“PBT in line with expectations, whilst the Group’s heightened profile and enhanced technical skills capabilities created in both the UK and Europe has ensured that opportunities for further significant expansion have continued to be presented”
AIM listed specialist technical fluid power products supplier Flowtech Fluidpower plc (LSE:FLO), this morning announced the following unaudited update on its performance for the year ended 31 December 2017 and to the period up to this announcement:
GROUP Trading Update AND FINANCIALS
Revenue for the Year ended 31 December
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Divisions: 2017 2016 Growth
Unaudited Audited
GBP'm GBP'm
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Flowtechnology 37.1 35.1 6%
Power Motion
Control (PMC) 34.5 15.8 118%
Process 6.3 2.9 117%
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Total Group revenue
for the period 77.9 53.8 45%
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Net debt 14.7 13.1
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Group revenue for the year ended 31 December 2017 increased by 45% over 2016, and c.43% in constant currency. After removing the effects of acquisitions, organic sales growth in the year is c.8.0%, which is consistent with the organic growth seen in Q4. For those Profit Centres with a greater bias towards project based work, and, Primary Fluid Power (PMC) and Orange County (Process), order books for the first part of 2018 are well ahead of the same point last year. The short-term outlook therefore remains encouraging.
Divisional Gross margins remain broadly in line with the prior year. As a result of a weightier mix towards the generally lower margin PMC operations, a slight reduction in overall margin % is projected, therefore, the Board expects underlying* Profit before tax for the year ended 31 December 2017 will be in the range GBP8.6m to GBP8.8m, which is in line with market expectations.
Net debt at c.GBP14.7m is marginally above market expectations. The key drivers behind this variance are an increase in stock balances, driven by the desire to maintain service levels to our customers, in the context of a substantial lengthening in industry wide lead times during the second half of 2017, and a continued investment in operational and IT resources to support our developments plans for 2018 and beyond. This includes the refurbishment of the Shared Logistics Centre (referred to below).
ACQUISITONS
During the financial year we have concluded six acquisitions, supported by the successful capital raising in March 2017 of GBP9.6m (after fees and costs):
Region Division Acquired business Location
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UK PMC Hydraulics Ludlow
Process & Transmissions Spennymoor
PMC Orange County Birmingham, Durham,
Group HES Gloucester, Leeds
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Ireland PMC HiPower Hydraulics Belfast, Cork,
Dublin, Manchester
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Benelux Flowtechnology Hewi Slangen Deventer
PMC Hydroflex Brussels, OudBeijerland,
Hydraulics Rotterdam
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Our acquisition activity throughout the year has strengthened our position with important pan-European and global branded suppliers, enhanced our technical strength, and reinforced our position in our current core geographies of UK, Ireland, and Benelux. We have also established an “Onsite Services” operation that will look to leverage off the Group’s wider technical resources in 2018 and beyond.
INVESTMENT FOR THE FUTURE
Work on the refurbishment of the redesigned Shared Logistics Centre was completed with no disruption to customer service and the Skelmersdale site has entered 2018 with an opportunity to deliver operational and stockholding improvements across the Group. This will also provide considerable scope for the profitable integration of future acquisitions.
Previous updates have outlined a plan to develop a Shared Engineering Centre in Knowsley, on Merseyside, based around our existing Primary Fluid Power operation. This initiative remains an important medium-term aspiration for the Group. However, to-date the various new site reviews we have undertaken have not produced the necessary strong cash generative outlook required by the Board to commence this additional investment at this stage of our development.
DIVID
The Directors are confident in the Group’s overall performance and intends to propose to shareholders a final dividend, which will again deliver a 5% increase for the year over 2016. The Board remains committed to ensuring a continued focus on cash generation as part of our model.
STRATEGY UPDATE AND LOOKING AHEAD
The growth made by acquisitive means in 2017 has resulted in time being invested in the careful integration of the businesses now covered by our operational reach. This focus will continue through 2018, along with further development to optimise our IT infrastructure, as we seek to achieve synergistic benefit and capitalise on the entrepreneurial and technical skills of the new operations.
In addition, the heightened profile and enhanced technical skills capabilities that Flowtech has established in both the UK and Europe has ensured that opportunities for further significant expansion have continued to be presented. It therefore remains a key part of our strategy to exploit these openings, whilst retaining a stable financial and operational structure to ensure that the substantial progress made to date is not undermined.
SUMMARY
Our objective remains growth through both acquisitive and organic means over the short, medium and long term. The progress made in the second half of 2017 has provided further scope for synergy extraction across the business, and it will be a key aspect of the Executive management team’s activities in 2018. Consequently, when looking at market expectations for 2018 and 2019, the extent of the wider commercial opportunities presently available, and the scope for synergy exploitation, gives us confidence that these expectations can be met.
NOTICE OF RESULTS
The Directors look forward to updating shareholders further on the Group’s performance and the outlook for 2018 at the time of the 2017 preliminary results, scheduled to be released, on Tuesday, 17 April 2018.
