Fenner Plc :FNERF-US: Earnings Analysis: For the six months ended August 31, 2017 : January 1, 2018

Fenner Plc reports financial results for the half-year ended August 31, 2017.


  • Summary numbers: Revenues of USD 444.61 million, Net Earnings of USD 30.54 million.
  • Gross margins widened from 27.83% to 29.63% compared to the same period last year, operating (EBITDA) margins now 14.05% from 12.17%.
  • Change in operating cash flow of 54.50% compared to same period last year is about the same as change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-08-31 2017-02-28 2016-08-31 2016-02-29 2015-08-31
Relevant Numbers (Semi-Annual)
Revenues 444.61 385.28 410.78 412.87 489.52
Revenue Growth (YOY) 8.24 -6.68 -16.08 -24.4 -21.25
Earnings 30.54 12.78 -10.14 -28.34 -4.45
Earnings Growth (YOY) 401.1 145.11 -127.95 -137.33 -133.07
Net Margin 6.87 3.32 -2.47 -6.86 -0.91
EPS 0.16 0.07 -0.05 -0.15 -0.02
Return on Equity 7.39 3.4 -2.66 -6.58 -0.96
Return on Assets 6.59 2.72 -2.11 -5.47 -0.79

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Market Share Versus Profits

Revenues History
Earnings History

Compared to the same period last year, FNERF-US’s change in revenue was close to the amount of its change in earnings. It remains to be seen how the rest of its peer group’s results will turn out and if FNERF-US’s performance is a sign of any major shift in the composition of market share in this sector. Also, for comparison purposes, revenues changed by 15.40% and earnings by 138.85% compared to the previous period.

Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 27.83% to 29.63% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from 12.17% to 14.05% compared to the same period last year. For comparison, gross margins were 29.31% and EBITDA margins were 11.94% in the last reporting period.

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

FNERF-US’s gross margin improvement has not produced any big difference in its working capital. Working capital days are currently 103.06, compared to last year’s level of 102.62 days. This leads Capital Cube to conclude that the improvements in gross margins are likely from operating decisions and not trade-offs with the balance sheet.

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

FNERF-US’s year-on-year change in operating cash flow of 54.50% is around its change in earnings. This suggests that there are likely no significant movement in accruals or reserves for managing earnings this period.


The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from 6.15% to 9.05% and (2) one-time items. The company’s pretax margins are now 6.98% compared to -2.43% for the same period last year.

EBIT Margin History
PreTax Margin History

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Company Profile

Fenner Plc is a polymer technology company, which manufactures and distributes conveyor belting and reinforced precision polymer products. It operates through the Engineered Conveyor Solutions and Advanced Engineered Products segments. The Engineered Conveyor Solutions segment manufactures rubber ply, solid woven and steel cord conveyor belting for mining, power generation and industrial applications. The Advanced Engineered Products segment manufactures precision polymer products including precision drives for computer peripherals, copiers and ATMs; problem solving power transmission and motion transfer components; silicone and complex hoses for heavy duty trucks, buses and off road vehicles; seals and sealing solutions for the fluid power and oil and gas industries; technical textiles for medical and industrial applications and silicone based products for medical applications; rollers for digital image processing and medical diagnostics; and fluropolymer components for fluid and gas handling. The company was founded by Joseph Henry Fenner in 1861 and is headquartered in Hessle, the United Kingdom.

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