Coal demand helps Fenner to record trading

The polymer engineering group, which makes products ranging from conveyor belts to components used in plastic surgery, added it has not seen demand slow, but remains cautious over the global economy.

Fenner, based in Hessle near Hull, said pre-tax profits surged 87 per cent to £69.6m in the year to the end of August. Revenues increased 30 per cent to £718.3m. They were just £381m in 2007.

Fenner said three acquisitions over the past year have broadened its reach. It plans more deals, funded through cash generation.

“If we did not read the newspapers or watch the TV, our view would be ‘Crisis? What crisis?’” said chief executive Nick Hobson.

“We’ve seen no evidence of economic slowdown (in our business). However, we are circumspect. We’ve got our eyeballs on swivels.”

Fenner’s two divisions – conveyor belting and advanced engineered products (AEP) – were boosted by strong demand and a £150m investment programme. Its conveyor belting arm, which serves the mining industries, lifted operating profits 54 per cent to £55.6m. Turnover surged 31 per cent to £510.7m as volumes of coal mined continues to grow, supporting global demand for electricity, particularly in growing economies such as China. Mr Hobson said despite pressure to switch to cleaner power, coal will continue to play a key role in electricity generation.

“When we look at external data on coal consumption we still see strong demand growth,” said Mr Hobson. “There will continue to be steady growth in coal for the next decade or two.”

Fenner has shifted its belting division away from pure manufacture to also target the ‘after market’ – servicing belts.

The group’s AEP division, which was hit hard during the recession by companies clearing out old stock, grew operating profits 79 per cent to £34.8m and turnover 27 per cent to £207.6m. Fenner has high hopes for its medical subsidiaries, which make textiles and components for surgical fields including cardiology, gynaecology, orthopaedics and urology.

“Western populations continue to age and gain weight; these are both predictors of future medical device consumption for the next several years,” it said.

Shares in the group, which fell as low as 38p in March 2009, closed at up 6.2p at 354.7p. Fenner’s total dividend will rise 11 per cent to 8p per share.

Ben Bourne, analyst at stockbrokers Liberum Capital, said Fenner deserves a better valuation. “Fenner is a market leader exposed to the durable growth drivers of rising global energy demand, ageing populations and emerging market consumption,” he said.

Fenner said it generated free cash flow of £53.7m, enough to fund acquisitions and reduce debt. Net debt was £101.8m at the end of August versus £110.4m a year earlier, despite spending £31.1m on takeovers.

“We’ve been making two to three acquisitions a year and expect that run rate to continue,” said Mr Hobson. “Most of the investment in the next period will be focusing on medical, oil and gas and the after market.”

Mr Hobson is currently working through a review of the business after becoming chief executive in March. Former CEO Mark Abrahams became chairman. “The purpose is to establish a vision for the corporation for the next 10 to 15 years,” said Mr Hobson.

A celebration of 150 years

FENNER is celebrating 150 years of trading since it was founded in Hull by Joseph Henry Fenner.

The company’s early products included leather belting. By the 1890s, the company was exporting its products across Europe and into India. In 1937, Fenner became a public company.

Fenner resumed expansion in the 1950s, establishing companies in South Africa, Australia and India. Its first acquisition in the USA was in 1970.

In the 1990s it completed a major restructuring.