Half Yearly Report

RNS Number : 3451Y

Flowtech Fluidpower PLC

08 September 2015

 

Issued on behalf of Flowtech Fluidpower PLC

Date: Tuesday 8 September 2015   

FLOWTECH FLUIDPOWER PLC

(Flowtech, the Group or Company)

INTERIM FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2015

AT A GLANCE From continuing operations	Change HY 2015 v HY 2014	HY2015 30.6.15	HY 2014 30.6.14	Full year 31.12.14
·      Group revenue	+24.6%	£21.423m	£17.191m	£37.791m
·      Gross profit	+17.7%	£7.203m	£6.119m	£13.176m
·      Underlying operating results*	+3.8%	£3.404m	£3.281m	£6.146m
·      Operating profit	+183.6%	£3.012m	£1.062m	£3.325m
·      Half- year dividend	+5.0%	1.75p	1.67p	5.00p
·      Earnings per share (basic)	-	5.62p	**	**
·      Net debt	+21.6%	£7.459m	£6.132m	£6.710m
·      Strong balance sheet and cash generation
*Underlying operating result is continuing operations operating profit before acquisition costs, amortisation of acquired intangibles, share-based payment costs, restructuring costs and IPO costs ** Prior period earnings per share measures are calculated under previous financial structure and are therefore not comparable

HIGHLIGHTS

·      Solid performance across the business despite some sector weakness in UK and Eurozone which impacted the Maintenance, Repair and Overhaul market (MRO)

·      Gross profit margins across all divisions remained consistent and strong for each sector with no erosion experienced despite market conditions

·      Strategic acquisitions complement Primary acquired last year adding OEM scale, new markets and strengthen the Group's hydraulic offering

·      Dividend increased 5%

·      Market share increasing: new opportunities continue to be investigated

·      Acquisition of Nelson Fluid Power on 3 July and creation of Power Motion Control Division

Sean Fennon, Flowtech Fluidpower's Chief Executive Officer commented:

"We are pleased to report a solid underlying first half performance which has seen our portfolio businesses trading well in their individual market places. We are fortunate at this time to have both strength and depth across our product portfolio and extensive customer exposure. Management remain optimistic about both the commercial opportunities and the prospects of the Group as a whole. The Board is confident that the Company can deliver another year of solid progress."

Enquiries:
Flowtech Fluidpower plc AIM: FLO Sean Fennon, Chief Executive Officer Bryce Brooks, Chief Financial Officer Tel: [phone]	Zeus Capital Limited (Nominated Adviser and Broker) Ross Andrews, Andrew Jones,Dominic King Tel: [phone]	TooleyStreet Communications (IR and media relations) Fiona Tooley Tel: [phone] 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 3,600 distributors and resellers. Its catalogue is recognised as the definitive source for fluid power products, containing approximately 52,000 individual product lines and is distributed to more than 85,000 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 is located in the UK where its main distribution centre is based in Skelmersdale, Lancashire, with further operational centres in Netherlands and China.  The Power Motion Control Division (PMC) has operations in Merseyside, Northern Ireland and the Republic of Ireland.  In total, the Group employs 270 people. For more information please visit: www.flowtechfluidpower.com, or email: [e-mail]

FLOWTECH FLUIDPOWER PLC INTERIM FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2015 INTRODUCTION We are pleased to report a solid underlying first half performance which has seen our portfolio businesses trading well in their individual market places against a backdrop where the economic conditions remain challenging in both the UK and Mainland Europe.  The profile of the Group has also continued to increase over the last twelve months, and this is assisting us in growing our market share and reinforcing our position as one of the leading players in the fluid power sector.  By refining our offer we ensure that the Group maintains its competitive advantage in each of the markets in which it trades. OUR BUSINESS STRATEGY FOR GROWTH Our focus remains - to develop a specialist fluid power organisation focused on its core competencies and 'class-leading' service. Flowtech has already demonstrated that it can deliver profitable, consistent levels of service to a diverse customer base.  There is significant opportunity for the business to achieve further organic growth through a mix of product development and value add services.  In addition, we believe there is also a strong opportunity to accelerate this growth through complementary channel development, geographic expansion and adding niche bolt-on acquisitions. In 2014, our maiden year as a PLC, we were pleased to add Primary Fluid Holdings to the Group, strengthening the Flowtech offering in hydraulics.  Against this backdrop, we were pleased to announce that in 2015 we added two successful businesses to the Group further enhancing our exposure to this important part of the industrials market sector.  ·      Albroco, based in North Wales was acquired in May - it specialises in the distribution of hydraulic and electro-mechanical components to the mobile, on- and off-highway and construction markets.  ·      Nelson Fluid Power (NFP) joined the Group in July - it is a distributor of hydraulic equipment, components and hose assemblies from its locations at Lisburn and Dungannon (Northern Ireland) and Dublin (Republic of Ireland).  The long established NFP business has a broad customer base in Ireland across the crushing and screening, agricultural and marine and fishing sectors.   Albroco is expected to be fully integrated into the Primary site in Knowsley by the end of this month while NFP will operate as an independent sister company within the Flowtech Group.  Both will add significantly to the Group's procurement position in hydraulic components, hose and couplings.  With our growing interest in this sector, we have therefore formed a new division, Power Motion Control (PMC), incorporating Primary, Albroco and NFP.  We are optimistic that this division will benefit from the introduction of more sophisticated IT and stock systems (that are already used within Flowtech's Flowtechnology businesses), and coupled with commercial synergies and buying power, will deliver an increasing contribution in terms of revenue and profitability over the next twelve months.   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.  We are in an exciting phase; Flowtech's progress continues apace to the varied industrial and manufacturing customers it supplies everyday around the UK and overseas.  We remain confident in the future of the business - we have a clear strategy to develop the opportunities that will deliver future growth and returns to shareholders. HALF-YEAR FINANCIAL PERFORMANCE Although not defined under IFRS, the Directors believe that the underlying operating results give a better understanding of the business' performance.  The table below details this is in summary and further information is contained in note 3 of this Interim Report. Continuing operations Underlying operating result* Six months ended 30 June  2015 £000 Six months ended 30 June 2014 £000 Change % Year ended 31 December 2014 £000 Flowtechnology: UK Benelux 3,916 170 3,689 308 227 (138) +6.2% -44.8% 6,899 497 Primary Central costs 4,086 284 (966) 3,997 - (716) 89 284 (250) +2.2% - -34.9% 7,396 369 (1,619) Underlying operating result* 3,404 3,281 123 +3.7% 6,146 * Underlying operating result is continuing operations' operating profit before acquisition costs, amortisation of acquired intangibles, share-based payment costs, restructuring costs, and IPO costs. Underlying operating result is reconciled to statutory profit before tax in note 3 to the Interim Report. In the Flowtechnology division, UK revenue in the first half grew by 2.7% to £15.617m, while in the Benelux a reduction of 5.8% was experienced, albeit this includes a negative impact of 9.6% due to movements in the Euro conversion rate and therefore, local currency growth remains positive at 5.8%. As previously reported Primary experienced a rapid reduction in demand from the oil and gas related sectors in late 2014 and as has been widely seen in similar companies the related drag on revenues has remained present throughout H1 2015.  However, a sensible cost management focus has ensured profitability was retained and with recent evidence indicating growth in other sectors. Gross profit margins across all divisions remained consistent and strong for each sector with no erosion experienced despite market conditions. The Group is therefore able to report an underlying operating profit of £3.404m (2014: £3.281m), an increase of 3.7% year on year.  On an annual basis the Group purchases a foreign currency 'hedge' to fix the Euro rate for the anticipated profitability of its overseas operations (i.e. Flowtechnology Benelux and in part the Republic of Ireland operations of NFP).  The net change in value of this hedge is accounted for as financial income under IFRS and is shown as Financial income of £33,000 (2014: £1,000). FINANCIAL POSITION With the soft market conditions experienced during the early part of 2015, the Group has focused to ensure that working capital continues to be managed effectively.  Inventories at 30 June 2015 were £10.466m, a reduction of £0.697m from 31 December 2014, although to some degree this has been offset by a reduction in trade payables of £0.264m. Net cash collection remains excellent and net debt at 30 June 2015 of £7.459m (2014: £6.133m) is ahead of expectations.  This allowed the Group to complete both the acquisitions of Albroco and NFP from within current cash and debt resources.  The NFP transaction, completed post the period end (3 July 2015) was part satisfied by £4.460m in cash. However, this included the purchase of £1.500m of cash held by NFP and therefore, the net cash outlay was £2.960m funded through our own resources at completion.  Two further contingent payments are due in 2016 and 2017 which are based on the profitability of NFP post acquisition.  The maximum payable as contingent consideration is £2.375m.  Further details are given in note 8 of this report. BANKING In September 2015, in addition to its term loan, the Group secured enhanced facilities from its bankers, Barclays Bank PLC.  These replace the £6.00m Confidential Invoice Discounting (CID) facility that was in place with a new Revolving Credit Facility (RCF) of £8.00m, with an agreed further extension (so called "Accordion") of up to £7.00m as required in order to assist with growth both organically and by acquisition. This new facility has a three year commitment. OUR PEOPLE Implementing the Group's strategy is also down to our people, their skills and expertise.  The Board thank everyone around the business for their continuous hard work, dedication and loyalty, which underpins both the high level customer relationships and the Group's overall performance. We also take this opportunity to welcome NFP's Managing Director, Mark Nelson to Flowtech's Operational Board.  Also, all new colleagues who have joined Flowtech in the period or the Group as part of Albroco and NFP. The Group today employs 270 people through its seven locations across four countries.  CURRENT TRADING AND OUTLOOK We are fortunate at this time to have both strength and depth across our product portfolio and extensive customer exposure.  Our recent acquisitions also widen the geographical areas and the industrial fluid power markets we serve. The formation of a Power Motion Control Division showcases our significant technical expertise as well as opening up a new important OEM channel in hydraulics; combined with our high service levels we have a solid platform for ongoing growth. Management remain optimistic about both the commercial opportunities and the prospects of the Group as a whole, despite some headwinds from the ongoing weakness and competitive pressures being witnessed within certain sectors of the industrial and manufacturing arena, both in the UK and across Europe.  However, the Board is confident that the Company can deliver another year of solid progress. DIVIDEND The focus is on capital growth through investment in the business and increasing ROCE.  As a Board, we are also committed to a progressive dividend policy based on the year's performance as a whole whilst balancing our investment in the business for the future benefit of all stakeholders, customers and colleagues. The Board is pleased to declare a 5% increase on the half year dividend to 1.75p per share (2014: 1.67p).  This will be paid on 23 October 2015 to shareholders on the Register at the close of business on 2 October 2015.  The shares will become ex-dividend on 1 October 2015.  The dividend is covered 3.11 times by earnings. PRINCIPAL RISKS AND UNCERTAINTIES In common with all organisations, Flowtech faces risks which may affect its performance.  The Group operates a system of internal control and risk management in order to provide assurance that we are managing risk whilst achieving our business objectives.  No system can fully eliminate risk and therefore the understanding of operational risk is central to management processes.  The long term success of the Group depends on the continual review, assessment and control of the key business risks it faces.  In view of this the Board has recently engaged with a team of risk specialists to ensure risk identification and mitigation is a key strategy focus for the Group. The Directors set out in the 2014 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. By order of the Board 7 September 2015 TOTAL VOTING RIGHTS For the purposes of the Disclosure and Transparency Rules, the Company's total issued share capital at the date of this announcement is 42,828,283 ordinary shares of £0.50 each.  The total number of voting rights in the Company is therefore 42,828,283.  There are no ordinary shares held in Treasury. The above figure may be used by shareholders as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in, the Company, under the FCA's Disclosure and Transparency Rules. FORWARD-LOOKING STATEMENTS This document contains certain forward-looking statements which reflect the knowledge and information available to the Company during the preparation and up to the publication of this document.  By their very nature, these statements depend upon circumstances and relate to events that may occur in the future thereby involving a degree of uncertainty.  Although the Group believes that the expectations reflected in these statements are reasonable, it can give no assurance that these expectations will prove to have been correct. Given that these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. The Group undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

CONSOLIDATED INCOME STATEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2015
	Notes	Unaudited Six months ended 30 June 2015 £000	Unaudited Six months ended 30 June 2014 £000	Audited Year ended 31 December  2014 £000
Continuing operations Revenue Cost of sales	3	21,423 (14,220)	17,191 (11,072)	37,791 (24,615)
Gross profit Distribution expenses		7,203 (1,065)	6,119 (897)	13,176 (2,034)
Administrative expenses before separately disclosed items: -Acquisition costs -Amortisation of acquired intangibles -Share based payment costs -Restructuring costs -IPO costs	3 3 3 3 3	(2,734) (50) (160) (172) (10) -	(1,941) - - (20) - (2,199)	(4,996) (206) (130) (148) (45) (2,292)
Total administrative expenses		(3,126)	(4,160)	(7,817)
Operating profit	3	3,012	1,062	3,325
Financial income Financial expenses Gain on settlement of debt		33 (96) -	1 (1,959) 29,043	33 (1,990) 29,043
Net financing (costs)/income		(63)	27,085	27,086
Profit from continuing operations before tax Taxation	3 4	2,949 (542)	28,147 (636)	30,411 (1,184)
Profit from continuing operations		2,407	27,511	29,227
Loss from discontinued operations, net of tax		(73)	(473)	(496)
Profit for the period attributable to the owners of the parent		2,334	27,038	28,731
Earnings per share Basic earnings/(loss) per share Continuing operations Discontinued operations		5.62p (0.17p)	311.03p (5.34p)	114.42p (1.94p)
Basic earnings per share	6	5.45p	305.69p	112.48p
Diluted earnings/(loss) per share Continuing operations Discontinued operations		5.45p (0.17p)	306.39p (5.34p)	112.86p (1.92p)
Diluted earnings per share	6	5.38p	301.05p	110.94p

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED 30 JUNE 2015
	Unaudited Six months ended 30 June 2015 £000	Unaudited Six months ended 30 June 2014 £000	Audited Year ended 31 December 2014 £000
Profit for the period	2,334	27,038	28,731
Other comprehensive expense -items that will be reclassified subsequently to profit or loss Exchange differences on translating foreign operations	(95)	(27)	(141)
Total comprehensive income in the period attributable to the owners of the parent	2,239	27,011	28,590

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2015
		Unaudited  30 June 2015 £000	Unaudited 30 June 2014 £000	Audited 31 December 2014 £000
Assets Non-current assets Goodwill Other intangible assets Property, plant and equipment		44,962 3,342 3,014	42,524 - 1,662	44,583 2,995 2,887
Total non-current assets		51,318	44,186	50,465
Current assets Inventories Trade and other receivables Prepayments Other financial assets Cash and cash equivalents		10,466 11,601 224 31 784	9,230 8,792 368 - 3,067	11,163 9,529 270 24 1,979
Total current assets		23,106	21,457	22,965
Liabilities Current liabilities Interest-bearing loans and borrowings Trade and other payables Deferred and contingent consideration Tax payable Provisions Other financial liabilities		2,957 5,151 2,277 904 63 -	3,051 3,780 - 707 208 7	2,973 5,415 1,603 881 71 27
Total current liabilities		11,352	7,753	10,970
Net current assets		11,754	13,704	11,995
Non-current liabilities Deferred and contingent consideration Interest-bearing loans and borrowings Provisions Deferred tax liabilities		85 5,286 121 702	- 6,149 105 77	- 5,716 162 676
Total non-current liabilities		6,194	6,331	6,554
Net assets		56,878	51,559	55,906
Equity directly attributable to owners of the parent Share capital Share premium Share-based payment reserve Merger reserve Merger relief reserve Currency translation reserve Retained losses		21,414 46,664 307 293 2,086 (273) (13,613)	20,000 46,809 20 293 - (64) (15,499)	21,414 46,664 148 293 2,086 (178) (14,521)
Total equity		56,878	51,559	55,906

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED 30 JUNE 2015
	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
Six months ended 30 June 2014 - unaudited
Balance at 1 January 2014 Profit for the period Other comprehensive expense	50 - -	- - -	- - -	293 - -	- - -	(37) - (27)	(13,494) 27,038 -	(13,188) 27,038 (27)
Total comprehensive (expense)/(income) for the period	-	-	-	-	-	(27)	27,038	27,011
Transaction with owners Issue of share capital Share issue expenses Gain on settlement of debt capitalised as share premium on issue of ordinary shares Share-based payment charge	19,950 - - -	19,950 (2,184) 29,043 -	- - - 20	- - - -	- - - -	- - - -	- - (29,043) -	39,900 (2,184) - 20
Total transactions with owners	19,950	46,809	20	-	-	-	(29,043)	37,736
Balance at 30 June 2014	20,000	46,809	20	293	-	(64)	(15,499)	51,559
Year ended 31 December 2014 - audited
Balance at 1 January 2014 Profit for the year Other comprehensive expense	50 - -	- - -	- - -	293 - -	- - -	(37) - (141)	(13,494) 28,731 -	(13,188) 28,731 (141)
Total comprehensive (expense)/income for the year	-	-	-	-	-	(141)	28,731	28,590
Transaction with owners Issue of share capital Share issue expenses Merger relief arising on acquisition of subsidiary Gain on settlement of debt capitalised as share premium on issue of ordinary shares Share-based payment charge Equity dividends paid (note 5)	21,364 - - - - -	19,950 (2,329) - 29,043 - -	- - - - 148 -	- - - - - -	- - 2,086 - - -	- - - - - -	- - - (29,043) - (715)	41,314 (2,329) 2,086 - 148 (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
Six months ended 30 June 2015 - unaudited
Balance at 1 January 2015 Profit for the period Other comprehensive expense	21,414 - -	46,664 - -	148 - -	293 - -	2,086 - -	(178) - (95)	(14,521) 2,334 -	55,906 2,334 (95)
Total comprehensive (expense)/income for the period	-	-	-	-	-	(95)	2,334	2,239
Transaction with owners Share-based payment charge Equity dividends paid (note 5)	- -	- -	159 -	- -	- -	- -	- (1,426)	159 (1,426)
Total transactions with owners	-	-	159	-	-	-	(1,426)	(1,267)
Balance at 30 June 2015	21,414	46,664	307	293	2,086	(273)	(13,613)	56,878

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED 30 JUNE 2015
	Note	Unaudited Six months ended 30 June 2015 £000	Six months ended 30 June 2014 £000	Year ended 31 December 2014 £000
Cash flow from operating activities
Net cash from operating activities	9	1,659	(1,040)	2,275
Cash flow from investing activities Acquisition of subsidiary, net of cash acquired Disposal of subsidiary, net of cash disposed of Acquisition of property, plant and equipment Proceeds from sale of property, plant and equipment		(477) - (351) 7	- 103 (211) -	(2,683) 103 (496) -
Net cash used in investing activities		(821)	(108)	(3,076)
Cash flows from financing activities Net proceeds from the issue of share capital Proceeds from new loan Repayment of long term borrowings Net change in short term borrowings Repayment of finance lease liabilities Share based payment options exercised Interest received Interest paid Dividends paid		- - (430) (269) (11) (12) - (99) (1,426)	37,767 7,000 (37,151) (5,324) (6) - - (336) -	37,571 7,000 (37,532) (5,409) (16) - 3 (341) (715)
Net cash (used in)/generated from financing activities		(2,247)	1,950	561
Net change in cash and cash equivalents		(1,409)	802	(240)
Cash and cash equivalents at start of period Exchange differences on cash and cash equivalents		1,979 (50)	2,265 -	2,265 (46)
Cash and cash equivalents at end of period		520	3,067	1,979

NOTES TO THE INTERIM REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2015
1.	General information
The principal activity of Flowtech Fluidpower plc (the "Company") and its subsidiaries (together, the "Group") is the distribution of engineering components, concentrating on the fluid power industry. The Company is incorporated and domiciled in the UK. The address of its registered office is Pimbo Road, Skelmersdale, Lancashire WN8 9RB. The registered number is 09010518. As permitted, this Interim Report has been prepared in accordance with the AIM rules and not in accordance with IAS 34 "Interim Financial Reporting". The consolidated financial statements are prepared under the historical cost convention, as modified by the revaluation of certain financial instruments. This consolidated Interim Report and the financial information for the six months ended 30 June 2015 does not constitute full statutory accounts within the meaning of section 434 of the Companies Act 2006 and are unaudited. This unaudited Interim Report was approved by the Board of Directors on 7 September 2015. The Group's financial statements for the year ended 31 December 2014 have been filed with the Registrar of Companies. The Group's auditor's report on these financial statements was unqualified and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. ELECTRONIC COMMUNICATIONS The Company is not proposing to bulk print and distribute hard copies of this Interim Report for the six months ended 30 June 2015 unless specifically requested by individual shareholders. The Board believes that by utilising electronic communication it delivers savings to the Company in terms of administration, printing and postage, and environmental benefits through reduced consumption of paper and inks, as well as speeding up the provision of information to shareholders. News updates, Regulatory News, and Financial statements, can be viewed and downloaded from the Group's website, www.flowtechfluidpower.com.  Copies can also be requested from; The Company Secretary, Flowtech Fluidpower plc, Pimbo Road, Skelmersdale, Lancashire, WN8 9RB. email: [e-mail]

2

aCCOUNTING POLICIES

Basis of preparation The financial information set out in this consolidated Interim Report has been prepared under International Financial Reporting Standards (IFRS) as adopted by the European Union and in accordance with the accounting policies which will be adopted in presenting the Group's Annual Report and Financial Statements for the year ended 31 December 2015. These are consistent with the accounting policies used in the Financial Statements for the year ended 31 December 2014, except as detailed below: GOING CONCERN The Group meets it day-to-day working capital requirements through its bank facilities. The Directors have carefully considered the banking facilities and their future covenant compliance in light of the current and future cash flow forecasts and they believe that the Group is appropriately positioned to ensure the conditions of its funding will continue to be met and therefore enable the Group to continue in operational existence for the foreseeable future by meeting its liabilities as they fall due for payment. TAXES Taxes on income in the interim periods are accrued using the rate of tax that would be applicable to expected total annual earnings.

3.	OPERATING SEGMENTS
The Group comprises of the following three operating segments which are defined by geographic area and trading activity: ·    Flowtechnology UK -distribution and assembly of engineering components, principally to distributors and end users in the UK and Eire. ·    Flowtechnology Benelux - distribution of engineering components, to distributors and end users in the Netherlands and Belgium. ·    Power Motion Control Division - distribution and assembly of engineering components and hydraulic systems to distributors and end users in the international market - based in the UK and Republic of Ireland. The Board is considered to be the chief operating decision maker (CODM).  The CODM manages the business using an underlying profit figure.  Only finance income and costs secured on the assets of the operating segment are included in the segment results.  Finance income and costs relating to loans held by the Company are not included in the segment result that is assessed by the CODM.  Transfer prices between operating segments are on an arm's length basis. The Directors believe that the underlying operating profit provides additional useful information on underlying trends to Shareholders.  The term "underlying" is not a defined term under IFRS and may not be comparable with similarly titled profit measurements reported by other companies.  A reconciliation of the underlying operating result to operating profit / (loss) from continuing operations is shown below.  The principal adjustments made are in respect of the separately disclosed items are as detailed at the end of this note.  Segment information for the reporting periods is as follows:
		Flowtechnology  UK £000	Flowtechnology Benelux £000	Power Motion Control £000	Inter-segmental transactions £000	Central  Costs £000	Total Continuing Operations £000
Six months ended 30 June 2015
Income statement - continuing operations:
Revenue from external customers		15,617	1,871	3,935	-	-	21,423
Inter segment revenue		430	42	138	(610)	-	-
Total revenue		16,047	1,913	4,073	(610)	-	21,423
Underlying operating result		3,916	170	284	-	(966)	3,404
Net financing costs		4	-	-	-	(67)	(63)
Underlying segment result		3,920	170	284	-	(1,033)	3,341
Separately disclosed items		(47)	(12)	(172)	-	(161)	(392)
Profit/(loss) before tax		3,873	158	112	-	(1,194)	2,949
Specific disclosure items Depreciation Amortisation		(184) -	(13) -	(39) (160)	- -	- -	(236) (160)
Reconciliation of underlying operating result to operating profit: Underlying operating result Separately disclosed items		3,916 (47)	170 (12)	284 (172)	- -	(966) (161)	3,404 (392)
Operating profit/(loss)		3,869	158	112	-	(1,127)	3,012

	Flowtechnology  UK £000	Flowtechnology Benelux £000	Power Motion Control £000	Inter-segmental transactions £000	Central  Costs £000	Total Continuing Operations £000
Six months ended 30 June 2014
Income statement - continuing operations:
Revenue from external customers	15,204	1,987	-	-	-	17,191
Inter segment revenue	420	31	-	(451)	-	-
Total revenue	15,624	2,018	-	(451)	-	17,191
Underlying operating result	3,689	308	-	-	(716)	3,281
Net financing (costs)/income	(122)	(1)	-	-	27,208	27,085
Underlying segment result	3,567	307	-	-	26,492	30,366
Separately disclosed items	-	-	-	-	(2,219)	(2,219)
Profit before tax	3,567	307	-	-	24,273	28,147
Specific disclosure items Depreciation	205	21	-	-	-	226
Reconciliation of underlying operating result to operating profit: Underlying operating result Separately disclosed items	3,689 -	308 -	- -	- -	(716) (2,219)	3,281 (2,219)
Operating profit/(loss)	3,689	308	-	-	(2,935)	1,062

SEGMENTAL REPORTING BY GEOGRAPHIC LOCATION	Flowtechnology  UK £000	Flowtechnology Benelux £000	Power Motion Control £000	Inter-segmental transactions £000	Central  Costs £000	Total Continuing Operations £000
Year ended 31 December 2014
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
Net financing (costs)/income	(141)	(2)	-	-	27,229	27,086
Underlying segment result	6,758	495	369	-	27,229	33,232
Separately disclosed items	(166)	(30)	(135)	-	(2,490)	(2,821)
Profit before tax	6,592	465	234	-	23,120	30,411
Specific disclosure items Depreciation Amortisation	424 -	40 -	39 130	- -	- -	503 130
Reconciliation of underlying operating result to operating profit: Underlying operating result Separately disclosed items	6,899 (166)	497 (30)	369 (135)	- -	(1,619) (2,490)	6,146 (2,821)
Operating profit/(loss)	6,733	467	234	-	(4,109)	3,325

SEPARATELY DISCLOSED ITEMS
·      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 issue of share options issued to employees subsequent 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".
	Six months ended 30 June 2015 £000	Six month ended 30 June 2014 £000	Year ended 31 December 2014 £000
Separately disclosed items within administration expenses: -Acquisition costs -Amortisation of acquired intangibles -Share based payment costs -Restructuring -IPO costs	50 160 172 10 -	- - 20 - 2,199	206 130 148 45 2,292
Total separately disclosed  items	392	2,219	2,821

4.	TAXATION
		Six months ended 30 June 2015 £000	Six month ended 30 June 2014 £000	Year ended 31 December 2014 £000
Current tax on income for the period - continuing operations: UK tax Foreign tax Deferred tax (credit)/expense Adjustments in respect of prior years		618 - (76) -	435 31 20 150	1,058 21 38 67
Total taxation		542	636	1,184
The taxation for the period has been calculated by applying the estimated tax rate for the financial year ending 31 December 2015 adjusted for the reduction in the rate of corporation tax to 20% from 21%.  Deferred tax liabilities have also been adjusted to £702,000 to reflect capital allowances in excess of depreciation and other short term timing differences.

5.	DIVIDENDS
		Six months ended 30 June 2015 £000	Six month ended 30 June 2014 £000	Year ended 31 December 2014 £000
Interim dividend of 1.67p per share		-	-	715
Final dividend of 3.33p per share		1,426	-	-
		1,426	-	715
In addition the Directors are proposing a half-year dividend in respect of the financial year ended 31 December 2015 of 1.75p per share which will absorb an estimated £0.75million of shareholders' funds.  It will be paid on the 23 October 2015 to Shareholders who are on the Register of Members on 2 October 2014.

6.	EARNINGS PER SHARE
Basic earnings/(loss) per share is calculated by dividing the earnings/(loss) attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.  For diluted earnings/ (loss) per share the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The dilutive shares are those share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the period.
		Six months ended 30 June 2015			Six months ended 30 June 2014			Year ended 31 December 2014
		Earnings £000	Weighted average number of shares 000's	Earnings per share Pence	Earnings £000	Weighted average number of shares 000's	Earnings per share Pence	Earnings £000	Weighted average number of shares 000's	Earnings per share Pence
Basic earnings/(loss) per share Continuing operations Discontinued operations		2,407 (73)	42,828 42,828	5.62 (0.17)	27,511 (473)	8,845 8,845	311.03 (5.34)	29,227 (496)	25,542 25,542	114.42 (1.94)
Basic earnings per share		2,334	42,828	5.45	27,038	8,845	305.69	28,731	25,542	112.48
Diluted earnings/(loss) per share Continuing operations Discontinued operations		2,407 (73)	43,413 43,413	5.54 (0.17)	27,511 (473)	8,979 8,979	306.39 (5.34)	29,227 (496)	25,897 25,897	112.86 (1.92)
Diluted earnings per share		2,334	43,413	5.38	27,038	8,979	301.05	28,731	25,897	110.94

	Six months ended 30 June 2015 £000	Six month ended 30 June 2014 £000	Year ended 31 December 2014 £000
Weighted average number of ordinary shares for basic and diluted earnings per share Impact of share options	42,828 585	8,845 134	25,542 355
Weighted average number of ordinary shares for diluted earnings per share	43,413	8,979	25,897

7.	ACQUISITIONS
On 29 May 2015, the Group acquired 100% of the share capital of Albroco Limited, a UK-based business, thereby obtaining control.  The acquisition was made to enhance the Group's position in the hydraulic market.  The total consideration was provisionally £1,669,000, subject to finalisation of the completion accounts.  This comprised £910,000 in cash and £759,000 contingent cash consideration. The additional consideration is based on gross profit targets for the Company's customer base and is payable on the first and second anniversary of the acquisition.  The fair value of £759,000 has been calculated using management forecasts of Albroco Limited's performance discounted at the weighted average cost of capital. Acquisition costs and stamp duty amounting to £25,000 have been recognised as an expense in the consolidated income statement as part of separately disclosed administration costs. GOODWILL Goodwill of £379,000 is primarily related to expected future profitability and expected cost synergies. Goodwill has been allocated to the Power Motion Control operating segment and is not expected to be deductible for tax purposes. INTANGIBLE ASSET An intangible asset of £508,000 has been provisionally identified related to customer relationships. The estimated useful life has been determined as ten years based on the expected future cash flows that they would generate in arriving at their fair value. The customer relationships considered in the valuation comprise customers buying the Honeywell product group, this product group was not offered by the Power Motion Control operating segment prior to the acquisition. Sales growth over the ten year period has been assumed to be 1.5% with an attrition rate of 5% for customers. Growth and attrition rates are based on management experience and expectations. Amortisation of customer relationships is not expected to be deductible for tax purposes. Details of the provisional fair value of identifiable assets and liabilities acquired, purchase consideration, goodwill and intangible assets are as follows:
		Book value £000	Fair value adjustment £000	Intangible asset recognised on acquisition £000	Provisional fair value £000
Property, plant and equipment		20	-	-	20
Intangible assets		-	-	508	508
Inventories		414	-	-	414
Trade and other receivables		306	-	-	306
Cash and cash equivalents		433	-	-	433
Trade and other payables		(252)	-	-	(252)
Current tax balances		(37)	-	-	(37)
Deferred tax liability		-	-	(102)	(102)
Total net assets		884	-	406	1,290
					£000
Fair value of consideration paid
Amount settled in cash					910
Fair value of contingent consideration					759
Total consideration					1,669
Less net assets acquired					1,290
Goodwill on acquisition					379

8

SUBSEQUENT EVENTS

Nelson Fluid Power Limited and its subsidiaries were acquired on 3 July 2015 for a total consideration of £5.946m comprising £4.460m in cash and £1.486m contingent cash consideration. This is a provisional figure subject to the finalisation of the completion accounts. Contingent consideration is based on the profitability of the company post acquisition and is due for payment on the acquisition anniversaries in 2016 and 2017.  The maximum contingent consideration payable is £2.375m. The acquisition was made to enhance the Group's position in the hydraulic market.  Included within the net assets of Nelson Hydraulics Limited was £1.7m of cash retained within the business on acquisition. The cash consideration was funded out of existing cash resources. The Group will disclose the book value of the identifiable assets and liabilities and their fair values in the 2015 full year financial statements as required under IFRS 3 "Business Combinations". The initial accounting and fair value exercise is incomplete at the time of this announcement due to the proximity of the accounting date.

9.	NET CASH FROM OPERATING ACTIVITIES
		Six months ended 30 June 2015 £000	Six month ended 30 June 2014 £000	Year ended 31 December 2014 £000
Reconciliation of profit before taxation to net cash flows from operations: Profit from continuing operations before tax Loss from discontinued operations before tax Depreciation Financial income Financial expense Gain on settlement of debt Amortisation Equity settled share-based payment charge		2,949 (73) 236 (33) 96 - 160 172	28,147 (325) 228 (1) 1,959 (29,043) - 20	30,411 (348) 503 (33) 1,990 (29,043) 130 148
Operating cash inflow before changes in working capital and provisions Change in trade and other receivables Change in stocks Change in trade and other payables Change in provisions		3,507 (1,720) 1,068 (499) (48)	985 (1,596) 515 (680) 142	3,758 408 12 (752) 62
Cash generated from operations Tax paid		2,308 (649)	(634) (406)	3,448 (1,213)
Net cash generated from operating activities		1,659	(1,040)	2,275

 

END

 

 

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