Final Results

RNS Number : 0875K

Flowtech Fluidpower PLC

14 April 2015

 

Issued on behalf of Flowtech Fluidpower PLC Date: Tuesday, 14 April 2015 Immediate Release

FLOWTECH FLUIDPOWER PLC ("Flowtech" or the "Group" or "Company") Preliminary statement of results for the year ended 31 December 2014 Flowtech Fluidpower PLC (AIM.FLO) is pleased to announce their maiden preliminary results for the period ending December 2014. Core business remains solid and underlying operating profit is up 15.4% TO £6.2M (2013 £5.3M.) Subject to Shareholder approval at the Annual General Meeting which is to be held on 21 May 2015, the Directors are proposing a final dividend of 3.33p per share payable on 24 June 2015 to ordinary shareholders registered on 5 June 2015. This, together with the interim dividend of 1.67p (paid on 24 October 2014), brings the total for the year to 5.00p and matches the commitment made at the date of the IPO. "Flowtech is a market leader in its field; we have demonstrated that we can deliver profitable, as well as consistent, levels of service to our diverse customer base.  There is also significant opportunity for us to achieve organic growth through product development and international expansion and enhancing this through acquiring businesses that have high quality management and staff who can work with us to deliver our corporate strategy." Sean Fennon, CEO, Flowtech Fluidpower plc

FINANCIAL HIGHLIGHTS FROM CONTINUING OPERATIONS:	2014 underlying	2014 adjustments	2014	2013
REVENUE	£37.8m	-	£37.8m	£32.1m
OPERATING PROFIT	£6.2m	£(2.9)m1	£3.3m	£5.0m
PROFIT BEFORE TAX	£6.0m	£24.4m1,2,3	£30.4m	£(0.2)m
PROFIT AFTER TAX	£4.8m	£24.4m1,2,3	£29.2m	£(1.1)m
EARNINGS/(LOSS) PER SHARE			114.42p	(1,100.00)p
PROFORMA EARNINGS PER SHARE	11.65p4			n/a
NET DEBT			£6.7m	£69.8m
MAIDEN DIVIDEND: Ø Half year paid Ø Proposed final dividend Ø Total for the year			1.67p 3.33p 5.00p	- - -

Notes:

1 Adjusted for acquisition costs, amortisation of intangible assets, share-based payment costs, restructuring costs and IPO costs (£2.9m)

2 Adjusted for the gain on settlement of debt (£29.0m)

3 Adjusted for interest charges relating to the pre IPO capital structure (£1.7m)

4 Calculated using underlying profit after tax divided by the proforma weighted average share capital of 41,178,451 calculated on the basis that the shares issued at the IPO had been existence for the entire year

"The Initial Public Offering ("IPO") represented a major milestone in Flowtech's development with the move from private equity to public company status a memorable and huge step forward for us all.  This fundamental change in both ownership and financial structure has allowed the business to concentrate on its growth strategy as outlined in the Admission Document"

"As a business 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.  This pivotal role has seen Flowtech develop, and market, an offering which matches the changing requirements of customers as well as delivering OEM brands, complemented by the Group's Exclusive Brands.  The continuous product development programme, when coupled with necessary stock investment, gives the business strength and depth through wide product selection, thereby guaranteeing choice and availability is maintained at all times."

"The British Fluid Power Association ("BFPA") has estimated that underlying demand for hydraulic and pneumatic fluid power products in the UK was £954m in 2014 and this same forecast, which was released last October, suggests that between 2015 and 2018 the market is set to continue to grow at an annual rate of 4%."

"Flowtech is a market leader in its field; we have demonstrated that we can deliver profitable, as well as consistent, levels of service to our diverse customer base.  There is also significant opportunity for us to achieve organic growth through product development and international expansion and enhancing this through acquiring businesses that have high quality management and staff who can work with us to deliver our corporate strategy."

Sean Fennon, CEO, Flowtech Fluidpower plc

Enquiries:
Flowtech Fluidpower plc Sean Fennon, Chief Executive Officer Bryce Brooks, Chief Financial Officer Tel: [phone]		AIM: symbol: FLO email: [e-mail] website: www.flowtechfluidpower.com
Zeus Capital Limited (Nominated Adviser and Broker) Ross Andrews, Dominic King, John Treacy Tel: [phone]		TooleyStreet Communications (IR and media relations) Fiona Tooley Tel: [phone] or email: [e-mail]

Editors' note: Flowtech Fluidpower plc, founded as Flowtech in 1983, is the UK's leading specialist supplier of technical fluid power products with modern distribution facilities in the UK and Benelux.  It offers an unrivalled range of Original Equipment Manufacturer (OEM) and Exclusive Brand products to over 3,000 distributors and resellers. Its catalogue is recognised as the definitive source for fluid power products, containing approximately 50,000 individual product line and  is distributed to more than 90,000 industrial Maintenance, Repair and Overhaul end users (MRO).  Over 80% of product is stocked and if ordered by 10pm, can be delivered next day in the UK, providing 'best in industry' service offering.  The Group's headquarters and main distribution centre is in Skelmersdale, Lancashire with further distribution centres in the Netherlands and China and an assembly operation in Merseyside; in total the business employs 229 people.

FLOWTECH FLUIDPOWER PLC

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

Preliminary results for the year ended 31 December 2014

INTRODUCTION BY THE CHAIRMAN, MALCOLM DIAMOND MBE

Having joined the Flowtech Board in May 2014 I am delighted to have the opportunity to give an overview on the Company's progress in its inaugural year as a public company.

The Executive team set a growth strategy back in 2013 that realistically could only be delivered by gaining financial independence from their then private equity shareholders.  We were delighted by the successful conclusion of the Initial Public Offering ("IPO")  in late May 2014, even more so as it was over-subscribed and secured strong support from a substantial group of highly respected institutional fund managers. 

The team's objective is to deliver consistent growth by blending organic growth with carefully selected acquisitions, well within their business model parameters.

We were therefore delighted when we got off to a prompt start in August with the addition of the Primary Fluid Power brand ("Primary") to our portfolio.

I am extremely encouraged by the Management team's knowledge of its industry sectors and their determination and energy in revealing profitable growth opportunities within.  This is further enhanced by their grasp of strong brand management, the margin opportunities afforded by selected sourcing of high quality generic products from lower cost manufacturers and their overall commitment to maintaining lean and efficient indirect costs such as administration, with "need to haves" eclipsing "nice to haves."

Flowtech is a market leader in its field; we have demonstrated that we can profitably deliver consistent levels of service to our diverse customer base.  We remain optimistic that there are significant opportunities for further growth, both organic and through acquisition, product development and international expansion.

DIVIDEND

Subject to Shareholder approval at the Annual General Meeting which is to be held on 21 May 2015, the Directors are proposing a final dividend of 3.33p per share payable on 24 June 2015 to ordinary shareholders registered on 5 June 2015. This, together with the interim dividend of 1.67p (paid on 24 October 2014), brings the total for the year to 5.00p and matches the commitment made at the date of the IPO.  The Board see the retention of a strong dividend policy as a cornerstone for the investment case in the Group and will work hard to ensure that the Group's development, both organically and by acquisition, will continue to balance the requirement for both self-generated growth capital and dividend flow.

SUMMARY OF 2014 RESULTS BY SEAN FENNON, CHIEF EXECUTIVE OFFICER & BRYCE BROOKS, CHIEF FINANCIAL OFFICER

The underlying* operating result can be summarised as follows:

Continuing operations Underlying operating result*	2014 £000	2013 £000	Change	%
	£000	£000	£000
Flowtechnology:
UK	6,899	6,274	625	10.0%
Benelux	497	473	24	5.1%
	7,396	6,747	649	9.6%
Primary	369	-	369
Central costs	(1,619)	(1,423)	(196)	(13.8)%
Underlying operating result*	6,146	5,324	822	15.4%

*Excludes acquisition costs, amortisation of intangible assets, share-based payment costs, restructuring costs, and IPO costs. Underlying operating result is reconciled to statutory profit before tax in the notes attached.

The Flowtechnology businesses have delivered very satisfactory increases in operating result before central costs, driven largely by volume increases on consistent gross margins, supported by sensible local cost control.  The Benelux result is further emphasised by a negative exchange impact of 2.5% and in local currency growth was 7.5%.  Despite increasing challenges in its offshore sector, Primary traded in line with expectations post acquisition and being based close to the main Group facility will allow greater sharing of operational and staffing resources in the medium term.

Central costs include Group departments covering Accounting, Creative Services, Marketing and IT, as well as all costs relating to the operation of the plc itself including Directors' remuneration.  The conversion to plc status has by necessity increased this cost base.  Moving forward, the Directors believe that cost control measures should be balanced with a need to ensure appropriate investment in central services which will support growth as it occurs.

Following the IPO, the Group now enjoys a significantly reduced interest burden which is highlighted by the table below detailing Financial Expense costs pre and post 21 May 2014:

	Pre IPO 1 January to 21 May 2014	Post IPO 22 May 2014 to 31 December 2014	Year ended 31 December 2014
	£000	£000	£000
Shareholder loans	1,648	-	1,648
Bank loans and short term borrowings	234	108	342
Finance expense	1,882	108	1,990

IPO AND ASSOCIATED COSTS

After funding the overall costs of the IPO of £4.6 million (which has been allocated as £2.3 million charged to operating profit and £2.3 million charged to share premium account), the balance of the £47.0 million equity and net bank debt raised was used to part clear loans from the previous private equity owners.  The remaining £29.0 million of shareholder loans were subject to a debt for equity swap with the resultant gain on settlement being recognised in the consolidated income statement.

TAXATION

The tax charge for the year was £1.2m (2013: £0.9m), with an effective tax rate of 20.3% and a blended tax rate based on the geographical regimes of 21.5%.  

STATEMENT OF FINANCIAL POSITION AND CASH FLOW

The net debt position at the year-end was £6.7m (2013: £69.8m).  The Directors believe this represents a satisfactory performance in both working capital and cash management, which was ahead of expectations and ensures the Group enters 2015 in a strong position.

During the year the Group has continued to invest in its core Information Technology systems.  This includes the commencement of a process to upgrade all the Group's computer servers, which will be concluded in 2015, and will ensure that both response times and reliability are leading-edge for the sectors in which we operate.

The Group currently operates from a mixture of property facilities which are either owned or leased from third parties. Where sensible to do so the Board's strategy is to examine options wherever possible to acquire any sites that are likely to form the basis for the Group's long-term operational structure.

Investment in stock is seen as the lifeblood of the business and a delicate balance is always required between the requirement to ensure high service levels are maintained against the need to ensure appropriate protection against the cost of maintaining any slow-moving and redundant items. The Board believes that it maintains prudent and appropriate policies for provision against such items and ensures that sensible key performance indicators with regard to their measurement are maintained across all Group companies.

The principal use of cash flow from operating activities was the investment in the Primary acquisition which was part satisfied by £2.7m funded through our own resources at completion (being £5.1m in cash less the purchase of £2.4m of cash held by Primary). Deferred consideration of £1.6m will be paid in August 2015.  Further details will be contained in the 2014 Annual Report.  The acquisition increased the balance of goodwill by £2.1m and created intangible assets of £3.1m, on which annual amortisation of £0.3m will be charged.

GROUP BANKING

The Group had combined facilities within the UK of £13.0m at 31 December 2014, and the business traded well within its facilities and covenants.  The annual repayment commitment under these facilities is £0.9m for 2015, which will be replicated in 2016 and the 2017, followed by a final "bullet" payment in 2018 of £4.0m.  The Board expects to renegotiate well ahead of this date and therefore believes the overall financial commitments under these banking arrangements remains amply covered by the Group's free cash flow. As described previously, the strategy for growth includes the pursuit of appropriate acquisition opportunities as and when they arise. It is believed that many of these opportunities can be funded from within these existing facilities, as well as additional facilities that we believe can be sensibly added without undue risk to the Group's strong financial position.

STRATEGY FOR GROWTH

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.  This will be achieved through:

Ø Brand positioning

·      Brand and the ability to maintain and build a reputation is critical to the long term development of the Group.  Not only is this related to product but also to the operating units themselves such as our core "Flowtechnology" brand in distribution services and "Vitassem" in hose assembly and tube manipulation

·      Product brand expansion has been fundamental to the Group's progress, with the formulated approach to product placement and development to be expanded across the business units

·      As part of any acquisition process, brand and reputation will be paramount with the intention to maintain any local company branding and build on its existing position

Ø Market share growth

To maintain the growth strategy, the overall service that is delivered to the market needs to continually develop, creating an integrated service offer which is linked to both customer needs and to industry requirements:

·      Wider product offer - continued development to align market requirements and more technical content within the core product groups

·      Technical Support - focused approach to increase reference data through the online platform as well as internal support

·      Training - programmes designed to develop expertise, improve the overall customer experience and develop a culture of customer support

·      Accreditation- delivering "excellence" to the fluid power market place requires the business to continually revisit its processes and ensure that it has full accreditation for the products and services it delivers

Ø New products

·      Having over recent years successfully introduced new hydraulic and industrial hosing ranges to its pneumatics focused product offer, further development will support our market position as a one-stop shop supplier of fluid power products.  The ongoing expansion of ranges will see the Group capture a greater percentage of current customer spend and also open up new business opportunities in the wider market. 

Ø Sourcing

·      Linked directly to the need to optimise the product offering, the business nurtures its relationships with its OEM suppliers whilst developing its complementary Exclusive Brands; this process has been accelerated with the creation of a sourcing team based in the Far East, which will be extended as the business grows.

Ø Acquisition & geographical expansion

·      The Group has an acquisition strategy with a clear focus - complementary fluid power businesses operating in specific channels - Commercially independent operations delivering quality customer service at all times

·      Primary Fluid Power added a significant distribution operation and new technical capabilities in design and assembly of hydraulic systems and purifiers, which are complemented by a service and repair function.  Primary has an established reputation and a customer base which is extensive and varied

·      The Directors believe that the Flowtechnology model can be replicated outside of the UK and has been evidenced by the recent restructuring of the Benelux operation.  This created a blueprint for the implementation of a process driven sales and service operation. In addition, our growing presence in China is ideally positioned to be used as a hub from which to potentially supply Exclusive Brands to fast growing economies around the world

Ø Added value services

As part of the business development programme, new added-value services are being introduced to complement the Group's product ranges.

·      Hose assembly and tube manipulation

·      Power packs

·      Web system integration

·      Contract sourcing

·      Training

·      Technical support and design

SUMMARY

The Group has been able to continue its growth trend, with a resilience based around the wide and varied customer base which in turn services an extensive range of industrial sectors.   

The Group a market leader in its field; we have demonstrated that we can deliver profitable, consistent levels of service to our diverse customer base.  There is also significant opportunity for us to achieve organic growth through product development and international expansion and then enhancing this through acquiring businesses that have high quality management and staff who can work with us to deliver our corporate strategy. 

We continue to see this strategy as paramount for all stakeholders and we have started to successfully deliver on this philosophy. Primary is the first step in our planned strategic development to deliver our objective of expanding our reliable, customer focused, broad-based fluid power group.  The business has a strong brand and commanding position in its marketplace. The initial integration process has been extremely smooth and whilst some synergies will be generated within the Group, we continue to retain the way the Primary and Flowtechnology portfolio models currently operate - highly focused, commercially independent operations delivering quality customer service at all times.  This acquisition has already added significant value to the Group's brand portfolio by strengthening our offering in hydraulics.  It has also been a great opportunity to extend our in-house knowledge and expertise and not least, the additional strengthening of our leading position in the fluid power industry.

GROUP OUTLOOK

The BFPA has estimated that underlying demand for hydraulic and pneumatic fluid power products in the UK was £954m in 2014 and this same forecast, which was released last October, suggests that between 2015 and 2018 the market is set to continue to grow at an annual rate of 4%.

The Group's markets generally have an exposure to the performance of a wide range of industrial segments. It is expected that the recent negative impacts widely seen within the oil and gas industry, as a result of substantial oil price reductions, as well as those markets with significant exports to the Eurozone, will have some detrimental impact on the growth performance of the industry in the early part of 2015. In particular, the Primary operation has some direct exposure to both these markets and action has been taken to alleviate the impact by transferring its focus to alternative sectors. However, the Board also expects that the robust outlook predicted by the BFPA, when coupled with the business strategy being implemented, will in the medium to long term allow the Group to continue to improve results and cash flow within all our operating sectors.

Whilst cost control will be paramount, at the same time the Group will seek to ensure that it is able to exploit any upturn in these markets when this arises and will continue to invest as appropriate in the necessary resources to support its growth strategy.  For example, in March 2015 the Flowtechnology UK business launched its new catalogue with a Distributor Convention for over 100 decision makers in its largest customers and which was for the first time held overseas.  Whilst the cost of the event was underwritten by the Group, the feedback from customers has been excellent and is expected to be the first in a bi-annual series that reinforces the partnerships between ourselves and our key distributors.

FLOWTECH FLUIDPOWER PLC

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

Preliminary statement of results for the year ended 31 December 2014

Consolidated income statement

	Note	2014 £000	2013 £000
Continuing operations
Revenue		37,791	32,104
Cost of sales		(24,615)	(20,774)
Gross profit		13,176	11,330
Distribution expenses		(2,034)	(1,704)
Administrative expenses before separately disclosed items:		(4,996)	(4,302)
- Acquisition costs		(206)	-
- Amortisation of acquired intangibles		(130)	-
- Share based payment costs		(148)	-
- Restructuring costs		(45)	(361)
- IPO costs		(2,292)	-
Total administrative expenses		(7,817)	(4,663)
Operating profit		3,325	4,963
Financial income	4	33	-
Financial expenses	4	(1,990)	(5,197)
Gain on settlement of debt		29,043	-
Net financing income/(costs)		27,086	(5,197)
Profit/(loss) from continuing operations before tax		30,411	(234)
Taxation	5	(1,184)	(866)
Profit/(loss) from continuing operations		29,227	(1,100)
Loss from discontinued operations, net of tax		(496)	(699)
Profit/(loss) for the year attributable to the owners of the parent		28,731	(1,799)

Earnings/(loss) per share	7
Basic earnings/(loss) per share
Continuing operations		114.42p	(1,100.00p)
Discontinued operations		(1.94p)	(699.00p)
Basic earnings/(loss) per share		112.48p	(1,799.00p)
Diluted earnings/(loss) per share
Continuing operations		112.86p	(1,100.00p)
Discontinued operations		(1.92p)	(699.00p)
Diluted earnings/(loss) per share		110.94p	(1,799.00p)

FLOWTECH FLUIDPOWER PLC

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

Preliminary statement of results for the year ended 31 December 2014

Consolidated statement of comprehensive income

	2014 £000	2013 £000
Profit/(loss) for the year	28,731	(1,799)
Other comprehensive (expense)/income - items that will be reclassified subsequently to profit or loss
Exchange differences on translating foreign operations	(141)	27
Total comprehensive income/(expense) for the year attributable to the owners of the parent	28,590	(1,772)

Consolidated Statement of financial position
	Note	2014	2013
Assets		£000	£000
Non-current assets
Goodwill		44,583	42,524
Other intangible assets		2,995	-
Property, plant and equipment		2,887	1,729
Total non-current assets		50,465	44,253
Current assets
Inventories		11,163	9,804
Trade and other receivables		9,529	7,626
Prepayments		270	195
Other financial assets		24	-
Cash and cash equivalents		1,979	2,265
Total current assets		22,965	19,890
Liabilities
Current liabilities
Interest-bearing loans and borrowings		2,973	11,267
Trade and other payables		5,415	4,555
Deferred consideration		1,603	-
Tax payable		881	492
Provisions		71	67
Other financial liabilities		27	32
Total current liabilities		10,970	16,413
Net current assets		11,995	3,477
Non-current liabilities
Interest-bearing loans and borrowings		5,716	60,760
Provisions		162	104
Deferred tax liabilities		676	54
Total non-current liabilities		6,554	60,918
Net assets/(liabilities)		55,906	(13,188)
Equity directly attributable to owners of the parent
Share capital	9	21,414	50
Share premium		46,664	-
Share based payment reserve		148	-
Merger reserve		293	293
Merger relief reserve		2,086	-
Currency translation reserve		(178)	(37)
Retained losses		(14,521)	(13,494)
Total equity		55,906	(13,188)

FLOWTECH FLUIDPOWER PLC

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

Preliminary statement of results for the year ended 31 December 2014

Consolidated statement of changes in equity

	Share capital £000	Share premium £000	Share based payment reserve £000	Merger reserve £000	Merger relief reserve £000	Currency translation reserve £000	Retained losses £000	Total equity £000
Balance at 1 January 2013	50	-	-	293	-	(64)	(11,695)	(11,416)
Loss for the year	-	-	-	-	-	-	(1,799)	(1,799)
Other comprehensive income	-	-	-	-	-	27	-	27
Total comprehensive income/ (expense) for the year	-	-	-	-	-	27	(1,799)	(1,772)
Total transactions with owners	-	-	-	-	-	-	-	-
Balance at 1 January 2014	50	-	-	293	-	(37)	(13,494)	(13,188)
Profit for the year	-	-	-	-	-	-	28,731	28,731
Other comprehensive loss	-	-	-	-	-	(141)	-	(141)
Total comprehensive (expense)/ income for the year	-	-	-	-	-	(141)	28,731	28,590
Transactions with owners
Issue of share capital	21,364	19,950	-	-	-	-	-	41,314
Share issue expenses	-	(2,329)	-	-	-	-	-	(2,329)
Merger relief arising on acquisition of subsidiary	-	-	-	-	2,086	-	-	2,086
Gain on settlement of debt capitalised as share premium on issue of ordinary shares	-	29,043	-	-	-	-	(29,043)	-
Share based payment charge	-	-	148	-		-	-	148
Equity dividends paid	-	-	-	-	-	-	(715)	(715)
Total transactions with owners	21,364	46,664	148	-	2,086	-	(29,758)	40,504
Balance at 31 December 2014	21,414	46,664	148	293	2,086	(178)	(14,521)	55,906

FLOWTECH FLUIDPOWER PLC

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

Preliminary statement of results for the year ended 31 December 2014

Consolidated Statement of cash flows

	Note	2014 £000	2013 £000
Cash flow from operating activities
Net cash from operating activities	10	2,275	3,348
Cash flow from investing activities
Acquisition of subsidiary, net of cash acquired		(2,683)	-
Disposal of subsidiary, net of overdraft disposed of		103	-
Acquisition of property, plant and equipment		(496)	(385)
Proceeds from sale of property, plant and equipment		-	11
Net cash used in investing activities		(3,076)	(374)
Cash flows from financing activities
Net proceeds from the issue of share capital		37,571	-
Proceeds from new loan		7,000	10,000
Repayment of long term borrowings		(37,532)	(10,149)
Net change in short term borrowings		(5,409)	3,692
Payment of finance lease liabilities		(16)	(17)
Interest received		3	-
Interest paid		(341)	(4,339)
Dividends paid		(715)	-
Net cash generated from/(used in) financing activities		561	(813)
Net change in cash and cash equivalents		(240)	2,161
Cash and cash equivalents at start of year		2,265	104
Exchange differences on cash and cash equivalents		(46)	-
Cash and cash equivalents at end of year		1,979	2,265

FLOWTECH FLUIDPOWER PLC

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

Preliminary statement of results for the year ended 31 December 2014

NOTES TO THE PRELIMINARY STATEMENT

1.	ACCOUNTING POLICIES

BASIS OF PREPARATION

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) adopted for use in the European Union and IFRIC interpretations issued by the International Accounting Standards Board and the Companies Act 2006.

The Group has applied all accounting standards and interpretations issued relevant to its operations for the year ended 31 December 2014. The consolidated financial statements have been prepared on a going concern basis.

The financial information set out in this preliminary announcement does not constitute statutory accounts as defined by section 434 and 435 of the Companies Act 2006. The financial information for the year ended 31 December 2014 has been extracted from the Group's financial statements upon which the auditor's opinion is unqualified and does not include any statement under section 498(2) or 498(3) of the Companies Act 2006.  The statutory accounts for the year ended 31 December 2014 will be delivered to the Registrar of Companies following the Annual General Meeting.

The figures for year ended 31 December 2013 are an abridged version of the Group's full financial statements (subject to first time adoption of International Financial Reporting Standards) and together with other financial information contained in this preliminary announcement, do not constitute statutory financial statements as defined in Section 434 of the Companies Act 2006. The Group's statutory financial statements for the year ended 31 December 2013, prepared under UK GAAP, have been filed with the Registrar of Companies. The auditor's report on those financial statements was unqualified and did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006.

The Group has not previously prepared annual consolidated financial statements in accordance with EU endorsed IFRS. However, three years of consolidated financial statements prepared under IFRS 1 "First time adoption of International Financial Reporting Standards" are presented in the Group's AIM Admission document dated 9 May 2014. Reconciliations of how the Group's transition from UK GAAP to IFRS affected its reported financial position, financial performance and cash flows are presented in this document.

The consolidated financial information has been prepared on the basis of accounting policies set out in the AIM Admission Document dated 9 May 2014 except as detailed below:

BASIS OF CONSOLIDATION

On 24 April 2014, the Company was incorporated under the name Flowtech Fluidpower Limited. On 7 May 2014, Flowtech Fluidpower Limited acquired the entire issued share capital of Flowtech Holdings Limited via a share for share exchange with the shareholders of Flowtech Holdings Limited. On 7 May 2014, Flowtech Fluidpower Limited was re-registered as a public limited company with the name Flowtech Fluidpower plc. Following the share for share exchange referred to above, Flowtech Fluidpower plc became the ultimate legal parent of the Group.

In the absence of an IFRS which specifically deals with similar transactions, management judges it appropriate to refer to other similar accounting frameworks for guidance in developing an accounting policy that is relevant and reliable. The directors consider the share for share exchange transaction to be a group reconstruction rather than a business combination in the context of IFRS 3 (revised), 'Business Combinations', which has been accounted for using merger accounting principles. Therefore, although the share for share exchange did not occur until 7 May 2014, the consolidated financial statements of Flowtech Fluidpower plc are presented as if the Flowtech group of companies had always been part of the same Group. Accordingly, the results of the Group for the entire year ended 31 December 2014 are shown in the consolidated statement of comprehensive income and the comparative figures for the year ended 31 December 2013 are also prepared on this basis.

Accordingly, the following accounting treatment has been applied in respect of the share for share exchange:

The assets and liabilities of Flowtech Holdings Limited and its subsidiaries are recognised in the consolidated financial information

at the pre-combination carrying amounts, without restatement to fair value; The retained losses and other equity balances recognised in the consolidated financial information for the year ended 31 December 2014 reflect the retained losses and other equity balances of Flowtech Holdings Limited and its subsidiaries recorded before the share for share exchange. However, the equity structure (share capital and share premium balances) shown in the consolidated financial information reflects the equity structure of the legal parent (Flowtech Fluidpower plc), including the equity instruments issued under the share for share exchange. The resulting difference between the parent's capital and the acquired group's capital has been recognised as a component of equity being the 'merger reserve'; Comparative figures have been restated on the same basis as above.

The Company had no significant assets, liabilities or contingent liabilities of its own at the time of the share for share exchange and no such consideration was paid.

DISCONTINUED OPERATIONS

The results of operations disposed of in the year ended 31 December 2014 were consolidated up until the date on which control passed and are included within 'profit or loss from discontinued operations' as part of a single line item.

Any profit or loss arising from the sale of discontinued operations is presented as part of a single line item, 'profit or loss from discontinued operations'.

ADMISSION AND SHARE ISSUE COSTS

Transaction costs of equity transactions relating to the issue of the Company's shares are shown as a deduction from equity. Listing and Admission costs are charged to profit or loss as an administration expense. The Directors have reviewed the expenditure related to the Admission and, where appropriate, made judgments as to how much of the expenditure related to the Admission process and how much related to the issue of new equity and should therefore be charged against the share premium account.

DERECOGNITION OF FINANCIAL LIABILITIES

The Group derecognises a financial liability (or its part) from the statement of financial position when, and only when it is extinguished, i.e. when the obligation specified in the contract is discharged, cancelled or expires. The difference between the carrying amount of a financial liability (or a part of a financial liability) extinguished and the consideration paid, including any non‑cash assets transferred or liabilities assumed, is recognised in profit or loss.

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 are 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.  As such, the Directors are satisfied that the Company and Group have adequate resources to continue to operate for the foreseeable future. For this reason they continue to adopt the going concern basis for preparing the financial statements.

2.  SEGMENTAL REPORTING

Segment information for the reporting periods is as follows:

	For the year ended 31 December 2014
	Flowtech-nology UK £000	Flowtech-nology Benelux £000	Primary £000	Inter-segmental transactions £000	Central Costs £000	Continuing operations £000
Income statement - continuing operations:
Revenue from external customers	30,052	3,800	3,939	-	-	37,791
Inter segment revenue	654	60	-	(714)	-	-
Total revenue	30,706	3,860	3,939	(714)	-	37,791
Underlying operating result	6,899	497	369	-	(1,619)	6,146
Financial income	33	-	-	-	-	33
Financial expenses	(174)	(2)	-	-	(1,814)	(1,990)
Underlying segment result	6,758	495	369	-	(3,433)	4,189
Separately disclosed items (see note 3)	(166)	(30)	(135)	-	(2,490)	(2,821)
Gain on settlement of debt	-	-	-	-	29,043	29,043
Profit before tax	6,592	465	234	-	23,120	30,411
Specific disclosure items
Depreciation	424	40	39	-	-	503
Amortisation	-	-	130	-	-	130
Reconciliation of underlying operating result to operating profit:
Underlying operating result	6,899	497	369	-	(1,619)	6,146
Separately disclosed items (see note 3)	(166)	(30)	(135)	-	(2,490)	(2,821)
Operating profit/(loss)	6,733	467	234	-	(4,109)	3,325
Underlying operating result	6,899	497	369	-	(1,619)	6,146

	For the year ended 31 December 2013
	Flowtechn-ology UK	Flowtechnology Benelux	Primary	Inter-segmental transactions	Central Costs	Continuing operations
	£000	£000	£000	£000	£000	£000
Income statement - continuing operations:
Revenue from external customers	28,578	3,526	-	-	-	32,104
Inter segment revenue	572	182	-	(754)	-	-
Total revenue	29,150	3,708	-	(754)	-	32,104
Underlying operating result	6,274	473	-	-	(1,423)	5,324
Net financing costs	(214)	(4)	-	-	(4,979)	(5,197)
Underlying segment result	6,060	469	-	-	(6,402)	127
Separately disclosed items (see note 3)	(96)	-	-	-	(265)	(361)
Profit/(loss) before tax	5,964	469	-	-	(6,667)	(234)
Specific disclosure items
Depreciation	380	48	-	-	-	428
Reconciliation of underlying operating result to operating profit:
Underlying operating result	6,274	473	-	-	(1,423)	5,324
Separately disclosed items (see note 3)	(96)	-	-	-	(265)	(361)
Operating profit/(loss)	6,178	473	-	-	(1,688)	4,963

The Group's revenues from external customers and its non-current assets (other than financial instruments and deferred tax assets) are divided into the following geographic areas:

	31 December 2014		31 December 2013		I January 2013
	Revenue	Non-current assets	Revenue	Non-current assets	Non-current assets
	£000	£000	£000	£000	£000
United Kingdom	30,636	49,537	26,110	43,306	43,512
Europe	6,958	928	5,789	947	982
Rest of world	197	-	205	-	-
Total	37,791	50,465	32,104	44,253	44,494

All revenue is derived from the sale of goods. No customers of the Group account for 10% or more of the Group's revenue for either of the years ended 31 December 2013 or 2014. Non-current assets are allocated based on their physical location. The above table does not include discontinued operations for which revenue and assets can be attributed to the UK.

Central costs relate to finance expenses associated with Group loans and separately disclosed items, (note 3) and the gain on settlement of debt.

3.  SEPARATELY DISCLOSED ITEMS
		2014 £000	2013 £000
Separately disclosed items within administration expenses:
- Acquisition costs		206	-
- Amortisation of acquired intangibles		130	-
- Share based payment costs		148	-
- Restructuring		45	361
- IPO costs		2,292	-
Total separately disclosed items		2,821	361

·      Acquisition costs relate to stamp duty, due diligence, legal fees and other professional costs incurred in the acquisition of Group subsidiaries

·      Share-based payment costs relate to the provision made in accordance with IFRS 2 "Share-based payment" following the exercise of share options issued to directors prior to admission to AIM

·      Restructuring costs relate to restructuring activities of both an operational and financial nature. Operational restructuring covers the closure of business units; costs include employee redundancies within these units, continuing property costs post closure and other onerous lease obligations. The costs of financial restructuring includes bank arrangement fees and associated legal costs

·      IPO costs comprise the professional and other fees related to the IPO and costs of settlement of certain cash settled directors' share obligations arising on the IPO accounted for in accordance with IFRS 2 "Shared based payment".

4.  FINANCIAL INCOME AND EXPENSE
Finance income for the year consists of the following:
		2014 £000	2013 £000
Finance income arising from:
Interest income from cash and cash equivalents		2	-
Fair value gains on forward exchange contracts held for trading		31	-
Total finance income		33	-

Finance expenses for the year consist of the following:

		2014 £000	2013 £000
Finance expense arising from:
Interest on invoice discounting and stock loan facilities		126	213
Overdraft interest		1	6
Finance lease interest		3	2
Bank loans - existing loans		87	-
Other interest		14	8
Shareholder loans (pre IPO capital structure)		1,648	4,253
Bank loans		111	715
Total finance expense		1,990	5,197

5.  TAXATION
Recognised in the income statement	2014	2013
Continuing operations:	£000	£000
Current tax expense
Current year charge	1,058	597
Overseas tax	21	45
Adjustment in respect of prior periods	67	248
Current tax expense	1,146	890
Deferred tax
Origination and reversal of temporary differences	43	(12)
Adjustment in respect of prior periods	(7)	2
Change in tax rate	2	(14)
Deferred tax charge/(credit)	38	(24)
Total tax expense - continuing operations	1,184	866

	2014	2013
Discontinued operations:	£000	£000
Current tax expense	-	-
Deferred tax
Origination and reversal of temporary differences	8	9
Change in tax rate	-	1
Deferred tax expense	8	10
Total tax expense - discontinued operations	8	10
Total tax expense in the income statement	1,192	876

No income tax was recognised in other comprehensive income or directly in equity for either of the years ended 31 December 2013 or 2014.

Reconciliation of effective tax rate

	2014	2013
	£000	£000
Profit/(loss) for the year	28,731	(1,799)
Total tax expense	1,192	876
Profit/(loss) excluding taxation	29,923	(923)
Tax using the UK corporation tax rate of 21.50% (2013: 23.25%)	6,433	(215)
Deferred tax movements not recognised	12	-
Effect of tax rates in foreign jurisdictions	-	6
Other timing differences	36	-
Impact of change in tax rate on deferred tax balances	2	(14)
Gains not chargeable	(6,244)	-
Amounts not deductible	886	851
Adjustment in respect of prior periods	67	248
Total tax expense	1,192	876

6.  DIVIDENDS	2014	2013
	£000	£000
Interim dividend of 1.67p per share	715	-

The Directors are proposing a final dividend in respect of the financial year ended 31 December 2014 of 3.33p per share which will absorb an estimated £1.426 million of shareholders' funds.  This has not been accrued as it had not been approved at the year end. Subject to approval it will be paid on the 24 June 2015 to shareholders who are on the Register of members on 5 June 2015.

7.  EARNINGS / (LOSS) 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 during the year.

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 year. For the year ended 31 December 2013 these are considered to be anti-dilutive due to of the loss arising and therefore basic and diluted EPS are the same.

Given the changes in capital structure prior to the IPO, the weighted average number of shares for 2013 is based on the shares in issue immediately before the IPO.

	Year ended 31 December 2014			Year ended 31 December 2013
	Earnings £000	Weighted average number of shares 000s	Earnings per share Pence	Earnings £000	Weighted average number of shares  000s	Earnings per share Pence
Basic earnings/(loss) per share
Continuing operations	29,227	25,542	114.42	(1,100)	100	(1,100.00)
Discontinued operations	(496)	25,542	(1.94)	(699)	100	(699.00)
Basic earnings/(loss) per share	28,731	25,542	112.48	(1,799)	100	(1,799.00)
Diluted earnings/(loss) per share
Continuing operations	29,227	25,897	112.86	(1,100)	100	(1,100.00)
Discontinued operations	(496)	25,897	(1.92)	(699)	100	(699.00)
Diluted earnings/(loss) per share	28,731	25,897	110.94	(1,799)	100	(1,799.00)

	2014 '000	2013 '000
Weighted average number of ordinary shares for basic and diluted earnings per share	25,542	100
Impact of share options	355	-
Weighted average number of ordinary shares for diluted earnings per share	25,897	100

8.  ACQUISITION OF PRIMARY FLUID HOLDINGS LIMITED

On 4 August 2014, the Group acquired 100% of the share capital of Primary Fluid Holdings Limited ("PFP"), a UK based business, thereby obtaining control. The acquisition was made to enhance the Group's position in the hydraulic market.

Details of the provisional fair value of identifiable assets and liabilities acquired, purchase consideration, goodwill and intangible assets are as follows:

	Book value  £'000	Provisional fair value adjustment £'000	Intangible asset recognised on acquisition £'000	Provisional fair value  £'000
Property, plant and equipment	1,308	(89)	-	1,219
Intangible assets	-	-	3,125	3,125
Inventories	1,732	(209)	-	1,523
Trade and other receivables	2,686	-	-	2,686
Cash and cash equivalents	2,380	-	-	2,380
Finance leases	(14)	-	-	(14)
Trade and other payables	(1,779)	-	-	(1,779)
Current tax balances	(453)	-	-	(453)
Deferred tax liability	-	45	(625)	(580)
Total net assets	5,860	(253)	2,500	8,107

	£000
Fair value of consideration paid
Amount settled in cash	5,063
Amount settled in shares in Flowtech Fluidpower plc	3,500
Fair value of deferred consideration	1,603
Total consideration	10,166
Less net assets acquired	(8,107)
Goodwill on acquisition	2,059

Consideration transferred

Primary Fluid Holdings Limited was acquired on 4 August 2014 for a total consideration of £10,166,000 comprising £5,063,000 in cash, £1,603,000 deferred cash consideration and £3,500,000 represented by the issue of new Flowtech Fluidpower plc Ordinary shares at a value of 123.7p each. The premium arising of £2,086,000 has been credited to the merger relief reserve. The additional consideration will be paid on 4 August 2015. The fair value of £1,603,000 has been calculated using a discount rate of 1.05% being the 12 month maturity rate of LIBOR during the month of acquisition.

Acquisition costs and stamp duty amounting to £193,000 have been recognised as an expense in the consolidated income statement as part of separately disclosed administration costs.

Goodwill

Goodwill of £2,059,000 is primarily related to expected future profitability, the substantial skill and expertise of its workforce and expected cost synergies. Goodwill has been allocated to the Primary operating segment and is not expected to be deductible for tax purposes.

Intangible asset

An intangible asset of £3,125,000 has been identified related to customer relationships. The estimated useful life has been determined as ten years based on the expected future cashflows that they would generate in arriving at their fair value. The customer relationships considered in the valuation comprise the top 6% of customers by turnover who account for 80% of turnover. Sales growth over the ten year period has been assumed to be 1.5% with an attrition rate of 3% for customers. Growth and attrition rates are based on a review of fourteen years of sales and customer records.  Amortisation of customer relationships is not expected to be deductible for tax purposes.

Fair value adjustments

The value of the property has been decreased by £89,000 based on market valuations carried out during the acquisition process.

The value of inventories has been decreased by £209,000 to reflect the alignment of the PFP stock provisioning policy with that of the Group.

The value of deferred tax liabilities has been decreased by £45,000 reflect the alignment of the PFP taxation policy with that of the Group. Previously no deferred tax was recognised.

Primary Fluid Holdings Limited's contribution to the Group results

Primary Fluid Holdings Limited generated a profit after tax of £265,000 for the five months from 4 August to the reporting date. If Primary Fluid Holdings Limited had been acquired on the 1 January 2014, revenue for the Group would have been £44,330,000 and profit after tax for the year would have increased by £446,000.

Summary aggregated financial information on Primary Fluid Holdings Limited for the period from 1 January 2014 to 31 July 2014, when it became a subsidiary:

		2014
		£000
Revenues		6,539
Profit after tax		446

9.  EQUITY

Share capital

The share capital of the Company consists only of fully paid ordinary shares with a nominal value of 50p per share. All shares are equally eligible to receive dividends and the repayment of capital and represent one vote at Shareholders' meetings of the Company.

	Number	£000
Allotted and fully paid ordinary shares of 50p each at 31 December 2014	42,828,283	21,414
Shares authorised for share based payments	6,666,667	3,333
Total shares authorised at 31 December 2014	49,494,950	24,747

	Number	£000
Allotted and fully paid ordinary shares of 50p each
At incorporation	-	-
Subscriber share issue	4	-
Shares issued pursuant to share for share exchange to acquire Flowtech group of companies	99,996	50
Share issued in respect of debt for equity swap	1	-
Shares issued on admission	39,899,999	19,950
Share issued in respect of acquisition	2,828,283	1,414
At 31 December 2014	42,828,283	21,414

On incorporation, 2 ordinary shares of £1 each were issued at par.  On 6 May 2014, a further 49,998 ordinary shares of £1 each were issued at par. They were issued, along with the shares issued upon incorporation, in exchange for 100% of the ordinary share capital of Flowtech Holdings Limited.  On 6 May 2014, the existing 50,000 ordinary shares of £1 each were subdivided into 100,000 ordinary shares of 50p.

On 8 May 2014, 1 ordinary share of 50p was issued in exchange for novation of shareholder debt of £29,042,000. The gain on settlement of this debt has been recognised by management as an increase in share premium.  On 21 May 2014, a further 39,899,999 ordinary shares of 50p each were issued and the entire share capital of 40,000,000 ordinary shares of the company was admitted to trading on AIM at a price of £1 per share.

On 8 August 2014, 2,828,283 ordinary shares were issued for 123.7 pence each, in partial consideration for a direct subsidiary's acquisition of 100% of the share capital of Primary Fluid Holdings Limited.

The number of shares in issue for each of the comparable periods represents the share capital issued by Flowtech Fluidpower plc in the share for exchange that made the Company the legal parent of the Group adjusted for the subsequent 2 for 1 subdivsion.

10.  NET CASH FROM OPERATING ACTIVITIES 2014 £000 2013 £000
	2014	2013
Reconciliation of profit/(loss) before taxation to net cash flows from operations
Profit/(loss) from continuing operations before tax	30,411	(234)
Loss from discontinued operations before tax	(348)	(689)
Depreciation	503	448
Financial income	(33)	-
Financial expense	1,990	5,197
Gain on settlement of debt	(29,043)	-
Loss on sale of plant & equipment	-	10
Amortisation	130	-
Impairment	-	160
Equity settled share based payment charge	148	-
Operating cash inflow before changes in working capital and provisions	3,758	4,892
Change in trade and other receivables	408	35
Change in stocks	12	(607)
Change in trade and other payables	(752)	(156)
Change in provisions	62	67
Cash generated from operations	3,488	4,231
Tax paid	(1,213)	(883)
Net cash generated from operating activities	2,275	3,348

11.  ANNUAL GENERAL MEETING

The Annual General Meeting will be held on 21 May 2015 at 12noon at the Group's Registered office: Flowtech Fluidpower plc, Pimbo Road, Skelmersdale, WN8 9RB.

12.  ELECTRONIC COMMUNICATIONS

The full Financial Statements for the year ended 31 December 2014 is to be published on the Company's website, together with the Notice convening the Company's 2015 Annual General Meeting by 30 April 2015. Copies will also be sent out to those shareholders who have elected to receive paper communications. Copies can be requested by writing to The Company Secretary, Flowtech Fluidpower plc, Pimbo Road, Skelmersdale, Lancashire  WN8 9RB or email to [e-mail]. 

FORWARD-LOOKING STATEMENTS

These Preliminary results were approved by the Board of Directors and authorised for issue on 13 April 2015.  This document contains certain forward-looking statements which reflect the knowledge and information available to the Company during the preparation and up to the publication of this document.  By their very nature, these statements depend upon circumstances and relate to events that may occur in the future thereby involving a degree of uncertainty.  Therefore, nothing in this document should be construed as a profit forecast by the Company.

 

END

 

 

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