REG - Flowtech Fluidpower - Final statement of results - year ended 31.12.16 <Origin Href="QuoteRef">FLOL.L</Origin> - Part 2
04/04/2017 07:06
- Part 2: For the preceding part double click ID:nRSD4519Ba
number of ordinary shares for diluted earnings per share 43,456 43,387
Weighted average number of ordinary shares for diluted earnings per share
43,456
43,387
8. Acquisition of Indequip
On 19 February 2016 the Group acquired the trade and assets of Indequip, a
UK-based business. The acquisition was made to enhance the Group's position in
the technical pneumatic market.
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 68 (58) - 10
Intangible assets - - 96 96
Inventories 392 (228) - 164
Trade and other receivables 10 - - 10
Cash and cash equivalents - - - -
Trade and other payables - - - -
Current tax balances - - - -
Provisions - - - -
Deferred tax liability - - (19) (19)
Total net assets 470 (286) 77 261
£000
Fair value of consideration paid
Amount settled in cash 893
Total consideration 893
Less net assets acquired (261)
Goodwill on acquisition 632
Fair values are provisional as subject to management estimations at the
reporting date.
Consideration transferred
Indequip was acquired on 19 February 2016 for cash consideration of £893,000.
Acquisition costs amounting to £31,000 have been recognised as an expense in
the Consolidated Income Statement as part of separately disclosed
administration costs.
Goodwill
Goodwill of £632,000 is primarily related to expected future profitability 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.
Intangible asset
An intangible asset of £96,000 has been provisionally identified related to
the brand identity of Indequip. The estimated useful life has been determined
as five years based on the expected future cash flows that it would generate
in arriving at their fair value. The components of the brand considered in the
valuation comprised the website, catalogue and awareness of brand in the
industry. Sales growth over the five-year period has been assumed to be 1%
with an attrition rate of 3% for customers. Growth and attrition rates are
based on management experience and expectations. Amortisation of the brand is
not expected to be deductible for tax purposes.
Fair value adjustments
· The value of property, plant and equipment has been decreased by
£58,000 to reflect alignment of the useful life review policy with that of the
Group.
· The value of inventories has been decreased by £228,000 to reflect the
alignment of stock valuation methods with those of the Group.
Indequip's contribution to the Group results
Indequip generated a profit after tax of £227,000 for the ten months from 19
February 2016 to the reporting date. If Indequip had been acquired on 1
January 2016, it is estimated revenue for the Group would have been
£54,173,000 and profit after tax for the year would have increased by
£19,000.
Summary aggregated estimated financial information on Indequip for the period
from 1 January 2016 to 19 February 2016, when it became a subsidiary:
2016 £000
Revenue 393
Profit 19
9. Acquisition of Hydravalve Limited
On 18 March 2016, the Group acquired 100% of the share capital of Hydravalve
Limited, a UK-based business, thereby obtaining control. The acquisition was
made to establish the Group's position in supply of valves and actuation to
the process industries. The total consideration was £2,727,000. This
comprised £2,105,000 in cash and £622,000 contingent cash consideration. The
additional consideration is based on profit targets for the Company's customer
base and is payable on the first and second anniversaries of the acquisition.
The fair value of £622,000 has been calculated using management forecasts of
Hydravalve's Limited's performance discounted at the Company's weighted
average cost of capital.
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 229 39 - 268
Intangible assets - - 879 879
Inventories 1,634 (163) - 1,471
Trade and other receivables 942 (19) - 923
Cash and cash equivalents (312) - - (312)
Finance leases (71) (48) - (119)
Trade and other payables (606) - - (606)
Current tax balances (216) - - (216)
Provisions - (72) - (72)
Deferred tax liability (41) - (176) (217)
Total net assets 1,559 (263) 703 1,999
£000
Fair value of consideration paid
Amount settled in cash 2,105
Fair value of contingent consideration 622
Total consideration 2,727
Less net assets acquired (1,999)
Goodwill on acquisition 728
Fair values are provisional as subject to management estimations at the
reporting date.
Consideration transferred
Hydravalve Limited was acquired on 18 March 2016 for a total consideration of
£2,727,000 comprising £2,105,000 in cash and £622,000 contingent cash
consideration. The contingent consideration is due in two instalments on 18
April 2017 and 18 April 2018. It is contingent on the earnings before interest
and tax exceeding a target EBIT of £727,000 per annum for the first two years
post acquisition. Performance under the target will reduce consideration
payable. The maximum contingent consideration payable is £2,000,000. The fair
value of £622,000 has been estimated by management using a discount rate of
10.9%, being the weighted average cost of capital of Hydravalve Limited and
sales forecasts prepared by management at the time of acquisition, these have
been reviewed for performance up to the reporting date.
Acquisition costs and stamp duty amounting to £112,000 have been recognised as
an expense in the Consolidated Income Statement as part of separately
disclosed administration costs.
Goodwill
Goodwill of £728,000 is primarily related to expected future profitability and
expected cost synergies. Goodwill has been allocated to the Process operating
segment and is not expected to be deductible for tax purposes.
Intangible asset
An intangible asset of £879,000 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 1.0% with an attrition rate of
7.5% for customers. Growth and attrition rates are based on management
experience and expectations. Amortisation of customer relationships is not
expected to be deductible for tax purposes.
Fair value adjustments
· The value of property, plant and equipment has been decreased by £9,000
to reflect to reflect alignment of the useful life review policy with that of
the Group and increased by £48,000 to recognise a leased asset omitted from
the books of the Company prior to acquisition.
· The value of inventories has been decreased by £163,000 to reflect the
alignment of the Hydravalve stock provisioning policy with that of the Group.
· The value of debtors has been decreased by £19,000 to reflect the
alignment of the Hydravalve debtor provisioning policy with that of the
Group.
· The value of lease finance liabilities has been increased by £48,000 to
recognise a leased obligation omitted from the books of the Company prior to
acquisition.
· The value of provisions has been increased by £72,000 to reflect a
provision for dilapidation costs relating to properties leased by the
Company.
Hydravalve Limited's contribution to the Group results
Hydravalve Limited generated a profit after tax of £337,000 for the nine
months from 18 March 2016 to the reporting date. If Hydravalve Limited had
been acquired on 1 January 2016, revenue for the Group would have been
£54,714,000 and profit after tax for the year would have increased by
£16,000.
Summary aggregated financial information on Hydravalve Limited for the period
from 1 January 2016 to 18 March 2016 when it became a subsidiary:
2016 £000
Revenue 934
Profit 16
10. Acquisition of Triplesix Limited
On 29 July 2016 the Group acquired the entire share capital of Triplesix
Limited, a UK-based business, thereby obtaining control. The acquisition was
made to enhance the Group's position in the hydraulic cylinder and rotary
actuator market. On 1st October 2016 the trade and assets of Triplesix Limited
were transferred its parent PMC Fluidpower Limited.
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 41 (6) - 35
Intangible assets - - 195 195
Inventories 16 - - 16
Trade and other receivables 193 (47) - 146
Cash and cash equivalents 409 - - 409
Trade and other payables (64) - - (64)
Current tax balances (63) - - (63)
Provisions - (10) - (10)
Deferred tax liability (8) - (35) (43)
Total net assets 524 (63) 160 621
£000
Fair value of consideration paid
Amount settled in cash 776
Total consideration 776
Less net assets acquired (621)
Goodwill on acquisition 155
Fair values are provisional as subject to management estimations at the
reporting date.
Consideration transferred
Triplesix Limited was acquired on 29 July 2016 for a total cash consideration
of £776,000. Contingent consideration with a maximum value of £750,000 is
included within the purchase agreement and is due in four six monthly
instalments starting 1 March 2017. It is contingent on the earnings before
interest and tax exceeding £112,000 per annum for the first two years' post
acquisition. Following review of performance post acquisition and management
forecasts for the next year, EBIT targets are not expected to be met and no
provision has been made for contingent consideration.
Acquisition costs and stamp duty amounting to £17,000 have been recognised as
an expense in the Consolidated Income Statement as part of separately
disclosed administration costs.
Goodwill
Goodwill of £155,000 is primarily related to expected future profitability and
expected purchasing synergies from Group buying arrangements. The employee
base brings additional skill sets in three-dimensional design capabilities and
a design database which can be utilised across the Group. 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 £195,000 has been 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 those purchasing bespoke cylinders and actuators, a product group
which is new to the segment, but complementary to existing sales streams.
Sales growth over the ten year period has been assumed to be 2% with an
attrition rate of 10% for customers. Growth and attrition rates are based on a
review of sales and customer records. Amortisation of customer relationships
is not expected to be deductible for tax purposes.
Fair value adjustments
· The value of property, plant and equipment has been decreased by £6,000
to reflect the alignment of the useful life review policy with that of the
Group.
· The value of debtors has been decreased by £47,000 to reflect the
alignment of the Triplesix Limited debtor provisioning policy with that of the
Group and to provide for significant bad debts apparent at the date of
acquisition.
· The value of provisions has been increased by £10,000 to reflect a
provision for dilapidation costs relating to properties leased by the
Company.
Triplesix Limited's contribution to the Group results
Triplesix Limited generated a loss after tax of £10,000 for the seven months
from 29 July 2016 to the reporting date. If Triplesix Limited had been
acquired on 1 January 2016, revenue for the Group would have been £54,504,000
and profit after tax for the year would have increased by £111,000.
Summary aggregated financial information on Triplesix Limited for the period
from 1 January 2016 to 29 July 2016, when it became a subsidiary:
2016 £000
Revenue 724
Profit 111
11. EQUITY
Share capital
The share capital of the Company consists only of fully paid ordinary shares
with a nominal value of 50p per share. All shares are equally eligible to
receive dividends and the repayment of capital and represent one vote at
Shareholders' meetings of the Company.
Allotted and fully paid ordinary shares of 50p each at 31 December 2016 43,078,282 21,539
Shares authorised for share based payments 6,666,667 3,333
Total shares authorised at 31 December 2016 49,744,949 24,872
Total shares authorised at 31 December 2016
49,744,949
24,872
Allotted and fully paid ordinary shares of 50p each
At 1 January 2016 and 31 December 2016 43,078,282 21,539
At 1 January 2016 and 31 December 2016
43,078,282
21,539
Reconciliation of profit before taxation to net cash flows from operations £000 £000
Profit from continuing operations before tax 5,527 5,280
Loss from discontinued operations before tax (113) (131)
Depreciation 526 505
Financial income (1) (22)
Financial expense 611 232
Profit on sale of plant & equipment (21) (7)
Amortisation 569 413
Equity settled share-based payment charge 353 342
Release of over accrued contingent consideration (108) -
Operating cash inflow before changes in working capital and provisions 7,343 6,612
Change in trade and other receivables (1,384) 1,628
Change in stocks (1,486) (688)
Change in trade and other payables 1,126 (136)
Change in provisions (86) (60)
Cash generated from operations 5,513 7,356
Tax paid (1,347) (1,413)
Net cash generated from operating activities 4,166 5,943
(1,413)
Net cash generated from operating activities
4,166
5,943
13. POST BALANCE SHEET EVENTS
Hydraulics and Transmissions Limited (HTL) was acquired on 20 January 2017 for
an initial consideration of £0.75 million in cash with contingent
consideration of £1 million anticipated to be paid over the next two years.
The cash consideration was funded out of existing Group resources. The Company
provides fluid power solutions predominantly to the mobile market segment and
is based in Ludlow, Shropshire. The acquisition will add significantly to the
Group's procurement relationship with key global suppliers of hydraulic
components. The business now forms part of the PMC division.The initial
accounting for the business combination is incomplete at the date of issue of
these financial statements, hence no further disclosure can be provided.
On 30 March 2017 Flowtech Fluidpower plc raised approximately £10million
(before expenses) via the placing of 8,333,333 new ordinary shares at 120
pence per share.
There are no other material adjusting or non-adjusting events subsequent to
the reporting date.
14. ANNUAL GENERAL MEETING
The Annual General Meeting will be held on 25 May 2017 at 10am. at the offices
of our joint brokers, finnCap, 60 New Broad Street, London EC2M 1JJ.
15. ELECTRONIC COMMUNICATIONS
The full Financial Statements for the year ended 31 December 2016 are to be
published on the Company's website, together with the Notice convening the
Company's 2017 Annual General Meeting by 28 April 2017. Copies will also be
sent out to those shareholders who have elected to receive paper
communications. Copies can be requested by writing to The Company Secretary,
Flowtech Fluidpower plc, Pimbo Road, Skelmersdale, Lancashire WN8 9RB or email
to info@flowtechfluidpower.com.
FORWARD-LOOKING STATEMENTS
These Preliminary results were approved by the Board of Directors and
authorised for issue on 4 April 2017. 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. Therefore, nothing in this document should
be construed as a profit forecast by the Company.
This information is provided by RNS
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