs Administration
approval.
Xeridiem saw a much improved financial performance as revenues
from device sales and development activities increased.
HEALTH AND SAFETY
The Group has an overriding commitment to provide a safe and
secure working environment which extends beyond our employees to
employees of other companies working on our behalf as well as to
customers, visitors and neighbours who may be affected by our
activities. Accordingly, the Board would like to extend its thanks
to all those involved in reducing the lost time incident frequency
rate by 37% to 1.08 incidents for every 200,000 hours worked and
specifically employees on our Houston sites who passed 1,000,000
hours without incident in August.
Fenner promotes health and safety as a key element in the
culture of each of its operations. The Health & Safety
Management System Framework ("The Framework") provides structure
and guidance to all operations, irrespective of size, to deliver
continuous improvement within our unique culture of autonomy with
accountability.
Providing services at customer facilities is a growing part of
our business. Often these customers demand sound health and safety
management systems. For such customers, The Framework, our health
and safety management systems and the associated training are a
significant and unique selling proposition.
SHAREHOLDER VALUE AND DIVIDEND
The Board is committed to the generation of long-term value for
Fenner shareholders and, in order to achieve this, will continue to
invest in the development of both ECS and AEP.
Acquisitions have always been an important part of the Fenner
growth strategy. During the year, we acquired four businesses,
financed out of internally generated cash flow. These acquisitions
have so far produced an aggregate return well ahead of expectations
and we see exciting potential for their future growth. The Board
will support the making of further acquisitions where they will
allow the Group to enter new territories or acquire new technology
more expediently than could be done organically and providing that
they are expected to generate value for shareholders.
The Board believes that an important component of shareholder
value is the dividend paid to the Company's shareholders. In
recognition of the Group's prospects and its strong financial
position, the Board is recommending an increased final dividend of
7.5p per share (2012: 7.0p), which gives a total dividend for the
year of 11.25p (2012: 10.5p), an increase of 7%.
The final dividend will be voted on by shareholders at the
Company's Annual General Meeting to be held on 15 January 2014.
OUTLOOK
Fenner is well positioned as we enter our 2014 financial year,
with the benefit of the investments made in both divisions over
recent years, a strong financial position and a mixed but generally
improving global economic environment.
Against a background of increasing global mineral extraction
tonnages, sentiment amongst our mining customers in Australia and
the USA is gradually improving as they seek to optimise the
operating efficiency of their existing installed capacity, assisted
in the case of Australia by a weaker currency. As a supplier of
mining consumables and services, our ECS division expects to
benefit from the industry's cautious return to more normal
maintenance and replacement practices.
As we continue with the strategic development of our ECS
division towards emerging markets and hard rock mining, we expect
to make further progress in Latin America, Africa and the Middle
East.
AEP entered the 2014 financial year with a positive trading
momentum in all of its businesses, assisted by signs of continued,
steady economic improvement in the USA. We have targeted the oil
& gas and medical markets as offering growth opportunities and
AEP's businesses serving these segments remain well positioned to
out-perform.
We intend to continue to invest in the future of the Group.
Human capital and knowledge are vital to our success, particularly
in AEP and higher revenue investment in these areas is planned. We
also expect capital expenditure in 2014 to be slightly ahead of
2013. We will pursue value-accretive acquisition opportunities,
which we see as being more likely in AEP.
Overall, we continue to expect that the current financial year
will see a return to growth.
Finance Review
REVENUE AND OPERATING PROFIT
Group revenue marginally decreased to GBP820.6m (2012:
GBP830.6m). The favourable translation effect of exchange rate
movements was negligible, at GBP0.8m, despite the weakening of the
Australian dollar in the latter part of our financial year. The
effect of acquisitions completed in the year contributed GBP63.3m,
which mitigated the effect of the softer activity levels in
existing businesses.
In the ECS division, revenue decreased by 7% to GBP549.8m (2012:
GBP593.4m) and in the AEP division, revenue increased by 14% to
GBP270.8m (2012: GBP237.2m).
ECS AEP Total
GBPm GBPm GBPm
-------------------------------------------- ------- ------ ------
Revenue in 2012 593.4 237.2 830.6
Exchange rate movements (1.4) 2.2 0.8
-------------------------------------------- ------- ------ ------
Revenue in 2012 at constant exchange rates 592.0 239.4 831.4
-------------------------------------------- ------- ------ ------
Revenue in 2013 before acquisitions 531.6 225.7 757.3
Acquisitions 18.2 45.1 63.3
-------------------------------------------- ------- ------ ------
Revenue in 2013 549.8 270.8 820.6
-------------------------------------------- ------- ------ ------
Underlying operating profit decreased by 15% to GBP101.5m (2012:
GBP118.8m). The favourable translation effect of exchange rate
movements amounted to GBP0.4m. The effect of acquisition activity
contributed GBP12.3m.
Divisional profits contributed were GBP63.0m (2012: GBP84.4m)
from the ECS division and GBP46.8m (2012: GBP43.6m) from the AEP
division.
ECS AEP Corporate Total
GBPm GBPm GBPm GBPm
------------------------------------- ------- ------ ---------- ------
Underlying operating profit in 2012 84.4 43.6 (9.2) 118.8
Exchange rate movements (0.2) 0.6 - 0.4
------------------------------------- ------- ------ ---------- ------
Underlying operating profit in 2012
at constant exchange rates 84.2 44.2 (9.2) 119.2
------------------------------------- ------- ------ ---------- ------
Underlying operating profit in 2013 61.4 36.1 (8.3) 89.2
before acquisitions
Acquisitions 1.6 10.7 - 12.3
------------------------------------- ------- ------ ---------- ------
Underlying operating profit in 2013 63.0 46.8 (8.3) 101.5
------------------------------------- ------- ------ ---------- ------
Amortisation of intangible assets acquired increased to GBP16.0m
(2012: GBP11.2m), principally due to acquisition activity.
Group operating profit decreased by 21% to GBP85.5m (2012:
GBP107.6m).
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 Group's US dollar private placement loan notes total $290m
(GBP187.1m). These mature between 2017 and 2023 and bear fixed
interest rates averaging 5.4%. The Group also has GBP0.4m of US
Industrial Revenue Bonds.
The committed bank facilities, which total GBP100m, are
multi-currency revolving credit agreements. They comprise GBP80m
with a club of four major UK based banks and a further bilateral
facility of GBP20m with one of the banks. Both facilities mature in
April 2017.
The Group's total committed loan facilities at 31 August 2013
were GBP287.5m (2012: GBP305.7m). At 31 August 2013, GBP71.0m
(2012: GBP106.2m) of these facilities were not drawn down.
Uncommitted facilities were in excess of GBP35m.
The principal financial covenants relating to the committed loan
facilities are the ratio of net debt to EBITDA and interest cover
for EBITDA. Net debt must be less than 3.5 times adjusted 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. Net debt
to reported EBITDA was 0.9 times (2012: 0.7 times). Reported EBITDA
interest cover was 8.8 times (2012: 9.4 times).
The private placements and bank facilities provide the Group
with a diversified range of committed loan facilities, with a
medium and long-term maturity profile. The Group remains well
placed to fund and support its operations with continuing access to
medium and long-term debt finance, cash resources and, where
necessary, shorter-term facilities.
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.
NET FINANCE COSTS
Finance costs, net of finance income, reduced by GBP1.4m to
GBP17.6m (2012: GBP19.0m).
2013 2012
GBPm GBPm
---------------------------- --- --- ------- -------
Fixed rate debt (1) 11.1 11.2
Floating rate debt (2) 3.7 3.8
Loan and commitment 0.4 0.6
fees
Less: interest receivable (0.6) (0.7)
---------------------------- --- --- ------- -------
Net interest payable 14.6 14.9
Notional interest 3.0 4.1
---------------------------- --- --- ------- -------
17.6 19.0
------------------------------------ ------- -------
(1) Including the cost of long-term cross-currency swaps.
(2) Including the cost of shorter-term cross-currency swaps.
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 net borrowings were
substantially higher than at the year end. Free cash flow is
stronger in the second half and much of the expenditure on
acquisitions arose in the early part of the year. In addition, the
global nature of the Group leads to some territories requiring debt
funding while in others, cash balances arise, in part supporting
the hedging of net investments in foreign currencies. The private
placement notes are fully drawn down and used to fund or hedge
Group operations, partly through the use of swaps.
Notional interest comprises amounts related to defined benefit
post-retirement schemes of GBP0.3m (2012: GBP0.4m), amounts in
respect of acquisitions, including unwinding of the discount on
deferred payments as well as revisions to estimates of the
redemption liability on the purchase of non-controlling interests,
totalling GBP2.6m (2012: GBP3.2m) and a charge of GBP0.1m (2012:
GBP0.5m) relating to other loans.
TAXATION
The underlying tax rate for the year was 28.8% (2012: 29.3%),
being the rate on the profit before amortisation of intangible
assets acquired and notional interest. The tax rate for the year
was 27.5% (2012: 29.6%). This tax 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.
The tax rate is higher than the UK statutory corporation tax
rate (currently 23.6% as applied to the profits for our financial
year) as most of the Group's profits are made outside the UK in
territories where the tax rate is higher. A high proportion of
group profits are generated in the USA, where tax rates including
local state taxes are in excess of 35%.
EARNINGS PER SHARE
Underlying earnings per share was 30.1p (2012: 36.1p) and basic
earnings per share was 23.5p (2012: 30.3p).
DIVIDENDS
The interim dividend of 3.75p per share (2012: 3.5p) was paid on
6 September 2013. The Board is recommending a final dividend of
7.5p per share (2012: 7.0p) to make a total dividend for the year
of 11.25p per share (2012: 10.5p). If approved by shareholders, the
final dividend will be paid on 7 March 2014 to shareholders on the
register on 13 January 2014.
The total dividend represents a distribution of 37% (2012: 29%)
of underlying earnings.
ACQUISITIONS
The Group completed four acquisitions during the financial year.
The Group acquired these businesses with a combination of initial
payments, deferred amounts and contingent deferred amounts.
Deferred amounts are payable after an appropriate time has elapsed
in relation to the seller's contractual representations and
warranties period. Contingent deferred amounts are the estimated
amounts payable based upon the future growth in performance of the
acquired business. Initial payments, net of debt acquired, amounted
to GBP54.1m, deferred amounts are GBP3.8m and contingent deferred
amounts are estimated at GBP13.0m. From the dates of their
respective acquisitions until the end of the financial year, the
acquired businesses contributed GBP12.3m to underlying operating
profit which represents a 22.7% return on the initial payments.
On 1 September 2012, the Group completed the acquisition of
substantially all of the assets and liabilities of American
Industrial Plastics ("AIP"), based in Florida, USA. AIP is a
precision machining company with the ability to machine advanced
polymers for application in the oil & gas and medical markets
as well as manufacturing performance precision components for a
range of niche applications including aerospace. The initial cash
consideration was GBP16.7m with contingent deferred amounts
estimated at GBP7.2m.
On 3 September 2012, the Group completed the acquisition of 100%
of the share capital of Norwegian Seals, which has operations in
Norway and the UK. Norwegian Seals manufactures and distributes
performance-critical seals into the oil & gas market. This
acquisition has increased FAST's presence in the North Sea market
and is enabling Norwegian Seals to build its growing industry
reputation and presence in new markets. The initial cash
consideration, net of debt acquired, was GBP11.8m with deferred
amounts of GBP3.8m.
On 3 September 2012, the Group completed the acquisition of 100%
of the share capital of Mandals, principally based in Norway with a
smaller facility in Sweden. Mandals is a leading manufacturer of
innovative lay-flat and speciality hoses for use in demanding
applications including in the exploitation of shale gas reserves,
where its products have important cost and logistical advantages
over traditional pipes. The cash consideration, net of debt
acquired, was GBP11.6m.
On 30 November 2012, the Group completed the acquisition of 100%
of the share capital of Australian Conveyor Engineering Pty Limited
("ACE"), based in New South Wales, Australia. ACE specialises in
supplying engineered conveyor solutions for the design, manufacture
and installation of high capacity conveyor systems for both surface
and underground mining. The acquisition has enhanced Fenner
Dunlop's service offering to mining customers, initially in
Australia, with the expectation of this being rolled out elsewhere
in the future. The initial cash consideration, net of debt
acquired, was GBP14.0m with contingent deferred amounts estimated
at GBP5.8m.
All amounts above are based on exchange rates at the dates of
completion.
Contingent and deferred consideration payments made during the
year which related to prior year acquisitions amounted to
GBP8.4m.
Further disclosures of acquisitions are given in note 16.
DISPOSALS
On 29 April 2013, the Group sold Svenska Brandslangfabriken AB,
a non-core business in Sweden, which was acquired as part of the
Mandals businesses on 3 September 2012. Net cash proceeds were
GBP4.5m and the profit on disposal amounted to GBP2.7m.
Further disclosures are provided in note 17.
CASH FLOW AND NET DEBT
The table below summarises the cash flows giving rise to the
movement in net debt.
2013 2012
GBPm GBPm
-------------------------- --- --- -------- ---------
Net cash from operations 126.5 127.1
Taxation paid (24.5) (23.5)
-------------------------- --- --- -------- ---------
Net cash from operating 102.0 103.6
activities
Net capital expenditure (27.0) (28.3)
Net interest paid (14.9) (12.3)
-------------------------- --- --- -------- ---------
Free cash flow 60.1 63.0
Acquisitions (62.5) (34.3)
Disposals 4.5 -
Dividends (23.6) (18.0)
-------------------------- --- --- -------- ---------
Cash (absorption) / (21.5) 10.7
generation
Exchange movements (0.4) (4.7)
Other movements (1.5) (1.9)
-------------------------- --- --- -------- ---------
Movement in net debt (23.4) 4.1
Opening net debt (97.7) (101.8)
-------------------------- --- --- -------- ---------
Closing net debt (121.1) (97.7)
------------------------------------ -------- ---------
Net cash from operations was GBP126.5m (2012: GBP127.1m) and net
cash generated from operating activities was GBP102.0m (2012:
GBP103.6m). This was a strong performance given the reduction in
underlying operating profit and included a reduction of GBP6.4m
(2012: GBP8.3m absorption) in working capital. Net capital
expenditure was GBP27.0m (2012: GBP28.3m). Three projects to
increase the manufacturing capability of our ECS operations in
Australia, the Netherlands and China were completed and there was
further investment in our AEP operations, including capacity
expansion at Mandals in Norway and Secant Medical in the USA to
meet the needs of our customers. Net interest paid was GBP14.9m
(2012: GBP12.3m). The resultant free cash inflow of GBP60.1m (2012:
GBP63.0m) facilitated the Group's acquisitive expansion.
The net cash outflow on acquisitions, net of debt acquired, and
disposal activity was GBP58.0m (2012: GBP34.3m), of which GBP8.4m
(2012: GBP11.5m) related to deferred and contingent amounts on
prior year acquisitions. Dividends paid increased to GBP23.6m
(2012: GBP18.0m). The resultant cash absorption was GBP21.5m (2012:
GBP10.7m generation).
After adverse exchange rate movements of GBP0.4m (2012: GBP4.7m)
and other increases in debt of GBP1.5m (2012: GBP1.9m), closing net
debt increased by GBP23.4m to GBP121.1m (2012: GBP97.7m).
Gross debt amounted to GBP220.3m (2012: GBP206.4m) while cash
and cash equivalents were GBP99.2m (2012: GBP108.7m).
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 2013 and 2012 were as follows:
US$ AUD$ Euro
------ ----- ----- -----
2013 1.56 1.56 1.19
2012 1.58 1.53 1.21
------ ----- ----- -----
Translation of the Group results for 2013 at exchange rates
ruling at 31 October 2013 (US$ = 1.61, AUD$ = 1.70 and Euro = 1.18)
would have reduced underlying operating profit by GBP4.5m to
GBP97.0m compared to the actual reported outturn of GBP101.5m.
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 EUR20.0m 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 the euro 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.
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.
RETURN ON GROSS CAPITAL EMPLOYED
The return on gross capital employed has decreased to 18.9%
(2012: 24.0%) largely due to the reduction in underlying operating
profit from the record level achieved in 2012.
POST-RETIREMENT BENEFITS
The Group operates a number of defined benefit post-retirement
schemes for qualifying employees in operations around the
world.
The principal scheme is the Fenner Pension Scheme which is based
in the UK and was closed to new entrants in 1997. The latest formal
actuarial valuation of the scheme by a qualified actuary was
carried out as at 31 March 2011.
The total defined benefit post-retirement deficit, as calculated
by the schemes' actuaries in accordance with IAS 19 'Employee
Benefits' and recorded on the balance sheet at 31 August 2013,
decreased to GBP26.8m (2012: GBP48.2m). The decrease was
principally due to a reduction in the deficit of the Fenner Pension
Scheme to GBP16.2m (2012: GBP35.9m). The deficit of overseas
schemes totalled GBP10.6m (2012: GBP12.3m).
During the year, the fair value of assets of the schemes
increased by GBP19.3m (2012: increased by GBP11.4m), principally
generated from actuarial gains in the Fenner Pension Scheme's
equity investments and additional Group contributions paid to
reduce the deficit. The present value of obligations reduced by
GBP2.2m (2012: increased by GBP27.8m).
For the year ending 31 August 2014, the Group is required to
adopt IAS 19 (Revised) 'Employee Benefits'. The impact of the
revised standard on the year ended 31 August 2013 would have
increased finance costs and reduced profit before taxation by
GBP1.5m, principally due to the new requirement for the expected
return on assets to be calculated by applying the corporate bond
yield discount rate to pension assets. It is expected that net
assets at 31 August 2013 would have increased by GBP1.2m,
principally due to the removal of an allowance within obligations,
representing the capitalised value of future expenses relating to
benefits already accrued.
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.
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, growth in
the commodity markets, general economic conditions and the business
environment.
Consolidated income statement
for the year ended 31 August 2013
2013 2012
Notes GBPm GBPm
---------------------------------------------------- ------ -------- --------
Revenue 820.6 830.6
Cost of sales (558.4) (557.9)
Gross profit 262.2 272.7
Distribution costs (64.3) (64.7)
Administrative expenses (112.4) (100.4)
Operating profit before amortisation of intangible
assets acquired 101.5 118.8
Amortisation of intangible assets acquired (16.0) (11.2)
Operating profit 85.5 107.6
Finance income 4 0.6 0.7
Finance costs 5 (18.2) (19.7)
Profit before taxation 67.9 88.6
Taxation 6 (18.7) (26.2)
Profit for the year 49.2 62.4
Attributable to:
Owners of the parent 45.6 58.6
Non-controlling interests 3.6 3.8
49.2 62.4
Earnings per share
Basic 8 23.5p 30.3p
Diluted 8 23.5p 30.2p
Consolidated statement of comprehensive income
for the year ended 31 August 2013
2013 2012
GBPm GBPm
------------------------------------------------------------- ------ -------
Profit for the year 49.2 62.4
Other comprehensive income/(expense):
Items that will not be reclassified subsequently
to profit or loss
Actuarial gains/(losses) on defined benefit post-retirement
schemes 17.1 (21.1)
Tax on items that will not be reclassified (4.2) 4.6
12.9 (16.5)
Items that may be reclassified subsequently to profit
or loss
Currency translation differences (9.8) (3.2)
Cash flow hedges 1.2 (0.2)
Net investment hedges 2.6 3.2
Tax on items that may be reclassified (0.8) (0.7)
(6.8) (0.9)
Total other comprehensive income/(expense) for
the year 6.1 (17.4)
Total comprehensive income for the year 55.3 45.0
Attributable to:
Owners of the parent 53.5 41.4
Non-controlling interests 1.8 3.6
55.3 45.0
Consolidated balance sheet
at 31 August 2013
2013 2012
Notes GBPm GBPm
---------------------------------- ------ -------- --------
Non-current assets
Property, plant and equipment 9 220.4 215.4
Intangible assets 10 262.7 221.4
Deferred tax assets 13.8 20.9
Derivative financial assets 5.7 4.5
502.6 462.2
Current assets
Inventories 91.8 105.6
Trade and other receivables 133.2 120.6
Current tax assets 2.3 0.5
Derivative financial assets 1.3 0.5
Cash and cash equivalents 13 99.2 108.7
327.8 335.9
Total assets 830.4 798.1
Current liabilities
Borrowings 13 (14.4) (11.0)
Trade and other payables (146.5) (147.4)
Current tax liabilities (12.2) (13.6)
Derivative financial liabilities (0.1) -
Provisions 12 (8.9) (9.4)
(182.1) (181.4)
Non-current liabilities
Borrowings 13 (205.9) (195.4)
Trade and other payables (0.7) (2.0)
Retirement benefit obligations 11 (26.8) (48.2)
Provisions 12 (37.3) (28.8)
Deferred tax liabilities (11.9) (8.1)
Derivative financial liabilities (3.8) (5.2)
(286.4) (287.7)
Total liabilities (468.5) (469.1)
Net assets 361.9 329.0
Equity
Share capital 48.5 48.4
Share premium 51.7 51.7
Retained earnings 146.7 107.8
Exchange reserve 31.0 39.0
Hedging reserve 3.0 (0.2)
Merger reserve 65.9 65.9
Shareholders' equity 346.8 312.6
Non-controlling interests 15.1 16.4
Total equity 361.9 329.0
The financial statements were approved by the Board of Directors
on 13 November 2013 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 2013
2013 2012
Notes GBPm GBPm
------------------------------------------------------- ------ ------- -------
Profit before taxation 67.9 88.6
Adjustments for:
Depreciation of property, plant and equipment
and amortisation of intangible assets 39.1 31.4
Impairment of intangible assets 3.9 1.8
Release of deferred consideration on acquisitions - (1.7)
Profit on disposal of businesses (2.7) -
Defined benefit post-retirement costs charged
to operating profit 2.2 1.6
Cash contributions to defined benefit post-retirement
schemes (7.7) (5.8)
Movement in provisions (0.8) (0.3)
Finance income (0.6) (0.7)
Finance costs 18.2 19.7
Other non-cash movements 0.6 0.8
Operating cash flow before movement in working
capital 120.1 135.4
Movement in inventories 20.8 (0.5)
Movement in trade and other receivables (3.1) (0.8)
Movement in trade and other payables (11.3) (7.0)
Net cash from operations 126.5 127.1
Taxation paid (24.5) (23.5)
Net cash from operating activities 102.0 103.6
Investing activities:
Purchase of property, plant and equipment (25.5) (26.4)
Disposal of property, plant and equipment 0.3 0.4
Purchase of intangible assets (1.8) (2.5)
Disposal of intangible assets - 0.2
Acquisition of businesses 16 (58.9) (34.3)
Disposal of businesses 17 4.5 -
Interest received 0.6 0.5
Net cash used in investing activities (80.8) (62.1)
Financing activities:
Dividends paid to Company's shareholders 7 (20.3) (15.4)
Dividends paid to non-controlling interests (3.3) (2.6)
Interest paid (15.5) (12.8)
Repayment of borrowings (14.5) (17.6)
New borrowings 19.8 11.1
Net cash used in financing activities (33.8) (37.3)
Net (decrease)/increase in cash and cash equivalents (12.6) 4.2
Cash and cash equivalents at 1 September 2012 108.7 104.3
Exchange movements 3.0 0.2
Cash and cash equivalents at 31 August 2013 99.1 108.7
Cash and cash equivalents comprises:
Cash and cash equivalents 99.2 108.7
Bank overdrafts (0.1) -
99.1 108.7
Consolidated statement of changes in equity
for the year ended 31 August 2013
Attributable to owners of the parent
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Share Share Retained Exchange Hedging Merger Non-controlling Total
capital premium earnings reserve reserve reserve Total interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- ----------------------------- ------------------------ ----------------------- ------------------------ ------------------------ ------------------------- ------------------------------ ------------------------ ------------------------
At 1 September 2011 48.2 51.7 78.2 42.0 (2.5) 65.9 283.5 18.0 301.5
Profit for the year - - 58.6 - - - 58.6 3.8 62.4
Other comprehensive
income/(expense):
-------------------------------- -------------------- ------------------------ ----------------------- ------------------------ ------------------------ ------------------------- ------------------------------ ------------------------ ------------------------
Currency translation
differences - - - (3.0) - - (3.0) (0.2) (3.2)
Cash flow hedges - - - - (0.2) - (0.2) - (0.2)
Net investment hedges - - - - 3.2 - 3.2 - 3.2
Actuarial losses
on defined benefit
post-retirement
schemes - - (21.1) - - - (21.1) - (21.1)
Tax on other
comprehensive
income - - 4.6 - (0.7) - 3.9 - 3.9
----------------------- ----------------------------- ------------------------ ----------------------- ------------------------ ------------------------ ------------------------- ------------------------------ ------------------------ ------------------------
Total other comprehensive
income/(expense) - - (16.5) (3.0) 2.3 - (17.2) (0.2) (17.4)
Total comprehensive
income for the year - - 42.1 (3.0) 2.3 - 41.4 3.6 45.0
Transactions with owners:
-------------------------------------------- -------- ------------------------ ----------------------- ------------------------ ------------------------ ------------------------- ------------------------------ ------------------------ ------------------------
Dividends paid in
the year - - (15.4) - - - (15.4) (2.6) (18.0)
Shares issued in
the year 0.2 - (0.2) - - - - - -
Share-based payments - - 0.9 - - - 0.9 - 0.9
Acquisition of
businesses - - 1.6 - - - 1.6 (1.8) (0.2)
Tax on transactions
with owners - - 0.6 - - - 0.6 - 0.6
Transfer of
non-controlling
interests to
borrowings - - - - - - - (0.8) (0.8)
---------------------- ------------------------------ ------------------------ ----------------------- ------------------------ ------------------------ ------------------------- ------------------------------ ------------------------ ------------------------
Total transactions
with owners 0.2 - (12.5) - - - (12.3) (5.2) (17.5)
At 1 September 2012 48.4 51.7 107.8 39.0 (0.2) 65.9 312.6 16.4 329.0
Profit for the year - - 45.6 - - - 45.6 3.6 49.2
Other comprehensive
income/(expense):
-------------------------------- -------------------- ------------------------ ----------------------- ------------------------ ------------------------ ------------------------- ------------------------------ ------------------------ ------------------------
Currency translation
differences - - - (8.0) - - (8.0) (1.8) (9.8)
Cash flow hedges - - - - 1.2 - 1.2 - 1.2
Net investment hedges - - - - 2.6 - 2.6 - 2.6
Actuarial gains on
defined benefit
post-retirement
schemes - - 17.1 - - - 17.1 - 17.1
Tax on other
comprehensive
income - - (4.4) - (0.6) - (5.0) - (5.0)
----------------------- ----------------------------- ------------------------ ----------------------- ------------------------ ------------------------ ------------------------- ------------------------------ ------------------------ ------------------------
Total other comprehensive
income/(expense) - - 12.7 (8.0) 3.2 - 7.9 (1.8) 6.1
Total comprehensive
income for the year - - 58.3 (8.0) 3.2 - 53.5 1.8 55.3
Transactions with owners:
-------------------------------------------- -------- ------------------------ ----------------------- ------------------------ ------------------------ ------------------------- ------------------------------ ------------------------ ------------------------
Dividends paid in
the year - - (20.3) - - - (20.3) (3.3) (23.6)
Shares issued in
the year 0.1 - (0.1) - - - - - -
Share-based payments - - 0.7 - - - 0.7 - 0.7
Tax on transactions
with owners - - 0.3 - - - 0.3 - 0.3
Capitalisation of
non-controlling interest - - - - - - - 0.2 0.2
Total transactions
with owners 0.1 - (19.4) - - - (19.3) (3.1) (22.4)
At 31 August 2013 48.5 51.7 146.7 31.0 3.0 65.9 346.8 15.1 361.9
Notes
1. Basis of preparation
The full year results for the year ended 31 August 2013 were
approved by the Board of Directors on 13 November 2013. 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 2013 and 31
August 2012 and given unqualified opinions, which did not include a
statement under Section 498 of the Companies Act 2006. The Group
financial statements for 2012 have been delivered to the Registrar
of Companies and the Group financial statements for 2013 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 IFRS 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
2012. There were no new standards, amendments or interpretations
adopted by the Group and effective for the first time for the
financial year beginning 1 September 2012 that were material to the
Group. The Amendment to IAS 1 'Presentation of Financial
Statements' was adopted for the first time for the financial year
ended 31 August 2013. This requires changes to the presentation of
other comprehensive income on the basis of whether or not the
respective items will be reclassified subsequently to profit or
loss.
A number of new standards, amendments or interpretations are
effective for accounting periods beginning on or after 1 January
2013 and consequently have not yet been applied in preparing the
financial statements. None of these are expected to have a
significant impact on the Group's reported results or financial
position. The main change in 2014 will be the adoption of 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. If this standard had been applied
in preparing the financial statements for the year ended 31 August
2013, the net impact would have been an additional charge of
GBP1.5m to profit before taxation in the income statement and a
GBP1.2m increase in net assets in the balance sheet.
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.
Engineered Manufacture of rubber ply, solid woven and steel cord
Conveyor conveyor belting for mining, power
Solutions generation and industrial applications with complementary
service operations which design, install,
monitor, maintain and operate conveyor systems for mining
and industrial customers.
---------------------- ------------------------------------------------------------------
Advanced Engineered Manufacture of precision polymer products including:
Products - precision drives for computer peripherals, copiers
and ATMs;
- problem-solving power transmission and motion transfer
components;
- silicone and complex hoses for heavy duty trucks, buses
and off-road vehicles;
- lay-flat hoses for firefighting, agriculture, water
and gas industries;
- seals and sealing solutions for the fluid power and
oil & gas industries;
- technical textiles for medical and industrial applications
and silicone-based products for medical applications;
- rollers for digital image processing and medical diagnostics;
and
- fluropolymer components for fluid, oil and gas handling
and medical applications.
---------------------- ------------------------------------------------------------------
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 2013 and 31
August 2012 is as follows:
Engineered Advanced
Conveyor Engineered Unallocated
Solutions Products Corporate Total
------------------ ---------------- ------------------ ------------------
2013 2012 2013 2012 2013 2012 2013 2012
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Segment result
Total segment revenue 549.8 593.4 271.5 239.6 - - 821.3 833.0
Inter-segment revenue - - (0.7) (2.4) - - (0.7) (2.4)
Revenue from external
customers 549.8 593.4 270.8 237.2 - - 820.6 830.6
Operating profit before
amortisation of intangible
assets acquired 63.0 84.4 46.8 43.6 (8.3) (9.2) 101.5 118.8
Amortisation of intangible
assets acquired (8.4) (7.1) (7.6) (4.1) - - (16.0) (11.2)
Operating profit 54.6 77.3 39.2 39.5 (8.3) (9.2) 85.5 107.6
Net finance costs (17.6) (19.0)
Taxation (18.7) (26.2)
Profit for the year 49.2 62.4
Segment assets and liabilities
Total assets 536.3 536.5 272.3 240.6 21.8 21.0 830.4 798.1
Total liabilities (173.4) (188.5) (61.5) (46.8) (233.6) (233.8) (468.5) (469.1)
Net assets 362.9 348.0 210.8 193.8 (211.8) (212.8) 361.9 329.0
4. Finance income
2013 2012
GBPm GBPm
-------------------------- ------ ------
Bank interest receivable 0.6 0.7
5. Finance costs
2013 2012
GBPm GBPm
----------------------------------------------------- ------ ------
Interest payable on bank overdrafts and loans 5.2 4.6
Interest payable on other loans 10.4 11.0
15.6 15.6
Less amounts capitalised on qualifying assets (0.4) -
Interest payable 15.2 15.6
Interest on defined benefit post-retirement schemes 0.3 0.4
Interest on the unwinding of discount on provisions 2.0 1.5
Finance charge on redemption liability 0.6 1.7
Interest on the unwinding of other loans 0.1 0.1
Finance charge on other loans - 0.4
Notional interest 3.0 4.1
Total finance costs 18.2 19.7
6. Taxation
2013 2012
GBPm GBPm
---------------------------------------------------- ------ ------
Current taxation
UK corporation tax:
- current year 1.5 0.6
- double tax relief (0.5) -
- adjustments in respect of prior years (0.2) -
0.8 0.6
Overseas tax:
- current year 19.1 24.0
- adjustments in respect of prior years (0.5) -
18.6 24.0
19.4 24.6
Deferred taxation
Origination and reversal of temporary differences:
UK:
- current year 0.8 1.3
- adjustments in respect of prior years 0.3 (0.2)
Overseas:
- current year (1.5) (0.3)
- adjustments in respect of prior years (0.3) 0.8
(0.7) 1.6
Total taxation 18.7 26.2
7. Dividends
2013 2012
GBPm GBPm
----------------------------------------------------- ------ ------
Dividends paid or approved in the year
Interim dividend for the year ended 31 August 2012
of 3.5p (2011: 2.65p) per share 6.8 5.1
Final dividend for the year ended 31 August 2012 of
7.0p (2011: 5.35p) per share 13.5 10.3
20.3 15.4
Dividends neither paid nor approved in the year
Interim dividend for the year ended 31 August 2013
of 3.75p (2012: 3.5p) per share 7.3 6.8
Final dividend for the year ended 31 August 2013 of
7.5p (2012: 7.0p) per share 14.5 13.5
21.8 20.3
The interim dividend for the year ended 31 August 2013 was paid
on 6 September 2013. The proposed final dividend for the year ended
31 August 2013 is subject to approval by shareholders at the AGM.
Consequently, neither has been recognised as liabilities at 31
August 2013. If approved, the final dividend will be paid on 7
March 2014 to shareholders on the register on 13 January 2014.
8. Earnings per share
2013 2012
GBPm GBPm
Earnings
Profit for the year attributable to owners of the
parent 45.6 58.6
Amortisation of intangible assets acquired 16.0 11.2
Notional interest 3.0 4.1
Taxation attributable to amortisation of intangible
assets acquired and notional interest (6.3) (4.2)
Profit for the year before amortisation of intangible
assets acquired and notional interest 58.3 69.7
number number
Average number of shares
Weighted average number of shares in issue 193,747,256 193,281,396
Weighted average number of shares held by the Employee
Share Ownership Plan Trust (114,177) (114,177)
Weighted average number of shares in issue - basic 193,633,079 193,167,219
Effect of share options and contingent long-term incentive
plans 269,004 1,128,734
Weighted average number of shares in issue - diluted 193,902,083 194,295,953
pence pence
Earnings per share
Underlying - Basic (before amortisation of intangible
assets acquired and notional interest) 30.1 36.1
Underlying - Diluted (before amortisation of intangible
assets acquired and notional interest) 30.1 35.9
Basic 23.5 30.3
Diluted 23.5 30.2
Underlying earnings per share measures have been presented to
provide a clearer understanding of the underlying performance of
the Group.
9. Property, plant and equipment
The increase in property, plant and equipment in the year of
GBP5.0m comprises additions of GBP27.2m and acquisition of
businesses of GBP5.9m less depreciation of GBP22.0m, disposals of
GBP0.6m, disposal of businesses of GBP0.4m and exchange movements
of GBP5.1m.
10. Intangible assets
The increase in intangible assets in the year of GBP41.3m
comprises goodwill and intangible assets acquired on the
acquisition of businesses of GBP67.1m and other additions of
GBP1.8m less amortisation of GBP17.1m, impairments of GBP3.9m,
disposal of businesses of GBP1.3m and exchange movements of
GBP5.3m. The impairment charge principally relates to goodwill and
intangible assets acquired in Fenner Precision (Buffalo) and
Xeridiem and resulted from a reduction in the projected cash flows
in those cash-generating units.
11. Post-retirement benefits
The Group operates a number of defined benefit post-retirement
schemes for qualifying employees in operations around the world.
The assets of the schemes are held in separate trustee-administered
funds. The cost of the schemes are assessed in accordance with the
advice of independent qualified actuaries using the projected unit
method.
The principal scheme is the Fenner Pension Scheme which is based
in the UK and was closed to new entrants in 1997. The most recent
triennial valuation of the Fenner Pension Scheme was carried out as
at 31 March 2011. The actuarial valuations for all schemes were
updated as at 31 August 2013 by independent qualified
actuaries.
Retirement benefit obligations decreased by GBP21.4m in the
year. This principally comprises a decrease in the present value of
obligations of GBP2.2m plus an increase in the fair value of assets
of the schemes of GBP19.3m, primarily generated from actuarial
gains in the Fenner Pension Scheme's equity investments and
additional Group contributions paid to reduce the deficit.
12. Provisions
Contingent
and deferred Redemption
Property consideration liability
and environmental on acquisitions on acquisitions Total
GBPm GBPm GBPm GBPm
------ ------------------- ----------------- ----------------- ------
At 1 September 2012 4.2 19.2 14.8 38.2
Provisions utilised during
the year (0.8) (8.4) - (9.2)
Acquisition of businesses - 17.2 - 17.2
Notional interest on the unwinding
of discount - 0.9 1.1 2.0
Notional finance charge on
redemption liability - - 0.6 0.6
Exchange differences - (0.7) (1.9) (2.6)
At 31 August 2013 3.4 28.2 14.6 46.2
Provisions comprise current provisions of GBP8.9m (2012:
GBP9.4m) and non-current provisions of GBP37.3m (2012:
GBP28.8m).
13. Reconciliation of net cash flow to movement in net debt
2013 2012
GBPm GBPm
------------------------------------------------------- -------- --------
Net (decrease)/increase in cash and cash equivalents (12.6) 4.2
Net (increase)/decrease in borrowings resulting from
cash flows (5.3) 6.5
Movement in net debt resulting from cash flows (17.9) 10.7
Loans and finance leases on acquisition of businesses (3.6) -
Finance leases (1.4) (0.6)
Transfer of non-controlling interests from equity - (0.8)
Notional interest on other loans (0.1) (0.5)
Exchange movements (0.4) (4.7)
Movement in net debt in the year (23.4) 4.1
Net debt at 1 September 2012 (97.7) (101.8)
Net debt at 31 August 2013 (121.1) (97.7)
Net debt comprises cash and cash equivalents of GBP99.2m (2012:
GBP108.7m), current borrowings of GBP14.4m (2012: GBP11.0m) and
non-current borrowings of GBP205.9m (2012: GBP195.4m).
14. 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.
15. 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.
16. Acquisitions
On 1 September 2012, the Group completed the acquisition of
substantially all of the assets and liabilities of American
Industrial Plastics ("AIP"), based in Florida, USA. AIP is a
precision machining company with the ability to machine advanced
polymers for application in the oil & gas and medical markets
as well as manufacturing performance precision components for a
range of niche applications including aerospace. The initial cash
consideration was GBP16.7m with contingent deferred amounts
estimated at GBP7.2m. This is based on an assessment of the
estimated profitability over a two year period and is discounted to
net present value. The range of potential outcomes on an
undiscounted basis is between GBPnil and GBP9.4m.
On 3 September 2012, the Group completed the acquisition of 100%
of the share capital of Norwegian Seals, which has operations in
Norway and the UK. Norwegian Seals manufactures and distributes
performance-critical seals into the oil & gas market. This
acquisition has increased FAST's presence in the North Sea market
and is enabling Norwegian Seals to build its growing industry
reputation and presence in new markets. The initial cash
consideration, net of debt acquired, was GBP11.8m with deferred
amounts of GBP3.8m.
On 3 September 2012, the Group completed the acquisition of 100%
of the share capital of Mandals, principally based in Norway with a
smaller facility in Sweden. Mandals is a leading manufacturer of
innovative lay-flat and speciality hoses for use in demanding
applications including in the exploitation of shale gas reserves,
where its products have important cost and logistical advantages
over traditional pipes. The cash consideration, net of debt
acquired, was GBP11.6m.
On 30 November 2012, the Group completed the acquisition of 100%
of the share capital of Australian Conveyor Engineering Pty Limited
("ACE"), based in New South Wales, Australia. ACE specialises in
supplying engineered conveyor solutions for the design, manufacture
and installation of high capacity conveyor systems for both surface
and underground mining. The acquisition has enhanced Fenner
Dunlop's service offering to mining customers, initially in
Australia, with the expectation of this being rolled out elsewhere
in the future. The initial cash consideration, net of debt
acquired, was GBP14.0m with contingent deferred amounts estimated
at GBP5.8m. This is based on an assessment of the estimated
profitability over a three year period and is discounted to net
present value. The range of potential outcomes on an undiscounted
basis is between GBPnil and GBP12.6m.
Details of the provisional aggregate assets and liabilities
acquired, based on exchange rates at the dates of completion, are
given below.
Prior
Current year
year acquisitions acquisitions Total
------------------- ----------------- ----------------
Contingent Provisional
Provisional and deferred fair
fair value consideration value
GBPm GBPm GBPm
--------------------------------------- ------------ ------------------- ----------------- ----------------
Property, plant and equipment 5.9 - 5.9
Goodwill 23.5 0.4 23.9
Intangible assets acquired:
- customer relationships 35.9 - 35.9
- non-compete agreements 5.2 - 5.2
- brands and trademarks 2.1 - 2.1
Inventories 6.7 - 6.7
Trade and other receivables 11.3 - 11.3
Cash and cash equivalents 5.2 - 5.2
Bank loans (1.5) - (1.5)
Finance leases (2.1) - (2.1)
Trade and other payables (9.5) - (9.5)
Current taxation (2.1) - (2.1)
Deferred taxation (8.1) - (8.1)
Total net assets 72.5 0.4 72.9
Consideration:
Cash consideration 55.7 8.4 64.1
Contingent and deferred consideration
held as provisions:
- new provisions in the year 16.8 0.4 17.2
- utilisation of provisions - (8.4) (8.4)
72.5 0.4 72.9
The effect on the cash flow statement and net debt is
as follows:
Cash consideration 55.7 8.4 64.1
Cash and cash equivalents
acquired (5.2) - (5.2)
Cash paid per cash flow statement 50.5 8.4 58.9
Loans and finance leases acquired 3.6 - 3.6
Increase in net debt 54.1 8.4 62.5
Current year acquisitions have been presented in aggregate
because, after review against a number of materiality measures,
none of the acquisitions are considered to be individually
material.
Goodwill arising on acquisition principally represents the
workforce and anticipated synergies gained through the
acquisitions. Goodwill in respect of the acquisition of AIP is
deductible for tax purposes. Goodwill in respect of the
acquisitions of Norwegian Seals, Mandals and ACE are not deductible
for tax purposes.
The fair value of trade and other receivables acquired is
GBP11.3m. None of the trade receivables have been impaired.
Where material, contingent and deferred consideration has been
discounted using suitable risk free, pre-tax rates based on
borrowings that match the maturity of the consideration being
discounted.
Provisional fair values of assets and liabilities represent the
best estimate of the fair values at the dates of acquisition. As
permitted by IFRS 3 (Revised) 'Business Combinations', these
provisional amounts can be amended for a period of up to 12 months
following acquisition if subsequent information becomes available
which changes the estimates of fair values at the dates of
acquisition. In respect of the current year acquisitions, only
assets and liabilities in respect of ACE are provisional since the
12 month period has been completed for the other acquisitions.
Contingent deferred consideration payable is re-assessed on all
acquisitions at the balance sheet date. During the year, as a
result of an increase in estimated future profitability, the
estimated deferred amounts payable on the Conveyor Services
Corporation group of companies, which were acquired on 1 October
2008, increased by GBP0.4m. Since this acquisition was made prior
to the adoption of IFRS 3 (Revised), this resulted in an increase
in goodwill on acquisition.
From the dates of acquisition, the current year acquisitions
contributed GBP63.3m to Group revenue, GBP12.3m to Group operating
profit before amortisation of intangible assets acquired and
GBP7.9m to Group operating profit.
If all of the acquisitions completed in the year had occurred on
1 September 2012, it is estimated that Group revenue would have
been GBP827.8m, Group operating profit before amortisation of
intangible assets acquired would have been GBP102.2m and Group
operating profit would have been GBP85.9m. These amounts have been
calculated by adjusting the results of the acquired businesses to
reflect the effect of the Group's accounting policies as if they
had been in effect from 1 September 2012.
17. Disposals
On 29 April 2013, the Group disposed of Svenska
Brandslangfabriken AB, a non-core business in Sweden, which was
acquired as part of the Mandals businesses on 3 September 2012.
Details of the assets and liabilities disposed of are given
below.
GBPm
--------------------------------------- ------
Property, plant and equipment 0.4
Intangible assets acquired:
- customer relationships 1.3
Inventories 0.6
Trade and other receivables 0.6
Cash and cash equivalents 0.9
Trade and other payables (0.5)
Current taxation (0.2)
Deferred taxation (0.4)
Total net assets disposed 2.7
Profit on disposal within operating
profit per the income statement 2.7
5.4
The effect on the cash flow statement
is as follows:
Cash received net of expenses 5.4
Cash and cash equivalents disposed (0.9)
Cash received per cash flow statement 4.5
From the date of acquisition to the date of disposal, Svenska
Brandslangfabriken AB contributed GBP2.4m to Group revenue, GBP0.8m
to Group operating profit before amortisation of intangible assets
acquired and GBP0.7m to Group operating profit.
Svenska Brandslangfabriken AB did not represent a separate major
line of business or geographical area of operations, did not form
part of a single coordinated plan to dispose of such operations and
was not acquired exclusively with a view to resale. Consequently,
the disposal has not been accounted for as a discontinued
operation.
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
Business Review 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.
Consolidated income statement - half year analysis
for the year ended 31 August 2013
First half Second half Full year
(unaudited) (unaudited) (audited)
--------------- ---------------- ----------------
2013 2012 2013 2012 2013 2012
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------- ------ ------- ------- ------- ------- -------
Revenue 391.3 412.0 429.3 418.6 820.6 830.6
Operating profit before amortisation
of intangible assets acquired 43.3 55.7 58.2 63.1 101.5 118.8
Amortisation of intangible
assets acquired (7.8) (5.5) (8.2) (5.7) (16.0) (11.2)
Operating profit 35.5 50.2 50.0 57.4 85.5 107.6
Net finance costs (8.6) (8.5) (9.0) (10.5) (17.6) (19.0)
Profit before taxation 26.9 41.7 41.0 46.9 67.9 88.6
Taxation (7.5) (11.5) (11.2) (14.7) (18.7) (26.2)
Profit for the period 19.4 30.2 29.8 32.2 49.2 62.4
Attributable to:
Owners of the parent 17.0 28.5 28.6 30.1 45.6 58.6
Non-controlling interests 2.4 1.7 1.2 2.1 3.6 3.8
19.4 30.2 29.8 32.2 49.2 62.4
Earnings per share
Basic 8.8p 14.8p 14.7p 15.5p 23.5p 30.3p
Diluted 8.8p 14.7p 14.7p 15.5p 23.5p 30.2p
This information is provided by RNS
The company news service from the London Stock Exchange
END
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