TIDMFLO
RNS Number : 4024L
Flowtech Fluidpower PLC
30 April 2020
Issued on behalf of Flowtech Fluidpower
PLC
Date: Thursday, 30 April 2020
Immediate Release
The information contained within this announcement is deemed by
the Company to constitute inside information stipulated under the
Market Abuse Regulation (EU) No. 596/2014. Upon the publication of
this announcement via the Regulatory Information Service, this
inside information is now considered to be in the public
domain.
FLOWTECH FLUIDPOWER PLC
("Flowtech" or the "Group" or "Company")
leading specialist supplier of technical fluid power components and services
Annual results for the year ended 31 December 2019
Flowtech Fluidpower plc (AIM: FLO) today publishes its Annual
results for the year ended 31 December 2019.
The Annual Report & Financial Statements for the year ended
31 December 2019 can be viewed and downloaded from the website
later today at www.flowtechfluidpower.com . Details of the AGM,
together with the Notice of Meeting will be sent to Shareholders in
due course.
The following summarises the 2019 financial results and
performance:
2019 OPERATIONAL HIGHLIGHTS
---------------------------------------------------------------------------------------
-- GBP13.2m positive cash flow from operating activities, GBP9.4m in excess
of GBP3.8m in 2018.
-- 100bps improvement in GP%.
-- Organic revenue decline but at a modest level in difficult market conditions.
-- Underlying operating profit of GBP9.6m in the year.
-- Profit before tax of GBP4.7m in the year (2018: GBP6.9m).
2019 FINANCIAL HIGHLIGHTS
Year ended 31 December 2019 2018
------------------------------------------ --------- ----------
-- GROUP REVENUE(1) GBP112.4 GBP112.1m
-- GROSS PROFIT %(1) 35.7% 34.7%
-- GROUP OPERATING PROFIT GBP5.7m GBP7.7m
-- GROUP PROFIT BEFORE TAX GBP4.7m GBP6.9m
-- EARNINGS PER SHARE(2) 6.12p 8.34p
-- DIVID(4) :
Ø Half year paid 2.13p 2.03p
Ø Final dividend 0.00p 4.04p
Ø Total for the year 2.13p 6.07p
-- NET DEBT GBP16.6m GBP19.9m
-- UNDERLYING OPERATING PROFIT(3) GBP9.6m GBP11.4m
1. All results relate to continuing operations. Prior year values have
been restated as described in Note 2.8
2. Basic Earnings per Share
3. Underlying operating profit is continuing operations' operating profit
before separately disclosed
items (note 4), the impact of fair value adjustment to inventory (note
3). Underlying operating profit for
2019 also excludes the impact of re-stating operating lease rentals
under IFRS 16 (note 2.3 and note 3)
4. In the light of the economic uncertainty due to COVID-19, the Directors
have suspended all dividend payments in order to retain
as much cash in the business as possible. No final dividend will be
paid in respect of the financial year ended 31 December 2019
ENQUIRIES:
FLOWTECH FLUIDPOWER PLC
Malcolm Diamond MBE, Non-Executive Chairman
Bryce Brooks, Chief Executive Officer
Russell Cash, Chief Financial Officer
Tel: +44 (0) 1695 52759
Email : info@flowtechfluidpower.com
For more information please visit, www.flowtechfluidpower.com
Zeus Capital Limited (Nominated Adviser and Joint Broker)
Andrew Jones, Kieran Russell (Corporate Finance)
Dominic King, John Goold (Sales & Broking)
Tel: + 44 (0) 20 3829 5000
finnCap Limited (Joint Broker)
Ed Frisby, Kate Bannatyne (Corporate Finance)
Rhys Williams, Andrew Burdis (Sales & Broking)
Tel: + 44 (0) 20 7220 0500
TooleyStreet Communications (IR and media relations)
Fiona Tooley
Tel: +44 (0) 7785 703523 or email: fiona@tooleystreet.com
FLOWTECH FLUIDPOWER PLC
("Flowtech" or the "Group" or "Company")
Annual statement of results for the year ended 31 December
2019
INTRODUCTION BY THE CHAIRMAN, MALCOLM DIAMOND MBE
"Ultimately, the best thing we can do for all our stakeholders
is to ensure that when life does return to normal, the measures we
take during this upheaval leave us stronger in every respect"
"I would like to thank all my Flowtech colleagues for their
passion and commitment over my period at the helm and, once the
obvious threat of COVID-19 has passed, I am sure the business will
prosper in a way that rewards all those who have invested in its
future"
It will possibly come as no surprise to you for me to confirm
that 2019 has been not only a challenging year, but also a
transformative one. With the UK political situation at least
appearing to have some sense of stability re-established, the Group
was very much looking forward to 2020 as a year in which this
transformation would be fully embedded. However, the global impact
of the COVID-19 pandemic has clearly forced many companies,
including our own, to take emergency action to protect all
stakeholders as best as can be achieved.
To this end, I would firstly like to cover our main asset, our
staff. Despite many businesses needing to take immediate action to
cut costs, we took the view that, for at least March and April, we
would guarantee that all our staff, whether currently working or
furloughed, would continue to be paid in full. For the many that
remain working but cannot work remotely, we have implemented robust
procedures to ensure we protect staff as best we can, whilst at the
same time ensuring that we continue to provide a service to
industry, including many of those sectors specifically involved in
dealing with the crisis.
We also recognise that there are several of our smaller
suppliers and customers under stress, and we have been assisting
them as much as we can by ensuring that cash continues to flow
through the system while keeping all doors open to support urgent
supplies.
Despite the difficulties associated with working from home in
what is a 'teams' and physical assets business, we have continued
to progress our rationalisation and productivity improvement
programmes, and all activities outlined in our CEO's report have
not been derailed - if anything, with the support of the whole
management team, these activities have gathered pace in a way that
emphasises the skill and commitment of everyone involved in the
Group. Over time, we are therefore confident of achieving further
reductions in both operating cost and working capital investment,
which will further underpin our financial defence against the
COVID-19 crisis. Along with our decision to cancel the final
dividend for 2019, this gives us the strong belief that the
business will continue to generate positive cash flow in 2020.
We are only too aware of the patience and understanding
displayed by our staff and managers as we have gone through this
major refocus and the challenges of COVID-19, for which we are
extremely appreciative. Ultimately, the best thing we can do for
all our stakeholders is to ensure that when life does return to
normal, the measures we take during this upheaval leave us stronger
in every respect.
The situation we find ourselves in is moving rapidly but we feel
our business, and our balance sheet, will prove resilient. However,
following a detailed re-forecasting exercise including downside
scenario planning, the Directors assessment on going concern will
include reference to material uncertainty in common with many other
businesses. Further details around the consideration the Directors
have given to going concern are contained elsewhere in this report,
notably note 2.2. Notwithstanding this, the Directors confirm that,
after due consideration, they have an expectation that the Group
has adequate resources to continue for the foreseeable future and
we have thereby continued to adopt the going concern basis in
preparing the financial statements. We believe we are in a much
better position than ever to deal with these unexpected challenges.
Bryce Brooks' CEO's Year in Review includes further comments on the
impact and our response to COVID-19.
Moving on to our broader activities, having executed a number of
acquisitions between 2014 and 2018, due to the fact that we do not
consider turnaround targets, and all the additions were profitable
in themselves, revealing cost synergies via consolidation of
duplicated activities was not seen as a priority whilst we focused
on transitioning local leadership teams from an owner-managed model
to a Group format. However, having made significant changes to our
organisational structure since Bryce Brooks became CEO in late
2018, and invested in the necessary central functions, notably
finance, systems and project management to provide the resources
and infrastructure to support a change programme, we have now very
much moved our focus towards releasing the undoubted productivity
and cost out opportunities that our business possesses. Just as
importantly, all our staff engaged in front line sales have
undergone retraining in sales techniques as we drive towards order
makers - rather than order takers. This is also supported with
individual performance monitoring going forward.
I refer you to Russell Cash's Financial Review later in this
announcement for a fuller account of our results for 2019.
Finally, given the pivotal point that we are now at in our
transformation, I have decided to retire as Chairman with effect
from the AGM and hand over the reins to my colleague, Bill Wilson.
Whilst this will be Bill's first time as a PLC Chairman, he has
extensive experience in similar and larger organisations in both
the role and the sector, and I know I will leave the Group in very
good hands. Having been Chair since 2014, I have had the pleasure
of working with ambitious and dedicated colleagues over the past
six years as we have expanded rapidly, dealing with several
challenges along the way. It has been a pleasure to support Bryce
as he stepped up to be CEO, and welcome Bill, Nigel Richens and
Russell Cash on to the Board. I feel that the benefits of our
actions are now becoming tangible, and it is therefore the right
time to retire. In addition, I look forward to working with Roger
McDowell when he joins the team following the AGM. Roger is a
highly successful businessman and entrepreneur, with a strong
record of delivering shareholder value. The Board's objective is to
have three Executive Directors, supported by three Non-Executives.
A search has already commenced for the additional Non-Executive
Director so I can fully step down, but until the right candidate
has been identified I will continue to serve until the search is
concluded.
I would like to thank all my Flowtech colleagues for their
passion and commitment over my period at the helm and, once the
obvious threat of COVID-19 has passed, I am sure the business will
prosper in a way that rewards all those who have invested in its
future.
29 April 2020
CHIEF EXECUTIVE'S REVIEW BY BRYCE BROOKS, CEO
" The Board believes that further progress will be made in
improving productivity across the Group and looks forward to
updating investors as we make further progress during the remainder
of 2020 "
INTRODUCTION
2018 was a year in which relatively buoyant conditions in the
first half were replaced with more benign conditions in the latter
part of the year - this, combined with the deferment of planned
activity on one project resulted in a downgrade to profit
expectations being reported in September 2018. The start of 2019
saw a return to more favourable trading conditions. Creating the
framework for change has involved some short-term increase in
resources, which, when coupled with the more negative sales
environment, has affected our profit growth, but it is particularly
satisfying for the Executive team to see strong cash flow
underlying this position, with Net Cash Generated from Operations
of GBP13,246,000 (2018: GBP3,790,000), leaving Net Debt at the
year-end of GBP16.6m (2018: GBP19.9m). The COVID-19 crisis has cast
a considerable shadow across most sectors, but the improvement in
cash resources created, and the change programme detailed below,
will stand the Group in good stead when markets start to take shape
again after the lockdown, and the Board is confident that the
changes being made will become a real differentiator against our
competitors.
GROUP STRATEGY & PROGRESS IN 2019
In 2018, we laid out a clear vision focused on the delivery of
best-in-class service and support as the UK's leading fluid power
distributor within a highly fragmented marketplace. We have looked
to maintain the majority of our sales being associated with
maintenance, repair and overhaul (MRO) applications, and the
consistency of return that this sector brings, complemented by the
supply of products and services to a broad base of industries
engaged in the manufacture of capital equipment. At the same time
we outlined a change in our structure to a two segment approach -
Components and Services - with different divisional management
teams that has allowed us to develop strategy in each segment to
suit their specific characteristics and requirements, and which the
Board firmly believes will lead to enhanced profit growth over the
medium term. We have also established a Group central services team
and facility in South Manchester and invested in the necessary
skills in Accounting, Credit Management, IT Operations and Project
Management to ensure we have the best platform to support the
business as it currently stands, most crucially in the extensive
change process now being implemented and detailed below, and to
ensure future growth is long term in nature. Whilst this investment
has increased overall costs in the short term, we are convinced
this has given us a resilient position from which to move forward
in a controlled manner. After a four-year period of significant
growth had given the Group 'critical mass', in 2019 we therefore
used our new structure and resources to focus on extracting the
considerable synergy potential available, with emphasis on the
following:
Optimisation of our operational cost base
At the date of this report last year we had completed an initial
review of our resources and made a preliminary assessment of what
our optimal operating structure might look like with regard to
warehousing and logistics within our Components division, and how
this might then support the engineering capabilities of our
Services division. The Executive team progressed this plan during
the remainder of the year and has actioned several elements to
date, with further activity planned in 2020. In summary, the
multiple sites and IT systems acquired as part of our acquisition
programme since IPO can now be combined into a 'hub and spoke'
system, with the majority of pick and ship activities undertaken by
a centrally operated structure, predominantly our distribution
centres based in Skelmersdale and Leicester, led by a network of
customer-facing sales units. These two sites currently undertake
around 70% of the Group's warehouse movements, producing
class-leading efficiency rates, and following the assessment the
Board is convinced that with only relatively modest capital
investment, their activity levels can be enhanced to absorb the
majority of similar activity for the UK and Republic of Ireland,
without undermining the service to the legacy Flowtechnology and
Beaumanor businesses.
This has resulted in the following actions designed to both
reduce cost and improve service:
-- In September 2019, Hi-Power in Stockport, Cheshire, was
closed and merged with Primary Fluid Power in Knowsley.
-- In October 2019, TSL in Mytholmroyd, West Yorkshire, was
closed and also merged with Primary Fluid Power.
-- In January 2020, we announced that the Components element of
Primary Fluid Power would move to Skelmersdale site with a target
for full implementation by May 2020.
-- Also, in January 2020, we announced that Hydravalve, in
Willenhall in the West Midlands, would move to Skelmersdale with a
target for full implementation by May 2020.
-- Again, in January 2020, we announced that HES Durham would
close with immediate effect and relocate to Orange County in
Spennymoor, County Durham.
-- In February 2020, we announced that Nelson Hydraulics in
Lisburn, Northern Ireland, would close and its operation relocated
to either Dungannon in County Tyrone or Skelmersdale with a target
for full implementation by June 2020.
-- Also, in February 2020, we announced that the warehousing and
distribution of HES Gloucester, Birmingham and Leeds would close
and be serviced from Leicester, with a target for full
implementation by June 2020.
All the above projects require both IT implementations as well
as physical stock movements under tightly managed project
governance supported by the investment we have made in the last 12
months. I am pleased to confirm that to date all have been
completed or are progressing to timetable and within expected
budget.
The annualised savings attached to the above are estimated at
GBP1.6m, with a GBP0.8m impact in 2020. The cash cost of this
restructuring is estimated at GBP1.8m (of which GBP0.5m was
incurred in 2019), with GBP0.9m relating to capital investment in
IT upgrades and additional Kardex racking systems.
Making efficient use of our considerable working capital base,
and wherever possible making improvements.
As a natural by-product of reducing our warehousing
requirements, and beginning the process of 'centralisation' of the
bulk of our stockholding, the Executive team were also keenly aware
that the stockholding profile of the Group should be improved
substantially. During 2019, via a mixture of stock clearance
programmes and improved supply chain management, the Group has
reduced its investment in Net Inventory (being Inventories less
Trade and Other Payables) from GBP10,295,000 at 31 December 2018 to
GBP8,490,000 at 31 December 2019, and Gross Inventory was reduced
by cGBP7m, without any reduction in service levels. Whilst an
element of this reduction results from scrappage of slow-moving
items and a resultant reduction in our stock provision, a bigger
proportion reflects the underlying reduction in the level of stock
our businesses are carrying; this element of the reduction
naturally flows into free cash flow. This remains a focus of the
business in 2020 and we anticipate further reductions being
achieved. The overall metric that we use to measure against will be
'Turn and Earn'* with a target by 2022 of 130% versus an average of
95% achieved in 2019. This indicates an optimum stock investment of
between GBP20m and GBP21m which compares with an actual of GBP24.0m
at year end (2018: GBP28.7m).
*Turn and Earn Index is calculated by multiplying gross margin
by stock turn. In 2019, the gross margin achieved was 35.7% and the
average stock turn achieved was 2.67, therefore the Turn and Earn
index was 95.
Improved procurement terms from our major supplier partners
In July 2019, the Group appointed John Farmer into a new role of
Group Commercial Director, with the express focus on actively
co-ordinating our supply strategy and building on the huge steps
forward we have taken in extracting regular procurement data from
across the Group's trading systems. A clearly defined supplier
strategy has now been developed, focused on enhancing terms with a
much narrower group of multinational manufacturers with global
standing and operational infrastructure, thereby improving pricing
and Net Inventory investment. Whilst the direct effects in 2019 can
only be limited, it is pleasing to see that Gross Margins have
again improved to 35.7% (2018: 34.7%) and I expect this trend to
continue in 2020.
Organic sales growth
The above three elements of our strategic focus will ensure we
build the best platform from which to operate. At the same time,
the Group must ensure that it continues to develop a 'proactive'
sales organisation, building on the important position of its
legacy Profit Centre operations. To this end, long term strength is
being built from the following focused initiatives:
1. E-business capabilities - the Group already holds a
sector-leading position with regard to e-commerce trading with over
GBP28m of sales transacted by its customers online. However, with
advances made by both our supplier base and the multi-sector
international distribution organisations, we must continue to
enhance our resources in this area in order to ensure competitive
advantage remains and gives scope for considerable organic growth.
The Group is currently improving the customer experience with a
view to overlaying a single platform for its online trading which,
when coupled with the transition of stockholding to a reduced
number of sites described above, will mean that all the Group's
stock will be within 'one click' of being sold by the close of
2020.
2. Key Account Management - in 2019, the Group traded with over
10,000 live accounts. Within this, only 200 accounts accounted for
around 50% by value and they represent most of the leading players
in our marketplace. Building an effective cross-selling
infrastructure to support these key accounts will be an important
engine for growth.
3. Training and Technical Capabilities.
Importantly, we believe there is further scope for significant
cost savings, particularly in warehousing, our procurement activity
(where we expect to take the number of suppliers down from over
1,000 to around 500), and the centralising of certain back office
functions. The Board looks forward to updating investors as we make
further progress during the remainder of 2020, with a target to
complete all activity in this area by the end of the calendar
year.
BUSINESS MODEL
Since our first acquisition, the Group has operated a distinct
'Profit Centre' structure, where each business leader acts in a
semi-autonomous manner, which has encouraged local decision-making
and ensured that we have been able to successfully transition
previously owner-managed businesses to a Group structure. The move
to the centralisation of supply chain activities within the
Components division refocuses some of this local management
responsibility. However, the key elements of customer-facing
activities and importantly price management remain local. This
approach will continue to support an entrepreneurial culture across
the Group and ensures that we remain focused on delivering customer
service at its highest level, responsive to both immediate and
strategic needs, and safeguards growth before any centrally
sponsored initiatives need to enhance this.
YEAR IN REVIEW
The start of 2019 was characterised by a continuance of the
generally buoyant sector conditions seen in 2018. However, as the
year progressed it became clear that uncertainty in the UK
political situation was acting as a drag on growth, in both
domestic and export markets for our customers, and with a December
general election this particularly affected Q4, which saw an
organic decline in revenue. This resulted in two separate
downgrades to our forecasts, one issued in September 2019 and one
in January 2020. The new year did start with a clear view that the
sector would return to growth quickly and this trend was beginning
to appear just as the COVID-19 crisis took hold. Therefore, the
Executive team has, for the duration of this period in which
negative growth was the norm, operated with increasing focus on the
mantra of 'controlling the controllable' and ensuring that both the
cost base and working capital are managed downwards effectively.
Therefore, whilst it is disappointing that overall underlying
operating profit has reduced in the year, we believe that the
platform for future strong growth is being established. In 2018,
the operational highlight of the year was the acquisition of our
major competitor, Balu Ltd, and its subsidiaries, Beaumanor
Engineering and Derek Lane & Co, in March 2018. In 2019, the
two businesses contributed an Operating Profit of GBP1,844,000
(2018: GBP1,347,000) and the level of integration achieved with the
rest of the Group's operations has been particularly satisfying for
the teams involved, and in line with our expectations. The
organisational structure announced last year, where we moved into a
two-division format based around 'Components' and 'Services', has
also proved to be a significant change. The large-scale
redevelopment of our logistics platform currently being implemented
underpins the collective reporting for the Components division, and
the focus that has been brought to the Services division is
ensuring that shared engineering and technical support is now being
used more effectively. The reduction in profitability seen in the
Services division has been a function of the market downturn in
late 2019, with many of the initiatives instigated by the
divisional leadership team beginning to bear fruit in the early
part of 2020. The division adds considerably to the technical
resources of the whole Group. However, the sector as a whole
operates at lower financial margins that the intrinsic niche value
suggest should be achieved, and I remain focused on the clear need
for this division to improve its overall profitability. The change
to a single coordinated leadership team and reporting structure
will assist in this process.
IT DEVELOPMENT
In conjunction with our operational review, we have reviewed our
long-term IT strategy and we now believe that we can move towards
an optimised position in the medium term without the need for
enterprise-wide IT change. This will be achieved by focusing on
only three or four providers with each being capable of being
linked to each, thereby creating a single framework, backed up by a
cloud-based hardware solution that was successfully established in
May 2019. These platforms can all be used in conjunction with our
developing e-business operation and place us at the forefront of
the sector. As an example of how our investment in both resources
and personnel has started to provide tangible benefit to the Group,
following the announcement by the Government of the 'Work From
Home' guidance on 16 March 2020, the Group successfully created a
framework allowing over 200 people to effectively transfer their
working base from office to home, including telecoms, within a
working week using the cloud-based infrastructure established
during the previous twelve months. This ensured that customer
contact was retained and operations seamlessly transitioned during
what became a stressful period for all.
PEOPLE
In March 2019, Jon Burke was promoted to take overall
responsibility for Services and is now working to co-ordinate all
sales and operational matters across the various businesses within
the division. In July 2019, Ian Simpson was promoted to Divisional
Director within the Components segment with a specific remit
covering the cluster of business units that focus on catalogue and
web sales with a high-service offering. Finally, in November 2019,
having previously worked as a consultant to the Group, Anne Fogg
was appointed to the new role of Systems Director with
responsibility for all the Group's IT, Internal Audit and Project
Management resources.
In addition to the senior appointments described above, we are
committed to training and development with several initiatives
implemented in the period in leadership, sales training, technical
and employee engagement. We are always acutely aware that our
progress is achieved with the continued commitment and effort of
all our employees, and with our status in the sector developing, we
are confident in our ability to retain and attract the best staff
the industry can offer. The passion and commitment shown by the
many staff members employed across the Group, particularly through
periods of change, has been exemplary. On behalf of the Executive
Management team, and the plc Board, I would like to thank everyone
for their efforts, and the continued support that has been shown in
2020.
COVID-19
Prior to the COVID-19 lockdown, Q1 2020 performance was in line
with our expectations at that time: down on the buoyant
conditions
seen in early 2019, but with a return to growth in customer
order patterns and outlook. However, the final few weeks of this
period
created an altogether different position going into April 2020.
Many of our suppliers and customers suspended operations, although
recent indications suggest that some have either already reopened
or are planning to reopen in May, albeit with reduced capacity.
On a daily basis the Board now receives reports on, amongst
other things: headroom over banking facilities, use of governments'
support, debtor collections, despatches from major distribution
sites, COVID-19 staff illness, and the number of major suppliers
and customers closed or reopening for business. In addition, we are
holding weekly board meetings, as well as daily video conference
calls amongst the operational leadership team, and our focus is on
supporting our staff, suppliers and customers and matching our cost
base to the emerging trends in activity. As a result of our
actions, since safe working guidance was introduced last month,
costs have been reduced by a combination of internal actions and
the utilisation of 'furlough' or equivalent schemes introduced in
the UK, Republic of Ireland, and the Netherlands. We estimate that
our cost base has fallen by around 25%, with further savings still
to come from our restructuring activities. We will therefore
continue to pursue our rationalisation and cost reduction
programmes, creating operational efficiencies in our procurement,
logistics, sales, and back office activities.
Whilst the full impact of the COVID-19 lockdown remains unclear,
it is not possible to make any accurate predictions for the
remainder
of the year. A significant part of our sales depends on the
manufacturing and construction sectors, both of which have seen
large scale shut-downs. It is possible that these sectors will
begin to reopen during early May, and our current plan is to ensure
that we continue to support/service our customers and react as
quickly and effectively as possible if this were to happen.
However, if there is a need to undertake further cost reductions
should the lockdown extend further into the year, we must ensure
that we are in a position to initiate change without detriment to
our future business and our customers. This being said, the work
undertaken as part of our restructuring activities over the past 12
months is helping our planning enormously in this regard.
29 April 2020
SUMMARY OF 2019 FINANCIAL RESULTS BY RUSSELL CASH, CHIEF
FINANCIAL OFFICER
" We continue to see benefits of the creation of a central
Commercial/Procurement Director in prices we are achieving with our
suppliers as buying decisions are made on a consolidated Group
basis rather than by individual profit centres "
Operational Review
2019 2018
Operational review Audited Audited Change %
-------------------------------- --------- --------- --------
Group revenue (*) GBP112.4m GBP112.1m 0.3%
Gross profit (*) GBP40.2m GBP38.9m 3.2%
Gross profit % (*) 35.7% 34.7% 100bps
Group operating profit GBP5.7m GBP7.7m (25.2%)
Underlying operating profit ( ) GBP9.6m GBP11.4m (15.6%)
-------------------------------- --------- --------- --------
2019 2018
Reconciliation of underlying operating profit to operating Audited Audited
profit GBP000 GBP000
------------------------------------------------------------ -------- --------
Underlying operating profit 9,607 11,381
Less impact of fair value adjustment to inventory (note
3) (297) (382)
Add impact of restatement under IFRS 16 on operating profit 147 -
Less separately disclosed items (note 4) (3,712) (3,321)
------------------------------------------------------------ -------- --------
Operating profit 5,745 7,678
------------------------------------------------------------ -------- --------
(*) All results relate to continuing operations. Prior year
values have been restated as described in Note 2.8.
( ) Underlying operating profit is continuing operations'
operating profit before separately disclosed items (note 4), the
impact of fair value adjustment to inventory (note 3). Underlying
operating profit for 2019 also excludes the impact of re-stating
operating lease rentals under IFRS 16 (note 2.3 and note 3).
Given the background of increasingly challenging market
conditions encountered in 2019, in particular the final quarter of
the year, the Board is satisfied with the trading result.
The Board believes that areas capable of being controlled have
been suitably focused on and results delivered. We are particularly
pleased that the efforts to reduce working capital has been a key
factor in a GBP3.3m reduction in our Net Debt (GBP19.9m reducing to
GBP16.6m). The underlying reduction is GBP5.9m if account is taken
of the cGBP2.6m paid out in respect of historic acquisition
activities. Earlier in 2020 we announced our plans to take cost out
of certain of our businesses to build on the more modest savings
which were achieved in 2019. These plans revolve around getting
much better benefit from certain of our more efficient distribution
facilities. The Board remains confident that further, significant,
savings will be achieved in the next two to three years.
Revenue
Revenue increased by 0.3% (2018: 42%). After accounting for the
impact of the Balu acquisition (March 2018) there was underlying
organic decline of 1.9% (2018: growth of 5.7%). 2019 was a story of
two halves with organic growth of c3% in H1 being more than
offset by decline of c7% in H2 with Q4, in line with the overall
market, being particularly challenging.
Gross Profit Margins
Our overall gross margin improved by 100bps. This is
particularly pleasing and builds on a 81bps gain in 2018. Gross
margin remains a key indicator for each of our businesses; this,
combined with increasing focus on businesses within the Group
working together to generate improved terms, sees us well placed to
retain and improve on these strong margins in the future.
Underlying Operating Profit
Underlying operating profit reduced by GBP1.8m (15.6%). After
taking account of separately disclosed items, statutory operating
profit
reduced by GBP1.9m (25.2%).
RESULTS BY SEGMENT
During 2019 we began to review and measure our business under
the two reporting segments of Components and Services. The
rationale for this was to enable us to draw a distinction between
the relatively predictable Components business with a large
proportion of business being maintenance and repair related and, in
contrast, the Services division which provides a broader spectrum
of offering and which is more difficult to predict but which our
key suppliers view as being a major reason why they wish to develop
strategic partnerships with the Group.
2019 2018 *
Audited Audited
Revenue GBP000 GBP000
----------- -------- --------
Components 96,348 94,581
----------- -------- --------
Services 16,070 17,527
----------- -------- --------
Group 112,418 112,108
----------- -------- --------
2019 % 2018 *
Audited Audited
Gross Profit GBP000 GBP000 %
------------- -------- ---- -------- ----
Components 35,167 36.5 33,362 35.3
------------- -------- ---- -------- ----
Services 5,016 31.2 5,587 31.9
------------- -------- ---- -------- ----
Group 40,183 35.7 38,949 34.7
------------- -------- ---- -------- ----
2019 % 2018
Audited Audited
Underlying Operating Profit/(Loss) GBP000 GBP000 %
----------------------------------- -------- ----- -------- ----
Components 13,995 14.5 14,254 15.2
----------------------------------- -------- ----- -------- ----
Services (59) (0.4) 314 1.8
----------------------------------- -------- ----- -------- ----
13,936 14,568
----------------------------------- -------- ----- -------- ----
Less allocation of central costs (4,329) (3,187)
----------------------------------- -------- ----- -------- ----
Group 9,607 11,381
----------------------------------- -------- ----- -------- ----
(*) Prior year values have been restated as described in Note
2.8.
REVENUES
Overall revenues grew by GBP0.3m, split:
-- Components - GBP1.8m increase (GBP2.5m through acquisition
activity and GBP0.7m (0.8%) organic decline.
-- Services - GBP1.5m (9.1%) decline
GROSS PROFIT MARGINS
It is pleasing to see a 1.2% improvement in an already strong
margin within our Components businesses. We continue to see
benefits of the creation of a central Commercial/Procurement
Director in prices we are achieving with our suppliers as buying
decisions are made on a consolidated Group basis rather than by
individual Profit Centres.
The margin within the Services division typically vary more. We
have plans in place which should see both gross, and more
importantly, net margins improving within this part of our
business.
UNDERLYING OPERATING PROFIT
Underlying operating profit within our Components division
remains strong at GBP13.9m, a margin of 14.5%. Whilst the lack of
contribution from our Services businesses is disappointing, the
division remains key in developing our ever-stronger relationships
with key suppliers. Actions are now in place to improve the
performance, through a combination of extracting operational
efficiencies and by charging more appropriately for certain of the
services which are provided.
CENTRAL COSTS
Central costs comprise executive management, finance and IT
departments, divisional sales and the cost of running the plc. We
made significant investment in these areas during the second half
of 2018 and early 2019. We believe an element of these costs will
not recur in 2020; this, combined with the focus we have on
managing our overall cost base down, means we are confident that
these costs have reached a mature level and will not materially
increase in the foreseeable future.
This provides a robust platform to deliver material cost and
working capital savings. The Board believes we are well placed to
capitalise on future growth opportunities, both organic and when
the time is right through acquisition activity.
Statement of financial position and cash flow
In a year where trading conditions were challenging it is
pleasing to see that we achieved a GBP3.3m reduction in Net Debt,
in particular given GBP2.6m was paid out in respect of contingent
consideration relating to historic acquisition activity.
This performance reflects the emphasis which the entire business
placed on management of working capital. In 2019 cash generated
from operations activities totalled GBP13.2m (2018: GBP3.8m). In
terms of working capital achievements:
-- Net stock levels were reduced by c.GBP4.7m and our focus on
achieving further reductions has continued into 2020
-- The average payment term with suppliers was increased from
c.45 days to c.55 days - this was achieved by agreeing enhanced
terms with a number of our key suppliers
-- We agreed reduced payment terms with a certain number of our
customers - as a result our debtor days reduced by c3 days
(c.GBP1.0m in cash terms).
The business generated GBP10.4m (2018: GBP10.1m) of positive
operating cash flow. This was augmented by the effect of the focus
on management of working capital with an overall benefit of GBP5.8m
in the year. The aggregate total of GBP16.2m enabled the following
to be funded:
-- Dividends (GBP3.7m)
-- Earn out consideration in respect of historic acquisitions (GBP2.6m)
-- Taxation (GBP3.0m)
-- Lease payments & IFR16 related interest (GBP1.9m)
-- Capital expenditure (GBP0.8m)
-- Interest (GBP0.8m)
-- Other items (GBP0.2m)
-- Reduction in bank debt (3.3m)
DIVIDS
Given the challenges presented by the COVID-19 pandemic, the
Board has concluded it is in the best interests of all stakeholders
to suspend the dividend policy. As such, the interim dividend of
2.13p per share (paid on 29 October 2019), will not be added to.
The Board will review the dividend policy once more stable
conditions have returned.
TAXATION
The tax charge for the year was GBP0.97m (2018: GBP1.99m), with
an effective tax rate of 20.6% (2018: 28.8%). The significant
reduction in the effective rate primarily relates to the fact that
there is a much lower level of disallowable acquisition-related
expenditure in 2019 as compared with 2018.
29 April 2020
FLOWTECH FLUIDPOWER PLC
("Flowtech" or the "Group" or "Company")
Annual results for the year ended 31 December 2019
2019 2018
Audited Audited
Consolidated income statement Note GBP000 GBP000
---------------------------------------------------- ---- -------- --------
Continuing operations
Revenue (**) 3 112,418 112,108
Cost of sales (**) (72,235) (73,159)
Gross profit (**) 40,183 38,949
Distribution expenses (**) (4,547) (4,561)
---------------------------------------------------- ---- -------- --------
Administrative expenses before separately disclosed
items*: (26,179) (23,389)
Separately disclosed items 4 (3,712) (3,321)
---------------------------------------------------- ---- -------- --------
Total administrative expenses (29,891) (26,710)
---------------------------------------------------- ---- -------- --------
Operating profit * 4 5,745 7,678
---------------------------------------------------- ---- -------- --------
Financial income 5 - 11
Financial expenses (*) 5 (1,038) (766)
---------------------------------------------------- ---- -------- --------
Net financing costs (1,038) (755)
---------------------------------------------------- ---- -------- --------
Profit from continuing operations before tax * 3 4,707 6,923
Taxation 6 (968) (1,992)
---------------------------------------------------- ---- -------- --------
Profit from continuing operations 3,739 4,931
---------------------------------------------------- ---- -------- --------
Profit for the year attributable to:
---------------------------------------------------- ---- -------- --------
Non-controlling interest - 20
---------------------------------------------------- ---- -------- --------
Owners of the parent 3,739 4,911
---------------------------------------------------- ---- -------- --------
3,739 4,931
---------------------------------------------------- ---- -------- --------
Earnings per share
Basic earnings per share - continuing operations 8 6.12p 8.34p
Diluted earnings per share - continuing operations 6.10p 8.28p
---------------------------------------------------- ---- -------- --------
(*) In the current year, the company adopted IFRS 16 and applied
the modified retrospective approach. The adoption of IFRS16 for
2019 has led to the elimination of lease payments of GBP1,833k and
the introduction of additional depreciation of GBP1,701k, GBP15k
gain on exchange movements and finance costs of GBP282k. The impact
of this is an increase in operating profit of GBP147k and, after
taking account of finance costs, a reduction in profit before tax
of GBP135k.
(**) Prior year values have been re-stated as described in Note
2.8.
2019 2018
Consolidated statement of comprehensive income GBP000 GBP000
--------------------------------------------------------- ------- -------
Profit for the year 3,739 4,931
Other comprehensive income
- items that will be reclassified subsequently to profit
or loss
Exchange differences on translating foreign operations (394) 128
--------------------------------------------------------- ------- -------
Total comprehensive income for the year 3,345 5,059
Total comprehensive income for the year attributable to:
Non-controlling interest (*) - 20
Owners of the parent 3,345 5,039
--------------------------------------------------------- ------- -------
3,345 5,059
--------------------------------------------------------- ------- -------
(*) The Company purchased minority interest in Derek Lane &
Co Limited in July 2019. Details of the purchase are given in note
9.
FLOWTECH FLUIDPOWER PLC
("Flowtech" or the "Group" or "Company")
Annual results for the year ended 31 December 2019
2019 2018
Audited Audited
Consolidated statement of financial position Note GBP000 GBP000
------------------------------------------------------ ---- ----------------- --------
Assets
Non-current assets
Goodwill 63,014 63,022
Other intangible assets 6,573 7,624
Right-of-use assets 8,228 -
Property, plant and equipment 6,528 6,735
------------------------------------------------------ ---- ----------------- --------
Total non-current assets 84,343 77,381
------------------------------------------------------ ---- ----------------- --------
Current assets
Inventories 24,000 28,667
Trade and other receivables 21,377 25,475
Prepayments 759 668
Cash and cash equivalents 3,446 2,248
------------------------------------------------------ ---- ----------------- --------
Total current assets 49,582 57,058
------------------------------------------------------ ---- ----------------- --------
Liabilities
Current liabilities
Interest-bearing borrowings 16,055 18,078
Lease liability 1,635 -
Trade and other payables 15,510 18,372
Deferred and contingent consideration 214 2,240
Tax payable 298 2,115
Total current liabilities 33,712 40,805
------------------------------------------------------ ---- ----------------- --------
Net current assets 15,870 16,253
------------------------------------------------------ ---- ----------------- --------
Non-current liabilities
Interest-bearing borrowings 4,008 4,051
Lease liability 6,735 -
Provisions 417 399
Deferred tax liabilities 1,519 1,751
------------------------------------------------------ ---- ----------------- --------
Total non-current liabilities 12,679 6,201
------------------------------------------------------ ---- ----------------- --------
Net assets 87,534 87,433
------------------------------------------------------ ---- ----------------- --------
Equity directly attributable to owners of the Parent
Share capital 10 30,579 30,460
Share premium 60,959 60,793
Other reserves 187 187
Shares owned by the Employee Benefit Trust (372) (413)
Merger reserve 293 293
Merger relief reserve 3,599 3,575
Currency translation reserve 244 664
Retained losses (7,955) (8,146)
------------------------------------------------------ ---- ----------------- --------
Total equity attributable to the owners of the parent 87,534 87,413
------------------------------------------------------ ---- ----------------- --------
Non-controlling interest - 20
------------------------------------------------------ ---- ----------------- --------
Total equity 87,534 87,433
------------------------------------------------------ ---- ----------------- --------
FLOWTECH FLUIDPOWER PLC
("Flowtech" or the "Group" or "Company")
Annual results for the year ended 31 December 2019
Consolidated statement of changes in equity
Shares
owned Merger Currency
Share Share Other Merger by the relief translation Retained Non-controlling Total
capital premium reserve reserve EBT reserve reserve losses interest equity
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Balance at 1
January
2018 26,409 52,370 187 293 (40) 3,194 536 (8,085) - 74,864
Profit for the
year - - - - - - - 4,911 20 4,931
Other
comprehensive
income - - - - - - 128 - - 128
-------------- ------- ------- -------- ------- ------- ------- ----------- -------- --------------- -------
Total
comprehensive
income for
the year - - - - - - 128 4,911 20 5,059
-------------- ------- ------- -------- ------- ------- ------- ----------- -------- --------------- -------
Transactions -
with
owners
Issue of share
capital 3,450 8,423 - - - 381 - - - 12,254
Share owned by
the
EBT - - - - (650) - - - - (650)
Issue of
shares
in exchange
for
shares in
subsidiary
undertaking 601 - - - - - - (1,303) - (702)
Share-based
payment
charge - - - - - - - 191 - 191
Share options
settled - - - - 277 - - (302) - (25)
Equity
dividends
paid (note 8) - - - - - - - (3,558) - (3,558)
-------------- ------- ------- -------- ------- ------- ------- ----------- -------- --------------- -------
Total
transactions
with owners 4,051 8,423 - - (373) 381 - (4,972) - 7,510
-------------- ------- ------- -------- ------- ------- ------- ----------- -------- --------------- -------
Balance at 1
January
2019 30,460 60,793 187 293 (413) 3,575 664 (8,146) 20 87,433
Profit for the
year - - - - - - - 3,739 - 3,739
Other
comprehensive
income - - - - - - (420) 26 - (394)
-------------- ------- ------- -------- ------- ------- ------- ----------- -------- --------------- -------
Total
comprehensive
income for
the year - - - - - - (420) 3,765 - 3,345
-------------- ------- ------- -------- ------- ------- ------- ----------- -------- --------------- -------
Transactions
with
owners
Issue of share
capital 25 45 - - - - - - - 70
Purchase of
minority
shares - - - - - - - (270) (20) (290)
Shares issued
as
consideration 94 121 - - - 24 - - - 239
Other
movements
in share
capital - - - - - - - 133 - 133
Share-based
payment
charge - - - - - - - 143 - 143
Share options
settled - - - - 41 - - 169 - 210
Equity
dividends
paid (note 8) - - - - - - - (3,749) - (3,749)
Total
transactions
with owners 119 166 - - 41 25 - (3,575) (20) (3,244)
-------------- ------- ------- -------- ------- ------- ------- ----------- -------- --------------- -------
Balance at 31
December
2018 30,579 60,959 187 293 (372) 3,599 244 (7,955) - 87,534
-------------- ------- ------- -------- ------- ------- ------- ----------- -------- --------------- -------
FLOWTECH FLUIDPOWER PLC
("Flowtech" or the "Group" or "Company")
Annual results for the year ended 31 December 2019
2019 2018
Audited Audited
Consolidated statement of cash flows Note GBP000 GBP000
--------------------------------------------------------- ---- -------- --------
Cash flow from operating activities
Net cash from operating activities (*) 11 13,246 3,790
--------------------------------------------------------- ---- -------- --------
Cash flow from investing activities
Acquisition of businesses, net of cash acquired 9 (38) (9,703)
Acquisition of property, plant and equipment (756) (1,343)
Proceeds from sale of property, plant and equipment 39 64
Payment of deferred and contingent consideration (2,635) (3,546)
--------------------------------------------------------- ---- -------- --------
Net cash used in investing activities (3,390) (14,528)
--------------------------------------------------------- ---- -------- --------
Cash flows from financing activities
Net proceeds from issue of share capital 70 10,161
Net change in short-term borrowings - 1,000
Repayment of Right-of-use lease liabilities (*) (1,561) -
Repayment of lease liabilities (71) (343)
Interest on right-of-use leases (*) (282) -
Other interest paid (756) (722)
Proceeds from sale of shares held by EBT 47 276
Share option payments to staff (61) -
Dividends paid 7 (3,749) (3,558)
--------------------------------------------------------- ---- -------- --------
Net cash (used in) / generated from financing activities (6,363) 6,813
--------------------------------------------------------- ---- -------- --------
Net change in cash and cash equivalents 3,493 (3,925)
Cash and cash equivalents at start of year 253 4,199
Exchange differences on cash and cash equivalents (300) (21)
--------------------------------------------------------- ---- -------- --------
Cash and cash equivalents at end of year 3,446 253
--------------------------------------------------------- ---- -------- --------
Cash and cash equivalents 3,446 2,248
Bank overdraft - (1,995)
--------------------------------------------------------- ---- -------- --------
Cash and cash equivalents at end of year 3,446 253
--------------------------------------------------------- ---- -------- --------
(*) Following adoption of IFRS 16, payment of GBP1,843k of
operating lease rentals have been reclassified from operating cash
flow to repayment of lease liability under financing activity
GBP1,561k and repayment of interest on right of use lease liability
of GBP282k.
Reconciliation of liabilities arising from financing
activities
The changes in the Group's liabilities arising from financing
activities can be classified as follows:
Finance Right-of-use
Long-term Short-term Lease lease liabilities
borrowings borrowings liabilities GBP000 Total
GBP000 GBP000 GBP000 GBP000
-------------------- ----------- ----------- ------------ ------------------ -------
At 1 January 2018 4,000 15,000 159 - 19,159
Cash flows:
Repayment - - (343) - (343)
Proceeds - 1,000 - - 1,000
Non cash:
Acquisition - - 318 - 318
-------------------- ----------- ----------- ------------ ------------------ -------
At 31 December 2018 4,000 16,000 134 - 20,134
-------------------- ----------- ----------- ------------ ------------------ -------
Finance Right-of-use
Long-term Short-term Lease lease liabilities
borrowings borrowings liabilities GBP000 Total
GBP000 GBP000 GBP000 GBP000
--------------------------------------------- ----------- ----------- ------------ ------------------ -------
At 1 January 2019 4,000 16,000 134 - 20,134
--------------------------------------------- ----------- ----------- ------------ ------------------ -------
Transition to IFRS 16 as at 1 January
2019 - - - 9,047 9,047
Cash flows:
Repayment - - (71) (1,561) (1,632)
Proceeds - - - - -
Other movements - - - (96) (96)
Non cash:
Additions to right-of-use assets in exchange
for increased lease liabilities - - - 980 980
--------------------------------------------- ----------- ----------- ------------ ------------------ -------
At 31 December 2019 4,000 16,000 63 8,370 28,433
--------------------------------------------- ----------- ----------- ------------ ------------------ -------
FLOWTECH FLUIDPOWER PLC
("Flowtech" or the "Group" or "Company")
Notes to the Financial statements
1. GENERAL INFORMATION
The principal activity of Flowtech Fluidpower plc (the
'Company') and its subsidiaries (together, the 'Group') is the
distribution of engineering components and assemblies,
concentrating on the fluid power industry. The Company is a public
limited company, incorporated and domiciled in the United Kingdom.
The address of its registered office is Bollin House, Bollin Walk,
Wilmslow, SK9 1DP. The registered number is 09010518.
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, Bollin House,
Bollin Walk, Wilmslow, SK9 1DP. Email:
info@flowtechfluidpower.com .
2. ACCOUNTING POLICIES
2.1 BASIS OF PREPARATION
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 December 2019
or 2018 but is derived from those accounts. Statutory accounts for
2018 have been delivered to the registrar of companies with
Companies House, and those for 2019 will be delivered in due
course. The Auditor has reported on those accounts. Their report
for 2019 was unqualified and contains a material uncertainty in
respect of going concern to which the auditor drew attention by way
of emphasis without modifying their report. Their report for the
accounts of 2018 was unqualified and did not include a reference of
any matters to which the auditor drew attention by way of emphasis
without qualifying their report.
The full Financial Statements for the year ended 31 December
2019 are to be published on the Company's website, together with
the Notice convening the Company's 2020 Annual General Meeting by 5
May 2020. 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, Bollin House, Bollin Walk, Wilmslow SK9 1DP or email to
info@flowtechfluidpower.com .
New standards adopted as at 1 January 2019
IFRS 16 Accounting for leases has become applicable for the
current reporting period, and the Group had to change its
accounting policies as a result of adopting IFRS 16. The impact of
the adoption of the leasing standard and the new accounting
policies are disclosed below.
The accounting policies set out below have, unless otherwise
stated, been applied consistently to all periods presented in the
consolidated financial statements.
2.2 GOING CONCERN
The financial statements are prepared on a going concern basis
which the directors believe to be appropriate for the following
reasons:
-- The Group generated profit before tax of GBP4.7m in 2019 (2018: 6.9m).
-- The Group is financed by revolving credit and non-amortising
loan facilities totalling GBP20m (recently extended to 30 June
2021) and a GBP5m overdraft facility, repayable on demand.
-- At the end of 2019 the Group's Net Debt was GBP16.6m (GBP8.4m
within the aggregate banking facilities); this position reduced to
GBP15.6m at 31 March 2020 (GBP9.4m within facilities).
The Directors have prepared forecasts covering the period to
December 2021. Naturally these forecasts include a number of key
assumptions notably relating, inter alia, to revenue, margins,
costs and working capital balances.
In any set of forecasts there are inherent risks relating to
each of these assumptions. If future trading performance
significantly underperformed expectations, management believe there
would be the ability to mitigate the impact of this by careful
management of the Group's cost base and working capital and that
this would assist in seeking to ensure all bank covenants were
complied with and the business continued to operate well within its
aggregate GBP25m banking facility.
Prior to COVID-19, results for the first quarter of 2020 were in
line with management expectations. Whilst the Group's trading and
cash flow forecasts have been prepared using current assumptions,
the impact of the COVID-19 pandemic present challenges which could
not previously have been contemplated. Clearly the ultimate impact
of COVID-19 is difficult to predict; as such the Directors have
considered a range of scenarios when stress testing the base
financial forecasts for the period to December 2021. The Directors
have based their stress testing on an assumption of a very
significant reduction in Revenue in Q2 2020 with conditions
remaining difficult for a further nine-month period before
returning to a normal trading pattern by Q2 2021. In such a set of
circumstances, and with the benefit of continued careful working
capital management, the Directors believe it is still likely that
the business would continue to operate within the aggregate GBP25m
banking facility. However, it is possible that the leverage
covenant would be breached; in such a case we would expect to work
with the bank to reset the bank covenants to respond to the
circumstances created by what would have to be a long-standing and
significant COVID-19 impacted period. The Directors also note the
range of Government and banking support which have been announced
for businesses should the need arise.
The Directors have concluded that the potential prolonged impact
of the COVID-19 pandemic on the business represents a material
uncertainty that may cast significant doubt upon the Group and
parent company's ability to continue as a going concern and,
therefore, that it may be unable to realise its assets and
discharge its liabilities in the ordinary course of business.
Nevertheless, after making enquiries, and considering the
uncertainties described above, the Directors have a reasonable
expectation that the Group and parent company has adequate
resources to continue in operational existence for the foreseeable
future. For these reasons, they continue to adopt the going concern
basis in preparing the annual report and accounts.
The financial statements do not reflect any adjustments which
would result from the going concern basis of preparation proving to
be inappropriate.
2.3 CHANGES IN ACCOUNTING POLICIES
The Group has applied IFRS 16 using the modi ed retrospective
approach and therefore the comparative information has not been
restated and continues to be reported under IAS 17. This note
explains the impact of the adoption of IFRS 16 on the Group's
financial statements and discloses the new accounting policies that
have been applied from 1 January 2019. The Group has adopted IFRS
16 retrospectively from 1 January 2019, but has not restated
comparatives for the 2018 reporting period, as permitted under the
specific transitional provisions in the standard. The
reclassifications and the adjustments arising from the new leasing
rules are therefore recognised in the opening balance sheet on 1
January 2019.
2.3.1 Adjustments recognised on adoption of IFRS 16
On adoption of IFRS 16, the Group recognised lease liabilities
in relation to leases which had previously been classified as
'operating leases' under the principles of IAS 17 Leases. These
liabilities were measured at the present value of the remaining
lease payments, discounted using the Group's incremental borrowing
rate as of 1 January 2019. The weighted average incremental
borrowing rate applied to the lease liabilities on 1 January 2019
was 3.2%. In applying IFRS 16 for the first time, the Group has
used the following practical expedients permitted by the
standard:
-- the use of a single discount rate to a portfolio of leases
with reasonably similar characteristics;
-- reliance on previous assessments on whether leases are onerous;
-- the accounting for operating leases with a remaining lease
term of less than 12 months as at 1 January 2019 as short-term
leases;
-- the exclusion of initial direct costs for the measurement of
the right-of-use asset at the date of initial application; and
-- the use of hindsight in determining the lease term where the
contract contains options to extend or terminate the lease. The
Group has also elected not to reassess whether a contract is or
contains a lease at the date of initial application. Instead, for
contracts entered into before the transition date the Group relied
on its assessment made applying IAS 17 and IFRIC 4 Determining
whether an Arrangement contains a Lease.
2.3.2 Impact of transition to IFRS 16
Audited
GBP000
---------------------------------------------------------------------- -------
Operating lease commitments disclosed as at December 2018 (Restated)
(*) 9,209
Operating lease commitments discounted using the lessee's incremental
borrowing rate at the date of initial application (1,370)
(Less): short-term leases recognised on a straight-line basis
as expense (54)
(Less): low-value leases recognised on a straight-line basis as
expense (79)
Add/(less): adjustments as a result of a different treatment of
extension and termination options 1,253
Other movements 88
---------------------------------------------------------------------- -------
Lease liability recognised as at 1 January 2019 9,047
---------------------------------------------------------------------- -------
(*) Following a detailed review of the lease commitments on
transition to IFRS 16, the opening balance of the operating lease
commitments in respect of Land and Building disclosed as at 31
December 2018 was corrected.
The associated right-of-use assets for property leases and other
assets were measured at the amount equal to the lease liability,
adjusted by the amount of any prepaid or accrued lease payments
relating to that lease recognised in the balance sheet as at 31
December 2018. There were no onerous lease contracts that would
have required an adjustment to the right-of-use assets at the date
of initial application.
31 December 1 January
2019 2019
GBP000 GBP000
-------------------------- ----------- ---------
Land and property 7,504 8,343
Motor vehicles 724 704
-------------------------- ----------- ---------
Total right-of-use assets 8,228 9,407
-------------------------- ----------- ---------
The change in accounting policy affected the following items in
the balance sheet on 1 January 2019:
-- Right-of-use assets - increase by GBP9,047k.
-- Lease liabilities - increase by GBP9,047k.
The net impact on retained earnings on 1 January 2019 was nil.
For the year ending 31 December 2019, operating lease rentals of
GBP1,833K have been restated as depreciation GBP1,701k, exchange
gain GBP15k and finance costs GBP282k. Operating profit has
increased by GBP147k whereas profit before tax has reduced by
GBP135k. As a result, earnings per share for the year ending 31
December 2019 reduced by 0.22 pence per share.
2.3.3 The Group's leasing activities and how these are accounted
for
The Group leases various offices, warehouses, and motor
vehicles. Rental contracts are typically made for fixed periods of
up to 12 years but may have extension options as described in (ii)
below. Lease terms are negotiated on an individual basis and
contain a wide range of different terms and conditions. The lease
agreements do not impose any covenants, but leased assets may not
be used as security for borrowing purposes.
Until the 2018 financial year, leases of property, plant and
equipment were classified as either finance or operating leases.
Payments made under operating leases (net of any incentives
received from the lessor) were charged to profit or loss on a
straight-line basis over the period of the lease.
From 1 January 2019, operating leases are recognised as a
right-of-use asset and a corresponding liability at the date at
which the leased asset is available for use by the Group. Each
lease payment is allocated between the liability and finance cost.
The finance cost is charged to profit or loss over the lease period
so as to produce a constant periodic rate of interest on the
remaining balance of the liability for each period. The
right-of-use asset is depreciated over the shorter of the asset's
useful life and the lease term on a straight-line basis.
Assets and liabilities arising from a lease are initially
measured on a present value basis. Lease liabilities include the
net present value
of the following lease payments:
-- fixed payments (including in-substance fixed payments), less
any lease incentives receivable;
-- variable lease payments that are based on an index or a rate;
-- amounts expected to be payable by the lessee under residual value guarantees;
-- the exercise price of a purchase option if the lessee is
reasonably certain to exercise that option; and
-- payments of penalties for terminating the lease, if the lease
term reflects the lessee exercising that option.
The lease payments are discounted using the interest rate
implicit in the lease. If that rate cannot be determined, the
lessee's incremental borrowing rate is used, being the rate that
the lessee would have to pay to borrow the funds necessary to
obtain an asset of similar value in a similar economic environment
with similar terms and conditions.
Right-of-use assets are measured at cost comprising the
following:
-- the amount of the initial measurement of lease liability;
-- any lease payments made at or before the commencement
-- date less any lease incentives received;
-- any initial direct costs; and
-- restoration costs.
Payments associated with short-term leases and leases of
low-value assets are recognised on a straight-line basis as an
expense in profit or loss. Short-term leases are leases with a
lease term of 12 months or less. Low-value assets comprise IT
equipment and small items of office furniture.
There are no leases with variable lease payments.
(i) Extension and termination options
Extension and termination options are included in a number of
property and equipment leases across the Group. These terms are
used to maximise operational flexibility in terms of managing
contracts. The majority of extension and termination options held
are exercisable only by the Group and not by the respective
lessor.
Critical judgements in determining the lease term
In determining the lease term, management considers all facts
and circumstances that create an economic incentive to exercise an
extension option, or not exercise a termination option. Extension
options (or periods after termination options) are only included in
the lease term if the lease is reasonably certain to be extended
(or not terminated). No potential future cash outflows have been
included in the lease liability because it is not reasonably
certain that the leases will be extended (or not terminated). The
assessment is reviewed if a significant event or a significant
change in circumstances occurs which affects this assessment and
that is within the control of the lessee.
(ii) Residual value guarantees
To optimise lease costs during the contract period, the Group
sometimes provides residual value guarantees in relation to
equipment leases.
Estimating the amount payable under residual value
guarantees
The Group initially estimates and recognises amounts expected to
be payable under residual value guarantees as part of the lease
liability. The amounts are reviewed, and adjusted if appropriate,
at the end of each reporting period. At the end of reporting
period, there is no liability on account of residual value
guarantees.
2.4 REVENUE
Revenue from sale of goods
Revenue for sale of goods is the total amount receivable by the
Group for goods supplied, excluding VAT and discounts. Revenue from
the sale of goods is recognised in the income statement at a point
in time at the point of despatch, when the control passes to the
customer.
Revenue for sale of goods includes income from delivery charged
to customers, excluding VAT. Delivery income is recognised at the
same time as the corresponding revenue for sale of goods and is a
single combined performance obligation.
Revenue from services
Service revenues comprise installation and maintenance work at
client sites. Revenue from onsite work that is standard and
on-going (as opposed to bespoke) is recognised when the performance
obligations under the work order are completed and acknowledged by
the customer, in accordance with the terms and conditions of the
work order. Very occasionally, where routine maintenance work is
agreed as part of a contract covering a year or number of years,
the performance obligation is considered to be discharged evenly
through the term of the contract and revenue is recognised over the
life of the contract. Warranties offered to customers are usually
on the back of warranties offered by suppliers of spare parts and
involve negligible costs to the business. Revenue form bespoke
longer-term services is accounted for in accordance with the policy
on Revenue from contracts described below.
Revenue from contracts
Most contracts received by the Group involve shipping goods
without customisation or further service, and revenue from these is
recognised at a point in time as described above. Some contracts
involve providing an end to end solution, involving design,
customisation, installation and commissioning that can last several
months or years. The goods and services under such contracts
represent a single combined performance obligation over which
control is transferred over a period. The combined product is
unique to each customer (has no alternative use) and the Group has
an enforceable right to payment for the work completed to date. The
contracts contain milestones and the Group is entitled to stage
payments on completion of the milestones. Revenues from such
contracts is recognised based upon its stage of completion. Revenue
is measured on an output basis, as the transfer of economic benefit
depends on the value transferred relative to the remaining goods
and services promised under the contract.
2.5 COST OF SALES
Cost of sales includes all costs incurred up to the point of
despatch including operating expenses of the warehouse.
2.6 DISTRIBUTION EXPENSES
Distributions costs are costs directly relating to despatch of
goods and indirect costs including advertising and other sales
related expenses.
2.7 OPERATING SEGMENTS
In the current year, the Group has decided to monitor and report
business performance based on two segments, Components and
Services:
-- Components - supply of both hydraulic and pneumatic
consumables, predominantly through distribution for maintenance and
repair operations across all industry markets, but supported by
supply agreements direct to a broad range of OEMs.
-- Services - bespoke design, manufacturing, commissioning,
installation and servicing of systems to manufacturers of
specialised industrial and mobile hydraulic original equipment
manufacturers (OEMs) and additionally a wide range of industrial
end users. Capital project-based revenue.
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.
2.8 RESTATEMENT OF PRIOR YEAR FINANCIAL STATEMENT
Over the years, the Group has evolved its offer of value-added
delivery services to its customers, and now holds a sector-leading
position with respect to ecommerce trading. In response to the
changing emphasis in fulfilment capabilities and the opportunities
for enhancement of revenue, the management has reassessed and
re-aligned its accounting policies with respect to income from
delivery charged to customers and ensured these are applied
consistently across the Group. All delivery income, excluding VAT
will henceforth be included in revenue from sale of goods and shall
no longer be netted off against delivery costs. The 2018 financial
statements presented within this Annual Report have been restated
to reflect GBP1,057k of delivery income in Revenue. These have been
re-categorised from cost of sales and distribution costs as shown
in the table below. There is no impact of the reclassification on
reported profit or EPS for 2018 or on the opening reserves for
2019.
Consolidated income statement for 31 December 2018
Restated Original Variance
GBP000 GBP000 GBP000
---------------------------------- -------- -------- --------
Revenue 112,108 111,051 1,057
Cost of sales (73,159) (72,447) (712)
Gross profit 38,949 38,604 345
Distribution expenses (4,561) (4,216) (345)
Operating profit 7,678 7,678 -
Profit from continuing operations 4,931 4,931 -
Gross profit % to revenue 34.76 34.74 2bps
---------------------------------- -------- -------- --------
3. SEGMENT REPORTING
Management has decided to consolidate the operating segments of
the business into two - Components and Services as explained in
note 2.7. These operating segments are monitored by the Group's
Chief Operating Decision Maker and strategic decisions are made on
the basis of adjusted segment operating results. Inter-segment
revenue arises on the sale of goods between Group undertakings.
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 result from continuing operations is shown
below. The principal adjustments made are in respect of the
separately disclosed items as detailed in note 4; the Directors
consider that these should be reported separately as they do not
relate to the performance of the segments.
Central costs relate to the Service Centre team and central
activities, Executive Management team, plc costs and finance
expenses associated with Group loans as detailed in note 5 and
separately disclosed items, as detailed in note 4.
Segment information for the reporting periods are as
follows:
For the year ended 31 December 2019
Total
Inter-segmental Central continuing
Components Services transactions Costs operations
Audited Audited Audited Audited Audited
GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------------- ---------- -------- --------------- -------- -----------------
Income statement - continuing
operations:
Revenue from external customers 96,348 16,070 - - 112,418
Inter-segment revenue 3,199 232 (3,431) - -
-------------------------------- ---------- -------- --------------- -------- -----------------
Total revenue 99,547 16,302 (3,431) - 112,418
-------------------------------- ---------- -------- --------------- -------- -----------------
Underlying operating result
(*) 13,995 (59) - (4,329) 9,607
Net financing costs (++) (46) (2) - (708) (756)
-------------------------------- ---------- -------- --------------- -------- -----------------
Underlying profit before
tax 13,949 (61) - (5,037) 8,851
Impact of fair value adjustment
to inventory (297) - - - (297)
Impact of re-statement under
IFRS 16 on profit before
tax (126) 1 - (10) (135)
Separately disclosed items
(see note 4) (1,114) (689) - (1,909) (3,712)
-------------------------------- ---------- -------- --------------- -------- -----------------
Profit before tax 12,412 (749) - (6,956) 4,707
-------------------------------- ---------- -------- --------------- -------- -----------------
Specific disclosure items -
Depreciation on owned, plant,
property and equipment 763 153 - - 916
Depreciation on right-of-use
assets 1,503 92 - 106 1,701
Amortisation 927 124 - - 1,051
-------------------------------- ---------- -------- --------------- -------- -----------------
Reconciliation of underlying -
operating result to operating
profit:
Underlying operating result
(*) 13,995 (59) - (4,329) 9,607
Impact of fair value adjustment
to inventory (297) - - - (297)
Impact of re-statement under
IFRS 16 on operating profit 143 6 - (2) 147
Separately disclosed items
(see note 4) (1,114) (689) - (1,909) (3,712)
-------------------------------- ---------- -------- --------------- -------- -----------------
Operating profit / (loss) 12,727 (742) - (6,240) 5,745
-------------------------------- ---------- -------- --------------- -------- -----------------
(*) Underlying operating result is continuing operations'
operating profit before separately disclosed items (Note 4), the
impact of fair value adjustment to inventory (Note 3) and IFRS 16
(Note 2.3).
The fair value uplift of inventory acquired through business
combinations is recognised in accordance with IFRS 3 'Business
Combinations' to record the inventory acquired at fair value and
its subsequent release into the income statement.
(++) Following adoption of IFRS 16, operating lease rentals of
GBP1,833K have been restated as depreciation GBP1,701k, exchange
gain GBP15k and finance costs GBP282k.
Operating profit increases by GBP147k whereas profit before tax
reduces by GBP135k.
For the year ended 31 December 2018
Segment information for 2018 has been re-stated following the
consolidation of segments into Components and Services.
Total
Inter-segmental Central continuing
Components Services transactions Costs operations
Audited Audited Audited Audited Audited
GBP000 GBP000 GBP000 GBP000 GBP000
-------------------------------- ---------- -------- --------------- -------- -----------
Income statement - continuing
operations:
Revenue from external customers
( ) 94,581 17,527 - - 112,108
Inter-segment revenue 2,894 60 (2,954) - -
-------------------------------- ---------- -------- --------------- -------- -----------
Total revenue 97,745 17,587 (2,954) - 112,108
-------------------------------- ---------- -------- --------------- -------- -----------
Underlying operating result 14,254 314 - (3,187) 11,381
Net financing (costs)/income (127) 1 - (629) (755)
-------------------------------- ---------- -------- --------------- -------- -----------
Underlying profit before
tax 14,127 315 - (3,816) 10,626
Impact of fair value adjustment
to inventory (382) - - - (382)
Separately disclosed items
(see note 4) (2,015) 162 - (1,468) (3,321)
-------------------------------- ---------- -------- --------------- -------- -----------
Profit before tax 11,730 477 - (5,284) 6,923
-------------------------------- ---------- -------- --------------- -------- -----------
Specific disclosure items -
Depreciation 842 99 - - 941
Amortisation 916 124 - - 1,040
-------------------------------- ---------- -------- --------------- -------- -----------
Reconciliation of underlying -
operating result to operating
profit:
Underlying operating result* 14,254 314 - (3,187) 11,381
Impact of fair value adjustment
to inventory (382) - - - (382)
Separately disclosed items
(see note 4) (2,015) (162) - (1,468) (3,321)
-------------------------------- ---------- -------- --------------- -------- -----------
Operating profit/(loss) 11,857 476 - (4,655) 7,678
-------------------------------- ---------- -------- --------------- -------- -----------
(*) Underlying operating result is continuing operations'
operating profit before separately disclosed items (Note 4) and the
impact of fair value adjustment to inventory (Note 3). The fair
value uplift of inventory acquired through business combinations is
recognised in accordance with IFRS 3 'Business Combinations' to
record the inventory acquired at fair value and its subsequent
release into the income statement.
( ) Prior year valves have been restated as described in note
2.30.
Geographical and category analysis of revenue The Group operates
primarily in the UK, The Netherlands, Belgium and Republic of
Ireland. Revenue generated from distribution of hydraulic and
pneumatic consumables, bespoke manufacture, commissioning and
installation of equipment are categorised as sale of goods. Income
from on-site services and revenue arising from contracts is
disclosed separately.
31 December 2019 31 December 2018
Sale
Sale of
of Total Non-current goods Total Non-current
goods Services Revenue assets (*) Contracts Services Revenue assets
GBP000 ContractsGBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
United
Kingdom 86,757 744 2,274 89,775 79,318 84,943 732 1,916 87,591 75,701
Europe 21,589 - - 21,589 5,025 22,606 - - 22,606 1,680
Rest of
the
World 1,054 - - 1,054 - 1,911 - - 1,911 -
-------- ------- --------------- --------- -------- ----------- ------- --------- --------- ------- ------------
Total 109,400 744 2,274 112,418 84,343 109,460 732 1,916 112,108 77,381
-------- ------- --------------- --------- -------- ----------- ------- --------- --------- ------- ------------
(*) Prior year values have been re-stated as described in Note
2.8.
Revenue from contracts that cross over into 2020 are accounted
for in accordance with IFRS 15.
No customers of the Group account for 10% or more of the Group's
revenue for either of the years ended 31 December 2019 or 2018.
Non-current assets are allocated based on their physical
location.
4. SEPARATELY DISCLOSED ITEMS
2019 2018
Audited Audited
GBP000 GBP000
----------------------------------------------------------- -------- --------
Separately disclosed items within administration expenses:
----------------------------------------------------------- -------- --------
Acquisition costs 183 824
Amortisation of acquired intangibles 1,051 1,040
Share-based payment costs 143 191
Restructuring 1,739 1,002
Changes in amounts accrued for contingent consideration 596 264
----------------------------------------------------------- -------- --------
Total separately disclosed items 3,712 3,321
----------------------------------------------------------- -------- --------
-- Acquisition costs relate to stamp duty, due diligence, legal
fees, finance fees and other professional costs incurred in the
acquisition of businesses.
-- Share-based payment costs relate to charges made in
accordance with IFRS 2 'Share-based payment' following the issue of
share options to employees.
-- Restructuring costs relate to restructuring activities of an
operational nature following acquisition of business units and
other restructuring activities in established businesses. Costs
include consultancy for operational cost reviews, provision for
stock in respect of businesses moving to integrated warehousing
facilities, employee redundancies and IT integration.
5. FINANCIAL INCOME AND EXPENSES
Finance income for the year consists of the following:
-------------------------------------------------------- -------- --------
2019 2018
Audited Audited
GBP000 GBP000
-------------------------------------------------------- -------- --------
Finance income arising from:
Fair value gains on forward exchange contracts held for
trading - 11
-------------------------------------------------------- -------- --------
Total finance income - 11
-------------------------------------------------------- -------- --------
Finance expenses for the year consist of the following:
2019 2018
Audited Audited
GBP000 GBP000
---------------------------------------------------------- ------------ --------
Finance expense arising from:
Interest on invoice discounting and stock loan facilities - 20
Interest on revolving credit facility and bank overdraft 591 454
Lease interest 19 21
Right-of-use liability interest under IFRS 16 (*) 282 -
Bank loans 117 191
Other credit related interest 1 17
---------------------------------------------------------- ------------ --------
Total bank and other credit interest 1,010 703
Imputed interest on deferred and contingent consideration 28 63
Total non-credit related interest 28 63
---------------------------------------------------------- ------------ --------
Total finance expense 1,038 766
---------------------------------------------------------- ------------ --------
(*) Following implementation of IFRS 16, assets under qualifying
operating leases have been capitalised as 'Right-of-use Assets'.
Lease rental cost is now replaced by depreciation charge and
implied interest calculated on each qualifying lease.
6. TAXATION
Recognised in the income statement
2019 2018
Audited Audited
Continuing operations: GBP000 GBP000
-------------------------------------------------- -------- --------
Current tax expense
Current year charge 888 1,623
Overseas tax 324 164
Adjustment in respect of prior periods (12) 202
-------------------------------------------------- -------- --------
Current tax expense 1,200 1,989
Deferred tax
Origination and reversal of temporary differences (169) (24)
Adjustment in respect of prior periods (63) 27
Change in tax rate - -
-------------------------------------------------- -------- --------
Deferred tax (credit) / charge (232) 3
Total tax expense - continuing operations 968 1,992
-------------------------------------------------- -------- --------
Reconciliation of effective tax rate
2019 2018
Audited Audited
GBP000 GBP000
------------------------------------------------------------------ -------- --------
Profit for the year 3,739 4,931
Total tax expense 968 1,992
------------------------------------------------------------------ -------- --------
Profit excluding taxation 4,707 6,923
------------------------------------------------------------------ -------- --------
Tax using the UK corporation tax rate of 19.00% (2018: 19.00%) 894 1,315
Deferred tax movements not recognised 26 (40)
Effect of share option exercises - (38)
Effect of tax rates in foreign jurisdictions (34) (47)
Impact of change in tax rate on deferred tax balances (5) (4)
Deferred tax arising on acquisition - (6)
Income not taxable (25) (314)
Amounts not deductible 187 897
Adjustment in respect of prior periods (75) 229
------------------------------------------------------------------ -------- --------
Total tax expense in the income statement - continuing operations 968 1,992
------------------------------------------------------------------ -------- --------
Change in corporation tax rate
A reduction in the UK corporation tax rate from 19% to 17%
(effective from 1 April 2020) was substantively enacted on 6
September 2016, and the UK deferred tax asset/(liability) as at 31
December 2019 has been calculated based on this rate. In the 11
March 2020 Budget, it was announced that the UK tax rate will
remain at the current 19% and not reduce to 17% from 1 April 2020.
This change was substantively enacted post year end and therefore
the deferred taxes at the balance sheet date continue to be
measured at the enacted tax rate of 17%.
7. DIVIDS PAID
2019 2018
Audited Audited
GBP000 GBP000
-------------------------------------------------- -------- --------
Final dividend of 4.04p (2018: 3.85p) per share 2,453 2,330
Interim dividend of 2.13p (2018: 2.03p) per share 1,296 1,228
-------------------------------------------------- -------- --------
Total dividends 3,749 3,558
-------------------------------------------------- -------- --------
In the light of the economic uncertainty due to COVID-19, the
Directors have suspended all dividend payments in order to retain
as much cash in the business as possible. Therefore, no further
dividend will be paid in respect of the financial year ended 31
December 2019 (2018: 4.04p).
8. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the earnings
attributable to ordinary Shareholders by the weighted average
number of ordinary shares during the year.
For diluted earnings per share the weighted average number of
ordinary shares in issue is adjusted to assume conversion of all
dilutive potential ordinary shares. The dilutive shares are those
share options granted to employees where the exercise price is less
than the average market price of the Company's ordinary shares
during the year.
Year ended 31 December
2019 Year ended 31 December 2018
Weighted
Earnings average Earnings Earnings Weighted Earnings
Audited number per share Audited average number per share
GBP000 of shares Pence GBP000 of shares Pence
--------------------------- -------- ---------- ---------- -------- --------------- ----------
Basic earnings per share -
Continuing operations 3,739 61,067 6.12 4,911 58,889 8.34
--------------------------- -------- ---------- ---------- -------- --------------- ----------
Diluted earnings per share
- Continuing operations 3,739 61,286 6.10 4,911 59,278 8.28
--------------------------- -------- ---------- ---------- -------- --------------- ----------
2019 2018
Audited Audited
GBP000 GBP000
---------------------------------------------------------------- -------- --------
Weighted average number of ordinary shares for basic and
diluted earnings per share 61,067 58,889
Impact of share options 219 389
---------------------------------------------------------------- -------- --------
Weighted average number of ordinary shares for diluted earnings
per share 61,286 59,278
---------------------------------------------------------------- -------- --------
9. ACQUISITIONS & DISPOSALS
Acquisition of minority interest in Derek Lane & Co
Limited
The Company entered into an agreement to purchase the minority
shareholding of Derek Lane & Co. Limited for a total maximum
consideration of GBP300,000, including initial consideration of
GBP38,250 in consideration shares and GBP38,250 in cash. The
remaining consideration is deferred and is subject to performance
criteria ('contingent consideration'). The contingent consideration
will become payable in 2020. On 29 July 2019, the Company issued
28,760 ordinary shares of 50 pence each in the Company
('consideration shares') at a price of GBP1.33 per share in part
settlement of the initial consideration for the minority
shareholding in Derek Lane & Co. Limited. It also made a cash
payment of GBP38,250 to the minority shareholders as part
settlement of the purchase consideration. Based on the performance
of the underlying business, the Accounts contain an accrual of
GBP213,877 towards settlement of the contingent consideration. The
liability will be discharged by issuing number of ordinary shares
in Flowtech Fluidpower Plc. The total investment value of
GBP290,377 has been accounted for as a charge to retained
earnings.
10. EQUITY
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 GBP000
------------------------------------------------------------------- ---------- ------
Allotted and fully paid ordinary shares of 50p each at 31 December
2019 61,157,124 30,579
Shares authorised for share-based payments 6,666,667 3,333
------------------------------------------------------------------- ---------- ------
Total shares authorised at 31 December 2019 67,823,791 33,912
------------------------------------------------------------------- ---------- ------
Number GBP000
------------------------------------------------------------------- ---------- ------
Allotted and fully paid ordinary shares of 50p each
At 1 January 2019 60,920,383 30,460
Shares issued in respect of exercise of employee share options 50,000 25
Shares issued in respect of settlement of contingent consideration 157,981 80
Shares issued in respect of acquisition of minority interest
(note 9) 28,760 14
At 31 December 2019 61,157,124 30,579
------------------------------------------------------------------- ---------- ------
On 16 May 2019, 157,981 ordinary shares of 50p each were issued
at 126.6 pence each to Vendors of Hydraulics and Transmissions
Limited to settle contingent consideration owed to the vendors.
On 13 June 2019, 50,000 ordinary shares of 50p each were issued
at 140 pence each on exercise of share options by an employee.
On 29 July 2019, the Company issued 28,760 ordinary shares of 50
pence each in the Company ('Consideration Shares') at a price of
GBP1.33 per share in part settlement of the initial consideration
for the minority shareholding in Derek Lane & Co. Limited.
11. NET CASH FROM OPERATING ACTIVITIES
2019 2018
Audited Audited
GBP000 GBP000
----------------------------------------------------------- -------- --------
Reconciliation of profit before taxation to net cash flows
from operations
Profit from continuing operations before tax 4,707 6,923
Depreciation on property, plant and equipment 916 941
Depreciation on Right-of-use assets (IFRS 16) 1,701 -
Financial income - (11)
Financial expense 756 766
Finance cost on Right-of-use assets (IFRS 16) 282 -
Loss / (Profit) on sale of plant and equipment 6 (9)
Amortisation of intangible assets 1,051 1,040
Profit on sale of shares 140 -
Cash settled share options - (23)
Equity-settled share-based payment charge 143 191
Change in amounts accrued for contingent consideration 596 264
Other financial items 123 -
Fair value adjustment to stock 12 -
----------------------------------------------------------- -------- --------
Operating cash inflow before changes in working capital
and provisions 10,433 10,082
Change in trade and other receivables 4,006 (1,509)
Change in stocks 4,667 (844)
Change in trade and other payables (2,862) (2,843)
Change in provisions 18 (23)
----------------------------------------------------------- -------- --------
Cash generated from operations 16,262 4,863
Tax paid (3,016) (1,073)
----------------------------------------------------------- -------- --------
Net cash generated from operating activities 13,246 3,790
----------------------------------------------------------- -------- --------
12. SUBSEQUENT EVENTS
On 21 April 2020, the Company released a trading update
statement dealing with trading for the financial year to date, the
net debt position, restructuring activities and an outlook
statement with specific reference to the latest situation regarding
the impact of the COVID-19 pandemic. That statement is reproduced
below. There have been no significant changes to the matters set
out in the statement since 21 April 2020.
Results for 3 months to 31 March 2020
Period Period
2020 2019
Unaudited Unaudited
GBPm GBPm Change
----------------------------------- ---------- ---------- -------
Revenue by Division:
Components 22.9 26.0 (11.9%)
Services 4.0 4.0 0.0%
----------------------------------- ---------- ---------- -------
Total Group revenue for the period 26.9 30.0 (10.3%)
----------------------------------- ---------- ---------- -------
Net debt ( ) 15.6 20.5
----------------------------------- ---------- ---------- -------
( ) Net debt excludes IFRS16 lease debt.
Trading
Prior to the COVID-19 lockdown, Q1 performance was in line with
our expectations: down on the buoyant conditions seen in early
2019, but with a return to growth in customer order patterns and
outlook. However, the final few weeks of the Period created an
altogether different position going into Q2. Many of our suppliers
and customers suspended operations, although recent indications
suggest that some have either already reopened or are planning to
reopen in May, albeit with reduced capacity. The most marked effect
of the current situation has been in our Components segment, which
are those Profit Centres where most sales are directly into OEMs.
The Services segment had a good order book coming into the year,
and whilst it was also affected by the downturn in late March,
revenue for the quarter remained flat year on year.
While there are no first quarter industry statistics currently
available from the BFPDA* or BFPA**, the Board believes that the
Group has generally traded in line with the sector during the
period.
Net debt/cash flow
Net debt at 31 March 2020 was GBP15.6m, a GBP1m reduction from
the position at 31 December 2019 and well within our aggregate
banking facilities of GBP25m. Net cash flow in April has been as
expected, and whilst we have not entered the end of month
collection period, we expect receipts to be received in full albeit
with some slight delays in timing. We believe this should not
create any significant disruption to the overall cash flow
cycle.
Restructuring activities
In February 2020, we announced a major restructuring programme
to transition warehousing and picking operations to more efficient
centres. In the UK, we are currently closing four warehousing
facilities, the annualised savings from which are estimated to be
GBP1.6m, with a GBP0.8m impact/benefit in 2020. The cash cost of
this restructuring is estimated at GBP1.8m, of which GBP0.5m was
incurred in 2019. We are pleased to confirm that this complex and
tightly managed project is on time and within budget. Since safe
working guidance was introduced last month, costs have been reduced
by a combination of internal actions and the utilisation of
'furlough' or equivalent schemes introduced in the UK, Republic of
Ireland, and the Netherlands. We estimate that our cost base has
fallen by around 25%, with further savings still to come from our
restructuring activities. We will continue to pursue our
rationalisation and cost reduction programmes, creating operational
efficiencies in our procurement, logistics, sales and back office
activities.
Outlook
Whilst the full impact of the COVID-19 lockdown remains unclear,
it is not possible to make any accurate predictions for the
remainder of the year. A significant part of our sales depends on
the manufacturing and construction sectors, both of which have seen
large scale shut-downs. It is possible that these sectors will
begin to reopen during early May, and our current plan is to ensure
that we continue to support/service our customers and react as
quickly and effectively as possible if this were to happen.
However, if there is a need to undertake further cost reductions
should the lockdown extend further into the year, we must ensure
that we are in a position to initiate change without detriment to
our future business and our customers. This being said, the work
undertaken as part of our restructuring activities over the past
twelve months is helping our planning enormously in this
regard.
We also thank all our people for the commitment to the business
and the support of colleagues in these times. Overall, we remain
confident that, despite the disruption, our business should
generate positive cash flow through 2020 and 2021, helping to
further reduce net debt and create a solid platform for growth when
things return to a more normal situation.
The most significant negative impact of the events since the
balance sheet date is the economic disruption caused by the
COVID-19 pandemic and, should this disruption continue for a
prolonged period, the creation of a material uncertainty as to the
ability of the Group to continue as a going concern and realise its
assets and discharge its liabilities in the ordinary course of
business.
Note 2.2 sets out the rationale underpinning the Directors'
expectation that the company has adequate resources to continue in
operational existence for the foreseeable future. The Directors
have also considered the possibility that any tangible assets,
intangible assets and goodwill should be impaired and, based on the
projections described in note 2.2, have determined that no
impairment is necessary. The developing situation regarding the
pandemic is kept under constant review.
The situation at 31 December 2019 was that a limited number of
cases of an unknown virus had been reported to the World Health
Organisation. The subsequent spread of the virus and its
identification as a new coronavirus does not provide additional
evidence about the situation that existed at 31 December 2019, and
it is therefore a non-adjusting event. Accordingly, the financial
position and results of operations as of and for the year ended 31
December 2019 have not been adjusted. The financial position and
results of the Group for future periods will be adjusted as and
when sufficient information on the medium to long-term impact of
COVID-19 becomes available and the prospects of the Company are
determined to have deteriorated to such an extent that necessitates
an impairment provision or other adjustment.
*British Fluid Power Distributors Association.
**British Fluid Power Association.
13. ANNUAL GENERAL MEETING
The Annual General Meeting will be held on 10 June at 10am at
our head office, Flowtech Fluidpower plc, Bollin House, Bollin
Walk, Wilmslow SK9 1DP. In light of the COVID-19 pandemic and
current guidance on social distancing, which includes a prohibition
on public gatherings of more than two people, this year's Annual
General Meeting will be held as a closed meeting. Two Directors
will attend in person to meet the quorum requirements. All other
shareholders and/or representatives will not be permitted to attend
in person. The Annual General Meeting will be purely functional and
comprise of only the formal votes for each resolution with no
business update or Q&A.
FORWARD-LOOKING STATEMENTS
These results were approved by the Board of Directors and
authorised for issue on 30 April 2020. 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 .
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR EAELNASNEEAA
(END) Dow Jones Newswires
April 30, 2020 02:00 ET (06:00 GMT)
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