REG - Flowtech Fluidpower - Half-year Report
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 fiona@tooleystreet.com
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: 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, 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: fiona@tooleystreet.com
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%
4.2%
4.1%
Administrative expenses*:
-Divisional
11,291
4,698
11,973
% of turnover
20.0%
13.7%
15.3%
-Central
1,268
1,000
2,336
% of turnover
2.2%
2.9%
3.0%
Total administrative expenses
12,577
5,698
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: 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 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
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
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.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.ENDIR BVLBFVKFFBBZ
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