RNS No 3523a
FENNER PLC
13th May 1998
Fenner PLC
Interim Results for the six months ended 28 February 1998
Financial Highlights
* Turnover increased by 28% to #157.8million
(1997 #123.4 million);
* Operating profit increased by 30% to #12.0
million (1997 #9.2 million);
* Underlying profit before tax up by 21% to
#10.4 million (1997 #8.6million);
* 11% increase in earnings per share (before
goodwill charge) to 6.51p (1997 5.84p);
* Interim dividend of 1.90p (1997 1.80p);
* Power Transmission Division sold leaving
Group focused on high margin businesses;
* Successful integration of Scandura and
Nationwide into the Conveyor Belting Division;
* Balance sheet strength creates platform for
growth.
CHAIRMAN'S STATEMENT
Earnings growth with a sharpened focus
Against a background of continued sterling strength and
difficult trading conditions for certain operations in both
our home and overseas markets, I am pleased to report on a
period which has seen profit growth and the achievement of
our strategic goals.
Assisted by a full first half contribution from the Scandura
acquisition in the Conveyor Belting Division, group turnover
increased by 28% to #157.8m (1997 #123.4m) generating a 30%
increase in operating profit to #12.0m (1997 #9.2m).
The integration of our recent acquisitions is continuing
successfully and has contributed to the increase in group
earnings (before the loss on the sale of operations) for the
period of 23%, with earnings per share, calculated on a
similar basis increasing by 11% to 6.51p (1997 5.84p). The
sustained improvement in profitability is recognised in the
declaration by the Board of an interim dividend of 1.90p per
share (1997 1.80p per share) which will be paid as a Foreign
Income Dividend.
As mentioned earlier in this statement, the period to
February 1998 has been characterised by the achievement of
certain fundamental strategic objectives which have
positioned the Group favourably for the future. The
disposal of Contimach, the last manufacturing unit remaining
in the Power Transmission Division, was completed last
November, leaving only the distribution businesses within
that Division.
Subsequent to this disposal, and as discussed in my letter
to shareholders of 3 April 1998, we achieved the successful
sale of the whole of the remaining Power Transmission
Division, with the transaction being completed on 30 April
1998. A provision of #5.0m representing the estimated loss
on disposal has been reflected in our earnings statement
which also reports the separate results of our continuing
operations. In accordance with accounting convention this
provision is calculated after charging over #5m of goodwill
previously written-off to reserves. Although the Division
had shown improving profit trends in recent years, it
represented a different type of business to our remaining
operations, it returned lower margins and would require
further management and financial investment in the future to
realise fully its potential.
The capital generated from this disposal will be of
significant value to our remaining businesses, particularly
the reinforced polymer operations of Conveyor Belting and
Advanced Engineered Products.
At 28 February 1998, group borrowings had increased in line
with our expectations to #51.7m (1997 #12.7m) representing
gearing of 77.4% (1997 16.1%). Whilst the half year end has
traditionally been the high point in the Group's annual
borrowings cycle, in the future, the cashflow is likely to
be more even as the mix of operations is focused towards our
reinforced polymer businesses. This half year period has
seen further organic investment in the reinforced polymer
businesses, with #5.9m being invested out of a total capital
expenditure programme of #8.2m compared with depreciation
for the period of #4.0m (1997 #2.8m).
Currently, the realisation of the capital previously
invested in the Power Transmission Division will result in
the Group being virtually debt free on a net basis. With
strong interest cover and a long-term fixed cost debt
financing line through our US$125m position in the North
American private placement market, the Group remains well
positioned to pursue the development of its continuing
operations.
ADVANCED ENGINEERED PRODUCTS (SALES #31.1M, OPERATING MARGIN
10%)
Continuing investment in new product development and
manufacturing efficiency has ensured a satisfactory first
half performance, despite the impact of sterling strength on
our European businesses as well as increased competition and
slower growth in our Asian markets.
The Group's new UK polymer factory was officially opened on
1 December 1997 and now incorporates the operations carried
on previously at three separate sites.
As planned, the initial consolidation of the business
required the operation to incur excess costs for most of the
current period. Following a difficult commissioning period,
operating efficiencies are improving.
CONVEYOR BELTING (SALES #54.8M, OPERATING MARGIN 11%)
The integration of the 1997 North American acquisitions of
Scandura and Nationwide Belting has progressed well with our
worldwide coverage and breadth of product offering enhancing
the overall performance. Shared knowledge in both marketing
and manufacturing continues to benefit both our margin and
sales performance and has helped to compensate for slower
demand levels in some traditional areas of our business.
Particularly strong demand has been experienced in our North
American and Southern Hemisphere markets, with order levels
in North America remaining high as we move into the second
half. Uncertainty in the UK market has been partly offset
by increased opportunities in Eastern Europe.
FLUID POWER (SALES #22.1M, OPERATING MARGIN 10%)
Superior technology and continuing commitment to customer
service has maintained the Division's market position whilst
increased efficiencies in manufacturing processes and cost
reductions in component sourcing have delivered margin
improvements. This has been achieved despite the strength of
sterling in our European market place, where competition
from indigenous manufacturers remains prevalent.
The North American market has performed strongly in the
first half, with volumes returning in some of the more
specialist areas of the business. Whilst pressure on
operating margins continues in this very competitive market
place, our order positions remain satisfactory as we enter
the traditionally stronger second half of the year.
POWER TRANSMISSION (SALES #51.2M, OPERATING MARGIN 4%)
Conditions in our overseas markets, particularly Australasia
and South Africa, have remained depressed during the period,
whilst some recovery in Continental Europe has been offset
by a slower UK market with OE manufacturers in particular
suffering from the strength of sterling.
Structurally the Division has continued with its development
programme by ceasing manufacturing in Shanghai and
strengthening its distribution base through the Webster
acquisition in Australia.
OUTLOOK
We enter the second half with a strong balance sheet and our
three remaining Divisions performing well and showing
resilience against an increasingly difficult trading
environment.
Currently, the strength of sterling and the US dollar,
combined with the Asian crisis, have not yet significantly
impacted the performance other than through the translation
of overseas earnings in sterling.
A slower second half performance can be expected from our
Southern Hemisphere operations as our customer base reacts
to market conditions. However with over 50% of Group
turnover deriving from North America and approximately 80%
of Group profit from reinforced polymer activities, we
continue to anticipate a satisfactory outcome for the year.
Colin Cooke Chairman
13 May 1998
Group Profit and Loss Account
for the half year ended 28 February 1998
Year Half year Half year
ended ended ended
31-8-97 28-2-98 28-2-97
Audited Unaudited Unaudited
#000 Note #000 #000
Turnover
161,477 Continuing operations 2 106,725 72,685
105,186 Discontinued operations 2 51,125 50,689
_____ _____ _____
266,663 157,850 123,374
===== ===== =====
Operating profit before
exceptional items
16,234 Continuing operations 2 10,104 6,381
6,801 Discontinued operations 2 1,901 2,825
_____ _____ _____
23,035 12,005 9,206
Exceptional items
(2,986) - continuing operations - -
_____ _____ _____
20,049 Operating profit 12,005 9,206
Income from interest in
654 associated undertaking 282 264
Loss on sale / termination
of discontinued
(20) operations 3 (6,642) 21
_____ _____ _____
Profit on ordinary activities
20,683 before interest 5,645 9,491
Interest payable less
(2,173) receivable (1,917) (814)
_____ _____ _____
Profit on ordinary activities
18,510 before taxation 3,728 8,677
Taxation on profit on
(6,309) ordinary activities 4 (3,590) (2,888)
_____ _____ _____
Profit on ordinary activities
12,201 after taxation 138 5,789
(607) Minority equity interests (125) (263)
_____ _____ _____
11,594 Profit for the period 13 5,526
(5,251) Interim dividend 5 (1,944) (1,670)
_____ _____ _____
6,343 Loss for the period (1,931) 3,856
===== ===== =====
Earnings per share
14.73p Before exceptional items 6 6.51p 5.84p
===== ===== =====
12.22p After exceptional items 6 0.01p 5.96p
===== ===== =====
Group Balance Sheet
at 28 February 1998
31-8-97 28-2-98 28-2-97
Audited Unaudited Unaudited
#000 Note #000 #000
Fixed assets
64 Intangible assets 69 77
73,631 Tangible assets 76,653 52,179
3,555 Investments 3,493 3,437
_____ _____ _____
77,250 80,215 55,693
_____ _____ _____
Current assets
59,660 Stocks 64,624 49,559
70,475 Debtors 71,083 54,190
54,593 Cash at bank and in hand 50,878 39,577
_____ _____ _____
184,728 186,585 143,326
Creditors - Amounts falling
due within one year
Loans, overdrafts and
(9,856) finance leases (17,676) (11,368)
(76,637) Other creditors (75,143) (52,062)
_____ _____ _____
98,235 Net current assets 93,766 79,896
_____ _____ _____
Total assets less
175,485 current liabilities 173,981 135,589
Creditors - Amounts falling
due after more than one year
(85,077) Loans and finance leases (84,915) (40,881)
(2,746) Other creditors (2,559) (1,232)
Provisions for liabilities
(16,623) and charges (15,386) (12,282)
_____ _____ _____
71,039 Net assets 71,121 81,194
===== ===== =====
Capital and reserves
25,555 Called up share capital 25,572 23,191
249 Share premium 352 154
6,960 Revaluation reserve 6,932 7,341
1,716 Other reserve 5,610 17,480
30,294 Profit and loss account 26,066 28,272
2,383 Associated undertaking 2,321 2,241
_____ _____ _____
Shareholders' funds
67,157 - Equity interest 7 66,853 78,679
3,882Minority equity interests 4,268 2,515
_____ _____ _____
71,039 Total funds employed 71,121 81,194
===== ===== =====
Summarised Group Cash Flow Statement
for the half year ended 28 February 1998
Year Half year Half year
ended ended ended
31-8-97 28-2-98 28-2-97
Audited Unaudited Unaudited
#000 #000 #000
Operating activities
Net cash inflow from
operating activities
28,009 before exceptional items 6,923 3,790
Cash outflow relating
(2,932) to exceptional items (3,312) (919)
Cash inflow relating
to the termination
(1,682) of operations 85 (1,639)
_____ _____ _____
Net cash inflow from
23,395 operating activities 3,696 1,232
Returns on investments and
servicing of finance
(2,032) Net interest paid (1,359) (788)
Dividends paid to minorities
less received from
(183) associated undertaking (218) (180)
(6,661) Taxation (2,855) (2,791)
(17,982) Net capital expenditure (8,187) (9,681)
(34,111) Acquisitions and disposals (1,210) 625
(4,734) Equity dividends paid (3,579) (3,061)
Financing
Issue of ordinary share
149 capital 120 9
Increase in loans and
49,143 finance leases 1,661 4,305
_____ _____ _____
6,984 Decrease in net cash (11,931) (10,330)
===== ===== =====
Reconciliation of Net Debt
for the half year ended 28 February 1998
6,984 Decrease in net cash (11,931) (10,330)
Increase in loans and
(49,143) finance leases (1,661) (4,305)
_____ _____ _____
Increase in net debt resulting
(42,159) from cash flows (13,592) (14,635)
Loans and finance leases
(581) of disposals / acquisitions 21 (161)
(7) Inception of finance leases -
(82)
Effect of foreign exchange
3,940 rate changes 2,198 3,739
_____ _____ _____
Increase in net debt
(38,807) in the period (11,373) (11,139)
(1,533) Opening net debt (40,340) (1,533)
_____ _____ _____
(40,340) Closing net debt (51,713) (12,672)
===== ===== =====
Gearing (Closing net debt /
60.1% Shareholders' funds) 77.4% 16.1%
===== ===== =====
Notes
1. Basis of preparation
The interim financial information, which was approved by
the Board on 13 May 1998, has been prepared on the basis
of the accounting policies set out in the 1997 Annual
Report and is unaudited. The Group profit and loss
account for the year ended 31 August 1997 and the Group
balance sheet as at that date are an abridged version of
the statutory accounts for that period, which together
with an unqualified audit report, have been filed with the
Registrar of Companies.
The directors consider that in view of the exceptional
items incurred in the year ended 31 August 1997, the
format adopted for the disclosure of exceptional items is
appropriate in order to enable readers to properly
understand the Group's performance in the current period.
2. Segmental information
Operating
profit before
Turnover exceptional items
Half Half Half Half
year year Year year year Year
ended ended ended ended ended ended
28-2 28-2 31-8 28-2 28-2 31-8
-98 -97 -97 -98 -97 -97
#000 #000 #000 #000 #000 #000
Continuing
operations
Advanced
Engineered
Products 31,069 30,097 61,853 3,020 3,668 8,370
Conveyor
Belting 54,757 21,805 56,826 6,251 2,176 5,775
Fluid Power 22,131 22,668 46,198 2,172 1,869 4,640
Common
costs - - - (1,339)(1,332) (2,551)
Inter-segment
sales (1,232) (1,885)(3,400) - - -
_____ _____ _____ _____ _____ _____
106,725 72,685161,477 10,104 6,381 16,234
===== ===== ===== ===== ===== =====
Discontinued
operations
Power
Transmission 51,171 50,874105,428 1,901 2,825 6,801
Inter-segment
sales (46) (185) (242) - - -
_____ _____ _____ _____ _____ _____
51,125 50,689105,186 1,901 2,825 6,801
===== ===== ===== ===== ===== =====
3. Loss on sale and termination of discontinued operations
Half Half
Year year year
ended ended ended
31-8-97 28-2-98 28-2-97
#000 #000 #000
Loss on sale of
(1,602) operations 1,642 (1,643)
Provision for loss
- on sale of operations 5,000 -
Loss on termination of
1,622 non-core manufacturing operations -
1,622
_____ _____ _____
20 6,642 (21)
===== ===== =====
The loss on sale of operations in the period relates to
the sale of Contimach Limited.
The provision for loss on sale of operations relates to
the sale of the whole of the remaining Power Transmission
Division on 30 April 1998 to FPT Group Limited for a total
consideration of up to #50.0m. The loss on disposal is
estimated at #5.0m, after charging goodwill previously
written off and the costs of the disposal, and accordingly
a provision for this amount has been made at 28 February
1998.
4. Taxation on profit on ordinary activities
Half Half
Year year year
ended ended ended
31-8-97 28-2-98 28-2-97
#000 #000 #000
United Kingdom
1,553 corporation tax 475 796
4,756 Overseas taxation 3,115 2,092
_____ _____ _____
6,309 3,590 2,888
===== ===== =====
The effective overall tax rate on the Group's profit
before loss on sale of discontinued operations in the
period is 34%, being the estimated rate for the year
ending 31 August 1998. There is unlikely to be a
significant charge or credit on the loss on sale of
discontinued operations.
5. Interim dividend
The interim dividend of 1.90p per share (1997 1.80p) will
be paid on 3 August 1998 to shareholders on the register
on 3 July 1998. It is intended that this dividend will be
paid as a Foreign Income Dividend. Income tax of 0.475p
will be deemed to have been paid in respect of this
dividend but will not be recoverable by shareholders.
Advance corporation tax amounting to approximately
#486,000 will be payable in respect of this dividend but
will become repayable to the Company some nine months
after the end of the accounting period in which the
dividend is paid.
6. Earnings per share
In view of the significance of the exceptional costs and
loss on sale and termination of operations incurred in the
current and prior periods, the directors consider it
appropriate to disclose earnings per share calculated both
before and after these items.
Half Half
Year year year
ended ended ended
31-8-97 28-2-98 28-2-97
#000 #000 #000
Profit on ordinary activities
11,594 attributable to Fenner PLC 13 5,526
Exceptional items and loss on
sale and termination of
3,006 operations 6,642 (21)
(620) Attributable taxation - (89)
_____ _____ _____
Earnings for the period before
exceptional items and loss on
13,980 sale and termination of operations 6,655
5,416
===== ===== =====
Weighted average
number of ordinary
shares in issue
No. during the period No. No.
94,876,504 102,236,702 92,757,444
===== ===== =====
Pence Earnings per share Pence Pence
14.73 Before exceptional items 6.51 5.84
12.22 After exceptional items 0.01 5.96
===== ===== =====
7. Reconciliation of movements in shareholders'
funds
Year Half year Half year
ended ended ended
31-8-97 28-2-98 28-2-97
#000 #000 #000
78,887 Opening shareholders' funds 67,157 78,887
11,594 Profit for the period 13 5,526
(5,251) Dividends (1,944) (1,670)
New share capital
12,796 subscribed 120 9
(29,491) Goodwill written off (1,325) (3,478)
Goodwill written back on
(79) disposal of subsidiaries 5,340 -
Unrealised deficit on
(139) revaluation of properties - (105)
Currency translation differences
on foreign currency
(1,160) net investments (2,508) (490)
_____ _____ _____
Net reduction in shareholders'
(11,730) funds (304) (208)
_____ _____ _____
Closing shareholders'
67,157 funds 66,853 78,679
===== ===== =====
The goodwill written off represents a preliminary
assessment of the goodwill arising in connection with the
acquisitions made in the period.
The half year report is to be sent to shareholders on 20
May 1998 and will be available at the Company's registered
office, Welton Hall, PO Box 3, Welton, Brough HU15 1PQ from
that date.
END
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