All smiles at Fenner as coal shows it is still king

The conveyor belting giant said it expects to continue gaining momentum after bouncing back strongly from the global recession.

Both its conveyor belting and advanced engineered products (AEP) divisions reported strong gains on a year earlier, and Fenner said a 10 per cent rise in its interim dividend reflects its confidence.

The group, which has its headquarters in Hessle, near Hull, said underlying pre-tax profits lifted 93 per cent to £31.4m in the six months to the end of February. Sales lifted 35 per cent to £332.5m.

Fenner typically reports a stronger second half, and said its outlook is good.

“We are exposed to a lot of markets which are doing very well,” said chief executive Nick Hobson. “There’s underlying economic growth in many of our markets and we are well positioned strategically and geographically.”

However, shares in the company shed 4.3p to close at 367.7p, falling 1.2 per cent after strong gains over the past year.

Sales in its conveyor belting arm increased 27 per cent to £235.3m. Operating profits were up 40 per cent to £24.5m.

This division, which was largely unaffected by the global recession, has been boosted by continuing strong demand for coal around the globe, especially in India and China. It has also been boosted by a flight to coal from nuclear, driven by Japan’s Fukashima nuclear power station disaster.

“The coal mining and mineral extraction industry in general is a very strong platform,” said Mr Hobson. “That’s been primarily driven by the growth in south east Asian economies.

“The vast majority of coal is used to generate electricity and the recent tragic events in Japan have done nothing to further the use of nuclear power.”

Operating profits at its higher-margin AEP division surged 77 per cent to £16.6m. Revenues lifted 37 per cent to £97.2m.

The division, which makes a wide array of products for the fluid power and energy markets, has been helped by strong demand from the oil and gas sector.

“Oil and gas is becoming increasingly important to us, being driven by concerns around energy security,” said Mr Hobson.

Fenner said its AEP division is now operating at levels similar to those seen before the global downturn.

“A lot of the growth we’ve seen is being driven by competitive share gains, rather than a bounce back in world economies,” added Mr Hobson. “It’s overwhelmingly as a result of our own work rather than a ‘gimme’ from economic benefit.”

Mr Hobson replaced Mark Abrahams as the group’s chief executive last month after more than 20 years with the engineering group. Mr Abrahams moved to chairman of the 150-year-old group, replacing Colin Cooke.

“Fenner is in a very good place,” said Mr Hobson. “The question that the leadership group and I are now addressing is where does Fenner go in the next 10 years. Rather than a change of direction, it’s a refinement of direction.”

Analysts expect the group to continue acquisitions as part of this strategy, particularly focusing on conveyor belting.

Mr Hobson said the group has a constant list of targets, but is prepared to be patient.

“We do not typically participate in auctions,” he said. “Within each of the businesses we have a list of companies that we think would fit our business and we stay in touch with them.”

He added any acquisitions are likely to be in the “after-market” sector, to move the group closer to its customers, “rather than just selling the product once”. It has already been active in this sector, buying Australian conveyor belt companies Belle Banne and Leading Edge Conveyor Solutions for £40.12m in November.

Fenner lifted its dividend to 2.65p from 2.4p a year ago.

Analyst Andrew Douglas at house broker Royal Bank of Scotland said: “We continue to believe that the group is well positioned for attractive growth in the second half of 2011 and also into 2012.”

Web that spread worldwide

Fenner was founded in 1861 by Joseph Henry Fenner in Hull. Early products included leather belting.

By the 1890s, the company was exporting its products across Europe and into India. In 1921, Fenner began developing woven textile belting and in 1937 became a public company. In the 1950s it expanded established companies in South Africa, Australia and India.

The 1990s were a decade of transformation with a major restructuring and two rights issues.

It now operates across five continents with 29 manufacturing facilities plus global sales and service companies.