Interim Report - six months ended 30 June 2014

RNS Number : 7459R
Flowtech Fluidpower PLC
16 September 2014
 

Issued on behalf of Flowtech Fluidpower PLC

Date: Tuesday, 16 September 2014

Immediate Release

 

 

FLOWTECH FLUIDPOWER PLC

INTERIM REPORT

FOR THE SIX MONTHS ENDED 30 JUNE 2014

 

 

AT A GLANCE

Continuing operations

Change

HY 2014

 v

HY 2013

HY2014

30.6.14

HY 2013

30.6.13

Full year

31.12.13

·      Group revenue

+6.3%

£17.191m

£16.167m

£32.104m

·      Gross profit

+3.9%

£6.119m

£5.887m

£11.330m

·      Underlying operating profit*

+7.3%

3.281m

£3.058m

£5.324m

·      Operating profit

-61%

£1.062m

£2.697m

£4.963m

·      Maiden interim dividend


1.67p

-

-

·      Net debt


£6.132m

£69.479m

£69.762m

 

*Underlying operating profit is continuing operations operating profit before share based payment costs, restructuring costs and IPO costs

 

Sean Fennon, Chief Executive Officer said: "We are delighted to have completed a successful IPO on AIM and thank you to all shareholders who have supported the company. Trading continues to be encouraging and in line with our expectations. In addition, we have a number of opportunities we are perusing with a view to accelerating channel development and geographic expansion"

 

HIGHLIGHTS

·     Strong institutional support at IPO in May 2014  - Private Equity exit complete

·     Clear focus on strategy going forward: commenced delivering on stated IPO objectives with first acquisition completed post period and from within existing resources - enhancing the Flowtech footprint, brand portfolio and customer offering

·     Trading remains in line with expectations, whilst a number of new opportunities currently being investigated

·     Management remain confident about the future

·     An interim dividend of 1.67p will be paid on 24 October 2014   

 

Editors' note:

Flowtech, founded 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 Own Brand products to c 3,000 distributors and resellers. Its catalogues is recognised as the definitive source for fluid power products, containing approximately 47,000 individual product line and  is distributed to more than 90,000 industrial Maintenance, Repair and Overhaul end users (MRO).  Over 80% of product is stocked and ordered by 10pm, can be delivered next day in the UK, providing 'best in industry' service offering.  The Group's headquarters and main distribution centre is in Skelmersdale, Lancashire with further centres in the Netherlands and China; in total the business employs 203 people.

 

Enquiries:



Flowtech Fluidpower plc     AIM: FLO

Sean Fennon, Chief Executive Officer

Bryce Brooks, Chief Financial Officer

Tel: +44 (0) 1695 52796

Email: info@flowtechfluidpower.com

www.flowtechfluidpower.com

Zeus Capital Limited

(Nominated Adviser and Broker)

Tim Metcalfe

Ross Andrews, 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

 




 

FLOWTECH FLUIDPOWER PLC

INTERIM REPORT

SIX MONTHS ENDED 30 JUNE 2014

 

STATEMENT BY NON EXECUTIVE CHAIRMAN, MALCOLM DIAMOND MBE

AND CHIEF EXECUTIVE, SEAN FENNON

 

INTRODUCTION

Firstly as a Group, we would like to thank all shareholders who since our Admission to AIM in May 2014 have so enthusiastically supported us - investing in our business, its philosophy and culture. We are now entering a period we see as an exciting stage of evolution, not only for the Flowtech Group but the fluid power market as a whole.

 

As a team we firmly believe that the business is now well positioned to improve further through successfully building on its leading position and taking advantage of the opportunities that lie ahead.

 

The AIM market provides a platform for smaller companies like ourselves with aspirations to grow, to enhance our profile, and access new channels to support future development.  We look forward to keeping an open dialogue with all investors and delivering on our key objectives.

 

DIVIDEND

As we indicated in the Admission document, the Board intend to implement a progressive dividend policy by paying both an interim and a final dividend - split approximately one third, two thirds - in respect of the year ending 31 December 2014.

 

The Board is therefore pleased to declare an interim dividend of 1.67p; this will be paid on 24 October 2014 to Shareholders on the Register at the close of business on 26 September 2014.  The shares will become ex-dividend on 24 September 2014. 

 

BUSINESS REVIEW

The portfolio businesses have continued to perform well in their individual market places, although the economic conditions remain challenging in both the UK and Europe. The Group strategy of continued development of the product range, targeted at specific market sectors, has ensured that the businesses have been able to deliver sustained growth and continue to add value to its customer base.

 

The focus on core competencies within the fluid power market has been central to the continued success of the Group, and this focus will support the long term strategy of the Group, which we expect to be enhanced by further complementary acquisitions. This continued refinement of the offering has ensured that the Group maintained its competitive advantages in each of the markets in which it trades.

 

The UK business has maintained its growth focus and a continued investment in staff training and resource which has underpinned this development process.

 

After a significant restructuring process in 2012 and 2013, the Benelux operation has performed positively in the first half of 2014, with the foundations put in place in that period now delivering strong revenue growth linked to progressive margin development. 

 

The Initial Public Offering ("IPO") in May 2014 had a fundamental positive impact on the Group's core financial position. We expect that this change will open up further opportunity for expansion of the Group within the fluid power sector, both organically and by strategic acquisitions.

 

ALIGNING GROWTH WITH OUR STRATEGY

The Directors are committed to the business strategy which was outlined as part of the Admission document in May 2014. 

 

Flowtech is a very successful business and a leader in its field; we have demonstrated that we can deliver profitable, consistent levels of service to our diverse customer base.  There is also significant opportunity for us to achieve, organic growth through product development and international expansion and enhancing this through adding 'niche bolt-on' businesses that have effective people who can assist us to deliver our corporate strategy as well as accelerate complementary channel development and geographic expansion. We continue to see this as paramount for all stakeholders.

 

Against this backdrop, we are delighted that we have already started to deliver on our aspirations and strategic objectives, adding a very successful business to the Group's portfolio and starting to further enhance customer offering.  As detailed in

Note 13, on 4 August 2014, we added Primary Fluid Holdings Limited to the Flowtech portfolio.  The trading business, Primary Fluid Power ('PFP'), based in Knowsley, Merseyside, in addition to a significant distribution operation in hydraulic parts, also designs and manufactures hydraulic systems and purifiers, which are complemented by a service and repair function.  The PFP business in total employs 59 staff, and like Flowtech has a strong brand and commanding position in its marketplace. Whilst we expect to deliver some positive synergies across the business over the coming year, we intend to retain the way the PFP and Flowtech portfolio models currently operate - highly focused, commercially independent operations delivering quality customer service at all times.

 

As a Board, we see PFP as the exciting first step in our development as a broad-based fluid power group. PFP adds significant value to the Group's current brand portfolio principally by strengthening our offering in hydraulics, a market which is widely predicted to continue its strong growth momentum.  We also see this as a great opportunity to extend our in-house knowledge and expertise in the design and manufacture of hydraulic systems and purifiers and not least, the further enhancement of our market leading position in the fluid power industry.

 

OUR PEOPLE

The Group today employs 203 people through its five locations across three countries.

 

As a Board, we would like to take this opportunity to thank all our people around the globe for their continued hard work, dedication and commitment, all of which has helped us to deliver these solid creditable results.  This year has marked a year of change and opportunity; we welcome everyone from PFP into the Group; together as a team we look forward to sharing with every one of our colleagues future success over many years to come.

 

FINANCIAL PERFORMANCE

The financial highlight during the period under review was the IPO in May which resulted in the exit of the previous Private Equity owners, coupled with a fundamental restructuring of the Group's debt position.  As detailed in Note 12, "Analysis of net debt", the total net debt position at the period end was £6.1m, compared to £69.8m at 31 December 2013.  After funding the overall costs of the IPO of £4.4m (which under accounting rules has been split as £2.2m charged to operating profit - see Note 3 for details - and £2.2m charged to share premium account), the balance of the £47.0m equity and net bank debt raised was used to part clear Shareholder loans.  The remaining £29.0m of shareholder loans were subject to a debt for equity swap with the resultant gain on settlement of £29.0m being recognised in the consolidated income statement. Other than the clear benefit of a significantly reduced leverage position, the Group now enjoys a low interest burden which is highlighted by the table below:


Pre IPO

1 January to 21 May 2014

£000

Post IPO

22 May 2014 to 30 June 2014

£000

Shareholder loans

1,697

-

Bank loans and short term borrowing

234

28

Total finance expense

1,931

28

 

As detailed in Note 2, the Group has applied merger accounting principles in the creation of the consolidated balance sheet.  Under these principles the Group has a total equity position of £51.559m (30 June 2013 £(12.138m) and 31 December 2014 £(13.188m)).

 

In April 2014 our loss making subsidiary, Industrial Products and Supplies Ltd ("IPS"), was sold to its management for £1; IPS operated in the pipe, tube and valve sector and following its disposal we have been able to focus entirely on the fluid power sector.  Further details are given in Note 14.

 

For continuing operations, revenue in the first half grew by 6.3% to £17.191m, against £16.167m in the comparable 2013 period (year ended 31 December 2013 £32.104m).  This growth was achieved consistently across the UK and Benelux operations in line with the relative size of the two businesses.  This had a similar commensurate effect on gross profit which also increased by 3.9%, although dampened by the effect of growth related customer rebate payments. When coupled with a broadly static cost base, this progression has seen the Group report an underlying operating profit of £3.281m (2013: £3.058m and £5.324m respectively), an increase of 7.3% year on year.  Although not defined under IFRS, the Directors believe that the underlying results give a better understanding of the business' performance, and further detail is contained in note 3 contained in this report.

 

FINANCIAL POSITION

Working capital continues to be managed effectively with inventories at 30 June 2014 of £9.230 million (30 June 2013: £9.409 million and at 31 December 2013 £9.804 million).

 

The Group has enjoyed a stable trade receivables position, although as expected with an expanding Far East supply line, trade payables contracted in line with expectations from £4.555m at 31 December 2013 to £3.830m at the period end 30 June 2014.

As a business we currently have only a limited capex requirement with no material projects currently required or envisaged.

 

As mentioned earlier, post the period end, we completed the PFP transaction on 4 August 2014, which was part satisfied by £4.65 million in cash. However, this included the purchase of £1.7m of cash held by PFP and therefore the net cash outlay was £2.95m funded through our own resources at completion, with a final balance of £1.62 million due to be paid in August 2015. Further details are given in Note 13.

 

PRINCIPAL RISKS AND UNCERTAINTIES

In common with all organisations, the Group faces risks which may affect its performance. These are general in nature and include: obtaining business on competitive terms, retaining key personnel, successful integration of new business streams and market competition.  The Directors set out in the Admission document published in May 2014 under Part III the key risks that could have a material effect on our results.  The Board does consider that these risks, which were identified at the time, have not changed materially since that time.

 

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 the management process within Flowtech Group.  The long-term success of the Group depends on the continual review, assessment and control of the key business risks it faces.

 

The future financial performance of the Group could be influenced by the success achieved in integrating the PFP business into the Group's wider operations, coupled with the reaction of both suppliers and customers to the Group venturing into complementary distribution channels which is highlighted by this acquisition.

 

IN SUMMARY

Trading continues to be encouraging and to date, in line with our expectations; in addition, we have a number of opportunities that we are pursuing which could accelerate complementary channel development and geographic expansion.  The Board remains confident that it can deliver the expected results at the end of the financial year.

 

By order of the Board

 

Malcolm Diamond MBE

Non-Executive Chairman

 

Sean Fennon

Chief Executive Officer

15 September 2014

 

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 2014


 

Notes

Six months ended 30 June

2014

Six months ended

30 June

2013

Year ended

31 December 2013

Continuing operations

Revenue

Cost of sales

 

3

 

17,191

(11,072)

 

16,167

(10,280)

 

32,104

(20,774)

Gross profit

Distribution expenses


6,119

(897)

5,887

(902)

11,330

(1,704)

Administrative expenses before separately disclosed items:

-Share based payment costs

-Restructuring costs

-IPO costs


 

(1,941)

(20)

-

(2,199)

 

(1,927)

-

(361)

-

 

(4,302)

-

(361)

-

Total administrative expenses


(4,160)

(2,288)

(4,663)

Operating profit

3

1,062

2,697

4,963

Financial income

Financial expenses

Gain on settlement of debt

 

4

8

1

(1,959

29,043)

43

(2,662)

-

-

(5,197)

-

Net financing income/(costs)


27,085

(2,619)

(5,197)

Profit/(loss) from continuing operations before tax

Taxation

3

5

28,147

(636)

78

(353)

(234)

(866)

Profit/(loss) from continuing operations


27,511

(275)

(1,100)

Loss from discontinued operations, net of tax

14

(473)

(485)

(699)

Profit/(loss) for the period attributable to the owners of the parent


 

27,038

 

(760)

 

(1,799)

Earnings/(loss) per share*

Basic earnings/(loss) per share*

Continuing operations

Discontinued operations


 

 

311.03p

(5.34p)

 

 

(275.00p)

(485.00p)

 

 

(1,100.00p)

(699.00p)

Basic earnings/(loss) per share*

7

305.69p

(760.00p)

(1,799.00p)

Diluted earnings/(loss) per share*

Continuing operations

Discontinued operations


 

306.39p

(5.34p)

 

(275.00p)

(485.00p)

 

(1,100.00p)

(699.00p)

Diluted earnings/(loss) per share*

7

301.05p

(760.00p)

(1,799.00p)

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 JUNE 2014


Six months ended 30 June 2014

Unaudited

£000

Six months ended

30 June 2013

Unaudited

£000

Year ended 31 December 2013

Unaudited

£000

Profit/(loss) for the period

27,038

(760)

(1,799)

Other comprehensive (expense)/income

-items that will be reclassified subsequently to profit or loss

Exchange differences on translating foreign operations

 

 

(27)

 

 

(38)

 

 

27

Total comprehensive income/(expense) in the period attributable to the owners of the parent

 

27,011

 

(722)

 

(1,772)


*The Company's IPO on 21 May 2014 necessitated a restructuring of the Company's capital structure. As at 30 June 2014, the Company had 40,000,000 shares in issue. 

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2014


 

Notes

 30 June 2014

Unaudited

£000

30 June 2013

Unaudited

£000

 31 December 2013

Unaudited

£000

Assets

Non-current assets

Property, plant and equipment

Intangible assets


 

 

1,662

42,524

 

 

1,857

42,524

 

 

1,729

42,524

Total non-current assets


44,186

44,381

44,253

Current assets

Inventories

Trade and other receivables

Prepayments

Current tax assets

Cash and cash equivalents

 

 

 

 

 

11

 

9,230

8,792

368

-

3,067

 

9,409

8,850

356

18

1,293

 

9,804

7,626

195

-

2,265

Total current assets


21,457

19,926

19,890

Liabilities

Current liabilities

Interest-bearing loans and borrowings

Trade and other payables

Tax payable

Provisions

Other financial liabilities

 

 

8

 

 

3,051

3,780

707

208

7

 

 

10,624

4,748

664

113

20

 

 

11,267

4,555

492

67

32

Total current liabilities


7,753

16,169

16,413

Net current liabilities


13,704

3,757

3,477

Non-current liabilities

Interest-bearing loans and borrowings

Provisions

Deferred tax liabilities

 

8

 

6,149

105

77

 

60,148

60

68

 

60,760

104

54

Total non- current liabilities


6,331

60,276

60,918

Net assets/(liabilities)


51,559

(12,138)

(13,188)

Equity directly attributable to owners of the parent

Share capital

Share premium

Share based payment reserve

Merger reserve

Currency translation reserve

Retained losses

 

9

 

20,000

46,809

20

293

(64)

(15,499)

 

50

-

-

293

(26)

(12,455)

 

50

-

-

293

(37)

(13,494)

Total equity


51,559

(12,138)

(13,188)

 

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY


Share capital

£000

Share

Premium

£000

Share based payment reserve

£000

Merger reserve

£000

Currency

translation

reserve

£000

Retained

losses

£000

Total

Equity

£000

Six months ended 30 June 2013








Balance at 1 January 2013

Loss for the period

Other comprehensive income

50

-

-

-

-

-

-

-

-

293

-

-

(64)

-

38

(11,695)

(760)

-

(11,416)

(760)

38

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

 

-

 

-

 

-

 

-

 

38

 

(760)

 

(722)

Balance at 30 June 2013 - unaudited

 

50

 

-

 

-

 

293

 

(26)

 

(12,455)

 

(12,138)









Year ended 31 December 2013








Balance at 1 January 2013

Loss for the period

Other comprehensive income

50

-

-

-

-

-

-

-

-

293

-

-

(64

-

27

(11,695

(1,799)

-

(11,416)

(1,799)

27

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

 

-

 

-

 

-

 

-

 

27

 

(1,799)

 

(1,772)

Balance at 31 December 2013 - unaudited

 

50

 

-

 

-

 

293

 

(37)

 

(13,494)

 

(13,188)









Six months ended 30 June 2014








Balance at 1 January 2014

Profit for the period

Other comprehensive loss

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

-

 

 

-

-

 

20,000

(2,234)

 

 

29,043

-

 

-

-

 

 

-

20

 

-

-

 

 

-

-

 

-

-

 

 

-

-

 

-

-

 

 

(29,043

-)

 

39,950

(2,234)

 

 

-

20

Total transactions with owners

19,950

46,809

20

-

-

(29,043)

37,736

Balance at 30 June 2014 - unaudited

 

20,000

 

46,809

 

20

 

293

 

(64)

 

(15,499)

 

51,559

 

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED 30 JUNE 2014


 

Notes

Six months ended

30 June 2013

Unaudited

£000

 Year ended

31 December 2013

Unaudited

£000

Cash flow from operating activities




Net cash from operating activities

10

(1,040)

931

3,348

Cash flow from investing activities

Proceeds from sale of property, plant and equipment

Disposal of subsidiary, net of cash disposed of

Acquisition of property, plant and equipment


 

-

103

(211)

 

-

-

(270)

 

11

-

(385)

Net cash used in investing activities


(270)

(374)

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

Payment of finance lease liabilities

Interest paid


 

37,767

7,000

(37,151)

(5,324)

(6)

(336)

 

-

10,000

(9,500)

3,672

(9)

(3,635)

 

-

10,000

(10,149)

3,692

(17)

(4,339)

Net cash generated from/(used in) financing activities


1,950

528

(813)

Net change in cash and cash equivalents


1,189

2,161

Cash and cash equivalents at start of period


2,265

104

104

Cash and cash equivalents at end of period

11

3,067

1,293

2,265


1.    General information

The principal activity of the 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.

 

The figures for 31 December 2013 are an abridged version of the Group's full financial statements (subject to first time adoption of International Financial Reporting Standards) and together with other financial information contained in this interim report, do not constitute statutory financial statements as defined in Section 434 of the Companies Act 2006. The Group's statutory financial statements for the year ended 31 December 2013, prepared under UK GAAP, have been filed with the Registrar of Companies. The auditor's report on those financial statements was unqualified and did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006.

 

This consolidated interim financial information has not been audited in accordance with the International Standards on Auditing (UK and Ireland). However, it has been reviewed by Grant Thornton UK LLP in accordance with guidance contained in ISRE (UK and Ireland) 2410, 'Review of Interim Financial Information performed by the Independent Auditor of the Entity', and their Report is set out at the end of this document.

This interim financial information was approved by the Board of Directors on 15th September 2014.

 

ELECTRONIC COMMUNICATIONS

The Company is not proposing to bulk print and distribute hard copies of this interim financial report for the six months ended 30 June 2014 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.

2.    ACCOUNTING POLICIES

Basis of preparation

The consolidated interim financial information presented is for the six months ended 30 June 2014 and has been prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards ("IFRS"). They have not been prepared in accordance with IA34 'Interim Financial Reporting'.

 

The consolidated interim financial information is presented in sterling and have been rounded to the nearest thousand (£'000).

 

The preparation of financial information in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount, event or actions, actual events ultimately may differ from those estimates.

 

The Group has not previously prepared annual consolidated financial statements in accordance with EU endorsed IFRS. However three years of consolidated financial statements prepared under IFRS 1 "First time adoption of International Financial Reporting Standards" are presented in the Group's AIM Admission Document dated 9 May 2014. Reconciliations of how the Group's transition from UK GAAP to IFRS affected its reported financial position, financial performance and cash flows are presented in this document.

 

The consolidated interim financial information has been prepared on the basis of accounting policies set out in the AIM Admission Document dated 9 May 2014 except as detailed below:

 

2.1    TAXES

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

 

2.2    BASIS OF CONSOLIDATION

On 24 April 2014, the Company was incorporated under the name Flowtech Fluidpower Limited. On 7 May 2014, Flowtech Fluidpower Limited acquired the entire issued share capital of Flowtech Holdings Limited via a share for share exchange with the shareholders of Flowtech Holdings Limited. On 7 May 2014, Flowtech Fluidpower Limited was re-registered as a public limited company with the name Flowtech Fluidpower plc. Following the share for share exchange referred to above, Flowtech Fluidpower plc became the ultimate legal parent of the Group.

 

In the absence of an IFRS which specifically deals with similar transactions, management judges it appropriate to refer to other similar accounting frameworks for guidance in developing an accounting policy that is relevant and reliable. The directors consider the share for share exchange transaction to be a group reconstruction rather than a business combination in the context of IFRS3 (revised), 'Business

 

Combinations', which has been accounted for using merger accounting principles. Therefore, although the share for share exchange did not occur until 7 May 2014, the consolidated financial statements of Flowtech Fluidpower plc are presented as if the Flowtech group of companies had always been part of the same Group. Accordingly, the results of the Group for the entire period ended 30 June 2014 are shown in the consolidated statement of comprehensive income and the comparative figures for the period ended 30 June 2013 and the year ended 31 December 2013 are also prepared on this basis.

 

Accordingly, the following accounting treatment has been applied in respect of the share for share exchange:

 

- The assets and liabilities of Flowtech Holdings Limited and its subsidiaries are recognised in the interim consolidated unaudited financial statements at the pre-combination carrying amounts, without restatement to fair value;

 

- The retained losses and other equity balances recognised in the interim consolidated unaudited financial statements for the period ended 30 June 2014 reflect the retained losses and other equity balances of Flowtech Holdings Limited and its subsidiaries recorded before the share for share exchange. However the equity structure (share capital and share premium balances) shown in the interim consolidated unaudited financial statements reflects the equity structure of the legal parent (Flowtech Fluidpower plc), including the equity instruments issued under the share for share exchange. The resulting difference between the parent's capital and the acquired group's capital has been recognised as a component of equity being the 'merger reserve';

 

- Comparative figures have been restated on the same basis as above.

 

The Company had no significant assets, liabilities or contingent liabilities of its own at the time of the share for share exchange and no such consideration was paid.

 

2.3   DISCONTINUED OPERATIONS

The results of operations disposed of in the six months ended 30 June 2014 were consolidated up until the date on which control passed and are included  within 'profit or loss from discontinued operations' as part of a single line item.

 

Any profit or loss arising from the sale of discontinued operations is presented as part of a single line item, 'profit or loss from discontinued operations'.

 

2.4    ADMISSION AND SHARE ISSUE COSTS

Transaction costs of equity transactions relating to the issue of the company's shares are shown as a deduction from equity. Listing and Admission costs are charged to profit or loss as an administration expense.

The Directors have reviewed the expenditure related to the Admission and, where appropriate, made judgments as to how much of the expenditure related to the Admission process and how much related to the issue of new equity and should therefore be charged against the share premium account.

 

2.5    Derecognition of financial liabilities

The Group derecognises a financial liability (or its part) from the statement of financial position when, and only when it is extinguished, i.e. when the obligation specified in the contract is discharged, cancelled or expires.  The difference between the carrying amount of a financial liability (or a part of a financial liability) extinguished and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in profit or loss.

 

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 are 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.

 

FOREIGN CURRENCY RISK

The main currency related risk to the Group comes from forward purchasing of inventories and from its foreign operations. This risk is managed by entering into forward currency contracts. The Group does not apply hedge accounting in respect of these forward currency contracts, the changes in fair value have been recognised in the income statement.

3.    OPERATING SEGMENTS

The Group now comprises of the following main operating segments:

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

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

 

On 4 April 2014, the Group completed the sale of its subsidiary Industrial Products and Supplies Limited which was considered to be a separate segment.  This segment was not a discontinued operation or classified as held for sale at 31 December 2013 and the comparative Consolidated Income Statement has been restated to show the discontinued operation separately from continuing operations.  Refer to note 14 for further details and segmental analysis in relation to this subsidiary.

 

The Executive Directors of the Board are considered to be the chief operating decision maker (CODM).  The CODM manages the business using an underlying profit figure. The table below provides a reconciliation from this figure, to the reported operating profit in the Consolidated Income Statement. CODM assesses the performance of the operating segments based on a measure of operating profit.  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 as defined on page 11.

 

Segmental reporting by geographic location

Flowtechnology

 UK

£000

Flowtechnology

Benelux

£000

Inter-segmental transactions

£000

Central

 costs

£000

 

Total

£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

3,132

149

-

-

3,281

Net financing income/(costs)

(122)

(1)

-

27,208

27,085

Underlying segment result

3,010

148

-

24,208

30,366

Separately disclosed items (see page 11)

-

-

-

(2,219)

(2,219)

Profit before tax

3,010

148

-

24,989

28,147

Specific disclosure items

Depreciation and amortisation

 

205

 

21

 

-

 

-

 

226

Reconciliation of underlying operating result to operating profit:

Underlying operating result

Separately disclosed items (see page 11)

 

 

3,132

-

 

 

149

-

 

 

-

-

 

 

-

(2,219)

 

 

3,281

(2,219)

Operating profit/(loss)

3,132

149

-

(2,219)

1,062

 

Segmental reporting by geographic location

Flowtechnology

 UK

£000

Flowtechnology

Benelux

£000

Inter-segmental transactions

£000

Central

 costs

£000

 

Total

£000

Six months ended 30 June 2013






Income statement - continuing operations:






Revenue from external customers

14,267

1,900

-

-

16,167

Inter segment revenue

340

23

(363)

-

-

Total revenue

14,607

1,923

(363)

-

16,167

Underlying operating result

3,025

33

-

-

3,058

Net financing costs

(28)

(5)

-

(2,586)

(2,619)

Underlying segment result

2,997

28

-

(2,586)

439

Separately disclosed items (see page 11)

(96)

-

-

(265)

(361)

Profit/(loss) before tax

2,901

28

-

(2,851)

78

Specific disclosure items

Depreciation and amortisation

 

196

 

24

 

-

 

-

 

220

Reconciliation of underlying operating result to operating profit:

Underlying operating result

Separately disclosed items (see page 11)

 

 

3,025

(96)

 

 

33

-

 

 

-

-

 

 

-

(265)

 

 

3,058

(361)

Operating profit/(loss)

2,929

33

-

(265)

2,697

 

Segmental reporting by geographic location

Flowtechnology

 UK

£000

Flowtechnology

Benelux

£000

Inter-segmental transactions

£000

Central

 costs

£000

 

Total

£000

Year ended 31 December 2013






Income statement - continuing operations:






Revenue from external customers

28,578

3,526

-

-

32,104

Inter segment revenue

572

182

(754)

-

-

Total revenue

29,150

3,708

(754)

-

32,104

Underlying operating result

5,156

168

-

-

5,324

Net financing costs

(214)

(4)

-

(4,979)

(5,197)

Underlying segment result

4,942

164

-

(4,979)

127

Separately disclosed items (see page 11)

(96)

-

-

(265)

(361)

Profit/(loss) before tax

4,846

164

-

(5,244)

(234)

Specific disclosure items

Depreciation and amortisation

 

380

 

48

 

-

 

-

 

428

Reconciliation of underlying operating result to operating profit:

Underlying operating result

Separately disclosed items (see page 11)

 

 

5,156

(96)

 

 

168

-

 

 

-

-

 

 

-

(265)

 

 

5,324

(361)

Operating profit/(loss)

5,060

168

-

(265)

4,963

 

SEPARATELY DISCLOSED ITEMS

·      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 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 "Share based payment".

 


Six months ended

30 June 2014

£000

Six month ended

30 June 2013

£000

Year ended

31 December 2013

£000

Separately disclosed items within administration expenses:

-Share based payment costs

-Restructuring

-IPO costs

 

(20)

-

(2,199)

 

-

(361)

-

 

-

(361)

-

Total separately disclosed  items

(2,219)

(361)

(361)

 

4.    FINANCIAL EXPENSES


Six months ended

30 June 2014

£000

Six month ended

30 June 2013

£000

Year ended

31 December 2013

£000

Finance expense arising from:

Invoice discounting and stock loan facilities

Overdraft interest

Finance lease interest

Bank loans - existing loans

Other interest

Shareholder loans

Bank loans - loans repaid in full

 

108

1

1

28

13

1,697

111

 

64

5

1

-

5

2,086

501

 

213

6

2

-

8

4,253

715

Total finance expense

1,959

2,662

5,197

 

5.    TAXATION


Six months ended

30 June 2014

£000

Six month ended

30 June 2013

£000

Year ended

31 December 2013

£000

Current tax on income for the period - continuing operations:

UK tax

Foreign tax

Deferred tax expense/(credit)

Adjustments in respect of prior years

 

 

435

31

20

150

 

 

340

7

-

6

 

 

500

142

(24)

248

Total taxation

636

353

866

The taxation for the period has been calculated by applying the estimated tax rate for the financial year ending 31 December 2014 adjusted for the reduction in the rate of corporation tax to 20% from 23%.  Deferred tax liabilities have also been adjusted to £77,000 to reflect capital allowances in excess of depreciation and other short term timing differences.

 

6.    DIVIDENDS

The directors are proposing an interim dividend in respect of the financial year ended 31 December 2014 of 1.67p per share which will absorb an estimated £0.7million of shareholders' funds. It will be paid on the 24 October 2014 to shareholders who are on the register of members on 26 September 2014.

 

7.    EARNINGS PER SHARE


                                                                    Six months ended 30 June 2014

Six months ended 30 June 2013


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

 

 

27,511

(473)

 

 

8,845*

8,845*

 

 

311.03

(5.34)

 

 

(275)

(485)

 

 

100

100

 

 

(275.00)

(485.00)

Basic earnings/(loss) per share

 

27,038

 

8,845*

 

305.69

 

(760)

 

100

 

(760.00)

Diluted earnings/(loss) per share

Continuing operations

Discontinued operations

 

 

27,511

(473)

 

 

8,979*

8,979*

 

 

306.39

(5.34)

 

 

(275)

(485)

 

 

100

100

 

 

(275.00)

(485.00)

Diluted earnings/(loss) per share

 

27,038

 

8,979*

 

301.05

 

(760)

 

100

 

(760.00)

 

Year ended 31 December 2013


Earnings

£000

Weighted average number of shares

000's

Earnings per share

Pence

Basic earnings/(loss) per share

Continuing operations

Discontinued operations

 

(1,100)

(699)

 

100

100

 

(1,100.00)

(699.00)

Basic earnings/(loss) per share

(1,799)

100

(1,799.00)

Diluted earnings/(loss) per share

Continuing operations

Discontinued operations

 

(1,100)

(699)

 

100

100

 

(1,100.00)

(699.00)

Diluted earnings/(loss) per share

(1,799)

100

(1,799.00)

 


Six months ended

30 June 2014

£000

Six month ended

30 June 2013

£000

Year ended

31 December 2013

£000

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

Impact of share options

 

8,845

134

 

100

-

 

100

-

Weighted average number of ordinary shares for diluted earnings per share

 

8,979

 

100

 

100

 

*The Company's IPO on 21 May 2014 necessitated a restructuring of the Company's capital structure. As at 30 June 2014, the Company had 40,000,000 shares in issue. 

 

8.    INTEREST BEARING LOANS AND BORROWINGS


30 June 2014

£000

30 June 2013

£000

31 December 2013

£000

Current liabilities

Current portion of secured bank loans

Stock loan facility

Invoice discounting facility

Current portion of finance lease liabilities

 

857

-

2,182

12

 

3,125

2,860

4,625

14

 

3,750

2,775

4,730

12

Total current liabilities

3,051

10,624

11,267

Non-current liabilities

Secured bank loans

Finance lease liabilities

Shareholder loan

 

6,143

6

-

 

6,875

19

53,254

 

5,625

12

55,123

Non-current liabilities

6,149

60,148

60,760

Total

9,200

70,772

72,027

 

During the six months to 30 June 2014, the Group repaid shareholder loans of £27,826,028. In addition £29,042,987 of debt was exchanged for one, £1 ordinary share of Flowtech Fluidpower plc. Management have recognised a gain on settlement of the debt of £29,042,987 as the £1 ordinary share had minimal value. The share premium arising of £29,042,986 has been recognised by way of transfer from consolidated retained profits to share premium in the consolidated statement of changes in shareholders' equity.

 

During the six months to 30 June 2014, the Group refinanced its banking facilities with its existing provider. The facilities were replaced with a bank loan of £7,000,000 which is repayable in instalments over the period to 8 May 2018. The stock loan facility was repaid during the period. The bank loans and invoice discounting facility are secured by legal charges over certain of the Group's assets which include trade receivables.

 

9.   SHARE CAPITAL


Number

£000

Allotted and fully paid ordinary shares of 50p each


 

At 1 January 2014

-

-

Subscriber share issue

4

-

Shares issued pursuant to share for share exchange to acquire Flowtech group of companies

99,996

50

Share issued in respect of debt for equity swap (see note 8)

1

-

Share issue upon admission

39,899,999

19,950

At 30 June 2014

40,000,000

20,000

The number of shares in issue for each of the comparable periods represents the share capital issued by Flowtech Fluidpower plc in the share for share exchange that made the company the legal parent of the group adjusted for the subsequent 2 for 1 subdivision.

 

10.  CASH FLOW FROM OPERATIONS


Six months ended

30 June

2014

Six months ended

30 June 2013

Year ended

31 December 2013

Reconciliation of profit/(loss) after taxation to net cash flows from operations




Profit/(loss) from continuing operations before tax

28,147

78

(234)

Loss from discontinued operations before tax

(325)

(485)

(689)

Depreciation and amortisation

228

390

608

Financial income

(1)

(43)

-

Financial expense

1,959

2,662

5,197

Gain on settlement of debt

(29,043)

-

-

Loss on sale of plant & equipment

-

5

10

Equity settled share-based payment charge

20

-

-

Operating cash inflow before changes in  working capital and provisions

985

2,607

4,892

Change in trade and other receivables

(1,596)

(1,379)

35

Change in stocks

515

(212)

(607)

Change in trade and other payables

(680)

38

(156)

Change in provisions

142

69

67

Cash generated from operations

(634)

1,123

4,231

Tax paid

(406)

(192)

(883)

Net cash (used in)/ generated from operating activities

(1,040)

931

3,348

 

11.  ANALYSIS OF NET DEBT


Six months ended

30 June

2014

Six months ended

30 June 2013

Year ended

31 December 2013

Cash and cash equivalents

3,067

1,293

2,265

Debt due within one year

(3,038)

(10,610)

(11,255)





Debt due after one year

(6,143)

(60,130)

(60,748)

Finance lease liabilities

(18)

(32)

(24)

Other interest-bearing loans and borrowings

(9,199)

(70,772)

(72,027)

Total net debt

(6,132)

(69,479)

(69,762)

 

12.  MOVEMENT IN NET DEBT


At start of period

 

£000

Cash flow

 

£000

Net movement in short term debt

£000

Repayment of loans

 

£000

New loan issued

 

£000

Non cash movement

 

£000

At end of period

 

£000

Cash and cash equivalents

2,265

802

-

-

-

-

3,067

Debt due within one year

Debt due after one year

Finance lease liabilities

(11,255)

(60,748)

(24)

-

-

6

5,324

-

-

3,750

33,401

-

(857)

(6,143)

-

-

27,347

-

(3,038)

(6,143)

(18)

Other interest-bearing loans and borrowings

 

(72,027)

 

6

 

5,324

 

37,151

 

(7,000)

 

27,347

 

(9,199)

Total net debt

(69,762)

808

5,324

37,151

(7,000)

27,347

(6,132)

 

Non cash movements represent a debt for equity swap of a long term loan of £29,042,987 net of capitalisation of associated interest costs of £1,696,277 charged pre the swap. The £29,042,987 of debt was exchanged for one, £1 ordinary share of Flowtech Fluidpower plc. Management have recognised a gain on settlement of the debt of £29,042,987 as the £1 ordinary share had minimal value.

 

13.  SUBSEQUENT EVENTS

Primary Fluid Holdings Limited was acquired on 4th August 2014 for a total consideration of £9,770,000 comprising £4,650,000 in cash, £1,620,000 deferred cash consideration and £3,500,000 represented by the issue of new Flowtech Fluidpower plc Ordinary shares. The cash consideration was funded out of existing cash resources. Included within the net assets of Primary Fluid Holdings Limited was £2,641,000 of cash retained within the business on acquisition. The Group will disclose the book value of the identifiable assets and liabilities and their fair values in the 2014 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.

 

14.  DISCONTINUED OPERATIONS

The sale of the subsidiary Industrial Products and Supplies Limited was completed on 4 April 2014 for nil consideration.

 

Industrial Products and Supplies Limited constitutes a reporting segment in accordance with IFRS 8 "Operating segments".

 

The results of the discontinued operations included in the loss for the period are set out below. This segment was not a discontinued operation or classified as held for sale at 31 December 2013 and the comparative Consolidated Income Statement has been restated to show the discontinued operation separately from continuing operations. See note 8 for the earnings per share split between continuing and discontinued operations.

 

·      The write off of goodwill relates to liquidation of a subsidiary Merchantz Limited, 100% owned by Industrial Products and Supplies Limited.

·      Closure costs relate to the closure of business units. They include employee redundancies within these units, continuing property costs post closure and other onerous lease obligations.

·      The loss on disposal relates to the deficit of sale proceeds less net assets disposed of on the sale of the subsidiary.

·      Included in closure costs is £43,000 relating to professional fees incurred during the disposal.


Six months ended

30 June 2014

£000

Six months ended

30 June 2013

£000

Year ended

31 December 2013

£000

Discontinued operations

Revenue

Cost of sales

 

415

(395)

 

1,140

(1,119)

 

2,168

(2,083)

Gross profit

Distribution expenses

20

(20)

21

(59)

85

(119)

Administrative expenses before separately disclosed items:

- Write off of goodwill

- Closure costs

 

(53)

-

(272)

 

(149)

(160)

(138)

 

(264)

(160)

(231)

Total administrative expenses

(325)

(447)

(655)

Operating loss

(325)

(485)

(689)

Net financing costs

-

-

-

Loss from discontinued operations before tax

(325)

(485)

(689)

Taxation

-

-

(10)

Loss on disposal of subsidiary

(148)

-

-

Loss from discontinued operations

(478)

(485)

(699)

Specific disclosure items

Depreciation

 

-

 

1-

 

20

 

EFFECT OF THE DISPOSAL ON THE FINANCIAL POSITION OF THE GROUP


£000

Net assets disposed of

Property, plant and equipment

Deferred tax assets

Inventories

Trade and other receivables

Prepayments

Overdraft

Other loans and borrowings

Trade and other payables

 

49

7

58

243

15

(14)

(89)

(121)

Net assets and liabilities

148

Consideration received

-

Loss on disposal

(148)

 

Independent review report to flowtech fluidpower plc

 

Introduction

We have been engaged by the company to review the financial information in the half-yearly financial report for the six months ended 30 June 2014 which comprises the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of financial position, the consolidated statement of changes in equity, the consolidated statement of cash flows and the related explanatory notes. We have read the other information contained in the half yearly financial report, which comprises only the Executive Chairman and Chief Executive's joint statement, and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

This report is made solely to the company in accordance with guidance contained in ISRE (UK and Ireland) 2410, 'Review of Interim Financial Information performed by the Independent Auditor of the Entity'. Our review work has been undertaken so that we might state to the company those matters we are required to state to them in a review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusion we have formed.

 

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The AIM rules of the London Stock Exchange require that the accounting policies and presentation applied to the financial information in the half-yearly financial report are consistent with those which will be adopted in the annual accounts having regard to the accounting standards applicable for such accounts.

 

As disclosed in note 2 the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The financial information in the half-yearly financial report has been prepared in accordance with the basis of preparation in Note 2.

 

Our responsibility

Our responsibility is to express to the Company a conclusion on the financial information in the half-yearly financial report based on our review.

 

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the financial information in the half-yearly financial report for the six months ended 30 June 2014 is not prepared, in all material respects, in accordance with the basis of accounting described in note 2.

 

Grant Thornton UK LLP

Chartered Accountants

Manchester

15 September 2014

 


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