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Flowtech Fluidpower (FLO)

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Tuesday 18 September, 2018

Flowtech Fluidpower

Half-year Report

RNS Number : 0485B
Flowtech Fluidpower PLC
18 September 2018
 

 

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

 

Tuesday, 18 September 2018

 

FLOWTECH FLUIDPOWER PLC

Specialist full service supplier of technical fluid power products and services

(Flowtech, the Group or Company)

 

"We are again pleased to report further significant progress in the development of the Group during the first half of 2018 with acquisitions having also contributed significantly towards growth in sales and underlying operating profits."

 

 

HALF YEAR REPORT

FOR THE SIX MONTHS ENDED 30 JUNE 2018

 

 

 

FINANCIAL HIGHLIGHTS

HY2018

30.6.18

unaudited

HY2017

30.6.17

unaudited

GROWTH

%

 

·      REVENUE

£56.422m

£34.173m

65.1%

·      UNDERLYING OPERATING RESULT

£5.701m

£4.504m

26.6%

·      OPERATING PROFIT

£4.153m

£3.392m

22.4%

·      HALF-YEAR DIVIDEND

2.03p

1.93p

5.2%

·      EARNINGS PER SHARE (basic)

5.78p

5.22p

10.7%

·      NET DEBT

£18.0m

£8.4m

114.3%

 

OPERATIONAL HIGHLIGHTS

 

·      REVENUE AGAIN REFLECTS GROWTH ACROSS ALL DIVISIONS

·      COMPLETED ACQUISITION OF DIRECT COMPETITORS IN THE UK - BEAUMANOR FLUIDPOWER AND DEREK LANE

·      £11.0 MILLION CASH PLACING COMPLETED

·      GROSS MARGIN % REMAINS STRONG AT 36.1%

·      26.6% GROWTH IN UNDERLYING OPERATING PROFIT

·      DIVIDEND INCREASED IN LINE WITH PREVIOUS COMMITMENTS

 

POST PERIOD END HIGHLIGHT

 

·      REVISED LEADERSHIP TEAM FOR NEXT STAGE OF BUSINESS DEVELOPMENT

 

"Our activities have created many more opportunities to grow through acquisition and we plan to take advantage of this in the medium to long term.  However, in the short term it is appropriate to work with the infrastructure we presently have and continue to focus on delivering on our four layered synergy approach - back office, procurement, operational efficiency and commercial.  We constantly seek to learn from the experiences, both positive and challenging, observed in each deal, and we strive to build a team attitude to risk management.  However, our key experience to date is that our philosophy of allowing individual trading units to continue to trade independently under the umbrella of a "shared services" organisation, is giving us significant commercial traction post deal, with employee engagement established and, in many cases, enhanced." 

 

"Our markets have experienced a strong period of growth over 2017 and early 2018, and we have been able to enhance this with our own commercial activities, again bolstered by the benefits from our acquisition programme.  Whilst recent trading has remained positive, there are some signs, particularly in some engineering businesses, that growth may be softening.  As such while we remain confident in the prospects for the future growth in both our markets, and the enhancement our coordinated activities will bring, we are cautious about prospects in the short term until clarity is achieved on the post - Brexit UK economy.  Beyond this short-term view, the Board remains confident in the overall Group strategy being adopted."

 

MALCOLM DIAMOND, NON-EXECUTIVE CHAIRMAN

 

 

Presentation of HY results: a conference call facility will be held today at 09.30hrs (UK time)

- dial in details can be obtained by calling +44 (0) 7785 703523 or emailing [email protected]

 

 

ENQUIRIES:

FLOWTECH FLUIDPOWER PLC

Malcolm Diamond MBE, Non-Executive Chairman

Bryce Brooks, Chief Executive Officer and Chief Financial Officer

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

Thereafter: Tel: +44 (0) 1695 52796

Email: [email protected]

 

Zeus Capital Limited (Nominated Adviser and Joint Broker)

Andrew Jones, Alistair Donnelly (corporate finance)

Dominic King, John Goold (sales and broking)

Tel: +44 (0) 20 3829 5000

 

FinnCap Ltd (Joint Broker)

Ed Frisby, Kate Bannatyne (corporate finance)

Rhys Williams, Andrew Burdis (sales and broking)

Tel: +44 (0) 20 7220 0500

 

TooleyStreet Communications (IR and media relations)

Fiona Tooley

Tel: +44 (0) 7785 703523

Email: [email protected]

 

 

 

FLOWTECH FLUIDPOWER PLC

 

HALF YEAR REPORT

FOR THE SIX MONTHS ENDED 30 JUNE 2018

 

HALF YEAR FINANCIAL PERFORMANCE AND DIVISIONAL ANALYSIS

We are again pleased to report further significant progress in the development of the Group during the first half of 2018, with four acquisitions completed in the second half of 2017 being Hi-Power, Orange County, Hydroflex Hydraulics and Group HES and more recently in March 2018, Beaumanor Fluidpower and Derek Lane & Co.  These acquisitions have contributed significantly towards growth in sales of 65.1% and underlying operating profits of 26.6%.

 

Revenue

Six months

ended

30 June 2018

£000

Six months

ended

30 June 2017

£000

%

Change

 

Year

ended

31 December 2017

£000

Flowtechnology

Power Motion Control

Process

23,483

28,957

3,982

19,336

12,706

2,131

21.4%

127.9%

86.9%

37,239

34,806

6,242

Total Group revenue

56,422

34,173

65.1%

78,287

Gross profit %

36.1%

34.1%

 

 

 

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

 

Continuing operations

Underlying operating result*

Six months ended

30 June 2018

£000

Six months ended

30 June 2017

£000

%

Change

 

Year

ended

31 December 2017

£000

Flowtechnology

Power Motion Control

Process

Total Divisions

 

Central Costs

4,531

1,901

537

6,969

 

(1,268)

4,138

1,088

278

5,504

 

(1,000)

9.5%

74.7%

93.2%

26.6%

 

26.8%

7,524

2,788

1,105

11,417

 

(2,336)

Underlying operating result*

5,701

4,504

26.6%

9,081

 

*Underlying operating result is continuing operations' operating profit before the fair value uplift of inventory acquired through business

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

 

Flowtechnology - the original core operation of the Group's portfolio has now been further strengthened with the acquisition of its competitor, Beaumanor Fluidpower.  We are pleased to report that in the six months since the deal was completed the Beaumanor business has traded strongly.  Our decision to continue operating as an autonomous trading brand has underpinned strong engagement in the business by staff and customers alike and ensured service levels have remained high.  This has given us a good basis from which to move forward with synergy initiatives, particularly with combining order requirements for generic product supported from the Far East.  As detailed later in this Report, we are also currently reviewing projects with our IT advisory partners with regard to the transition to a common platform in the medium-term, with the significant potential for further synergy in both warehousing costs and stock values, particularly in our Flowtechnology operations.

 

Our Power Motion Control ("PMC") division was established in 2014 through the acquisition of Primary Fluid Power and, since then it has developed into a broad based fluidpower division, focused on hydraulic component distribution and engineering.  The result for the first half of the year represents a period of steady progress with comparisons for previous years boosted by the acquisitions of Hi-Power, Group HES and Hydroflex Hydraulics in 2017, and Derek Lane & Co. in 2018.  This division is predominantly focused on supplying OEMs and broader manufacturing environments which have also performed well during the first half of 2018.

 

The Process Division covers the Hydravalve and Orange County profit centres, both of which have traded favourably in the period.  The sector represents an area with huge potential for development, with valves and actuators alone accounting for an estimated 46% of the €12.6bn European fluidpower market, and whilst in the past three years acquisition activity has focused on progressing our Flowtechnology and PMC operations, the Board expects to take advantage of the many options for further expansion in this division in the years ahead.

 

As previously announced the development of an Onsite Services division has not progressed as quickly as planned following the acquisition of Group HES in October 2017.  Although the delivery of these services remains an important activity for the Group whether as a separate division or part of a larger operation the Board considers that a focus on a wider initiative to integrate activities within the PMC division sites, where opportunities to reduce operating costs, maximise technical capabilities and further improve our offer are clear.  Consequently, Stuart Diesel, the previous owner and Managing Director of Group HES, has been asked to prioritise this initiative in preference to developing a stand-alone onsite services division for the time being. We look forward to updating on this project at the year end.

 

Gross profit margins

Overall Gross Margin %, one of our most important KPIs, has increased year on year by 2% to 36.1% (2017 H1: 34.1%) and on full year 2017 by 2.2%.  The main factor behind these increases are mix related with our recent acquisitions being in high gross margin operations.  However, it is important to note that amongst our legacy operations, Flowtechnology UK and Hydravalve we have seen some immediate benefit from co-ordinated activities in Q2 following the acquisition of Beaumanor.  In the medium-term the Board believes that the broad spread of our offer, both in product, customer base and diverse trading sites will continue to provide resilience in this key measure in each division, particularly with the present apparent risk of further currency disruption post Brexit.

 

OPERATING Costs

In the first half of the year our underlying cost base can be analysed as follows:

 

 

Unaudited

Six months ended

30 June 2018

£000

Unaudited

Six months

ended

30 June 2017

£000

Audited

Year ended

31 December

2017

£000

Distribution expenses

2,090

1,452

3,175

As % of turnover

3.7%

4.1%

Administrative expenses*:

 

 

-Divisional

11,291

11,973

% of turnover

20.0%

15.3%

-Central

1,268

2,336

% of turnover

2.2%

3.0%

Total administrative expenses

12,577

14,309

% of turnover

22.3%

16.6%

18.3%

 

*before separately disclosed items

 

Distribution expenses are primarily costs paid to the various parcel and pallet carriers, principally FedEx, across the Group, and have moved in line with the mix of activities.

 

Administrative costs at Divisional level represent the operational infrastructure to run the Group's trading activities and after our prolonged period of acquisition activity is now spread across 29 sites in the UK, Ireland and the Netherlands.  The increase in proportion of turnover (being from 13.7% to 20.0%) is largely mix related amongst our newer acquisitions when compared to our legacy operations and illustrates the potential for cost reduction initiatives over the medium term, and therefore the Board is confident that the prospects for the rationalisation of our operational cost base remain good.  This will be an important measure for the newly established Executive team in 2019 and beyond.

 

At Central cost level, which covers Service Centre activities such as accounting, as well as costs associated with operating the PLC, the Board is continuing to ensure that personnel are recruited to cover not just for today, but to provide resilience for the expected growth in the future.

 

FINANCIAL POSITION INCLUDING CASH FLOW AND BANK DEBT

After reaching a peak during Q2, inventory has fallen and the outlook for the remainder of 2018 and early next year is positive as the Group looks to leverage off the benefits of being a multi-site organisation.  Trade Receivables at 30 June 2018 were £27.2m and clearly represent a significant element of our working capital.  Credit collection resources remain spread across the Group, and with this is in mind the new position of Group Credit Manager has been created with an appointment expected in early Q4.  The remit will be to ensure we improve cash collection efficiencies where possible.  With a combined inventory and Trade Receivables value of over £55m, the Board is determined to use the benefits of being part of an integrated Group to optimise our working capital position over the short to medium term, whilst retaining a customer centric focus and high service offer at Profit Centre level.

 

Away from this, the Group has continued to service its commitments in terms of dividend payments, under various deferred arrangements and, has worked effectively within bank facilities and covenants.

 

BOARD UDPATE

The Board changes announced earlier today are set out in a separate announcement.  

http://www.rns-pdf.londonstockexchange.com/rns/0485B_1-2018-9-18.pdf

 

OUR PEOPLE

After the period of significant growth, we have seen since coming to market in 2014, we are now able to call on a wide range of skilled directors and managers who lead our operations at local and group level.  A key initiative over the next year and into the future, will be to ensure that these leaders, many of whom have come from previously family owned organisations, have access to the high quality training and mentoring resources that can be obtained as part of a public company, and we firmly believe the likelihood of significant return in both employee engagement and financial return is compelling.

 

OUR BUSINESS STRATEGY FOR GROWTH

Our placing in Spring 2018 for £11m allowed us to complete the acquisition of Balu Ltd, with its two trading subsidiaries Beaumanor Fluidpower and Derek Lane.  After our previous placing for £10m in March 2017, and a series of twelve acquisitions starting in August 2014 with Primary Fluid Power the Group has established a strong commercial position in the UK and Irish markets, and a good position in the Benelux from which to expand.  Our activities have created many more opportunities to grow through acquisition and we plan to take advantage of this in the medium to long term.  However, in the short term it is appropriate to work with the infrastructure we presently have and continue to focus on delivering on our four layered synergy approach - back office, procurement, operational efficiency and commercial.  We constantly seek to learn from the experiences, both positive and challenging, observed in each deal, and we strive to build a team attitude to risk management.  However, our key experience to date is that our philosophy of allowing individual trading units to continue to trade independently under the umbrella of a "shared services" organisation, is giving us significant commercial traction post deal, with employee engagement established and, in many cases, enhanced.  On the flip side, there remain important challenges around IT and accounting, with reporting to public company standards as well as the building of protections around cyber-crime, network and data security adding to local complexity, and to some degree, cost.

 

INVESTMENT FOR THE FUTURE

In late 2017, the Board engaged with our IT strategy advisor, PwC, to establish a clear framework on which to build a resilient plan for the future of our IT infrastructure.  Whilst the plan that was subsequently approved was multi-faceted, there were essentially two clear building blocks.

 

1.     A single IT system encompassing Business Process and Accounting must be the aim

2.     The creation of a comprehensive cyber security framework and a resilient IT environment

 

The strong belief of the Board is that the benefits of this simple approach are likely to be significant, both in operational efficiency - the drive to "best practice" - and the ability to leverage the value of the huge data pools on customers, products and suppliers that are held across the eight IT environments that we currently operate.  Under the revised leadership team our plan is to move gradually towards this aim, whilst ensuring that local efficiency is not compromised.  In short, the benefits of applying modern enterprise management systems, to industrial markets is clear, and now is the time to start to address this situation to further underpin our long-term growth strategy.  The implementation of the first stage of this process - Sage X3 financials (now rebranded as Sage Enterprise Management) - is progressing well and is expected to significantly improve information flow in 2019.

 

EARNINGS PER SHARE AND DIVIDEND

In the first half, earnings per share increased to 5.78p, from 5.22p in 2017.  With the continued outlook for growth at "underlying" measures, the Board is pleased to declare a half year dividend of 2.03p (2017: 1.93p), a 5% increase.  This interim dividend will be paid on 26 October 2018, to members on the Register at close of business on 28 September 2018.

The shares will become ex-dividend on 27 September 2018.

 

OUTLOOK

Our markets have experienced a strong period of growth over 2017 and early 2018, and we have been able to enhance this with our own commercial activities, again bolstered by the benefits from our acquisition programme.  Whilst recent trading has remained positive, there are some signs, particularly in some engineering businesses, that growth may be softening.  As such while we remain confident in the prospects for the future growth in both our markets, and the enhancement our coordinated activities will bring, we are cautious about prospects in the short term until clarity is achieved on the post - Brexit UK economy.

 

In late 2017 we were awarded an order for c£1.5m to design, manufacture and supply several hydraulic cylinders and power units to an appointed sub-contractor on the Thames Tideway project.  The expected completion date was mid - 2018, however due to delays we currently understand that this project is unlikely to complete before early 2019 and further, that the contractual liabilities to be assumed have been subject to revision, to a point where we are currently discussing both these terms and pricing. The Board is firmly of the view that we will not accept risk that is disproportionate to our potential return, and inconsistent with our normal activities.  Our ability to replace such income in the short term is very limited and it is likely, therefore, to result in a Group performance at underlying operating profit level being marginally below market expectations for the year ending 31 December 2018.

 

Beyond this short-term view, the Board remains confident in the overall Group strategy being adopted.  After a short period to allow the new leadership/executive team to become established, the outlook for future growth remains strong.  We will continue to keep investors informed over the coming months and will provide further information on progress in our Q3 Trading Update which we expect to announce on 23 October 2018.

 

 

By order of the Board

17 September 2018

 

CONSOLIDATED INCOME STATEMENT

FOR THE SIX MONTHS ENDED 30 JUNE 2018

 

 

Notes

Unaudited

Six months ended

30 June 2018

£000

Unaudited

Six months

ended

30 June 2017

£000

Audited

Year ended

31 December 2017

£000

Continuing operations

Revenue

Cost of sales before separately disclosed items:

-Fair value uplift of inventory acquired through business

 combinations

 

 

 

3

 

56,422

(36,054)

(211)

 

34,173

(22,519)

-

 

78,287

(51,722)

-

Gross profit

Distribution expenses

 

20,157

(2,090)

11,654

(1,452)

26,565

(3,175)

Administrative expenses before separately disclosed items:

-Acquisition costs

-Amortisation of acquired intangibles

-Share based payment costs

-Restructuring costs

-Change in amounts accrued for contingent consideration

 

3

3

3

3

 

(12,577)

(444)

(470)

(102)

(18)

-

(5,698)

(510)

(325)

(172)

(90)

(15)

(14,309)

(1,081)

(768)

(272)

(117)

(229)

Total administrative expenses

 

(13,611)

(6,810)

(16,776)

Operating profit

 

4,456

3,392

6,614

Financial income

Financial expenses

 

-

(303)

-

(282)

6

(581)

Net financing costs

 

(303)

(282)

(575)

Profit from continuing operations before tax

Taxation

 

4

4,153

(867)

3,110

(634)

6,039

(1,207)

Profit from continuing operations after tax

 

3,286

2,476

4,832

Profit for the period attributable to the owners of the parent

 

3,286

2,476

4,832

Earnings per share

Basic earnings/(loss) per share

Continuing operations

Discontinued operations

 

 

 

5.78p

-

 

 

5.22p

-

 

 

9.69p

-

Basic earnings per share

6

5.78p

5.22p

9.69p

Diluted earnings/(loss) per share

Continuing operations

Discontinued operations

 

 

5.73p

-

 

5.17p

-

 

9.58p

-

Diluted earnings per share

6

5.73p

5.17p

9.58p

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 JUNE 2018

 

Unaudited

Six months

ended

30 June 2018

£000

Unaudited

Six months

ended

30 June 2017

£000

Audited

Year ended

31 December 2017

£000

Profit for the period

3,286

2,476

4,832

Other comprehensive income

-Items that will be reclassified subsequently to profit or loss

-Exchange differences on translating foreign operations

 

 

16

 

 

72

 

(28)

279

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

 

3,302

 

2,548

 

5,083

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2018

 

 

 

Unaudited

30 June 2018

£000

Unaudited

30 June 2017

£000

Audited

31 December 2017

£000

Assets

Non-current assets

Goodwill

Other intangible assets

Property, plant and equipment

 

 

 

62,781

7,369

6,959

 

 

51,609

4,893

4,344

 

 

57,938

7,430

6,070

Total non-current assets

 

77,109

60,846

71,438

Current assets

Inventories

Trade and other receivables

Prepayments

Cash and cash equivalents

 

 

 

 

 

 

28,974

27,217

1,554

2,414

 

17,317

16,625

807

4,142

 

24,333

20,866

800

4,588

Total current assets

 

60,159

38,891

50,588

Liabilities

Current liabilities

Interest-bearing loans and borrowings

Trade and other payables

Deferred and contingent consideration

Tax payable

Other financial liabilities

 

 

 

 

 

16,218

18,896

3,977

1,657

-

 

 

8,527

11,627

1,637

1,074

-

 

 

15,451

18,983

2,865

1,148

11

Total current liabilities

 

40,748

22,865

38,458

Net current assets

 

19,411

16,026

12,130

Non-current liabilities

Deferred and contingent consideration

Interest-bearing loans and borrowings

Provisions

Deferred tax liabilities

 

 

 

1,704

4,150

350

1,162

 

476

4,000

204

1,039

 

2,706

4,097

341

1,560

Total non-current liabilities

 

7,366

5,719

8,704

Net assets

 

89,154

71,153

74,864

Equity directly attributable to owners of the parent

Share capital

Share premium

Share-based payment reserve

Other reserves

Shares owned by the Employee Benefit Trust (EBT)

Merger relief reserve

Currency translation reserve

Retained losses

 

 

30,438

60,853

162

480

(413)

3,548

552

(6,466)

 

25,830

52,435

690

293

(507)

2,086

329

(10,003)

 

26,409

52,370

589

480

(40)

3,194

536

(8,674)

Total equity

 

89,154

71,153

74,864

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 JUNE 2018

 

Share capital

 

£000

Share

premium

 

£000

Share-based payment reserve

£000

Other reserves

 

£000

Merger relief

reserve

£000

Currency

translation

reserve

£000

Shares owned by EBT £000

Retained

losses

 

£000

Total

equity

 

£000

 

Six months ended 30 June 2018 unaudited

 

 

 

 

 

 

 

 

 

Balance at 1 January 2018

Profit for the period

Other comprehensive income

26,409

-

-

52,370

-

-

589

-

-

480

-

-

3,194

-

-

536

-

16

(40)

-

-

(8,674) 3,286

-

74,864

3,286

16

Total comprehensive income for the period

-

-

-

-

-

16

-

3,286

 

3,302

Transaction with owners

Issue of share capital

Purchase of minority shares held in      subsidiary undertakings

Shares owned by the EBT

Share-based payment charge

Share options settled

 

4,029

-

 

-

-

-

 

8,483

-

 

-

-

-

 

-

-

 

-

102

(529)

 

-

-

 

-

-

-

 

354

-

 

-

-

-

 

-

-

 

-

-

-

 

-

-

 

(650)

-

277

 

-

(1,304)

 

-

-

226

 

12,866

(1,304)

 

(650)

102

(26)

Total transactions with owners

4,029

8,483

(427)

-

354

-

(373)

(1,078)

10,988

Balance at 30 June 2018

30,438

60,853

162

480

3,548

552

(413)

(6,466)

89,154

 

Six months ended 30 June 2017 unaudited

 

 

 

 

 

 

 

 

 

Balance at 1 January 2017

Profit for the period

Other comprehensive income

21,539

-

-

46,880

-

-

733

-

-

293

-

-

2,086

-

-

257

-

72

(338)

-

-

(10,601)

2,476

-

60,849

2,476

72

Total comprehensive income for the period

-

-

-

-

-

72

-

2,476

2,548

Transaction with owners

Issue of share capital

Shares owned by the EBT

Share-based payment charge

Share options settled

Equity dividends paid (note 5)

 

4,291

-

-

-

-

 

5,555

-

-

-

-

 

-

-

172

(215)

-

 

-

-

-

-

-

 

-

-

-

-

-

 

-

-

-

-

-

 

-

(244)

-

75

-

 

-

-

-

-

(1,878)

 

9,846

(244)

172

(140)

(1,878)

Total transactions with owners

4,291

5,555

(43)

-

-

-

(169)

(1,878)

7,756

Balance at 30 June 2017

25,830

52,435

690

293

2,086

329

(507)

(10,003)

71,153

 

 

 

 

 

 

 

 

 

 

 

Twelve months ended 31 December 2017 - audited

 

Share capital

 

£000

Share

premium

 

£000

Share-based payment reserve

£000

Other reserves

 

£000

Merger relief

reserve

£000

Currency

translation

reserve

£000

Shares owned by EBT

£000

Retained

losses

 

£000

Total

equity

 

£000

 

Balance at 1 January 2017

21,539

46,880

733

293

2,086

257

(338)

(10,601)

60,849

 

Profit for the year

-

-

-

-

-

-

-

4,832

4,832

 

Other comprehensive loss

-

-

-

-

-

279

-

(28)

251

 

Total comprehensive income for the year

-

-

-

-

-

279

-

4,804

5,083

 

Transactions with owners

 

 

 

 

 

 

 

 

 

 

Issue of share capital

4,870

5,490

-

-

1,108

-

-

-

11,468

 

Shares options issued as consideration

-

-

-

187

-

-

-

-

187

 

Shares purchased by the EBT

-

-

-

-

-

-

(246)

-

(246)

 

Share-based payment charge

-

-

272

-

-

-

-

-

 

272

 

Share options settled

-

-

(416)

-

-

-

544

-

128

 

Equity dividends paid (note 5)

-

-

-

-

-

-

-

(2,877)

(2,877)

 

Total transactions with owners

4,870

5,490

(144)

187

1,108

-

298

(2,877)

8,932

 

Balance at 31 December 2017

26,409

52,370

589

480

3,194

536

(40)

(8,674)

74,864

 

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 30 JUNE 2018

 

 

 

Unaudited

Six months

ended

30 June 2018

£000

Unaudited

 Six months

ended

30 June 2017

£000

Audited

 Year

ended

31 December 2017

£000

Cash flow from operating activities

 

 

 

 

Net cash from operating activities

 

(2,341)

2,784

6,600

Cash flow from investing activities

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

Acquisition of property, plant and equipment

Proceeds from sale of property, plant and equipment

Payment of deferred and contingent consideration

 

 

(7,371)

(944)

18

(2,220)

 

(4,345)

(669)

14

(411)

 

(11,798)

(1,802)

22

(1,649)

Net cash used in investing activities

 

(10,517)

(5,411)

(15,227)

Cash flows from financing activities

Net proceeds from the issue of share capital

Repayment of long-term borrowings

Net change in short term borrowings

Repayment of finance lease liabilities

Net cash settled share options

Interest received

Interest paid

Repayment of loan by EBT

Dividends paid

 

 

10,220

-

1,000

(110)

(23)

-

(288)

276

-

 

9,602

(429)

(4,000)

(13)

(140)

-

(186)

-

(1,878)

 

9,531

(857)

3,000

(58)

-

6

(476)

722

(2,877)

Net cash generated from / (used in) financing activities

 

11,075

2,956

8,991

Net change in cash and cash equivalents

 

(1,783)

329

364

Cash and cash equivalents at start of period

Exchange differences on cash and cash equivalents

 

4,199

(2)

3,824

(11)

3,824

11

Cash and cash equivalents at end of period

 

2,414

4,142

4,199

 

 

Reconciliation of liabilities arising from financing activities

The changes in the Group's liabilities arising from financing activities can be classified as follows

 

Long term

borrowings

£000

Short term

borrowings

£000

Lease

liabilities

£000

Total

£000

At 1 January 2018

4,000

15,000

159

19,159

Cash flows:

 

 

 

 

-            Repayment

-

-

(110)

(110)

-            Proceeds

-

1,000

-

1,000

Non-cash:

 

 

 

 

-            Acquisition

-

-

319

319

At 30 June 2018

4,000

16,000

368

20,368

 

 

NOTES TO THE HALF-YEAR REPORT

FOR THE SIX MONTHS ENDED 30 JUNE 2018

 

1

General information

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

 

The registered number is 09010518.

 

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

 

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

 

This consolidated Interim Report and the financial information for the six months ended 30 June 2018 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 17 September 2018.

 

The Group's financial statements for the year ended 31 December 2017 have been filed with the Registrar of Companies.  The Group's auditor's report on these financial statements was unqualified and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

 

ELECTRONIC COMMUNICATIONS

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

 

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

 

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

 

 

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 2018.  These are consistent with the accounting policies used in the Financial Statements for the year ended 31 December 2017, except for;

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

·      Inventory acquired in business combinations has been measured at fair value as required by IFRS 3 (para 18)

·      IFRS 15 became effective on 1 January 2018, the standard has been implemented but has not had a material impact

 

GOING CONCERN

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

 

 

 

3

OPERATING SEGMENTS

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

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

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

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

 

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

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

 

 

 

 

 

Flowtechnology

£000

Power Motion Control

£000

 

 

Process

£000

Inter-segmental transactions

£000

 

Central

 costs

£000

Total continuing operations

£000

Six months ended 30 June 2018

 

 

 

 

 

 

Income statement

- continuing operations:

 

 

 

 

 

 

Revenue from external customers

23,483

28,957

3,982

-

-

56,422

Inter segment revenue

1,034

190

62

(1,286)

-

-

Total revenue

24,517

29,147

4,044

(1,286)

-

56,422

Underlying operating result

4,531

1,901

537

-

(1,268)

5,701

Net financing costs

(17)

(6)

(34)

-

(246)

(303)

Underlying segment result

4,515

1,895

502

-

(1,514)

5,398

Separately disclosed items

(280)

(381)

(96)

-

(488)

(1,245)

Profit/(loss) before tax

4,235

1,514

406

-

(2,002)

4,153

Specific disclosure items

Depreciation

Amortisation

 

245

10

 

196

364

 

23

96

 

-

-

 

-

-

 

464

470

Reconciliation of underlying operating result to operating profit:

Underlying operating result

Separately disclosed items

 

 

4,531

(280)

 

 

1,901

(381)

 

 

537

(96)

 

 

-

-

 

 

(1,268)

(488)

 

 

5,701

(1,245)

Operating profit/(loss)

4,251

1,520

441

-

(1,756)

4,456

 

 

 

 

 

Flowtechnology

£000

Power Motion Control

£000

 

 

Process

£000

Inter-segmental transactions

£000

 

Central

costs

£000

Total continuing operations

£000

Six months ended 30 June 2017

 

 

 

 

 

 

Income statement - continuing operations:

 

 

 

 

 

 

Revenue from external customers

19,336

12,706

2,131

-

-

34,173

Inter segment revenue

823

159

40

(1,022)

-

-

Total revenue

20,159

12,865

2,171

(1,022)

-

34,173

Underlying operating result

4,138

1,088

278

-

(999)

4,504

Net financing costs

-

(10)

(4)

-

(268)

(282)

Underlying segment result

4,138

1,078

274

-

(1,267)

4,222

Separately disclosed items

(154)

(48)

-

-

(910)

(1,112)

Profit/(loss) before tax

3,984

1,030

274

-

(2,177)

3,110

Specific disclosure items

Depreciation

Amortisation

 

203

10

 

50

271

 

14

44

 

-

-

 

-

-

 

267

325

Reconciliation of underlying operating result to operating profit:

Underlying operating result

Separately disclosed items

 

 

4,138

(154)

 

 

1,087

(48)

 

 

278

-

 

 

-

-

 

 

(999)

(910)

 

 

4,504

(1,112)

Operating profit/(loss)

3,984

278

-

(1,909)

3,392

 

 

 

 

Flowtechnology

 £000

Power

Motion

Control

 £000

Process

£000

Inter-segmental transactions £000

Central

Costs

£000

Total continuing operations

 £000

For the year ended 31 December 2017

 

 

 

 

 

 

Income statement - continuing operations:

 

 

 

 

 

 

Revenue from external customers

37,239

34,806

6,242

-

-

78,287

Inter segment revenue

1,746

340

105

(2,191)

-

-

Total revenue

38,985

35,146

6,347

(2,191)

-

78,287

Underlying operating result

7,524

2,788

1,105

-

(2,336)

9,081

Net financing costs

(13)

(15)

(19)

-

(528)

(575)

Underlying segment result

7,511

2,773

1,086

-

(2,864)

8,506

Separately disclosed items

(103)

(1,018)

(200)

-

(1,146)

(2,467)

Profit/(loss) before tax

7,408

1,755

886

-

(4,010)

6,039

Specific disclosure items

 

 

 

                                    

 

 

Depreciation

447

179

24

-

-

650

Amortisation

19

609

140

-

-

768

Reconciliation of underlying operating result to operating profit:

 

 

 

 

 

 

Underlying operating result

7,524

2,788

1,105

-

(2,336)

9 081

Separately disclosed items

(103)

(1,018)

(200)

-

(1,146)

(2,467)

Operating profit/(loss)

7,421

1,770

905

-

(3,482)

6,614

 

 

SEPARATELY DISCLOSED ITEMS

·      The fair value uplift of inventory acquired through business combinations is recognised in accordance with IFRS 3 "Business Combinations" to record the inventory acquired at fair value and its subsequent release into the income statement

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

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

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

 

 

 Six months

ended

30 June 2018

£000

Six months

ended

30 June 2017

£000

Year

ended

31 December 2017

£000

Separately disclosed items within cost of sales:

- Fair value uplift of inventory acquired through business

 combinations

 

Separately disclosed items within administration expenses:

-Acquisition costs

-Amortisation of acquired intangibles

-Share-based payment costs

-Restructuring

-Change in amounts accrued contingent consideration

 

 

211

 

 

444

470

102

18

-

 

 

-

 

 

510

325

172

90

15

 

 

-

 

 

1,081

768

272

117

229

Total separately disclosed items

1,245

1,112

2,467

 

 

4

TAXATION

 

Six months

ended

30 June 2018

£000

Six months

ended

30 June 2017

£000

Year

ended

31 December 2017

£000

 

Current tax on income for the period - continuing operations:

UK tax

Foreign tax

Deferred tax credit

Adjustments in respect of prior years

 

1,062

-

(195)

-

 

680

-

(46)

-

 

1,258

167

(129)

(89)

 

Total taxation

867

634

1,207

 

 

The taxation for the period has been calculated by applying the estimated tax rate for the financial year ending 31 December 2018. Deferred tax liabilities have also been adjusted to £1,162,000 to reflect capital allowances more than depreciation and other short-term timing differences.

 

           

 

 

5

DIVIDENDS

 

Six months

ended

30 June

2018

£000

Six months

ended

30 June

2017

£000

Year

ended

31 December

2017

£000

Final dividend (2017: 3.67p) per share

-

1,878

1,878

Interim dividend (2017: 1.93p) per share

-

-

999

Total dividends

-

1,878

2,877

 

A final dividend of 3.85p per share was paid on 13 July 2018. In addition, the Directors are proposing a half-year dividend in respect of the financial year ending 31 December 2018 of 2.03p per share which will absorb an estimated £1.2 million of shareholders' funds.  It will be paid on 26 October 2018 to Shareholders who are on the Register of Members at close of business on 28 September 2018.

         

 

 

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 2018

Six months ended

30 June 2017

Year ended

31 December 2017

 

 

 

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

 

 

3,286

-

 

 

56,888

56,888

 

 

5.78

-

 

 

2,476

-

 

 

47,402

47,402

 

 

5.22

-

 

 

4,831

-

 

 

49,835

49,835

 

 

9.69

-

Basic earnings per share

3,286

56,888

5.78

2,476

47,402

5.22

4,831

49,835

9.69

Diluted earnings/(loss) per share

Continuing operations

Discontinued operations

 

 

3,286

-

 

 

57,355

57,355

 

 

5.73

-

 

 

2,476

-

 

 

47,886

47,886

 

 

5.17

-

 

 

4,831

-

 

 

50,409

50,409

 

 

9.58

-

Diluted earnings per share

3,286

57,355

5.73

2,476

47,886

      5.17

4,831

50,409

9.58

                     

 

 

 

Six months

ended

30 June 2018

£000

Six months

ended

30 June 2017

£000

Year

ended

31 December 2017

£000

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

Impact of share options

56,888

467

47,402

484

49,835

574

Weighted average number of ordinary shares for diluted earnings per share

57,355

47,886

50,409

 

 

7

ACQUISITIONS  

On 19 March 2018, the Company acquired 100% of the share capital of Balu Limited, a UK based holding company, and its UK subsidiaries, thereby obtaining control.

 

The initial consideration paid was £6,059,000 in cash, £500,000 in shares in the ultimate parent company, Flowtech Fluidpower plc with additional estimated consideration of £2,332,000 anticipated to be paid within 12 months. The cash consideration was funded through existing resources, supplemented by a share issue by Flowtech Fluidpower plc on 4 April. The acquisition will add significantly to the Company's procurement relationship with key global suppliers and enhance our position in the supply of MRO fluid power products in the UK and Ireland.

 

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

 

 

Book value

£000

Fair value adjustment

£000

Provisional fair value

£000

Fixed assets

918

-

918

Stocks

2,965

-

2,965

Trade and other debtors

3,274

-

3,274

Cash and cash equivalents

(1,310)

-

(1,310)

Trade and other creditors

(2,359)

-

(2,359)

Finance leases

(319)

-

(319)

Current tax balances

283

-

283

Deferred tax liability

(57)

-

(57)

Total net assets

3,395

-

3,395

 

 

 

 

£000

Fair value of consideration paid

 

 

 

Amount settled in cash

 

 

6,059

Amount settled in shares in Flowtech Fluidpower plc

 

 

500

Contingent consideration

 

 

2,332

Stamp duty

 

 

42

Total consideration paid

 

 

8,933

 

 

8

SUBSEQUENT EVENTS

There are no material adjusting or non-adjusting events subsequent to the reporting date.

 

 

9

NET CASH FROM OPERATING ACTIVITIES

 

Six months ended

30 June 2018

£000

Six months

ended

30 June 2017

£000

Year

ended

31 December 2017

£000

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

Profit from continuing operations before tax

Depreciation

Financial income

Financial expense

Profit on sale of plant and equipment

Amortisation of intangible assets

Cash settled share options

Equity settled share-based payment charge

Change in amounts accrued contingent consideration

 

4,153

464

-

303

(5)

470

-

102

-

 

3,110

267

-

282

-

325

-

172

15

 

6,039

640

(6)

581

(3)

768

(415)

272

229

Operating cashflow 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

5,487

(4,798)

(1,003)

(1,506)

9

4,171

(2,569)

452

1,383

(9)

8,105

(823)

(931)

1,922

(63)

Net cashflow from operations

Tax paid

(1,811)

(530)

3,428

(644)

8,210

(1,610)

Net cashflow from operating activities

(2,341)

2,784

6,600

         

 

 

PRINCIPAL RISKS AND UNCERTAINTIES

In common with all organisations, Flowtech faces risks which may affect its performance.  The Group operates a system of internal control and risk management to provide assurance that we are managing risk whilst achieving our business objectives.  No system can fully eliminate risk and therefore the understanding of operational risk is central to management processes.  The long-term success of the Group depends on the continual review, assessment and control of the key business risks it faces.  The Directors set out in the 2017 Annual Report and Financial Statements the principal risks identified during this exercise, including quality control, systems and site disruption and employee retention.  The Board does not consider that these risks have changed materially in the last six months.

 

 

 

 

FORWARD-LOOKING STATEMENTS

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

 

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

 

 

 


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