Regulatory Story
Go to market news section View chart   Print
RNS
Flowtech Fluidpower PLC  -  FLO   

Organic & acquisition strategy underpins future

Released 07:00 12-Sep-2017

RNS Number : 4315Q
Flowtech Fluidpower PLC
12 September 2017
 

 

The information contained within this announcement is deemed by the Company to constitute inside information stipulated under the Market Abuse Regulation (EU) No. 596/2014. Upon the publication of this announcement via the Regulatory Information Service, this inside information is now considered to be in the public domain.

Tuesday, 12 September 2017 

FLOWTECH FLUIDPOWER PLC

(Flowtech, the Group or Company)

Specialist technical fluid power products supplier

 

"Group organic growth and acquisition strategy underpins the platform for future development"

 

2017 HALF-YEAR REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2017

 

 

 

FINANCIAL HIGHLIGHTS

HY2017

30.6.17

UNAUDITED

HY2016

30.6.16

UNAUDITED

GROWTH

%

·      REVENUE

£34.173m

£27.387m

24.8%

·      UNDERLYING OPERATING RESULT

£4.504m

£4.059m

11.0%

·      OPERATING PROFIT

£3.392m

£3.290m

3.1%

·      HALF-YEAR DIVIDEND

1.93p

1.84p

5.0%

·      EARNINGS PER SHARE (basic) (note 1)

5.22p

5.91p


·      NET DEBT (note 1)

£8.4m

£14.1m


 

OPERATIONAL HIGHLIGHTS

 

·      REVENUE REFLECTS BOTH GOOD ORGANIC AND ACQUISITIVE GROWTH ACROSS ALL DIVISIONS

 

·      INCREASING TECHNICAL DEPTH ACROSS A GREATER RANGE OF CUSTOMERS

 

·      GROUP PROCUREMENT STRATEGY BEGINNING TO DELIVER PRICE AND RANGE BENEFITS

 

·      STRONG LEADERSHIP AND NETWORK DEVELOPED AT PROFIT CENTRE LEVEL

 

·      ACQUISITION STRATEGY AGAIN DELIVERING EXCELLENT OPPORTUNITIES:

Ø         FIVE COMPLETED IN 2017 AND 11 SINCE BECOMING A PLC IN 2014

Ø         £10 MILLION CAPITAL RAISE IN MARCH - £8.1M ALREADY INVESTED

Ø         CONFIDENT OF FURTHER ACQUISITIVE PROGRESS IN HY2 WITH BALANCE SHEET STRENGTH TO SUPPORT

 

 

·      STRONG START TO SECOND HALF - CONFIDENT OF ACHIEVING FULL YEAR MARKET EXPECTATIONS

 

 

Note 1: On 30 March 2017, the Company completed a £10 million cash placing and issued 8,333,333 shares in consideration

 

"We are pleased to report an encouraging first half trading performance with turnover increased year on year by 24.8%, through a mixture of organic and acquisitive growth, and this has continued to reinforce our position as one of the leading players in the fluid power sector. "

MALCOLM DIAMOND, NON-EXECUTIVE CHAIRMAN

 

"Flowtech remains confident in its ability to develop a technically based full service Fluid Power group in the UK and internationally.  The Group is recognised as a specialist and resilient business operating in a fragmented market.  The development of our multi-channel strategy creates multiple touch points within the market increasing our overall penetration.  In addition to organic sales growth our approach will create further revenue generating opportunities through: its investment in people and increased sales resource, the ongoing development of Exclusive Brand and OEM product offering, as well as through further earnings enhancing acquisitions."

SEAN FENNON, CEO

 

"The Group's current underlying performance will deliver another year of solid progress.  As a business, we are confident in our strategy, commercial opportunities and prospects, and with a strong start to the second half are on track to meet current market expectations for the year ending 31 December 2017."

BRYCE BROOKS, CFO

 

 

ENQUIRIES:

Flowtech Fluidpower plc

Malcolm Diamond MBE, Non-Executive Chairman

Sean Fennon, Chief Executive Officer

Bryce Brooks, Chief Financial Officer

Today: +44 (0) 20 7220 0500 or +44 (0) 20 3829 5000

Thereafter: Tel: +44 (0) 1695 52796

Email: info@flowtechfluidpower.com

 

Zeus Capital Limited (Nominated Adviser and Joint Broker)

Andrew Jones, Alistair Donnelly (corporate finance)

Dominic King, John Goold (sales and broking)

Tel: +44 (0) 20 3829 5000

 

FinnCap Ltd (Joint Broker)

Ed Frisby, Kate Bannatyne (corporate finance)

Rhys Williams, Emily Morris (sales and broking)

Tel: +44 (0) 20 7220 0500

 

TooleyStreet Communications (IR and media relations)

Fiona Tooley

Tel: +44 (0) 7785 703523

Email: fiona@tooleystreet.com

 

 

 

EDITORS NOTE

 

About Flowtech Fluidpower plc

Founded as Flowtech in 1983, the Flowtech Group is the UK's leading specialist supplier of technical fluid power products. The business joined Aim in 2014.  Today, the business has three distinct divisions:

 

Division:

What we do:

Locations:

Flowtechnology

focus on supplying distributors and resellers of industrial MRO products, primarily serving urgent orders rather than bulk offerings. It offers an unrivalled range of OEM and Exclusive Brand products to over 3,400 distributors and resellers.  The catalogue is recognised as the definitive source for fluid power products, containing 100,000 individual product lines and are distributed to more than 80,000 industrial MRO end users.

 

Flowtechnology Benelux (Deventer)

Flowtechnology China (Guangzhou)

Flowtechnology UK (Skelmersdale)

Indequip (Skelmersdale)

 

Power Motion Control (PMC)

specialise in the design, assembly and supply of engineering components and hydraulic systems, further enhanced by a service and repair function.

Primary Fluid Power (Knowsley)

Nelson Fluid Power- (Dublin, Lisburn, Dungannon)

TSL Fluidpower (West Yorkshire)

Albroco ((Knowsley)

Hydraulics & Transmissions (Ludlow)

Hi-Power Hydraulics (Cork, Dublin, Belfast Manchester)

Hydroflex Hydraulics (Brussels, Rotterdam and OudBeijerland)

 

Process

focus on the supply of industrial components and solutions to the process sectors.

 

Hydravalve, (Willenhall)

Orange County (Spennymoor)

 

All three of the Group's divisions have overlapping product sets, allowing procurement synergies to be maximised.

 

The divisions are supported by a centralised back office team at the Skelmersdale site and in total the business employs over 400 people.

 

For more information please visit, www.flowtechfluidpower.com

 

 

 

FLOWTECH FLUIDPOWER PLC

HALF-YEAR FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2017

 

 

INTRODUCTION

It is pleasing to report that since joining AIM in 2014 the Group has:

 

ü Expanded its portfolio extensively across existing and new product categories

ü Completed eleven acquisitions

ü Established three clearly-focussed divisions: Flowtechnology, Power Motion Control and Process

ü Delivered synergies across the organisation - procurement, operational, commercial and back office

ü Profit Sharing introduced at local level to focus on ROCE growth

 

As a business:

Ø Our strategy is to continue to enhance our unique position within the fluid power supply chain, and aligned to the global supply base thereby creating a multi-channelled access to a wide range of industrial and manufacturing customers. We are in an exciting phase.  Our product set and technical competence continues to deepen, increasing our touch points within the varied industrial and manufacturing customers we supply every day around the UK and overseas. 

 

Ø We remain confident that our wide range of revenue enhancing development programmes, when linked to our acquisition strategy based on a clear multi-channel approach, will continue to create significant opportunity for further growth and increased market penetration.  By developing our offer, we ensure that the Group maintains its competitive advantage in each of the markets in which it trades.

 

 

2017 HALF-YEAR FINANCIAL PERFORMANCE

We are pleased to report an encouraging first half trading performance, all achieved against a backdrop where the economic conditions have remained challenging in most industrial markets, and particularly in the UK (British Fluid Power Distributors Association Market Survey indicates 2017 fluid power overall distributor sales growth was negative 1.0%^).  Overall, turnover increased year on year by 24.8%, through a mixture of organic and acquisitive growth, and this has continued to reinforce our position as one of the leading players in the fluid power sector.

 

Revenue

Six months

ended

30 June 2017

£000

Six months

ended

30 June 2016

£000

%

Change

 

Year

ended

31 December 2016

£000

Flowtechnology

Power Motion Control

Process

19,336

12,706

2,130

18,093

8,268

1,026

 

6.9%

53.7%

107.4%

 

35,113

15,830

2,837

 

Total Group Revenue

34,173

27,387

24.8%

53,780

 

Gross Profit %

 

34.1%

 

34.9%

 

(0.8%)

 

35.5%

 

Although not defined under IFRS, the Directors believe that the underlying operating results give a better understanding of the business' profit performance.  The table below details this is in summary and further information is contained in note 3 of this Report.

 

Continuing operations

Underlying operating result*

Six months ended

30 June

 2017

£000

Six months ended

30 June

2016

£000

%

Change

 

Year ended

31 December

2016

£000

Flowtechnology

Power Motion Control

Process

Total Divisions

 

Central Costs

4,138

1,088

278

5,504

 

(1,000)

4,027†

930

150

5,107

 

(1,048) †

2.7%

16.9%

86.1%

7.8%

 

(4.7%)

7,626

1,823

402

9,979

 

 (2,211)

Underlying operating result*

4,504

4,059

11.0%

7,454

 

**Underlying operating result is continuing operations' operating profit before acquisition costs, amortisation of acquired intangibles, share-based payment costs and restructuring costs.  Underlying operating result is reconciled to statutory profit before tax in note 3 to the HY Report.

Adjusted for £136,000 of costs previously shown as Central Costs and now borne by Flowtechnology division

^ Source: British Fluid Power Distributors Association Monthly Survey January to July 2017 v 2016

 

 

The Flowtechnology division has increased its revenues by 6.9%.  The acquisition of Indequip in February 2016 contributed 1.6% of this growth, the balance of 5.3% reflects organic growth within the core business.  The division has continued to develop the product set and service offering in its 2017 catalogues increasing its market opportunities.  In the period since June, trading has remained in line with this growth pattern and we expect to make further positive progress over the remainder of the year.

 

The Power Motion Control division increased its revenues by 53.7%, of which 40.0% was via acquisition.  The remaining growth has been most pronounced in our Irish operation, Nelson Hydraulics, which has been able to use the fact it now has the support of a wider network of resources to significantly increase market share, particularly in Northern Ireland.  All the businesses within this division are highly technical and complementary to each other and under the PMC banner deliver a collaborative approach to our customers.  This has been a key element in the division's progress.  Like Flowtechnology, in the period since June, trading has remained buoyant and management are confident that further growth is achievable in Q3 and Q4.

 

Growth in the newest division Process reflects a mix of organic - 16.0% - and full year effects from the acquisition of Hydravalve in March 2016. The acquisition of Orange County in July 2017 will further enhance growth in the second half of 2017. Since June, trading has been strong and again the Board are confident of organic growth being achieved in Q3 and Q4. 

 

The Group's ongoing focus on Gross Profit across all the divisions, linked to our flexible pricing models and specialised procurement programmes, has enabled the business to maintain and develop its gross margins in line with market expectations at 34.1%, with the reduction from last year's comparative of 34.9% being predominantly down to the mix effect of the PMC division acquisitions.  Overall the Board is pleased with the pricing adjustments that have been made since the increase in the cost of USD and Euro sourced products seen post the Brexit result in the summer of 2016. Across the Group margins generally have returned to pre-Brexit levels.  

 

The Board is pleased to report that in all divisions staff and other operational costs remain in line with expectations. In addition, the Group has been able to use some of the proceeds of this growth to enhance our staff and management bonus schemes at local level with a view to replacing our current share based option schemes (see below). The Group is therefore able to report an underlying operating result of £4.504m (2016: £4.059m), an increase of 11% year on year.

 

FINANCIAL POSITION INCLUDING CASH FLOW AND BANK DEBT

Net cash generated from operating activities was £2.784m (note 9) (2016: £0.188m), an increase of £2.596m.  This figure represents a return to a more "normalised" result with the comparative in 2016 being influenced by the expected build-up of working capital in Indequip following the purchase of the trade in February 2016, and the heavier bias in stock investment in early 2016 made to take advantage primarily of better pricing opportunities in the Far East at the time - a decision that also provided some advantage against currency movements following the Brexit vote in June 2016.

 

Net borrowings at 30 June 2017 were £8.4m.  Barclays Bank Plc has supported the Group's acquisition activity, and we remain well within agreed facilities and covenants.  Overall the Board expects further strong operational cash generation in the second half of 2017, which will in turn support acquisition activity as well as future dividend payments (see below).

 

OUR BUSINESS STRATEGY FOR GROWTH

The raising of £10m of new capital at the end of March 2017 has already allowed us to complete several investments and these are included in the list below.  The pipeline remains strong, continues to develop, and if brought to fruition will significantly enhance our current brand portfolio and offering.  We remain confident that we will conclude more of these transactions over the coming months, and enhance organic growth through a mix of product development, value add services and new customer opportunities. 

 

During the year to date the Group has invested a total of £8.1million in the following acquisitions:

 

Ø Hydraulics & Transmissions Limited (HTL).   - Jan 2017 - PMC - Day 1 cash outlay incl. assumed net debt £1.8m

Ø Hewi Slangen - Feb 2017 - Flowtechnology - £0.2m

Ø Hi-Power Limited - June 2017 - PMC - £1.9m  

Ø Orange County Limited ("OCL") - July 2017 - Process - £1.5m

Ø The Hydraulic Group BV t/a Hydraflex Hydraulics - Sept 2017 - PMC - £2.7m

 

A further £3.5m is expected to be paid out in contingent consideration over the next two years (HTL - £0.9m, Hi-Power - £0.5m, OCL - £2.1m).

 

All the above businesses are trading strongly, and have further demonstrated that the acquisition and control processes which are in place allow integration to be progressed quickly and with little disturbance to customer facing operations.  All have developed our range of options.

 

These acquisitions clearly reinforce the ongoing strategy set out by the Board, to develop a focused Fluid Power Group across a wide number of industry sectors taking advantage of the complementary technical and product offerings, and creating an opportunity to de-risk some of the cyclic nature of each business. 

 

INVESTMENT FOR THE FUTURE

As part of the ongoing development of the Group, the Shared Logistics Centre based at Skelmersdale is in the process of internal redesign increasing its capacity by over 40%.  The total capital cost of this investment is c.£0.6m, and includes enhancement to both the automated picking lines and bulk storage, as well as office capacity.  The project which will be completed by the end of September 2017 has been majority funded by a capital contribution from the landlord on signing a new fifteen-year lease in 2016, and along with efficiency savings already created will provide additional capacity for the Group to deliver operational and stocking improvements for use by all our Profit Centres.  The Board believes this will also provide considerable scope for both the profitable integration of future acquisitions to the Group, and provide scope for further organic growth within the current portfolio.

 

In addition, it is our intention to establish during the early part of 2018 a Shared Engineering Centre based on the current Primary Fluid Power operation in Knowsley, Merseyside to enhance our position as a complete service provider to the fluid power sector.  Subject to the identification of a new leasehold site, a sale of the current site has been agreed with likely net cash proceeds of c.£0.9m.  We expect to be able to confirm the new location by the time of our next trading update in mid-October.

 

STAFF AND MANAGEMENT BONUS SCHEMES

The Group has expanded quickly over the past two years, and now has fifteen "Profit Centres" compared with two when we came to market in 2014.  With further expansion planned, the Board believed it was important to introduce a bonus scheme that both focused on ensuring that management teams would continue to be rewarded for growth at local level, whilst at the same time exploiting the benefits of being part of the Group.  In addition, it was important that each business was also accountable for the management of its own working capital, including the lifeblood of a successful distribution operation, inventory.

Therefore, from 1 January 2017, the Group introduced a bonus scheme that rewards at Profit Centre level and is based on a share of the operating profit produced above a threshold return on capital employed - an internal rate that is currently set at 20%.  This capital excludes any bank or other similar financing.  It therefore ensures that the Group has a bottom up approach to cash generation.

 

This scheme is also allowing the Group to quickly integrate acquisitions as new management teams have a simple reward programme to follow.  We are creating "best practice" KPI comparisons within the Group, such as gross margin %, payroll efficiency and stock turns, which will create a drive to match the best performance in each division. 

 

Whilst implementation of the profit sharing scheme has increased payroll costs when compared to 2016, the Board sees the adoption of this scheme as a fundamental for the future development of the Group; over time this scheme will replace the share-based reward systems that are currently in place for staff employed at Profit Centre level.

OUR PEOPLE

At Operating Board level, we congratulate Paul Smith on his promotion to Managing Director of TSL, and we welcome Managing Directors, Maurice Kearney (Hi-Power), Kirk Duncan (HTL), Spencer Rogers (OCL) and most recently, Leo Voogd (The Hydraulic Group - Hydroflex).

 

Delivering our goals and objectives we now have over 400 skilled staff employed across five countries and in eighteen locations, and we take this opportunity to welcome all new colleagues who joined us this year.  The Board thanks everyone around the business for their continuous hard work, dedication and loyalty, which underpins both customer relationships and the Group's overall performance.

 

OUTLOOK

The Group's current underlying performance will deliver another year of solid progress.  As a business, we are confident in our strategy, commercial opportunities and the prospects, and with a strong start to the second half are on track to meet current market expectations for the year ending 31 December 2017.

 

EARNINGS PER SHARE AND DIVIDEND

As shareholders are aware, the Board is focused on capital growth and increasing ROCE, now supported by our staff "Profit Sharing" bonus scheme.  We are also committed to a progressive dividend policy based on the Group's operational performance whilst balancing our investments in the business for the future. 

 

In the first half, Earnings Per Share has reduced to 5.22p from 5.91p in 2016, as a result of the fundraising in March which increased the weighted average number of shares in issue by 10.0% (see note 6), and the costs associated with our acquisition activity during the same period of £510,000 (2016 £238,000 - see note 3).  With the full year effects of the investment of this capital now expected to be seen in late 2017 and 2018, the Board expects Earnings Per Share to return to growth    The Board is therefore pleased to declare a half-year dividend of 1.93p (2016: 1.84p), a 5% increase.  This interim dividend will be paid on 24 October 2017 to Members on the Register at the close of business on 29 September 2017.  The shares will become ex-dividend on 28 September 2017.  The dividend is covered 2.5 times by earnings.

 

We look forward to keeping investors updated over the coming months, and will provide further information on our performance during Q3 on 17 October 2017.

By order of the Board

12 September 2017

CONSOLIDATED INCOME STATEMENT

FOR THE SIX MONTHS ENDED 30 JUNE 2017


 

Notes

Unaudited

Six months

ended

30 June 2017

£000

Unaudited

Six months

ended

30 June 2016

£000

Audited

Year

ended

31 December 2016

£000

Continuing operations

Revenue

Cost of sales

 

3

 

34,173

(22,519)

 

27,387

(17,836)

 

53,780

(34,714)

Gross profit

Distribution expenses


11,654

(1,452)

9,551

(1,318)

19,066

(2,475)

Administrative expenses before separately disclosed items:

-Acquisition costs

-Amortisation of acquired intangibles

-Share based payment costs

-Restructuring costs

-(Under)/over accrued contingent consideration

 

 

3

3

3

3

3

 

(5,698)

(510)

(325)

(172)

(90)

(15)

 

(4,174)

(238)

(264)

(149)

(118)

-

 

(9,137)

(419)

(569)

(353)

(84)

108

Total administrative expenses


(6,810)

(4,943)

(10,454)

Operating profit

3

3,392

3,290

6,137

Financial income

Financial expenses

 

 

-

(282)

-

(223)

1

(611)

Net financing costs


(282)

(223)

(610)

Profit from continuing operations before tax

Taxation

3

4

3,110

(634)

3,067

(521)

5,527

(1,146)

Profit from continuing operations


2,476

2,546

4,381

Loss from discontinued operations, net of tax


-

-

(91)

Profit for the period attributable to the owners of the parent


 

2,476

 

2,546

 

4,290

Earnings per share

Basic earnings/(loss) per share

Continuing operations

Discontinued operations


 

 

5.22p

-

 

 

5.91p

-

 

 

10.17p

(0.21p)

Basic earnings per share

6

5.22p

5.91p

9.96p

Diluted earnings/(loss) per share

Continuing operations

Discontinued operations


 

5.17p

-

 

5.86p

-

 

10.08p

(0.21p)

Diluted earnings per share

6

5.17p

5.86p

9.87p

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 JUNE 2017


Unaudited

Six months

ended

30 June2017

£000

Unaudited

Six months

ended

30 June 2016

£000

Audited

Year ended

31 December 2016

£000

Profit for the period

2,476

2,546

4,290

Other comprehensive income

-  items that will be reclassified subsequently to profit or loss

Exchange differences on translating foreign operations

 

 

72

 

 

302

 

 

350

Total comprehensive income in the period attributable to the owners of the parent

 

2,548

 

2,848

 

4,640

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2017


 

 

Unaudited

 30 June 2017

£000

Unaudited

30 June 2016

£000

Audited

31 December 2016

£000

Assets

Non-current assets

Goodwill

Other intangible assets

Property, plant and equipment


 

 

51,609

4,893

4,344

 

 

48,312

4,889

3,702

 

 

47,927

4,780

3,899

Total non-current assets


60,846

56,903

56,606

Current assets

Inventories

Trade and other receivables

Prepayments

Other financial assets

Cash and cash equivalents

 

 

 

 

 

 

 

17,317

16,625

807

-

4,142

 

16,752

14,718

725

32

1,711

 

16,592

13,012

304

-

3,824

Total current assets


38,891

33,938

33,732

Liabilities

Current liabilities

Interest-bearing loans and borrowings

Trade and other payables

Deferred and contingent consideration

Tax payable

Provisions

Other financial liabilities

 

 

 

 

 

8,527

11,627

1,637

1,074

-

-

 

 

10,905

9,313

1,068

937

50

16

 

 

12,888

8,625

1,420

975

-

57

Total current liabilities


22,865

22,289

23,965

Net current assets


16,026

11,649

9,767

Non-current liabilities

Deferred and contingent consideration

Interest-bearing loans and borrowings

Provisions

Deferred tax liabilities

 

 

 

476

4,000

204

1,039

 

2,789

4,950

130

1,042

 

212

4,081

212

1,019

Total non-current liabilities


5,719

8,911

5,524

Net assets


71,153

59,641

60,849

Equity directly attributable to owners of the parent

Share capital

Share premium

Share-based payment reserve

Merger reserve

Shares owned by the EBT

Merger relief reserve

Currency translation reserve

Retained losses

 

 

 

25,830

52,435

690

293

(507)

2,086

329

(10,003)

 

21,539

46,880

529

293

(338)

2,086

209

(11,557)

 

21,539

46,880

733

293

(338)

2,086

257

(10,601)

Total equity


71,153

59,641

60,849

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 JUNE 2017


Share capital

 

£000

Share

premium

 

£000

Share-based payment reserve

£000

Merger reserve

 

£000

Merger relief

reserve

£000

Currency

translation

reserve

£000

Shares owned by EBT £000

Retained

losses

 

£000

Total

equity

 

£000

 

Six months ended 30 June 2016 - unaudited










Balance at 1 January 2016

Profit for the period

Other comprehensive income

21,539

-

-

46,880

-

-

380

-

-

293

-

-

2,086

-

-

(93)

-

302

(338)

-

-

(12,604)

2,546

-

58,143

2,546

302

Total comprehensive income for the period

-

-

-

-

-

302

-

2,546

2,848

Transaction with owners

Share-based payment charge

Equity dividends paid (note 5)

 

-

-

 

-

-

 

149

-

 

-

-

 

-

-

 

-

-

 

-

-

 

-

(1,499)

 

149

(1,499)

Total transactions with owners

-

-

149

-

-

-

-

(1,499)

(1,350)

Balance at 30 June 2016

21,539

46,880

529

293

2,086

209

(338)

(11,557)

59,641











Year ended 31 December 2016 - audited










Balance at 1 January 2016

Profit for the year

Other comprehensive income

21,539

-

-

46,880

-

-

380

-

-

293

-

-

2,086

-

-

(93)

-

350

(338)

-

-

(12,604)

4,290

-

58,143

4,290

350

Total comprehensive income for the year

 

-

 

-

 

-

 

-

 

-

 

350

 

-

 

4,290

 

4,640

Transaction with owners

Share-based payment charge

Equity dividends paid (note 5)

 

-

-

 

-

-

 

353

-

 

-

-

 

-

-

 

-

-

 

-

-

 

-

(2,287)

 

353

(2,287)

Total transactions with owners

-

-

353

-

-

-

-

(2,287)

(1,934)

Balance at 31 December 2016

21,539

46,880

733

293

2,086

257

(338)

(10,601)

60,849











Six months ended 30 June 2017 - unaudited










Balance at 1 January 2017

Profit for the period

Other comprehensive income

21,539

-

-

46,880

-

-

733

-

-

293

-

-

2,086

-

-

257

-

72

(338)

-

-

(10,601)

2,476

-

60,849

2,476

72

Total comprehensive income for the period

-

-

-

-

-

72

-

2,476

2,548

Transaction with owners

Issue of share capital

Shares owned by the EBT

Share-based payment charge

Share options settled

Equity dividends paid (note 5)

 

4,291

-

-

-

-

 

5,555

-

-

-

-

 

-

-

172

(215)

-

 

-

-

-

-

-

 

-

-

-

-

-

 

-

-

-

-

-

 

-

(244)

-

75

-

 

-

-

-

-

(1,878)

 

9,846

(244)

172

(140)

(1,878)

Total transactions with owners

4,291

5,555

(43)

-

-

-

(169)

(1,878)

7,756

Balance at 30 June 2017

25,830

52,435

690

293

2,086

329

(507)

(10,003)

71,153

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 30 JUNE 2017


 

Note

Unaudited

Six months ended

30 June 2017

£000

Unaudited

 Six months ended

30 June 2016

£000

Audited

 Year ended

31 December 2016

£000

Cash flow from operating activities




Net cash from operating activities

9

2,784

188

4,166

Cash flow from investing activities

Acquisition of subsidiaries, net of cash/(debt) acquired

Acquisition of property, plant and equipment

Proceeds from sale of property, plant and equipment

Payment of deferred consideration


 

(4,345)

(669)

14

(411)

 

(3,309)

(353)

22

-

 

(3,677)

(858)

52

(1,031)

Net cash used in investing activities


(5,411)

(3,640)

(5,514)

Cash flows from financing activities

Net proceeds from the issue of share capital

Repayment of long term borrowings

Net change in short term borrowings

Repayment of finance lease liabilities

Net cash settled share options

Interest received

Interest paid

Dividends paid


 

9,602

(429)

(4,000)

(13)

(140)

-

(186)

(1,878)

 

-

-

5,000

(18)

-

-

(110)

(1,499)

 

-

(857)

7,000

(37)

-

1

(302)

(2,287)

Net cash generated from financing activities


2,956

3,373

3,518

Net change in cash and cash equivalents


329

(79)

2,170

Cash and cash equivalents at start of period

Exchange differences on cash and cash equivalents


3,824

(11)

1,725

55

1,725

(71)

Cash and cash equivalents at end of period


4,142

1,701

3,824

 

NOTES TO THE HALF-YEAR REPORT

FOR THE SIX MONTHS ENDED 30 JUNE 2017


1.

General information

The principal activity of Flowtech Fluidpower plc (the "Company") and its subsidiaries (together, the "Group") is the distribution of engineering components, concentrating on the fluid power industry. The Company is incorporated and domiciled in the UK. The address of its registered office is Pimbo Road, Skelmersdale, Lancashire WN8 9RB.  

 

The registered number is 09010518.

 

As permitted, this Half-Year Report has been prepared in accordance with the AIM rules and not in accordance with IAS 34 "Interim Financial Reporting".

 

The consolidated financial statements are prepared under the historical cost convention, as modified by the revaluation of certain financial instruments.

 

This consolidated Interim Report and the financial information for the six months ended 30 June 2017 does not constitute full statutory accounts within the meaning of section 434 of the Companies Act 2006 and are unaudited. This unaudited Interim Report was approved by the Board of Directors on 12 September 2017.

 

The Group's financial statements for the year ended 31 December 2016 have been filed with the Registrar of Companies.  The Group's auditor's report on these financial statements was unqualified and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

 

ELECTRONIC COMMUNICATIONS

The Company is not proposing to bulk print and distribute hard copies of this Half-Year Report unless specifically requested by individual shareholders.

 

The Board believes that by utilising electronic communication it delivers savings to the Company in terms of administration, printing and postage, and environmental benefits through reduced consumption of paper and inks, as well as speeding up the provision of information to shareholders.

 

News updates, regulatory news, and financial statements, can be viewed and downloaded from the Group's website, www.flowtechfluidpower.com.  Copies can also be requested from; The Company Secretary, Flowtech Fluidpower plc, Pimbo Road, Skelmersdale, Lancashire, WN8 9RB. email: info@flowtechfluidpower.com

 

 

2

aCCOUNTING POLICIES

 

Basis of preparation

The financial information set out in this consolidated Interim Report has been prepared under International Financial Reporting Standards (IFRS) as adopted by the European Union and in accordance with the accounting policies which will be adopted in presenting the Group's Annual Report and Financial Statements for the year ended 31 December 2017. These are consistent with the accounting policies used in the Financial Statements for the year ended 31 December 2016, except for taxes; taxes on income in the interim periods are accrued using the rate of tax that would be applicable to expected total annual earnings.

 

GOING CONCERN

The Group meets its day-to-day working capital requirements through its bank facilities. The Directors have carefully considered the banking facilities and their future covenant compliance considering the current and future cash flow forecasts and they believe that the Group is appropriately positioned to ensure the conditions of its funding will continue to be met and therefore enable the Group to continue in operational existence for the foreseeable future by meeting its liabilities as they fall due for payment.

 

 

3.

OPERATING SEGMENTS

The Group comprises the following three operating segments which are defined by trading activity:

·    Flowtechnology division - distribution and assembly of engineering components, principally to distributors and end users in the UK, the Republic of Ireland and the Benelux

·    Power Motion Control division - based in the UK and the Republic of Ireland, distribution and assembly of engineering components and hydraulic systems to distributors and end users in the international market

·    Process division - the distribution and supply of industrial components to the process sectors, principally in the UK

 

The Board is the chief operating decision maker (CODM).  The CODM manages the business using an underlying profit figure.  Only finance income and costs secured on the assets of the operating segment are included in the segment results.  Finance income and costs relating to loans held by the Company are not included in the segment result that is assessed by the CODM.  Transfer prices between operating segments are on an arm's length basis.

 

The Directors believe that the underlying operating profit provides additional useful information on key performance trends to Shareholders.  The term "underlying" is not a defined term under IFRS and may not be comparable with similarly titled profit measurements reported by other companies.  A reconciliation of the underlying operating result to operating profit / (loss) from continuing operations is shown below.  The principal adjustments made are in respect of the separately disclosed items and are as detailed at the end of this note.  Segment information for the reporting periods is as follows:

 


Flowtechnology

 

 

£000

Power Motion Control

£000

Process

 

 

£000

Inter-segmental transactions

£000

Central costs

£000

Total continuing operations

£000

Six months ended 30 June 2017







Income statement - continuing operations:







Revenue from external customers

19,336

12,706

2,131

-

-

34,173

Inter segment revenue

823

159

40

(1,022)

-

-

Total revenue

20,159

12,865

2,171

(1,022)

-

34,173

Underlying operating result

4,138

1,088

278

-

(999)

4,504

Net financing costs

-

(10)

(4)

-

(268)

(282)

Underlying segment result

4,138

1,078

274

-

(1,267)

4,222

Separately disclosed items

(154)

(48)

-

-

(910)

(1,112)

Profit/(loss) before tax

3,984

1,030

274

-

(2,177)

3,110

Specific disclosure items

Depreciation

Amortisation

 

203

10

 

50

271

 

14

44

 

-

-

 

-

-

 

267

325

Reconciliation of underlying operating result to operating profit:

Underlying operating result

Separately disclosed items

 

 

4,138

(154)

 

 

1,087

(48)

 

 

278

-

 

 

-

-

 

 

(999)

(910)

 

 

4,504

(1,112)

Operating profit/(loss)

3,984

1,039

278

-

(1,909)

3,392

 

 


Flowtechnology

 

 

£000

Power Motion Control

£000

Process

 

 

£000

Inter-segmental transactions

£000

Central costs

£000

Total continuing operations

£000

Six months ended 30 June 2016







Income statement

- continuing operations:







Revenue from external customers

18,093

8,268

1,026

-

-

27,387

Inter segment revenue

859

327

24

(1,210)

-

-

Total revenue

18,952

8,595

1,050

(1,210)

-

27,387

Underlying operating result

4,164

930

150

-

(1,185)

4,059

Net financing costs

(92)

(1)

5

-

(135)

(223)

Underlying segment result

4,072

929

155

-

(1,320)

3,836

Separately disclosed items

(138)

(27)

(37)

-

(567)

(769)

Profit/(loss) before tax

3,934

902

118

-

(1,887)

3,067

Specific disclosure items

Depreciation

Amortisation

 

195

6

 

55

236

 

8

22

 

-

-

 

-

-

 

258

264

Reconciliation of underlying operating result to operating profit:

Underlying operating result

Separately disclosed items

 

 

4,164

(138)

930

(27)

150

(37)

-

-

(1,185)

(568)

4,059

(769)

Operating profit/(loss)

4,026

903

113

-

(1,753)

3,290

 


Flowtechnology

 

 

£000

Power Motion Control

£000

Process

 

 

£000

Inter-segmental transactions

£000

Central costs

£000

Total continuing operations

£000

Year ended 31 December 2016







Income statement

- continuing operations:







Revenue from external customers

35,113

15,830

2,837

-

-

53,780

Inter segment revenue

1,645

585

199

(2,429)

-

-

Total revenue

36,758

16,415

3,036

(2,429)

-

53,780

Underlying operating result

7,626

1,823

402

-

(2,397)

7,454

Net financing costs

(1)

(65)

(39)

-

(505)

(610)

Underlying segment result

7,625

1,758

363

-

(2,902)

6,844

Separately disclosed items

(180)

40

(58)

-

(1,119)

(1,317)

Profit/(loss) before tax

7,445

1,798

305

-

(4,021)

5,527

Specific disclosure items

Depreciation

Amortisation

 

389

16

 

113

488

 

24

65

 

-

-

 

-

-

 

526

569

Reconciliation of underlying operating result to operating profit:

Underlying operating result

Separately disclosed items

 

 

7,626

(180)

1,823

40

402

(58)

-

-

(2,397)

(1,119)

7,454

(1,317)

Operating profit/(loss)

7,446

1,863

344

-

(3,516)

6,137

 

SEPARATELY DISCLOSED ITEMS

·      Acquisition costs relate to stamp duty, due diligence, legal fees, finance fees and other professional costs incurred in the acquisition of businesses

·      Share-based payment costs relate to the provision made in accordance with IFRS 2 "Share-based payment" following the issue of share options to employees

·      Restructuring costs related to restructuring activities of an operational nature following acquisition of business units and other restructuring activities in established businesses. Costs include employee redundancies and IT integration.

 


 Six months

ended

30 June 2017

£000

Six months

ended

30 June 2016

£000

Year

ended

31 December 2016

£000

Separately disclosed items within administration expenses:

-Acquisition costs

-Amortisation of acquired intangibles

-Share based payment costs

-Restructuring

-(Under)/over accrued contingent consideration

 

510

325

172

90

15

 

238

264

149

118

-

 

419

569

353

84

(108)

Total separately disclosed items

1,112

769

1,317

 

4.

TAXATION


Six months

ended

30 June 2017

£000

Six months

ended

30 June 2016

£000

Year

ended

31 December 2016

£000

 

Current tax on income for the period - continuing operations:

UK tax

Foreign tax

Deferred tax credit

Adjustments in respect of prior years

 

680

-

(46)

-

 

620

-

(45)

(54)

 

1,285

20

(171)

12

 

Total taxation

634

521

1,146

 

 

The taxation for the period has been calculated by applying the estimated tax rate for the financial year ending 31 December 2017. Deferred tax liabilities have also been adjusted to £1,039,000 to reflect capital allowances more than depreciation and other short-term timing differences.

 

 

5.

DIVIDENDS


Six months

ended

30 June

2017

£000

Six months

ended

30 June

2016

£000

Year

ended

31 December

2016

£000

Final dividend of 3.67p (2016: 3.50p) per share

1,878

1,499

1,499

Interim dividend of 1.84p per share

-

-

788


1,878

1,499

2,287

 

In addition, the Directors are proposing a half-year dividend in respect of the financial year ended 31 December 2017 of 1.93p per share which will absorb an estimated £1.0 million of shareholders' funds.  It will be paid on the 24 October 2017 to Shareholders who are on the Register of Members at close of business on 29 September 2017.

 

6.    EARNINGS PER SHARE

Basic earnings/(loss) per share is calculated by dividing the earnings/(loss) attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period. 

 

For diluted earnings/ (loss) per share the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The dilutive shares are those share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the period.

 


Six months ended

30 June 2017

Six months ended

30 June 2016

Year ended

31 December 2016


 

 

Earnings

£000

Weighted average number of shares

000's

Earnings per share

Pence

 

 

Earnings

£000

Weighted average number of shares

000's

Earnings per share

Pence

Earnings

£000

Weighted average number of shares

000's

Earnings per share

Pence

Basic earnings/(loss) per share

Continuing operations

Discontinued operations

 

2,476

-

 

47,402

47,402

 

5.22

-

 

2,546

-

 

43,078

43,078

 

5.91

0.00

 

4,381

(91)

 

43,078

43,078

 

10.17

(0.21)

Basic earnings per share

2,476

47,402

5.22

2,546

43,078

5.91

4,290

43,078

9.96

Diluted earnings/(loss) per share

Continuing operations

Discontinued operations

 

2,476

-

 

47,886

47,886

 

5.17

-

 

2,546

-

 

43,472

43,472

 

5.86

0.00

 

4,381

(91)

 

43,456

43,456

 

10.08

(0.21)

Diluted earnings per share

2,476

47,886

      5.17

2,546

43,472

5.86

4,290

43,456

9.87

 


Six months

ended

30 June 2017

£000

Six months ended

30 June 2016

£000

Year

ended

31 December 2016

£000

Weighted average number of ordinary shares for basic and diluted earnings per share

Impact of share options

 

47,402

484

 

43,078

394

 

43,078

378

Weighted average number of ordinary shares for diluted earnings per share

 

47,886

 

43,472

 

43,456

 

7.

ACQUISITIONS

 

7.1     HYDRAULICS & TRANSMISSIONS LIMITED

On 20 January 2017, the Group acquired 100% of the share capital of Hydraulics & Transmissions Limited ("HTL"), a UK-based company.  HTL provides fluid power solutions predominantly to the mobile market segment and supplies some of the market leaders such as JCB, McConnell and Alamo.  The acquisition strengthened our position with key global suppliers including Eaton, Walvoil and Casappa, and complemented our previous acquisitions of Primary Fluid Power and Nelson Hydraulics.  The total consideration was £1,669,000.  This comprised £777,000 in cash and £892,000 contingent cash consideration. The additional consideration is based on profit targets for the Company's customer base and is payable in three instalments over the next two years.  The fair value of £892,000 has been calculated using management forecasts of HTL's performance discounted at the weighted average cost of capital.

 

GOODWILL

Goodwill of £1,551,000 is primarily related to expected future profitability and expected cost synergies. Goodwill has been allocated to the Power Motion Control operating segment and is not expected to be deductible for tax purposes.

 

INTANGIBLE ASSET

An intangible asset of £438,000 has been provisionally identified related to customer relationships. The estimated useful life has been determined as ten years based on the expected future cash flows that they would generate in arriving at their fair value. The customer relationships considered in the valuation comprise the sales to significant customers.  Long term sales growth over the ten-year period has been assumed to be 5.2% with an attrition rate of 12.8% for customers. Growth and attrition rates are based on management experience and expectations. Amortisation of customer relationships is not expected to be deductible for tax purposes.

 

Details of the provisional fair value of identifiable assets and liabilities acquired, purchase consideration, goodwill and intangible assets are as follows:

 


 

 

Book value

£000

 

Fair value adjustment

£000

Intangible asset recognised on acquisition

£000

 

Provisional fair value

£000






Property, plant and equipment

30

-

-

30

Intangible assets

322

(322)

438

438

Inventories

1,226

-

-

1,226

Trade and other receivables

1,019

-

-

1,019

Cash and cash equivalents

(1,010)

-

-

(1,010)

Trade and other payables

(1,456)

-

-

(1,456)

Current tax balances

(45)

-

-

(45)

Deferred tax liability

(5)

-

(79)

(84)

Total net assets

81

(322)

359

118










£000

Fair value of consideration paid





Amount settled in cash




777

Fair value of contingent consideration




892

Total consideration




1,669

Less net assets acquired




(617)

Goodwill on acquisition




1,551

 

7.2    HEWI SLANGEN

 

On 7 April 2017, the Group acquired the trade and certain assets of Hewi Slangen B.V., a Dutch based business.  Complementary to our existing Dutch division, Flowtechnology Benelux, Hewi Slangen brings synergistic savings through relocation of operations and additional abilities and skills in hose production.  The total consideration was £217,000 fully settled in cash.  The provisional fair value of assets acquired was £170,000.  Goodwill of £47,000 is primarily related to expected future profitability, technical know-how and expected cost synergies from the closure of the operational site and transfer of activities into existing Group locations. Goodwill has been allocated to the Flowtechnology operating segment and is not expected to be deductible for tax purposes.

 

 

7.3     HI-POWER LIMITED

 

Hi-Power Limited was acquired on 23 June 2017 for an initial consideration of £1.6million in cash with contingent consideration of £0.5million anticipated to be paid over the next two years. The cash consideration was funded out of existing Group resources. It is a specialist distributor of hydraulic equipment components predominantly to the mobile and transport sectors.  It is based in Cork, Dublin and Belfast. In addition, the trade and certain assets of Hi-Power Hydraulics Limited, a UK division of Hi-Power Limited were acquired on 30 June 2017 for a total cash consideration of £300,000.  The cash consideration was funded out of existing Group resources.  This division is based in Stockport.  These acquisitions are complementary to the PMC division and will strengthen the Group position with key European suppliers. 

The Group will disclose the book value of the identifiable assets and liabilities and their fair values in the 2017 full year financial statements as required under IFRS 3 "Business Combinations".  The initial accounting and fair value exercise is incomplete at the time of this announcement due to the proximity of the accounting date.

 

 

8.   SUBSEQUENT EVENTS

Orange County Limited was acquired on 7 July 2017 for an initial consideration of £1.5 million in cash with contingent consideration of £2.1million anticipated to be paid over the next two years.  The cash consideration was funded out of existing Group resources.  It is a specialist supplier and distributor of high quality products for the storage and movement of fuel, liquid and gases based in Spennymoor, County Durham. Orange County provides a further complementary business to the Group and establishes relationships with world-leading manufacturers of pipes, valves, gauges and leak detection equipment. It is focused on technical sales to a wide range of end users from fuel supply systems for the automotive industry to cooling systems on the London Underground, as well as large Data Centres across the UK. The business will form part of the Process division.

The Hydraulic Group BV was acquired on 7 September 2017 for an initial consideration of £2.7million comprising in cash and £0.6m in shares. The cash consideration was funded out of existing Group resources. Based in Rotterdam, with a sales presence in Brussels, it is a distributor of hydraulic equipment and components, predominantly to the mechanical engineering, marine and agricultural sectors into both Maintenance Repair and Operations applications, as well as Original Equipment Manufacturers. The business will form part of the PMC division.

For both these acquisitions the Group will disclose the book value of the identifiable assets and liabilities and their fair values in the 2017 full year financial statements as required under IFRS 3 "Business Combinations".  The initial accounting and fair value exercises were incomplete at the time of this announcement due to the proximity of the accounting date.

 

9.

NET CASH FROM OPERATING ACTIVITIES


Six months ended

30 June 2017

£000

Six months

ended

30 June 2016

£000

Year

ended

31 December 2016

£000

Reconciliation of profit before taxation to net cash flows from operations:

Profit from continuing operations before tax

Loss from discontinued operations before tax

Depreciation

Financial income

Financial expense

Profit on sale of plant and equipment

Amortisation

Equity settled share-based payment charge

Under/(over) accrued contingent consideration

 

 

3,110

-

267

-

282

-

325

172

15

 

 

3,067

-

258

-

223

(8)

264

149

-

 

 

5,527

(113)

526

(1)

611

(21)

569

353

(108)

Operating cash inflow before changes in working capital and provisions

Change in trade and other receivables

Change in stocks

Change in trade and other payables

Change in provisions

4,171

(2,569)

452

1,383

(9)

3,953

(3,696)

(1,299)

1,915

(36)

7,343

(1,384)

(1,486)

1,126

(86)

Cash generated from operations

Tax paid

3,428

(644)

837

(649)

5,513

(1,347)

Net cash generated from operating activities

2,784

188

4,166

 

PRINCIPAL RISKS AND UNCERTAINTIES

In common with all organisations, Flowtech faces risks which may affect its performance.  The Group operates a system of internal control and risk management to provide assurance that we are managing risk whilst achieving our business objectives.  No system can fully eliminate risk and therefore the understanding of operational risk is central to management processes.  The long-term success of the Group depends on the continual review, assessment and control of the key business risks it faces.  The Directors set out in the 2016 Annual Report and Financial Statements the principal risks identified during this exercise, including quality control, systems and site disruption and employee retention.  The Board does not consider that these risks have changed materially in the last six months.

 

 

 

FORWARD-LOOKING STATEMENTS

This document contains certain forward-looking statements which reflect the knowledge and information available to the Company during the preparation and up to the publication of this document.  By their very nature, these statements depend upon circumstances and relate to events that may occur in the future thereby involving a degree of uncertainty.  Although the Group believes that the expectations reflected in these statements are reasonable, it can give no assurance that these expectations will prove to have been correct. Given that these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements.

 

The Group undertakes no obligation to update any forward-looking statements whether because of new information, future events or otherwise.

 

 

 

 

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
IR BIGDCLXBBGRB
Close


London Stock Exchange plc is not responsible for and does not check content on this Website. Website users are responsible for checking content. Any news item (including any prospectus) which is addressed solely to the persons and countries specified therein should not be relied upon other than by such persons and/or outside the specified countries. Terms and conditions, including restrictions on use and distribution apply.

 


Organic & acquisition strategy underpins future - RNS