Flowtech Fluidpower plc (LON: FLO), the leading specialist supplier of technical fluid power components and services announced today its preliminary unaudited results for the year ended 31 December 2018. Audited results for this period are expected to be available later in April.
“I call our increased induction of experienced and skilled managers as ‘putting in a damp-proof course’ where we can realistically achieve long-term prosperity as opposed to the short-term profitability that influences most PLC boards.”
Malcolm Diamond MBE, Chairman
| FINANCIAL HIGHLIGHTS | 2018Unaudited | 2017Audited | |
| · GROUP REVENUE1· GROSS PROFIT % | £111.1m34.8% | £78.3m33.9% | |
| · GROUP OPERATING PROFIT1· GROUP PROFIT BEFORE TAX1 | £7.68m£6.92m | £6.61m£6.04m | |
| · EARNINGS PER SHARE1 | 8.34p | 9.69p | |
| · 5% INCREASE IN DIVIDEND:Ø Half year paidØ Proposed final dividendØ Total for the year | 2.03p4.04p6.07p | 1.93p3.85p5.78p | |
| · NET DEBT | £19.9m | £14.9m |
| 1. | All results relate to continuing operations |
| 2. | Basic Earnings per Share |
| UNDERLYING FINANCIAL HIGHLIGHTS | 2018Unaudited | 2017Audited | |
| · UNDERLYING OPERATING PROFIT3· UNDERLYING PROFIT BEFORE TAX4 | £11.38m£10.68m | £9.08m£8.68m |
| 3. | Underlying operating profit is continuing operations’ operating profit before separately disclosed items (note 3) and the impact of fair value adjustment to inventory (note 8). |
| 4. | Underlying profit before tax is underlying operating profit less total bank and other credit interest (note 4) |
· Revenue growth of 42% on previous year, including organic growth in each division and 5.7% in aggregate
· 0.9% increase in overall gross margin.
· Underlying operating profit growth of 25% on previous year.
· Underlying profit before tax for 2018 in line with market expectations
· Successful acquisition and integration of Balu Limited and its subsidiaries; Beaumanor Engineering and Derek Lane & Co.
· Significant progress with establishing Components and Services divisional structure under single Chief Operating Officer role.
· New Board appointments of Russell Cash as CFO and Bill Wilson as Independent Non-Executive Director and appointment of Bryce Brooks to CEO.
· Executive Management team enhanced and focused on cost and working capital management.
“The Board firmly believes that a profit-sharing culture across the Group focused on a ‘return on capital’ metric at a local level, is one of the keys to developing a sustainable organisation that will reward investors over the long term, and the Executive team has a clear plan to assist all our other Profit Centres in achieving this target by the end of 2019.”
Bryce Brooks, CEO
“There has been a very clear focus on managing working capital towards the end of 2018 and into 2019. We are expecting the 2018 adverse trend to reverse, and progress made in 2019 to date has been very encouraging. Our efforts are spread across each of the three working capital categories and across all areas of our business.”
Russell Cash, CFO
Notes:
The Group has today also released its Trading Update for the three-month period ended 31 March 2019.
GROUP TRADING UPDATE AND FINANCIALS
Group Trading remains in line with expectations. Revenue during the first three months of the current year increased by 14%, of which 4% was organic, with the balance representing acquisitive growth from a full period of trading for Beaumanor Engineering and Derek Lane & Co. which were acquired on 18 March 2018. Both the Flowtechnology and PMC divisions traded well and have continued to do so in early April. The smaller Process division, which is involved in larger order activities, saw a reduction in sales against the comparative quarter, however a return to growth in Q2 is expected.
| Revenue for Q1 2019 | |||
| Divisions: | Q1 2019Unaudited£m | Q1 2018Unaudited£m | Growth |
| Flowtechnology | 13.2 | 10.7 | 23% |
| Power Motion Control (PMC) | 15.3 | 13.9 | 10% |
| Process | 1.6 | 1.9 | -16% |
| Total Group revenue for the period | 30.1 | 26.5 | 14% |
| Net debt | 20.5 | 18.4 |
Overall gross margin % again remains in line with market expectations with continued progress being made with extracting procurement benefits from the expanded Group. Net debt at c.£20.5 million is in line with management expectations. During the period to 31 March the Group made payments under deferred consideration agreements which totalled £762,000. Since that date further payments of deferred consideration totalling £316,000 have also been made.
OUTLOOK
From a point that is now well into 2019, it remains disappointing that at the date of this report we are yet to gain clarity on the probable trading settlement between the United Kingdom and its main European trading partners after Brexit. Despite this our sector has remained resilient and we remain confident that whatever the outcome, any potential short-term effects will be suppressed by the strength of the wider Group and our position as the UK’s leading fluid power distributor.
Following the retirement of former CEO, Sean Fennon, there were clearly challenges to face in transitioning the senior management team into a position well placed to exploit the obvious growth potential that the Group possesses. As part of this transition we are at an advanced stage of developing an amended organisational structure that will move from the previous Flowtechnology, Process and PMC structure into a two-division format based around ‘Components’ and ‘Services’. The key reason for this change is to ensure that we provide the most appropriate structure for the business to extract synergy, both in cost and working capital. As a natural by-product we can then provide investors with a clear picture of the Group’s activities, split between our core ‘distribution’ activities – the Components division (which accounts for c87% of turnover), with the balance in added value activities in engineering services and the manufacture of hydraulic power packs and associated components – the Services division.
There has been a very clear focus on managing working capital and progress made in 2019 to date has been encouraging. Our efforts are spread across each of the three working capital categories and across all areas of our business. In addition, the Board has undertaken an in-depth review of the Group’s total operating cost base and the potential upside from implementing elements of this programme are attractive. During the next quarter the Executive Management team will look to develop this to planning stage and the Board looks forward to updating investors in due course.
