Fenner Cuts Outlook As ECS Division Problems Offset Solid AEP Trading

LONDON (Alliance News) - Fenner PLC on Wednesday reported mixed trading for its divisions in the final months of 2014, with a strong performance by its Advanced Engineered Products arm offset by a weak showing from its Engineered Conveyor Solutions business, but it said the bad is outweighing the good and downgraded its full-year expectations.

Fenner said it has increased its focus on controlling its margins as a result of the weak performance in the ECS business, with cost-cutting plans either implemented or accelerated across the business and selected capital projects deferred.

Due to the impact of lower oil prices and challenging trading conditions for its ECS arm, the group now expects its earnings for the year to August 31, 2015 to be below its expectations. It will also take an exceptional charge related to the cost savings it is implementing this year.

For the AEP arm, trading has been in line with expectations since Fenner's last update in November, continuing the trend of an improving performance seen in the second half of 2014. It said it expects demand from oil and gas clients to fall due to the drop in the world crude oil price, but said its non-oil, specialist polymer businesses, which represent two-third of AEP's revenue, are expected to continue to meet expectations.

The group is cutting its AEP cost base in anticipation of an expected reduction in business from the oil and gas sector.

For ECS, however, any recovery for the business continues to be elusive, Fenner said, owing to the backdrop of global mineral oversupply and low commodity prices. Demand levels in its Americas business are stable, albeit at low levels, while anticipated growth in its Europe, Middle East and Africa business has not been achieved. Margins are also under pressure in its Australian arm due to consumer-driven pricing pressures, it said.

Fenner said its cash position is currently strong, but said that while it will complete the project to consolidate its US medical manufacturing facilities, other capital programmes for 2015 will be curtailed to focus only on essential or near-term payback projects.

In addition to this, future major projects have been deferred pending an improvement in market conditions, meaning the group is now forecasting significantly lower 2016 capital expenditure than had previously been expected.

Fenner shares were up 0.1% to 201.00 pence in early trade on Wednesday.

By Sam Unsted; samunsted@alliancenews.com; @SamUAtAlliance

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