Half Yearly Report

RNS Number : 3451Y
Flowtech Fluidpower PLC
08 September 2015
 

 

Issued on behalf of Flowtech Fluidpower PLC

Date: Tuesday 8 September 2015   

 

FLOWTECH FLUIDPOWER PLC

(Flowtech, the Group or Company)

INTERIM FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2015

 

AT A GLANCE

From continuing operations

Change

HY 2015 v HY 2014

HY2015

30.6.15

HY 2014

30.6.14

Full year

31.12.14

·      Group revenue

+24.6%

£21.423m

£17.191m

£37.791m

·      Gross profit

+17.7%

£7.203m

£6.119m

£13.176m

·      Underlying operating results*

+3.8%

£3.404m

£3.281m

£6.146m

·      Operating profit

+183.6%

£3.012m

£1.062m

£3.325m

·      Half- year dividend

+5.0%

1.75p

1.67p

5.00p

·      Earnings per share (basic)

-

5.62p

**

**

·      Net debt

+21.6%

£7.459m

£6.132m

£6.710m

·      Strong balance sheet and cash generation

*Underlying operating result is continuing operations operating profit before acquisition costs, amortisation of acquired intangibles, share-based payment costs, restructuring costs and IPO costs

** Prior period earnings per share measures are calculated under previous financial structure and are therefore not comparable

 

HIGHLIGHTS

·      Solid performance across the business despite some sector weakness in UK and Eurozone which impacted the Maintenance, Repair and Overhaul market (MRO)

·      Gross profit margins across all divisions remained consistent and strong for each sector with no erosion experienced despite market conditions

·      Strategic acquisitions complement Primary acquired last year adding OEM scale, new markets and strengthen the Group's hydraulic offering

·      Dividend increased 5%

·      Market share increasing: new opportunities continue to be investigated

·      Acquisition of Nelson Fluid Power on 3 July and creation of Power Motion Control Division

 

Sean Fennon, Flowtech Fluidpower's Chief Executive Officer commented:

"We are pleased to report a solid underlying first half performance which has seen our portfolio businesses trading well in their individual market places. We are fortunate at this time to have both strength and depth across our product portfolio and extensive customer exposure. Management remain optimistic about both the commercial opportunities and the prospects of the Group as a whole. The Board is confident that the Company can deliver another year of solid progress."

 Enquiries:



Flowtech Fluidpower plc

AIM: FLO

Sean Fennon, Chief Executive Officer

Bryce Brooks, Chief Financial Officer

Tel: +44 (0) 1695 52796

Zeus Capital Limited

(Nominated Adviser and Broker)

Ross Andrews,

Andrew Jones,Dominic King

Tel: +44 (0) 207 533 7727

TooleyStreet Communications

(IR and media relations)

Fiona Tooley

Tel: +44 (0) 7785 703523

Email: fiona@tooleystreet.com

 

Editors' note:

Flowtech Fluidpower plc, founded as Flowtech in 1983, is the UK's leading specialist supplier of technical fluid power products with modern distribution facilities in the UK and Benelux.  It offers an unrivalled range of Original Equipment Manufacturer (OEM) and Exclusive Brand products to over 3,600 distributors and resellers. Its catalogue is recognised as the definitive source for fluid power products, containing approximately 52,000 individual product lines and is distributed to more than 85,000 industrial Maintenance, Repair and Overhaul end users (MRO).  Over 80% of product is stocked and if ordered by 10pm, can be delivered next day in the UK, providing 'best in industry' service offering.  The Group's headquarters is located in the UK where its main distribution centre is based in Skelmersdale, Lancashire, with further operational centres in Netherlands and China.  The Power Motion Control Division (PMC) has operations in Merseyside, Northern Ireland and the Republic of Ireland.  In total, the Group employs 270 people.

For more information please visit: www.flowtechfluidpower.com, or email: info@flowtechfluidpower.com

 

 

FLOWTECH FLUIDPOWER PLC

INTERIM FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2015

 

INTRODUCTION

We are pleased to report a solid underlying first half performance which has seen our portfolio businesses trading well in their individual market places against a backdrop where the economic conditions remain challenging in both the UK and Mainland Europe.  The profile of the Group has also continued to increase over the last twelve months, and this is assisting us in growing our market share and reinforcing our position as one of the leading players in the fluid power sector.  By refining our offer we ensure that the Group maintains its competitive advantage in each of the markets in which it trades.

 

OUR BUSINESS STRATEGY FOR GROWTH

Our focus remains - to develop a specialist fluid power organisation focused on its core competencies and 'class-leading' service.

 

Flowtech has already demonstrated that it can deliver profitable, consistent levels of service to a diverse customer base.  There is significant opportunity for the business to achieve further organic growth through a mix of product development and value add services.  In addition, we believe there is also a strong opportunity to accelerate this growth through complementary channel development, geographic expansion and adding niche bolt-on acquisitions.

 

In 2014, our maiden year as a PLC, we were pleased to add Primary Fluid Holdings to the Group, strengthening the Flowtech offering in hydraulics.  Against this backdrop, we were pleased to announce that in 2015 we added two successful businesses to the Group further enhancing our exposure to this important part of the industrials market sector. 

 

·      Albroco, based in North Wales was acquired in May - it specialises in the distribution of hydraulic and electro-mechanical components to the mobile, on- and off-highway and construction markets. 

·      Nelson Fluid Power (NFP) joined the Group in July - it is a distributor of hydraulic equipment, components and hose assemblies from its locations at Lisburn and Dungannon (Northern Ireland) and Dublin (Republic of Ireland).  The long established NFP business has a broad customer base in Ireland across the crushing and screening, agricultural and marine and fishing sectors.  

 

Albroco is expected to be fully integrated into the Primary site in Knowsley by the end of this month while NFP will operate as an independent sister company within the Flowtech Group.  Both will add significantly to the Group's procurement position in hydraulic components, hose and couplings.  With our growing interest in this sector, we have therefore formed a new division, Power Motion Control (PMC), incorporating Primary, Albroco and NFP.  We are optimistic that this division will benefit from the introduction of more sophisticated IT and stock systems (that are already used within Flowtech's Flowtechnology businesses), and coupled with commercial synergies and buying power, will deliver an increasing contribution in terms of revenue and profitability over the next twelve months.  

 

As a business we are in a unique position within the fluid power supply chain, as we are aligned to both the global supply base and its distributor network.  We are in an exciting phase; Flowtech's progress continues apace to the varied industrial and manufacturing customers it supplies everyday around the UK and overseas.  We remain confident in the future of the business - we have a clear strategy to develop the opportunities that will deliver future growth and returns to shareholders.

 

HALF-YEAR FINANCIAL PERFORMANCE

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

Continuing operations

Underlying operating result*

Six months ended

30 June

 2015

£000

Six months ended

30 June

2014

£000

 

 

Change

 

 

%

Year ended

31 December

2014

£000

Flowtechnology:

UK

Benelux

 

3,916

170

 

3,689

308

 

227

(138)

 

+6.2%

-44.8%

 

6,899

497

 

Primary

Central costs

4,086

284

(966)

3,997

-

(716)

89

284

(250)

+2.2%

-

-34.9%

7,396

369

(1,619)

Underlying operating result*

3,404

3,281

123

+3.7%

6,146

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

 

In the Flowtechnology division, UK revenue in the first half grew by 2.7% to £15.617m, while in the Benelux a reduction of 5.8% was experienced, albeit this includes a negative impact of 9.6% due to movements in the Euro conversion rate and therefore, local currency growth remains positive at 5.8%.

 

As previously reported Primary experienced a rapid reduction in demand from the oil and gas related sectors in late 2014 and as has been widely seen in similar companies the related drag on revenues has remained present throughout H1 2015.  However, a sensible cost management focus has ensured profitability was retained and with recent evidence indicating growth in other sectors.

 

Gross profit margins across all divisions remained consistent and strong for each sector with no erosion experienced despite market conditions. The Group is therefore able to report an underlying operating profit of £3.404m (2014: £3.281m), an increase of 3.7% year on year. 

 

On an annual basis the Group purchases a foreign currency 'hedge' to fix the Euro rate for the anticipated profitability of its overseas operations (i.e. Flowtechnology Benelux and in part the Republic of Ireland operations of NFP).  The net change in value of this hedge is accounted for as financial income under IFRS and is shown as Financial income of £33,000 (2014: £1,000).

 

FINANCIAL POSITION

With the soft market conditions experienced during the early part of 2015, the Group has focused to ensure that working capital continues to be managed effectively.  Inventories at 30 June 2015 were £10.466m, a reduction of £0.697m from 31 December 2014, although to some degree this has been offset by a reduction in trade payables of £0.264m.

 

Net cash collection remains excellent and net debt at 30 June 2015 of £7.459m (2014: £6.133m) is ahead of expectations.  This allowed the Group to complete both the acquisitions of Albroco and NFP from within current cash and debt resources.  The NFP transaction, completed post the period end (3 July 2015) was part satisfied by £4.460m in cash. However, this included the purchase of £1.500m of cash held by NFP and therefore, the net cash outlay was £2.960m funded through our own resources at completion.  Two further contingent payments are due in 2016 and 2017 which are based on the profitability of NFP post acquisition.  The maximum payable as contingent consideration is £2.375m.  Further details are given in note 8 of this report.

 

BANKING

In September 2015, in addition to its term loan, the Group secured enhanced facilities from its bankers, Barclays Bank PLC.  These replace the £6.00m Confidential Invoice Discounting (CID) facility that was in place with a new Revolving Credit Facility (RCF) of £8.00m, with an agreed further extension (so called "Accordion") of up to £7.00m as required in order to assist with growth both organically and by acquisition. This new facility has a three year commitment.

 

OUR PEOPLE

Implementing the Group's strategy is also down to our people, their skills and expertise.  The Board thank everyone around the business for their continuous hard work, dedication and loyalty, which underpins both the high level customer relationships and the Group's overall performance.

 

We also take this opportunity to welcome NFP's Managing Director, Mark Nelson to Flowtech's Operational Board.  Also, all new colleagues who have joined Flowtech in the period or the Group as part of Albroco and NFP.

 

The Group today employs 270 people through its seven locations across four countries. 

 

CURRENT TRADING AND OUTLOOK

We are fortunate at this time to have both strength and depth across our product portfolio and extensive customer exposure.  Our recent acquisitions also widen the geographical areas and the industrial fluid power markets we serve.

 

The formation of a Power Motion Control Division showcases our significant technical expertise as well as opening up a new important OEM channel in hydraulics; combined with our high service levels we have a solid platform for ongoing growth.

 

Management remain optimistic about both the commercial opportunities and the prospects of the Group as a whole, despite some headwinds from the ongoing weakness and competitive pressures being witnessed within certain sectors of the industrial and manufacturing arena, both in the UK and across Europe.  However, the Board is confident that the Company can deliver another year of solid progress.

 

DIVIDEND

The focus is on capital growth through investment in the business and increasing ROCE.  As a Board, we are also committed to a progressive dividend policy based on the year's performance as a whole whilst balancing our investment in the business for the future benefit of all stakeholders, customers and colleagues.

 

The Board is pleased to declare a 5% increase on the half year dividend to 1.75p per share (2014: 1.67p).  This will be paid on 23 October 2015 to shareholders on the Register at the close of business on 2 October 2015.  The shares will become ex-dividend on 1 October 2015.  The dividend is covered 3.11 times by earnings.

 

 

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 in order 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.  In view of this the Board has recently engaged with a team of risk specialists to ensure risk identification and mitigation is a key strategy focus for the Group.

 

The Directors set out in the 2014 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.

 

By order of the Board

7 September 2015

 

TOTAL VOTING RIGHTS

For the purposes of the Disclosure and Transparency Rules, the Company's total issued share capital at the date of this announcement is 42,828,283 ordinary shares of £0.50 each.  The total number of voting rights in the Company is therefore 42,828,283.  There are no ordinary shares held in Treasury.

 

The above figure may be used by shareholders as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in, the Company, under the FCA's Disclosure and Transparency Rules.

 

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 as a result of new information, future events or otherwise.

 

 

CONSOLIDATED INCOME STATEMENT

FOR THE SIX MONTHS ENDED 30 JUNE 2015


 

Notes

Unaudited

Six months ended 30 June

2015

£000

Unaudited

Six months ended

30 June

2014

£000

Audited

Year ended

31 December

 2014

£000

Continuing operations

Revenue

Cost of sales

 

3

 

21,423

(14,220)

 

17,191

(11,072)

 

37,791

(24,615)

Gross profit

Distribution expenses


7,203

(1,065)

6,119

(897)

13,176

(2,034)

Administrative expenses before separately disclosed items:

-Acquisition costs

-Amortisation of acquired intangibles

-Share based payment costs

-Restructuring costs

-IPO costs

 

 

3

3

3

3

3

 

(2,734)

(50)

(160)

(172)

(10)

-

 

(1,941)

-

-

(20)

-

(2,199)

 

(4,996)

(206)

(130)

(148)

(45)

(2,292)

Total administrative expenses


(3,126)

(4,160)

(7,817)

Operating profit

3

3,012

1,062

3,325

Financial income

Financial expenses

Gain on settlement of debt

 

 

33

(96)

-

1

(1,959)

29,043

33

(1,990)

29,043

Net financing (costs)/income


(63)

27,085

27,086

Profit from continuing operations before tax

Taxation

3

4

2,949

(542)

28,147

(636)

30,411

(1,184)

Profit from continuing operations


2,407

27,511

29,227

Loss from discontinued operations, net of tax


(73)

(473)

(496)

Profit for the period attributable to the owners of the parent


 

2,334

 

27,038

 

28,731

Earnings per share

Basic earnings/(loss) per share

Continuing operations

Discontinued operations


 

 

5.62p

(0.17p)

 

 

311.03p

(5.34p)

 

 

114.42p

(1.94p)

Basic earnings per share

6

5.45p

305.69p

112.48p

Diluted earnings/(loss) per share

Continuing operations

Discontinued operations


 

5.45p

(0.17p)

 

306.39p

(5.34p)

 

112.86p

(1.92p)

Diluted earnings per share

6

5.38p

301.05p

110.94p

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 JUNE 2015


Unaudited

Six months ended 30 June 2015

£000

Unaudited

Six months ended

30 June 2014

£000

Audited

Year ended 31 December 2014

£000

Profit for the period

2,334

27,038

28,731

Other comprehensive expense

-items that will be reclassified subsequently to profit or loss

Exchange differences on translating foreign operations

 

 

(95)

 

 

(27)

 

 

(141)

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

 

2,239

 

27,011

 

28,590

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2015


 

 

Unaudited

 30 June 2015

£000

Unaudited

30 June 2014

£000

Audited

31 December 2014

£000

Assets

Non-current assets

Goodwill

Other intangible assets

Property, plant and equipment


 

 

44,962

3,342

3,014

 

 

42,524

-

1,662

 

 

44,583

2,995

2,887

Total non-current assets


51,318

44,186

50,465

Current assets

Inventories

Trade and other receivables

Prepayments

Other financial assets

Cash and cash equivalents

 

 

 

 

 

 

 

10,466

11,601

224

31

784

 

9,230

8,792

368

-

3,067

 

11,163

9,529

270

24

1,979

Total current assets


23,106

21,457

22,965

Liabilities

Current liabilities

Interest-bearing loans and borrowings

Trade and other payables

Deferred and contingent consideration

Tax payable

Provisions

Other financial liabilities

 

 

 

 

 

2,957

5,151

2,277

904

63

-

 

 

3,051

3,780

-

707

208

7

 

 

2,973

5,415

1,603

881

71

27

Total current liabilities


11,352

7,753

10,970

Net current assets


11,754

13,704

11,995

Non-current liabilities

Deferred and contingent consideration

Interest-bearing loans and borrowings

Provisions

Deferred tax liabilities

 

 

 

85

5,286

121

702

 

-

6,149

105

77

 

-

5,716

162

676

Total non-current liabilities


6,194

6,331

6,554

Net assets


56,878

51,559

55,906

Equity directly attributable to owners of the parent

Share capital

Share premium

Share-based payment reserve

Merger reserve

Merger relief reserve

Currency translation reserve

Retained losses

 

 

 

21,414

46,664

307

293

2,086

(273)

(13,613)

 

20,000

46,809

20

293

-

(64)

(15,499)

 

21,414

46,664

148

293

2,086

(178)

(14,521)

Total equity


56,878

51,559

55,906

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 JUNE 2015


Share capital

 

£000

Share

premium

 

£000

Share-based payment reserve

£000

Merger reserve

 

£000

Merger relief

reserve

£000

Currency

translation

reserve

£000

Retained

losses

 

£000

Total

equity

 

£000

Six months ended 30 June 2014 - unaudited








Balance at 1 January 2014

Profit for the period

Other comprehensive expense

50

-

-

-

-

-

293

-

-

-

-

-

(37)

-

(27)

(13,494)

27,038

-

(13,188)

27,038

(27)

Total comprehensive (expense)/(income) for the period

 

-

 

-

 

-

 

-

 

(27)

 

27,038

 

27,011

Transaction with owners

Issue of share capital

Share issue expenses

Gain on settlement of debt capitalised as share premium on issue of ordinary shares

Share-based payment charge

 

19,950

-

 

-

-

 

-

-

 

-

20

 

-

-

 

-

-

 

-

-

 

-

-

 

-

-

 

-

-

 

-

-

 

(29,043)

-

 

39,900

(2,184)

 

-

20

Total transactions with owners

19,950

20

-

-

-

(29,043)

37,736

Balance at 30 June 2014

20,000

20

293

-

(64)

(15,499)

51,559

 

 









Year ended 31 December 2014 - audited








Balance at 1 January 2014

Profit for the year

Other comprehensive expense

50

-

-

-

-

-

293

-

-

-

-

-

(37)

-

(141)

(13,494)

28,731

-

(13,188)

28,731

(141)

Total comprehensive (expense)/income for the year

 

-

 

-

 

-

 

-

 

(141)

 

28,731

 

28,590

Transaction with owners

Issue of share capital

Share issue expenses

Merger relief arising on acquisition of subsidiary

Gain on settlement of debt capitalised as share premium on issue of ordinary shares

Share-based payment charge

Equity dividends paid (note 5)

 

21,364

-

 

-

 

-

-

-

 

-

-

 

-

 

-

148

-

 

-

-

 

-

 

-

-

-

 

-

-

 

2,086

 

-

-

-

 

-

-

 

-

 

-

-

-

 

-

-

 

-

 

(29,043)

-

(715)

 

41,314

(2,329)

 

2,086

 

-

148

(715)

Total transactions with owners

21,364

148

-

2,086

-

(29,758)

40,504

Balance at 31 December 2014

21,414

148

293

2,086

(178)

(14,521)

55,906

 

 









Six months ended 30 June 2015 - unaudited









Balance at 1 January 2015

Profit for the period

Other comprehensive expense

21,414

-

-

148

-

-

293

-

-

2,086

-

-

(178)

-

(95)

(14,521)

2,334

-

55,906

2,334

(95)

Total comprehensive (expense)/income for the period

-

-

-

-

(95)

2,334

2,239

Transaction with owners

Share-based payment charge

Equity dividends paid (note 5)

 

-

-

 

159

-

 

-

-

 

-

-

 

-

-

 

-

(1,426)

 

159

(1,426)

Total transactions with owners

-

159

-

-

-

(1,426)

(1,267)

Balance at 30 June 2015

21,414

307

293

2,086

(273)

(13,613)

56,878










 

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 30 JUNE 2015


 

Note

Unaudited

Six months ended

30 June 2015

£000

 

 Six months ended

30 June 2014

£000

 

 Year ended

31 December 2014

£000

Cash flow from operating activities





Net cash from operating activities

9

1,659

(1,040)

2,275

Cash flow from investing activities

Acquisition of subsidiary, net of cash acquired

Disposal of subsidiary, net of cash disposed of

Acquisition of property, plant and equipment

Proceeds from sale of property, plant and equipment


 

(477)

-

(351)

7

 

-

103

(211)

-

 

(2,683)

103

(496)

-

Net cash used in investing activities


(821)

(108)

(3,076)

Cash flows from financing activities

Net proceeds from the issue of share capital

Proceeds from new loan

Repayment of long term borrowings

Net change in short term borrowings

Repayment of finance lease liabilities

Share based payment options exercised

Interest received

Interest paid

Dividends paid


 

-

-

(430)

(269)

(11)

(12)

-

(99)

(1,426)

 

37,767

7,000

(37,151)

(5,324)

(6)

-

-

(336)

-

 

37,571

7,000

(37,532)

(5,409)

(16)

-

3

(341)

(715)

Net cash (used in)/generated from financing activities


(2,247)

1,950

561

Net change in cash and cash equivalents


(1,409)

802

(240)

Cash and cash equivalents at start of period

Exchange differences on cash and cash equivalents


1,979

(50)

2,265

-

2,265

(46)

Cash and cash equivalents at end of period


520

3,067

1,979

 

NOTES TO THE INTERIM REPORT

FOR THE SIX MONTHS ENDED 30 JUNE 2015


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 Interim 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 2015 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 7 September 2015.

 

The Group's financial statements for the year ended 31 December 2014 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 Interim Report for the six months ended 30 June 2015 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 2015. These are consistent with the accounting policies used in the Financial Statements for the year ended 31 December 2014, except as detailed below:

 

GOING CONCERN

 

The Group meets it day-to-day working capital requirements through its bank facilities. The Directors have carefully considered the banking facilities and their future covenant compliance in light of 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.

 

TAXES

Taxes on income in the interim periods are accrued using the rate of tax that would be applicable to expected total annual earnings.

 

3.

OPERATING SEGMENTS

The Group comprises of the following three operating segments which are defined by geographic area and trading activity:

 

·    Flowtechnology UK -distribution and assembly of engineering components, principally to distributors and end users in the UK and Eire.

·    Flowtechnology Benelux - distribution of engineering components, to distributors and end users in the Netherlands and Belgium.

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

 

The Board is considered to be 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 underlying 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 are as detailed at the end of this note.  Segment information for the reporting periods is as follows:


 

Flowtechnology

 UK

£000

 

Flowtechnology

Benelux

£000

Power Motion Control

£000

Inter-segmental transactions

£000

 

Central

 Costs

£000

Total Continuing Operations

£000

Six months ended 30 June 2015







Income statement - continuing operations:







Revenue from external customers

15,617

1,871

3,935

-

-

21,423

Inter segment revenue

430

42

138

(610)

-

-

Total revenue

16,047

1,913

4,073

(610)

-

21,423

Underlying operating result

3,916

170

284

-

(966)

3,404

Net financing costs

4

-

-

-

(67)

(63)

Underlying segment result

3,920

170

284

-

(1,033)

3,341

Separately disclosed items

(47)

(12)

(172)

-

(161)

(392)

Profit/(loss) before tax

3,873

158

112

-

(1,194)

2,949

Specific disclosure items

Depreciation

Amortisation

 

(184)

-

 

(13)

-

 

(39)

(160)

 

-

-

 

-

-

 

(236)

(160)

Reconciliation of underlying operating result to operating profit:

Underlying operating result

Separately disclosed items

 

 

3,916

(47)

 

 

170

(12)

 

 

284

(172)

 

 

-

-

 

 

(966)

(161)

 

 

3,404

(392)

Operating profit/(loss)

3,869

158

112

-

(1,127)

3,012

 


 

Flowtechnology

 UK

£000

 

Flowtechnology

Benelux

£000

Power Motion Control

£000

Inter-segmental transactions

£000

 

Central

 Costs

£000

Total Continuing Operations

£000

Six months ended 30 June 2014







Income statement - continuing operations:







Revenue from external customers

15,204

1,987

-

-

-

17,191

Inter segment revenue

420

31

-

(451)

-

-

Total revenue

15,624

2,018

-

(451)

-

17,191

Underlying operating result

3,689

308

-

-

(716)

3,281

Net financing (costs)/income

(122)

(1)

-

-

27,208

27,085

Underlying segment result

3,567

307

-

-

26,492

30,366

Separately disclosed items

-

-

-

-

(2,219)

(2,219)

Profit before tax

3,567

307

-

-

24,273

28,147

Specific disclosure items

Depreciation

 

205

 

21

 

-

 

-

 

-

 

226

Reconciliation of underlying operating result to operating profit:

Underlying operating result

Separately disclosed items

 

 

3,689

-

 

 

308

-

 

 

-

-

 

 

-

-

 

 

(716)

(2,219)

 

 

3,281

(2,219)

Operating profit/(loss)

3,689

308

-

-

(2,935)

1,062

 

SEGMENTAL REPORTING BY

GEOGRAPHIC LOCATION

 

 

Flowtechnology

 UK

£000

 

Flowtechnology

Benelux

£000

Power Motion Control

£000

Inter-segmental transactions

£000

 

Central

 Costs

£000

Total Continuing Operations

£000

Year ended 31 December 2014







Income statement - continuing operations:







Revenue from external customers

30,052

3,800

3,939

-

-

37,791

Inter segment revenue

654

60

-

(714)

-

-

Total revenue

30,706

3,860

3,939

(714)

-

37,791

Underlying operating result

6,899

497

369

-

(1,619)

6,146

Net financing (costs)/income

(141)

(2)

-

-

27,229

27,086

Underlying segment result

6,758

495

369

-

27,229

33,232

Separately disclosed items

(166)

(30)

(135)

-

(2,490)

(2,821)

Profit before tax

6,592

465

234

-

23,120

30,411

Specific disclosure items

Depreciation

Amortisation

 

424

-

 

40

-

 

39

130

 

-

-

 

-

-

 

503

130

Reconciliation of underlying operating result to operating profit:

Underlying operating result

Separately disclosed items

 

 

6,899

(166)

 

 

497

(30)

 

 

369

(135)

 

 

-

-

 

 

(1,619)

(2,490)

 

 

6,146

(2,821)

Operating profit/(loss)

6,733

467

234

-

(4,109)

3,325

 

SEPARATELY DISCLOSED ITEMS

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

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

·      Restructuring costs relate to restructuring activities of both an operational and financial nature. Operational restructuring covers the closure of business units; costs include employee redundancies within these units, continuing property costs post closure and other onerous lease obligations. The costs of financial restructuring includes bank arrangement fees and associated legal costs

·      IPO costs comprise the professional and other fees related to the IPO and costs of settlement of certain cash-settled Directors' share obligations arising on the IPO accounted for in accordance with IFRS 2 "Shared-based payment".

 


Six months ended

30 June 2015

£000

Six month ended

30 June 2014

£000

Year ended

31 December 2014

£000

Separately disclosed items within administration expenses:

-Acquisition costs

-Amortisation of acquired intangibles

-Share based payment costs

-Restructuring

-IPO costs

 

50

160

172

10

-

 

-

-

20

-

2,199

 

206

130

148

45

2,292

Total separately disclosed  items

392

2,219

2,821

 

4.

TAXATION


Six months ended

30 June 2015

£000

Six month ended

30 June 2014

£000

Year ended

31 December 2014

£000

Current tax on income for the period - continuing operations:

UK tax

Foreign tax

Deferred tax (credit)/expense

Adjustments in respect of prior years

 

 

618

-

(76)

-

 

 

435

31

20

150

 

 

1,058

21

38

67

Total taxation

542

636

1,184

 

The taxation for the period has been calculated by applying the estimated tax rate for the financial year ending 31 December 2015 adjusted for the reduction in the rate of corporation tax to 20% from 21%.  Deferred tax liabilities have also been adjusted to £702,000 to reflect capital allowances in excess of depreciation and other short term timing differences.

 

 

5.

DIVIDENDS


Six months ended

30 June 2015

£000

Six month ended

30 June 2014

£000

Year ended

31 December 2014

£000

Interim dividend of 1.67p per share

-

-

715

Final dividend of 3.33p per share

1,426

-

-


1,426

-

715

 

In addition the Directors are proposing a half-year dividend in respect of the financial year ended 31 December 2015 of 1.75p per share which will absorb an estimated £0.75million of shareholders' funds.  It will be paid on the 23 October 2015 to Shareholders who are on the Register of Members on 2 October 2014.

 

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

2015

Six months ended 30 June 2014

Year ended 31 December 2014


 

 

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

 

 

2,407

(73)

 

 

42,828

42,828

 

 

5.62

(0.17)

 

 

27,511

(473)

 

 

8,845

8,845

 

 

311.03

(5.34)

 

 

29,227

(496)

 

 

25,542

25,542

 

 

114.42

(1.94)

Basic earnings per share

 

2,334

 

42,828

 

5.45

 

27,038

 

8,845

 

305.69

 

28,731

 

25,542

 

112.48

Diluted earnings/(loss) per share

Continuing operations

Discontinued operations

 

 

2,407

(73)

 

 

43,413

43,413

 

 

5.54

(0.17)

 

 

27,511

(473)

 

 

8,979

8,979

 

 

306.39

(5.34)

 

 

29,227

(496)

 

 

25,897

25,897

 

 

112.86

(1.92)

Diluted earnings per share

 

2,334

 

43,413

 

5.38

 

27,038

 

8,979

 

301.05

 

28,731

 

25,897

 

110.94

 


Six months ended

30 June 2015

£000

Six month ended

30 June 2014

£000

Year ended

31 December 2014

£000

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

Impact of share options

 

42,828

585

 

8,845

134

 

25,542

355

Weighted average number of ordinary shares for diluted earnings per share

43,413

8,979

25,897

 

7.

ACQUISITIONS

On 29 May 2015, the Group acquired 100% of the share capital of Albroco Limited, a UK-based business, thereby obtaining control.  The acquisition was made to enhance the Group's position in the hydraulic market.  The total consideration was provisionally £1,669,000, subject to finalisation of the completion accounts.  This comprised £910,000 in cash and £759,000 contingent cash consideration. The additional consideration is based on gross profit targets for the Company's customer base and is payable on the first and second anniversary of the acquisition.  The fair value of £759,000 has been calculated using management forecasts of Albroco Limited's performance discounted at the weighted average cost of capital.

 

Acquisition costs and stamp duty amounting to £25,000 have been recognised as an expense in the consolidated income statement as part of separately disclosed administration costs.

 

GOODWILL

Goodwill of £379,000 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 £508,000 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 customers buying the Honeywell product group, this product group was not offered by the Power Motion Control operating segment prior to the acquisition. Sales growth over the ten year period has been assumed to be 1.5% with an attrition rate of 5% 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

20

-

-

20

Intangible assets

-

-

508

508

Inventories

414

-

-

414

Trade and other receivables

306

-

-

306

Cash and cash equivalents

433

-

-

433

Trade and other payables

(252)

-

-

(252)

Current tax balances

(37)

-

-

(37)

Deferred tax liability

-

-

(102)

(102)

Total net assets

884

-

406

1,290










£000

Fair value of consideration paid





Amount settled in cash




910

Fair value of contingent consideration




759

Total consideration




1,669

Less net assets acquired




1,290

Goodwill on acquisition




379

 

8

SUBSEQUENT EVENTS

Nelson Fluid Power Limited and its subsidiaries were acquired on 3 July 2015 for a total consideration of £5.946m comprising £4.460m in cash and £1.486m contingent cash consideration. This is a provisional figure subject to the finalisation of the completion accounts. Contingent consideration is based on the profitability of the company post acquisition and is due for payment on the acquisition anniversaries in 2016 and 2017.  The maximum contingent consideration payable is £2.375m. The acquisition was made to enhance the Group's position in the hydraulic market.  Included within the net assets of Nelson Hydraulics Limited was £1.7m of cash retained within the business on acquisition. The cash consideration was funded out of existing cash resources.

 

The Group will disclose the book value of the identifiable assets and liabilities and their fair values in the 2015 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.

 

9.

NET CASH FROM OPERATING ACTIVITIES


Six months ended

30 June 2015

£000

Six month

ended

30 June 2014

£000

Year

ended

31 December 2014

£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

Gain on settlement of debt

Amortisation

Equity settled share-based payment charge

 

 

2,949

(73)

236

(33)

96

-

160

172

 

 

28,147

(325)

228

(1)

1,959

(29,043)

-

20

 

 

30,411

(348)

503

(33)

1,990

(29,043)

130

148

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

3,507

(1,720)

1,068

(499)

(48)

985

(1,596)

515

(680)

142

3,758

408

12

(752)

62

Cash generated from operations

Tax paid

 2,308

(649)

(634)

(406)

3,448

(1,213)

Net cash generated from operating activities

1,659

(1,040)

2,275


 


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