Fenner another victim of strength of sterling

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CONVEYOR belt maker Fenner said the strength of the pound will hit profits this year, one of a number of British manufacturers to feel the pinch from sterling’s inexorable rise.

Sterling has continued to appreciate over recent weeks and now stands 13 ​per cent ​higher than a year ago.

Analyst David Buxton at FinnCap said that with​ over 50 per cent​ of the group’s sales in America,​ this will result in a £1m reduction to current year forecasts.

He is pencilling in a pre-tax profit of £66.1m, down from his previous expectations of a £67.0m profit.

The Hessle-based firm said trading over the past six weeks is in line with expectations following the group’s profits warning in May.

The company said that the US coal mining market remain​s​ depressed, with little near-term improvement expected.

“​Whilst there has been no further deterioration in Engineered Conveyor Solutions’ trading position since the group’s trading update in May, there are no signs that any improvement is imminent and measures are being taken to manage costs and capacity across the business,” said Fenner’s CEO Nicholas Hobson.

However, the Australian operation has benefited from an improvement in mineral extraction rates, although lower commodity prices continue to hit miners’ profitability.

Fenner said it ​has made good progress in re-aligning and restructuring its activities to suit the local market conditions in each of the various regions where ​it operates.​

​“Engineered Conveyor Solutions has an active programme of contract tendering and, with its modern plant and skilled workforce, expects to maintain its share of the belting market in Australia,” said Mr Hobson.

​“​Notwithstanding difficult market conditions in certain of its traditional markets, Engineered Conveyor Solutions is continuing to make progress in newer territories.​“​

During the ​six-week​ period, the performance of ​its ​Advanced Engineered Products division was described as encouraging, with trading across the division in line with expectations.

​“​The recent Capital Markets Event highlighted the growth opportunities in the oil & gas and medical industries, which together account for around 40 per cent of its revenue​,” said Mr Hobson​.

​“​We are encouraged by the continuing contribution to the division’s results from steady growth businesses such as Fenner Drives.​“​

The Advanced Engineered Products division has increased its investment in innovation and leadership teams this year and​ Mr Hobson said​ this higher level of investment is expected to be at least maintained over future years.

​Fenner​ expects to issue a pre-close statement on September ​9​ and to release its results for its current financial year on November ​11​.

​Analysts at Investec said: “The landscape has not changed since the last update in May, with US coal prices and volumes still depressed and no real sign of improvement in either.

Fenner predicted that any turn would not come before the end of contracts at current low prices, which run to the end of 2014.

“Fenner is looking to trim its costs in the USA to cope with this dull backdrop.

“In Australia, volumes are generally acceptable but iron ore miners have passed the pain of low commodity prices on to their suppliers and this dynamic is still depressing Fenner’s margins. The group is picking up ‘normal’ aftermarket work, after its disappointment in missing out on a large order.

“The Advanced Engineered Products division is continuing to show progress, although costs are also rising as Fenner invests for the future​.”

Analysts at Liberum said in a note: “Following a material downgrade (minus 17 per cent) in May, it is no surprise today’s IMS is in line.

“Trading conditions within Engineered Conveyor Solutions remain weak and remain encouraging in Advanced Engineered Products, albeit more investment is required.”