Fenner set on recovery trail

Fenner sells across a range of sectors, including agriculture, construction, transportation and the higher-margin healthcare supply chain. However, it is the downturn in the mining and oil & gas industries that really hurt the business in recent years. In particular, the group suffered from subdued demand from US coal miners.

The trading problems have been most evident at the group's key engineered conveyor solutions (ECS) division, where revenues fell by a fifth last year to £322m (56 per cent of the total), which was in part down to management taking a tighter rein on customer credit. The division's underlying operating margin fell 140 basis points to 4.4 per cent. And, overall, the weakness in coal and energy markets culminated in a £30m full-year pre-tax loss, which included a £41m exceptional charge, and a savage 75 per cent cut in the dividend.

However, the results contained several positive developments, including details of £42m in cost savings. The group's working capital management also gives cause for encouragement, and despite the reported loss, free cash flow came in at £39m.

Self-help measures should flow through into improved margins in 2017, while increased end-market diversity is improving the trading outlook. This process has been aided by the expansion of the group's defensive, higher-margin healthcare operations. The group has also put a greater onus on revenue generation from the US industrial and aggregates (construction) markets, both of which stand to benefit from any Trump-inspired stimulus measures. Meanwhile, ECS's exposure to the coal industry has declined from 41 per cent to 32 per cent over the last financial year.

It is a pick up in commodity markets that could really turbocharge Fenner's recovery, though. The outlook for the coal mining industry has improved as a result of the election of Donald Trump. The President-elect made the declining US coal industry a centrepiece of his campaign and prices should receive some near-term support as China aims to cut the capacity of its coal mines by 300m tonnes even as consumption of the fuel increases, according to the country's top economic planner. And the case for Fenner has also improved on the back of the stabilisation in crude oil demand, as demonstrated by a noticeable increase in the Baker Hughes Rotary Rig Count.