Source - RNS
RNS Number : 6250J
Flowtech Fluidpower PLC
13 September 2016
 



Tuesday, 13 September 2016

 

FLOWTECH FLUIDPOWER PLC

Specialist technical fluid power products supplier

 

2016 HALF-YEAR REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2016

 

"Group organic growth and acquisition strategy underpins the platform for future development"

 

FINANCIAL HIGHLIGHTS

 

HY2016

30.6.16

UNAUDITED

HY2015

30.6.15

UNAUDITED

FY2015

31.12.15

AUDITED

GROWTH

%

·      REVENUE:

-Flowtechnology

-Power Motion Control (PMC)

-Process

GROUP TOTAL REVENUE

 

£18.093m

£8.268m

£1.026m

£27.387m

 

£17.488m

£3.935m

-

£21.423m

 

£33.168m

£11.680m

-

£44.848m

 

+3%

+110%

-

+28%

·      GROSS PROFIT

£9.551m

£7.203m

£15.345m

+33%

·      UNDERLYING OPERATING PROFIT

£4.059m

£3.404m

£6.868m

+19%

·      OPERATING PROFIT

£3.290m

£3.012m

£5.491m

+9%

·      HALF-YEAR DIVIDEND

1.84p

1.75p


+5%

·      EARNINGS PER SHARE (basic)

5.91p

5.62p


+5%

·      NET DEBT

£14.1m

£7.5m

£9.0m


 

OPERATIONAL HIGHLIGHTS

·      SOLID FIRST HALF PERFORMANCE IN CHALLENGING MARKET CONDITIONS

·      STRONG MOMENTUM WITHIN THE RECENTLY ESTABLISHED PMC AND PROCESS DIVISIONS

·      GROSS MARGINS REMAIN RESILIENT ACROSS ALL DIVISIONS

·      ACQUISITION STRATEGY DELIVERING EXCELLENT OPPORTUNITIES TO ACQUIRE NICHE BUSINESSES WITH SPECIALIST SECTOR FOCUS:

- THREE COMPLETED IN 2016 AND SIX SINCE BECOMING A PLC

- ALL INTEGRATIONS ON TARGET

- CONFIDENT OF FURTHER PROGRESS BEFORE THE END OF THE YEAR

·      EXPANDED CUSTOMER PROFILE INTO NEW END USER MARKETS including:

- AGRICULTURE, RAILWAY, ENVIRONMENTAL, WATER, PHARMACEUTICAL

·      STRONG FOCUS ON INVESTING IN GROUP RESOURCES FOR THE FUTURE

·      NET DEBT COMFORTABLY WITHIN AVAILABLE FACILITIES AND COVENANTS

 

"Flowtech remains confident in its ability to execute its proven strategy to develop in its technically specialised sectors in the UK and internationally.  The Company is recognised as a skilled and resilient business operating in a fragmented fluid power distribution market.  In addition to organic sales growth there remains a number of opportunities to further enhance Flowtech's multi-channel approach through; its investment in people and increased sales resource, the ongoing development of Exclusive Brand and OEM product offering, as well as through earnings enhancing acquisitions."

SEAN FENNON, CEO

FLOWTECH FLUIDPOWER PLC

 

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.

 

ENQUIRIES:



Flowtech Fluidpower plc

AiM: FLO

Malcolm Diamond MBE, Non-Executive Chairman

Sean Fennon, Chief Executive Officer

Bryce Brooks, Chief Financial Officer

 

Today: 13 September 2016

Tel: +44 (0) 1695 52796

Email: [email protected]

 

Zeus Capital Limited

(Nominated Adviser and Broker)

Andrew Jones, Dominic King

Tel: +44 (0) 207 533 7727

TooleyStreet Communications

(IR and media relations)

Fiona Tooley

Tel: +44 (0) 7785 703523

Email: [email protected]

 

EDITORS NOTE:

Flowtech Fluidpower plc, founded as Flowtech in 1983, is the UK's leading specialist supplier of technical fluid power products. The Group has three divisions: Flowtechnology, Power Motion Control and Process. All three of the Group's divisions have overlapping product sets, allowing procurement synergies to be maximised. The Flowtechnology division focuses on supplying distributors and resellers of industrial MRO (maintenance, repair and operation) products, primarily serving urgent orders rather than bulk offerings. It is formed from Flowtechnology UK, Flowtechnology Benelux and Indequip. It offers an unrivalled range of Original Equipment Manufacturer (OEM) and Exclusive Brand products to over 3,400 distributors and resellers. Its catalogues are recognised as the definitive source for fluid power products, containing approximately 106,000 individual product lines and are distributed to more than 85,000 industrial Maintenance, Repair and Overhaul end users (MRO).  The Power Motion Control division specialises in the design, assembly and supply of engineering components and hydraulic systems and is further enhanced by a service and repair function. The division is formed from Primary Fluid Power, Nelson Hydraulics and TSL Fluidpower. The Process division focuses on the supply of industrial components to the process sectors. This is the newest division in the Group, formed by the acquisition of Hydravalve in March 2016. The Group's main distribution centre is in Skelmersdale, Lancashire with further distribution centres in the Netherlands and China.  The Power Motion Control Division (PMC) has operations in Merseyside, Northern Ireland, the Republic of Ireland, and Yorkshire; Process operates from the West Midlands. In total the business employs 324 people.

 

The Group has a clear view of its growth objectives - to create a specialist fluid power organisation that remains focused on its core competencies whilst servicing the varied industrial and manufacturing sectors through its delivery of 'class-leading' service and support.  Our long term growth model is based on both organic growth, coupled with complementary acquisitions in a very fragmented marketplace.

 

 

FLOWTECH FLUIDPOWER PLC

HALF-YEAR FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2016

 

INTRODUCTION

It is pleasing to report that since joining AiM in 2014 the Group has:

 

ü Expanded its portfolio through the launch of over 3,000 new lines across existing and new product categories

ü Completed six acquisitions: Primary, Albroco, Nelson, Indequip, Hydravalve and TSL

ü Established three clearly-focussed divisions: Flowtechnology, Power Motion Control and Process; and

ü Developed new strategic sales refinements and data processing resources which will deliver improved operating efficiencies across the organisation in the long term

 

As a business:

Ø We are in a unique position within the fluid power supply chain, as we are aligned to both the global supply base and its distributor network.  We are in an exciting phase. Our offer continues to develop to the varied industrial and manufacturing customers we supply everyday around the UK and overseas. 

 

As a Board:

Ø We remain optimistic 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.

 

 

2016 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 been challenging in most industrial markets across the key territories of the UK and mainland Europe.  Whilst accomplished primarily on the back of acquisition activity, overall turnover growth year on year of 28% has continued to raise our profile across new channels, assisting the business in adding market share and reinforcing our position as one of the leading players in the fluid power sector.

 

Although not defined under IFRS, the Directors believe that the underlying operating results give a better understanding of the business' 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

 2016

£000

Six months ended

30 June

2015

£000

%

Change

 

Year ended

31 December

2015

£000

Flowtechnology

Power Motion Control

Process

Central costs

4,164

930

150

(1,185)

4,086

284

-

(966)

2%

227%

-

23%

7,571

1,228

-

(1,931)

Underlying operating result*

4,059

3,404

19%

6,868

 

* 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.

 

At divisional level, Flowtechnology UK was able to replace business lost mainly in larger accounts with exposure to more difficult sectors, such as the oil and gas industry.  In addition, the acquisition of the trade and assets of Indequip has added to our product portfolio, and allowed a more direct market approach with significant sections of the potential customer base.  There remain many opportunities to develop our offer and the Group has continued to invest in sales and marketing functions to exploit these.  In the Benelux, sales grew by 11.3% (5.3% in constant currency) which has again lifted bottom line contribution proportionately.

 

In the Power Motion Control division, revenue in the first half grew by 110% to £8.3m, with the majority coming from the year on year effects of the acquisitions of Nelson and Albroco. However, Primary also continued to expand its sales profile after the erosion of its oil and gas related business in early 2015.  The Process division, established in the first half of the 2016 has started well and contributed £1.0m to revenue.

 

Gross profit margins across all divisions remained consistent and strong with no erosion experienced.

 

Our cost profiles in people, property and administration remain on target.  Central costs have increased year on year by £0.219m which includes bonuses of £0.113m paid to the executive directors to reflect the increased scale and complexity of the Group achieved since 2014. Overall the Group continues to ensure that its central resources are able to support an expanding operational profile as necessary whilst obtaining appropriate "economies of scale", and it is firmly believed that the current resources available can support considerable further growth in the Group's activities.

 

The Group is therefore able to report an underlying operating profit of £4.059m (2015: £3.404m), an increase of 19% year on year. 

 

Restructuring costs of £0.118m (2015: £0.010m) relate exclusively to the cost of integration of new acquisitions into the Group and include redundant short term property lease costs and redundancy of back office services. 

 

The Group outsources all professional services required to cover due diligence and administrative integration, including IT, of new acquisitions into the group and with three completed in the year to the date of this report these costs have therefore increased to £0.238m (2015: £0.050m).

 

OUR BUSINESS STRATEGY FOR GROWTH

Our Group's core philosophy is unchanged - ie. to deliver profitable growth while maintaining consistent high levels of service to our diverse customer base.  We have a solid technically based and resilient business model which is underpinned by its ability to deliver strong cash generation and profitable returns for all stakeholders.

 

During the last six months, we have added three successful businesses to the Group further enhancing our exposure to specialist hydraulics, pneumatics and the process industrial sectors: -

 

DATE

BRAND

FINANCIALS ON ACQUISITION

TOTAL

CONSIDERATION

(net of cash in balance sheet)

 

 

FEBRUARY 2016

 

 

Indequip

 

 

Revenue: £2.6m

PBT: £0.1m

Net assets: £0.5m

 

 

£0.9m

 

 

MARCH 2016

 

 

Hydravalve

 

 

Revenue: £4.0m

PBT: £0.6m

Net assets: £1.2m

 

£3.8m of which £1.7m is contingent on financial performance in the two-year period to March 2018

 

 

JULY

2016

 

 

 

TSL Fluidpower*

 

 

Revenue: £1.2m

PBT: £0.15m

Net assets: £0.5m

 

£0.90m which £0.4m is contingent on financial performance in the two-year period to July 2018

 

*the trading style of Triplesix Ltd

 

There remains significant opportunity to add more niche acquisitions and enhance organic growth through a mix of product development, value add services and new customer opportunities. 

 

FINANCIAL POSITION INCLUDING CASH FLOW AND BANK DEBT

Net operating cash flows (note 9) were £0.188m (2015: £1.659m), a reduction of £1.471m.  However, the majority of this variance relates to the expected build-up of working capital in Indequip following the purchase of the trade in February 2016, as well as the seasonal nature of working capital movements in the Nelson operation, which was not included in the comparative due to the acquisition date being after June 2015. The balance of the variance represents the heavier bias in stock investment year on year as previously reported. This was carried out to take advantage primarily of better pricing opportunities in the Far East.   This also has the added advantage of providing some cushion against recent currency movements following the Brexit vote in June 2016.

 

Net borrowings at 30 June 2016 were £14.1m. The extended bank facilities agreed with Barclays and first reported last year have supported the Group's acquisition activity and current headroom and covenants remain comfortable. Overall the Board expects strong cash generation in the second half of 2016. Cash collections remain good across all sectors.

 

OUR PEOPLE

Delivering our goals and objectives we now have over 324 technically-skilled staff employed across four countries and in nine locations.  In order to continue our development, we need good people with determination, drive and technical know-how.  We take this opportunity to welcome all new colleagues who joined us during the first half of the year.  The Board thanks everyone around the business for their continuous hard work, dedication and loyalty, which underpins both the high level customer relationships and the Group's overall performance.

 

At Operating Board level, we congratulate John Farmer in his promotion to Managing Director of Flowtechnology UK, and, we welcome both Hydravalve's Managing Director, Andrew Newham and TSL's Managing Director, Steve Rushworth.  In March, we also welcomed Nick Fossey, joining the group from Eaton Corporation, in his key role leading the future development of the PMC division across the UK and Europe, where the opportunities for us to grow are extensive. 

 

OUTLOOK

The Flowtech Group is developing both strength and depth across its product portfolio, customer reach and, following recent acquisitions, it has been able to widen the geographical areas and the industrial fluid power markets it serves.  It continues to develop a theme based on being a "specialist" rather than a "generalist" and the margin opportunities this allows.

 

Low global confidence and economic uncertainty is influencing many industrial sectors, particularly in the UK. We do believe this hiatus to be short term, and remain confident for the future. As we previously indicated, the Group operates in a "live" pricing environment and it is increasingly certain that input prices for many core product lines will increase in HY2 and early 2017 on the back of the sterling downgrade. The Board is confident that we will be able to maintain overall margins by a mixture of selling price increases and supplier support.  The fluid power sector as a whole has come to expect a heavy bias towards US Dollar and Euro denominated supply lines and the macro economic situation is well understood by the sector's decision makers.

 

Trading is in line with management expectations despite some disruption over the immediate post Brexit vote period.  Overall, we remain positive that we can deliver results in line with market consensus forecasts and are confident about the future.  Our acquisition pipeline remains dynamic and the Group is now established as a very credible option for investors and owner managers across the sector who wish to exit their position.

 

DIVIDEND

As shareholders are aware, the Board is focused on capital growth and increasing ROCE.  We are also committed to a progressive dividend policy based on the Group's operational performance as a whole whilst balancing our investments in the business for the future. 

 

The Board is therefore pleased to declare a half-year dividend of 1.84p (2015: 1.75p), a 5% increase.  This interim dividend will be paid on 25 October 2016 to Members on the Register at the close of business on 30 September 2016.  The shares will become ex-dividend on 29 September 2016.  The dividend is covered 3.4 times by earnings.

 

We look forward to keeping investors updated on our progress over the coming months.

 

By order of the Board

12 September 2016

 

 

CONSOLIDATED INCOME STATEMENT

FOR THE SIX MONTHS ENDED 30 JUNE 2016


 

Notes

Unaudited

Six months ended 30 June

2016

£000

Unaudited

Six months ended

30 June

2015

£000

Audited

Year ended

31 December

 2015

£000

Continuing operations

Revenue

Cost of sales

 

3

 

27,387

(17,836)

 

21,423

(14,220)

 

44,848

(29,503)

Gross profit

Distribution expenses


9,551

(1,318)

7,203

(1,065)

15,345

(2,245)

Administrative expenses before separately disclosed items:

-Acquisition costs

-Amortisation of acquired intangibles

-Share based payment costs

-Restructuring costs

 

 

3

3

3

3

 

(4,174)

(238)

(264)

(149)

(118)

 

(2,734)

(50)

(160)

(172)

(10)

 

(6,232)

(299)

(413)

(342)

(323)

Total administrative expenses


(4,943)

(3,126)

(7,609)

Operating profit

3

3,290

3,012

5,491

Financial income

Financial expenses

 

 

-

(223)

33

(96)

22

(233)

Net financing costs


(223)

(63)

(211)

Profit from continuing operations before tax

Taxation

3

4

3,067

(521)

2,949

(542)

5,280

(1,057)

Profit from continuing operations


2,546

2,407

4,223

Loss from discontinued operations, net of tax


-

(73)

(131)

Profit for the period attributable to the owners of the parent


 

2,546

 

2,334

 

4,092

Earnings per share

Basic earnings/(loss) per share

Continuing operations

Discontinued operations


 

 

5.91p

-

 

 

5.62p

(0.17p)

 

 

9.85p

(0.31p)

Basic earnings per share

6

5.91p

5.45p

9.54p

Diluted earnings/(loss) per share

Continuing operations

Discontinued operations


 

5.86p

-

 

5.45p

(0.17p)

 

9.73p

(0.30p)

Diluted earnings per share

6

5.86p

5.38p

9.43p

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 JUNE 2016


Unaudited

Six months ended 30 June

2016

£000

Unaudited

Six months ended 30 June

2015

£000

Audited

Year ended

31 December 2015

£000

Profit for the period

2,546

2,334

4,092

Other comprehensive income/ (expense)

-  items that will be reclassified subsequently to profit or loss

Exchange differences on translating foreign operations

 

 

302

 

 

(95)

 

 

85

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

 

2,848

 

2,239

 

4,177

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2016


 

 

Unaudited

 30 June

2016

£000

Unaudited

30 June

2015

£000

Audited

31 December 2015

£000

Assets

Non-current assets

Goodwill

Other intangible assets

Property, plant and equipment


 

 

48,312

4,889

3,702

 

 

44,962

3,342

3,014

 

 

46,412

4,179

3,265

Total non-current assets


56,903

51,318

53,856

Current assets

Inventories

Trade and other receivables

Prepayments

Other financial assets

Cash and cash equivalents

 

 

 

 

 

 

 

16,752

14,718

725

32

1,711

 

10,466

11,601

224

31

784

 

13,254

10,367

316

32

1,841

Total current assets


33,938

23,106

25,810

Liabilities

Current liabilities

Interest-bearing loans and borrowings

Trade and other payables

Deferred and contingent consideration

Tax payable

Provisions

Other financial liabilities

 

 

 

 

 

10,905

9,313

1,068

937

50

16

 

 

2,957

5,151

2,277

904

63

-

 

 

5,986

6,625

1,250

758

86

15

Total current liabilities


22,289

11,352

14,720

Net current assets


11,649

11,754

11,090

Non-current liabilities

Deferred and contingent consideration

Interest-bearing loans and borrowings

Provisions

Deferred tax liabilities

 

 

 

2,789

4,950

130

1,042

 

85

5,286

121

702

 

898

4,874

130

901

Total non-current liabilities


8,911

6,194

6,803

Net assets


59,641

56,878

58,143

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

 

 

 

21,539

46,880

529

293

(338)

2,086

209

(11,557)

 

21,414

46,664

307

293

-

2,086

(273)

(13,613)

 

21,539

46,880

380

293

(338)

2,086

(93)

(12,604)

Total equity


59,641

56,878

58,143

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 JUNE 2016


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 2015 - unaudited










Balance at 1 January 2015

Profit for the period

Other comprehensive expense

21,414

-

-

46,664

-

-

148

-

-

293

-

-

2,086

-

-

(178)

-

(95)

-

-

-

(14,521)

2,334

-

55,906

2,334

(95)

Total comprehensive income for the period

-

-

-

-

-

(95)

-

2,334

2,239

Transaction with owners

Share-based payment charge

Equity dividends paid (note 5)

 

-

-

 

-

-

 

159

-

 

-

-

 

-

-

 

-

-

 

-

-

 

-

(1,426)

 

159

(1,426)

Total transactions with owners

-

-

159

-

-

-

-

(1,426)

(1,267)

Balance at 30 June 2015

21,414

46,664

307

293

2,086

(273)

-

(13,613)

56,878











Year ended 31 December 2015 - audited










Balance at 1 January 2015

Profit for the year

Other comprehensive expense

21,414

-

46,664

-

-

148

-

-

293

-

-

2,086

-

-

(178)

-

85

-

-

-

(14,521)

4,092

-

55,906

4,092

85

Total comprehensive income for the year

 

-

 

-

 

-

 

-

 

-

 

85

 

-

 

4,092

 

4,177

Transaction with owners

Issue of share capital

Shares owned by the EBT

Share-based payment charge

Share options settled

Equity dividends paid (note 5)

 

125

-

-

-

-

 

216

-

-

-

-

 

-

-

342

(110)

-

 

-

-

-

-

-

 

-

-

-

-

-

 

-

-

-

-

-

 

-

(338)

-

-

-

 

-

-

-

-

(2,175)

 

341

(338)

342

(110)

(2,175)

Total transactions with owners

125

216

232

-

-

-

(338)

(2,175)

(1,940)

Balance at 31 December 2015

21,539

46,880

380

293

2,086

(93)

(338)

(12,604)

58,143











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

 

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 30 JUNE 2016


 

Note

Unaudited

Six months ended

30 June

2016

£000

Unaudited

 Six months ended

30 June

2015

£000

Audited

 Year ended

31 December 2015

£000

Cash flow from operating activities





Net cash from operating activities

9

188

1,659

5,943

Cash flow from investing activities

Acquisition of subsidiary, net of cash acquired

Acquisition of property, plant and equipment

Proceeds from sale of property, plant and equipment

Payment of deferred consideration


 

(3,309)

(353)

22

-

 

(477)

(351)

7

-

 

(3,063)

(750)

7

(1,603)

Net cash used in investing activities


(3,640)

(821)

(5,409)

Cash flows from financing activities

Proceeds from new loan

Repayment of long term borrowings

Net change in short term borrowings

Repayment of finance lease liabilities

Cash settled share options

Purchase of own shares

Interest received

Interest paid

Dividends paid


 

-

-

5,000

(18)

-

-

-

(110)

(1,499)

 

-

(430)

(269)

(11)

(12)

-

-

(99)

(1,426)

 

6,523

(2,357)

(2,096)

(32)

(105)

(338)

14

(244)

(2,175)

Net cash generated from/ (used in) financing activities


3,373

(2,247)

(810)

Net change in cash and cash equivalents


(79)

(1,409)

(276)

Cash and cash equivalents at start of period

Exchange differences on cash and cash equivalents


1,725

54

1,979

(50)

1,979

22

Cash and cash equivalents at end of period


1,700

520

1,725

 

Cash and cash equivalents


1,711

784

1,841

Bank overdraft


(11)

(264)

(116)

Cash and cash equivalents at end of period


1,700

520

1,725

 

NOTES TO THE HALF-YEAR REPORT

FOR THE SIX MONTHS ENDED 30 JUNE 2016


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 Interim 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 2016 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 2016.

 

The Group's financial statements for the year ended 31 December 2015 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 Interim Report for the six months ended 30 June 2016 unless specifically requested by individual shareholders.

 

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

 

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

 

2

aCCOUNTING POLICIES

 

Basis of preparation

The financial information set out in this consolidated Interim Report has been prepared under International Financial Reporting Standards (IFRS) as adopted by the European Union and in accordance with the accounting policies which will be adopted in presenting the Group's Annual Report and Financial Statements for the year ended 31 December 2016. These are consistent with the accounting policies used in the Financial Statements for the year ended 31 December 2015, 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 it day-to-day working capital requirements through its bank facilities. The Directors have carefully considered the banking facilities and their future covenant compliance in light of the current and future cash flow forecasts and they believe that the Group 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 of the following three operating segments which are defined by geographic area and trading activity:

·    Flowtechnology Division

distribution and assembly of engineering components, principally to distributors and end users, split geographically between the UK and Europe

·    Power Motion Control Division

distribution and assembly of engineering components and hydraulic systems to distributors and end users in the international market - based in the UK and Republic of Ireland

·    Process Division

the distribution of industrial components to the process sectors - based in the West Midlands

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

 

 

 


Flowtechnology

Power Motion Control

Process

Inter-segmental transactions

 

Central

 Costs

Total Continuing Operations


UK

£000

Europe

£000

 

£000

 

£000

 

£000

 

£000

Six months ended 30 June 2016








Income statement - continuing operations:








Revenue from external customers

16,011

2,082

8,268

1,026

-

-

27,387

Inter segment revenue

782

77

327

24

(1,210)

-

-

Total revenue

16,793

2,159

8,595

1,050

(1,210)

-

27,387

Underlying operating result

3,941

223

930

150

-

(1,185)

4,059

Net financing costs

(92)

-

(1)

5

-

(135)

(223)

Underlying segment result

3,849

223

155

-

(1,320)

3,836

Separately disclosed items

(127)

(11)

(27)

(37)

-

(567)

(769)

Profit/(loss) before tax

3,722

212

902

118

-

(1,887)

3,067

Specific disclosure items

Depreciation

Amortisation

 

181

6

 

14

-

 

55

236

 

8

22

 

-

-

 

-

-

 

258

264

Reconciliation of underlying operating result to operating profit:

Underlying operating result

Separately disclosed items

 

 

3,941

(127)

 

 

223

(11)

150

(37)

-

-

(1,185)

(568)

4,059

(769)

Operating profit/(loss)

3,814

212

903

113

-

(1,753)

3,290

 


Flowtechnology

Power Motion Control

Process

Inter-segmental transactions

 

Central

 Costs

Total Continuing Operations


UK

£000

Europe

£000

 

£000

 

£000

 

£000

 

£000

 

£000

Six months ended 30 June 2015








Income statement - continuing operations:








Revenue from external customers

15,617

1,871

3,935

-

-

-

21,423

Inter segment revenue

430

42

138

-

(610)

-

-

Total revenue

16,047

1,913

4,073

-

(610)

-

21,423

Underlying operating result

3,916

170

284

-

-

(966)

3,404

Net financing costs

4

-

-

-

-

(67)

(63)

Underlying segment result

3,920

170

284

-

-

(1,033)

3,341

Separately disclosed items

(47)

(12)

(172)

-

-

(161)

(392)

Profit/(loss) before tax

3,873

158

112

-

-

(1,194)

2,949

Specific disclosure items

Depreciation

Amortisation

 

(184)

-

 

(13)

-

 

(39)

(160)

 

-

-

 

-

-

 

-

-

 

(236)

(160)

Reconciliation of underlying operating result to operating profit:

Underlying operating result

Separately disclosed items

 

 

3,916

(47)

 

 

170

(12)

 

 

284

(172)

 

 

-

-

 

 

-

-

 

 

(966)

(161)

 

 

3,404

(392)

Operating profit/(loss)

3,869

158

112

-

-

(1,127)

3,012


Flowtechnology

Power Motion Control

Process

Inter-segmental transactions

 

Central

 Costs

Total Continuing Operations


UK

£000

Europe

£000

 

£000

 

£000

 

£000

 

£000

 

£000

Year ended 31 December 2015








Income statement - continuing operations:








Revenue from external customers

29,439

3,729

11,680

-

-

-

44,848

Inter segment revenue

860

99

231

-

(1,190)

-

-

Total revenue

30,299

3,828

11,911

-

(1,190)

-

44,848

Underlying operating result

7,169

402

1,228

-

-

(1,931)

6,868

Net financing costs

(65)

-

3

-

-

(149)

(211)

Underlying segment result

7,104

402

1,231

-

-

(2,080)

6,657

Separately disclosed items

(144)

(22)

(505)

-

-

(706)

(1,377)

Profit/(loss) before tax

6,960

380

726

-

-

(2,786)

5,280

Specific disclosure items

Depreciation

Amortisation

 

389

-

23

-

93

413

-

-

-

-

-

-

505

413

Reconciliation of underlying operating result to operating profit:

Underlying operating result

Separately disclosed items

7,169

(144)

402

(22)

1,228

(505)

-

-

-

-

(1,931)

(706)

6,868

(1,377)

Operating profit/(loss)

7,025

380

723

-

-

(2,637)

5,491

 

SEPARATELY DISCLOSED ITEMS

·      Acquisition costs relate to stamp duty, due diligence, legal fees, bank 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 relate to restructuring activities of an operational nature and covers the closure of business units, employee redundancies within these units, continuing property costs post closure and other onerous lease obligations

 


 Six months ended

30 June 2016

£000

Six months ended

30 June 2015

£000

Year ended

31 December 2015

£000

Separately disclosed items within administration expenses:

-Acquisition costs

-Amortisation of acquired intangibles

-Share based payment costs

-Restructuring

 

238

264

149

118

 

50

160

172

10

 

299

413

342

323

Total separately disclosed items

769

392

1,377

 

4.

TAXATION


Six months ended

30 June 2016

£000

Six months ended

30 June 2015

£000

Year ended

31 December 2015

£000

Current tax on income for the period - continuing operations:

UK tax

Foreign tax

Deferred tax credit

Adjustments in respect of prior years

 

620

-

(45)

(54)

 

618

-

(76)

-

 

1,231

3

(101)

(76)

Total taxation

521

542

1,057

 

The taxation for the period has been calculated by applying the estimated tax rate for the financial year ending 31 December 2016. Deferred tax liabilities have also been adjusted to £1,042,000 to reflect capital allowances in excess of depreciation and other short term timing differences.

 

5.

DIVIDENDS


Six months ended

30 June

2016

£000

Six months ended

30 June

2015

£000

Year ended

31 December

2015

£000

Final dividend of 3.50p (2015: 3.33p) per share

1,499

1,426

1,426

Interim dividend of 1.75p per share

-

-

749


1,499

1,426

2,175

 

In addition, the Directors are proposing a half-year dividend in respect of the financial year ended 31 December 2016 of 1.84p per share which will absorb an estimated £0.8 million of shareholders' funds.  It will be paid on the 25 October 2016 to Shareholders who are on the Register of Members on 30 September 2016.

 

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 2016

Six months ended

30 June 2015

Year ended

31 December 2015


 

 

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

 

2,546

-

 

43,078

43,078

 

5.91

0.00

 

2,407

(73)

 

42,828

42,828

 

5.62

(0.17)

 

4,223

(131)

 

42,869

42,869

 

9.85

(0.31)

Basic earnings per share

2,546

43,078

5.91

2,334

42,828

5.45

4,092

42,869

9.54

Diluted earnings/(loss) per share

Continuing operations

Discontinued operations

 

2,546

-

 

43,472

43,472

 

5.86

0.00

 

2,407

(73)

 

43,413

43,413

 

5.54

(0.17)

 

4,223

(131)

 

43,387

43,387

 

9.73

(0.30)

Diluted earnings per share

2,546

43,472

5.86

2,334

43,413

5.38

4,092

43,387

9.43

 


Six months ended

30 June 2016

£000

Six months ended

30 June 2015

£000

Year ended

31 December 2015

£000

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

Impact of share options

 

43,078

394

 

42,828

585

 

42,869

518

Weighted average number of ordinary shares for diluted earnings per share

43,472

43,413

43,387

 

7.

ACQUISITIONS

7.1     INDEQUIP

On 19 February 2016, the Group acquired 100% of the trade and certain assets of Indequip, a UK-based business.  The acquisition was made to enhance the Group's position in the pneumatic market and bring new customers to the Group. The total consideration was £893,000 and was paid in cash.

 

GOODWILL

Goodwill of £345,000 is primarily related to expected future profitability and expected cost synergies. 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.

 

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

-

-

68

Intangible assets

-

-

96

96

Inventories

392

-

-

392

Trade and other receivables

11

-

-

11

Deferred tax liability

-

-

(19)

(19)

Total net assets

471

-

77

548










£000

Fair value of consideration paid





Amount settled in cash




893

Total consideration




893

Less net assets acquired




(548)

Goodwill on acquisition




345

 

7.2    HYDRAVALVE

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 the process market.  The total consideration was £3,814,000.  This comprised £2,105,000 in cash and £1,709,000 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 £1,709,000 has been calculated using management forecasts of Hydravalve's Limited'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 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.

 

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

228

-

-

228

Intangible assets

-

-

879

879

Inventories

1,635

-

-

1,635

Trade and other receivables

942

-

-

942

Cash and cash equivalents

(312)

-

-

(312)

Trade and other payables

(605)

-

-

(605)

Finance leases

(71)



(71)

Current tax balances

(216)

-

-

(216)

Deferred tax liability

(41)

-

(176)

(217)

Total net assets

1,560

-

703

2,263










£000

Fair value of consideration paid





Amount settled in cash




2,105

Fair value of contingent consideration




1,709

Total consideration




3,814

Less net assets acquired




(2,263)

Goodwill on acquisition




1,551

 

8.   SUBSEQUENT EVENTS

  Triplesix Limited ("TSL") was acquired on 29 July 2016 for a total consideration of £1.1m comprising £0.45m in cash and £0.65m contingent cash consideration.  This is a provisional figure subject to the finalisation of the completion accounts.  Contingent consideration is based on the profitability of the company post acquisition. The acquisition was made to enhance the Group's position in the hydraulic cylinder market.  Included within the net assets of TSL was £0.4m of cash retained within the business on acquisition.  The cash consideration was funded out of existing cash resources.

 

The Group will disclose the book value of the identifiable assets and liabilities and their fair values in the 2016 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.

 

9.

NET CASH FROM OPERATING ACTIVITIES


Six months ended

30 June 2016

£000

Six months

ended

30 June 2015

£000

Year

ended

31 December 2015

£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

 

 

3,067

-

258

-

223

(8)

264

149

 

 

2,949

(73)

236

(33)

96

-

160

172

 

 

5,280

(131)

505

(22)

232

(7)

413

342

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

3,953

(3,696)

(1,299)

1,915

(36)

3,507

(1,720)

1,068

(499)

(48)

6,612

1,628

(688)

(136)

(60)

Cash generated from operations

Tax paid

837

(649)

 2,308

(649)

7,356

(1,413)

Net cash generated from operating activities

188

1,659

5,943

 

10.    TOTAL VOTING RIGHTS

For the purposes of the Disclosure and Transparency Rules, the Company's total issued share capital at the date of this announcement is 43,078,282 ordinary shares of £0.50 each.  The total number of voting rights in the Company is therefore 43,078,282.  There are no ordinary shares held in Treasury.  This figure may be used by shareholders as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in, the Company, under the FCA's Disclosure and Transparency Rules.

 

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 in order to provide assurance that we are managing risk whilst achieving our business objectives.  No system can fully eliminate risk and therefore the understanding of operational risk is central to 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 2015 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 as a result of new information, future events or otherwise.

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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