Fenner PLC Regulatory News (FENR)

13 January 2016

Fenner PLC("Fenner" or "the Group")

Refocusing & restructuring of ECS Americas and AGM trading update

Fenner is today announcing the refocusing and rationalisation of its conveyor belt manufacturing facilities in North America in response to significantly changed dynamics in the US coal industry.

Fenner is also is providing its customary update on trading and outlook to accompany its Annual General Meeting which is being held later today.

Details of the ECS Americas restructuring

In response to the slowdown in the coal industry, ECS Americas has, over recent years, been increasing its focus on industrial markets whilst continuously reducing costs; in the financial year ended 31 August 2015, the annualised cost base of the business (excluding raw material savings) was reduced by £9m (10 per cent), with headcount being reduced by 11 per cent. The restructuring announced today represents a significant step-change in the refocusing of the business with specific new product development, improved customer service and enhanced manufacturing efficiencies.

The principal elements of the programme are:

- Added focus on industrial belt markets with improvements in customer service levels and manufacturing efficiency, coupled with industry-specific new product development

- A change of focus within the coal sector towards those customers who are able to withstand the challenges presented in their markets

- The closure of the majority of the belt manufacturing facility at Port Clinton, Ohio (one of the two such facilities operated by ECS in North America)

- Significant additional savings in support functions, overheads and administration

- Specific measures to address underperforming non-belt manufacturing activities

In addition, ECS is undertaking a downsizing of its South American service business to reflect changing conditions in the copper mining industry.

It is envisaged that these measures will result in a reduction of over 20 per cent of ECS Americas' headcount which, at 31 December 2015, stood at just over 800. The majority of the retrenchments are expected to be completed by the end of January 2016; the further measures (referred to above) to improve customer service levels and business efficiency will be introduced progressively over the remainder of the Group's financial year.

The annual cost savings arising from the restructuring are expected to amount to £10m, commencing in the second half of this financial year. In this year, the savings will offset the impact of further recent volume declines seen in the business.

As previously notified, the cash cost of the restructuring is not expected to exceed £10m. However, further non-cash asset impairment charges will arise.

It is expected that the restructuring will be complete by the end of the Group's current financial year such that, in FY17, the financial returns of ECS Americas will start to return towards historic levels, despite revenues being less than one-half of those achieved at the peak.

Trading update

AEP

The Group's medical businesses have continued to perform well and their outlook remains in line with previous expectations. The consolidation of Secant Medical's facilities continues on schedule and on budget. As the year progresses and as previously indicated, there will be some transitory revenue and cost impacts arising from the consolidation.

In common with many other US businesses, AEP's industrial operations experienced soft trading in September. Subsequently, trading results have recovered to levels more consistent with previous expectations, assisted by AEP's product introductions and cost savings. However, as these businesses enter the seasonally stronger months of their financial year, it remains apparent that customers generally are more cautious than for some time and trading in certain sectors, such as mining and agriculture, remains under pressure.

As has been well documented over the past two months, conditions across the oil & gas industry have further weakened with the oil price and rig count having now fallen below the range of the Group's previous planning assumptions. Consequently, AEP's order volumes have fallen, most notably at CDI, AEP's principal business serving the oil & gas industry, and at EGC. Pricing pressure has also increased although the nature of AEP's highly engineered bespoke products provides reasonable protection. On-going and new cost-saving measures have also helped mitigate the reduced sales line.

ECS

Since the start of the financial year, sentiment within the mining industry has been adversely affected by continuing uncertainty over the Chinese economy, by a number of high profile retrenchments by major mining groups and by the increasing challenges being faced by the US coal mining industry. ECS has continued to respond robustly with initiatives across the business to maintain and enhance market share and to reduce costs.

In Australia, the largest part of ECS Southern Hemisphere, further cost-reductions, efficiency improvements and some notable contract wins have offset subdued demand for belt product and services. As a consequence, ECS Australia envisages a performance in line with previous expectations measured in local currency terms. However, ECS Australia's contribution to the Group's consolidated results is being reduced by the depreciation of the Australian dollar against sterling.

In China (which also forms part of ECS Southern Hemisphere), there has been an encouraging pick-up in order intake from coal industry customers following a period of de-stocking, with the benefits of this expected to be felt predominantly in the second half of the financial year.

The trading results of ECS Northern Hemisphere have primarily reflected further deteriorations across the US coal mining industry; US coal production was down by around 10 per cent during 2015 with demand in the final months of the year also being impacted by unseasonably warm weather and the continuing low price of natural gas. The evidence is that the long-term structural and financial challenges, exacerbated by cyclical effects, being faced by the US coal industry will continue for some time. ECS's sales to the North American industrial segment have performed better with continuing growth, albeit at a lower level than last year. These changes in ECS's markets have been the basis for the refocusing and restructuring announced today.

Overall, within North America, ECS's priority is to complete the refocusing and restructuring outlined above which will result in the realignment of the business and significant cost reductions. This will rebase the business at an acceptable level of profitability in a market which has fundamentally changed.

In Europe and other parts of the Northern Hemisphere operations, trading has remained generally in line with previous expectations with results being weighted towards the seasonally stronger second half of the year.

Financial position

Net borrowings remain at levels consistent with previous expectations.

Outlook

Whilst uncertainty across end markets has increased, the outlook for the majority of the Group remains in line with previous expectations. However, in the light of the recent further deterioration in the oil & gas industry in the US, the Board envisages that the Group is likely to achieve an outcome for the current financial year which is below its previous expectations.

ENDS

Analyst and Investor conference call

A conference call for analysts and investors will be held at 8:30 a.m. (UK time) today to discuss this statement. Participants can join the call on 020 3059 8125 (international dial-in + 44 20 3059 8125). A recording of this conference call will be available for 7 days on 0121 260 4861 (in the United States dial 1 844 2308 058 and in all other international locations dial + 44 121 260 4861) using the access code 2475945 followed by #; a replay facility will also be available through the company's web-site www.Fenner.com.

For further information please contact:

Notes to editors:

Fenner PLC is a world leader in reinforced polymer technology, providing local engineered solutions for performance‐critical applications. The Group operates through two divisions:

Advanced Engineered Products: the AEP division uses advanced polymeric materials and technical expertise to provide high value-added solutions to customers' most challenging engineering problems. Customers are spread across a variety of end‐user segments, including oil & gas, medical, construction, transportation, automation and general industrial. AEP's trading names are recognised globally and include CDI Energy Products, EGC Critical Components, Hallite, AIP Precision Machining, Fenner Precision, Fenner Drives, James Dawson, Mandals, Secant Medical, Charter Medical and Xeridiem.

Engineered Conveyor Solutions: the ECS division, trading under the Fenner Dunlop, Fenner and Dunlop brand names, is a recognised leader in the global conveying market. The division offers a unique, comprehensive suite of products and services, which serve the conveying needs of mining, power generation and bulk handling markets. ECS is managed on the basis of two regional business groupings being ECS Southern Hemisphere (comprising Australia, RSA and China, where the customer base is focused on mining) and ECS Northern Hemisphere (including the Americas and Europe, where there is a larger exposure to industrial customers).