Demand for Fenner conveyor belts sees pre-tax profits rise

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Engineer Fenner reported record annual results boosted by strong demand for its conveyor belts from the coal and iron mining industry.

The Hessle-based belting giant said underlying pre-tax profits rose 30 per cent to £103.9m in the year to August 31.

The group said a recent reduction in commodity prices could lead to short-term pressure on margins, but it will not curb demand in its core Engineered Conveyor Solutions division, which largely caters to the mining sector.

This division reported a 38 per cent rise in underlying operating profit to £84.4m on revenues up 16 per cent to £593.4m.

Fenner reported positive trading conditions for most of the year driven by record levels of coal and iron ore extraction, but there was a slowing of order intake from the US coal sector towards the end of the year.

This was in the wake of an exceptionally mild winter and uneconomic shale gas pricing.

US coal stockpiles have been decreasing from historic highs for several months, which implies a pick-up soon.

Fenner’s chairman Mark Abrahams said: “In the latter part of the year Engineered Conveyor Solutions saw slower demand from the US coal sector offset by stronger demand elsewhere.

“Order rates from the US coal sector bottomed in May and have improved steadily since.”

The group expects to see a benefit from this trend in the second half of the current year.

In the Advanced Engineered Products division underlying operating profit and revenues both increased by 14 per cent to £43.6m and £237.2m respectively

Fenner said that growth was underpinned by strong demand from the oil and gas sector and investment to broaden the group’s geographic coverage.

Mr Abrahams said: “The Advanced Engineered Products operations are trading satisfactorily, albeit with some pockets of moderate destocking.

“Recent acquisitions are expected to support continuing growth.”

Fenner has been on a spending spree over the past few months.

Two weeks ago it announced plans to buy ACE, a privately owned group of Australian companies, that specialise in supplying engineered conveyor solutions for the design, manufacture and installation of high capacity conveyor systems for both surface and underground mining.

Fenner bought three small companies in August: Scandinavian hose firm Mandals, oil and gas components firm Norwegian Seals and US plastics firm American Industrial Plastics.

“As a result of our investment programme over recent years, Fenner is a much stronger and more resilient business serving a more diverse customer base,” said Mr Abrahams.

“The fundamentals of our core markets underpin healthy, long-term growth.”

He said that the year to August 31 was “one of excellent growth, delivering record results”.

The group is rewarding shareholders with a 31 per cent increase in dividend for the year, reflecting the group’s confidence in the future growth of the business.

Looking ahead, Mr Abrahams said: “We remain mindful of the current global economic uncertainty. Given both anticipated end market trends and the very strong first half last year, we expect our performance to be more heavily weighted to the second half of the current year.”

Analyst Ben Bourne at Liberum Capital said: “Full year results are in line with expectations reflecting good growth in both divisions. However, we downgrade our 2013 EPS by seven per cent to 35.5p reflecting the more challenging trading environment. The first half will be weak. Recent bolt-on acquisitions look sensible and have provided some insulation.”