**UPDATE: Fenner Profit Drops On Sterling Strength, Key Markets Weakness**
LONDON (Alliance News) – Shares in Fenner PLC were among the worst performers on the FTSE 250 Tuesday after the company posted a big drop in full-year pretax profit on the back of a fall in revenue, as it was hit by currency movements and weaker conditions in key markets.
Shares in the reinforced polymer technology company were down 3.7% to 297.7 pence in early afternoon trade after it said pretax profit for the year to August 31 was GBP29.2 million, sharply down from the GBP66.4 million posted a year earlier.
Revenue fell to GBP729.4 million from GBP820.6 million, hit by the strength of sterling. At constant currencies, revenue fell 4%, Fenner said.
The group said the results were in line with its revised expectations, but acknowledged the performance fell below its expectations at the start of the year. Despite that, it said it continues to expect a return to growth in the current year.
Despite the fall, Fenner hiked its final dividend payment for the year to 12 pence, up 7% from the 11.25 pence paid a year earlier.
Fenner Chief Executive Nicholas Hobson said the company’s advanced engineering products arm performed well and said its engineered conveyor solutions division performed resiliently against a deterioration in trading conditions in parts of the mining industry.
Revenue in the engineered conveyor solutions business fell to GBP463.9 million, from GBP549.8 million a year earlier. Americas revenue fell to GBP179.5 million, Asia Pacific revenue fell to GBP191.5 million and Europe, Middle East & Africa revenue declined to GBP92.9 million. The company did not provide a geographical revenue breakdown for the unit last year.
The US business was hit by a downtick in the volume of coal produced in the UK over the year, a key market for the company, along with soft pricing on domestic prices for thermal coal. The US coal industry also suffered from the low prices for coal in export markets and uncertainty over US government policy on the coal industry.
Fenner said it has been working with US coal industry customers on reducing belting costs in order to mitigate the impact of the weak market and has been cutting its own costs to cope with the difficulties. Sales of belts to other mining and industrial companies in the US and North America held up better on the back of better economic conditions in those markets, Fenner said.
The South American contribution to its revenue was hit by the depreciation of the Chilean peso against international currencies, it said.
The company took a net GBP19.7 million one-off charge in the year, up from zero the year before. This comprised impairment charges related to the closure of Fenner Precision (Buffalo) and Hallite Brazil and was offset by the release of contingent deferred consideration on the acquisitions of American Industrial Plastics and Australian Conveyor Engineering.
In Asia Pacific, primarily focused on Australia, the company’s operating profit and margins were hit by weaker trading conditions in Australia. Performance in China improved, Fenner said, with increased high-performance belt sales in the coal industry, but its India sales weakened in line with the poorer trading conditions in the market.
For EMEA, sales were generally subdued owing to a lack of an economic recovery in the region and further contractions in the UK coal industry. It was also hit by a drop in demand in Russia and Ukraine owing to the ongoing tensions between the two countries.
Advanced engineered products revenue was GBP265.5 million for the year, down from GBP270.8 million last year, with a strong performance in the second half. The advanced sealing technologies business, the largest division within the AEP unit, posted revenue of GBP138.2 million in the year, while precision polymers revenue hit GBP99.6 million and Solesis Medical Technologies posted revenue of GBP27.7 million. The company did not split out the revenue by division last year.
On the back of the stronger performance from the AEP business, the company said it anticipates that future investment will focus on this division and said it expects this investment to make the business its largest profit contributor going forward.
“We have entered the financial year with the group well placed to respond to the opportunities and challenges which we are facing. We are very aware of the potential impact on our end markets and the world economy generally from falls in the prices of energy and commodities and from forecasts of lower economic growth,” Hobson added.
“Overall, the strength and resilience of our businesses mean that, in a climate of increased economic and political uncertainties, we anticipate that growth in revenue and profitability in AEP is likely to be offset by weakness in the mining market,” he said.
By Sam Unsted; email@example.com; @SamUAtAlliance
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