REG - Flowtech Fluidpower - Organic & acquisition strategy underpins future <Origin Href="QuoteRef">FLOL.L</Origin> - Part 1
RNS Number : 4315QFlowtech Fluidpower PLC12 September 2017The information contained within this announcement is deemed by the Company to constitute inside information stipulated under the Market Abuse Regulation (EU) No. 596/2014. Upon the publication of this announcement via the Regulatory Information Service, this inside information is now considered to be in the public domain.
Tuesday, 12 September 2017
FLOWTECH FLUIDPOWER PLC
(Flowtech, the Group or Company)
Specialist technical fluid power products supplier
"Group organic growth and acquisition strategy underpins the platform for future development"
2017 HALF-YEAR REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2017
FINANCIAL HIGHLIGHTS
HY2017
30.6.17
UNAUDITED
HY2016
30.6.16
UNAUDITED
GROWTH
%
REVENUE
34.173m
27.387m
24.8%
UNDERLYING OPERATING RESULT
4.504m
4.059m
11.0%
OPERATING PROFIT
3.392m
3.290m
3.1%
HALF-YEAR DIVIDEND
1.93p
1.84p
5.0%
EARNINGS PER SHARE (basic) (note 1)
5.22p
5.91p
NET DEBT (note 1)
8.4m
14.1m
OPERATIONAL HIGHLIGHTS
REVENUE REFLECTS BOTH GOOD ORGANIC AND ACQUISITIVE GROWTH ACROSS ALL DIVISIONS
INCREASING TECHNICAL DEPTH ACROSS A GREATER RANGE OF CUSTOMERS
GROUP PROCUREMENT STRATEGY BEGINNING TO DELIVER PRICE AND RANGE BENEFITS
STRONG LEADERSHIP AND NETWORK DEVELOPED AT PROFIT CENTRE LEVEL
ACQUISITION STRATEGY AGAIN DELIVERING EXCELLENT OPPORTUNITIES:
FIVE COMPLETED IN 2017 AND 11 SINCE BECOMING A PLC IN 2014
10 MILLION CAPITAL RAISE IN MARCH - 8.1M ALREADY INVESTED
CONFIDENT OF FURTHER ACQUISITIVE PROGRESS IN HY2 WITH BALANCE SHEET STRENGTH TO SUPPORT
STRONG START TO SECOND HALF - CONFIDENT OF ACHIEVING FULL YEAR MARKET EXPECTATIONS
Note 1: On 30 March 2017, the Company completed a 10 million cash placing and issued 8,333,333 shares in consideration
"We are pleased to report an encouraging first half trading performance with turnover increased year on year by 24.8%, through a mixture of organic and acquisitive growth, and this has continued to reinforce our position as one of the leading players in the fluid power sector. "
MALCOLM DIAMOND, NON-EXECUTIVE CHAIRMAN
"Flowtech remains confident in its ability to develop a technically based full service Fluid Power group in the UK and internationally. The Group is recognised as a specialist and resilient business operating in a fragmented market. The development of our multi-channel strategy creates multiple touch points within the market increasing our overall penetration. In addition to organic sales growth our approach will create further revenue generating opportunities through: its investment in people and increased sales resource, the ongoing development of Exclusive Brand and OEM product offering, as well as through further earnings enhancing acquisitions."
SEAN FENNON, CEO
"The Group's current underlying performance will deliver another year of solid progress. As a business, we are confident in our strategy, commercial opportunities and prospects, and with a strong start to the second half are on track to meet current market expectations for the year ending 31 December 2017."
BRYCE BROOKS, CFO
ENQUIRIES:
Flowtech Fluidpower plc
Malcolm Diamond MBE, Non-Executive Chairman
Sean Fennon, Chief Executive Officer
Bryce Brooks, Chief Financial Officer
Today: +44 (0) 20 7220 0500 or +44 (0) 20 3829 5000
Thereafter: Tel: +44 (0) 1695 52796
Email: info@flowtechfluidpower.com
Zeus Capital Limited (Nominated Adviser and Joint Broker)
Andrew Jones, Alistair Donnelly (corporate finance)
Dominic King, John Goold (sales and broking)
Tel: +44 (0) 20 3829 5000
FinnCap Ltd (Joint Broker)
Ed Frisby, Kate Bannatyne (corporate finance)
Rhys Williams, Emily Morris (sales and broking)
Tel: +44 (0) 20 7220 0500
TooleyStreet Communications (IR and media relations)
Fiona Tooley
Tel: +44 (0) 7785 703523
Email: fiona@tooleystreet.com
EDITORS NOTE
About Flowtech Fluidpower plc
Founded as Flowtech in 1983, the Flowtech Group is the UK's leading specialist supplier of technical fluid power products. The business joined Aim in 2014. Today, the business has three distinct divisions:
Division:
What we do:
Locations:
Flowtechnology
focus on supplying distributors and resellers of industrial MRO products, primarily serving urgent orders rather than bulk offerings. It offers an unrivalled range of OEM and Exclusive Brand products to over 3,400 distributors and resellers. The catalogue is recognised as the definitive source for fluid power products, containing 100,000 individual product lines and are distributed to more than 80,000 industrial MRO end users.
Flowtechnology Benelux (Deventer)
Flowtechnology China (Guangzhou)
Flowtechnology UK (Skelmersdale)
Indequip (Skelmersdale)
Power Motion Control (PMC)
specialise in the design, assembly and supply of engineering components and hydraulic systems, further enhanced by a service and repair function.
Primary Fluid Power (Knowsley)
Nelson Fluid Power- (Dublin, Lisburn, Dungannon)
TSL Fluidpower (West Yorkshire)
Albroco ((Knowsley)
Hydraulics & Transmissions (Ludlow)
Hi-Power Hydraulics (Cork, Dublin, Belfast Manchester)
Hydroflex Hydraulics (Brussels, Rotterdam and OudBeijerland)
Process
focus on the supply of industrial components and solutions to the process sectors.
Hydravalve, (Willenhall)
Orange County (Spennymoor)
All three of the Group's divisions have overlapping product sets, allowing procurement synergies to be maximised.
The divisions are supported by a centralised back office team at the Skelmersdale site and in total the business employs over 400 people.
For more information please visit, www.flowtechfluidpower.com
FLOWTECH FLUIDPOWER PLC
HALF-YEAR FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2017
INTRODUCTION
It is pleasing to report that since joining AIM in 2014 the Group has:
Expanded its portfolio extensively across existing and new product categories
Completed eleven acquisitions
Established three clearly-focussed divisions: Flowtechnology, Power Motion Control and Process
Delivered synergies across the organisation - procurement, operational, commercial and back office
Profit Sharing introduced at local level to focus on ROCE growth
As a business:
Our strategy is to continue to enhance our unique position within the fluid power supply chain, and aligned to the global supply base thereby creating a multi-channelled access to a wide range of industrial and manufacturing customers. We are in an exciting phase. Our product set and technical competence continues to deepen, increasing our touch points within the varied industrial and manufacturing customers we supply every day around the UK and overseas.
As a Board:
We remain confident that our wide range of revenue enhancing development programmes, when linked to our acquisition strategy based on a clear multi-channel approach, will continue to create significant opportunity for further growth and increased market penetration. By developing our offer, we ensure that the Group maintains its competitive advantage in each of the markets in which it trades.
2017 HALF-YEAR FINANCIAL PERFORMANCE
We are pleased to report an encouraging first half trading performance, all achieved against a backdrop where the economic conditions have remained challenging in most industrial markets, and particularly in the UK (British Fluid Power Distributors Association Market Survey indicates 2017 fluid power overall distributor sales growth was negative 1.0%^). Overall, turnover increased year on year by 24.8%, through a mixture of organic and acquisitive growth, and this has continued to reinforce our position as one of the leading players in the fluid power sector.
Revenue
Six months
ended
30 June 2017
000
Six months
ended
30 June 2016
000
%
Change
Year
ended
31 December 2016
000
Flowtechnology
Power Motion Control
Process
19,336
12,706
2,130
18,093
8,268
1,026
6.9%
53.7%
107.4%
35,113
15,830
2,837
Total Group Revenue
34,173
27,387
24.8%
53,780
Gross Profit %
34.1%
34.9%
(0.8%)
35.5%
Although not defined under IFRS, the Directors believe that the underlying operating results give a better understanding of the business' profit performance. The table below details this is in summary and further information is contained in note 3 of this Report.
Continuing operations
Underlying operating result*
Six months ended
30 June
2017
000
Six months ended
30 June
2016
000
%
Change
Year ended
31 December
2016
000
Flowtechnology
Power Motion Control
Process
Total Divisions
Central Costs
4,138
1,088
278
5,504
(1,000)
4,027
930
150
5,107
(1,048)
2.7%
16.9%
86.1%
7.8%
(4.7%)
7,626
1,823
402
9,979
(2,211)
Underlying operating result*
4,504
4,059
11.0%
7,454
**Underlying operating result is continuing operations' operating profit before acquisition costs, amortisation of acquired intangibles, share-based payment costs and restructuring costs. Underlying operating result is reconciled to statutory profit before tax in note 3 to the HY Report.
Adjusted for 136,000 of costs previously shown as Central Costs and now borne by Flowtechnology division
^ Source: British Fluid Power Distributors Association Monthly Survey January to July 2017 v 2016
The Flowtechnology division has increased its revenues by 6.9%. The acquisition of Indequip in February 2016 contributed 1.6% of this growth, the balance of 5.3% reflects organic growth within the core business. The division has continued to develop the product set and service offering in its 2017 catalogues increasing its market opportunities. In the period since June, trading has remained in line with this growth pattern and we expect to make further positive progress over the remainder of the year.
The Power Motion Control division increased its revenues by 53.7%, of which 40.0% was via acquisition. The remaining growth has been most pronounced in our Irish operation, Nelson Hydraulics, which has been able to use the fact it now has the support of a wider network of resources to significantly increase market share, particularly in Northern Ireland. All the businesses within this division are highly technical and complementary to each other and under the PMC banner deliver a collaborative approach to our customers. This has been a key element in the division's progress. Like Flowtechnology, in the period since June, trading has remained buoyant and management are confident that further growth is achievable in Q3 and Q4.
Growth in the newest division Process reflects a mix of organic - 16.0% - and full year effects from the acquisition of Hydravalve in March 2016. The acquisition of Orange County in July 2017 will further enhance growth in the second half of 2017. Since June, trading has been strong and again the Board are confident of organic growth being achieved in Q3 and Q4.
The Group's ongoing focus on Gross Profit across all the divisions, linked to our flexible pricing models and specialised procurement programmes, has enabled the business to maintain and develop its gross margins in line with market expectations at 34.1%, with the reduction from last year's comparative of 34.9% being predominantly down to the mix effect of the PMC division acquisitions. Overall the Board is pleased with the pricing adjustments that have been made since the increase in the cost of USD and Euro sourced products seen post the Brexit result in the summer of 2016. Across the Group margins generally have returned to pre-Brexit levels.
The Board is pleased to report that in all divisions staff and other operational costs remain in line with expectations. In addition, the Group has been able to use some of the proceeds of this growth to enhance our staff and management bonus schemes at local level with a view to replacing our current share based option schemes (see below). The Group is therefore able to report an underlying operating result of 4.504m (2016: 4.059m), an increase of 11% year on year.
FINANCIAL POSITION INCLUDING CASH FLOW AND BANK DEBT
Net cash generated from operating activities was 2.784m (note 9) (2016: 0.188m), an increase of 2.596m. This figure represents a return to a more "normalised" result with the comparative in 2016 being influenced by the expected build-up of working capital in Indequip following the purchase of the trade in February 2016, and the heavier bias in stock investment in early 2016 made to take advantage primarily of better pricing opportunities in the Far East at the time - a decision that also provided some advantage against currency movements following the Brexit vote in June 2016.
Net borrowings at 30 June 2017 were 8.4m. Barclays Bank Plc has supported the Group's acquisition activity, and we remain well within agreed facilities and covenants. Overall the Board expects further strong operational cash generation in the second half of 2017, which will in turn support acquisition activity as well as future dividend payments (see below).
OUR BUSINESS STRATEGY FOR GROWTH
The raising of 10m of new capital at the end of March 2017 has already allowed us to complete several investments and these are included in the list below. The pipeline remains strong, continues to develop, and if brought to fruition will significantly enhance our current brand portfolio and offering. We remain confident that we will conclude more of these transactions over the coming months, and enhance organic growth through a mix of product development, value add services and new customer opportunities.
During the year to date the Group has invested a total of 8.1million in the following acquisitions:
Hydraulics & Transmissions Limited (HTL). - Jan 2017 - PMC - Day 1 cash outlay incl. assumed net debt 1.8m
Hewi Slangen - Feb 2017 - Flowtechnology - 0.2m
Hi-Power Limited - June 2017 - PMC - 1.9m
Orange County Limited ("OCL") - July 2017 - Process - 1.5m
The Hydraulic Group BV t/a Hydraflex Hydraulics - Sept 2017 - PMC - 2.7m
A further 3.5m is expected to be paid out in contingent consideration over the next two years (HTL - 0.9m, Hi-Power - 0.5m, OCL - 2.1m).
All the above businesses are trading strongly, and have further demonstrated that the acquisition and control processes which are in place allow integration to be progressed quickly and with little disturbance to customer facing operations. All have developed our range of options.
These acquisitions clearly reinforce the ongoing strategy set out by the Board, to develop a focused Fluid Power Group across a wide number of industry sectors taking advantage of the complementary technical and product offerings, and creating an opportunity to de-risk some of the cyclic nature of each business.
INVESTMENT FOR THE FUTURE
As part of the ongoing development of the Group, the Shared Logistics Centre based at Skelmersdale is in the process of internal redesign increasing its capacity by over 40%. The total capital cost of this investment is c.0.6m, and includes enhancement to both the automated picking lines and bulk storage, as well as office capacity. The project which will be completed by the end of September 2017 has been majority funded by a capital contribution from the landlord on signing a new fifteen-year lease in 2016, and along with efficiency savings already created will provide additional capacity for the Group to deliver operational and stocking improvements for use by all our Profit Centres. The Board believes this will also provide considerable scope for both the profitable integration of future acquisitions to the Group, and provide scope for further organic growth within the current portfolio.
In addition, it is our intention to establish during the early part of 2018 a Shared Engineering Centre based on the current Primary Fluid Power operation in Knowsley, Merseyside to enhance our position as a complete service provider to the fluid power sector. Subject to the identification of a new leasehold site, a sale of the current site has been agreed with likely net cash proceeds of c.0.9m. We expect to be able to confirm the new location by the time of our next trading update in mid-October.
STAFF AND MANAGEMENT BONUS SCHEMES
The Group has expanded quickly over the past two years, and now has fifteen "Profit Centres" compared with two when we came to market in 2014. With further expansion planned, the Board believed it was important to introduce a bonus scheme that both focused on ensuring that management teams would continue to be rewarded for growth at local level, whilst at the same time exploiting the benefits of being part of the Group. In addition, it was important that each business was also accountable for the management of its own working capital, including the lifeblood of a successful distribution operation, inventory.
Therefore, from 1 January 2017, the Group introduced a bonus scheme that rewards at Profit Centre level and is based on a share of the operating profit produced above a threshold return on capital employed - an internal rate that is currently set at 20%. This capital excludes any bank or other similar financing. It therefore ensures that the Group has a bottom up approach to cash generation.
This scheme is also allowing the Group to quickly integrate acquisitions as new management teams have a simple reward programme to follow. We are creating "best practice" KPI comparisons within the Group, such as gross margin %, payroll efficiency and stock turns, which will create a drive to match the best performance in each division.
Whilst implementation of the profit sharing scheme has increased payroll costs when compared to 2016, the Board sees the adoption of this scheme as a fundamental for the future development of the Group; over time this scheme will replace the share-based reward systems that are currently in place for staff employed at Profit Centre level.
OUR PEOPLE
At Operating Board level, we congratulate Paul Smith on his promotion to Managing Director of TSL, and we welcome Managing Directors, Maurice Kearney (Hi-Power), Kirk Duncan (HTL), Spencer Rogers (OCL) and most recently, Leo Voogd (The Hydraulic Group - Hydroflex).
Delivering our goals and objectives we now have over 400 skilled staff employed across five countries and in eighteen locations, and we take this opportunity to welcome all new colleagues who joined us this year. The Board thanks everyone around the business for their continuous hard work, dedication and loyalty, which underpins both customer relationships and the Group's overall performance.
OUTLOOK
The Group's current underlying performance will deliver another year of solid progress. As a business, we are confident in our strategy, commercial opportunities and the prospects, and with a strong start to the second half are on track to meet current market expectations for the year ending 31 December 2017.
EARNINGS PER SHARE AND DIVIDEND
As shareholders are aware, the Board is focused on capital growth and increasing ROCE, now supported by our staff "Profit Sharing" bonus scheme. We are also committed to a progressive dividend policy based on the Group's operational performance whilst balancing our investments in the business for the future.
In the first half, Earnings Per Share has reduced to 5.22p from 5.91p in 2016, as a result of the fundraising in March which increased the weighted average number of shares in issue by 10.0% (see note 6), and the costs associated with our acquisition activity during the same period of 510,000 (2016 238,000 - see note 3). With the full year effects of the investment of this capital now expected to be seen in late 2017 and 2018, the Board expects Earnings Per Share to return to growth The Board is therefore pleased to declare a half-year dividend of 1.93p (2016: 1.84p), a 5% increase. This interim dividend will be paid on 24 October 2017 to Members on the Register at the close of business on 29 September 2017. The shares will become ex-dividend on 28 September 2017. The dividend is covered 2.5 times by earnings.
We look forward to keeping investors updated over the coming months, and will provide further information on our performance during Q3 on 17 October 2017.
By order of the Board
12 September 2017
CONSOLIDATED INCOME STATEMENT
FOR THE SIX MONTHS ENDED 30 JUNE 2017
Notes
Unaudited
Six months
ended
30 June 2017
000
Unaudited
Six months
ended
30 June 2016
000
Audited
Year
ended
31 December 2016
000
Continuing operations
Revenue
Cost of sales
3
34,173
(22,519)
27,387
(17,836)
53,780
(34,714)
Gross profit
Distribution expenses
11,654
(1,452)
9,551
(1,318)
19,066
(2,475)
Administrative expenses before separately disclosed items:
-Acquisition costs
-Amortisation of acquired intangibles
-Share based payment costs
-Restructuring costs
-(Under)/over accrued contingent consideration
3
3
3
3
3
(5,698)
(510)
(325)
(172)
(90)
(15)
(4,174)
(238)
(264)
(149)
(118)
-
(9,137)
(419)
(569)
(353)
(84)
108
Total administrative expenses
(6,810)
(4,943)
(10,454)
Operating profit
3
3,392
3,290
6,137
Financial income
Financial expenses
-
(282)
-
(223)
1
(611)
Net financing costs
(282)
(223)
(610)
Profit from continuing operations before tax
Taxation
3
4
3,110
(634)
3,067
(521)
5,527
(1,146)
Profit from continuing operations
2,476
2,546
4,381
Loss from discontinued operations, net of tax
-
-
(91)
Profit for the period attributable to the owners of the parent
2,476
2,546
4,290
Earnings per share
Basic earnings/(loss) per share
Continuing operations
Discontinued operations
5.22p
-
5.91p
-
10.17p
(0.21p)
Basic earnings per share
6
5.22p
5.91p
9.96p
Diluted earnings/(loss) per share
Continuing operations
Discontinued operations
5.17p
-
5.86p
-
10.08p
(0.21p)
Diluted earnings per share
6
5.17p
5.86p
9.87p
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED 30 JUNE 2017
Unaudited
Six months
ended
30 June2017
000
Unaudited
Six months
ended
30 June 2016
000
Audited
Year ended
31 December 2016
000
Profit for the period
2,476
2,546
4,290
Other comprehensive income
- items that will be reclassified subsequently to profit or loss
Exchange differences on translating foreign operations
72
302
350
Total comprehensive income in the period attributable to the owners of the parent
2,548
2,848
4,640
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2017
Unaudited
30 June 2017
000
Unaudited
30 June 2016
000
Audited
31 December 2016
000
Assets
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
51,609
4,893
4,344
48,312
4,889
3,702
47,927
4,780
3,899
Total non-current assets
60,846
56,903
56,606
Current assets
Inventories
Trade and other receivables
Prepayments
Other financial assets
Cash and cash equivalents
17,317
16,625
807
-
4,142
16,752
14,718
725
32
1,711
16,592
13,012
304
-
3,824
Total current assets
38,891
33,938
33,732
Liabilities
Current liabilities
Interest-bearing loans and borrowings
Trade and other payables
Deferred and contingent consideration
Tax payable
Provisions
Other financial liabilities
8,527
11,627
1,637
1,074
-
-
10,905
9,313
1,068
937
50
16
12,888
8,625
1,420
975
-
57
Total current liabilities
22,865
22,289
23,965
Net current assets
16,026
11,649
9,767
Non-current liabilities
Deferred and contingent consideration
Interest-bearing loans and borrowings
Provisions
Deferred tax liabilities
476
4,000
204
1,039
2,789
4,950
130
1,042
212
4,081
212
1,019
Total non-current liabilities
5,719
8,911
5,524
Net assets
71,153
59,641
60,849
Equity directly attributable to owners of the parent
Share capital
Share premium
Share-based payment reserve
Merger reserve
Shares owned by the EBT
Merger relief reserve
Currency translation reserve
Retained losses
25,830
52,435
690
293
(507)
2,086
329
(10,003)
21,539
46,880
529
293
(338)
2,086
209
(11,557)
21,539
46,880
733
293
(338)
2,086
257
(10,601)
Total equity
71,153
59,641
60,849
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 30 JUNE 2017
Share capital
000
Share
premium
000
Share-based payment reserve
000
Merger reserve
000
Merger relief
reserve
000
Currency
translation
reserve
000
Shares owned by EBT 000
Retained
losses
000
Total
equity
000
Six months ended 30 June 2016 - unaudited
Balance at 1 January 2016
Profit for the period
Other comprehensive income
21,539
-
-
46,880
-
-
380
-
-
293
-
-
2,086
-
-
(93)
-
302
(338)
-
-
(12,604)
2,546
-
58,143
2,546
302
Total comprehensive income for the period
-
-
-
-
-
302
-
2,546
2,848
Transaction with owners
Share-based payment charge
Equity dividends paid (note 5)
-
-
-
-
149
-
-
-
-
-
-
-
-
-
-
(1,499)
149
(1,499)
Total transactions with owners
-
-
149
-
-
-
-
(1,499)
(1,350)
Balance at 30 June 2016
21,539
46,880
529
293
2,086
209
(338)
(11,557)
59,641
Year ended 31 December 2016 - audited
Balance at 1 January 2016
Profit for the year
Other comprehensive income
21,539
-
-
46,880
-
-
380
-
-
293
-
-
2,086
-
-
(93)
-
350
(338)
-
-
(12,604)
4,290
-
58,143
4,290
350
Total comprehensive income for the year
-
-
-
-
-
350
-
4,290
4,640
Transaction with owners
Share-based payment charge
Equity dividends paid (note 5)
-
-
-
-
353
-
-
-
-
-
-
-
-
-
-
(2,287)
353
(2,287)
Total transactions with owners
-
-
353
-
-
-
-
(2,287)
(1,934)
Balance at 31 December 2016
21,539
46,880
733
293
2,086
257
(338)
(10,601)
60,849
Six months ended 30 June 2017 - unaudited
Balance at 1 January 2017
Profit for the period
Other comprehensive income
21,539
-
-
46,880
-
-
733
-
-
293
-
-
2,086
-
-
257
-
72
(338)
-
-
(10,601)
2,476
-
60,849
2,476
72
Total comprehensive income for the period
-
-
-
-
-
72
-
2,476
2,548
Transaction with owners
Issue of share capital
Shares owned by the EBT
Share-based payment charge
Share options settled
Equity dividends paid (note 5)
4,291
-
-
-
-
5,555
-
-
-
-
-
-
172
(215)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(244)
-
75
-
-
-
-
-
(1,878)
9,846
(244)
172
(140)
(1,878)
Total transactions with owners
4,291
5,555
(43)
-
-
-
(169)
(1,878)
7,756
Balance at 30 June 2017
25,830
52,435
690
293
2,086
329
(507)
(10,003)
71,153
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED 30 JUNE 2017
Note
Unaudited
Six months ended
30 June 2017
000
Unaudited
Six months ended
30 June 2016
000
Audited
Year ended
31 December 2016
000
Cash flow from operating activities
Net cash from operating activities
9
2,784
188
4,166
Cash flow from investing activities
Acquisition of subsidiaries, net of cash/(debt) acquired
Acquisition of property, plant and equipment
Proceeds from sale of property, plant and equipment
Payment of deferred consideration
(4,345)
(669)
14
(411)
(3,309)
(353)
22
-
(3,677)
(858)
52
(1,031)
Net cash used in investing activities
(5,411)
(3,640)
(5,514)
Cash flows from financing activities
Net proceeds from the issue of share capital
Repayment of long term borrowings
Net change in short term borrowings
Repayment of finance lease liabilities
Net cash settled share options
Interest received
Interest paid
Dividends paid
9,602
(429)
(4,000)
(13)
(140)
-
(186)
(1,878)
-
-
5,000
(18)
-
-
(110)
(1,499)
-
(857)
7,000
(37)
-
1
(302)
(2,287)
Net cash generated from financing activities
2,956
3,373
3,518
Net change in cash and cash equivalents
329
(79)
2,170
Cash and cash equivalents at start of period
Exchange differences on cash and cash equivalents
3,824
(11)
1,725
55
1,725
(71)
Cash and cash equivalents at end of period
4,142
1,701
3,824
NOTES TO THE HALF-YEAR REPORT
FOR THE SIX MONTHS ENDED 30 JUNE 2017
1.
General information
The principal activity of Flowtech Fluidpower plc (the "Company") and its subsidiaries (together, the "Group") is the distribution of engineering components, concentrating on the fluid power industry. The Company is incorporated and domiciled in the UK. The address of its registered office is Pimbo Road, Skelmersdale, Lancashire WN8 9RB.
The registered number is 09010518.
As permitted, this Half-Year Report has been prepared in accordance with the AIM rules and not in accordance with IAS 34 "Interim Financial Reporting".
The consolidated financial statements are prepared under the historical cost convention, as modified by the revaluation of certain financial instruments.
This consolidated Interim Report and the financial information for the six months ended 30 June 2017 does not constitute full statutory accounts within the meaning of section 434 of the Companies Act 2006 and are unaudited. This unaudited Interim Report was approved by the Board of Directors on 12 September 2017.
The Group's financial statements for the year ended 31 December 2016 have been filed with the Registrar of Companies. The Group's auditor's report on these financial statements was unqualified and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
ELECTRONIC COMMUNICATIONS
The Company is not proposing to bulk print and distribute hard copies of this Half-Year Report unless specifically requested by individual shareholders.
The Board believes that by utilising electronic communication it delivers savings to the Company in terms of administration, printing and postage, and environmental benefits through reduced consumption of paper and inks, as well as speeding up the provision of information to shareholders.
News updates, regulatory news, and financial statements, can be viewed and downloaded from the Group's website, www.flowtechfluidpower.com. Copies can also be requested from; The Company Secretary, Flowtech Fluidpower plc, Pimbo Road, Skelmersdale, Lancashire, WN8 9RB.email: info@flowtechfluidpower.com
2
aCCOUNTING POLICIES
Basis of preparation
The financial information set out in this consolidated Interim Report has been prepared under International Financial Reporting Standards (IFRS) as adopted by the European Union and in accordance with the accounting policies which will be adopted in presenting the Group's Annual Report and Financial Statements for the year ended 31 December 2017. These are consistent with the accounting policies used in the Financial Statements for the year ended 31 December 2016, except for taxes; taxes on income in the interim periods are accrued using the rate of tax that would be applicable to expected total annual earnings.
GOING CONCERN
The Group meets its day-to-day working capital requirements through its bank facilities. The Directors have carefully considered the banking facilities and their future covenant compliance considering the current and future cash flow forecasts and they believe that the Group is appropriately positioned to ensure the conditions of its funding will continue to be met and therefore enable the Group to continue in operational existence for the foreseeable future by meeting its liabilities as they fall due for payment.
3.
OPERATING SEGMENTS
The Group comprises the following three operating segments which are defined by trading activity:
Flowtechnology division -distribution and assembly of engineering components, principally to distributors and end users in the UK, the Republic of Ireland and the Benelux
Power Motion Control division -based in the UK and the Republic of Ireland, distribution and assembly of engineering components and hydraulic systems to distributors and end users in the international market
Process division - the distribution and supply of industrial components to the process sectors, principally in the UK
The Board is the chief operating decision maker (CODM). The CODM manages the business using an underlying profit figure. Only finance income and costs secured on the assets of the operating segment are included in the segment results. Finance income and costs relating to loans held by the Company are not included in the segment result that is assessed by the CODM. Transfer prices between operating segments are on an arm's length basis.
The Directors believe that the underlying operating profit provides additional useful information on key performance trends to Shareholders. The term "underlying" is not a defined term under IFRS and may not be comparable with similarly titled profit measurements reported by other companies. A reconciliation of the underlying operating result to operating profit / (loss) from continuing operations is shown below. The principal adjustments made are in respect of the separately disclosed items and are as detailed at the end of this note. Segment information for the reporting periods is as follows:
Flowtechnology
000
Power Motion Control
000
Process
000
Inter-segmental transactions
000
Central costs
000
Total continuing operations
000
Six months ended 30 June 2017
Income statement - continuing operations:
Revenue from external customers
19,336
12,706
2,131
-
-
34,173
Inter segment revenue
823
159
40
(1,022)
-
-
Total revenue
20,159
12,865
2,171
(1,022)
-
34,173
Underlying operating result
4,138
1,088
278
-
(999)
4,504
Net financing costs
-
(10)
(4)
-
(268)
(282)
Underlying segment result
4,138
1,078
274
-
(1,267)
4,222
Separately disclosed items
(154)
(48)
-
-
(910)
(1,112)
Profit/(loss) before tax
3,984
1,030
274
-
(2,177)
3,110
Specific disclosure items
Depreciation
Amortisation
203
10
50
271
14
44
-
-
-
-
267
325
Reconciliation of underlying operating result to operating profit:
Underlying operating result
Separately disclosed items
4,138
(154)
1,087
(48)
278
-
-
-
(999)
(910)
4,504
(1,112)
Operating profit/(loss)
3,984
1,039
278
-
(1,909)
3,392
Flowtechnology
000
Power Motion Control
000
Process
000
Inter-segmental transactions
000
Central costs
000
Total continuing operations
000
Six months ended 30 June 2016
Income statement
- continuing operations:
Revenue from external customers
18,093
8,268
1,026
-
-
27,387
Inter segment revenue
859
327
24
(1,210)
-
-
Total revenue
18,952
8,595
1,050
(1,210)
-
27,387
Underlying operating result
4,164
930
150
-
(1,185)
4,059
Net financing costs
(92)
(1)
5
-
(135)
(223)
Underlying segment result
4,072
929
155
-
(1,320)
3,836
Separately disclosed items
(138)
(27)
(37)
-
(567)
(769)
Profit/(loss) before tax
3,934
902
118
-
(1,887)
3,067
Specific disclosure items
Depreciation
Amortisation
195
6
55
236
8
22
-
-
-
-
258
264
Reconciliation of underlying operating result to operating profit:
Underlying operating result
Separately disclosed items
4,164
(138)
930
(27)
150
(37)
-
-
(1,185)
(568)
4,059
(769)
Operating profit/(loss)
4,026
903
113
-
(1,753)
3,290
Flowtechnology
000
Power Motion Control
000
Process
000
Inter-segmental transactions
000
Central costs
000
Total continuing operations
000
Year ended 31 December 2016
Income statement
- continuing operations:
Revenue from external customers
35,113
15,830
2,837
-
-
53,780
Inter segment revenue
1,645
585
199
(2,429)
-
-
Total revenue
36,758
16,415
3,036
(2,429)
-
53,780
Underlying operating result
7,626
1,823
402
-
(2,397)
7,454
Net financing costs
(1)
(65)
(39)
-
(505)
(610)
Underlying segment result
7,625
1,758
363
-
(2,902)
6,844
Separately disclosed items
(180)
40
(58)
-
(1,119)
(1,317)
Profit/(loss) before tax
7,445
1,798
305
-
(4,021)
5,527
Specific disclosure items
Depreciation
Amortisation
389
16
113
488
24
65
-
-
-
-
526
569
Reconciliation of underlying operating result to operating profit:
Underlying operating result
Separately disclosed items
7,626
(180)
1,823
40
402
(58)
-
-
(2,397)
(1,119)
7,454
(1,317)
Operating profit/(loss)
7,446
1,863
344
-
(3,516)
6,137
SEPARATELY DISCLOSED ITEMS
Acquisition costs relate to stamp duty, due diligence, legal fees, finance fees and other professional costs incurred in the acquisition of businesses
Share-based payment costs relate to the provision made in accordance with IFRS 2 "Share-based payment" following the issue of share options to employees
Restructuring costs related to restructuring activities of an operational nature following acquisition of business units and other restructuring activities in established businesses. Costs include employee redundancies and IT integration.
Six months
ended
30 June 2017
000
Six months
ended
30 June 2016
000
Year
ended
31 December 2016
000
Separately disclosed items within administration expenses:
-Acquisition costs
-Amortisation of acquired intangibles
-Share based payment costs
-Restructuring
-(Under)/over accrued contingent consideration
510
325
172
90
15
238
264
149
118
-
419
569
353
84
(108)
Total separately disclosed items
1,112
769
1,317
4.
TAXATION
Six months
ended
30 June 2017
000
Six months
ended
30 June 2016
000
Year
ended
31 December 2016
000
Current tax on income for the period - continuing operations:
UK tax
Foreign tax
Deferred tax credit
Adjustments in respect of prior years
680
-
(46)
-
620
-
(45)
(54)
1,285
20
(171)
12
Total taxation
634
521
1,146
The taxation for the period has been calculated by applying the estimated tax rate for the financial year ending 31 December 2017. Deferred tax liabilities have also been adjusted to 1,039,000 to reflect capital allowances more than depreciation and other short-term timing differences.
5.
DIVIDENDS
Six months
ended
30 June
2017
000
Six months
ended
30 June
2016
000
Year
ended
31 December
2016
000
Final dividend of 3.67p (2016: 3.50p) per share
1,878
1,499
1,499
Interim dividend of 1.84p per share
-
-
788
1,878
1,499
2,287
In addition, the Directors are proposing a half-year dividend in respect of the financial year ended 31 December 2017 of 1.93p per share which will absorb an estimated 1.0 million of shareholders' funds. It will be paid on the 24 October 2017 to Shareholders who are on the Register of Members at close of business on 29 September 2017.
6. EARNINGS PER SHARE
Basic earnings/(loss) per share is calculated by dividing the earnings/(loss) attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.
For diluted earnings/ (loss) per share the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The dilutive shares are those share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the period.
Six months ended
30 June 2017
Six months ended
30 June 2016
Year ended
31 December 2016
Earnings
000
Weighted average number of shares
000's
Earnings per share
Pence
Earnings
000
Weighted average number of shares
000's
Earnings per share
Pence
Earnings
000
Weighted average number of shares
000's
Earnings per share
Pence
Basic earnings/(loss) per share
Continuing operations
Discontinued operations
2,476
-
47,402
47,402
5.22
-
2,546
-
43,078
43,078
5.91
0.00
4,381
(91)
43,078
43,078
10.17
(0.21)
Basic earnings per share
2,476
47,402
5.22
2,546
43,078
5.91
4,290
43,078
9.96
Diluted earnings/(loss) per share
Continuing operations
Discontinued operations
2,476
-
47,886
47,886
5.17
-
2,546
-
43,472
43,472
5.86
0.00
4,381
(91)
43,456
43,456
10.08
(0.21)
Diluted earnings per share
2,476
47,886
5.17
2,546
43,472
5.86
4,290
43,456
9.87
Six months
ended
30 June 2017
000
Six months ended
30 June 2016
000
Year
ended
31 December 2016
000
Weighted average number of ordinary shares for basic and diluted earnings per share
Impact of share options
47,402
484
43,078
394
43,078
378
Weighted average number of ordinary shares for diluted earnings per share
47,886
43,472
43,456
7.
ACQUISITIONS
7.1 HYDRAULICS & TRANSMISSIONS LIMITED
On 20 January 2017, the Group acquired 100% of the share capital of Hydraulics & Transmissions Limited ("HTL"), a UK-based company. HTL provides fluid power solutions predominantly to the mobile market segment and supplies some of the market leaders such as JCB, McConnell and Alamo. The acquisition strengthened our position with key global suppliers including Eaton, Walvoil and Casappa, and complemented our previous acquisitions of Primary Fluid Power and Nelson Hydraulics. The total consideration was 1,669,000. This comprised 777,000 in cash and 892,000 contingent cash consideration. The additional consideration is based on profit targets for the Company's customer base and is payable in three instalments over the next two years. The fair value of 892,000 has been calculated using management forecasts of HTL's performance discounted at the weighted average cost of capital.
GOODWILL
Goodwill of 1,551,000 is primarily related to expected future profitability and expected cost synergies. Goodwill has been allocated to the Power Motion Control operating segment and is not expected to be deductible for tax purposes.
INTANGIBLE ASSET
An intangible asset of 438,000 has been provisionally identified related to customer relationships. The estimated useful life has been determined as ten years based on the expected future cash flows that they would generate in arriving at their fair value. The customer relationships considered in the valuation comprise the sales to significant customers. Long term sales growth over the ten-year period has been assumed to be 5.2% with an attrition rate of 12.8% for customers. Growth and attrition rates are based on management experience and expectations. Amortisation of customer relationships is not expected to be deductible for tax purposes.
Details of the provisional fair value of identifiable assets and liabilities acquired, purchase consideration, goodwill and intangible assets are as follows:
Book value
000
Fair value adjustment
000
Intangible asset recognised on acquisition
000
Provisional fair value
000
Property, plant and equipment
30
-
-
30
Intangible assets
322
(322)
438
438
Inventories
1,226
-
-
1,226
Trade and other receivables
1,019
-
-
1,019
Cash and cash equivalents
(1,010)
-
-
(1,010)
Trade and other payables
(1,456)
-
-
(1,456)
Current tax balances
(45)
-
-
(45)
Deferred tax liability
(5)
-
(79)
(84)
Total net assets
81
(322)
359
118
000
Fair value of consideration paid
Amount settled in cash
777
Fair value of contingent consideration
892
Total consideration
1,669
Less net assets acquired
(617)
Goodwill on acquisition
1,551
7.2 HEWI SLANGEN
On 7 April 2017, the Group acquired the trade and certain assets of Hewi Slangen B.V., a Dutch based business. Complementary to our existing Dutch division, Flowtechnology Benelux, Hewi Slangen brings synergistic savings through relocation of operations and additional abilities and skills in hose production. The total consideration was 217,000 fully settled in cash. The provisional fair value of assets acquired was 170,000. Goodwill of 47,000 is primarily related to expected future profitability, technical know-how and expected cost synergies from the closure of the operational site and transfer of activities into existing Group locations. Goodwill has been allocated to the Flowtechnology operating segment and is not expected to be deductible for tax purposes.
7.3 HI-POWER LIMITED
Hi-Power Limited was acquired on 23 June 2017 for an initial consideration of 1.6million in cash with contingent consideration of 0.5million anticipated to be paid over the next two years. The cash consideration was funded out of existing Group resources. It is a specialist distributor of hydraulic equipment components predominantly to the mobile and transport sectors. It is based in Cork, Dublin and Belfast. In addition, the trade and certain assets of Hi-Power Hydraulics Limited, a UK division of Hi-Power Limited were acquired on 30 June 2017 for a total cash consideration of 300,000. The cash consideration was funded out of existing Group resources. This division is based in Stockport. These acquisitions are complementary to the PMC division and will strengthen the Group position with key European suppliers.
The Group will disclose the book value of the identifiable assets and liabilities and their fair values in the 2017 full year financial statements as required under IFRS 3 "Business Combinations". The initial accounting and fair value exercise is incomplete at the time of this announcement due to the proximity of the accounting date.
8. SUBSEQUENT EVENTS
Orange County Limited was acquired on 7 July 2017 for an initial consideration of 1.5 million in cash with contingent consideration of 2.1million anticipated to be paid over the next two years. The cash consideration was funded out of existing Group resources. It is a specialist supplier and distributor of high quality products for the storage and movement of fuel, liquid and gases based in Spennymoor, County Durham. Orange County provides a further complementary business to the Group and establishes relationships with world-leading manufacturers of pipes, valves, gauges and leak detection equipment. It is focused on technical sales to a wide range of end users from fuel supply systems for the automotive industry to cooling systems on the London Underground, as well as large Data Centres across the UK. The business will form part of the Process division.
The Hydraulic Group BV was acquired on 7 September 2017 for an initial consideration of 2.7million comprising in cash and 0.6m in shares. The cash consideration was funded out of existing Group resources. Based in Rotterdam, with a sales presence in Brussels, it is a distributor of hydraulic equipment and components, predominantly to the mechanical engineering, marine and agricultural sectorsinto both Maintenance Repair and Operations applications, as well as Original Equipment Manufacturers. The business will form part of the PMC division.
For both these acquisitions the Group will disclose the book value of the identifiable assets and liabilities and their fair values in the 2017 full year financial statements as required under IFRS 3 "Business Combinations". The initial accounting and fair value exercises were incomplete at the time of this announcement due to the proximity of the accounting date.
9.
NET CASH FROM OPERATING ACTIVITIES
Six months ended
30 June 2017
000
Six months
ended
30 June 2016
000
Year
ended
31 December 2016
000
Reconciliation of profit before taxation to net cash flows from operations:
Profit from continuing operations before tax
Loss from discontinued operations before tax
Depreciation
Financial income
Financial expense
Profit on sale of plant and equipment
Amortisation
Equity settled share-based payment charge
Under/(over) accrued contingent consideration
3,110
-
267
-
282
-
325
172
15
3,067
-
258
-
223
(8)
264
149
-
5,527
(113)
526
(1)
611
(21)
569
353
(108)
Operating cash inflow before changes in working capital and provisions
Change in trade and other receivables
Change in stocks
Change in trade and other payables
Change in provisions
4,171
(2,569)
452
1,383
(9)
3,953
(3,696)
(1,299)
1,915
(36)
7,343
(1,384)
(1,486)
1,126
(86)
Cash generated from operations
Tax paid
3,428
(644)
837
(649)
5,513
(1,347)
Net cash generated from operating activities
2,784
188
4,166
PRINCIPAL RISKS AND UNCERTAINTIES
In common with all organisations, Flowtech faces risks which may affect its performance. The Group operates a system of internal control and risk management to provide assurance that we are managing risk whilst achieving our business objectives. No system can fully eliminate risk and therefore the understanding of operational risk is central to management processes. The long-term success of the Group depends on the continual review, assessment and control of the key business risks it faces. The Directors set out in the 2016 Annual Report and Financial Statements the principal risks identified during this exercise, including quality control, systems and site disruption and employee retention. The Board does not consider that these risks have changed materially in the last six months.
FORWARD-LOOKING STATEMENTS
This document contains certain forward-looking statements which reflect the knowledge and information available to the Company during the preparation and up to the publication of this document. By their very nature, these statements depend upon circumstances and relate to events that may occur in the future thereby involving a degree of uncertainty. Although the Group believes that the expectations reflected in these statements are reasonable, it can give no assurance that these expectations will prove to have been correct. Given that these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements.
The Group undertakes no obligation to update any forward-looking statements whether because of new information, future events or otherwise.
This information is provided by RNSThe company news service from the London Stock ExchangeENDIR BIGDCLXBBGRB
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