2020 Half-year Report

RNS Number : 2825Y
Flowtech Fluidpower PLC
08 September 2020
 

NEWS RELEASE

 

Issued on behalf of Flowtech Fluidpower plc

Immediate Release

 

 

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, 8 September 2020

 

 

FLOWTECH FLUIDPOWER PLC

("Flowtech", the "Group" or "Company")

 

Specialist full-service supplier of technical fluid power products and services

 

HALF-YEAR REPORT

For the six months ended 30 June 2020

 

"We are pleased that the trend in market conditions since April 2020 has been positive and we look forward to an improvement in performance in H2 2020 and into 2021"

 

 

 

FINANCIAL HIGHLIGHTS

HY2020

30.6.20

unaudited

HY2019

30.6.19

unaudited

FY2019

31.12.19

Audited

· Revenue

£46.6m

£59.6m

£112.4m

· Gross profit %

35.1%

35.6%

35.7%

· Operating (loss) / profit

£ (0.5m)

£4.3m

£5.7m

· Underlying operating profit*

£0.9m

£6.1m

£9.8m

· (Loss) / profit before tax

£ (0.9) m

£3.8m

£4.7m

· Earnings per share (basic)

(1.37) p

5.00p

6.12p

· Net debt**

£14.5m**

£18.8m

£16.6m

 

· Resilient response to COVID-19

· Organic sales down 21.8% (Q1-11%, Q2-33%)

· Gross margin strong at 35.1% (H1 2019: 35.6%)

· Underlying operating profit of £0.9m (H1 2019: £6.1m)

· Strong cash generation and net debt down £2.1m, £4.3m lower than H12019

· Continued progress on reducing cost base

 

 

" I'm pleased with the way our team responded to the challenges presented by COVID-19. We were already engaged in a process of rationalising operating sites and reducing costs, but, given the ongoing uncertainty, it is now imperative we accelerate this activity. Our cash management has been good and whilst we remain well funded, it is important to recognise that one of the keys to our success is inventory availability and that this must not be compromised. Looking forward, an important element of our future strategy is our digital and data capability, this is an area of close focus and ongoing investment. Given the impact of COVID-19 it is difficult to predict underlying levels of demand so notwithstanding our plans to achieve further efficiency and organic growth coupled with our inherent resilience we will be affected by overall market conditions and will react appropriately."

Roger McDowell, Non-Executive Chair

 

 

* Underlying operating result is continuing operations' operating profit before separately disclosed items (note 3) and the impact of fair value adjustment to inventory acquired through business combinations (IFRS 3)..The FY2019 comparative has been adjusted as explained in note 3.

**Net Debt excludes benefit obtained by deferring c.£1.6m (2019: £nil) of VAT linked to Government COVID-19 related support schemes.

 

 

ENQUIRIES:

 

FLOWTECH FLUIDPOWER PLC

Roger McDowell, Non-Executive Chair

Bryce Brooks, Chief Executive Officer

Russell Cash, Chief Financial Officer

Tel: +44 (0) 1695 52759

Email : info@flowtechfluidpower.com

Corporate Marketing Manager: Eve Rigby Tel: +44 (0) 1695 577780

 

Zeus Capital Limited (Nominated Adviser and Joint Broker)

Andrew Jones, Kieran Russell (Corporate Finance)

Dominic King, John Goold (Sales & Broking)

Tel: + 44 (0) 20 3829 5000

 

finnCap Limited (Joint Broker)

Ed Frisby, Kate Bannatyne (Corporate Finance)

Rhys Williams, Andrew Burdis (Sales & Broking)

Tel: + 44 (0) 20 7220 0500

 

TooleyStreet Communications (IR and media relations)

Fiona Tooley

Tel: +44 (0) 7785 703523 or email: fiona@tooleystreet.com

 

 

ABOUT FLOWTECH FLUIDPOWER PLC

 

Founded as Flowtech in 1983, the Flowtech Fluidpower Group is the UK's leading specialist supplier of technical fluid power products and services.  The business joined AIM in 2014 (AIM: Symbol FLO).  Today, the Group has two distinct divisions:

 

Division:

What we do:

Locations:

Components

Supply of hydraulic and pneumatic consumables, predominantly through distribution for urgent maintenance and repair operations across all industry sectors.  Additionally, support a broad range of original equipment manufacturers (OEMs) supplying off-the-shelf and tailored components and assemblies.

Flowtechnology Benelux (Deventer)

Flowtechnology UK (Skelmersdale)

Indequip (Skelmersdale)

Beaumanor (Leicester)

Hydravalve (Willenhall)

Primary Fluid Power Components (Skelmersdale)

Nelson Hydraulics (Dublin, Lisburn, Dungannon)

HTL (Ludlow)

Hi-Power Hydraulics (Cork, Dublin, Belfast, Knowsley)

Hydroflex (Brussels, Rotterdam and OudBeijerland)

Hydraulic Equipment Supermarkets (Gloucester, Leeds)

Derek Lane & Co (Newton Abbot)

Tractec (Gloucester)

 

Services

Bespoke design, manufacturing, commissioning, installation, and servicing of systems to manufacturers of specialised industrial and mobile hydraulic original equipment manufacturers (OEMs) and additionally a wide range of industrial end users.

 

Primary Fluid Power Systems (Knowsley)

TSL (Knowsley)

Branch Hydraulic Systems (Gloucester)

Lubemec (Gloucester)

Fluidpower Group Services (Spennymoor, Leeds, Gloucester)

FlowConnect (Gloucester)

Orange County (Spennymoor)

 

Both Group's divisions have overlapping product sets, allowing procurement synergies to be maximised.

The above divisions are supported by a centralised back office team based in Wilmslow, Cheshire, UK and a procurement and quality control team in Shanghai, China.  In total, the business employs c.600 people.  For more information please visit, www.flowtechfluidpower.com

 

 

FLOWTECH FLUIDPOWER PLC

HALF-YEAR REPORT

FOR THE SIX MONTHS ENDED 30 JUNE 2020

 

 

COVID-19 IMPACT AND RESPONSE

Since the COVID-19 lockdown we have prioritised the health and wellbeing of our people.  All our sites in the UK, Ireland and the Benelux have been adapted to become safer working environments, and whilst this has created some challenges in our larger facilities, we are extremely grateful to all our employees for the resilience and adaptability they have shown throughout recent months.  This has ensured that high levels of customer service have been maintained.

 

All our key customers have returned and the recovery is encouraging; our revenue in August was 12% down on the comparative period, a much-improved position from April which was down 41%.  Over the last two months we have welcomed back most of our UK furloughed employees. 15 remain furloughed at the start of September, compared with a peak of 189 in April.  Although most of our supplier base is located overseas, the quality of the working relationships we have with them has been invaluable throughout this period.  Overall, it is pleasing to report that our supply chain has continued to function effectively, with only minor disruptions post lockdown.

 

DELIVERING ON OPERATIONAL COST SAVINGS

Despite COVID-19 we have continued with our plans to remove cost from our businesses, with most savings coming from a reduction in people and property. Highlights in the first half of 2020 include the move from Knowsley into Skelmersdale of the Primary Fluid Power Components function, and the transition of the logistics operations of Hydravalve from Willenhall on 1 May and 1 June respectively.  Both have incorporated significant IT implementations, the establishment of an Engineering & Modifications Centre in the main logistics hub, and new ways of working to service different customer requirements.  As well as the associated cost savings we are already seeing benefits in the form of more efficient picking and delivery.

 

In Q2 we announced internally that our two Irish businesses - Nelson Hydraulics and Hi-Power - would merge their operations and relocate most warehousing functions to the UK.  During the second half of the current year we will also be undergoing a similar change process at Group HES, our Gloucester operation.  When fully implemented we expect further savings, with the removal of two properties and a further reduction in headcount

 

Whilst certain projects have been slightly delayed due to lockdown restrictions, in some cases so we can take additional cost out, we remain confident of delivering annualised savings of at least £1.6m.  We expect these savings to be fully reflected in 2021.  These are in addition to the cost cutting we took in response to COVID-19, including the 25 redundancies actioned post this reporting date.

 

CONTINUING TO DE-LEVERAGE

We are pleased to see more progress in this area despite profitability having been materially affected by COVID-19. Net Debt reduced by £2.1m in H1 2020 and £4.3m in the 12-month period ended 30 June 2020.

 

Management of working capital has remained high on our list of priorities, and whilst debtor collections have slowed slightly, we have where necessary worked proactively with our customers and suppliers to ensure net cash generation.

 

We continually review inventory levels to ensure sufficient stock to service the demands of our customer base.  We anticipate that further reductions in inventory are achievable, although at more modest levels than seen over the past 24-months.  From a peak in June 2018 of £29.0m, inventories are now down to £22.6m.

 

DIGITAL CAPABILITIES

In 2019, we said we would use our market penetration and premium position with the leading global suppliers to develop a fully-fledged e-business operation.  This year a specialist team has been working on the next stage of this, and identified a clear strategy to redesign our IT architecture, create the most extensive Product Information System in the sector, and build a data driven approach to sales development using a single Customer Data Platform.  When this is coupled with the integration of all the Group's legacy IT systems to create a single stock holding framework, we will be in a very strong position to exploit the changing digital landscape.  This initiative will also have input and support from our new Non-Executive Director Paul Gedman, who joined us in August, having held senior positions including as Divisional CEO at The Hut Group .  Paul has extensive experience in the global e-commerce industry and a wealth of practical knowledge in growing international businesses through leveraging data and digital capabilities.

 

 

FINANCIAL STATEMENT

HALF-YEAR FINANCIAL PERFORMANCE AND DIVISIONAL ANALYSIS

 

 

Revenue

Six months

ended

30 June 2020

£000

Six months

ended

30 June 2019

£000

%

Change

 

Year

ended

31 December 2019

£000

Components

 

39,124

50,001

 

-21.8%

 

96,348

 

Services

7,443

9,639

-22.8%

16,070

Total Group revenue

46,567

59,640

-21.9%

112,418

Gross profit %

35.1%

35.6%

 

35.7%

 

Underlying operating result*

Six months

ended

30 June 2020

£000

Six months

ended

30 June 2019

£000

Change

 

 

£000

Year

ended

31 December 2019

£000

Components

3,331

7,945

(4,614)

14,138

Services

(94)

241

(335)

(53)

Central costs

(2,305)

(2,091)

(214)

(4,331)

Underlying operating result *

932

6,095

(5,163)

9,754

 

* Underlying operating result is continuing operations' operating profit before separately disclosed items (note 3) and the impact of fair value adjustment to inventory acquired through business combinations (IFRS 3)..The FY2019 comparative has been adjusted as explained in note 3.

 

 

REVENUE

Overall revenue was down 22% against prior year comparatives, 11% in Q1 and 33% in Q2.  We had expected a modest decline in Q1 against a strong 2019 quarter, but COVID-19 further impacted on this and then affected the whole of Q2.

 

Gross profit margin

Although this can vary from period to period dependent on market conditions and mix of sales, in H1 it was virtually unchanged at 35.1%.  This is higher than 2017 and 2018 and we are confident that our focus in this area will continue to see further improvements .

 

OPERATING Costs

Our operating costs in H1 2020 were £15.4m, marginally ahead of the comparative period in 2019.  A significant factor contributing to this was the investment made in the business in mid-2019 when market conditions were far more favourable.  The impact of this and a number of COVID-19 related initiatives will see operating costs in H2 2020 well below those in H2 2019.  At the start of the year headcount across the Group was 651, and at the time of writing this was down to 614, with further reductions expected in the second half.

 

UNDERLYING OPERATING PROFIT

Our underlying operating result was impacted by COVID-19, reducing from £6.1m to £0.9m, the majority of which was in our Components businesses.

 

FINANCIAL POSITION INCLUDING CASH FLOW AND BANK DEBT

We are pleased with the £4.6m of cash generated from operating activities (after discounting the £1.6m VAT deferral support from HMRC), which is in line with the comparative period.  Our focus on managing working capital has enabled us to achieve this result despite the significant reduction in underlying profitability.  This has allowed us to fund our restructuring activity as well as achieving a £2.1m reduction in Net Debt in H1 2020 and a position which is £4.3m lower than at the end of H1 2019.

 

We have recently agreed the renewal of our Banking facilities, with the £25m aggregate facilities in place for a further three years.  These facilities are currently being documented by lawyers, a process which we hope will be complete by the end of September 2020.

 

FUTURE REGULATORY REPORTING

Flowtech announces that following a review of its financial reporting practices it will no longer publish quarterly operational trading updates for Q1 and Q3 in addition to its regular financial reporting calendar.  The Company will continue to provide, in conjunction with preliminary and interim reports, qualitative updates covering market and business developments.  This change in reporting will take immediate effect.  Shareholders will be able to view the financial calendar of events on our website https://www.flowtechfluidpower.com/shareholder-information/financial-calendar/ .

 

OUTLOOK & DIVIDEND

The fluid power sector has previously shown resilience in economic downturns and this characteristic, when coupled with the Group's wide mix of customers and sectors, has been evident in recent months.  The trend in demand since the April nadir has been encouraging.  If this pattern continues and is combined with our internal cost reduction programme it leads us to expect an improvement in performance in H2 2020 and into 2021.  However, as it still remains difficult to predict short term market conditions, we therefore consider it prudent to withhold both formal financial guidance and the payment of a dividend.  We will keep this position under constant review and intend to reinstate both guidance and dividend as soon as is practicable.

 

Our priorities continue to be: - excellent customer service, careful management of cash, margin protection and the accelerated execution of our restructuring and cost reduction programme.  We will also continue to invest in our digital capability and endeavour to maximise the opportunities offered by our strong market position through our high quality and committed team of people. We approach the future with measured optimism.

 

 

By order of the Board

8 September 2020

 

 

CONSOLIDATED INCOME STATEMENT

FOR THE SIX MONTHS ENDED 30 JUNE 2020

 

Notes

Unaudited

Unaudited

Audited

Six months

ended

Six months

ended

Year

ended

30 June

30-June

31-December

2020

2019

2019

£000

£000

£000

Continuing operations

 

 

 

 

Revenue

46,567

59,640

112,418

Cost of sales

(30,226)

(38,395)

(72,235)

 

 

 

 

Gross profit

 

16,341

21,245

40,183

Distribution expenses

(2,081)

(2,139)

(4,547)

Administrative expenses before separately disclosed items

 

(13,328)

(13,099)

(26,179)

- separately disclosed items

3

(1,481)

(1,678)

(3,712)

Total administrative expenses

 

(14,809)

(14,777)

(29,891)

Operating (loss) / profit

 

(549)

4,329

5,745

Financial income

 

-

-

-

Financial expenses

(380)

(528)

(1,038)

Net financing costs

 

(380)

(528)

(1,038)

(Loss) / profit from continuing operations before tax

 

(929)

3,801

4,707

Taxation

4

88  

(726)

(968)

(Loss) / profit from continuing operations

 

(841)

3,075

3,739

(loss) / profit for the period attributable to:

 

 

 

 

Non-controlling interest

-

22

 -

Owners of the parent

 (841)

3,053

3,739

Earnings per share

 

 

 

 

Basic earnings per share - continuing operations

6

(1.37p)

5.00p

6.12p

Diluted earnings per share - continuing operations

6

(1.37p)

4.99p

6.10p

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 JUNE 2020

 

Unaudited

Unaudited

Audited

Six months ended

Six months

ended

Year

ended

 30 June

30-June

31-December

2020

2019

2019

£000

£000

£000

(Loss) / profit for the period

(841)

3,076

3,739

Other comprehensive income

 

 

 

-Exchange differences on translating foreign operations

334

71

(394)

Total comprehensive income in the period attributable to:

(507)

3,147

3,345

Non-controlling interest

 -

22

 -

Owners of the parent

(507)

3,125

3,345

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2020

 

Unaudited

Unaudited

Audited

30-June

30-June

31-December

2020

2019

2019

£000

£000

£000

Assets

 

 

 

Non-current assets

 

 

 

Goodwill

63,216

62,959

63,014

Other intangible assets

6,047

7,089

6,573

Property, plant, and equipment

6,957

6,717

6,528

Right of use assets

7,385

8,752

8,228

Total non-current assets

83,605

85,517

84,343

Current assets

 

 

 

Inventories

22,639

28,130

24,000

Trade and other receivables

20,050

27,034

21,377

Prepayments

1,672

1,057

759

Cash and cash equivalents

7,082

3,881

3,446

Total current assets

51,443

60,102

49,582

Liabilities

 

 

 

Current liabilities

 

 

 

Interest-bearing borrowings

16,000

18,605

16,055

Lease liabilities - current

1,845

1,426

1,635

Trade and other payables

18,344

18,403

15,510

Deferred and contingent consideration

1,005

214

Tax Payable

-

1,659

298

Total current liabilities

36,189

41,098

33,712

Net current assets

15,254

19,004

15,870

Non-current liabilities

 

 

 

Interest-bearing borrowings

4,000

4,000

4,008

Lease liabilities - non-current

5,773

7,394

6,735

Provisions

363

411

417

Deferred tax liabilities

1,417

1,709

1,519

Total non-current liabilities

11,553

13,514

12,679

Net assets

87,306

91,007

87,534

Equity directly attributable to owners of the parent

 

 

 

Share capital

30,747

30,564

30,579

Share premium

60,959

60,959

60,959

Other reserves

187

187

187

Shares owned by the Employee Benefit Trust (EBT)

 (372)

 (400)

 (372)

Merger reserve

293

293

293

Merger relief reserve

3,645

3,575

3,599

Currency translation reserve

711

727

244

Retained losses

(8,864)

(4,940)

(7,955)

Total equity attributable to the owners of the parent

87,306

90,965

87,534

Non-controlling interest

42

 -

Total equity

87,306

91,007

87,534

 

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTHS ENDED 30 JUNE 2020

 

Share capital

 

£000

Share

premium

 

£000

Other reserves

 

£000

Shares owned by EBT £000

Merger reserve

 

£000

Merger relief

reserve

£000

Currency

translation

reserve

£000

Retained

losses

 

£000

Non-controlling interest

£000

Total

equity

 

£000

Six months ended 30 June 2020 unaudited

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2020

30,579

60,959

187

(372)

293

3,599

244

 (7,955)

-

87,534

 

 

 

 

 

 

 

 

 

 

 

Profit for the period

-

-

-

-

-

-

-

 (841)

-

 (841)

Other comprehensive income

 -

 -

467

 (133)

 -

334

Total comprehensive income for the period

 

 

 

-

 

 

 

 

467

 

(974)

 

-

 

(507)

Transaction with owners

 

 

 

 

 

 

 

 

 

 

Issue of share capital

168

-

-

-

-

46

-

-

-

214

Share-based payment charge

-

-

-

-

-

-

-

65

-

65

Total transactions with owners

168

 

-

46

65

-

279

Balance at 30 June 2020

30,747

60,959

187

(372)

293

3,645

711

(8,864)

-

87,306

                       

 

Six months ended 30 June 2019 unaudited

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2019

 

Profit for the period

Other comprehensive income

30,460

 

-

-

60,793

 

-

-

187

 

-

-

(413)

 

-

-

3,575

 

-

-

664

 

-

63

(8,146)

 

3,053

8

20

 

22

-

87,433

 

3,075

71

Total comprehensive income for the period

-

-

-

-

-

63

3,061

22

3,146

Transaction with owners

Issue of share capital

Share-based payment charge

Share options settled

 

104

-

-

 

166

-

-

 

-

-

-

 

-

-

13

 

-

-

-

 

-

-

-

 

-

96

49

 

-

-

-

 

270

96

62

Total transactions with owners

104

166

-

13

-

-

145

-

428

Balance at 30 June 2019

30,564

60,959

187

(400)

3,575

727

(4,940)

42

91,007

                         

 

Twelve months ended 31 December 2019 - audited

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at 1 January 2019

30,460

60,793

187

(413)

293

3,575

664

(8,146)

20

87,433

Profit for the year

-

-

-

-

-

-

-

3,739

-

3,739

Other comprehensive income

-

-

-

-

-

-

(420)

26

-

(394)

Total comprehensive income for the year

 

-

 

-

 

-

 

-

 

-

 

-

 

(420)

 

3,765

-

 

3,345

Transaction with owners

 

 

 

 

 

 

 

 

 

 

Issue of share capital

25

45

-

-

-

-

-

-

-

70

Purchase of minority shares

-

-

-

-

-

-

-

(270)

(20)

(290)

Shares issued in consideration

94

121

-

-

-

24

-

-

-

239

Other movements in share capital

-

-

-

-

-

-

-

133

-

133

Share-based payment charge

-

-

-

-

-

-

-

143

-

143

Share options settled

-

-

-

41

-

-

-

169

-

210

Equity dividends paid

-

-

-

-

-

-

-

(3,749)

-

(3,749)

Total transactions with owners

119

166

-

41

293

24

-

(3,574)

(20)

(3,244)

Balance at 31 December 2019

30,579

60,959

187

 (372)

293

3,599

244

(7,955)

87,534

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED 30 JUNE 2020

 

Notes

Unaudited

Unaudited

Audited

Six months ended

Six months

ended

 Year

ended

30-June

30-Jun

31-Dec

2020

2019

2019

£000

£000

£000

 

 

 

 

 

Net cash from operating activities

8

6,203

4,443

13,246

Cash flow from investing activities

 

 

 

 

Acquisition of property, plant, and equipment

(1,221)

(519)

(756)

Proceeds from sale of property, plant, and equipment

189

24

39

Acquisition of subsidiary

 (202)

-

 (38)

Payment of deferred and contingent consideration

 (218)

(1,630)

(2,635)

Net cash used in investing activities

 

(1,452)

(2,125)

 (3,390)

Cash flows from financing activities

 

 

 

 

 

 

 

 

5

 

 

 

Net proceeds from the issue of share capital

-

70

70

Repayment of lease liabilities

(792)

(778)

(1632)

Net cash settled share options

-

(47)

-

Interest on right of use leases

(131)

(141)

(282)

Other interest paid

(249)

 (387)

(756)

Repayment of loan by EBT

-

15

47

Dividends paid

-

 -

 (3,749)

Share option payments to staff

 

-

-

 (61)

Net cash generated from / (used in) financing activities

 

(1,172)

(1,268)

(6,363)

Net change in cash and cash equivalents

 

3,579

1,050

3,493

Cash and cash equivalents at start of period

 

3,446

253

253

Exchange differences on cash and cash equivalents

57

78

 (300)

Cash and cash equivalents at end of period

 

7,082

1,381

3,446

Cash and cash equivalents

 

7,082

3,881

3,446

Bank overdraft

 

-

(2,500)

-

Cash and cash equivalents at end of period

 

7,082

1,381

3,446

 

 

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

Short term borrowings

Lease liabilities

Total

£000

£000

£000

£000

At 1 January 2020

4,000

16,000

8,433

28,433

Cash flows

 

 

 

 

Repayment

 -

-

(792)

(792)

Proceeds

 -

 -

 -

Other lease movements

-

-

(67)

 (67)

Non-cash

 

 

 

 

New leases

-

-

44

44

At 30 June 2020

4,000

16,000

7,618

27,618

 

 

NOTES TO THE HALF-YEAR REPORT

FOR THE SIX MONTHS ENDED 30 JUNE 2020

 

1.General information

The principal activity of Flowtech Fluidpower plc (the "Company") and its subsidiaries (together, the "Group") is the distribution of engineering components and assemblies, concentrating on the fluid power industry.  The Company is a public limited company incorporated and domiciled in the United Kingdom. The address of its registered office is Bollin House, Wilmslow, SK9 1DP.  

 

The registered number is 09010519.

 

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 Half-year report and the financial information for the six months ended 30 June 2020 does not constitute full statutory accounts within the meaning of section 434 of the Companies Act 2006 and are unaudited.  This unaudited Half-Year Report was approved by the Board of Directors on

8 September 2020.

 

The Group's financial statements for the year ended 31 December 2019 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 https://www.flowtechfluidpower.com .

Copies can also be requested from; The Company Secretary, Flowtech Fluidpower plc, Bollin House, Bollin Walk, Wilmslow, SK9 1DP.

Email: info@flowtechfluidpower.com .

 

2.  aCCOUNTING POLICIES

2.1 Basis of preparation

The financial information set out in this consolidated Half-year 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 2020.  These are consistent with the accounting policies used in the Financial Statements for the year ended 31 December 2019.

 

2.2 Going concern

The financial statements are prepared on a going concern basis. The Directors believe this to be the most appropriate basis for the following reasons:

 

· The Group generated underlying operating profit of £0.9m in a half year period which was materially affected by the unprecedented, unforeseen circumstances of COVID-19;

· July and August have seen improving trends in terms of Revenue and profitability;

· The Group has achieved significant debt reduction over the last 18months and has been consistently operating with significant headroom against the £25m banking facilities.

 

In addition we have recently agreed the renewal of our Banking facilities which will see our aggregate £25m facilities in place for a further 3 year period; the facilities are currently being documented by lawyers and we expect this to be complete by the end of September. As part of this we have refreshed our Banking covenants to reflect the unexpected reduction in our level of profitability as a result of COVID-19; as a result of this we expect to continue to satisfy all covenant and other requirements within the Banking agreement.

 

As referred to our 2019 Report & Accounts we continue to recognise that the potential prolonged impact of the COVID-19 pandemic presents a material uncertainty that could potentially cast doubt on the Group and Parent Company's ability to continue as a going concern.  Nevertheless, taking all factors into consideration the Directors have a reasonable expectation that the Group and Parent Company has adequate resources to continue in operational existence for the foreseeable future.  For these reasons the Directors continue to adopt the going concern basis in preparing the half year report and accounts.  These financial statements do not reflect any adjustments which would result from the going concern basis of preparation proving to be inappropriate.

 

 

3.  OPERATING SEGMENTS

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

 

· Components - Supply of hydraulic and pneumatic consumables, predominantly through distribution for maintenance and repair operations across all industry markets but supported by supply agreements direct to a broad range of OEMs.

 

· Services - Bespoke design, manufacturing, commissioning, installation, and servicing of systems to manufacturers of specialised industrial and mobile hydraulic OEMs and additionally a wide range of industrial end users.

 

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:

 

 

 

 

Components

£000

 

 

Services

£000

Inter-segmental transactions

£000

 

Central

 costs

£000

 

Total continuing operations

£000

Six months ended 30 June 2020

 

 

 

 

 

Income statement - continuing operations:

 

 

 

 

 

Revenue from external customers

39,124

7,443

-

-

46,567

Inter segment revenue

2,490

504

(2,994)

-

-

Total revenue

41,614

7,947

(2,994)

-

46,567

Underlying operating result*

3,331

(94)

-

(2,305)

932

Net financing costs

(131)

(3)

-

(246)

(380)

Underlying segment result

3,200

(97)

-

(2,551)

552

Separately disclosed items

(683)

-

-

(798)

(1,481)

Profit / (loss) before tax

2,517

(97)

-

(3,349)

(929)

Specific disclosure items

 

 

 

 

 

Depreciation

1,169

132

-

46

1,347

Amortisation

463

63

-

-

526

Reconciliation of underlying operating result to operating profit:

 

 

 

 

 

Underlying operating result*

3,331

(94)

-

(2,305)

932

Separately disclosed items

(683)

-

-

(798)

(1,481)

Operating profit/(loss)

2,648

(94)

-

(3,103)

(549)

 

 

*Underlying operating result is continuing operations' operating profit before separately disclosed items (note 3) and the impact of fair value adjustment to inventory acquired through business combinations (IFRS 3).

 

 

 

 

Components

£000

 

 

Services

£000

Inter-segmental transactions

£000

 

Central

 costs

£000

 

Total continuing operations

£000

Six months ended 30 June 2019

 

 

 

 

 

Income statement - continuing operations:

 

 

 

 

 

Revenue from external customers

50,001

9,639

 

59,640

Inter segment revenue

1,224

10

 (1,234)

Total revenue

51,225

9,649

(1,234)

 

59,640

Underlying operating result*

7,945

241

(2,091)

6,095

Net financing costs

 (33)

(494)

 (528)

Underlying segment result

7,912

241

 (2,585)

5,567

Impact of fair value adjustment to inventory

(88)

 (88)

 

 

 

 

 

 

Separately disclosed items

(767)

(20)

(892)

(1,678)

Profit/(loss) before tax

7,058

221

(3,477)

3,801

Specific disclosure items

 

 

 

 

 

Depreciation

1,212

90

21

1,323

Amortisation

473

62

535

Reconciliation of underlying operating result to operating profit:

 

 

 

 

 

Underlying operating result*

7,945

241

(2,091)

6,095

Impact of fair value adjustment to inventory

(88)

 (88)

Separately disclosed items

(767)

(20)

(891)

(1,678)

Operating profit/(loss)

7,090

221

 (2,982)

4,329

             

 

*Underlying operating result is continuing operations' operating profit before separately disclosed items (note 3) and the impact of fair value adjustment to inventory acquired through business combinations (IFRS 3).

 

 

 

 

Components

£000

 

 

Services

£000

Inter-segmental transactions

£000

 

Central

 costs

£000

Total continuing operations

£000

Year ended 31 December 2019

 

 

 

 

 

Income statement - continuing operations:

 

 

 

 

 

Revenue from external customers

96,348

16,070

-

112,418

Inter segment revenue

3,199

232

 (3,431)

Total revenue

99,547

16,302

(3,431)

 

112,418

Underlying operating result*

13,995

(59)

-

(4,329)

9,607

Net financing costs

(46)

(2)

 (708)

(756)

Underlying segment result

13,949

(61)

 (5,037)

8,851

Impact of fair value adjustment to inventory

 (297)

-

-

-

 (297)

Impact of re-statement under IFRS 16 on profit before tax

(126)

1

 (10)

(135)

Separately disclosed items

(1,114)

(689)

-

(1,909)

(3,712)

Profit/(loss) before tax

12,412

(749)

(6,956)

4,707

Specific disclosure items

 

 

 

 

 

Depreciation

2,266

245

-

106

2,617

Amortisation

927

124

-

1,051

Reconciliation of underlying operating result to operating profit:

 

 

 

 

 

Underlying operating result*

13,995

 (59)

 (4,329)

9,607

Impact of fair value adjustment to inventory

(297)

-

-

-

(297)

Impact of re-statement under IFRS 16 on operating profit

143

6

(2)

147

Separately disclosed items

(1,114)

 (689)

(1,909)

(3,712)

Operating profit/(loss)

12,727

(742)

(6,240)

5,745

             

 

Reconciliation of underlying operating result in note 3 to financial highlights on page 1

 

 

 

 

 

Total continuing operations

 

 

 

 

 

£000

Underlying operating result* shown above

 

 

 

 

9,607

Add back impact of re-statements under IFRS 16 on Operating profit

 

 

 

 

147

Underlying operating profit* shown on page 1 of RNS

 

 

 

 

9,754

 

 

*Underlying operating result is continuing operations' operating profit before separately disclosed items (note 3), the impact of fair value adjustment to inventory acquired through business combinations (IFRS 3) and IFRS 16 adjustments to operating lease rental costs.  The inclusion of the IFRS16 adjustment was necessary to compare 2019 to prior periods because, as permitted by the standard, prior periods were not restated for the introduction of IFRS16. In order to compare 2019 with future periods this adjustment is now unnecessary. Accordingly, the 2019 comparative in the table on page 1 and page 4 have been adjusted.

 

SEPARATELY DISCLOSED ITEMS

· Acquisition costs include 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 restructuring advice, asset write downs, employee redundancies and IT integration.

 

 

Six months

ended

30 June

2020

£000

Six months

ended

30 June

2019

£000

Year

ended

31 December

2019

£000

Share based payment costs

65

96

143

Amortisation of acquired intangibles

526

535

1,051

Changes in amounts accrued for contingent and deferred consideration

218

596

596

Restructuring costs

644

394

1,739

Acquisition costs

28

57

183

Total

1,481

1,678

3,712

 

4.  TAXATION

 

Six months ended

Six months ended

Year

ended

30-June

2020

30-June

2019

31-December

2019

£000

£000

£000

Current tax on income for the period - continuing operations:

 

 

 

UK tax

(57)

907

888 

Overseas tax

69

 -

324

Deferred tax credit

(100)

(40)

(232)

Adjustments in respect of prior years

 -

(141)

(12)

Total taxation

(88)

726

968

 

The taxation for the period has been calculated by applying the estimated tax rate for the financial year ending 31 December 2020.

 

5.  DIVIDENDS

 

Six months

ended

30 June

2020

£000

Six months

ended

30 June

2019

£000

Year

ended

31 December

2019

£000

Final dividend (2019: 4.04p) per share

-

-

2,453

Interim dividend (2019: 2.13p) per share

-

-

1,296

Total dividends

-

-

3,749

 

In the light of economic uncertainty due to COVID-19, the Directors have suspended all dividend payments.

 

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 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.  For diluted loss per share the weighted average number of ordinary shares in issue is not adjusted.

 

 

Six months ended

Six months ended

Year ended

30 June 2020

30 June 2019

31 December 2019

 

Earnings

Weighted average number of shares

Earnings per share

Earnings

Weighted average number of shares

Earnings per share

Earnings

Weighted average number of shares

Earnings per share

£000

000's

Pence

£000

000's

Pence

£000

000's

Pence

Basic earnings per share

 

 

 

 

 

 

 

 

 

Continuing operations

(841)

61,354

(1.37p)

3,053

61,091

5.00p

3,739

61,067

6.12p

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share

 

 

 

 

 

 

 

 

 

Continuing operations

(841)

61,354

(1.37p)

3,053

61,218

4.99p

3,739

61,286

6.10p

                     

 

 

Six months

ended

30 June

2020

£000

Six months

ended

30 June

2019

£000

Year

ended

31 December 2019

£000

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

61,354

61,091

61,067

Impact of share options

-

127

219

Weighted average number of ordinary shares for diluted earnings per share

61,354

61,218

61,286

 

7.  SUBSEQUENT EVENTS

Since the end of June 2020, we have announced further restructuring activity involving our Group HES business in Gloucester.  We have also made progress in extending our Banking facilities, terms having been agreed with the Bank and documentation currently being progressed by lawyers; we expect this to be formally in place by the end of September 2020.

8.  NET CASH FROM OPERATING ACTIVITIES

 

Six months ended

Six months

ended

Year

ended

30-June

2020

30-June

2019

31-December

2019

£000

£000

£000

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

 

 

 

(Loss) / profit from continuing operations before tax

(929)

3,802

4,707

Depreciation on property, plant, and equipment

533

507

916

Depreciation on right-of-use assets (IFRS 16)

814

816

1,701

Financial expense

249

387

756

Finance cost on right-of-use assets (IFRS 16)

131

141

282

Loss on sale of plant and equipment

70

7

6

Amortisation of intangible assets

526

535

,051

Brought forward gain on sale of shares by EBT, released to reserves

 -

140

140

Other financial items

 -

 -

123

FV Adjustment of stock

 -

 -

12

Equity settled share-based payment charge

65

96

143

Change in amounts accrued for contingent and deferred consideration

218

596

596

Operating cashflow before changes in working capital and provisions

1,677

7,027

10,433

Change in trade and other receivables

642

 (1,949)

4,006

Change in stocks

1,578

537

4,667

Change in trade and other payables

2 705

30

2,862)

Change in provisions

(51)

12

18

Cash generated from operations

6,551

5,657

16,262

Tax paid

(348)

(1,215)

(3,016)

Net cash generated from operating activities

6,203

4,442

13,246

 

9.  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 2019 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.

 

10.  FORWARD-LOOKING STATEMENTS

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

 

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