FLUID
THINKING,
MAKING A
POWERFUL
DIFFERENCE
ANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2017
Welcome to our
Annual Report
Technology and
know-how that keeps
industry flowing
Who we are
We are a leading specialist in fluid power
products and solutions. Through hydraulics,
pneumatics and associated industrial products,
we focus on moving liquid, gas or air to
generate power which keeps industry moving.
Our business is growing both organically and
by acquisition. With sites across the UK, ROI,
Benelux and China, we have a market presence
internationally and aim to further strengthen our
global footprint through future penetration into
European markets.
Our vision
Our ongoing strategy guides how we work together as a Group of
complementary businesses to achieve one shared purpose:
“To be the trusted provider of products, solutions
and services to the fluid power market”
Our values
Our employees, customers and suppliers are central to everything we do.
As a Group we share three common values:
Read more about our Group at a Glance on page 6
• Delivering tailored solutions
What we specialise in
A specialist fluid power Group, we provide
‘total fluid power solutions’, delivering products,
design, manufacturing services, maintenance and
support to distributors, equipment manufacturers
and industrial users across the UK and overseas.
Through a strong product set, purchasing
synergies and technical expertise, we have
developed a reputation for delivering high quality
and market leading services across all industrial
sectors.
Read more about our divisions on pages 8 to 11
We listen, taking time to understand individual customer needs.
Utilising our entrepreneurial talent and deep technical expertise, we
develop specialist solutions, continually adding value to customers and
wider industry.
• Continuing strong traditions
We are a business based on tradition. Family values of trust, loyalty,
respect and teamwork are demonstrated across all Group businesses.
We invest in our people, ensuring they have the vital skills and
confidence to continually deliver exceptional service to our customers.
• Nurturing solid partnerships
Through success we build trust, through trust we build success. We
remain focused on building and nurturing solid partnerships with
customers and suppliers across the globe.
Contents
STRATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
Group management
Directors’ report
Statement of Directors’ responsibilities
Corporate governance report
Directors’ remuneration report
36
38
40
41
43
Chairman’s letter
Group highlights
Reasons to invest
Marketplace
Group at a glance
Divisional overview
Business model
Strategy
Strategy in action
Our values
Corporate social responsibility
Key performance indicators
Operational and financial review
Risk management
01
02
03
04
06
08
12
14
18
20
24
26
28
33
46
52
Independent Auditor’s report
Consolidated income statement
Consolidated statement of
comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
Notes to the consolidated
57
financial information
102
Company income statement
103
Company statement of financial position
Company statement of changes in equity
104
Notes to the Company financial information 105
IBC
Company information
53
54
55
56
Chairman’s letter
Malcolm Diamond MBE, Chairman
01
The benefits of our acquisition strategy
are apparent in the financial performance
of the Group, with six new companies
acquired throughout the year. This
acquisition activity 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.”
Malcolm Diamond MBE
Chairman
Welcome to your 2017 year end Flowtech
Fluidpower Report and Accounts.
When we floated our Company in May 2014,
it was with a commitment from the Board to
instigate a medium to long-term consolidation
of the highly fragmented hydraulic and
pneumatic industry, firstly in the UK, and then
to extend this strategy into Europe over the
next foreseeable few years.
Our 2017 result reaffirms the Board’s
confidence in our strategy as we continue
to expand and develop our capabilities both
within the UK and internationally.
Despite a challenging outlook for the UK
economy, in 2017 the fluid power market
experienced a significant turnaround following
two years of soft trading, presenting a period
of opportunity strengthened by European
demand.
The Group achieved 46% growth in total
revenue to £78.3 million, 8% of which came
from organic growth, 38% from acquisitions.
Profit before tax for 2017 totalled £6 million
versus £5.5 million in 2016. Earnings per share
reached 9.69p in 2017 versus 9.96p in 2016.
This year a major refurbishment and redesign
at the Skelmersdale site expanded capacity
and streamlined the logistics operation
which will provide considerable scope for the
profitable integration of future acquisitions.
Moreover, it created modern office and
meeting facilities for Flowtechnology UK,
Indequip and Group employees. Pleasingly,
this transition was completed with no
disruption to customer service for the
businesses which utilise this facility.
The benefits of our acquisition strategy are
apparent in the financial performance of the
Group, with six new companies acquired
throughout the year, supported by the
successful capital raising in March 2017.
This acquisition activity 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. In addition to
expanding our Process division, we have
significantly expanded our Power Motion
Control operations, offering additional design,
build and component supply into new market
sectors including: mobile, rail, and aerospace.
I am confident these acquisitions will provide a
solid foundation for future profitable growth.
From the outset, the Flowtech Fluidpower
strategy has remained the same: to build a
fluid power Group to serve all customer needs
within the fluid power market. The addition of
a fourth, Onsite Services division will in time
enable the Group to provide total fluid power
solutions in technical component supply,
niche product supply and installation, bespoke
designed solutions and finally planned onsite
maintenance and repair.
By focusing on selected customers, utilising
the Group status and investing in machinery,
many of our businesses have been successful
in winning new and ongoing sizeable supply
contracts with billion-pound companies.
Two such investments include the automatic
hose-cutting machine at Nelson Hydraulics and
the Parker pipework machinery at Group HES.
To summarise, it is clear that the Group is now
entering an exciting stage of development
as its ambitions for growth increasingly
improve its market share within the UK and
the Republic of Ireland, while being vigilant for
opportunities to spread further into Europe,
having managed the Benelux business into a
healthy level of consistent performance.
Brexit consequences remain a relative
unknown at this time, while forex movements
and UK import prices have been well managed
to date by our highly experienced and focused
commercial management teams.
I continue to be impressed by the
commitment and energy of not only our
senior management, but also of our growing
workforce and our business team leaders,
and their ability to adapt to new and dynamic
market opportunities that are arising
constantly within our industry.
Finally, it was very pleasing to be given such
valuable and widespread support for both the
Board and the Executive Management team
during the recent successful process to raise
£11 million (before costs) in new capital for the
Group in March and April of this current 2018
financial year. This has enabled us to complete
the acquisition of our largest UK catalogue
based competitor Beaumanor, along with its
subsidiary Derek Lane & Co.
The management will now focus its attention
throughout the remainder of 2018 in
leveraging the operational benefits that will
accrue from not only this acquisition, but also
the additions that were brought to the Group
throughout 2017 reporting period.
The Board looks forward to updating you on
our progress on a regular basis going forward
this year.
Yours sincerely
Malcolm Diamond MBE
Chairman
16 April 2018
Stock code: FLOwww.flowtechfluidpower.comSTRATEGIC REPORT 02
Group highlights
REVENUE
£000
GROSS PROFIT
£000
UNDERLYING OPERATING PROFIT*
£000
£78.3m
£26.6m
£9.1m
£78,287
£26,565
£9,081
£53,780
£44,848
£37,791
£32,104
£19,066
£15,345
£13,176
£11,330
£7,454
£6,868
£6,146
£5,324
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
2013
2017
* Before separately disclosed items which are shown
2015
2014
2016
OPERATING PROFIT
£000
£6.6m
£4,963
£5,491
£3,325
TOTAL DIVIDEND
(p)
5.78p
in the financial statements.
NET DEBT
£000
£14.9m
£6,137
£6,614
5.00p
5.25p
5.51p
5.78p
£14.9
£13.1m
£9.0m
£6.7m
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
N/A
(pre IPO)
£69.8m
(pre IPO)
2013
2014
2015
2016
2017
OPERATIONAL HIGHLIGHTS
• Revenue growth of 46% on previous year
• Redevelopment of office space and creation of a centralised
• Underlying operating profit growth of 21.9% on previous year
• Operating profit margin growth of 7.7% on previous year
• Divisional gross margins maintained despite negative currency
logistics centre in England’s North West
• New Onsite Services division created
• Pan-European expansion commenced with acquisition of Hydroflex
pressures
• New regional Managing Directors appointed for UK and Ireland,
• Six acquisitions in 2017 in line with strategy, and Beaumanor and
and Benelux
Derek Lane & Co since year end
•
Investment in people, infrastructure and IT to support future growth
The benefits of our acquisition strategy are apparent in the
financial performance of the Group.”
Malcolm Diamond MBE
Chairman
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 Reasons to invest
03
1
OUR BUSINESS
A specialist fluid power Group,
we provide ‘total fluid power
solutions’, delivering technical
products, design, manufacturing
services, maintenance and
support to distributors,
equipment manufacturers and
industrial users across the UK
and overseas.
5
GROWTH
We continue to develop a
focused offering across many
channels and sectors, driven by
both organic growth and a strong
acquisition strategy of adding
complementary businesses from
within the fluid power market in
the UK and Europe.
3
MARGINS
Strong consistent GP%
margins are the cornerstone,
driven by a clear focus on
the fluid power sector, which
translates to consistent
EBITA growth.
2
MARKET
The fluid power market
is highly fragmented with
multiple manufacturer brands
supplying directly to equipment
manufacturers and industrial users,
and a smaller number of master
distribution companies selling into
distribution and resale markets.
Our multi-channel strategy enables
us to cover all three channels:
distribution, Original Equipment
Manufacturers (OEMs)* and
industrial end users.
4
PRODUCTS
Through a strong product set,
purchasing synergies and
technical expertise, the Group
has been able to develop a
reputation for delivering high
quality products and market
leading services linked to wider
added value offerings. Our mix of
generic, branded and exclusive
own brand products combined
with bespoke manufactured
solutions is unmatched in
the market.
6
7
8
CUSTOMERS
WORKFORCE
We have a unique position in the
fluid power market, operating
across a wide and varied range of
sectors through a diverse customer
base. Our customer-centric
approach ensures we understand
their needs. Our catalogue, design
and business development support
services make us integral to
our distribution customers’
marketing strategies.
The management team is
highly experienced and works
in an environment driven by
collaboration; this is mirrored
through the organisation
delivering a market-leading
workforce committed to
delivering excellence.
CAPABILITIES
Our organisational structure
has been designed for
growth; business units
focused on product design,
manufacturing, sales and
service, supported by a
strong central support team
and integrated IT systems,
allowing quick integration
and consolidation.
* OEMs make parts and equipment to be used or sold by other manufacturers.
ACQUISITIONS SINCE IPO
Jul 2015
Jul 2016
Sept 2017
Mar 2018
Aug 2014
Feb 2016
Jun 2017
2014
2015
2016
2017
2018
May 2014
IPO
May 2015
Mar 2016
Jan 2017
Oct 2017
Jul 2017
Mar 2018
Stock code: FLOwww.flowtechfluidpower.comSTRATEGIC REPORT 04
Marketplace
Our market
We operate within the fluid power market,
worth over £1 billion in the UK, £11 billion
across Europe and £27.6 billion globally.
Fluid power technology is utilised in nearly
every product developed and manufactured,
across all industrial sectors. By definition
fluid power uses fluid, either hydraulic
liquid (mainly oil or water) or pneumatic gas
(normally compressed air) under pressure
to generate, control and transmit power.
Key industry sectors include: automotive,
construction and infrastructure, food
processing and packaging, medical, oil and
gas, agriculture and transportation services.
Of the total UK fluid power revenue, hydraulics
represents approximately 70%, pneumatics
20% and the remaining 10% in industrial
products which act as conduits for gases
and liquids. In the UK, we estimate Flowtech
Fluidpower now holds around 10% market
share across all categories.
Our competitive edge
in the marketplace
The competitive landscape across fluid power
is historically highly fragmented with several
large organisations supplying a wide selection
of technical commodities and many small
niche companies offering bespoke products
and solutions. More recently, as fluid power
integrates with other technologies and as
customers lean towards fewer suppliers, a
growing trend in consolidation has emerged.
Through a highly developed multi-channel
strategy, Flowtech Fluidpower is at the
forefront of this trend, being one of few
globally, and the only UK aggregator to
provide a full spectrum of fluid power
capabilities. We are specialists within our
field; our depth and width of product, broad
engineering capabilities and unrivalled service
levels are key differentiators, setting us apart
from other competitors and enabling us to
hold a unique position in our market with no
sizeable competition.
Key differentiators:
•
•
•
unique position within the fluid power
supply chain with access to over 500,000
products across multiple global and
exclusive own brands
aligned with both the global supply base
and the distributor network
full spectrum capabilities in hydraulic
and pneumatic component distribution,
bespoke hydraulic solutions and proactive
maintenance services
• world class purchasing and logistics function
•
•
bespoke integrated trading platforms
and IT systems
technical ‘know-how’
• multi-channel development strategy,
extended through to OEMs and end users
•
focused acquisition strategy capable of
exploiting our core competences across all
European industrial markets
Trends in our marketplace
The uncertainty over Brexit negotiations is
being felt across all business sectors. Gross
Domestic Product (GDP) growth decelerated
following increased pressure on import
prices as foreign producers aim to maintain
margins. This was further compounded by
the inflation rate of 2.7% without comparable
wage increases forcing a further squeeze on
consumer spending.
Despite diminished domestic economic
conditions, the UK fluid power market
experienced a strong year, demonstrating
6.1% combined growth of both pneumatic and
hydraulic sales in 2017 (source: British Fluid
Power Association (BFPA), 2017). This trend is
largely a result of: global investment in trade and
industry outside the UK, a stronger industrial
recovery across Europe and a policy stimulus
in China bolstering industrial demand in the Far
East, particularly within construction. Moreover,
a turnaround in oil markets strengthened
additional industrial activity in the UK, leading to
a marked growth within the domestic hydraulic
market. The BFPA predicts encouraging growth
in the UK; an average 2.6% for hydraulics and
3.2% for pneumatics from 2018 to 2021.
£178m £434m
Estimated UK
pneumatic equipment
domestic market
Source: BFPA 2017
Estimated UK hydraulic
equipment domestic
market
Source: BFPA 2017
CETOP - hydraulic products
(estimated market):
8.8bn Euro
12%
13%
35%
21%
19%
Pumps
Actuators
Valves
Other hydraulic
Assemblies
CETOP - pneumatic products
(estimated market):
3.8bn Euro
3%
8%
30%
28%
31%
Filtration
Actuators
Valves
Other pneumatic
Assemblies
Estimated 12.6bn Euro
European fluid power market
by country
4%2%
5%
7%
35%
10%
9%
10%
18%
Germany
Italy
France
UK
Nordic
Eastern Europe
Benelux
Spain
Switzerland
Estimated 12.6bn Euro
European fluid power market
by product
3%
2%
23%
9%
33%
23%
Filtration
Actuators
Valves
Other products
Assemblies
Pumps
Source: CETOP: European Fluid Power Directory
2017/2018. https://www.cetop.org/directory/
hydraulics-buyers-guide/
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 Pneumatic sector
Following a predicted increase of 5% for
pneumatic home and export sales in 2017,
the BFPA predicts more modest growth
of 2.7% in 2018. The impact of weakening
automotive sales will likely be offset by
stability in food and beverage, the key driver
for the pneumatics market. Higher imported
food costs are already allowing domestic
producers to prosper as consumers explore
UK-made alternatives. Unlike hydraulics, the
pneumatic market is highly concentrated,
enabling distributors to maintain their position.
As a result, pneumatic equipment distribution
has remained relatively stable over a 15-year
period, a trend which is expected to continue.
Hydraulic sector
In 2017 the BFPA predicted a sharp increase
of 5.5% for the domestic hydraulic sector, its
best performance since 2012 and a marked
turnaround from two years of decline. External
demand from Continental Europe and Asia
further bolstered sales, with an expected
total market growth of 7.2%. As post-Brexit
negotiations continue, UK hydraulic growth
is expected to flatten throughout 2018,
before picking up again in 2019. Subdued
growth is more a result of an unusual 50%
year-on-year growth for mobile hydraulics in
July and August 2017 than a general slump
in demand. In 2018, industrial hydraulics
is expected to grow 3.8% underpinned by
specialist markets such as the high value test
and measurement sector where UK producers
have a strong competitive advantage and are
less reliant on investment funding. Additionally,
the UK machine tools market is benefiting
from stronger external demand outside of
the UK. Electro-hydraulics is a key area of
development, with the National Fluid Power
Centre launching an Electro-hydraulics, Control
and Automation course in 2017. The BFPA
remains optimistic about the UK hydraulic fluid
power outlook, particularly due to investment
recovery across Europe which should be
long-lasting.
UK Industrial trends
The Group supplies industrial products
used in production across all manufacturing
industries. Examples include ducting and
tubing, clips, clamps, pneumatic power tools
and ring main systems. Selling into a wide and
varied customer base, we service an extensive
range of industry sectors thus spreading the
risk of adverse market conditions and creating
many opportunities for the Group. Despite the
challenges faced by the domestic economy
there are a number of positive trends and
initiatives that Flowtech Fluidpower is ideally
positioned to capitalise on:
• Manufacturing: British manufacturing
shows a positive outlook. A weaker
currency and global growth has made UK
exports more competitive with USA, China
and Europe showing strong performance
• Construction: While commercial building
projects remain bound by capital
constraints, by contrast the residential
sector shows notable strength, supported
by a UK Government commitment to build
1 million new homes by 2020
• Transport: Airbus and Boeing expansion
plans along with extensive projects such
as Crossrail 2 and London Underground
should ensure that transportation
construction will remain robust over the
coming years
• Energy: Global investment in renewable
energy is set to soar, notably from China,
India, USA, Japan and Germany. UK
offshore wind is the single largest part
of the global renewables market. With
plans to phase out UK coal by 2025, solar,
onshore and offshore wind will offer
cheaper alternatives to gas. Moreover,
the British nuclear industry aims to cut
construction costs by 30%, and potential
Government backing could help finance
new reactor plants within the UK
£19.9m £252m
Estimated
UK pneumatic
export market
Source: BFPA 2017
Estimated
UK hydraulic
export market
Source: BFPA 2017
05
How are we responding to
UK industrial trends?
Answer:
We are responding as follows:
•
Securing new business in growth
sectors – e.g. renewable energy,
leak detection (an area under closer
scrutiny following the Grenfell Tower
disaster), nuclear, rail, aerospace
• Market penetration as one Group – our
PMC division leverages the power of
being one Fluidpower Group, exploiting
opportunities to cross-sell across the
Group
• Consolidation of stock, allowing us to
maintain margins despite increased
pressure on import costs
•
Investment in automation:
− We recently installed a second
auto-cutting machine at our
Nelson Dungannon site; 70%
of hoses are now cut via these
machines increasing output
by 50%
− TSL introduced two new CNC
lathes to reduce dependency
on sub-contractors, which has
significantly reduced delivery times
− PFP introduced two new CNC
machines which operate
continuously
How important is Europe
as a market for
Flowtech Fluidpower?
Answer:
Our objective remains growth through
both acquisitive and organic means
over the short, medium and long term.
With the Brexit vote and potential future
trade barriers, expansion into Europe
becomes increasingly important for
us and therefore a logical step in our
acquisition journey. Strong growth
from our two profit centres in Benelux
combined with the overall economic
trends in 2017 and beyond demonstrate
the significant opportunities Continental
Europe presents with a market that
displays similar fragmentation to our
home markets in the UK and Ireland,
and at circa £11 billion gives us a huge
opportunity for future growth.
Stock code: FLOwww.flowtechfluidpower.comSTRATEGIC REPORT 06
Group at a glance
Across our four divisions we employ over 550 skilled people throughout the UK, ROI and Benelux. Our ongoing strategy guides how we work
together as a Group of complementary businesses to achieve one shared purpose: to be the trusted provider of products, solutions and services to
the fluid power market.
FLOWTECHNOLOGY (DISTRIBUTION)
Urgent component distribution to the entire
fluid power industry
Suppliers of urgently required technical hydraulic, pneumatic and
industrial replacement components for the Maintenance, Repair and
Operations (MRO) market. In an industry where downtime is business
critical, a highly responsive and reliable service is vital. With the widest
and deepest product set refined over 30 years, an established logistics
operation and unrivalled service levels in the market, our Flowtechnology
companies are specialists in their field, passionate and driven to ensure
industry remains in continual flow.
Read more on page 8
PROCESS
Specialist niche products
Profit centres in our Process division specialise in the supply of
high-quality products and solutions predominantly to those sectors
that transform bulk materials into specific end user products such as
food and beverage, petrochemical, consumer packaged goods, utilities
and biotechnology. Our Process division stocks, supplies, installs and
commissions specialist equipment for OEMs and end users.
Read more on page 9
POWER MOTION CONTROL (PMC)
Specialist hydraulic solutions
A group of specialist fluid power companies, working independently and
in collaboration to advise, design, build and deliver hydraulic solutions
for OEMs and industrial end users. Additionally, they supply components
from leading hydraulic suppliers or manufactured onsite. Each business
has a long-standing reputation for service excellence.
Read more on page 10
ONSITE SERVICES
Proactive technical onsite installation,
maintenance and repair
The Group HES acquisition enabled us to capitalise on demand in the
marketplace for a national partner to assist in onsite maintenance.
This new division will deliver planned onsite maintenance in fluid power
and integrated technologies to manufacturers and end users, both
locally supporting our PMC division and nationally providing specialist
maintenance services actuators, hose and fittings.
Read more on page 11
Our locations
UK
Netherlands
Our locations
UK
UK
Our locations
Ireland
Netherlands
Our locations
UK
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 07
Pictured: CNC machine at Primary Fluid Power
Stock code: FLOwww.flowtechfluidpower.comSTRATEGIC REPORT 08
Divisional overview
Flowtechnology (Distribution)
KEY FACTS
4 profit centres
211
employees
UK and
Benelux
5,500
customers
99.5%
delivery targets achieved
250
brands
1
acquisition
in 2018
Customer needs
Flowtechnology serves the MRO market, supplying urgently needed hydraulic, pneumatic and
industrial components to keep industry moving. Flowtechnology customers require a highly
responsive, reliable and technical supplies partner as an essential part of their day-to-day
functioning.
Through e-commerce and catalogue distribution, Flowtechnology companies sell both leading
manufacturer brands and exclusive own brands predominantly into distribution but also to
smaller OEMs and industrial users. Flowtechnology companies are unrivalled in the industry, for
exceptional technical service, and the widest and deepest product set in the market; supplying
up to 500,000 products through long-established global supplier partnerships. Many distribution
customers utilise Flowtechnology as their warehouse and logistics function, ordering products for
next day delivery and even shipping goods direct to their own customers from the Group’s logistics
centres.
Adding value as a Group
The acquisition of complementary businesses has enabled product range synergies to be
identified. The Group and notably the Flowtechnology division has benefited from the economies
of scale realised from our extensive acquisition programme, and will help maintain customer
pricing in the market, and allow the Group to secure new business organically by internal referrals.
Read more about Our Business Model on page 12
and Divisional Performance on page 30
Service in action
• Surpassing expectation through service – supplying
to industries which never sleep, OEM customers require
a support partner around the clock. Flowtechnology
(FTUK) continues to push the boundaries on service; this
year they launched an out-of-hours same day ordering,
delivery and collection service, not available by any other
UK distributor, which supports their customers and
reduces downtime for end user industries.
• Widening our product portfolio – the acquisition of
Hewi Slangen in 2017 has enabled Flowtechnology
Benelux (FTB) to support customers with hose assembly
requirements which complements their existing product
range. FTB has launched a new online microsite to
market this service.
Improving end user reach – Indequip and FTUK
continually aim to enhance their support and service
to customers. Both have improved the e-commerce
platforms they provide for customers to sell product to
end users and in turn generate additional revenue for
the Group.
•
• Easing the pain of multi-currency trading – this year by
customer request, Indequip was the first UK company
in the Group to offer a Euro currency version of its
catalogue, enabling customers to trade in their local
currency. This has allowed Indequip to sell into the Irish
market, with 50% more sales than originally expected.
The growth plan is to attract more Euro distributors
in 2018.
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 Divisional overview
Process
09
Customer needs
Process industries operate around the clock and have stringent health and safety standards requiring
reliable specialist products either used in the production process itself or around the site locations.
Supplying to OEMs and end users, our Process division companies have a strong reputation as
technical experts within their niche areas, supplying the following products as single components
on a next day service or as part of complex projects involving installation and commissioning:
•
•
•
•
•
specialist valves, which can be pneumatically, electrically or hydraulically actuated (controlled)
to various specifications for use in potentially hazardous and explosive environments
actuators in various materials and specifications e.g. stainless steel within food manufacturing
environments to adhere to cleanliness standards
leak-detection flexible pipework
specialist pumps for transferring fluids including oil, grease, and other viscous fluids
safety relief valves and tank fittings to release pressure
• overfill prevention technology
Adding value as a Group
Through the Group’s world class logistics centre, both Process division companies have increased
their stockholding capacity of existing products and new products which has allowed them to
secure new business with more blue-chip organisations and facilitated smarter working within
their own warehouses.
Through the Group’s creative services team, Hydravalve launched its first catalogue and first
e-commerce website, increasing market penetration and enabling customers to view their full
product range, check stock availability and buy online.
KEY FACTS
2
profit centres
36
employees
597
customers
25
key supplier brands
1
acquisition in 2017
UK
based
Read more about Our Business Model on page 12
and Divisional Performance on page 30
Products in action
•
Flexible pipework – installation of approximately
1.5km of leak monitored pipework within the
basement of a £700 million office, residential and
entertainment complex in the centre of London.
• Pressurised leak detection systems – monitoring
flexible stainless steel pipework at a car factory.
The pipes carry petrol, screen wash, diesel,
refrigerants, engine and transmission oils through
the factory roof.
• Relief valves – tanks containing petrochemicals
fitted with pressure and vacuum relief valves.
These safety relief valves were constructed in
high grade stainless steel but can also be supplied
in more exotic materials for chemical applications.
• Valve cooling systems – design and installation
of a tailored solution to cool automated machines
in a leading aluminium manufacturing plant.
Stock code: FLOwww.flowtechfluidpower.comSTRATEGIC REPORT KEY FACTS
8
profit centres
351
employees
UK, Ireland
and Benelux
2,700
customers
100
brands
5
acquisitions
in 2017
1
acquisition
in 2018
10
Divisional overview
Power Motion Control (PMC)
Customer needs
Hydraulic systems play a crucial role in the smooth and efficient operation of industrial
machinery. The PMC division supports both OEMs and end users. In addition to high-end
products from trusted global brands, customers also rely heavily on PMC’s specialist technical
advice and engineering expertise to design, build and deliver bespoke hydraulics systems.
PMC companies are active in both mobile and industrial hydraulic markets. They supply industry
leading components and critical and complex hydraulic built systems using hydraulics parts
such as cylinders, pumps, motors, valves, filters, actuators, hose and fittings, which add value on
a daily basis to the end user market.
Adding value as a Group
The PMC division markets itself as one Fluidpower Group of complementary businesses, which
strengthens their overall position within the market, ensuring opportunities are passed on to
other members of the division and additionally, simplifying life for the customer.
The aftersales market provides a substantial level of repeat business. Access to the Group’s
world class logistics centres has enabled PMC to easily and quickly supply specific replacement
parts, ensuring customer satisfaction remains at an all-time high.
Access to stock from across the Group has enabled PMC divisional members to protect and
increase profit margins by buying generic components at a more favourable price than via
external hydraulic manufacturers.
Read more about Our Business Model on page 12
and Divisional Performance on page 30
Products in action
• Sophisticated hydraulic systems providing power,
motion and control to A-frames used to launch and
recover large submarines for rescue operation and
oceanographic research.
• Bespoke electro-hydraulic directional control
valves used by fruit harvesting machine operators to
independently control five separate conveyors in the most
energy efficient way.
• Custom made hydraulic cylinders with a battery
operated hydraulic power unit and wireless connectivity
to a digital controller providing improved efficiency in
a nuclear/military manufacturing plant. The solution
allowed manipulation of an 80 tonne object 12 metres in
the air with movement precision of 0.1mm.
• Dual road rail transmission drive systems for rail
shunting to move loads of over 1,400 tonnes using
innovative remote controls which enable the machine
to move waggons within 10mm precision for wheel
maintenance.
• Oil extraction requiring robust high pressure premium
fittings to create a leak free fit, intrinsic to the safety of
such systems.
• Supply of around 25km of hydraulic hose for a market
leading OEM in heavy-duty vehicle lifts and high quality
loading bay solutions across the USA, Europe and Asia.
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 Divisional overview
Onsite Services
11
Customer needs
A costly problem within the fluid power sector involves urgent repair to critical yet often older
machinery with little or no technical information to hand, which can result in multiple site visits
to fix.
Increasingly multi-site OEMs seek national partners with a local presence to service their sites
up and down the country in the most efficient way to mitigate costly downtime. Moreover, with
the emergence of Industry 4.0* and the shift towards more integrated technologies, skilled
fluid power engineers with experience in sophisticated monitoring, control and automation
technologies are in high demand to get the job done single-handedly first time.
Our national planned maintenance operation will enable us to understand clients’ machinery and
have the required equipment prior to arriving onsite, to ensure we fix the problem first time.
Adding value as a Group
Working in partnership with other divisional members provides us with an instant customer
base, enabling us to hit the ground running with existing clients. Moreover, removing onsite
maintenance from our PMC division will enable them to focus on securing new business from
existing and new clients which in turn they can pass on to the Onsite Services team as an
aftersales service.
* Industry 4.0 combines automation and information exchange within manufacturing.
KEY FACTS
Onsite Services is a new division for
the Group, utilising existing expertise
from Group HES. The division sees
Flowtech Fluidpower launch the
final leg of its multi-channel strategy,
adding planned onsite maintenance,
to provide a total fluid power service
in component distribution, bespoke
solutions design and supply and
onsite servicing.
Through the Group HES acquisition,
we already have a number of blue chip
OEM customers and will utilise both
existing and new expertise to develop
this division.
Service in action
Jobs carried out by Group HES
• An enquiry to check faulty valves on
•
the production line at a £7 billion global
UK-based packaging company led to the
installation of £80k of flow control valves
– a small price to pay compared to a
potential £40k per hour loss in downtime.
Improved lubrication within a large UK
food packaging unit; from weekly manual
lubrication (where some lubrication
points on the bearings were missed or
over-lubricated causing parts damage) to
automated scheduled greasing system
where the oil reservoir only needs filling
every two months. The system is also
monitored and alerts the operator to any
malfunction or refill requirement.
Stock code: FLOwww.flowtechfluidpower.comSTRATEGIC REPORT 12
Business model
As a specialist provider of fluid power products, Flowtech Fluidpower prides itself on
having a strong business model which can deliver sustainable growth.”
O U R CUSTOMERS
R I G I N A L E Q U I PMENT MANUFACTURERS
O U R CAPABILITIES
O
PRO C E S S
R E SOURCES
P
M
C
Flowtech
Fluidpower
Centralised back office,
purchasing and logistics
F
L
O
W
T
E
C
H
N
O
L
O
GY
S
S IT E SERVICE
N
O
E
N
D
U
S
E
R
S
W
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I
G
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,
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A
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U
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S
I
I
D
DELIVERING SUSTAINABLE GROWTH
Developing our resources,
capabilities and further
trust in our branded
businesses to deliver
Recruiting and retaining
talented individuals to offer
specialist advice and support
to customers and colleagues
Investing in acquisitions,
we will widen our service
portfolio and the number
of markets we support
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017
13
OUR CAPABILITIES
Through our four divisions we provide ‘total fluid power solutions’ delivering technical products,
design, manufacturing, installation, maintenance and support to distributors, equipment
manufacturers and industrial users across the UK and overseas.
Supported by a strong central support team and integrated IT systems, each business operates
independently with the opportunity to tap into shared resources to strengthen and streamline their
service to customers whilst maximising profit margins.
OUR RESOURCES
People
Our people are our greatest
asset. Their drive, expertise
and dedication ensure we
continually push the boundaries
of exceptional service.
Innovation
Our ability to design and
innovate for specific client
needs and serve the market
at speed act as differentiating
features from our competitors.
Products
Offering a diversified range of
technical products ensures we
enhance, maintain and support
our customers’ operations.
Channels
Through our distribution partners
and acquired businesses we can
easily engage with customers
in a manner which suits them and
their business.
Diversified business
Acquired businesses provide
expertise and personal services to
customers without the hassle of
back-office administration.
ADDING VALUE FOR OUR STAKEHOLDERS
Customers
We help our customers’ businesses keep
going. We provide vital parts within the
manufacturing process and also work with
them to deliver technical expertise and new,
innovative thinking that can help improve their
operations and service to their own customers.
People
Working in a progressive organisation
that retains local roots whilst receiving
the benefits of a large business such as
centralised support services, job security,
equal opportunities, training, career
progression and a safe and rewarding place
to work.
Shareholders
Our specialist position enables us to maintain
margins and deliver strong cash and
dividend flow. Reinvestment will facilitate
future development in IT and infrastructure,
investment in our people and further
geographic expansion, enabling us to grow the
value of shareholder investment over time.
Suppliers
Access to a widening network of technical
distributors, specialists they can rely on to
professionally and safely promote their brand.
Increased orders and financial reassurance
from a Group purchasing function.
Society
Managing our activities responsibly, both at
home and overseas, and delivering wealth
creation for the long term.
Stock code: FLOwww.flowtechfluidpower.comSTRATEGIC REPORT 14
Strategy
The Group has a clear view of its growth objectives – to create a specialist fluid power organisation that remains focused on its core competences
through its delivery of ‘class-leading’ service and support. Our long-term growth model is based on both organic growth, coupled with complementary
acquisitions in the UK and Europe in a very fragmented marketplace.
The successful integration of new businesses into the Group is critical, maintaining momentum and ensuring an ability to continue to trade with
their customers seamlessly.
STRATEGIC FOCUS
DESCRIP TION
HIGHLIGHTS
PRIORITIES FOR THE FOLLOWING YEAR
ASSOCIATED RISKS
Brand
Positioning
The overall Group brand is positioned as a full-
service fluid power provider, which encompasses
all our trading businesses.
• Rebranding of the Group to further differentiate
the corporate brand from the original “Flowtech”
business
Brand identity and the ability to maintain and build
a strong reputation is critical to our long-term
development. For all future acquisitions, brand and
reputation will be paramount with the intention to
maintain local branding and develop its existing
position.
Product brand expansion continues to be a key
development area for the Group.
• Acquisitions have strong brand identities within
their sectors
• The establishment of a new umbrella brand for
PMC; the “Fluidpower Group” which focuses on
hydraulic application solutions and technical
expertise, providing the customer with a specialist
service from a single source
• Extension of our Global manufacturing
partnerships, with the addition of another exclusive
own brand “Techmatic”
• To reposition the plc as an inclusive brand covering the full-service offering to the market and
• Poor communication strategy
representing four distinct channels
• Drive the umbrella branding of PMC, the “Fluidpower Group”, to deliver complimentary product
and service opportunities through the sister businesses, utilising technical expertise and
product competence
• Strengthen the position of each business unit brand by tactical marketing and promotions
• Building on our relationship with Global brands to continue building our position in the market
place, ensuring our customers have access to extended product ranges to cover the wider
market sectors
•
Lack of clarity of message
• Failure to integrate and align the
strategies of the business model
Acquisition
and Integration
• The strategy is to acquire complimentary
• Acquisitions have brought substantial new skills,
• Continued growth of the Group by strategic acquisitions, adding complimentary businesses to
• Failure to identify suitable
fluid power businesses operating in specific
sectors. Each business being highly focused
operations delivering quality customer service.
•
Integration projects are ongoing to streamline
processes across the Group to ensure we
minimise the administration burden and
concentrate on delivering service excellence to
our customers.
knowledge, access to new markets for fluid power
components and talented management teams
• Six acquisitions were made in 2017 with an
additional one in March 2018
• Continual improvement to Standard Practice
Instructions (SPIs) including SPIs for all Group IT
policies
E-commerce
and Business
intelligence
The Flowtechnology operations have always
been innovative in the use of e-commerce with
our websites being fully integrated into our ERP
systems. With over 70% of customer orders being
placed through the website. This model will be
rolled out throughout the operating units within the
Group.
Business intelligence initiatives create insight
which enables us to improve our stock profile
and inventory usage and create strong pricing
strategies.
• Completion of super server project, allowing
• Obtain Information Assurance Standard for Medium-Sized Enterprises (IASME) Gold
•
Inability to recognise cyber
hosting of Enterprise Resource Planning (ERP)
systems for all business units at the Skelmersdale
site, with additional offsite disaster recovery
facilities
• Creation of centralised supplier payments system,
providing purchasing intelligence and delivering
processing efficiencies
• Established consistency of IT infrastructure across
all sites which allows Group to ensure GDPR
compliance.
• Cyber Essentials accreditation achieved by
Flowtechnology UK and Indequip
•
Launch of two newly updated websites,
Flowtechnology UK and Indequip
• Evaluation of our European acquisition strategy, initially targeted at increasing the Group’s
the relevant channels
presence and scale in the Benelux
• With the acquisition in March 2018 of Beaumanor, a fluid power catalogue distributor, the
Group now has three of the major catalogue houses in the UK. This will allow the Group to
drive through a number of synergies and build in business service protection
• The updated data repository will be utilised to harmonise the product offer across the three
businesses, optimising purchasing costs, inventory turnover and increasing overall service
levels. This will also reduce customer conflict and improve catalogue production.
• To maintain business continuity, as part of the disaster recovery plan the Beaumanor facility
will be used as the backup logistic centre to Skelmersdale. An evaluation of the system linkage
between Beaumanor and Skelmersdale will determine the best route for integration of the
warehousing processes
acquisitions which add
complimentary businesses
to the Group
•
Inability to quickly align the
warehouse systems between
the two logistics centres
•
Inability to quickly align
management reporting processes
and accounting controls
certification for the Skelmersdale site and replicate best practice to achieve Cyber Essential
exposure
accreditations across all UK business units
• Develop reporting in Sage X3 to consolidate data from multiple ERP systems across the
• System and site disruption
•
Lack of planning
businesses
• Evaluate operating systems across the catalogue distribution businesses, to deliver an
integrated ERP solution, maintaining the existing e-commerce platform
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 15
STRATEGIC FOCUS
DESCRIP TION
HIGHLIGHTS
PRIORITIES FOR THE FOLLOWING YEAR
ASSOCIATED RISKS
• To reposition the plc as an inclusive brand covering the full-service offering to the market and
• Poor communication strategy
representing four distinct channels
• Drive the umbrella branding of PMC, the “Fluidpower Group”, to deliver complimentary product
and service opportunities through the sister businesses, utilising technical expertise and
product competence
• Strengthen the position of each business unit brand by tactical marketing and promotions
• Building on our relationship with Global brands to continue building our position in the market
place, ensuring our customers have access to extended product ranges to cover the wider
market sectors
•
Lack of clarity of message
• Failure to integrate and align the
strategies of the business model
Acquisition
and Integration
• The strategy is to acquire complimentary
• Acquisitions have brought substantial new skills,
• Continued growth of the Group by strategic acquisitions, adding complimentary businesses to
knowledge, access to new markets for fluid power
components and talented management teams
the relevant channels
• Evaluation of our European acquisition strategy, initially targeted at increasing the Group’s
• Six acquisitions were made in 2017 with an
presence and scale in the Benelux
• With the acquisition in March 2018 of Beaumanor, a fluid power catalogue distributor, the
Group now has three of the major catalogue houses in the UK. This will allow the Group to
drive through a number of synergies and build in business service protection
• The updated data repository will be utilised to harmonise the product offer across the three
businesses, optimising purchasing costs, inventory turnover and increasing overall service
levels. This will also reduce customer conflict and improve catalogue production.
• To maintain business continuity, as part of the disaster recovery plan the Beaumanor facility
will be used as the backup logistic centre to Skelmersdale. An evaluation of the system linkage
between Beaumanor and Skelmersdale will determine the best route for integration of the
warehousing processes
• Failure to identify suitable
acquisitions which add
complimentary businesses
to the Group
•
•
Inability to quickly align the
warehouse systems between
the two logistics centres
Inability to quickly align
management reporting processes
and accounting controls
• Obtain Information Assurance Standard for Medium-Sized Enterprises (IASME) Gold
certification for the Skelmersdale site and replicate best practice to achieve Cyber Essential
accreditations across all UK business units
• Develop reporting in Sage X3 to consolidate data from multiple ERP systems across the
businesses
• Evaluate operating systems across the catalogue distribution businesses, to deliver an
integrated ERP solution, maintaining the existing e-commerce platform
•
Inability to recognise cyber
exposure
• System and site disruption
•
Lack of planning
Brand
Positioning
The overall Group brand is positioned as a full-
• Rebranding of the Group to further differentiate
service fluid power provider, which encompasses
the corporate brand from the original “Flowtech”
all our trading businesses.
Brand identity and the ability to maintain and build
a strong reputation is critical to our long-term
development. For all future acquisitions, brand and
reputation will be paramount with the intention to
maintain local branding and develop its existing
position.
Product brand expansion continues to be a key
development area for the Group.
• Acquisitions have strong brand identities within
business
their sectors
• The establishment of a new umbrella brand for
PMC; the “Fluidpower Group” which focuses on
hydraulic application solutions and technical
expertise, providing the customer with a specialist
service from a single source
• Extension of our Global manufacturing
partnerships, with the addition of another exclusive
own brand “Techmatic”
fluid power businesses operating in specific
sectors. Each business being highly focused
operations delivering quality customer service.
processes across the Group to ensure we
minimise the administration burden and
concentrate on delivering service excellence to
our customers.
•
Integration projects are ongoing to streamline
additional one in March 2018
• Continual improvement to Standard Practice
Instructions (SPIs) including SPIs for all Group IT
policies
E-commerce
and Business
intelligence
The Flowtechnology operations have always
• Completion of super server project, allowing
been innovative in the use of e-commerce with
our websites being fully integrated into our ERP
hosting of Enterprise Resource Planning (ERP)
systems for all business units at the Skelmersdale
systems. With over 70% of customer orders being
site, with additional offsite disaster recovery
placed through the website. This model will be
facilities
rolled out throughout the operating units within the
Group.
Business intelligence initiatives create insight
which enables us to improve our stock profile
and inventory usage and create strong pricing
strategies.
• Creation of centralised supplier payments system,
providing purchasing intelligence and delivering
processing efficiencies
• Established consistency of IT infrastructure across
all sites which allows Group to ensure GDPR
compliance.
• Cyber Essentials accreditation achieved by
Flowtechnology UK and Indequip
•
Launch of two newly updated websites,
Flowtechnology UK and Indequip
Stock code: FLOwww.flowtechfluidpower.comSTRATEGIC REPORT 16
Strategy continued
STRATEGIC FOCUS
DESCRIP TION
HIGHLIGHTS
PRIORITIES FOR THE FOLLOWING YEAR
ASSOCIATED RISKS
Product
and Sourcing
We aim to be positioned as a full-service provider
for fluid power products and services. The ongoing
expansion of ranges and brands will see the
Group create increasing opportunity for a larger
percentage of customer spend and open up new
opportunities in the wider market.
The Group nurtures its relationships with
OEM suppliers while continuing to develop its
complementary exclusive brands.
Acquisitions have given us extended ranges across
many of our major product groups;
• HTL – bespoke mobile valve assemblies
• Hi-Power – heavy duty automated greasing
systems and bulk discharge equipment
• Orange County – specialist piping and monitoring
systems
• Hydroflex – Bespoke hydraulic hose assembly for
Benelux
• Group HES – Parker large bore piping, Danfoss
range, bespoke gear boxes and axles
• Beaumanor – Catalogue based distribution
business with international supply line
Supply
Chain
People
We have built long-term partnerships with our
suppliers and quality logistics companies, enabling
us to provide the pace of responsiveness our
customers demand.
The Flowtechnology businesses consistently
achieve our service level targets of 99.5% of orders
delivered next day. This is underpinned by our
strategy in product, sourcing and sound inventory
management.
Where acquired businesses include a catalogue
distribution operation they will be linked into
the distribution segment to provide synergy
opportunities and savings.
• Restructure and refurbishment of main logistics
centre, increasing capacity and creating scope for
future expansion
• Supply chain proactively introduced leaner stock
management practices including; economic
quantity ordering, more frequent stock turnover,
working with suppliers to pack goods in a more
efficient way for stock replenishment, prioritising
arrivals of stock
• Supplier account managers appointed to build
collaborative relationships
• CIPS qualification training started to support best
practices
People are one of our strongest assets. As well as
recruiting new talent, we acquire companies who
recognise the importance of their workforce and
share our values of continuing strong traditions.
Investing in our management teams brings
the benefits of improved retention and talent
identification for succession planning. We see
training and development of employees as key to
our long-term success.
• Nick Fossey appointed regional MD UK & Ireland,
Mark Richardson appointed regional MD Benelux
• Five new appointments to the Operational Board;
Alan Willis, HTL, Maurice Kearney, Hi-Power, Leo
Voogd, Hydroflex, Chris Way, Group HES and
Stuart Diesel, Onsite Services division
• As part of the Beaumanor acquisition in March
2018, Mark Cropper, Beaumanor and Mark Venn,
Derek Lane & Co have joined the Regional Board
• Apprenticeship programmes are in place at
Primary Fluid Power, FTUK, Group HES, Orange
County and Hi-Power. Five apprentices have been
retained within the Group.
• Croner support in health and safety at nine sites,
working to develop consistent procedures and
policies Group-wide
• To increase access to new product ranges and technical knowledge through the integration of
Lack of quality control
the acquisitions
improvement program
• To develop a schedule of supplier visits by the Strategic Buying team to evaluate both new
supplier relationships
and existing suppliers, focused on price and performance, and to monitor a continuous
Lack of cost focus
Inability to influence and build
•
•
•
• To create closer partnerships with specific large OEM manufacturers, developing a more
collaborative approach to the market place
• Optimise Group purchasing activities to deliver cost savings by utilising economies of scale,
• System and site disruption
rationalising the supplier base, consolidating stockholding into the main logistics sites and
•
•
Lack of competent employees
Inability to influence business
reducing carriage costs
• Evaluate and implement procurement planning software across the catalogue distribution
businesses in the UK and Europe, to deliver an integrated approach
• Major brand evaluation, support, lead times, system linkages and partnership opportunities
• Set up a Group Business Development team to work across the Group to develop new
•
Lack of open debate and discuss
business opportunities
• To maintain an open culture within the business, encouraging and valuing opinions
• Training programs on the SPIs to reduce administration processing costs and improve the
visibility and control of local business costs
• Continued employee evaluation processes to develop talent from within the organisation
• Talent management and
succession planning
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 17
STRATEGIC FOCUS
DESCRIP TION
HIGHLIGHTS
PRIORITIES FOR THE FOLLOWING YEAR
ASSOCIATED RISKS
We aim to be positioned as a full-service provider
Acquisitions have given us extended ranges across
• To increase access to new product ranges and technical knowledge through the integration of
for fluid power products and services. The ongoing
many of our major product groups;
the acquisitions
• To develop a schedule of supplier visits by the Strategic Buying team to evaluate both new
and existing suppliers, focused on price and performance, and to monitor a continuous
improvement program
• To create closer partnerships with specific large OEM manufacturers, developing a more
collaborative approach to the market place
•
•
•
Lack of quality control
Inability to influence and build
supplier relationships
Lack of cost focus
Product
and Sourcing
expansion of ranges and brands will see the
Group create increasing opportunity for a larger
percentage of customer spend and open up new
opportunities in the wider market.
The Group nurtures its relationships with
OEM suppliers while continuing to develop its
complementary exclusive brands.
• HTL – bespoke mobile valve assemblies
• Hi-Power – heavy duty automated greasing
systems and bulk discharge equipment
• Orange County – specialist piping and monitoring
• Hydroflex – Bespoke hydraulic hose assembly for
systems
Benelux
• Group HES – Parker large bore piping, Danfoss
range, bespoke gear boxes and axles
• Beaumanor – Catalogue based distribution
business with international supply line
Supply
Chain
We have built long-term partnerships with our
• Restructure and refurbishment of main logistics
suppliers and quality logistics companies, enabling
centre, increasing capacity and creating scope for
us to provide the pace of responsiveness our
future expansion
• Supply chain proactively introduced leaner stock
• Evaluate and implement procurement planning software across the catalogue distribution
businesses in the UK and Europe, to deliver an integrated approach
• Major brand evaluation, support, lead times, system linkages and partnership opportunities
rationalising the supplier base, consolidating stockholding into the main logistics sites and
reducing carriage costs
•
•
Lack of competent employees
Inability to influence business
• Optimise Group purchasing activities to deliver cost savings by utilising economies of scale,
• System and site disruption
customers demand.
The Flowtechnology businesses consistently
achieve our service level targets of 99.5% of orders
delivered next day. This is underpinned by our
strategy in product, sourcing and sound inventory
management.
Where acquired businesses include a catalogue
distribution operation they will be linked into
the distribution segment to provide synergy
opportunities and savings.
management practices including; economic
quantity ordering, more frequent stock turnover,
working with suppliers to pack goods in a more
efficient way for stock replenishment, prioritising
arrivals of stock
• Supplier account managers appointed to build
collaborative relationships
• CIPS qualification training started to support best
practices
People
recruiting new talent, we acquire companies who
recognise the importance of their workforce and
share our values of continuing strong traditions.
Investing in our management teams brings
the benefits of improved retention and talent
identification for succession planning. We see
training and development of employees as key to
our long-term success.
People are one of our strongest assets. As well as
• Nick Fossey appointed regional MD UK & Ireland,
• Set up a Group Business Development team to work across the Group to develop new
•
Lack of open debate and discuss
Mark Richardson appointed regional MD Benelux
business opportunities
• To maintain an open culture within the business, encouraging and valuing opinions
• Training programs on the SPIs to reduce administration processing costs and improve the
visibility and control of local business costs
• Continued employee evaluation processes to develop talent from within the organisation
• Talent management and
succession planning
• Five new appointments to the Operational Board;
Alan Willis, HTL, Maurice Kearney, Hi-Power, Leo
Voogd, Hydroflex, Chris Way, Group HES and
Stuart Diesel, Onsite Services division
• As part of the Beaumanor acquisition in March
2018, Mark Cropper, Beaumanor and Mark Venn,
Derek Lane & Co have joined the Regional Board
• Apprenticeship programmes are in place at
Primary Fluid Power, FTUK, Group HES, Orange
County and Hi-Power. Five apprentices have been
retained within the Group.
• Croner support in health and safety at nine sites,
working to develop consistent procedures and
policies Group-wide
Stock code: FLOwww.flowtechfluidpower.comSTRATEGIC REPORT 18
Strategy in action: SUPPLY CHAIN
Investment in centralised purchasing and logistics
The opportunity
As our acquisition strategy developed, it
became apparent that our clear focus on fluid
power would enable us to consolidate some of
our core business functions in purchasing and
logistics and create a centralised service from
which all Group members and their customers
could benefit.
All businesses within the Group are renowned
for exceptional service and it is important
for us to protect and enhance this service
externally to customers and internally to each
other. We have a clear strategy to develop our
existing logistics facility, leveraging off the
unrivalled service levels that we deliver to the
fluid power market at present, for use by all our
internal operations.
The last two years have seen the
transformation of the FTUK distribution
centre into a new office complex and much
improved logistics centre with increased
capacity which will service and add value
to our existing customers but also expand
across the whole fluid power market, delivering
to our own businesses and to OEMs across
the UK and Europe.
Strategic improvements
Increased capacity
A shift towards centralised purchasing of
common products across the Group enables
us to benefit from economies of scale.
Strategic bulk purchasing of these product
lines required additional space in quickly
accessible stock locations to service all
members of the Group and in some cases
direct shipments to their customers.
Working with Kardex, the supplier of our
vertical product storage and retrieval lift
systems, we installed three new lifts, creating
a total of 16 lifts. Each lift has a footprint of
4.5 sqm, 3,000 product storage locations
across one hundred shelves, each shelf able
to hold up to 500kg, meaning across the three
new lifts we have created an additional 133
tonnes of product storage, increasing our
capacity by 35% and consolidating stock into
one picking zone. It was also important to
increase our capacities in other areas; to that
extent we increased our bulk storage capacity
by over 2,000 new pallet locations (25%),
which will enable us to further consolidate our
purchasing and accommodate bulky items for
the Group.
Streamlined warehouse
Important consideration was given to the
existing warehouse layout and resultant
changes have enabled logistics operational
efficiencies to be improved without the need
to employ additional employees. Moving the
despatch team 50 metres, immediately next
to the lift systems, where 80% of products
are picked has improved the speed at which
tasks are done, allowing us to cope with extra
demand from other Group companies without
any additional resource.
Goods-in has relocated to a more user-
friendly area and investment in mobile
booking in terminals with tablets, handheld
scanners and printers has created a more
flexible area and reduced equipment costs.
The onsite collection point has moved to
the front of building with tablet browse and
ordering technology for increased customer
convenience.
IT integration
We needed to create seamless links from
our order processing to service, pick, pack
and despatch and to this extent we work
closely with Kardex and our own IT support
teams, to develop systems which link directly
through our standard picking routines. The
new Kardex machines include a double tray
configuration which presents the operator with
two trays simultaneously, and holds a third in
the background, decreasing the waiting time
by 30 seconds per transaction across 4,500
transactions per day. The picking time window
has narrowed which frees the department to
concentrate on other tasks and has enabled
us to maintain our high operational efficiencies
and achieve over 99.5% fulfil rates.
As a result of these changes, the logistics
centre has increased output by 10% over the
year, using the same number of employees
and no additional overtime.
Safeguarding for
the future
Our growth strategy includes a strong
acquisition pipeline. Width of product set is
critical to our growth. In such an evolving
business we have to make provision for future
expansion to ensure we remain the market
leader in our field. We have the capacity to
install additional lifts, and this ensures we
can expand our current operation to support
our companies, our customers and industry
as a whole.
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 Strategy in action: ACQUISITION AND INTEGRATION
How joining a plc is adding value for our businesses and the Group
19
The main advantage for the companies we acquire and the Group is our strategy
for businesses to continue to operate independently as they previously did, while
removing time-consuming administration processes, enabling each business to
focus on serving the customer and maximising market opportunities.
Nelson Hydraulics and Indequip were acquired over two years ago. Their performance since acquisition, outlined below, exemplifies how
the acquisition strategy is working for each business and the Group.
Nelson Hydraulics (Nelson)
Nelson is a hydraulic components and hose
assemblies business, based in Ireland.
Previously owned by the Nelson family for 50
years, the company was purchased in July
2015 under a two-year earn-out agreement,
which de-risked the purchase for the Group
and presented a more lucrative option for the
previous owners.
Still managed by former owner and MD,
Mark Nelson, the company retained its original
team and strong relationships with customers
throughout Ireland and globally.
Since acquisition, Nelson’s revenue increased
by 30%. Sensible cost savings, investment
from the Group and taking advantage of the
resources available have ensured sustainable
growth via the following initiatives:
•
Investment in machinery – the company
invested over £150k in two automated
hose cutting machines, which cut around
70% of all hose assemblies in half the time
and with 100% accuracy.
•
• UK expansion – new division of Nelson
Hydraulics set-up within mainland UK
to expand the hose assembly service.
Operating from Primary Fluid Power, it
utilises current facilities within the Group.
Improved reputation – with no previous
marketing support, Nelson utilised
dedicated marketing expertise to create
company brochures and presentations
for global leading companies. In addition,
Nelson is one of eight companies within
the PMC division who go to market as one
Group of companies with complementary
skillsets. This combined with the kudos
being part of a plc brings has significantly
raised the profile of the company.
•
The above initiatives, combined with a clear
direction and bold mindset from the Board,
has encouraged Nelson to seize opportunities,
which previously they may have been nervous
to take. The investment in machinery along
with promoting their Group status enabled
Nelson to secure a £1 million contract with a
leading company in the crushing industry and
additionally service increased demand from
existing customers.
Indequip
Indequip, a specialist distributor of pneumatic
components based in the UK, was purchased
as an asset sale in February 2016. Prior to
acquisition, Indequip had a strong position
in the distribution market but was becoming
severely constrained with little investment
from its former owners to drive the business
forward.
Still operating under the same MD,
Ian Simpson, and retaining the majority
of its original workforce, Indequip has
experienced two years of solid sales growth;
38% in 2016 and 32% in 2017.
Being part of the Group has enabled Indequip
to flourish and add value in the following ways:
• Enhanced stocks – investment, buying
expertise and a sophisticated warehouse
and logistics function have increased
despatch rates from 70% to 97%,
empowered the team to proactively win
business and facilitated the launch of
Indequip’s exclusive brand, ‘Techmatic’.
Improved reputation – repositioned
themselves away from former negative
perceptions via a rebrand in 2016.
Customers saw this as a giant leap for
Indequip and felt compelled to support
them in their journey. Being part of a
Group enabled Indequip to secure the
UK contract for pneumatic supply into
a global online distribution business
and also within the packaging process
for a leading UK building materials and
construction company.
• Enhanced services and secured additional
business through machined products
(via sister company Primary Fluid Power)
and marketing and catalogue production
(utilising centralised creative services
and IT). In 2017, they doubled online
sales via a new website and also
launched the first Euro-version fluid power
catalogue in Ireland supporting Irish
customers and winning business in a
new geographic location.
•
Increased team morale, following a
successful integration process, a new
collaborative office space and overall
business success.
• Strategic reporting and planning via
new business Intelligence and customer
relations software.
Fundamentally, both businesses have
enjoyed ongoing successes as a result
of strong leadership and the belief and trust
each managing director had in the vision
delivered from the Board at the time of
acquisition and beyond.
Stock code: FLOwww.flowtechfluidpower.comSTRATEGIC REPORT 20
Our values – delivering tailored solutions
Improving the reliability of trains – HTL
About HTL
Ludlow-based HTL has been serving the
mobile OEM market for over 40 years and
provides complete hydraulic solutions from
design to installation. They have strong
long-term relations with suppliers and an
unrivalled service to customers, with bespoke
requirements often delivered within 48 hours.
They are active in many market sectors
including agriculture, airport ground
supply equipment, construction, material
handling and rail.
The challenge
Many passenger cars within the rail sector
are equipped with a dated waxstat cooling
system which can be inefficient and inherently
unreliable, causing over-worked parts, excess
maintenance and delayed train journeys.
The solution
Our experienced engineering teams identified
that replacing the existing cooling system
with an electro-hydraulic fan drive system
made from a kit of parts including wiring,
hose assemblies, temperate sensors and an
electronic fan control would bring significant
benefits.
The new electro-hydraulic system provides
ground-breaking flexibility with live diagnostic
data available via a simple plug into a
laptop, allowing the engineers to adjust the
parameters of the system with ease, while
optimising the efficiency of the cooling
system. In addition, the solution provides a
variable fan speed resulting in significantly less
stress on the blades of the fan.
As a failsafe and in the event of damage to the
system, the fan is automatically set to ‘on’, to
minimise the risk of over-heating.
HTL recently supplied the solution into both
Arriva Trains Wales and Abellio ScotRail,
working with each to configure the product
to suit individual customer requirements. The
HTL team were on hand to ensure the new
concept was commissioned correctly and to
answer questions during the initial installation
phase. By the end of 2018 over 100 passenger
cars will benefit from this easy to install
solution.
The benefits
The solution that replaces the waxstat system
provides many benefits including:
•
Lower installation costs including
reduced pipework.
• Supplied as a kit, enabling quick and easy
installation and commissioning. HTL pre-
set the parameters for convenience but
they can be adjusted with ease.
• Easy fault diagnosis system reduces
maintenance.
•
Improved efficiency. The option to use a
variable displacement pump (pumping
oil to areas that need it rather than
continuously) would further improve
energy efficiency and therefore reduce
running costs.
HTL has been instrumental in tailoring,
installing and commissioning an innovative
solution which provides ongoing efficiencies
for the rail sector and significantly improves
the reliability of train journeys across the UK.
40
Years
Serving the mobile
OEM market
100+
Passenger cars
will benefit by the end
of 2018
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 Our values – nurturing solid partnerships
Branch Hydraulic Systems, part of Group HES, launches first UK Parker Piping Centre
21
The future of the
piping centre
Parker’s high-performance pipe flaring
technology represents the very latest in non-
weld technology, surpassing current weld
options and is interchangeable with standard
industry systems, for a clean, reliable and
leak-free piping system. Group HES aims to
nurture its ongoing partnership with Parker,
taking advantage of the limited competition in
the market.
About Group HES
Group HES is a specialist in hydraulic
component and systems supply. The company
enjoys an excellent reputation for the design,
manufacture, installation and servicing of
critical and complex bespoke hydraulic and
control solutions. Built on over 50 years of
trading expertise, their five trading entities
work in collaboration to achieve bespoke fluid
power solutions for customers and industry.
The opportunity
In 2016, Branch Hydraulic Systems (BHS), part
of Group HES became aware of a potential
contract with Galliford Try (GT), a major
contractor building the new Airbus Wing
Integration Centre (AWIC) project at Filton,
near Bristol. This new facility is supported
by the Aerospace technology Institute
(ATI), Department for Business, Energy and
Industrial Strategy (BEIS) and Innovate UK.
The contract was to supply, build and install
the hydraulic ring main system which provides
a solid power supply for the sophisticated
test equipment that is at the heart of this new
facility. BHS was interested in developing
the capability to offer large bore pipework
installations, a key element of the GT contract
and many other opportunities across industry
with only one other main competitor in the
market supplying pipework of this size.
Moreover, it would also complement their
current site service offering, enabling the
company to generate additional business.
A key facilitator to success
Parker is one of the world’s largest
manufacturers of motion and control
technologies, part of their product portfolio
is an innovative large bore piping range.
Leveraging their long-standing supply
relationship, BHS secured an agreement
with Parker to fabricate large bore pipework
alongside their own brand which is modelled
on Parker’s impressive non-weld Complete
Piping Solution (CPS). Following a successful
tender process, BHS won the contract with GT
and work started to build the first UK Parker
Piping Centre at the Group HES site
in Gloucester.
Combining expertise
The Airbus project involves system design,
manufacture of hydraulic power packs, design
and development of control software systems,
electrical and control panels, onsite installation
and commissioning of over 1km of pipework.
With wide-ranging engineering capability
across Group HES, BHS was well positioned
to take on the contract. Group HES’s previous
investment in 3D CAD was invaluable in
this project, as they can easily plan, design
and manage the process. In addition,
sister company HES Automatec created
the software in-house, using a National
Instruments product, that runs the Parker
variable speed drives, as well as developing
sophisticated data acquisition systems.
To ensure manufacture is in accordance with
Parker’s stringent quality and safety protocol, a
period of intense training was undertaken both
in Germany with the Parker team and at our
Gloucester operation.
Stock code: FLOwww.flowtechfluidpower.comSTRATEGIC REPORT 22
Our values – continuing strong traditions
Celebrating our heritage, building our future
Our business is built on trust. For that reason, our people are our single most
important resource. Having long-standing partnerships with both customers and
suppliers locally and across the globe, they provide knowledge, creativity, vision and
motivation that keeps our business thriving.
Hydravalve
Founder and MD Andy Newham with his
daughter Marie and two sons Eddie and
Andrew
Indequip
Founder Ian Simpson with his daughter
Chloe and brother Stuart.
Acquiring strong companies
Building a strong Group, is as much about the
people as it is about the products or services
we offer.
As well as recruiting new talent, we are keen
to acquire companies who value their
workforce and share our vision for exceptional
service. With each acquisition, as centralised
functions emerge, we are keen to retain
committed employees and redeploy valued
skills and positive work ethic into other areas.
Consequently, acquired companies are run
by their senior management teams with the
added support of divisional Directors.
Family-feel at heart
We are a business based on tradition. Family
values of trust, loyalty, respect and teamwork
are demonstrated across all our businesses.
Many started as family ventures and remain
that way today as they see second and third
generations rise through the ranks.
Protecting our legacy
Many employees are long-serving, and across
the Group we enjoy a low staff turnover. It is
essential to retain and cultivate this knowledge
and expertise as we shape our leaders of
tomorrow. Encouraging and developing
employees in the following ways supports our
strategy and secures our long-term position in
the market:
• Providing collaborative working
environments to bring teams together,
e.g. open plan offices and conferences.
The logistics centre refurbishment
completed this year has enabled
both the Flowtechnology UK and
Indequip commercial teams to work
more effectively
• Team building opportunities – through
business trade shows, customer visits,
charity activities and employee events
we actively support opportunities for
employees to get to know each other.
From experience we know this breaks
down barriers and facilitates closer
working relationships. In January 2018,
we held a two-day education and training
event, bringing together around 50
commercial and engineering personnel
within the PMC division to share ideas and
unite teams
• Supporting training and development –
throughout 2017, over 190 employees
took part in training programmes in
various disciplines, developing essential
skills to build competence and add value
to customers
• Developing leaders to become multi-faceted
agile employees who can quickly adapt to
new technologies and circumstances with
the skills to achieve our strategic goals
• Positioning senior management to
maximise cross-divisional synergies. This
year, Nick Fossey, divisional MD for PMC,
was promoted to oversee Flowtechnology
as well, a strategic decision which will
advance teamwork between these two
allied divisions and continue to ensure we
extract synergies
Group HES
Former MD Stuart Diesel (now heading up
Onsite Services), with his brother Bruce, two
sons Matt and Alex and Bruce’s son Josh (Alex
and Josh work during university holidays).
Left to right: Matt, Bruce, Josh, Alex and Stuart Diesel
• Empowering Group companies to work
autonomously, while ensuring individual,
divisional and Group goals are aligned
• Ensuring we recruit the right people for
the right jobs. As part of our recruitment
programme we utilise various testing
methods to ensure employees are a
natural fit for our business and the job they
applied for
• Supporting apprenticeships; giving our
local talent pool opportunities to learn
and adopt our culture from a grassroots
level and supporting industry’s need
for engineering apprentices as older
generations retire
Collaborative working
“Having our full commercial team together
in one space is paying dividends for us, we
enjoy a more integrated approach where
knowledge is more easily and quickly shared
and ideas flourish.”
John Farmer, MD Flowtechnology UK
Inspiring the leaders
of tomorrow
“We are in the first year of our three-year
apprenticeship with Group HES, we feel very
fortunate to be part of the business who have
been incredibly supportive. Our colleagues
are like family. We hope to secure permanent
positions when we finish, especially now,
being part of a larger organisation, with more
opportunities to progress.”
Lillie and Zach Cooper, twin mechanical
engineering Apprentices, Group HES
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 23
Pictured: Hydraulic Power Unit
Stock code: FLOwww.flowtechfluidpower.comSTRATEGIC REPORT 24
Corporate social responsibility
“As a people-led business,
we adopt responsible and
ethical working practices
to protect and enhance
the communities and
environments in which
we operate.”
Our people
Our employees are our greatest asset and are
trained to meet our requirements of efficiency
and service to customers and suppliers.
The Group recognises that its performance
and ongoing success are directly related
to the quality and effective performance of
employees. It is the policy of the Group to
ensure that employees are able to improve
their performance by having appropriate
access to effective training, development,
coaching and counselling facilities. Induction
training sets the foundation for all employees
and introduces the Group’s operational best
and required practices which are documented
in comprehensive SPIs. This is followed
by specific on-the-job training, in-house
or at accredited third parties. Many of our
engineering apprentices attend courses with
the National Fluid Power Centre (NFPC),
an independent training body. Where the
demands of the business allow, flexible
working is encouraged. Across the Group,
over 190 employees attended some form of
training course in 2017.
The Company is an Equal Opportunity
Employer. This means that the Company’s
established policy is to ensure that no unlawful
discrimination occurs, either directly or
indirectly, against any person on the grounds
of colour, sex, sexual orientation, marital
status, race, religion, nationality, ethnic or
national origin or age.
Apprentices
The Company’s policy covers direct and
indirect discrimination and failure to make
reasonable adjustments for disabled
employees, victimisation and harassment.
Health and safety
Health and safety is taken very seriously by
management at all levels in the Group and our
accident rates are very low with no RIDDOR
incidents during the year. The workforce has
almost doubled and minor incidents have
understandably increased but only 31 were
reported across 522 employees. Overall two
days were lost. We are working to standardise
procedures in the UK and after a market
review we are now working with Croner at nine
Group sites to develop common procedures
and will continue to roll out their programme
in 2018.
Apprentices
Many of our businesses have a long tradition
of apprenticeships. Through training and
encouragement, we nurture and develop local
talent and support school leavers seeking
commercial or engineering experience. We
enjoy a high retention rate as most apprentices
go on to secure permanent positions with us.
In 2017 we retained five apprentices across
the Group, one in the FTUK call centre, one
engineer at Group HES and three engineers at
Primary Fluid Power.
Number of apprentices:
G = graduated or left,
N = new, C = current (year end)
See table at bottom of page.
Diversity
We recognise and value all forms of diversity
in our employees and endeavour to promote
diversity in our workplace to enhance the
success of our Group. We currently employ
29% females across the Group with 50%
of senior management positions at our
Skelmersdale office occupied by females.
Company
2017
2016
2015
Primary
Fluid Power
FTUK
Orange County
Group HES
Hi-Power
TOTAL
G
N
4
1
0
1
0
0
1
1
3
0
C
1
4
3
7
1
16
G
1
0
1
2
0
N
2
4
1
3
0
C
5
4
2
5
1
17
G
2
0
0
3
0
N
1
0
2
2
0
C
4
0
2
4
1
11
Our customers
The Group values each customer regardless of
size and is committed to developing mutually
beneficial relationships at local, national
and international level. All divisions have a
customer-centric approach and it is vitally
important for to us to work closely with the
customer base to understand the underlying
drivers in their marketplace. Continued
dialogue has enabled the Group to develop its
product and service offer and so match these
changing requirements.
During 2017, FTUK introduced a new
‘out-of-hours’ service to support customers
with critical emergencies. They also upgraded
their e-commerce app to support ordering
convenience on mobile and tablet devices
and easy stock replenishment with a handy
barcode scanner feature. Indequip has enabled
Irish customers to trade in their own currency
by printing a Euro-version of the distributor
catalogue, which they design and print for
customers with their own company branding.
As specialists within fluid power, increasingly
our PMC businesses are providing training
as part of the installation service, enabling us
to help our customers create a safer working
environment for their own teams.
Suppliers
The Group nurtures its relationships with
leading fluid power suppliers while developing
its complementary exclusive brands and own
manufactured products. We have a dedicated
team in Shanghai to manage relationships
with our Far Eastern suppliers, ensuring
we can overcome local cultural and
language barriers.
This year we have secured many new
distribution agreements across the Group
which further expands our product portfolio to
existing customers and enables us to secure
business with new customers.
Number of apprentices:
G = graduated or left,
N = new, C = current (year end)
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 25
Recognition
Nominated for Best Online Report: AIM/small
cap, Flowtech Fluidpower plc was delighted
to be recognised at the prestigious 2017
Corporate & Finance Awards, receiving a
Silver Winner for its 2017 Annual Report
alongside its preferred IR media partner,
Jones and Palmer.
Investors
The Board presents to our investors at least
twice a year and is available for meeting with
existing and new investors by appointment
through our joint brokers, Zeus Capital and
finnCap.
Human rights
Our respect for human rights is implicit in our
employment practices; the rights of every
employee are respected and every employee is
treated with dignity and consideration.
Our employment practices are designed to
attract, retain, motivate and train people and to
respect their rights. We do not use child labour,
nor do we use forced labour. We make regular
supplier visits to ensure our supply chain
maintains the same standards of integrity and
is free from modern slavery. We recognise
freedom of association by permitting our
employees to establish and join organisations
of their own choosing on their own initiative,
and we recognise collective bargaining where
required by local laws.
Three significant developments include the
Parker Partnership with Group HES, the
launch of Techmatic, a new exclusive
pneumatic brand for Indequip and a new
hose service for Flowtechnology Benelux
through the acquisition of Hewi Slangen in
September 2017.
Representatives from all business units in the
Group either exhibited at or attended over 15
supplier and end user trade shows in 2017
in the UK, Europe and Asia. The FTUK 2017
Distributor Convention, held under the wings
of Concorde in Manchester, was attended by
over 40 suppliers, a 25% increase on previous
years. This year all PMC division members
exhibited as one ‘Fluidpower Group’ at the
LAMMA 2017 agricultural and machinery
show, promoting a complete hydraulic
offering to the market and reducing the
cost of exhibiting independently. The Group
continues to build relationships with trade
associations including the BFPA, FADA and
NFPC. John Farmer from FTUK joined the
BFPA board, taking a more active role with
numerous recommendations being acted
upon. Furthermore, FTUK hosted its first BFPA
seminar at its newly refurbished premises.
The environment
The Group is mindful of the impact that its
operations have on the environment and is
committed to reduce its carbon footprint.
Amongst the measures in place are:
• We recycle as much ‘waste’ as possible
in the form of plastic, paper, metals and
cardboard. In Benelux they are proud to
achieve 100% recycling on all paper and
plastic. Three new lifts have enabled the
distribution centre to reduce packaging by
£20k which is 12% of their annual costs. At
Orange County UK they recycle 100% of oil
rags. At most warehousing and production
sites, paper and cardboard is shredded
and reused again in packaging. FTUK,
Indequip and Group HES have removed
personal bins in the offices in favour of
designated recycling bins for various
materials
• The Group fleet utilises the BMW efficient-
dynamics range whenever possible and
encourages employees to share the
benefits through a salary sacrifice scheme
for personal use
• We reduce energy use through low energy
lighting and motion sensitive lighting in our
warehouses and newer meeting rooms
• Over 80% of Group HES’s power is
generated by solar panels which were
fitted in 2014. Furthermore, the company
currently has three electric company cars
and two charging points onsite. They
aim to have all 15 vehicles replaced with
electric alternatives by 2020. We aim to
share such initiatives across the Group
• Encouraging cycle use through local
government initiatives in both the UK and
the Netherlands
• Wherever possible orders and invoices
to suppliers and customers are sent via
Electronic Data Interchange (EDI) with a
consequent reduction in the use of paper
• Adopting digitalised processes – including
use of scanners, dropbox for data
sharing. This year Hydroflex went more
than 90% paperless, assisted by their
customer scan2order system, which
sees customers using a supplied barcode
scanner to order product
• Financial reports are issued to the majority
of shareholders as an interactive report on
our website
Community
Bringing together employees outside of
work promotes cohesion in the workplace.
Employees are encouraged to participate
in regular fundraising events for local and
national charities.
•
• This year FTUK donated over £4,000
through various activities including
a summer open day and Christmas
pantomime for staff and family, charity
raffle at their annual convention and
various dress down days
Local football sponsorship is encouraged
to support junior teams in the community
and with both Primary Fluid Power and
FTUK management actively involved with
playing and coaching for local teams
including Quarry Green FC, Skelmersdale
United Youth Academy and Wigan Ladies
Football Club
• Group HES is active in the community,
sponsoring various local events such
as cycling and paint festivals for local
hospitals and homeless charities as well
as raising money for national charities.
This year they also sponsored Project
Propeller 2017 at Staverton Airport, which
sees over 150 World War II aircrew flown
in by volunteers across the UK. Collectively
they contributed over £2,500 in donations
and sponsorships throughout 2017
Stock code: FLOwww.flowtechfluidpower.comSTRATEGIC REPORT 26
Key performance indicators
The Board regularly monitors a range of financial and non-financial performance
indicators to allow it to measure performance against expected targets.
KPI
DEFINITION
PERFORMANCE
COMMENTARY ON PERFORMANCE
STRATEGIC LINK
HOW THESE MEASURES SUPPORT OUR STRATEGIC FOCUS
Daily
gross profit
generated and
gross profit
percentage
The accurate daily reporting of gross profit achieved
by each operating division across the Group with
comparison to prior year or plan is our fundamental
performance measure. This is further supported by
additional calculations giving indicative full month
estimates on a daily basis. The daily gross profit
report is issued to all business units by 9.00 am daily.
Gross profit % is also reviewed on a daily and monthly
basis to ensure consistency with prior year and
plan (for further commentary see Operational and
Financial Review page 29)
Monthly
sales and
gross profit
by customer
account and
product
We have a clear focus on the management of
profitability at customer and product levels. Within
the Group’s IT systems, appropriate Business
Intelligence modules are maintained to allow ease
of analysis on a timely basis to both underpin sales
development initiatives at a strategic and tactical
level, and to quickly identify underperformance.
PMC
£000
Flowtechnology
£000
Process
£000
£40.2
£54.9
£52.4
£48.5
£10.4
£6.5
£18.3
£12.7
2015 2016 2017
2015 2016 2017
2016 2017
Revenue
£000
£78.2
Gross profit
£000
£26.6
£53.8
£44.9
£37.8
£19.1
£15.3
£13.2
2014 2015 2016
2017
2014 2015 2016
2017
Flowtechnology
Division
Service levels
This is the percentage of orders despatched same
day in the Flowtechnology division for the top
1,000 lines.
99%
99%
99%
99.5%
2014 2015 2016 2017
Performance across all segments remained in
line with forecasts and prior year.
As part of any acquisition programme, new businesses that join
the Group will be required to comply with this daily reporting
requirement as soon as it is practicable. The primary benefit
is to allow the Board to reinforce close scrutiny of trading
performance, provide local management focus and an early
indication of any negative growth, if evident.
Granular KPI review has led to overall growth
targets being achieved.
The regular measurement of performance enables us to identify
broader issues impacting a brand post acquisition.
Continued focus on product performance allows us to identify
product brand expansion opportunities.
Supply chain and logistics continue to deliver
consistent performance.
The aim of the Flowtechnology division is to provide a wide and
deep product range, competitive pricing, consistently high service
levels and a unique dependable next day delivery for stock items.
These attributes are all linked to optimised inventory levels to
provide an unparalleled customer support service.
Employee
retention
Retention is measured as the number of employees
retained at the end of the year as a percentage of the
number at the start of the year.
97%
87%
93%
88%
Overall retention remains high and above
national average.
People are one of our strongest assets, they are the key to our
strategy to achieving our overall goals. Measuring retention
across the business units enables us to identify both good
practices and where corrective action may be needed.
Net Debt
to Total
Facilities
Ratio
Control of cash flow within the Group is
essential to ensuring we are able to service all
liabilities as they fall due, remain within Banking
facilities and covenants, and are able to service
dividend payments
2014 2015 2016 2017
66%
66%
74%
2015 2016 2017
Conversion of operating profit to cash has
been strong during the year with an overall
reduction in working capital achieved despite
an increase in sales. A new “Profit Sharing
Scheme”, based on rewarding staff based on
return on gross working capital employed, was
introduced during the year and focuses local
decision making on cash generation.
Ensuring that the Group efficiently converts profit into cash
underpins our ability to grow, by both organic and acquisitive
means.
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017
27
KPI
DEFINITION
PERFORMANCE
COMMENTARY ON PERFORMANCE
STRATEGIC LINK
HOW THESE MEASURES SUPPORT OUR STRATEGIC FOCUS
Daily
gross profit
generated and
gross profit
percentage
The accurate daily reporting of gross profit achieved
by each operating division across the Group with
comparison to prior year or plan is our fundamental
performance measure. This is further supported by
additional calculations giving indicative full month
estimates on a daily basis. The daily gross profit
report is issued to all business units by 9.00 am daily.
£40.2
£54.9
£52.4
£48.5
£10.4
£6.5
Gross profit % is also reviewed on a daily and monthly
£12.7
basis to ensure consistency with prior year and
plan (for further commentary see Operational and
Financial Review page 29)
£18.3
2015 2016 2017
2015 2016 2017
2016 2017
Monthly
sales and
gross profit
by customer
account and
product
We have a clear focus on the management of
profitability at customer and product levels. Within
the Group’s IT systems, appropriate Business
Intelligence modules are maintained to allow ease
of analysis on a timely basis to both underpin sales
development initiatives at a strategic and tactical
level, and to quickly identify underperformance.
£78.2
£26.6
£53.8
£44.9
£37.8
£19.1
£15.3
£13.2
2014 2015 2016
2017
2014 2015 2016
2017
Performance across all segments remained in
line with forecasts and prior year.
As part of any acquisition programme, new businesses that join
the Group will be required to comply with this daily reporting
requirement as soon as it is practicable. The primary benefit
is to allow the Board to reinforce close scrutiny of trading
performance, provide local management focus and an early
indication of any negative growth, if evident.
Granular KPI review has led to overall growth
targets being achieved.
The regular measurement of performance enables us to identify
broader issues impacting a brand post acquisition.
Continued focus on product performance allows us to identify
product brand expansion opportunities.
Flowtechnology
Division
Service levels
1,000 lines.
This is the percentage of orders despatched same
day in the Flowtechnology division for the top
99%
99%
99%
99.5%
Supply chain and logistics continue to deliver
consistent performance.
The aim of the Flowtechnology division is to provide a wide and
deep product range, competitive pricing, consistently high service
levels and a unique dependable next day delivery for stock items.
These attributes are all linked to optimised inventory levels to
provide an unparalleled customer support service.
Employee
retention
Retention is measured as the number of employees
retained at the end of the year as a percentage of the
97%
87%
93%
88%
number at the start of the year.
Overall retention remains high and above
national average.
People are one of our strongest assets, they are the key to our
strategy to achieving our overall goals. Measuring retention
across the business units enables us to identify both good
practices and where corrective action may be needed.
Net Debt
to Total
Facilities
Ratio
Control of cash flow within the Group is
essential to ensuring we are able to service all
liabilities as they fall due, remain within Banking
facilities and covenants, and are able to service
dividend payments
Conversion of operating profit to cash has
been strong during the year with an overall
reduction in working capital achieved despite
an increase in sales. A new “Profit Sharing
Scheme”, based on rewarding staff based on
return on gross working capital employed, was
introduced during the year and focuses local
decision making on cash generation.
Ensuring that the Group efficiently converts profit into cash
underpins our ability to grow, by both organic and acquisitive
means.
2014 2015 2016 2017
2014 2015 2016 2017
66%
66%
74%
2015 2016 2017
Stock code: FLOwww.flowtechfluidpower.comSTRATEGIC REPORT
28
Operational and financial review
We aim to have a market position as a full-service supplier
of fluid power products and services. The ongoing
expansion of ranges will see the Group capture a greater
percentage of current customer spend and also open up
new business opportunities in the wider market.
Sean Fennon, CEO
Across our four divisions we employ over 550 skilled
people throughout the UK, ROI and Benelux. Our ongoing
strategy guides how we work together as a Group of
complementary businesses to achieve one shared
purpose; to be the trusted provider of products, solutions
and services to the fluid power market.”
Bryce Brooks, CFO
2017
£78.3m
£26.5m
33.9%
£6.61m
£9.08m
2016
£53.8m
£19.1m
35.5%
£6.14m
£7.45m
Change %
+46%
+34%
-1.6%
+7.7%
+21.9%
Bryce Brooks Chief Financial Officer, Sean Fennon Chief Executive Officer
Operational review
Group revenue*
Gross profit*
Gross profit %
Group operating profit*
Underlying operating profit†
Reconciliation of underlying operating profit to operating profit
Underlying operating profit
Less separately disclosed items (note 4)
Operating profit
2017
9,081
(2,467)
6,614
2016
7,454
(1,317)
6,137
* All results relate to continuing operations
† Underlying operating result is continuing operations’ operating profit before acquisition costs, amortisation of intangible assets, share-based payment costs and
restructuring costs.
We are again delighted to report a period of significant progress in the scope of our activities as a Group, with an uplift in revenue of 46%
(2016: 20%), of which 38% is attributable to acquisition activity during the course of the year, with the balance of 8% derived from organic growth
in our established operations. Below this we have seen a 7.7% increase in operating profit (2016: 11.8%), and a 21.9% improvement in underlying
operating profit (2016: 8.5%). The well supported placing of shares in March 2017, which raised £9.6 million, has been fully invested in businesses
complementary to the Group’s core strategy.
The material currency movements in 2016 which rapidly increased input prices across our product portfolio when sourced from Europe or the Far
East, have predominantly been moved through our sales pricing structures, albeit with some initial resistance with OEMs. The UK fluid power sector
has also experienced relatively buoyant conditions during 2017, which has continued into the early part of 2018. It is particularly pleasing that the
Euro-based acquisitions made in the year, being Hi-Power and Hydroflex, have also made immediate contributions.
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 29
Gross profit margins
Gross profit % remains one of our most important KPIs, and with the currency effects mentioned above, downward pressures were seen as a key
risk to our progress as we entered 2017.
As a reminder, the Group is largely split into two separate and distinct pricing models:
•
“Distribution” businesses – Flowtechnology and Process – who operate pricing policies based around smaller parcel size, a broader mix of
global brand and own brand products, and a “list less discount” model
• PMC businesses who work in both pure component sales, that overlap with our distribution model, but also in markets where the precedent is
for a more fixed approach to pricing to OEMs, and therefore have more challenging pricing issues to address
It is therefore pleasing to report that in 2017 we were able to broadly maintain margins in each of our divisions as shown below, and of particular
note in our Flowtechnology division, which after targeted selling price initiatives in the early part of the year, had a final out-turn only 0.1% down on
prior year. Overall, Group margins were 1.6% below previous year, which was attributable to mix effects from acquisitions in the lower gross margin
(but higher average order size) PMC division.
Gross profit
Flowtechnology
Power Motion Control
Process
Group
2017
2016
37.1
29.1
41.8
33.9
37.2
29.2
42.6
35.5
Acquisitions
Following the successful March fundraising, 2017 was our most active period since coming to market in 2014, and if we include the recent
“Beaumanor” transaction post year being reported in March 2018 (note 32), we completed seven deals in just over 12 months. Throughout the year
we have worked on our “four layered” focus on synergy gain:
1. Back office – typically accounting, insurance, banking, HR and IT.
2. Commercial – cross-selling allowing our complementary skill sets to be exploited.
3. Procurement – a comprehensive and systematic approach to supplier pricing optimisation.
4. Operational – with over 400,000 square feet of operational facilities across its 26 sites, the Group now has significant resources when
compared to just two sites in 2014.
While back-office savings generally start to feed through within one year, we believe that retention of brand identity, reputation and customer
relationships remains critical, and especially so during the initial period when often long-standing customer and supplier relationships are most
tested. As such our pursuit of other gains, and in particular those achievable from operational activities, is always tempered by a low risk approach
to change, and we believe that a proper perspective will be available after at least a three-year period.
Underlying operating profit
The underlying* operating profit can be summarised as follows:
Continuing operations
Underlying operating profit*
Flowtechnology
Power Motion Control
Process
Central costs
Underlying operating profit
2017
£000
7,524
2,788
1,105
(2,336)
9,081
2016
£000
Change
£000
Change
%
7,281†
1,823
401
(2,051)†
7,454
243
965
704
(284)
1,627
3%
53%
176%
14%
22%
* Underlying operating profit is continuing operations’ operating profit before acquisition costs, amortisation of intangible assets, share-based payment costs and restructuring costs.
† Restated to reflect £346,000 of cost previously shown in Central Costs and now part of Flowtechnology following a department reorganisation effected on 1 January 2017.
Stock code: FLOwww.flowtechfluidpower.comSTRATEGIC REPORT 30
Operational and financial review continued
KEY FACTS
KEY FACTS
+6%
Turnover (2016: 6%)
+120%
Turnover (2016: 36%)
KEY FACTS
+120%
Turnover
+3%
Underlying operating profit (2016: 1%)
+53%
Underlying operating profit (2016: 48%)
+175%
Underlying operating profit
2017
2016 growth
37,239 35,133
6%
Revenue
from external
customers
Revenue
from external
customers
2017
2016 growth
34,806 15,830
120%
Revenue
from external
customers
2017
2016 growth
6,242
2,837
120%
Flowtechnology
The division continues to progress following
the acquisition of Indequip in early 2016, with
underlying operating returns maintained at
over 20.2% of sales, despite the enhanced
local staff bonus profile and only marginally
down on 2016 when 21% was achieved.
With Beaumanor, acquired in March 2018 to
join the division in the UK, and our Benelux
operation enhanced with developments in the
hydraulic sector by Hewi Slangen, and more
significantly collaboration with Hydroflex, this
very cash generative division has a secure
base from which to continue to flourish.
Power Motion Control
(PMC)
The division has been the most substantive
representation of our acquisition programme
and now combines the complementary
product, service and skill sets of nine
businesses across 19 sites in three countries.
Marketed collectively under a “Fluidpower
Group” banner, as a showcase for the wider
resources that are available to customers and
suppliers alike, the combined net underlying
operating margin achieved for the division of
was 8%. Our target is to produce a minimum
of at least 10% in each business within the
division, and overall the 12% achieved on the
legacy operation in 2016.
Process
Now comprises two business following the
addition of Orange County in July 2017, which
has traded in line with expectation since that
time.
The founding Hydravalve business, itself
acquired only in 2016, has performed steadily
during its first full year despite substantial
change in property and IT infrastructure,
following the creation of its first specialist
industry catalogue in late 2017, developed
in conjunction with our dedicated team at
Flowtechnology UK, it has seen an immediate
benefit that lifted Q4 trading and brought a
buoyant start to 2018.
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 31
Central costs
Central costs comprise executive management, finance and IT departments, divisional sales and the cost of running the plc; we continue to
manage cost carefully, with the overall increase of 7% (2016: 21%). Planned increases for 2018 and beyond remain limited and are in support of the
cost-out synergies being targeted at divisional level.
Acquisition and restructuring costs
The total cost for the year represents 7.0% (2016: 9.5%) of the total consideration paid for acquisitions. The Group uses a mixture of professional
advisers for due diligence services with a view to managing costs. Any initiatives to transfer to “internal” resources, with a view to reducing
transaction costs, will be managed carefully.
Restructuring costs incurred during the year of £117,000 (2016: £84,000) primarily relate to the reorganisation of administrative functions following
acquisition, as well as further streamlining of the Group following advice from our legal and tax advisers.
Statement of financial position and cash flow
The net debt position at the year end was £14.9 million (2016: £13.1m).
Net debt bridge
£000
£9,500
£100
Tax paid
Working
capital
movement
-£1,600
Fixed
assets
purchased
-£1,800
Acquisitions
1 Jan
2017
Net debt
-£13,100
Operating
profit
£9,800
Dividends
paid
Interest
paid
Forex difference
on cash
-£2,900
-£500
-£100
31 Dec
2017
Net debt
-£14,900
-£14,300
Net proceeds
from share
issues
On top of strong operating profit growth, cash collections have remained consistent, with the total charge for bad and doubtful debt related
issues being £38,000 (2016: £67,000), representing only 0.1% of turnover. In addition, net stock investment has been more than covered by
trade supplier support, with a result that over the year the movement in total working capital has resulted in a net cash inflow of £0.1 million
(2016: an outflow of £1.8m).
The Group has undertaken its largest year of capital expenditure in its history with the central piece being redevelopment of the 25-year old facility
at Skelmersdale. Expenditure to cover offices, car parking, racking, plant and IT development totalled £0.8 million and has given the site a new
long-term identity. Outside of this, IT systems development in order to ensure both resilience and efficiency remains a key focus, and again when
coupled with our objective of achieving medium term synergy benefit from our acquisition programme.
Stock code: FLOwww.flowtechfluidpower.comSTRATEGIC REPORT 32
Operational and financial review continued
+46%
Group Revenue
Growth
+7.7%
Group Operating
Profit Growth
On 1 March 2018, the Group entered into a
restated facilities agreement with Barclays
Bank PLC to replace our existing facilities
with a £16 million committed revolving credit
facility and £4 million loan with a single
“bullet” repayment at the end of a three-year
term. Attached rates and terms were broadly
consistent with those previously enjoyed and
are detailed further in note 18.
Dividends
Subject to Shareholder approval at the
Annual General Meeting which is to be held
on 6 June 2018, the Directors are proposing
a final dividend of 3.85p per share. This,
together with the interim dividend of 1.93p
(paid on 24 October 2017), brings the total
for the year to 5.78p which again matches
the commitment made at the date of the
IPO of 5% growth. The outlook for further
enhancement to dividend flow remains good
and the Board would like to reiterate its view
that the retention of a strong dividend policy
is a foundation for the investment case in
the Group.
Taxation
The tax charge for the year was £1.21 million
(2016: £1.15m), with an effective tax rate of
17.0% (2016: 20.3% ) and a blended tax rate
based on the geographical regimes of 18.8%
(2016: 19.5%).
People
As a direct result of our acquisition activity
during the course of the year, the depth and
quality of the management teams across
the Group continues to improve. Managing
Directors appointed during the year include
Alan Willis at HTL, Maurice Kearney at
Hi-Power, Spencer Rogers at Orange County,
Chris Way at Group HES and Dave Maher at
Branch Hydraulic Systems. In addition, in early
2018, following a review of our overall medium
term objectives, we introduced a regional
Managing Director structure with the following
appointments:
• Nick Fossey in the UK & Ireland with
a focus on synergy extraction, cash
generation and continued development
of commercial and cross-selling
opportunities; and
•
Mark Richardson in the Benelux with a
focus on operational efficiencies between
Hydroflex and Flowtechnology Benelux,
and providing a platform for future growth
by organic and acquisitive means in
the region.
We are always acutely aware that our progress
is achieved with the continued commitment
and effort of all our employees – in both “new”
and “old” businesses – and with enhanced
profit sharing arrangements now available
across the Group we are confident of our
ability to attract and retain the best staff the
industry can offer.
Outlook
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, as we seek to
achieve synergistic benefit and capitalise on
the entrepreneurial and technical skills of the
new operations.
The Board does not intend to implement
further significant acquisition activity in 2018,
and our focus will therefore be on extracting
valuable efficiencies from the businesses to
date, and in particular:
• Expanding intercompany procurement and
stockholding benefits by using logistics
centres in Skelmersdale (FTUK) and
Leicester (Beaumanor)
• A wider operational review to identify
efficiencies that could be achieved
through geographic consolidation of
existing assets
• Upgrading information systems, with
Sage X3 financials to be implemented
Group-wide by the end of 2018 giving a
single reporting system for the Group
with multi-lingual and multi-currency
capabilities
That said, the heightened profile that
Flowtech Fluidpower has established has
enabled opportunities for further expansion
to continue to be presented. It therefore
remains a key part of our strategy to ensure
we can exploit these openings, while retaining
a stable financial and operational structure to
ensure that the progress made to date is only
enhanced.
Our objective remains growth through both
acquisitive and organic means. Our targeted
approach ensures we can achieve both
a concentration and enhancement to our
product set – which lies at the centre of
our business model – entirely focused on
fluid power.
We have entered 2018 with confidence.
Following our recent placing of shares
raising a further £10.5 million (after costs)
in permanent capital, the acquisition of
Beaumanor adds a further significant element
to our customer and supplier base.
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 Risk management
33
How the business manages risk
In common with all organisations, Flowtech Fluidpower faces risks which may affect its performance. There is little that we can do about the
macroeconomic environment but the Board believes that our strategy, which is designed to exploit opportunities created by the market, places the
Group in a strong position relative to others, particularly where those markets are volatile. For the risks we are able to manage, the Group operates
a system of internal control and risk management in order to provide assurance that we are managing risk while achieving our business objectives.
No system can fully eliminate risk and therefore the understanding of operational risk is central to management processes. The long-term success
of the Group depends on the continual review, assessment and control of the key business risks it faces. Risk review is an ongoing process and is
reviewed formally by the Board prior to the year end.
Risk heat map
The risk heat map represents the qualitative and quantitative evaluations of
the likelihood of a risk occurring and the impact on the Group in the event that
a particular risk is experienced. The risk heat map was compiled by the Board
based on a common understanding of the risk appetite of the Group, the level of
impact that would be material to the Group and the same method for assigning
probabilities and potential impacts. Results from the individual Board members
were amalgamated using simple averaging.
Movements from the prior year’s ranking are indicated by the arrows.
d
o
o
h
i
l
e
k
L
i
Risk
1 Talent management and
succession planning
2 Inability to recognise and
control cyber exposures
3 System and site disruption
4 Quality control
5 Breach of regulations
6 Failure to integrate
acquisitions and align
strategies to existing
business model
2016
likelihood
2016
impact
2017
likelihood
2017
impact
2.3
2.3
1.7
1.4
1.1
3.4
3.0
3.4
2.1
1.6
2.9
2.1
1.7
1.4
1.1
3.6
3.4
3.5
1.9
2.2
1.6
1.6
1.3
1.7
2
1
2
1
3
3
6
6
5
44
5
Impact
2017 risk
2016 risk
Movement
Stock code: FLOwww.flowtechfluidpower.comSTRATEGIC REPORT 34
Risk management continued
The principal risks identified include:
RISK
1
DESCRIPTION
STRATEGIC LINK
MITIGATION
There is a risk that the business is not able to attract and retain high performing employees.
Talent management and
succession planning
The Group also needs to maintain engagement with the employees to ensure they remain
supportive of the business strategy.
2
Inability to recognise and
control cyber exposures
The Group recognises there is an increasing exposure to cyber-risk, including advanced
techniques to disrupt our websites and direct attacks on Group systems with the potential
loss of confidential information.
3
System and site disruption
There is heavy operational dependence on the resilience of warehousing and IT
infrastructure to support business operations and maintain high service levels. The risk
is present that unplanned events could disrupt the functioning of key elements of the
operational infrastructure, damaging customer service and business reputation.
4
Quality control
5
Breach of regulations
6
Failure to integrate
acquisitions and align
strategies to existing
business model
Many of the key components and products supplied by the Group are for industrial use,
often in hazardous environments. These components and products must be fit for purpose
to ensure that their reliability, performance and safety is of the necessary standard. Failure
in this quality will cause damage to the Group’s reputation, customer relationships and
potential legal consequences.
Inadvertent breaches of regulations could lead to prosecution and significant fines.
Regulations impacting the Group include Control of Substances Hazardous to Health,
packaging waste regulations, health and safety at work, the Bribery and Corruption Act and
corporate governance.
The Directors believe that the fluid power marketplace is highly fragmented, and the Group’s
core trading entities operate in well-defined channels. Acquisition opportunities that fit within
these channels will be key targets. However, this fragmented nature will often introduce
channel overlap that could undermine trading performance in other parts of the Group.
Attraction and retention of employees is supported by bonus plans, recognition and reward programmes and
innovative benefit packages. Profit sharing scheme introduced in 2017.
Succession planning process introduced to identify and develop key employees. Training forms a key part of all
employees’ development within their roles. Training is arranged to support the Group’s business plans and the
personal goals of all employees.
Group-wide technical and sales conferences to aid skills sharing.
Current mitigation measures for local business systems include anti-virus software, virus scans on incoming emails
The main Group website is hosted in the cloud with dual servers ensuring automatic switchover should one fail with
An onsite IT review is carried out post acquisition followed by standardisation of networks and controls.
Continuing review of all existing lT systems during the year while working towards IASME Gold certification for
and firewall protection.
daily backup procedures.
all sites.
Offsite disaster recovery provision for IT systems, including cloud based technologies.
Business continuity plans in place at operational locations. As the Group increases in size, resilience to disruption
increases as distribution and production activities can be re-routed to other sites.
Business continuity plan has been tested successfully at the Skelmersdale Logistics Centre. An annual test
programme has been introduced across the Group with the Hydravalve site successfully working through a mock
corrosive gas tanker crash this year.
The majority of the Group’s products are sourced from reputable ‘brands’ in the UK and Europe. In addition, for
exclusive brands sourced from China, the Group has quality control specialists who regularly visit suppliers’
manufacturing sites to ensure that high quality standard operating procedures are being adhered to.
The Group complies with ISO 9001 ensuring quality standards are maintained through all its operations.
Continual testing procedures are in place for both components and manufactured products.
Employees involved in assembly processes are qualified with the relevant industry body and continue with regular
internal and external training.
The Group engages external specialists as required to make sure internal procedures and policies are in place to
provide compliance with the regulatory frameworks.
There is an ongoing review of relevant national and international compliance requirements.
Health and safety procedures to be standardised across the Group in 2017.
The Board includes both Executive and Non-Executive Directors with considerable acquisition experience. Given that
the development of the Group in the fluid power market is likely to include multiple opportunities to acquire trading
companies in both the UK and Europe, future appointments will also be made as required to strengthen skills and
knowledge in this area. Since the IPO, the Group has also added professionals in both general accounting, business
process and mergers and acquisitions to its internal resources in support of this process.
Prior to engaging in any process the Chief Financial Officer will review any acquisition opportunity for conformance
with the Board’s strategy on channel management. Further detailed assessment with regard to channel conflict will
be a key part of the due diligence process which will include consultation with the Group’s Regional MD’s prior to plc
Board approval and any commitment to buy.
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 DESCRIPTION
STRATEGIC LINK
MITIGATION
35
Attraction and retention of employees is supported by bonus plans, recognition and reward programmes and
innovative benefit packages. Profit sharing scheme introduced in 2017.
Succession planning process introduced to identify and develop key employees. Training forms a key part of all
employees’ development within their roles. Training is arranged to support the Group’s business plans and the
personal goals of all employees.
Group-wide technical and sales conferences to aid skills sharing.
Current mitigation measures for local business systems include anti-virus software, virus scans on incoming emails
and firewall protection.
The main Group website is hosted in the cloud with dual servers ensuring automatic switchover should one fail with
daily backup procedures.
An onsite IT review is carried out post acquisition followed by standardisation of networks and controls.
Continuing review of all existing lT systems during the year while working towards IASME Gold certification for
all sites.
Offsite disaster recovery provision for IT systems, including cloud based technologies.
Business continuity plans in place at operational locations. As the Group increases in size, resilience to disruption
increases as distribution and production activities can be re-routed to other sites.
Business continuity plan has been tested successfully at the Skelmersdale Logistics Centre. An annual test
programme has been introduced across the Group with the Hydravalve site successfully working through a mock
corrosive gas tanker crash this year.
The majority of the Group’s products are sourced from reputable ‘brands’ in the UK and Europe. In addition, for
exclusive brands sourced from China, the Group has quality control specialists who regularly visit suppliers’
manufacturing sites to ensure that high quality standard operating procedures are being adhered to.
The Group complies with ISO 9001 ensuring quality standards are maintained through all its operations.
Continual testing procedures are in place for both components and manufactured products.
Employees involved in assembly processes are qualified with the relevant industry body and continue with regular
internal and external training.
The Group engages external specialists as required to make sure internal procedures and policies are in place to
provide compliance with the regulatory frameworks.
There is an ongoing review of relevant national and international compliance requirements.
Health and safety procedures to be standardised across the Group in 2017.
The Board includes both Executive and Non-Executive Directors with considerable acquisition experience. Given that
the development of the Group in the fluid power market is likely to include multiple opportunities to acquire trading
companies in both the UK and Europe, future appointments will also be made as required to strengthen skills and
knowledge in this area. Since the IPO, the Group has also added professionals in both general accounting, business
process and mergers and acquisitions to its internal resources in support of this process.
Prior to engaging in any process the Chief Financial Officer will review any acquisition opportunity for conformance
with the Board’s strategy on channel management. Further detailed assessment with regard to channel conflict will
be a key part of the due diligence process which will include consultation with the Group’s Regional MD’s prior to plc
Board approval and any commitment to buy.
The Strategic Report as set out on pages 2 to 35 has been approved by the Board
Bryce Brooks
Chief Financial Officer
16 April 2017
RISK
1
2
3
4
5
6
Talent management and
succession planning
The Group also needs to maintain engagement with the employees to ensure they remain
supportive of the business strategy.
There is a risk that the business is not able to attract and retain high performing employees.
Inability to recognise and
control cyber exposures
The Group recognises there is an increasing exposure to cyber-risk, including advanced
techniques to disrupt our websites and direct attacks on Group systems with the potential
loss of confidential information.
System and site disruption
There is heavy operational dependence on the resilience of warehousing and IT
infrastructure to support business operations and maintain high service levels. The risk
is present that unplanned events could disrupt the functioning of key elements of the
operational infrastructure, damaging customer service and business reputation.
Many of the key components and products supplied by the Group are for industrial use,
often in hazardous environments. These components and products must be fit for purpose
to ensure that their reliability, performance and safety is of the necessary standard. Failure
in this quality will cause damage to the Group’s reputation, customer relationships and
potential legal consequences.
Inadvertent breaches of regulations could lead to prosecution and significant fines.
Regulations impacting the Group include Control of Substances Hazardous to Health,
packaging waste regulations, health and safety at work, the Bribery and Corruption Act and
corporate governance.
The Directors believe that the fluid power marketplace is highly fragmented, and the Group’s
core trading entities operate in well-defined channels. Acquisition opportunities that fit within
these channels will be key targets. However, this fragmented nature will often introduce
channel overlap that could undermine trading performance in other parts of the Group.
Quality control
Breach of regulations
Failure to integrate
acquisitions and align
strategies to existing
business model
Stock code: FLOwww.flowtechfluidpower.comSTRATEGIC REPORT 36
Group management
Our management
The Group’s business is directed by the Board and managed by the Executive Directors, led by the Chief Executive. To support the development and
alignment of the Group’s business objectives a Regional Board assists in the control and delivery of the strategic goals as defined by the plc Board.
Regional Boards include the Managing Director from each business unit as well as the Group’s CEO and CFO. This team will maintain a clear focus
on developing the business in line with market requirements.
Bryce
Brooks
Malcolm
Diamond MBE
Nigel
Richens
Sean
Fennon
Chief Financial Officer
Appointed: March 2010
Non-Executive Chairman
Appointed: May 2014
Non-Executive Director
Appointed: May 2014
Chief Executive Officer
Appointed: November 2009
Career: Holds a degree in civil
engineering and qualified as a
chartered accountant with PwC
in 1989.
Previous role: Finance Director in
two UK subsidiaries of Marlowe
Holdings, an American-owned
industrial products distribution
group headed by Edmundson
Electrical, as well as a group
corporate development role.
Board committees: AIM
Compliance and Corporate
Governance Committee and
by invitation.
Career: 48 year career in industry.
Strong commercial and marketing
experience as well as City
investor knowledge and expertise.
Experienced Non-Executive
having worked across
industrial, pharmaceutical
and investment sectors.
Career: 23 years within the
accountancy sector at partner
level with PwC. Experienced
adviser to listed and private
equity-owned businesses
across manufacturing,
distribution, construction and
engineering sectors.
Current role: Non-Executive
Chairman, Trifast plc, Non-
Executive Chairman, discoverIE
(formerly Acal Plc).
Board committees: Chair of
Audit, Remuneration and AIM
Compliance and Corporate
Governance Committees.
Career: 33 years in industry – in
design, manufacturing, wholesale,
retail and industrial distribution .
Previous role: Managing Director
of a large UK industrial distributor,
a subsidiary of a large
German group.
Board committees: By invitation.
Board committees: Chair of
Nomination Committee and
also a member of both the Audit
and Remuneration Committees
and the AIM Compliance
and Corporate Governance
Committee.
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 37
Centralised services
We acquire established, specialist businesses that extend our Group capability, but we believe in maintaining their heritage, individuality and
specialism. Ensuring consistency for their customers is important to us, so we simply improve these businesses with our Group central services.
Based in Skelmersdale, Lancashire, the Service Centre team covers the disciplines of finance, human resources and IT for the Group. As Group IT
systems and working practices are introduced into new acquisitions with standardised methods of working, we believe growth can be successfully
supported by the existing small team.
Additionally, the Group purchasing and logistics function based at Skelmersdale, with a secondary logistics site in Leicester (through the
Beaumanor acquisition in March 2018), will see the Group maximise purchasing and stockholding opportunities for all Group members to benefit.
Acquisitions team
Sean Fennon, Bryce Brooks and Nick Fossey
are responsible for target identification and
lead negotiation, supported by Chris Kershaw
who has previously worked in a series of
M&A roles, including Group M&A Director at
Spice plc. The typical criteria our experienced
strategic Acquisitions team look for include:
• Fluid power based business and fits with
the Channel strategy
• Strategic – geographical or sector
During the due diligence process Bryce and
Chris are supported by professionals from the
following organisations:
Legals – DLA
•
• Tax, Accounting and Financial Due
Diligence – KPMG, Grant Thornton,
PwC
• HR and Management Consulting –
Collinson Grant and Mercer
Acquisitions team pictured left to right:
Chris Kershaw, M&A Consultant
Helen Barratt, Head of Corporate
Governance and Accounting
Bryce Brooks, Chief Financial Officer
Anne Fogg, Head of Business Process
Jon Burke, Head of Commercial
Finance and Credit
• Technically biased and extension of the
•
Insurance – Marsh
Group offering
• Strong business leader
• Knowledge and skills
The immediate post integration team covers
business process, IT and financial control,
with follow-on work undertaken in corporate
governance, risk management and business
continuity planning. This entire process
is structured under a ‘100 Day’ project
management philosophy led by the CFO.
Stock code: FLOwww.flowtechfluidpower.comGOVERNANCE 38
Directors’ report (other disclosures)
The Directors present their Annual Report, together with the audited
Group and Company financial statements for the year ended
31 December 2017. The Group financial statements have been
prepared in accordance with International Reporting Standards as
approved by the European Union (IFRS). The Company financial
statements have been prepared in accordance with Financial Reporting
Standard 101 ‘Reduced disclosure framework’ (FRS 101).
A review of the Group’s trading and an indication of future developments
are contained in the Strategic Report on pages 1 to 35. Details of
revenue and operating profits for each operating segment are contained
in note 3 to the consolidated financial statements. The principal
subsidiaries contributing to the profits and net assets of the Group are
listed in note 12 to the consolidated financial statements.
Flowtech Fluidpower plc is incorporated in England (company
registration number 09010518) and has its registered office at Pimbo
Road, Skelmersdale, Lancashire, WN8 9RB.
Results and dividends
The results for the year ended 31 December 2017 are set out in the
consolidated income statement on page 52. The Group has reported
an operating profit from its continuing activities of £6.614 million
(2016: £6.137m). After accounting for net finance costs, the
consolidated income statement shows a profit from continuing
operations before taxation of £6.039 million (2016: profit of £5.527m).
The Directors are recommending a final dividend of 3.85p per ordinary
share amounting to £2.3 million payable on 13 July 2018 to
Shareholders on the Company’s register at the close of business on
8 June 2018. The shares will be quoted ex-dividend from 7 June 2018.
Directors
The Directors who held office during the year and up to the date of
approval of the financial statements are as follows:
• Malcolm Diamond MBE
• Nigel Richens
• Sean Fennon
• Bryce Brooks
Short biographies of each Director are provided on page 36.
Material interest in contracts
No Director, either during or at the end of the financial year, was
materially interested in any significant contract with the Company or
any subsidiary undertaking.
Share capital
Details of the Company’s share capital are in note 25 to the consolidated
financial statements.
The Company’s share capital comprises one class of ordinary shares
and as at 13 April 2018 there were in issue 59,672,531 fully paid
ordinary shares of 50p each. All shares are fully transferable and rank
pari passu for voting and dividend rights.
The Company has been notified of the following interest in more than
3% of the Company’s issued share capital at 13 April 2018 (being the
last practicable date before the publication of this report):
Hargreave Hale
Premier Asset Managers
Close Brothers Asset Management
Miton Asset Management
City Financial Investment Company
Chelverton Asset Management
Lazard Freres Gestion
Janus Henderson Investors
Number
of
shares
held
7,186,857
6,555,266
6,224,186
5,710,162
4,009,757
2,687,069
2,520,059
1,800,000
% of
issued
share
capital
12.04
10.99
10.43
9.57
6.72
4.50
4.22
3.02
Financial instruments and
risk management
Information about the use of financial instruments by the Company
and its subsidiaries, and the Group’s financial risk management policies
are given in note 31. It is not the Group’s policy to trade in financial
instruments.
Those Directors serving at the end of the year, or at date of this report,
had an interest in the ordinary share capital of the Company, and its
subsidiaries, at 31 December 2017 which is disclosed in the Directors’
Remuneration report on pages 43 to 45.
Social responsibility
The Board takes regular account of the significance of social,
environmental and ethical matters. The following specific matters fall
under the broad definition of ‘social responsibility’:
Details of the Directors’ share options are provided in the Directors’
Remuneration report on pages 43 to 45.
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 39
Employees
Details of the number of employees and related costs can be found
in note 5 to the consolidated financial statements. The Group is
committed to providing staff and management with training designed
to develop attitudes and skills and give opportunities for advancement.
The Group promotes good communication and consultation with
regular management meetings, staff briefings, and a staff consultative
committee to involve staff in the progress of the Group and its future.
The Group operates various performance bonus schemes related to
KPI achievements and profitability within the operational functions.
The Group believes that these schemes demonstrate the Group’s
commitment to involving employees in performance.
It is the policy of the Group that no employee, or potential employee, is
discriminated against on the grounds of disability, age, race, religion,
sex, sexual orientation or political belief and offer the same employment
opportunities, training, career development and promotion prospects
to all.
Employee share scheme incentives
Flowtech Fluidpower plc operates two share-based Enterprise
Management Incentive (EMI) option schemes for the benefit of its
staff and senior management. The aim of the share-based EMI option
schemes is to align the interests of employees with those of the
Company’s Shareholders. Employees may exercise their options at any
time between May 2017 and May 2024.
At 31 December 2017 the total shares in the Company held by the
Enterprise Management Incentive Plans were 1,027,248 representing
1.9% of the issued capital. Further details are provided in note 23 to the
consolidated financial statements.
Flowtech Fluidpower plc operates a share-based Company Share
Option Plan scheme (CSOP) for the benefit of its staff and senior
management. The aim of the share-based CSOP scheme is to align
the interests of employees with those of the Company’s Shareholders.
Employees may exercise their options at any time between May 2018
and May 2025.
At 31 December 2017 the total shares in the Company held by the
Company Share Option Plan was 575,000, representing 1.1% of
the issued capital. Further details are provided in note 23 to the
consolidated financial statements.
Health, safety and environmental management
The Group recognises the importance of its environmental
responsibilities and operates in accordance with policies agreed
through a health and safety committee and a staff consultative
committee. Initiatives designed to minimise the Group’s impact on the
environment include recycling of waste where practical, use of low
emission vehicles and low energy lighting.
The health and safety of the Group’s employees, customers and
members of the general public is a matter of primary concern.
Accordingly, it is the Group’s policy to manage its activities so as to
avoid causing any unnecessary or unacceptable risk to the health of
its employees and members of the public. The policy is based on the
requirements of national employment legislation in the countries where
the Group operates, including the Safety, Health and Welfare at Work
Act 1989.
Operations are conducted such that they comply with all the legal
requirements relating to the environments in which they operate.
During the periods covered by this report no Group company has
incurred any fines or penalties or been investigated for any breach of
environmental regulations.
Annual general meeting
The Annual General Meeting will be held on 6 June 2018 at
10.00 am at the offices of our solicitors, DLA Piper, One St Peter’s
Square, Manchester, M2 3DE.
Going concern
UK company law requires the Directors to consider whether it is
appropriate to prepare the financial statements on the basis the
Company and the Group are going concerns. Throughout the financial
statements there are various disclosures relating to going concern. This
Directors’ Report summarises the key themes and references those
areas where greater disclosure is given.
The Group meets it day-to-day working capital requirements through
its bank facilities. The year end amounts outstanding on each are
discussed within note 18. The Directors have carefully considered
the banking facilities and their future covenant compliance in light of
the current and future cash flow forecasts and they believe that the
Company and the Group are appropriately positioned to ensure the
conditions of its funding will continue to be met and therefore enable
the Company and the Group to continue in operational existence for the
foreseeable future by meeting its liabilities as they fall due for payment.
Sensitised forecasts have been prepared for two years and have been
reviewed by the Directors to ensure that the profit and cash generation
derived from these forecasts are sufficient to ensure that the existing
bank facilities are sufficient to meet the Group’s requirements. This is
discussed further within liquidity risk in note 31.3 and is the key factor in
relation to going concern.
As a result of this review, the Directors are of the opinion that the
Company and the Group have adequate resources to continue in
operational existence for the foreseeable future, and have continued to
adopt the going concern basis in preparing the financial statements.
Disclosure of information to Auditor
The Directors who held office at the date of approval of this Directors’
report confirm that, so far as they are each aware, there is no relevant
audit information of which the Company’s Auditor is unaware; and that
each Director has taken all the steps that he ought to have taken as a
Director to make himself aware of any relevant audit information and to
establish that the Company’s Auditor is aware of that information.
Auditor
Grant Thornton UK LLP was reappointed as auditor of the Company
during the year and a resolution to appoint them will be proposed at the
Annual General Meeting.
By order of the Board
Bryce Brooks
Chief Financial Officer and Company Secretary
16 April 2018
Stock code: FLOwww.flowtechfluidpower.comGOVERNANCE 40
Statement of Directors’ responsibilities
The Directors are responsible for preparing the Strategic Report, Directors’ Report and the financial statements in accordance with applicable
United Kingdom law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have to prepare the Group
financial statements in accordance with International Reporting Standards as adopted by the European Union (IFRS). The Company financial
statements have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting
Standards and applicable laws, including FRS 101 ‘Reduced disclosure framework’). Under company law the Directors must not approve the
financial statements unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss of the Company and the
Group for that period.
In preparing these financial statements, the Directors are required to:
•
select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable and prudent;
•
•
•
for the consolidated financial statements state whether IFRSs have been followed, subject to any material departures disclosed and explained
in the financial statements respectively;
for the Parent Company financial statements state whether applicable UK Accounting Standards have been followed, subject to any material
departures disclosed and explained in the financial statements respectively;
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue
in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and
disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure that the financial
statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and the Group and hence
for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website.
Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in
other jurisdictions.
The Directors confirm that:
•
•
so far as each Director is aware, there is no relevant audit information of which the Company’s Auditor is unaware; and
the Directors have taken all the steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit
information and to establish that the Company’s Auditor is aware of that information.
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 Corporate governance report
41
The Board is accountable to the Company’s Shareholders for good
governance. The following statement describes the key corporate
governance policies that have been adopted by the Company. The
Company is not required to follow, and does not comply with, the UK
Corporate Governance Code. Nevertheless, the Board is committed to
high standards of corporate governance which it considers are critical
to business integrity and to maintaining investors’ trust. The Board
is currently reviewing which corporate governance code to adopt as
required from 28 September 2018.
The AIM compliance and corporate
governance committee
The AIM Compliance and Corporate Governance Committee meets
twice a year. It is responsible for establishing, reviewing and monitoring
the Group’s procedures and controls for ensuring compliance with
the AIM Rules and the timely disclosure of information to satisfy the
Group’s legal and regulatory obligations.
The Board
At the date of signing these accounts, the Board has two Executive
Directors and two Non-Executive Directors including the Chairman.
The Audit Committee
The Audit Committee meets at least twice a year with the Group’s
Auditor and as otherwise required. Its duties are to:
Biographical information for each of the Directors is set out on page 36.
The Board confirms that, having taken into consideration the results
of the performance evaluation undertaken in the year, the Director
being proposed for re-election has demonstrated commitment to his
responsibilities and continues to perform effectively.
Role of the Board
During the year the Board has met formally on 11 occasions and
undertaken several telephone discussions to cover specific matters
such as acquisitions, strategy, fundraising and appointment of
advisers. At the Board meeting, the CEO reports on the overall business
performance and any matters which need to be brought to the attention
of the Board. The CFO reports on the financial performance and any
other secretarial matters. Health and safety compliance is reviewed at
every meeting. Specific topics covered this year have been acquisitions,
funding, IT resilience, group accounting systems and management
below board level. Minutes of the previous Board meeting are approved.
There are four Board committees: the Audit, Remuneration, Nomination
and the AIM Compliance and Corporate Governance Committees.
Collectively and individually, the Directors monitor the performance
of the Board and its members on a range of measures. Due to its
small size and the cost of the process, a formal evaluation of Board
performance by an outside agency is not thought to be appropriate. All
Directors have access to independent advice at Company expense if it
is felt it is required.
The Nomination Committee
The Nomination Committee reviews the size, structure and composition
of the Board and ensures adequate succession planning for both
the Board and senior management team. The Committee meets as
required. No meetings were required in the year.
The Remuneration Committee
The Remuneration Committee meets at least once a year to determine
and agree remuneration packages and other employee benefits. Details
of Directors’ remuneration are set out in the Directors’ remuneration
report on pages 43 to 45.
• Monitor the integrity of the financial statements;
• Review the quality of the Group’s internal controls, ethical standards
and risk management systems;
• Review the Group’s procedures for detecting and preventing bribery
and fraud;
• Ensure that the financial performance of the Group is properly
reported on and monitored, including reviews of the annual and
interim accounts, results announcements and accounting policies;
and
• Oversee the relationship with the Group’s external Auditor.
During the year the Audit Committee discharged its responsibilities by:
•
•
•
reviewing the Group’s draft financial statements, preliminary
announcements and interim results statement prior to Board
approval and reviewing the external Auditor’s reports thereon;
reviewing the external Auditor’s plan for the audit of the Group
financial statements, confirmations of auditor independence and
proposed audit fee and approving terms of engagement for the
audit;
considering the effectiveness and independence of the external
Auditor and recommending to the Board the reappointment of
Grant Thornton UK LLP as external Auditor;
•
considering the review of material business risks;
• monitoring of reporting and follow up of items reported by
employees;
•
•
•
•
•
•
considering the significant risks and issues in relation to the
financial statements and how these were addressed including:
− impairment reviews of goodwill
− valuation of intangibles and share-based payments
− provisions
− fraud risk
− going concern, covenants and cash headroom;
considering the adequacy of accounting resource and the
development of appropriate systems and controls;
reviewing the risk register with specific focus on cyber exposure
and approving an employee training programme on cyber risks;
review of progress in introducing best practice systems and
procedures Group-wide
reviewing the plans and progress to interface and integrate IT
systems post acquisition; and
considering policies on non-audit engagements for the
Company’s Auditor.
Stock code: FLOwww.flowtechfluidpower.comGOVERNANCE 42
Corporate governance report continued
Communication with Shareholders
Presentations by the Executive Directors of interim and full year results
are offered to all major Shareholders. Other Shareholders are welcome
to make contact with the Company and wherever possible their
concerns or questions are responded to by a Director in person.
The Group’s website www.flowtechfluidpower.com is the primary
source of information for the Group and includes an overview of the
activities of the Group and details of all recent announcements.
Internal controls
The Directors are responsible for the Group’s system of internal control.
However, such a system is designed to manage, rather than eliminate
the risk of failures to achieve business objectives and can provide only
reasonable and not absolute assurance against misstatement or loss.
The key elements within the Group’s system of internal control are
as follows:
•
•
•
•
•
•
•
regular Board meetings to consider matters reserved for Directors’
consideration;
regular management reporting;
an annual Board review of corporate strategy, including a review
of material risks and uncertainties facing the business;
established organisational structure with clearly defined lines of
responsibility and levels of authority;
documented policies and procedures;
regular review by the Board of financial budgets, forecasts and
covenants with performance reported to the Board monthly;
detailed investment process for major projects, including capital
investment coupled with post investment appraisal analysis.
The Audit Committee considered the need to establish a formal internal
audit function. It was decided that it was not appropriate at present
due the centralised control structure and daily monitoring of results,
stock levels and cash balances. This matter will be revisited as the
Group expands. There are adequate resources to conduct ad hoc
investigations should the Audit Committee so require.
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 Directors’ remuneration report
43
The Remuneration Committee
The Remuneration Committee consists of the Non-Executive Directors of the Company. The role of the Remuneration Committee will be to assist
the Board in fulfilling its responsibilities in respect of establishing appropriate remuneration levels and incentive policies for employees, Executives
and Directors, including all share-based compensation. The remuneration of the Non-Executive Directors is approved by the Board of Directors. As
Chairman of the Committee, I have been asked by the Board to report to you on all remuneration matters on its behalf.
Remuneration policy
The remuneration policy of the Group is:
•
•
to provide a suitable remuneration package to attract, motivate and retain Executive Directors who will run the Group successfully; and
to ensure that all long-term incentive schemes for the Directors are in line with the Shareholders’ interests
The Committee makes recommendations to the Board.
No Director plays a part in any discussion about their own remuneration. The Remuneration Committee members are expected to draw on their
experience to judge where to position the Group, relative to other companies’ and other groups’ rates of pay when considering remuneration
packages for executives.
Benefits in kind are the provision of medical insurance premiums.
All of the Executive Directors have service contracts which provide for notice periods of 12 months. All of the Non-Executive Directors have service
contracts which provide for notice periods of three months.
All of the Executive Directors participate in the EMI option schemes and one of the Executive Directors participates in an unapproved EMI option
scheme. These options will be exercisable on the publication of the Company’s financial results for the year ended December 2016 and will lapse
if the Directors leave employment for any other reason than being a ‘good leaver’ as defined within the scheme rules, or at the end of the tenth
anniversary of the date of grant. Further details are provided in note 23 to the consolidated financial statements.
Directors’ detailed remuneration
Executives
Sean Fennon
Bryce Brooks
Non-Executives
Malcolm Diamond MBE
Nigel Richens
Salary
and fees
£000
Benefits
£000
Bonus
£000
Share-based
payments
£000
235
162
78
50
525
2
3
–
–
5
–
–
–
–
–
54
41
–
–
95
Total
2017
£000
291
206
78
50
625
Total
2016
£000
352
247
76
43
718
Stock code: FLOwww.flowtechfluidpower.comGOVERNANCE 44
Directors’ remuneration report
continued
Directors’ share interests
The table below shows the interests of the Directors in office at the end of the year in the share capital of the Company:
Executives
Sean Fennon
Bryce Brooks
Non-Executives
Malcolm Diamond MBE
Nigel Richens
As at
31 December
2017
No. of
ordinary
shares
As at
31 December
2016
No. of
ordinary
shares
219,000
94,000
219,000
94,000
50,000
50,000
50,000
50,000
The table below shows the interests of the Directors in office at the end of the year in the share capital of the Company’s subsidiary
Flowtech MIP Limited:
Executives
Sean Fennon
Bryce Brooks
As at 31 December 2016 and 31 December 2017
A shares £1 ordinary
B shares £1 ordinary
D shares £1 ordinary
340
180
3,100
3,100
5
5
A and B shares were issued on admission to AIM at a cost of £10 per share on 21 May 2014. The D shares were issued at a cost of £400 per share
on 1 June 2016. All shares were issued as part of an employee share-based remuneration scheme called the ‘Management Incentive Plan’. For
further details refer to note 23.
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 45
Directors’ share options
Details of share options held by the Directors over the ordinary shares of the Company are set out below:
Sean Fennon
Sean Fennon
Bryce Brooks
Scheme
EMI (Approved)
EMI (Unapproved)
As at
31 December
2016
249,999
222,223
EMI (Approved)
249,999
Exercised
Cancelled
–
–
–
–
–
–
As at
31 December
2017
249,999
222,223
249,999
All options were granted on admission to AIM on 21 May 2014. The shares were issued as part of an employee share-based remuneration scheme
called the ‘Enterprise Management Incentive Plan’. Further details are provided in note 23 to the consolidated financial statements.
On behalf of the Board
Nigel Richens
Non-Executive Director
16 April 2018
Stock code: FLOwww.flowtechfluidpower.comGOVERNANCE 46
Independent Auditor’s report
to the members of Flowtech Fluidpower plc
Opinion
Our opinion on the financial statements is unmodified
We have audited the financial statements of Flowtech Fluidpower plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the year
ended 31 December 2017, which comprise the consolidated income statement, the consolidated statement of comprehensive income, the
consolidated statement of financial position, the consolidated statement of changes in equity, the consolidated statement of cash flows,
the Company income statement, the Company statement of financial position, the Company statement of changes in equity and notes to
the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in
the preparation of the Group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by
the European Union. The financial reporting framework that has been applied in the preparation of the Parent Company financial statements
is applicable law and United Kingdom Accounting Standards including Financial Reporting Standard 101 ‘Reduced Disclosure Framework’
(United Kingdom Generally Accepted Accounting Practice).
In our opinion:
•
•
•
•
the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 December 2017
and of the Group’s profit and Parent Company’s profit for the year then ended;
the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
the Parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the ‘Auditor’s responsibilities for the audit of the financial statements’ section of our report.
We are independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit of
the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Who we are reporting to
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our
audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an
auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other
than the Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:
•
•
the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
the Directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about
the Group’s or the Parent Company’s ability to continue to adopt the going concern basis of accounting for a period of at least 12 months
from the date when the financial statements are authorised for issue.
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 47
Overview of our audit approach
• Overall materiality was set at £309,000, which represents 5% of the Group’s profit before taxation
• Key audit matters were identified as revenue recognition, allocation, valuation and impairment of intangible assets
and goodwill and provision for impairment of inventories
• We performed full scope audit procedures on the financial statements of Flowtech Fluidpower plc (the Parent), and
on the financial information of all subsidiary companies. which are considered to be material components based
upon Group materiality. We performed targeted procedures on Flowtechnology Benelux BV and Hi-Power Limited.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of
the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified.
These matters included those that had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing
the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in
forming our opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matter – Group
How the matter was addressed in the audit – Group
Revenue recognition
Revenue is recognised in accordance with the
Group’s accounting policies and International
Accounting Standard (IAS) 18: ‘Revenue’.
The revenue recorded by the Group is one of the key
determinants of the Group’s underlying profitability.
We therefore identified revenue recognition as a
significant risk, which was one of the most significant
assessed risks of material misstatement.
Our audit work included, but was not restricted to:
• Testing of revenue recognition policies to assess whether the policies are in
accordance with International Accounting Standard (IAS) 18: ‘Revenue’
• Testing of whether revenue has been accounted for in accordance with the
Group’s accounting policies
• Obtaining an understanding of the processes through which the business
initiates, records, processes and reports revenue transactions
• Obtaining an understanding of the application of revenue recognition policies,
both in general and for selected complex contracts
• Testing a sample of revenue entries for material revenue streams to supporting
documentation
The Group’s accounting policy on revenue is shown in note 2 to the financial
statements and related disclosures are included in note 3.
Key observations
We determined the recognition of revenue for the Group’s material revenue streams
to be acceptable. We consider the Group’s accounting policies to provide sufficient
information regarding the Group’s material revenue streams, and to comply with
International Accounting Standard (IAS) 18: ‘Revenue’.
Stock code: FLOwww.flowtechfluidpower.comFINANCIAL STATEMENTS 48
Independent Auditor’s report continued
to the members of Flowtech Fluidpower plc
Key audit matter – Group
How the matter was addressed in the audit – Group
Allocation, valuation and impairment of
intangible assets and goodwill
The Group holds significant intangible assets
(customer relationships) and goodwill. The Group has
undertaken a number of acquisitions during the year,
and management have performed an assessment of
the nature and value of the intangible assets acquired
in the business combinations. Management have
also assessed the fair value of all assets acquired in
business combinations during the period.
Management have performed an impairment review
of the Group’s intangible assets and goodwill,
including sensitivity analysis to assess the impact of
changes in key assumptions.
The judgements made in respect of the valuation
of intangible assets and the impairment review are
subject to significant measurement uncertainty.
We therefore identified allocation, valuation and
impairment of intangible assets and goodwill as a
significant risk, which was one of the most significant
assessed risks of material misstatement.
Our audit work included, but was not restricted to:
• Testing of the Group’s accounting policies to assess whether the policies are in
accordance with International Accounting Standard (IAS) 38: ‘Intangible Assets’
and International Accounting Standard (IAS) 36: ‘Impairment of Assets’
• Consideration of whether intangible assets have been accounted for in
accordance with the Group’s accounting policies
• Consideration of the accounting for the business combinations in the period,
including assessment of the fair value of consideration and net assets acquired
• Testing of the allocation and valuation of intangible assets acquired with the
acquisitions in the year, and review of the disclosures made in the financial
statements to assess whether they are appropriate and complete
• Consideration of the assumptions and calculations incorporated in the
impairment review of goodwill and intangible assets
• Performance of sensitivity analysis to understand the impact of any reasonably
possible changes in key assumptions
The Group’s accounting policies on goodwill and acquired intangibles are shown in
note 2.9 to the financial statements and related disclosures are included in notes 10
and 11.
Key observations
We determined the accounting for allocation and valuation of the Group’s intangible
assets and goodwill to be acceptable. No impairments of intangible assets or
goodwill were identified from the work performed above. We concluded that the
assumptions used in the valuation and impairment models were appropriate. We
consider the disclosures in the financial statements to provide sufficient information
regarding both the Group’s business combinations and management’s impairment
review of goodwill and intangible assets.
Provision for impairment of inventories
The Group trading entities holds material inventory,
against which significant provisions have been
recognised.
The provision for impairment of inventories is based
on sales trends for all inventory and management’s
estimation of recoverability. There is significant
measurement uncertainty in management’s
estimation.
Our audit work included, but was not restricted to:
• Testing of the Group’s accounting policy in respect of the impairment of
inventories to assess whether the policy is in accordance with International
Accounting Standard (IAS) 2: ‘Inventories’
• Consideration of whether the Group’s inventory provisions have been accounted
for in accordance with the Group’s accounting policies
• Testing of the integrity of the underlying data used in the calculation of the
inventory provisions
Inventory management is one of the key challenges
facing management and one of the main
determinants of the Group’s underlying performance.
• Comparison of inventory values to sales prices for a sample of inventory lines
• Consideration of the suitability of the inventory provision, including re-
performance of the calculation and consideration of historical experience
We therefore identified provision for impairment
of inventories as a significant risk, which was one
of the most significant assessed risks of material
misstatement.
The Group’s accounting policy on provision for impairment of inventories is shown
in note 2.25 to the financial statements and related disclosures are included in
note 15.
Key observations
The results of our audit testing were satisfactory and we concur that the level of
inventory provisioning is appropriate.
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017
49
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of
a reasonably knowledgeable person would be changed or influenced. We use materiality in determining the nature, timing and extent of our
audit work and in evaluating the results of that work.
Materiality was determined as follows:
Materiality measure
Group
Parent
Financial statements as a
whole
£309,000, which is 5% of the Group’s profit
before tax. This benchmark is considered the
most appropriate because it is a prominent
key performance indicator used by the Group’s
investors.
£232,000, which is 0.5% of the Company’s total
assets, capped at 75% of Group materiality.
Total assets is considered the most appropriate
benchmark because the Company’s activities
are those of a holding company which does not
generate revenue.
Materiality for the current year is higher than
the level that we determined for the year ended
31 December 2016 to reflect the increase in the
Group’s profitability.
Materiality for the current year is higher than the
level that we determined for the year ended 31
December 2016 to reflect the increase in the net
assets of the Company.
75% of financial statement materiality.
75% of financial statement materiality.
We have applied a specific materiality to Directors’
emoluments.
We have applied a specific materiality to directors’
emoluments.
Performance materiality used
to drive the extent of our testing
Specific materiality
Communication of
misstatements to the Audit
Committee
£16,000 and misstatements below that threshold
that, in our view, warrant reporting on qualitative
grounds.
£12,000 and misstatements below that threshold
that, in our view, warrant reporting on qualitative
grounds.
An overview of the scope of our audit
Our audit approach was a risk-based approach founded on an understanding of the Group’s business, its environment and risk profile and in
particular included:
•
•
•
evaluation by the Group audit team of identified components to assess the significance of that component and to determine the planned
audit response based on a measure of materiality calculated by considering the component’s significance as a percentage of the Group’s
net assets, revenues and profit;
a full scope audit of the financial statements of the Parent Company, Flowtech Fluidpower plc;
an evaluation of the Group’s internal control environment, including performance of process walkthroughs and documentation of controls
covering all of the Key Audit Matters discussed in the Key Audit Matters section above;
• performance of a full scope audit on components representing 85% of the Group‘s revenue, 98% of the Group’s profit before tax and 97%
of the Group’s net assets. The entities on which full scope audits were performed were selected based upon their significance to the
Group’s net assets, revenues and profits, and provide an appropriate basis for undertaking audit work to address the Key Audit Matters at
Group level identified above;
• performance of targeted procedures on specific balances in entities which do not require full scope audit procedures for the purposes
of the Group audit opinion. Our targeted procedures cover Flowtechnology Benelux BV and Hi-Power Limited, and focus on revenue,
receivables, inventory and cash. The procedures have been performed in accordance with Group performance materiality;
• performance of analytical procedures to confirm our conclusion that there was no significant risk of material misstatement of the
aggregated financial information of the remaining components not subject to a full audit;
•
•
testing of the consolidation process, including re-performance of management’s formulae and confirming that the Group financial
statements are consistent with the audited statutory figures; and
the only changes in scope from the prior year relate to procedures performed in relation to the Group’s acquisitions.
Stock code: FLOwww.flowtechfluidpower.comFINANCIAL STATEMENTS 50
Independent Auditor’s report continued
to the members of Flowtech Fluidpower plc
Other information
The Directors are responsible for the other information. The other information comprises the information included in the annual report, other
than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information
and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether
the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears
to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine
whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the
work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Our opinion on other matters prescribed by the Companies Act 2006 is unmodified
In our opinion, based on the work undertaken in the course of the audit:
•
•
the information given in the strategic report and the Directors’ report for the financial year for which the financial statements are prepared
is consistent with the financial statements; and
the strategic report and the Directors’ report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report under the Companies Act 2006
In the light of the knowledge and understanding of the Group and the Parent Company and its environment obtained in the course of the
audit, we have not identified material misstatements in the strategic report or the Directors’ report.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in
our opinion:
•
•
•
adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from
branches not visited by us; or
the parent company financial statements are not in agreement with the accounting records and returns; or
certain disclosures of directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Responsibilities of Directors for the financial statements
As explained more fully in the Directors’ responsibilities statement set out on page 40, the Directors are responsible for the preparation of
the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Parent Company’s ability to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 51
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Michael Frankish
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
Manchester
16 April 2018
Stock code: FLOwww.flowtechfluidpower.comFINANCIAL STATEMENTS 52
Consolidated income statement
Continuing operations
Revenue
Cost of sales
Gross profit
Distribution expenses
Administrative expenses before separately disclosed items:
— Acquisition costs
— Amortisation of acquired intangibles
— Share-based payment costs
— Restructuring costs
— Change in amounts accrued for contingent consideration
Total administrative expenses
Operating profit
Financial income
Financial expenses
Net financing costs
Profit from continuing operations before tax
Taxation
Profit from continuing operations
Loss from discontinued operations, net of tax
Profit for the year attributable to the owners of the parent
Earnings per share
Basic earnings per share
Continuing operations
Discontinued operations
Basic earnings per share
Diluted earnings per share
Continuing operations
Discontinued operations
Diluted earnings per share
Note
3
4
4
4
4
4
3,4
6
6
3
7
27
9
2017
£000
78,287
(51,722)
26,565
(3,175)
(14,309)
(1,081)
(768)
(272)
(117)
(229)
(16,776)
6,614
6
(581)
(575)
6,039
(1,207)
4,832
—
4,832
9.69p
—
9.69p
9.58p
—
9.58p
2016
£000
53,780
(34,714)
19,066
(2,475)
(9,137)
(419)
(569)
(353)
(84)
108
(10,454)
6,137
1
(611)
(610)
5,527
(1,146)
4,381
(91)
4,290
10.17p
(0.21p)
9.96p
10.08p
(0.21p)
9.87p
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 Consolidated statement of comprehensive income
Profit for the year
Other comprehensive income
— items that will be reclassified subsequently to profit or loss
Deferred tax movement on share-based payment reserve
Exchange differences on translating foreign operations
Total comprehensive income for the year attributable to the owners of the parent
2017
£000
4,832
(28)
279
5,083
53
2016
£000
4,290
—
350
4,640
Stock code: FLOwww.flowtechfluidpower.comFINANCIAL STATEMENTS 54
Consolidated statement of financial position
Assets
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Total non-current assets
Current assets
Inventories
Trade and other receivables
Prepayments
Cash and cash equivalents
Total current assets
Liabilities
Current liabilities
Interest-bearing loans and borrowings
Trade and other payables
Deferred and contingent consideration
Tax payable
Other financial liabilities
Total current liabilities
Net current assets
Non-current liabilities
Interest-bearing loans and borrowings
Deferred and contingent consideration
Provisions
Deferred tax liabilities
Total non-current liabilities
Net assets
Equity directly attributable to owners of the Parent
Share capital
Share premium
Other reserves
Share-based payment reserve
Shares owned by the Employee Benefit Trust
Merger reserve
Merger relief reserve
Currency translation reserve
Retained losses
Total equity
Note
2017
£000
2016
£000
10
11
13
15
16
17
18
19
20
22
18
20
21
14
25
57,938
7,430
6,070
71,438
24,333
20,866
801
4,588
50,588
15,451
18,983
2,865
1,148
11
38,458
12,130
4,097
2,706
341
1,560
8,704
74,864
26,409
52,370
187
589
(40)
293
3,194
536
(8,674)
74,864
47,927
4,780
3,899
56,606
16,592
13,012
304
3,824
33,732
12,888
8,625
1,420
975
57
23,965
9,767
4,081
212
212
1,019
5,524
60,849
21,539
46,880
—
733
(338)
293
2,086
257
(10,601)
60,849
The financial statements on pages 52 to 101 were approved by the Board of Directors on 16 April 2018 and were signed on its behalf by:
Bryce Brooks
Chief Financial Officer
Company number: 09010518
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 Consolidated statement of changes in equity
55
Balance at 1 January 2016
Profit for the year
Other comprehensive income
Total comprehensive income
for the year
Transactions with owners
Share-based payment charge
Equity dividends paid (note 8)
Total transactions with
owners
Balance at 1 January 2017
Profit for the year
Other comprehensive income
Total comprehensive income
for the year
Transactions with owners
Issue of share capital
Share options issued as
consideration
Shares owned by the EBT
Share-based payment charge
Share options settled
Equity dividends paid (note 8)
Total transactions with
owners
Share
capital
£000
21,539
Share
premium
£000
46,880
—
—
—
—
—
—
—
—
—
—
—
—
21,539
46,880
—
—
—
—
—
—
4,870
5,490
—
—
—
—
—
—
—
—
—
—
4,870
5,490
Balance at 31 December 2017 26,409
52,370
Share-
based
payment
reserve
£000
Other
reserve
£000
Merger
reserve
£000
Shares
owned
by the
EBT
£000
Merger
relief
reserve
£000
Currency
translation
reserve
£000
Retained
losses
£000
Total
equity
£000
—
—
—
—
—
—
—
—
—
—
—
—
187
—
—
—
—
187
187
380
293
(338)
2,086
(93)
(12,604)
58,143
—
—
—
353
—
353
733
—
—
—
—
—
—
272
(416)
—
(144)
589
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
350
4,290
—
4,290
350
350
4,290
4,640
—
—
—
—
353
(2,287)
(2,287)
(2,287)
(1,934)
293
(338)
2,086
257
(10,601)
60,849
—
—
—
—
—
—
—
—
—
—
293
—
—
—
—
—
(246)
—
544
—
—
—
—
1,108
—
—
—
—
—
298
(40)
1,108
3,194
—
279
4,832
(28)
4,832
251
279
4,804
5,083
—
—
—
—
—
—
—
—
—
—
—
—
11,468
187
(246)
272
128
(2,877)
(2,877)
(2,877)
8,932
536
(8,674)
74,864
Stock code: FLOwww.flowtechfluidpower.comFINANCIAL STATEMENTS 56
Consolidated statement of cash flows
Cash flow from operating activities
Net cash from operating activities
Cash flow from investing activities
Acquisition of businesses, net of cash acquired
Acquisition of property, plant and equipment
Proceeds from sale of property, plant and equipment
Payment of deferred and contingent consideration
Net cash used in investing activities
Cash flows from financing activities
Net proceeds from issue of share capital
Repayment of long term borrowings
Net change in short term borrowings
Repayment of finance lease liabilities
Interest received
Interest paid
Repayment of loan by EBT
Dividends paid
Net cash generated from/(used in) financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at start of year
Exchange differences on cash and cash equivalents
Cash and cash equivalents at end of year
Cash and cash equivalents
Bank overdraft
Cash and cash equivalents at end of year
Reconciliation of liabilities arising from financing activities
The changes in the Group’s liabilities arising from financing activities can be classified as follows:
At 1 January 2017
Cash flows:
Repayment
Proceeds
Non cash:
Acquisition
At 31 December 2017
Company number: 09010518
Long term
borrowings
£000
Short term
borrowings
£000
4,000
12,857
Lease
liabilities
£000
112
—
—
—
4,000
(857)
3,000
—
15,000
(59)
—
106
159
Note
26
24
13
2017
£000
2016
£000
6,600
4,166
(11,798)
(1,802)
22
(1,649)
(15,227)
9,531
(857)
3,000
(58)
6
(476)
722
(3,677)
(858)
52
(1,031)
(5,514)
—
(857)
7,000
(37)
1
(302)
—
8
(2,877)
(2,287)
8,991
364
3,824
11
4,199
4,588
(389)
4,199
17,18
17
18
3,518
2,170
1,725
(71)
3,824
3,824
—
3,824
Total
£000
16,969
(916)
3,000
106
19,159
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 Notes to the consolidated financial information
57
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 Pimbo Road, Skelmersdale, Lancashire, WN8 9RB. 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, Pimbo Road, Skelmersdale, Lancashire, WN8
9RB. Email: info@flowtechfluidpower.com; or telephone +44 (0) 1695 52796.
2. Accounting policies
2.1 Basis of preparation
The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards
(“IFRS”s) as adopted for use in the European Union and IFRIC interpretations issued by the International Accounting Standards Board (“IASB”)
and the Companies Act 2006. The Company financial statements have been prepared in accordance with Financial Reporting Standard 101
‘Reduced disclosure framework’ (FRS 101).
The consolidated financial statements have been prepared on a going concern basis and prepared on the historical cost basis except that
the following assets and liabilities are stated at their fair value: financial instruments classified as fair value through the profit or loss.
The consolidated financial statements are presented in sterling and have been rounded to the nearest thousand (£000). The functional
currency of the Company is sterling.
The preparation of financial information in conformity with IFRS requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting period. Although these estimates are based on management’s best knowledge of the amount, event or actions, actual events
ultimately may differ from those estimates.
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
These financial statements have been prepared on a going concern basis. The Directors have prepared cash flow projections and are
satisfied that the Group has adequate resources to continue in operational existence for the foreseeable future. The Group’s forecasts
and projections, which take into account reasonably possible changes in trading performance, show that the Group will be able to operate
within the level of its current facilities. Included in the forecasts and projections are cash inflows from the placing of new ordinary shares on
15 March 2018 and 4 April 2018; see note 32 for further details. Current banking facilities are detailed in note 18; these were renegotiated in
March 2018 and are due for renewal in March 2021.
Accordingly, the Directors continue to adopt the going concern basis in preparing these financial statements.
Stock code: FLOwww.flowtechfluidpower.comFINANCIAL STATEMENTS 58
Notes to the consolidated financial information
continued
2.3 Basis of consolidation
On 24 April 2014, the Company was incorporated under the name Flowtech Fluidpower Limited. On 7 May 2014, Flowtech Fluidpower
Limited acquired the entire issued share capital of Fluidpower Shared Services (formerly Flowtech Holdings Limited) via a share for share
exchange with the shareholders of Fluidpower Shared Services Limited. On 7 May 2014, Flowtech Fluidpower Limited was re-registered
as a public limited company with the name Flowtech Fluidpower plc. Following the share for share exchange referred to above, Flowtech
Fluidpower plc became the ultimate legal parent of the Group.
In the absence of an IFRS which specifically deals with similar transactions, management judge it appropriate to refer to other similar
accounting frameworks for guidance in developing an accounting policy that is relevant and reliable. The Directors consider the share for
share exchange transaction to be a group reconstruction rather than a business combination in the context of IFRS 3 (revised), ‘Business
Combinations’, which has been accounted for using merger accounting principles. Therefore, although the share for share exchange did
not occur until 7 May 2014, the consolidated financial statements of Flowtech Fluidpower plc are presented as if the Flowtech Group of
companies had always been part of the same group.
Accordingly, the following accounting treatment was applied in respect of the share for share exchange:
• The assets and liabilities of Fluidpower Shared Services Limited and its subsidiaries were recognised in the consolidated financial
statements at the pre-combination carrying amounts, without restatement to fair value
• The retained losses and other equity balances recognised in the consolidated financial statements for the year ended 31 December 2013
reflect the retained losses and other equity balances of Fluidpower Shared Services Limited and its subsidiaries recorded before the
share for share exchange. However, the equity structure (share capital and share premium balances) shown in the consolidated financial
statements reflects the equity structure of the legal parent (Flowtech Fluidpower plc), including the equity instruments issued under the
share for share exchange. The resulting difference between the parent’s capital and the acquired Group’s capital has been recognised as
a component of equity being the ‘merger reserve’
The Company had no significant assets, liabilities or contingent liabilities of its own at the time of the share for share exchange and no such
consideration was paid.
Subsidiaries
The Group’s financial statements consolidate those of the Parent Company and all of its subsidiaries as of 31 December 2017. The Parent
controls a subsidiary if it is exposed, or has rights, to variable returns from its involvement with the subsidiary and has the ability to affect
those returns through its power over the subsidiary. All subsidiaries have a reporting date of 31 December.
All transactions and balances between Group companies are eliminated on consolidation, including unrealised gains and losses on
transactions between Group companies. Where unrealised losses on intra-group asset sales are reversed on consolidation, the underlying
asset is also tested for impairment from a Group perspective. Amounts reported in the financial statements of subsidiaries have been
adjusted where necessary to ensure consistency with the accounting policies adopted by the Group.
Profit or loss and other comprehensive income of subsidiaries acquired or disposed of during the year are recognised from the effective date
of acquisition, or up to the effective date of disposal, as applicable.
2.4 Classification of financial instruments issued by the Group
Financial instruments issued by the Group are treated as equity only to the extent that they meet the following two conditions:
a.
they include no contractual obligations upon the Company (or Group as the case may be) to deliver cash or other financial assets or to
exchange financial assets or financial liabilities with another party under conditions that are potentially unfavourable to the Company (or
Group); and
b. where the instrument will or may be settled in the Company’s own equity instruments, it is either a non-derivative that includes no
obligation to deliver a variable number of the Company’s own equity instruments or is a derivative that will be settled by the Company’s
exchanging a fixed amount of cash or other financial assets for a fixed number of its own equity instruments.
To the extent that this definition is not met, the proceeds of issue are classified as a financial liability. Where the instrument so classified
takes the legal form of the Company’s own shares, the amounts presented in these financial statements for called up share capital and share
premium account exclude amounts in relation to those shares.
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 59
2.5 Financial instruments
Non-derivative financial instruments comprise trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and
other payables.
Trade and other receivables
Trade and other receivables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using
the effective interest method, less any impairment losses.
Trade and other payables
Trade and other payables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using
the effective interest method.
Cash and cash equivalents
Cash and cash equivalents comprise cash, bank balances net of bank overdrafts and short term deposits held with banks by the Group, and
are subject to insignificant risk of changes in value. Bank overdrafts that are repayable on demand and form an integral part of the Group’s
cash management are included as a component of cash and cash equivalents for the purpose of the cash flow statement only.
Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-
bearing borrowings are stated at amortised cost using the effective interest method, less any impairment losses. Any change in their
value through impairment or reversal of impairment is recognised in profit or loss. Discounting is omitted where the effect is immaterial.
Interest-bearing borrowings include invoice discounting facilities and stock loans. Cash flows on these items are treated net due to the large
amounts, short maturities and the rapid turnover on cash receipts and cash payments.
Derivative financial instruments
Derivative financial instruments held by the Group include forward foreign currency contracts and are recognised at fair value. The gain or
loss on remeasurement to fair value is recognised immediately in profit or loss.
Derecognition of financial liabilities
The Group derecognises a financial liability (or its part) from the statement of financial position when, and only when it is extinguished, i.e.
when the obligation specified in the contract is discharged, cancelled or expires. The difference between the carrying amount of a financial
liability (or a part of a financial liability) extinguished and the consideration paid, including any non-cash assets transferred or liabilities
assumed, is recognised in profit or loss.
2.6 Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.
Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property,
plant and equipment.
Leases in which the Group assumes substantially all the risks and rewards of ownership of the leased asset are classified as finance leases.
Where land and buildings are held under leases the accounting treatment of the land is considered separately from that of the buildings.
Leased assets acquired by way of finance lease are stated at an amount equal to the lower of their fair value and the present value of
the minimum lease payments at inception of the lease, less accumulated depreciation and less accumulated impairment losses. Lease
payments are accounted for as described below.
Depreciation is charged to the income statement over the estimated useful lives of each part of an item of property, plant and equipment.
Land is not depreciated. The estimated useful lives and depreciation methods are as follows:
Property
50 years – straight-line
Plant, machinery and equipment
3 to 20 years – straight-line
Motor vehicles
4 to 5 years – reducing balance
Depreciation methods, useful lives and residual values are reviewed at each reporting date.
Stock code: FLOwww.flowtechfluidpower.comFINANCIAL STATEMENTS 60
Notes to the consolidated financial information
continued
2.7 Leased assets
Finance leases
Management apply judgement in considering the substance of a lease agreement and whether it transfers substantially all the risks and
rewards incidental to ownership of the leased asset. Key factors considered include the length of the lease term in relation to the economic
life of the asset, the present value of the minimum lease payments in relation to the asset’s fair value, and whether the Group obtains
ownership at the end of the lease term.
See note 2.6 for the depreciation methods and useful lives for assets held under finance leases.
Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is
allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.
Operating lease payments
An operating lease is defined as a lease in which substantially all of the risks and rewards incidental to ownership remain with the lessor.
Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease. Lease
incentives received are recognised in the income statement as an integral part of the total lease expense.
2.8 Business combinations
Subject to the transitional relief in IFRS 1 ‘First time adoption of IFRSs’, all business combinations are accounted for by applying the
acquisition method. Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on
which control is transferred to the Group.
Acquisitions prior to 1 January 2011 (date of transition to IFRSs)
IFRS 1 grants certain exemptions from the full requirements of Adopted IFRSs in the transition period. The Group elected not to restate
business combinations that took place prior to 1 January 2011. In respect of acquisitions prior to 1 January 2011, goodwill is included at
1 January 2011 on the basis the amount recorded under UK GAAP.
Acquisitions after 1 January 2011
For acquisitions on or after 1 January 2011, the Group measures goodwill at the acquisition date as:
•
•
•
•
the fair value of the consideration transferred; plus
the recognised amount of any non-controlling interests in the acquiree; plus
the fair value of the existing equity interest in the acquiree; less
the fair value of the identifiable assets acquired and liabilities assumed.
When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.
Costs related to the acquisition, other than those associated with the issue of debt or equity securities, are expensed as incurred and
included in the separately disclosed ‘acquisition costs’ as part of administration expenses.
Any contingent consideration payable is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the
contingent consideration are recognised in profit or loss.
2.9 Intangible assets
Goodwill
Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to operating segments and is not amortised but is
tested annually for impairment, or earlier if there is an indication of impairment.
Acquired intangibles
Intangible assets acquired as part of business combinations are capitalised at fair value at the date of acquisition. Following the initial
recognition, the carrying amount of an intangible is its cost less accumulated amortisation and any accumulated impairment losses.
Amortisation is charged on the basis of the estimated useful life on a straight-line basis and the expense is taken to the income statement
and included in the separately disclosed ‘amortisation of acquired intangibles’ as part of administration expenses (note 11).
The Group has recognised customer relationships and brand identity as separately identifiable acquired intangible assets. The useful
economic life attributed to each intangible asset is determined at the time of the acquisition and ranges from five to ten years.
Impairment reviews are undertaken annually and whenever the Directors consider that there has been a potential indication of impairment.
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 61
2.10 Inventories
Inventories are stated at the lower of cost and net realisable value, after making allowance for obsolete and slow-moving items. Cost
includes expenditure incurred in acquiring the inventories and other costs in bringing them to their existing location and condition.
2.11 Impairment
Financial assets (including receivables)
A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective
evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial
recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated
reliably.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount
and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Interest on the impaired
asset continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to
decrease, the decrease in impairment loss is reversed through profit or loss.
Non-financial assets
The carrying amounts of the Group’s non-financial assets, inventories and deferred tax assets are reviewed at each reporting date to
determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For
goodwill, and intangible assets that have indefinite useful lives or that are not yet available for use, the recoverable amount is estimated each
year at the same time.
The recoverable amount of an asset or operating segment is the greater of its value in use and its fair value less costs to sell. In assessing
value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be
tested individually are grouped together by operating segments as defined in note 2.18. The goodwill acquired in a business combination,
for the purpose of impairment testing, is also allocated to the relevant operating segment. Goodwill acquired in a business combination is
allocated to operating segments that are expected to benefit from the synergies of the combination and represent the lowest level within the
Group at which management monitor the related goodwill.
An impairment loss is recognised if the carrying amount of an asset or its operating segment exceeds its estimated recoverable amount.
Impairment losses are recognised in the income statement. Impairment losses recognised in respect of operating segments are allocated
first to reduce the carrying amount of any goodwill allocated to the segments, and then to reduce the carrying amounts of the other assets in
the segment on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are
assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there
has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the
asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no
impairment loss had been recognised.
2.12 Employee benefits
Defined contribution plans
A defined contribution plan is a post-employment benefit plan under which the Group pays fixed contributions into a separate entity and
will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are
recognised as an expense in the income statement in the periods during which services are rendered by employees.
2.13 Share-based payments
The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at fair
value at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-
line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest. Fair value is measured by use of the
Black–Scholes model.
2.14 Provisions
A provision is recognised in the statement of financial position when the Group has a present legal or constructive obligation as a result of
a past event that can be reliably measured and it is probable that an outflow of economic benefits will be required to settle the obligation.
Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects risks specific to the liability.
Stock code: FLOwww.flowtechfluidpower.comFINANCIAL STATEMENTS 62
Notes to the consolidated financial information
continued
2.15 Revenue
Revenue 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 when the significant risks and rewards of ownership have been transferred to the buyer, which is
determined to be at the point of despatch.
Revenues from site installation projects under stage payment are recognised based upon the stage of completion of the related contracts.
2.16 Cost of sales
Cost of sales includes all costs incurred up to the point of despatch including operating expenses of the warehouse.
2.17 Distribution expenses
Distributions costs are costs directly relating to despatch of goods and indirect costs including advertising and other sales related expenses.
2.18 Operating segments
The Group comprises the following three operating segments which are defined by trading activity:
Flowtechnology — distribution and assembly of engineering components, principally to distributors and end users in the UK, Ireland
and the Benelux.
Power Motion Control — based in the UK, Eire and the Benelux, distribution and assembly of engineering components and hydraulic systems
to distributors and end users in the international market.
Process – distribution of engineering components to the process sector, principally in the UK.
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.
2.19 Financing income and expenses
Financing expenses comprise interest payable and finance charges on finance leases recognised in profit or loss using the effective interest
method. Financing income comprises interest receivable on funds invested. Interest income and interest payable is recognised in profit or
loss as it accrues, using the effective interest method.
2.20 Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement except to the extent that
it relates to items recognised in other comprehensive income, in which case it is recognised in other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively
enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill; the
initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination; and differences
relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred
tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates
enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the
temporary difference can be utilised.
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 63
2.21 Adopted IFRS not yet applied
New standards and interpretations currently in issue (as at 28 February 2018) but not effective, for accounting periods commencing on
1 January 2017 are:
•
•
•
•
•
IFRS 9 Financial Instruments (effective 1 January 2018)
IFRS 14 Regulatory Deferral Accounts (IASB effective date 1 January 2016)*
IFRS 15 Revenue from Contracts with Customers (effective 1 January 2018)
IFRS 16 Leases (effective 1 January 2019)
IFRS 17 Insurance contracts (effective 21 January 2021)*
• Amendments to IAS 12: Recognition of Deferred Tax Assets for Unrealised Losses (effective date 1 January 2017)*
• Amendments to IAS 7: Disclosure Initiative (effective date 1 January 2017)*
• Amendments to IAS 19: Plan Amendment, Curtailment or Settlement (effective date 1 January 2019)*
• Amendments to IAS 28: Long-term Interests in Associates and Joint Ventures (effective date 1 January 2019)*
• Amendments to IAS 40: Transfers of investment property (effective date 1 January 2018)*
• Amendments to IFRS 2: Classification and Measurement of Share-based Payment Transactions (effective date 1 January 2018)*
• Amendments to IFRS 4: Applying IFRS 9 financial instruments with IFRS 4 Insurance Contracts (effective date 1 January 2018)
• Amendments to IFRS 9: Prepayment features with negative compensation (effective date 1 January 2019)*
• Annual Improvements to IFRSs 2014-2016 Cycle – Relating to IFRS 1 First time adoption of IFRS and IAS 28 Investment in associates
and joint ventures (effective date 1 January 2017)*
• Annual Improvements to IFRSs 2014-2016 Cycle – Relating to IFRS 12 Disclosure of interest in other entities (effective date
1 January 2019)*
• Annual Improvements to IFRS Standards 2015-2017 Cycle (issued on 12 December 2017)
•
•
IFRIC Interpretation 22 Foreign currency transactions and advance considerations (effective date 1 January 2018)*
IFRIC Interpretation 23 Uncertainty over Income Tax Treatments (effective date 1 January 2016)*
• Clarifications to IFRS 15 Revenue from Contracts with Customers (effective date 1 January 2018)
* Not adopted by the EU (as at 28 February 2018)
The Group continues to monitor the potential impact of other new standards and interpretations which may be endorsed by the European
Union and require adoption by the Group in future reporting periods.
IFRS 9 ‘Financial Instruments’
The new standard for financial instruments (IFRS 9) introduces extensive changes to IAS 39’s guidance on the classification and
measurement of financial assets and their impairment. IFRS 9 also provides new guidance on the application of hedge accounting.
IFRS 9 is effective from periods beginning on or after 1 January 2018. Management are yet to fully assess the impact of the Standard and
are therefore unable to provide quantified information, but at this point believe there will be minimal impact.
IFRS 15 ‘Revenue from contracts with customers’
IFRS 15 will replace IAS 18, IAS 11 and several revenue-related interpretations. The new standard establishes a control-based revenue
recognition model and provides additional guidance in many areas not covered by existing IFRSs, including how to account for arrangements
with multiple performance obligations, variable pricing, customer refund rights, supplier repurchase options and other common complexities.
IFRS 15 is effective from periods beginning on or after 1 January 2018. The Group has design, build and install contracts which may
have different performance obligations under IFRS 15. Management have started to review in detail the impact of the new Standard and
preliminary investigations indicate that there will not be any material impact as the majority of contracts are for a short duration.
IFRS 16 ‘Leases’
IFRS 16 will replace IAS 17 and three related interpretations. It completes the IASB’s long-running project to overhaul lease accounting.
Leases will be recorded on the statement of financial position in the form of a right of use asset and a lease liability. Depreciation of the right
of use asset will be recognised in the income statement on a straight-line basis, with interest recognised on the lease liability, This will result
in a change to the profile of the net charge taken to the income statement over the life of the lease. These charges will replace the lease
costs currently charged to the income statement.
IFRS 16 is effective from periods beginning on or after 1 January 2019. The Group is progressing well in analysing the implementation of
IFRS16 and expects the most significant leases to relate to property and vehicles. The Group expects to apply the standard retrospectively
with the cumulative effect of the initial application recognised on 1 January 2019. Under this approach the Group will not restate comparative
periods. Management are yet to fully assess the impact of the Standard and is therefore unable to provide quantified information. The
payment profile of current leases is disclosed in note 28.
Stock code: FLOwww.flowtechfluidpower.comFINANCIAL STATEMENTS 64
Notes to the consolidated financial information
continued
2.22 Equity, reserves and dividend payments
Equity comprises the following:
•
‘Share capital’ represents the nominal value of equity shares
•
•
•
•
•
•
•
•
‘Share premium’ represents the excess over nominal value of consideration received for equity share net of expenses of the share issue,
less any costs associated with the issuing of shares
‘Other reserves’ relate to the issue of share options for consideration in respect of acquisition of subsidiaries
‘Share-based payment reserve’ represents the provision made to date for share-based payments as detailed in note 2.13
‘Shares owned by the EBT’ represents shares in the Group purchased for the Employee Benefit Trust
‘Merger reserve’ represents the difference between the Parent’s capital and the acquired Group’s capital retained losses and other equity
balances before and after the share for share exchange which created the Group
‘Merger relief reserve’ represents merger relief arising on the acquisition of subsidiaries for which some or all of the consideration was
settled in shares
‘Currency translation reserve’ comprises all foreign exchange differences arising since 1 January 2011, arising from the translation of
foreign operations
‘Retained losses’ represent retained losses of the Group
All transactions with owners of the Parent are recorded separately within equity.
Dividend distributions payable to equity Shareholders are included in other liabilities when the dividends have been approved in general
meeting prior to the reporting date.
2.23 Discontinued operations
An operation is classed as discontinued when management have made the decision to either sell the operation or relocate the operation.
Discontinued operation costs incurred in the prior year relate to surplus property costs.
2.24 Foreign currency translation
Functional and presentation currency
The consolidated financial statements are presented in sterling, which is also the functional currency of the Parent Company.
Foreign currency transactions and balances
Transactions in foreign currencies are translated to the respective functional currencies of Group entities at the foreign exchange rate ruling
at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the
functional currency at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in
the income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated
using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated
at fair value are retranslated to the functional currency at foreign exchange rates ruling at the dates the fair value was determined.
Foreign operations
In the Group’s financial statements, all assets, liabilities and transactions of Group entities with a functional currency other than sterling are
translated into sterling upon consolidation. The functional currency of the entities in the Group has remained unchanged during the reporting
period.
The assets and liabilities of foreign operations are translated to the Group’s presentational currency, sterling, at foreign exchange rates
ruling at the reporting date. The revenues and expenses of foreign operations are translated at an average rate for the year where this rate
approximates to the foreign exchange rates ruling at the dates of the transactions.
Exchange differences arising from this translation of foreign operations are reported as an item of other comprehensive income and
accumulated in the currency translation reserve. The Group has taken advantage of the relief available in IFRS 1 to deem the cumulative
translation differences for all foreign operations to be zero at the date of transition to Adopted IFRSs (1 January 2011). On disposal of a
foreign operation, the related cumulative translation differences recognised in equity are reclassified to profit or loss and are recognised as
part of the gain or loss on disposal.
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 65
2.25 Significant judgements, key assumptions and estimates
In the process of applying the Group’s accounting policies, which are described above, management have made judgements and estimations
about the future that have the most significant effect on the amounts recognised in the financial statements. The estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is
revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future
periods.
The following judgements have the most significant effect on the financial statements.
Impairment of goodwill
The carrying value of goodwill must be assessed for impairment annually. This requires an estimation of the value in use of the operating
segments to which goodwill is allocated. Value in use is dependent on estimations of future cash flows from the operating segment and the
use of an appropriate discount rate to discount those cash flows to their present value. The carrying value of goodwill as at 31 December
2017 is £57,938,000 (2016: £47,927,000). Refer to note 10 for further detail. There was no impairment charge during the year.
Acquired intangibles
Intangible assets (customer relationships and brand identity) have been acquired as part of the net assets of certain subsidiaries. These
intangible assets were capitalised at their fair value at the date of acquisition. Determining the value of acquired intangibles required the
calculation of estimated future cash flows expected to arise from the intangible assets at a suitable discount rate in order to calculate their
present value. In addition, an estimate of the useful life of the intangible asset has to be made over the period in which the cash flows were
expected to be generated. The carrying amount of the acquired intangibles at the reporting date was £7,430,000 (2016: £4,780,000). Refer to
note 11 for further detail.
Provision for impairment of inventories
The carrying value of inventories as at 31 December 2017 is £24,333,000 (2016: £16,592,000) and included a provision against the
inventories of £814,000 (2016: £931,000). During the year £329,000 (2016: £141,000) of the provision was utilised following the scrapping
and sale of obsolete inventory. During the year a further provision of £212,000 (2016: £67,000) was made. The provision for impairment of
inventories is based on sales trends for all inventory and management’s estimation of recoverability. There is a risk that the provision will not
match the inventories that ultimately prove to be impaired.
Share-based payments
A number of accounting estimates and judgements are incorporated within the calculation of the charge to the income statement in respect
of share-based payments. These are described in more detail in note 23.
2.26 Separately disclosed items
Separately disclosed items are those significant items which in management’s judgement should be highlighted by virtue of their size or
incidence to enable a full understanding of the Group’s financial performance.
2.27 Investment in own shares
Own shares held by the Group’s Employee Benefit Trust have been classified as deductions from Shareholders’ funds.
2.28 Contingent consideration
Where acquisition consideration includes consideration contingent on performance outcomes being met, the consideration is valued at
the acquisition date based on performance forecasts available at the time. Those forecasts are reviewed at the reporting date and the
consideration revised where materially different.
Stock code: FLOwww.flowtechfluidpower.comFINANCIAL STATEMENTS 66
Notes to the consolidated financial information
continued
3. Segment reporting
Management currently identify the Group’s three operating segments based on trading activity (see note 2.18). 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.
Segment information for the reporting periods is as follows:
Income statement – continuing operations:
Revenue from external customers
Inter-segment revenue
Total revenue
Underlying operating result
Net financing (costs)/income
Underlying segment result
Separately disclosed items (see note 4)
Profit before tax
Specific disclosure items
Depreciation
Amortisation
Reconciliation of underlying operating
result to operating profit:
Underlying operating result
Separately disclosed items (see note 4)
Operating profit/(loss)
Flowtechnology
£000
37,239
1,746
38,985
7,524
(13)
7,511
(103)
7,408
447
19
7,524
(103)
7,421
For the year ended 31 December 2017
Power
Motion
Control
£000
34,806
340
35,146
2,788
(15)
2,773
(1,018)
1,755
179
609
2,788
(1,018)
1,770
Inter-
segmental
transactions
£000
Process
£000
Central
costs
£000
Total
continuing
operations
£000
6,242
105
6,347
1,105
(19)
1,086
(200)
886
24
140
1,105
(200)
905
—
(2,191)
(2,191)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(2,336)
(528)
(2,864)
(1,146)
(4,010)
—
—
(2,336)
(1,146)
(3,482)
78,287
—
78,287
9,081
(575)
8,506
(2,467)
6,039
650
768
9 081
(2,467)
6,614
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 67
Flowtechnology
£000
Income statement – continuing operations:
Revenue from external customers
Inter-segment revenue
Total revenue
Underlying operating result
Net financing (costs)/income
Underlying segment result
Separately disclosed items (see note 4)
Profit before tax
Specific disclosure items
Depreciation
Amortisation
Reconciliation of underlying operating result
to operating profit:
Underlying operating result
Separately disclosed items (see note 4)
Operating profit/(loss)
35,113
1,645
36,758
7,626
(1)
7,625
(180)
7,445
389
16
7,626
(180)
7,446
Power
Motion
Control
£000
15,830
585
16,415
1,823
(65)
1,758
40
1,798
112
488
1,823
40
1,863
The Group’s revenue from external customers for each sales category is as follows:
Sales of goods
Supply, installation and commissioning
For the year ended 31 December 2016
Inter-
segmental
transactions
£000
Process
£000
Central
costs
£000
Total
continuing
operations
£000
2,837
199
3,036
—
(2,429)
(2,429)
402
(39)
363
(58)
305
24
65
401
(57)
344
—
—
—
—
—
—
—
—
—
—
—
—
—
(2,397)
(505)
(2,902)
(1,119)
(4,021)
—
—
(2,397)
(1,119)
(3,516)
2017
£000
76,688
1,599
78,287
53,780
—
53,780
7,454
(610)
6,844
(1,317)
5,527
526
569
7,454
(1,317)
6,137
2016
£000
53,780
–
53,780
The Group’s revenues from external customers and its non-current assets (other than financial instruments and deferred tax assets) are
divided into the following geographic areas:
United Kingdom
Europe
Rest of the World
Total
31 December 2017
31 December 2016
Revenue
£000
64,504
12,299
1,484
78,287
Non-current
assets
£000
65,754
5,684
—
71,438
Revenue
£000
44,133
8,806
841
53,780
Non-current
assets
£000
55,118
1,488
—
56,606
No customers of the Group account for 10% or more of the Group’s revenue for either of the years ended 31 December 2016 or 2017. Non-
current assets are allocated based on their physical location.
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 6 and separately disclosed items, as detailed in note 4.
Stock code: FLOwww.flowtechfluidpower.comFINANCIAL STATEMENTS 68
Notes to the consolidated financial information
continued
4. Operating profit
The following items have been included in arriving at the operating profit for continuing operations:
Impairment loss on other trade receivables and prepayments
Loss/(gain) on foreign currency transactions
Impairment loss on inventory
Depreciation of owned property, plant and equipment
Depreciation of property, plant and equipment held under finance leases
Amortisation of intangible assets
Changes in amounts accrued for contingent consideration (see note 31.1)
Profit on sale of plant and equipment
Operating lease rentals:
– Land and buildings
– Other
Repairs and maintenance expenditure on plant and equipment
Services provided by the Group’s Auditor
Audit of the statutory consolidated and Company financial statements of Flowtech Fluidpower plc
Disclosure below based on amounts receivable in respect of other services to the Company
and its subsidiaries
Amounts receivable by the Company’s Auditor and its associates in respect of:
Audit of financial statements of subsidiaries of the Company
All other taxation advisory services
Services are provided by other professional advisers as deemed appropriate by the Board.
Separately disclosed items
Separately disclosed items within administration expenses:
– Acquisition costs
– Amortisation of acquired intangibles (note 11)
– Share-based payment costs (note 23)
– Restructuring
– Changes in amounts accrued for contingent consideration (note 31.1)
Total separately disclosed items
2017
£000
27
266
212
627
13
768
229
(3)
1,014
289
151
2017
£000
20
2016
£000
103
(293)
67
515
11
569
(108)
(21)
584
215
127
2016
£000
20
117
—
80
8
2017
£000
1,081
768
272
117
229
2,467
2016
£000
419
569
353
84
(108)
1,317
• 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 employee redundancies and IT integration
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 69
5. Directors and employees
The average number of persons employed by the Group (including Directors) during each year, analysed by category, was as follows:
Assembly and distribution
Administration
The aggregate payroll costs of these persons were as follows:
Wages and salaries
Social security costs
Contributions to defined contribution pension plans
Share-based payments (note 23)
Number
2017
Number
2016
197
217
414
2017
£000
11,707
1,211
328
136
13,382
145
146
291
2016
£000
7,672
751
217
353
8,993
Key management compensation
The remuneration of the Directors and the Chairman, who are all statutory directors and are the key management of the Group, is set out
below in aggregate for each of the key categories specified in IAS 24 ‘Related Party Disclosures’.
Remuneration
Social security costs
Benefits in kind
The amounts set out above include remuneration in respect of the highest paid Director as follows:
Highest paid Director’s remuneration
Remuneration
Social security costs
Benefits in kind
Total highest paid Director’s remuneration
Details of Directors’ emoluments are included in the Directors’ Remuneration Report on pages 43 to 45.
2017
£000
525
58
5
588
2017
£000
235
31
2
268
2016
£000
587
62
4
653
2016
£000
280
38
2
320
Stock code: FLOwww.flowtechfluidpower.comFINANCIAL STATEMENTS 70
Notes to the consolidated financial information
continued
6. Financial income and expense
Finance income for the year consists of the following:
Finance income arising from:
Interest income from cash and cash equivalents
Total finance income
Finance expenses for the year consist of the following:
Finance expense arising from:
Interest on invoice discounting and stock loan facilities
Interest on revolving credit facility
Finance lease interest
Bank loans
Other credit related interest
Total bank and other credit interest
Imputed interest on deferred and contingent consideration
Fair value losses on forward exchange contracts held for trading
Total non-credit related interest
Total finance expense
7. Taxation
Recognised in the income statement
Continuing operations:
Current tax expense
Current year charge
Overseas tax
Adjustment in respect of prior periods
Current tax expense
Deferred tax
Origination and reversal of temporary differences
Adjustment in respect of prior periods
Change in tax rate
Deferred tax credit
Total tax expense – continuing operations
2017
£000
6
6
2017
£000
8
262
10
88
12
380
190
11
201
581
2017
£000
1,258
167
(89)
1,336
(111)
—
(18)
(129)
1,207
2016
£000
1
1
2016
£000
3
241
3
116
1
364
174
73
247
611
2016
£000
1,285
20
12
1,317
(118)
(7)
(46)
(171)
1,146
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 Discontinued operations:
Current year credit
Total tax expense – discontinued operations
Total tax expense in the income statement
71
2017
£000
—
—
1,207
2016
£000
(22)
(22)
1,124
No income tax was recognised in other comprehensive income or directly in equity for either of the years ended 31 December 2016 or 2017.
Reconciliation of effective tax rate
Profit for the year
Total tax expense
Profit excluding taxation
Tax using the UK corporation tax rate of 19.25% (2016: 20.00%)
Deferred tax movements not recognised
Effect of share option exercises
Effect of tax rates in foreign jurisdictions
Effect of foreign branch exemption
Impact of change in tax rate on deferred tax balances
Income not taxable
Amounts not deductible
Adjustment in respect of prior periods
2017
£000
4,832
1,207
6,039
1,162
38
(101)
29
(12)
(8)
(96)
284
(89)
2016
£000
4,290
1,124
5,414
1,083
33
—
1
(46)
(22)
70
5
Total tax expense in the income statement – continuing and discontinued
1,207
1,124
Change in corporation tax rate
A reduction in the UK corporation tax rate to 19% (effective from 1 April 2017) and to 18% (effective 1 April 2020) was substantively enacted
on 26 October 2015, and an additional reduction to 17% (effective 1 April 2020) was substantively enacted on 6 September 2016. This
will reduce the Company’s future current tax charge accordingly. The deferred tax assets and liabilities at 31 December 2017 have been
calculated based on these rates.
8. Dividends
Final dividend of 3.67p (2016: 3.50p) per share
Interim dividend of 1.93p (2016: 1.84p) per share
Total dividends
2017
£000
1,878
999
2,877
2016
£000
1,499
788
2,287
The Directors are proposing a final dividend in respect of the financial year ended 31 December 2017 of 3.85p (2016: 3.67p) per share which
will absorb an estimated £2.3 million of Shareholders’ funds. This has not been accrued as it had not been approved at the year end. Subject
to approval, it will be paid on 13 July 2018 to Shareholders who are on the register of members on 8 June 2018.
Stock code: FLOwww.flowtechfluidpower.comFINANCIAL STATEMENTS 72
Notes to the consolidated financial information
continued
9. 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 2017
Year ended 31 December 2016
Weighted
average
number of
shares
Earnings
£000
Earnings
per share
Pence
Earnings
£000
Weighted
average
number of
shares
Earnings
per share
Pence
Basic earnings per share
Continuing operations
Discontinued operations
Basic earnings per share
Diluted earnings per share
Continuing operations
Discontinued operations
Diluted earnings per share
4,831
—
4,831
4,831
—
4,831
49,835
49,835
49,835
50,409
50,409
50,409
9.69
—
9.69
9.58
—
9.58
4,381
(91)
4,290
4,381
(91)
4,290
Weighted average number of ordinary shares for basic and diluted earnings per share
Impact of share options
Weighted average number of ordinary shares for diluted earnings per share
10. Goodwill
The movements in the net carrying amount of goodwill are as follows:
Gross carrying value
Balance at 1 January
Fair value amendment relating to prior year acquisition
Acquired through business combinations
Balance at 31 December
Accumulated impairment
Balance at 1 January
Impairment charge
Balance at 31 December
Carrying amount at 31 December
43,078
43,078
43,078
43,456
43,456
43,456
2017
£000
49,835
574
50,409
2017
£000
47,927
227
9,784
57,938
—
—
—
10.17
(0.21)
9.96
10.08
(0.21)
9.87
2016
£000
43,078
378
43,456
2016
£000
46,412
—
1,515
47,927
—
—
—
57,938
47,927
The goodwill acquired during the year relates to the acquisition of Hydraulics and Transmissions Limited, Hewi Slangen, Hi-Power Hydraulics,
Hi-Power Limited, Orange County Limited, The Hydraulic Group BV and Group HES Limited; see note 24.
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 The acquisitions have been recognised in the three operating segments as follows:
Flowtechnology
£000
Power Motion
Control
£000
Process
£000
Hydraulics and Transmissions Limited (note 24.1)
Hewi Slangen (note 24.2)
Hi-Power Limited (note 24.3)
Hi-Power Hydraulics (note 24.4)
Orange County Limited (note 24.5)
The Hydraulic Group BV (note 24.6)
Group HES Limited (note 24.7)
Total goodwill acquired through business combinations
Goodwill analysed by segment is as follows:
—
175
—
—
—
—
—
175
2,447
—
564
3
1,918
1,887
6,819
Flowtechnology UK (Fluidpower Limited, Flowtechnology Cz Limited, Flowtechnology Benelux B.V.)
Power Motion Control (PMC Fluidpower Group Limited, PMC Fluidpower Limited, Nelson Hydraulics
Limited, Hi-Power Limited, The Hydraulic Group BV)
Process (Process Fluidpower Limited)
Total at 31 December
—
—
—
—
2,790
—
—
2,790
2017
£000
43,330
10,864
3,744
57,938
73
Total
£000
2,447
175
564
3
2,790
1,918
1,887
9,784
2016
£000
43,516
4,043
728
47,927
Impairment testing
For the purpose of annual impairment testing, goodwill is allocated to the Group’s individual statutory trading entities, as they are deemed to
be cash generating units. It is anticipated that the Group’s cash generating units will be reviewed during the year ending 31 December 2018,
as it is expected that the entities will start to benefit from the synergies of the business combinations on which the goodwill arises and will
be integrated.
Recoverable amounts for each cash generating unit (CGU) are based on value in use.
Growth rates
The value in use is calculated from cash flow projections based on the Group’s forecasts for the year ending 31 December 2018, which are
extrapolated for a further four years*. The Group’s latest financial forecasts, which cover a three year period, are reviewed by the Board.
* Using growth rates as follows: Fluidpower Limited and Flowtechnology Benelux: 5.7%; PMC Fluidpower Limited, The Hydraulic Group BV, Hi-Power Limited and Nelson Hydraulics Limited: 7.2%;
Process Fluidpower Limited: 1.5%
Discount rates
The pre-tax discount rate used to calculate value is 9% (2016: 11%). This discount rate is derived from the Group’s weighted average cost of
capital.
Cash flow assumptions
The key assumptions for the value in use calculations are those regarding discount rates, growth rates and expected changes in margins.
Changes in selling prices and direct costs are based on past experience and expectations of future changes in the market. The growth rates
used in the value in use calculation reflect the average growth rate experienced by the Group for the industry.
In respect of the goodwill attributed to Fluidpower Limited, the headroom compared to the carrying value exceeds £29 million. Increasing
the discount rate to 22% and leaving all other factors the same would lead to the recoverable amount being equal to the carrying value of the
goodwill attributed to Fluidpower Limited.
The Directors do not believe that any other reasonably possible changes in the value of the key assumptions noted above would cause a
CGU’s carrying amount to exceed its recoverable amount.
Stock code: FLOwww.flowtechfluidpower.comFINANCIAL STATEMENTS 74
Notes to the consolidated financial information
continued
11. Other intangible assets
Customer relationships
2017
£000
2016
£000
Brands
2017
£000
2016
£000
Total
2017
£000
2016
£000
Gross carrying value
Balance at 1 January
Acquired through business
combinations – brands
Acquired through business
combinations – customer relationships
(note 24)
Balance at 31 December
Amortisation and impairment
Balance at 1 January
Amortisation
Balance at 31 December
Carrying amount at 31 December
5,796
4,722
—
—
3,418
9,214
1,096
749
1,845
7,369
1,074
5,796
543
553
1,096
4,700
96
—
—
96
16
19
35
61
—
96
—
96
—
16
16
80
5,892
4,722
—
96
3,418
9,310
1,112
768
1,880
7,430
1,074
5,892
543
569
1,112
4,780
Additions in the year to customer relationships relate to the acquisitions of Hydraulics and Transmissions Limited, Hi-Power Limited, Orange
County Limited, The Hydraulic Group BV and Group HES Limited. The estimated useful life has been determined as ten years based on the
expected future cash flows that they would generate in arriving at their fair value.
The amortisation of customer relationships and brands is charged to administration costs in the Consolidated Income Statement and is
referred to as the amortisation of acquired intangibles.
12. Subsidiary undertakings
Country of
incorporation Principal activity
Ownership
Flowtech Mid-Co Limited
Fluidpower Limited
Flowtechnology Benelux B.V.
Vitassem Limited
IPL Fluidpower Limited
Flowtechnology CZ Limited
Flowtech Europe Limited
Flowtechnology Asia Limited
Flowtechnology HK Limited
Fluidpower Shared Services Limited
Fluidpower MIP Limited
Fluidpower Properties Limited
Fluidpower Group Limited
Indequip Limited
Onsite Fluidpower Limited
PMC Fluidpower Group Limited (formerly PMC Fluidpower
Limited)
UK
UK
UK
UK
UK
UK
UK
PMC Fluidpower Limited (formerly Primary Fluid Power Limited) UK
KR Couplings Limited
Betabite Hydraulics Limited
Titan Fluid Power Limited
Nelson Hydraulics Limited
UK
UK
UK
UK
UK
UK
Holding company
Distributors of engineering components
Netherlands
Distributors of engineering components
UK
UK
UK
UK
UK
Dormant
Dormant
Assembly of engineering components
Holding company
Holding company
China
Dormant
Holding company
Holding company
Dormant
Holding company
Dormant
Dormant
Assembly and distribution of engineering
components
Assembly and distribution of engineering
components
Dormant
Dormant
Dormant
Assembly and distribution of engineering
components
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 75
Country of
incorporation Principal activity
Ownership
Hydraulics (Ireland) Limited
Process Fluidpower Group Limited (formerly Process Fluidpower
Limited)
UK
UK
Dormant
Assembly and distribution of engineering
components
Process Fluidpower Limited (formerly Hydravalve (UK) Limited) UK
Distributors of engineering components
Haitima Flow Control UK Limited
HUK Valves Limited
Hydraulics and Transmissions Limited
Hi-Power Limited
Orange County Limited
Primary Fluid Power Limited
Hydravalve UK Limited
The Hydraulic Group BV
Hydroflex-Hydraulics BV
Hydroflex-Hydraulics Rotterdam BV
Hydroflex-Hydraulics Belgium NV
Group HES Limited
Hydraulic Equipment Supermarkets Limited
Branch Hydraulic Systems Limited
HES Tractec Limited
HES Lubemec Limited
HES Automatec Limited
UK
UK
UK
ROI
UK
UK
UK
Dormant
Dormant
Assembly and distribution of engineering
components
Assembly and distribution of engineering
components
Assembly and distribution of engineering
components
Dormant
Dormant
Netherlands Holding company
Netherlands
Netherlands
Belgium
UK
UK
UK
UK
UK
UK
Assembly and distribution of engineering
components
Assembly and distribution of engineering
components
Assembly and distribution of engineering
components
Assembly and distribution of engineering
components
Dormant
Dormant
Dormant
Dormant
Dormant
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
For all the subsidiaries above the class of shares held are ordinary shares and all subsidiaries, except Fluidpower MIP Limited, are indirect
subsidiaries of Flowtech Fluidpower plc.
On 20 January 2017, the Group acquired 100% of the ordinary shares in Hydraulics and Transmissions Limited.
On 23 June 2017, the Group acquired 100% of the ordinary shares in Hi-Power Limited.
On 7 July 2017, the Group acquired 100% of the ordinary shares in Orange County Limited.
On 23 June 2017 the Group acquired 100% of the ordinary shares in Primary Fluid Power Limited, a newly incorporated company.
On 23 June 2017 the Group acquired 100% of the ordinary shares in Hydravalve UK Limited, a newly incorporated company.
On 7 September 2017, the Group acquired 100% of the ordinary shares in The Hydraulic Group BV and its trading subsidiaries
Hydroflex-Hydraulics BV, Hydroflex-Hydraulics Rotterdam BV and Hydroflex-Hydraulics Belgium NV.
On 11 October 2017, the Group acquired 100% of the ordinary shares in Group HES Limited, and its dormant subsidiaries
Hydraulic Equipment Supermarkets Limited, Branch Hydraulic Systems Limited, HES Tractec Limited, HES Lubemec Limited and
HES Automatec Limited.
Stock code: FLOwww.flowtechfluidpower.comFINANCIAL STATEMENTS 76
Notes to the consolidated financial information
continued
13. Property, plant and equipment
Cost
Balance at 1 January 2016
Additions
Disposals
Acquisitions through business combinations
Effect of movements in foreign exchange
Balance at 31 December 2016 and 1 January 2017
Additions
Disposals
Acquisitions through business combinations (note 24)
Effect of movements in foreign exchange
Balance at 31 December 2017
Depreciation and amortisation
Balance at 1 January 2016
Depreciation charge for the year
Disposals
Effect of movements in foreign exchange
Balance at 31 December 2016 and 1 January 2017
Depreciation charge for the year
Disposals
Effect of movements in foreign exchange
Balance at 31 December 2017
Net book value
At 31 December 2017
At 1 January 2017
At 1 January 2016
Plant,
machinery
and
equipment
£000
Land and
property
£000
1,088
6,755
43
—
—
—
1,131
—
—
—
—
782
—
292
100
7,929
1,831
(87)
792
20
1,131
10,485
33
26
—
—
59
29
—
—
88
1,043
1,072
1,055
4,739
436
—
80
5,255
570
(41)
26
5,810
4,675
2,674
2,016
Motor
vehicles
£000
242
33
(61)
21
—
235
9
(22)
243
—
465
48
64
(30)
—
82
41
(10)
—
113
352
153
194
Total
£000
8,085
858
(61)
313
100
9,295
1,840
(109)
1,035
20
12,081
4,820
526
(30)
80
5,396
640
(51)
26
6,011
6,070
3,899
3,265
At year end the net book value of leased plant, machinery and equipment was £169,000 (2016: £121,000). Included in land and property is
land at a cost of £145,000 which is not depreciated (2016: £145,000).
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 77
14. Deferred tax assets and liabilities
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Intangible assets
Property, plant and equipment
Financial assets
Provisions
Employee share-based payments
Tax assets/(liabilities)
Net deferred tax liability
Assets
2017
£000
—
—
—
37
69
106
2016
£000
—
—
—
47
66
113
Liabilities
2017
£000
(1,418)
(248)
—
—
—
(1,666)
(1,560)
2016
£000
(950)
(182)
—
—
—
(1,132)
(1,019)
A deferred tax asset of £117,000 (2016: £84,000) in respect of cumulative share-based payments of £615,000 (2016: £494,000) has not been
recognised due to uncertainty surrounding the availability of future profits, against which these payments can be utilised.
Movement in deferred tax during the year ended 31 December 2017
Intangible assets (note 24)
Property, plant and equipment
Provisions
Employee share-based payments
1 January
2017
£000
(950)
(182)
47
66
(1,019)
Recognised
in profit
or loss
£000
Acquired
during
the year
£000
31 December
2017
£000
148
(12)
(10)
3
129
(616)
(54)
—
—
(1,418)
(248)
37
69
(670)
(1,560)
Movement in deferred tax during the year ended 31 December 2016
Intangible assets
Property, plant and equipment
Financial assets
Provisions
Employee share-based payments
1 January
2017
£000
Recognised
in profit
or loss
£000
Acquired
during
the year
£000
31 December
2017
£000
(844)
(165)
1
70
37
(901)
124
42
(1)
(23)
29
171
(230)
(59)
—
—
—
(950)
(182)
—
47
66
(289)
(1,019)
Stock code: FLOwww.flowtechfluidpower.comFINANCIAL STATEMENTS 78
Notes to the consolidated financial information
continued
15. Inventories
Finished goods and goods for resale
2017
£000
24,333
2016
£000
16,592
Charges in finished goods recognised as cost of sales in the year amounted to £46,797,000 (2016: £30,999,000). The write-down or reversal
of inventories to net realisable value amounted to a write-down of £212,000 (2016: write-down of £67,000). The write-downs and reversals
are included in cost of sales. The provision made against inventories at the year end was £814,000 (2016: £931,000).
Estimates are made of the net realisable value of inventory at the year end. In some circumstances, inventory is subsequently sold in excess
of the net realisable value determined, which results in a reversal of the write-down.
16. Trade and other receivables
Trade receivables
Other receivables
Trade receivables and other receivables
17. Cash and cash equivalents
Cash and cash equivalents:
Sterling
Euro
Dollar
Total cash and cash equivalents
2017
£000
20,248
618
20,866
2017
£000
3,189
1,278
121
4,588
2016
£000
12,570
442
13,012
2016
£000
3,176
564
84
3,824
18. Other interest-bearing loans and borrowings
This note provides information about the contractual terms of the Group’s interest-bearing loans and borrowings, which are measured at
amortised cost. For more information about the Group’s exposure to interest rate and foreign currency risk, see note 31.
Non-current liabilities
Secured bank loans
Finance lease liabilities
Total non-current liabilities
Current liabilities
Secured bank loans
Bank overdraft
Revolving credit facility
Finance lease liabilities
Total current liabilities
Total
2017
£000
4,000
97
4,097
—
389
15,000
62
15,451
19,548
2016
£000
4,000
81
4,081
857
—
12,000
31
12,888
16,969
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 79
Terms and debt repayment schedule
Secured bank loan
Secured revolving credit facility
Finance lease liabilities
Currency
GBP
GBP
Nominal
interest rate
Libor + 2.1%
Libor + 2.1%
Year of
maturity
2021
n/a
GBP Various 4.8% to 31.0%
2018 to 2021
Carrying value
2017
£000
Carrying value
2016
£000
4,000
15,000
159
19,159
4,000
12,000
112
16,112
The revolving credit facility is up to £16,000,000 and is subject to a non-utilisation fee of 0.7% and is due for renewal in 2021. The bank loans
and revolving credit facility are secured by legal charges over certain of the Group’s assets which include trade receivables and stock. Group
bank accounts are in a netting-off facility and overdrafts are not subject to interest.
Finance lease liabilities
Finance lease liabilities are payable as follows:
Less than one year
Between one and five years
More than five years
Minimum
lease
payments
2017
£000
73
116
—
189
Interest
2017
£000
Principal
2017
£000
14
16
—
30
59
100
—
159
Minimum
lease
payments
2016
£000
40
103
—
143
19. Trade and other payables
Current
Trade payables
Accrued expenses
Social security and other taxes
20. Contingent consideration
Non-current liabilities
Contingent consideration
Total non-current liabilities
Current liabilities
Contingent consideration
Total current liabilities
Total
Interest
2016
£000
Principal
2016
£000
9
22
—
31
2017
£000
12,208
4,455
2,320
18,983
2017
£000
2,706
2,706
2,865
2,865
5,571
31
81
—
112
2016
£000
4,960
2,181
1,484
8,625
2016
£000
212
212
1,420
1,420
1,632
The contingent consideration is payable to the former owners of Hydravalve Limited and Hi-Power Limited on the first and second
anniversaries of the acquisition by the Group. Contingent consideration is also payable to the former owners of Hydraulics and
Transmissions Limited and Orange County Limited at six-monthly intervals over the next two years following the date of acquisition. Details
of acquisitions in the current year are given in note 24.
Stock code: FLOwww.flowtechfluidpower.comFINANCIAL STATEMENTS 80
Notes to the consolidated financial information
continued
21. Provisions
Balance at 1 January 2017
Acquisitions through business combinations
Amount utilised
Balance at 31 December 2017
Provisions have been analysed between current and non-current as follows:
Current
Non-current
Total
Dilapidation
provision
£000
212
192
(63)
341
2017
£000
—
341
341
Total
£000
212
192
(63)
341
2016
£000
—
212
212
The dilapidation provision is held in respect of leasehold properties held by the Group and represents management’s best estimate of the
amount which is expected to be settled in respect of dilapidation costs for the relevant sites. This is expected to be utilised in more than five
years.
22. Other financial liabilities
Current
Financial liabilities – foreign exchange contracts
2017
£000
11
2016
£000
57
23. Employee benefits
23.1 Pension plans
Defined contribution plans
The Group operates a number of defined contribution pension plans. The total expense relating to these plans in each year was £328,000
(2016: £217,000).
23.2 Share-based employee remuneration
As at 31 December 2017, the Group maintained four share-based payment schemes for employee remuneration: the Management Incentive
Plan; the Enterprise Management Incentive Plan, which has two sub plans, Approved and Unapproved; and the Company Share Option Plan.
Management Incentive Plan
The Management Incentive Plan (‘MIP’) is part of the remuneration package of the Group’s senior management. Shares held in Fluidpower
MIP Limited under this plan may be sold if certain conditions, as defined in the Articles of Association of Fluidpower MIP Limited, are met.
It is based on the growth of Flowtech Fluidpower plc’s share value within a specified holding period. In addition, participants in this scheme
must be employed by the Group until the end of the agreed holding period. At the end of the holding period the holder may sell their shares
to the Company for either cash or shares at a value determined by the growth of Flowtech Fluidpower plc’s share value within the specified
holding period. The Plan is classified as an equity-settled scheme as there is no present obligation to settle in cash.
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 81
The number of shares in Fluidpower MIP Limited subject to options and the exercise price are:
Date of grant
21 May 2014
1 June 2016
Exercise period
11 April 2017 to 10 August 2024
1 June 2019 to 31 May 2021
2017
Number
540
3,010
2016
Number
540
3,010
The fair values of the options granted were determined using a variation of the Black-Scholes model that takes into account factors specific
to share incentive plans, such as the vesting period. The following principal assumptions were used in the valuation:
Grant date
Vesting period ends
Share price at date of grant
Volatility
Option life
Dividend yield
Risk-free investment rate
Fair value at grant date
Exercise price at date of grant
Exercisable from/to
Weighted average remaining contractual life
MIP scheme
£000
MIP scheme
£000
21 May 2014
1 June 2016
3 April 2017
31 May 2019
£1.00
30.7%
6.25 years
5.15%
2.11%
£1.00
£1.30
£1.45
31.6%
5 years
5.3%
1.29%
£1.99
£1.51
4 April 2017
to 20 May 2021
1 June 2019
to 31 May 2023
6 years
4 years
The underlying expected volatility was determined by reference to historical share data of a group of the Company’s peers over the past six
years in accordance with the expected exercise period of the schemes.
Enterprise Management Incentive Plan
The Enterprise Management Incentive Plan (EMI) is part of the remuneration package of certain employees, the majority of options being
issued on the date the Company was admitted to the London Stock Exchange. The sub plans are named Approved and Unapproved by virtue
of whether the plans qualify for HMRC approval, the Unapproved Plan being mainly related to the CEO and non-UK resident employees.
Options under this scheme will vest if the participant remains employed for the agreed vesting period. Upon vesting each option allows the
holder to purchase one ordinary share.
The number of shares subject to options and the exercise price are:
Date of grant
Approved Plan
21 May 2014
8 August 2014
30 June 2015
Unapproved Plan
21 May 2014
11 August 2015
1 July 2016
Exercise price
Exercise period
2017 Number
000s
2016 Number
000s
£1.00
£1.26
£1.36
£1.00
£1.32
£1.00
4 April 2017 to 20 May 2024
4 April 2017 to 7 August 2024
4 April 2017 to 7 August 2024
4 April 2017 to 20 May 2024
4 April 2018 to 10 August 2025
4 April 2019 to 30 June 2026
1,001
25
—
1,026
384
130
45
559
1,635
138
50
1,823
467
140
45
652
1,585
2,475
Stock code: FLOwww.flowtechfluidpower.comFINANCIAL STATEMENTS
82
Notes to the consolidated financial information
continued
23. Employee benefits continued
Share options and weighted average exercise prices are as follows for the reporting periods presented:
Outstanding at 1 January 2017
Granted
Lapsed
Forfeited
Exercised
Outstanding at 31 December 2017
Exercisable at 31 December 2017
Exercisable at 31 December 2016
Approved scheme
Enterprise Management Incentive Plan
Unapproved scheme
Weighted
average
exercise price
per share
Weighted
average
exercise price
per share
Number
of shares
1.03
—
—
1.00
1.06
1.00
1.00
—
652
—
—
—
(93)
559
384
—
1.06
—
—
—
1.03
1.07
1.00
—
Number
of shares
1,823
—
—
(11)
(786)
1,026
1,026
—
Total
number
of shares
2,475
—
—
(11)
(879)
1,585
1,410
—
The fair values of the options granted were determined using a variation of the Black-Scholes model that takes into account factors specific
to share incentive plans, such as the vesting period. The following principal assumptions were used in the valuation:
Grant date
Vesting period ends
Share price at date of grant
Volatility
Option life
Dividend yield
Risk-free investment rate
Fair value at grant date
Exercise price at date of grant
Exercisable from/to
Unapproved
EMI scheme
Unapproved
EMI scheme
Approved
EMI scheme
Approved
EMI scheme
EMI scheme
Unapproved
and Approved
1 July 2016
11 August 2015
30 June 2015
8 August 2014
21 May 2014
3 April 2019
10 August 2018
3 April 2017
3 April 2017
3 April 2017
£1.00
31.6%
£1.44
36.6%
£1.34
36.6%
£1.26
36.6%
£1.00
36.6%
6.5 years
6.5 years
6.25 years
6.25 years
6.25 years
5.3%
2.11%
£1.05
£1.00
5.0%
1.5%
£1.46
£1.32
5.0%
1.5%
£1.35
£1.36
5.0%
1.5%
£1.11
£1.26
5.0%
1.5%
£1.11
£1.00
4 April 2019 to
20 May 2026
11 August 2018 to
10 August 2025
4 April 2017 to
20 May 2024
4 April 2017 to
20 May 2024
4 April 2017 to
20 May 2024
Weighted average remaining contractual life
8 years
7 years
6 years
6 years
6 years
The underlying expected volatility was determined by reference to historical share data of a group of the Company’s peers over the past six
years in accordance with the expected exercise period of the schemes.
Company Share Option Plan
The Company Share Option Plan (‘CSOP’) is part of the remuneration package of certain employees. Options under this scheme will vest if
the participant remains employed for the agreed vesting period. Upon vesting each option allows the holder to purchase one ordinary share.
The number of shares subject to options and the exercise price are:
Date of grant
11 August 2015
1 July 2016
Exercise price
Exercise period
£1.43
£1.00
11 August 2018 to 10 August 2025
4 April 2019 to 30 June 2026
2017 Number
000s
2016 Number
000s
110
440
550
130
445
575
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 Share options and weighted average exercise prices are as follows for the reporting periods presented:
Outstanding at 1 January 2017
Granted
Exercised
Forfeited
Outstanding at 31 December 2017
Exercisable at 31 December 2017
Exercisable at 31 December 2016
83
Weighted
average
exercise price
per share
Number
of shares
575
—
(20)
(5)
550
—
—
1.10
—
1.00
1.43
1.05
—
—
The fair values of the options granted were determined using a variation of the Black-Scholes model that takes into account factors specific
to share incentive plans, such as the vesting period. The following principal assumptions were used in the valuation:
Grant date
Vesting period ends
Share price at date of grant
Volatility
Option life
Dividend yield
Risk-free investment rate
Fair value at grant date
Exercise price at date of grant
Exercisable from/to
Weighted average remaining contractual life
CSOP scheme
2016
CSOP scheme
2015
1 July 2016 11 August 2015
3 April 2019 10 August 2018
£1.00
31.6%
£1.44
36.6%
6.5 years
6.5 years
5.3%
2.11%
£1.05
£1.00
5.0%
1.5%
£1.46
£1.43
4 April 2019 to
20 May 2026
11 April 2018 to
20 May 2025
8 years
7 years
The underlying expected volatility was determined by reference to historical share data of a group of the Company’s peers over the past six
years in accordance with the expected exercise period of the schemes.
In total, £272,000 (2016: £353,000) of employee remuneration expenses, all of which related to equity-settled share-based payment
transactions, has been included in the Consolidated Income Statement.
Stock code: FLOwww.flowtechfluidpower.comFINANCIAL STATEMENTS 84
Notes to the consolidated financial information
continued
24. Acquisitions and disposals
24.1 Acquisition of Hydraulics and Transmissions Limited
On 20 January 2017, the Group acquired 100% of the share capital of Hydraulics and Transmissions Limited (“HTL”), a UK-based company.
HTL provides fluid power solutions predominantly to the mobile market segment and supplies some of the market leaders such as JCB,
McConnell and Alamo. The acquisition strengthened our position with key global suppliers including Eaton, Walvoil and Casappa, and
complemented our previous acquisitions of Primary Fluid Power and Nelson Hydraulics.
Details of the provisional fair value of identifiable assets and liabilities acquired, purchase consideration, goodwill and intangible assets are
as follows:
Book value
£000
Fair value
adjustment
£000
Intangible
asset
recognised on
acquisition
£000
Provisional
fair value
£000
Property, plant and equipment
Intangible assets1
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Current tax balances
Deferred tax liability
Total net assets
1 Intangible assets of £322,000 owned by HTL were not acquired.
Fair value of consideration paid
Amount settled in cash
Fair value of contingent consideration
Total consideration
Less net assets acquired
Goodwill on acquisition (note 10)
31
–
1,226
1,018
(1,010)
(1,456)
(45)
(5)
(241)
—
–
(81)
(22)
—
—
—
—
(103)
—
449
—
—
—
—
—
(81)
368
31
449
1,145
996
(1,010)
(1,456)
(45)
(86)
24
£000
830
1,641
2,471
(24)
2,447
Fair values are provisional as subject to management estimations at the reporting date.
Consideration transferred
The total consideration was £2,471,000. This comprised £830,000 in cash and £1,641,000 contingent cash consideration. The additional
consideration is based on profit targets for the Company’s customer base and is payable in two instalments over the next two years. The fair
value of £1,641,000 has been calculated using management forecasts of HTL’s performance discounted at the weighted average cost of
capital.
Acquisition costs amounting to £44,000 have been recognised as an expense in the Consolidated Income Statement as part of separately
disclosed administration costs.
Goodwill
Goodwill of £2,447,000 is primarily related to expected future profitability and expected cost synergies. Goodwill has been allocated to the
Power Motion Control operating segment and is not expected to be deductible for tax purposes.
Intangible asset
An intangible asset of £449,000 has been provisionally identified related to customer relationships. The estimated useful life has been
determined as ten years based on the expected future cash flows that they would generate in arriving at their fair value. The customer
relationships considered in the valuation comprise the sales to significant customers. Long term sales growth over the ten-year period has
been assumed to be 5.2% with an attrition rate of 12.8% for customers. Growth and attrition rates are based on management experience and
expectations. Amortisation of customer relationships is not expected to be deductible for tax purposes.
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 85
Fair value adjustments
The value of inventories has been decreased by £81,000 to reflect the alignment of stock valuation methods with those of the Group.
The value of debtors has been decreased by £22,000 to reflect the alignment of HTL’s debtor provisioning policy with that of the Group.
Hydraulics and Transmissions Limited’s contribution to the Group results
Hydraulics and Transmissions Limited was acquired on 20 January 2017, for the purpose of the Group’s consolidated accounts it has been
treated as if purchased on 1 January 2017 and consolidated from that date as the difference would not have a material impact on the Group
results.
Summary aggregated estimated financial information on HTL for the 12 month period consolidated:
Revenue
Profit
2017
£000
6175
384
Profits are stated after deducting inter company recharges and acquisition costs of £185,000.
24.2 Acquisition of Hewi Slangen
On 7 April 2017, the Group acquired the trade and certain assets of Hewi Slangen B.V., a Netherlands-based business. Complementary to our
existing Dutch division, Flowtechnology Benelux, Hewi Slangen brings synergistic savings through relocation of operations and additional
abilities and skills in hose production.
Details of the provisional fair value of identifiable assets and liabilities acquired, purchase consideration, goodwill and intangible assets are
as follows:
Property, plant and equipment
Inventories
Total net assets
Fair value of consideration paid
Amount settled in cash
Total consideration
Less net assets acquired
Goodwill on acquisition (note 10)
Book value
£000
Fair value
adjustment
£000
20
197
217
80
(163)
(83)
Intangible
asset
recognised on
acquisition
£000
Provisional
fair value
£000
—
—
—
100
34
134
£000
309
309
(134)
175
Fair values are provisional as subject to management estimations at the reporting date.
Consideration transferred
The total consideration was £309,000 (€355,000) in cash.
Goodwill
Goodwill of £175,000 is primarily related to expected future profitability, technical know-how and expected cost synergies from the closure
of the operational site and transfer of activities into existing Group locations. Goodwill has been allocated to the Flowtechnology operating
segment and is not expected to be deductible for tax purposes.
Fair value adjustments
The value of property, plant and equipment has been increased by £80,000 based on market valuations at the time of acquisition.
The value of inventories has been decreased by £163,000 to reflect the alignment of stock valuation methods with those of the Group.
Stock code: FLOwww.flowtechfluidpower.comFINANCIAL STATEMENTS 86
Notes to the consolidated financial information
continued
24. Acquisitions and disposals continued
Hewi Slangen’s contribution to the Group results
Hewi Slangen generated a profit after tax of £12,000 for the nine months from 7 April 2017 to the reporting date. If Hewi Slangen had been
acquired on 1 January 2017, revenue for the Group would have been £78,415,000 and profit after tax for the year would have increased by
£33,000.
Summary aggregated financial information on Hewi Slangen for the period from 1 January 2017 to 7 April 2017 when it became a subsidiary:
Revenue
Profit
2017
£000
128
33
24.3 Acquisition of Hi-Power Limited
On 23 June 2017 the Group acquired 100% of the share capital of Hi-Power Limited, a company based in the Republic of Ireland. It is a
specialist distributor of hydraulic equipment components predominantly to the mobile and transport sectors. It is based in Cork, Dublin and
Belfast. This acquisition is complementary to the PMC division and will strengthen the Group position with key European suppliers.
Details of the provisional fair value of identifiable assets and liabilities acquired, purchase consideration, goodwill and intangible assets are
as follows:
Property, plant and equipment
Intangible assets
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Current tax balances
Finance leases
Provisions
Deferred tax liability
Total net assets
Fair value of consideration paid
Amount settled in cash
Fair value of contingent consideration
Total consideration
Less net assets acquired
Goodwill on acquisition (note 10)
Book value
£000
109
Fair value
adjustment
£000
(8)
—
1,319
1,818
185
(1,604)
(26)
(16)
—
—
—
(31)
(112)
—
—
—
—
—
—
1,785
(151)
Intangible
asset
recognised on
acquisition
£000
—
374
—
—
—
—
—
—
—
(67)
307
Provisional
fair value
£000
101
374
1,288
1,706
185
(1,604)
(26)
(16)
—
(67)
1,941
£000
1,610
895
2,504
(1,941)
564
Fair values are provisional as subject to management estimations at the reporting date.
Consideration transferred
The total consideration was £2,504,000. This comprised £1,610,000 (€1,836,000) in cash and £895,000 contingent cash consideration. The
additional consideration is based on profit targets for the Company’s customer base and is payable in two instalments over the next two
years. The fair value of £895,000 has been calculated using management forecasts of Hi-Power Limited performance discounted at the
weighted average cost of capital.
Acquisition costs amounting to £142,000 have been recognised as an expense in the Consolidated Income Statement as part of separately
disclosed administration costs.
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 87
Goodwill
Goodwill of £564,000 is primarily related to expected future profitability, the substantial skill and expertise of its workforce and expected cost
synergies from the combined buying power of the Group. Goodwill has been allocated to the Power Motion Control operating segment and is
not expected to be deductible for tax purposes.
Intangible asset
An intangible asset of £374,000 has been provisionally identified related to customer relationships. The estimated useful life has been
determined as ten years based on the expected future cash flows that they would generate in arriving at their fair value. The customer
relationships considered in the valuation primarily comprise those buying P.T.O.s, wet kits, bulk discharge, auto-greasing, speed limiters and
winches which are new products to the segment. Long term sales growth over the ten-year period has been assumed to be 3.0% with an
attrition rate of 10.0% for customers. Growth and attrition rates are based on management experience and expectations. Amortisation of
customer relationships is not expected to be deductible for tax purposes.
Fair value adjustments
The value of property, plant and equipment has been decreased by £8,000 to reflect the alignment of the useful life review policy with that of
the Group.
The value of inventories has been decreased by £31,000 to reflect the alignment of stock valuation methods with those of the Group.
The value of debtors has been decreased by £112,000 to reflect the alignment of Hi-Power’s debtor provisioning policy with that of the Group.
Hi-Power Limited’s contribution to the Group results
Hi-Power Limited generated a profit after tax of £22,000 for the six months from 23 June 2017 to the reporting date. Profits are stated after
deducting intercompany charges and acquisition costs of £162,000. If Hi-Power Limited had been acquired on 1 January 2017, revenue for
the Group would have been £82,060,000 and profit after tax for the year would have increased by £234,000.
Summary aggregated financial information on Hi-Power Limited for the period from 1 January 2017 to 23 June 2017 when it became a
subsidiary:
Revenue
Profit
2017
£000
3,773
234
24.4 Acquisition of Hi-Power Hydraulics
On 30 June 2017, the Group acquired certain trade and assets of Hi-Power Hydraulics Limited, a UK division of Hi-Power Limited which was
acquired on 23 June 2017 (see note 24.3). Hi-Power Hydraulics is the exclusive UK importer and stockist of Pedro Roquet S.A. products. This
acquisition is complementary to the PMC division and will strengthen the Group position with key European suppliers.
Details of the provisional fair value of identifiable assets and liabilities acquired, purchase consideration, goodwill and intangible assets are
as follows:
Property, plant and equipment
Inventories
Total net assets
Fair value of consideration paid
Amount settled in cash
Total consideration
Less net assets acquired
Goodwill on acquisition (note 10)
Book value
£000
Fair value
adjustment
£000
20
371
391
(14)
(35)
(49)
Intangible
asset
recognised on
acquisition
£000
Provisional
fair value
£000
—
—
—
6
336
342
£000
345
345
(342)
3
Fair values are provisional as subject to management estimations at the reporting date.
Stock code: FLOwww.flowtechfluidpower.comFINANCIAL STATEMENTS 88
Notes to the consolidated financial information
continued
24. Acquisitions and disposals continued
Consideration transferred
The total consideration was £345,000, paid in cash
Goodwill
Goodwill of £3,000 is primarily related to expected future profitability and expected cost synergies. Goodwill has been allocated to the Power
Motion Control operating segment and is not expected to be deductible for tax purposes.
Fair value adjustments
The value of property, plant and equipment has been decreased by £14,000 to reflect the alignment of the useful life review policy with that
of the Group.
The value of inventories has been decreased by £35,000 to reflect the alignment of stock valuation methods with those of the Group.
Hi-Power Hydraulics’ contribution to the Group results
Hi-Power Hydraulics generated a profit after tax of £114,000 for the six months from 1 July 2017 to the reporting date. Profits are stated
after deducting intercompany charges and acquisition costs of £162,000. If Hi-Power Hydraulics had been acquired on 1 January 2017,
revenue for the Group would have been £78,833,000 and profit after tax for the year would have increased by £82,000.
Summary aggregated financial information on Hi-Power Hydraulics for the period from 1 January 2017 to 30 June 2017 when it became a
subsidiary:
Revenue
Profit
2017
£000
546
82
24.5 Acquisition of Orange County Limited
On 7 July 2017, the Group acquired 100% of the share capital of Orange County Limited, a UK-based company. It is a specialist supplier and
distributor of high quality products for the storage and movement of fuel, liquid and gases based in Spennymoor, County Durham. Orange
County provides a further complementary business to the Group and establishes relationships with world-leading manufacturers of pipes,
valves, gauges and leak detection equipment. It is focused on technical sales to a wide range of end users from fuel supply systems for the
automotive industry to cooling systems on the London Underground, as well as large Data Centres across the UK.
Details of the provisional fair value of identifiable assets and liabilities acquired, purchase consideration, goodwill and intangible assets are
as follows:
Property, plant and equipment
Intangible assets
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Current tax balances
Deferred tax liability
Total net assets
Book value
£000
Fair value
adjustment
£000
Intangible
asset
recognised on
acquisition
£000
Provisional
fair value
£000
34
—
302
785
1,936
(340)
(284)
(7)
2,426
(4)
(26)
(23)
—
—
—
(53)
—
1,049
—
—
—
—
—
(189)
860
30
1,049
276
762
1,936
(340)
(284)
(196)
3,233
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 Fair value of consideration paid
Amount settled in cash
Fair value of contingent consideration
Total consideration
Less net assets acquired
Goodwill on acquisition (note 10)
89
£000
3,200
2,823
6,023
(3,233)
2,790
Fair values are provisional as subject to management estimations at the reporting date.
Consideration transferred
The total consideration was £6,023,000. This comprised £3,200,000 in cash and £2,823,000 contingent cash consideration. The additional
consideration is based on profit targets for the Company’s customer base and is payable in four instalments over the next two years. The fair
value of £2,823,000 has been calculated using management forecasts of Orange County Limited’s performance discounted at the weighted
average cost of capital.
Acquisition costs amounting to £76,000 have been recognised as an expense in the Consolidated Income Statement as part of separately
disclosed administration costs.
Goodwill
Goodwill of £2,790,000 is primarily related to expected future profitability, the substantial skill and expertise of its workforce and technical
know-how. Goodwill has been allocated to the Process operating segment and is not expected to be deductible for tax purposes.
Intangible asset
An intangible asset of £1,049,000 has been provisionally identified related to customer relationships. The estimated useful life has been
determined as ten years based on the expected future cash flows that they would generate in arriving at their fair value. The customer
relationships considered in the valuation comprise the sales to customers of equipment for storage and movement of fuel, liquid and gases,
which are new products for the segment. Long term sales growth over the ten-year period has been assumed to be 2.0% with an attrition
rate of 10.0% for customers. Growth and attrition rates are based on management experience and expectations. Amortisation of customer
relationships is not expected to be deductible for tax purposes.
Fair value adjustments
The value of property, plant and equipment has been decreased by £4,000 to reflect the alignment of the useful life review policy with that of
the Group.
The value of inventories has been decreased by £27,000 to reflect the alignment of stock valuation methods with those of the Group.
The value of debtors has been decreased by £23,000 to reflect the alignment of the debtor provisioning policy with that of the Group.
Orange County Limited’s contribution to the Group results
Orange County Limited generated a profit after tax of £276,000 for the six months from 7 July 2017 to the reporting date. Profits are stated
after deducting intercompany charges of £57,000. If Orange County Limited had been acquired on 1 January 2017, revenue for the Group
would have been £79,451,000 and profit after tax for the year would have increased by £114,000.
Summary aggregated financial information on Orange County Limited for the period from 1 January 2017 to 7 July 2017 when it became a
subsidiary:
Revenue
Profit
2017
£000
1,164
114
Stock code: FLOwww.flowtechfluidpower.comFINANCIAL STATEMENTS 90
Notes to the consolidated financial information
continued
24. Acquisitions and disposals continued
24.6 Acquisition of The Hydraulic Group BV
On 7 September 2017, the Group acquired 100% of the share capital of The Hydraulic Group BV and its subsidiaries, a Netherlands-based
company. Based in Oud-Beijerland and Rotterdam, with a sales presence in Brussels, it is a distributor of hydraulic equipment and
components, predominantly to the mechanical engineering, marine and agricultural sectors into Maintenance, Repair and Operations
applications, as well as original equipment manufacturers. The acquisition extends the Group’s position with important global suppliers, in
particular Eaton Corporation.
Details of the provisional fair value of identifiable assets and liabilities acquired, purchase consideration, goodwill and intangible assets are
as follows:
Book value
£000
Fair value
adjustment
£000
Intangible
asset
recognised on
acquisition
£000
Provisional
fair value
£000
Investments
Property, plant and equipment
Intangible assets
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Current tax balances
Finance leases
Provisions
Deferred tax liability
Total net assets
Fair value of consideration paid
Amount settled in cash
Amount settled in shares in Flowtech Fluidpower plc
Amount settled in share options in Flowtech Fluidpower plc
Total consideration
Less net assets acquired
Goodwill on acquisition (note 10)
387
225
—
1,033
1,119
77
(1,048)
(37)
(62)
—
43
1,737
(387)
—
—
(33)
(173)
—
—
—
(103)
—
(696)
—
—
976
—
—
—
—
—
—
(176)
800
—
225
976
1,000
946
77
(1,048)
(37)
(62)
(103)
(133)
1,841
£000
2,885
687
187
3,759
(1,841)
1,918
Fair values are provisional as subject to management estimations at the reporting date.
Consideration transferred
The total consideration was £3,759,000. This comprised £2,149,000 (€2,250,000) in cash, assumption of £736,000 (€802,000) of net debt
at acquisition, £687,000 represented by the issue of new Flowtech Fluidpower plc ordinary shares at a value of 1.387p each and £187,000
represented by the issue of 495,178 unapproved share options in Flowtech Fluidpower plc. The premium on share issue arising of £439,000
has been credited to the merger relief reserve. The share options have been valued using a variation of the Black-Scholes model that takes
into account factors specific to share incentive plans, such as the vesting period. The options are exercisable from April 2020 and have an
exercise value of £1.387p. The fair value of the options of £187,000 has been recognised as an other reserve.
Acquisition costs amounting to £45,000 have been recognised as an expense in the Consolidated Income Statement as part of separately
disclosed administration costs.
Goodwill
Goodwill of £1,918,000 is primarily related to expected future profitability and expected cost synergies from the combined buying power
of the Group. Goodwill has been allocated to the Power Motion Control operating segment and is not expected to be deductible for tax
purposes.
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 91
Intangible asset
An intangible asset of £976,000 has been provisionally identified related to customer relationships. The estimated useful life has been
determined as ten years based on the expected future cash flows that they would generate in arriving at their fair value. The customer
relationships considered in the valuation comprise the sales to significant customers. Long term sales growth over the ten-year period has
been assumed to be 1.9% with an attrition rate of 10.0% for customers. Growth and attrition rates are based on management experience and
expectations. Amortisation of customer relationships is not expected to be deductible for tax purposes.
Fair value adjustments
The value of investments has been decreased by £322,000 based on market valuations at the time of acquisition.
The value of inventories has been decreased by £31,000 to reflect the alignment of stock valuation methods with those of the Group.
The value of debtors has been decreased by £16,000 to reflect the alignment of The Hydraulics Group’s debtor provisioning policy with that
of the Group and also by £158,000 based on market valuations of other debt at the time of acquisition.
The value of provisions has been increased by £103,000 to reflect a provision for dilapidation costs relating to properties leased by the
Company.
The Hydraulic Group BV’s contribution to the Group results
The Hydraulic Group BV generated a profit after tax of £109,000 for the four months from 7 September 2017 to the reporting date. Profits are
stated after deducting intercompany charges of £166,000. If The Hydraulic Group BV had been acquired on 1 January 2017, revenue for the
Group would have been £82,939,000 and profit after tax for the year would have increased by £148,000.
Summary aggregated financial information on The Hydraulic Group BV’s for the period from 1 January 2017 to 7 September 2017 when it
became a subsidiary:
Revenue
Profit
2017
£000
4,652
148
24.7 Acquisition of Group HES Limited
On 11 October 2017, the Group acquired 100% of the share capital of Group HES Limited (“HES”) and its subsidiaries, a UK-based group.
HES is a multi-faceted solutions provider to the Fluidpower sector located in Birmingham, Durham, Gloucester and Leeds. The business
operates under five trading brands: Hydraulic Equipment Supermarkets; Branch Hydraulic Systems; and more recently established specialist
distributor brands in HES Tractec, HES Lubemec and HES Automatec. The acquisition provides another complementary business to the
Group’s PMC division, delivering incremental revenue through a mix of wider technical applications, reinforces our offer to the off-highway
market and adds aerospace to our sector coverage. In addition, the acquisition extends the Group’s position with important global suppliers,
including Danfoss Power Solutions.
Details of the provisional fair value of identifiable assets and liabilities acquired, purchase consideration, goodwill and intangible assets are
as follows:
Property, plant and equipment
Intangible assets
Inventories
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Finance leases
Current tax balances
Provisions
Deferred tax liability
Total net assets
Book value
£000
Fair value
adjustment
£000
Intangible
asset
recognised on
acquisition
£000
Provisional
fair value
£000
574
—
3,093
2,941
(722)
(3,669)
(28)
(25)
—
(84)
2,080
(26)
(200)
(28)
—
—
—
—
(90)
—
(344)
—
570
—
—
—
—
—
—
—
(103)
467
548
570
2,893
2,913
(722)
(3,669)
(28)
(25)
(90)
(187)
2,203
Stock code: FLOwww.flowtechfluidpower.comFINANCIAL STATEMENTS 92
Notes to the consolidated financial information
continued
24. Acquisitions and disposals continued
Fair value of consideration paid
Amount settled in cash
Amount settled in shares in Flowtech Fluidpower plc
Total consideration
Less net assets acquired
Goodwill on acquisition (note 10)
£000
3,090
1,000
4,090
(2,203)
1,887
Fair values are provisional as subject to management estimations at the reporting date.
Consideration transferred
The total consideration was £4,090,000. This comprised £3,090,000 in cash and £1,000,000 represented by the issue of new Flowtech
Fluidpower plc ordinary shares at a value of 1.511p each. The premium on share issue arising of £669,000 has been credited to the merger
relief reserve.
Acquisition costs amounting to £65,000 have been recognised as an expense in the Consolidated Income Statement as part of separately
disclosed administration costs.
Goodwill
Goodwill of £1,887,000 is primarily related to expected future profitability, the substantial skill and expertise of its workforce and expected
cost synergies from the combined buying power of the Group. Goodwill has been allocated to the Power Motion Control operating segment
and is not expected to be deductible for tax purposes.
Intangible asset
An intangible asset of £570,000 has been provisionally identified related to customer relationships. The estimated useful life has been
determined as ten years based on the expected future cash flows that they would generate in arriving at their fair value. The customer
relationships considered in the valuation comprise the sales to the aerospace sector, HES’s service division sales and customer revenue
streams served by the LubeMec and Tractec brands which are all new revenue streams to the segment. Long term sales growth over the ten-
year period has been assumed to be 2.0% with an attrition rate of 10.0% for customers. Growth and attrition rates are based on management
experience and expectations. Amortisation of customer relationships is not expected to be deductible for tax purposes.
Fair value adjustments
The value of property, plant and equipment has been decreased by £26,000 to reflect the alignment of the useful life review policy with that
of the Group.
The value of inventories has been decreased by £200,000 to reflect the alignment of stock valuation methods with those of the Group.
The value of debtors has been decreased by £28,000 to reflect the alignment of the debtor provisioning policy with that of the Group.
The value of provisions has been increased by £90,000 to reflect a provision for dilapidation costs relating to properties leased by the
Company.
Group HES Limited’s contribution to the Group results
HES generated a loss after tax of £45,000 for the three months from 11 October 2017 to the reporting date. Losses are stated after
deducting intercompany charges and acquisition costs of £106,000. If HES had been acquired on 1 January 2017, revenue for the Group
would have been £94,224,000 and profit after tax for the year would have increased by £1,009,000.
Summary aggregated financial information on Group HES Limited for the period from 1 January 2017 to 11 October 2017 when it became a
subsidiary:
Revenue
Profit
2017
£000
15,957
1,009
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 93
25. 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.
Allotted and fully paid ordinary shares of 50p each at 31 December 2017
Shares authorised for share-based payments
Total shares authorised at 31 December 2017
Allotted and fully paid ordinary shares of 50p each
At 1 January 2017
Shares issued
Shares issued in respect of exercise of employee share options
Shares issued in respect of loan to Employee Benefit Trust
Shares issued in respect of acquisition (note 24.6)
Shares issued in respect of acquisition (note 24.7)
At 31 December 2017
Number
52,818,997
6,666,667
59,485,664
£000
26,409
3,333
29,742
Number
£000
43,078,282
8,333,333
15,000
235,400
495,178
661,804
21,539
4,166
7
118
248
331
52,818,997
26,409
On 30 March 2017, 8,333,333 ordinary shares were issued at 120.0 pence each to fund acquisitions.
On 22 May 2017, 197,901 ordinary shares were issued at 100.0 pence each and 37,500 ordinary shares were issued at 1.255 pence each.
The aggregate issue of 235,401 was purchased by the Flowtech Fluidpower Employee Benefit Trust (EBT) under a loan agreement with the
EBT. On the same date a further 15,000 were issued at 100 pence each directly to employees in satisfaction of EMI share option exercises.
On 7 September, a further 495,178 ordinary shares were issued for 1.387 pence each, in partial consideration for an indirect subsidiary’s
acquisition of 100% of the share capital of The Hydraulic Group BV.
On 11 October, a further 661,804 ordinary shares were issued for 1.511 pence each, in partial consideration for an indirect subsidiary’s
acquisition of 100% of the share capital of Group HES Limited and its subsidiaries.
26. Net cash from operating activities
Reconciliation of profit before taxation to net cash flows from operations
Profit from continuing operations before tax
Loss from discontinued operations before tax
Depreciation
Financial income
Financial expense
Profit on sale of plant and equipment
Amortisation of intangible assets
Cash settled share options
Equity-settled share-based payment charge
Change in amounts accrued for contingent consideration
Operating cash inflow before changes in working capital and provisions
Change in trade and other receivables
Change in stocks
Change in trade and other payables
Change in provisions
Cash generated from operations
Tax paid
Net cash generated from operating activities
2017
£000
6,039
—
640
(6)
581
(3)
768
(415)
272
229
8,105
(823)
(931)
1,922
(63)
8,210
(1,610)
6,600
2016
£000
5,527
(113)
526
(1)
611
(21)
569
—
353
(108)
7,343
(1,384)
(1,486)
1,126
(86)
5,513
(1,347)
4,166
Stock code: FLOwww.flowtechfluidpower.comFINANCIAL STATEMENTS 94
Notes to the consolidated financial information
continued
27. Discontinued operations
Discontinued operation costs in the prior year relate to surplus property costs incurred following the relocating of operations to existing
Group properties.
Discontinued operations:
Administrative expenses
Operating loss
Taxation (note 7)
Loss from discontinued operations
2017
£000
—
—
—
—
There are no material net cash flows attributable to the operating, investing and financing activities of discontinued operations.
28. Operating leases
Non-cancellable operating lease rentals are payable as follows:
Less than one year
Between one and five years
More than five years
2017
£000
1,450
3,103
3,479
8,032
2016
£000
(113)
(113)
22
(91)
2016
£000
788
1,909
3,410
6,107
The Group acts as a lessee for land and buildings, plant and machinery and motor vehicles, under operating leases. The Group’s significant
lease arrangements are for properties, for which there are no significant lease incentives. As at 31 December 2017, the property lease
periods range from less than one year to fifteen years. The disclosures above for non-cancellable operating lease rentals have been split out
below to show the split between land and buildings and other assets which include motor vehicles.
Less than one year
Between one and five years
More than five years
2017
2016
Land and
buildings
£000
1,059
2,654
3,479
7,192
Other
£000
391
449
840
Land and
buildings
£000
570
1,521
3,410
5,501
Other
£000
218
388
—
606
During the year £1,303,000 was recognised as an expense in the income statement in respect of operating leases relating to continuing
operations (2016: £799,000). Operating lease costs recognised in discontinued operations were £nil (2016: 45,000).
29. Contingent liabilities and commitments
The Group had capital expenditure of £510,000 contracted for but not provided at 31 December 2017 (2016: £63,000).
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 95
30. Related party transactions
Transactions between the Company, its Employee Benefit Trust and its subsidiaries, which are related parties, have been eliminated on
consolidation and are not disclosed in this note.
Key management includes Executive and Non-Executive Directors. The compensation paid or payable to key management is disclosed in the
Directors’ Remuneration Report on pages 43 to 45.
Dividends paid to Directors of the plc were as follows:
Sean Fennon
Bryce Brooks
Malcolm Diamond MBE
Nigel Richens
2017
£000
12
5
3
3
23
2016
£000
12
5
3
3
23
Other than the transactions set out above, the Group has not entered into any transactions with any related parties who are not members of
the Group.
31. Financial instruments
31.1 Fair values of financial instruments
Fair values
The table below analyses financial instruments into a fair value hierarchy based on the valuation technique used to determine fair value.
•
•
•
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices)
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable input)
Carrying
amount
2017
£000
Fair
value
2017
£000
Level 2
2017
£000
Level 3
2017
£000
Carrying
amount
2016
£000
Fair
value
2016
£000
Level 2
2016
£000
Level 3
2016
£000
Financial liabilities at fair value through profit or
loss (including all derivatives) (note 22)
Forward exchange contracts
Contingent consideration (note 20)
(11)
(11)
(5,571)
(5,571)
(11)
—
—
(57)
(57)
(5,571)
(1,631)
(1,631)
(57)
—
—
(1,631)
Total financial liabilities at fair value through
profit or loss
(5,582)
(5,582)
(11)
(5,571)
(1,688)
(1,688)
(57)
(1,631)
There have been no transfers in either direction during the years ended 31 December 2017 and 31 December 2016.
Stock code: FLOwww.flowtechfluidpower.comFINANCIAL STATEMENTS 96
Notes to the consolidated financial information
continued
31. Financial instruments continued
The reconciliation of the carrying amounts of financial instruments classified within level 3 is as follows:
Balance at 1 January
Arising on business combinations
Payment of contingent consideration
Changes in amounts accrued for contingent consideration
Balance at 31 December
2017
£000
1,631
5,361
(1,649)
229
5,572
2016
£000
2,148
622
(1,031)
(108)
1,631
The payment of under provision of contingent consideration relates to the calculation of the contingent consideration as follows:
• £215,000 in final settlement for the acquisition of Nelson Hydraulics Limited acquired in 2015. The consideration was based on net
profit targets.
• £14,000 additional payment due on the first instalment for the acquisition of Hydravalve Limited, acquired in 2016. The consideration
was based on net profit targets.
The Group is exposed to various risks in relation to financial instruments. Each of these is disclosed in the table below.
Carrying
amount
2017
£000
Fair
value
2017
£000
Level 2
2017
£000
Level 3
2017
£000
Carrying
amount
2016
£000
Fair
value
2016
£000
Level 2
2016
£000
Level 3
2016
£000
Loans and receivables
Cash and cash equivalents (note 17)*
Trade and other receivables (note 16)*
Total financial assets not measured at fair
value
Total financial assets at fair value
Financial assets
Financial liabilities measured at amortised cost
Other interest-bearing loans and borrowings
(note 18)
Trade payables and accruals (note 19)*
Total financial liabilities measured at
amortised cost
Financial liabilities at fair value
Forward exchange contracts
Contingent consideration (note 20)
Total financial liabilities at fair value
Total financial liabilities
Total financial instruments
4,588
20,866
25,454
—
25,454
(19,548)
(16,663)
(36,211)
(11)
(5,572)
(5,583)
(41,794)
(16,340)
3,824
13,012
16,836
—
16,836
(16,969)
(7,141)
(24,110)
(57)
(1,632)
(1,689)
(25,799)
(8,963)
—
—
(57)
(1,632)
(1,689)
(57)
—
(57)
(1,632)
(1,632)
—
—
(11)
(5,572)
(5,583)
(5,583)
(5,583)
(11)
—
(11)
(11)
(11)
(5,572)
(5,572)
(5,572)
(5,572)
* The Group has not disclosed the fair value for financial instruments such as short term trade receivables and payables, and cash and cash equivalents, because their carrying amounts are a
reasonable approximation of fair values.
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 97
Financial instruments measured at fair value
Forward exchange contracts
Contingent consideration
Financial instruments not measured at fair value
Bank loans and other interest-bearing borrowings
Valuation technique
The Group’s currency hedging contracts are not traded in active
markets. These have been fair valued using observable exchange rates
corresponding to the maturity of the contract, through direct confirmation
from the provider of the contract.
The fair value of contingent consideration at 31 December 2017 relates
to the acquisitions of Hydravalve Limited in 2016 and in 2017, Hydraulics
and Transmissions Limited, Hi-Power Limited and Orange County Limited.
It is estimated using a present value technique. The £5,571,000 fair value
is measured by reference to the future cash outflows. The cash outflows
reflect management’s best estimate of the amount payable.
Valuation technique
Fair value is calculated based on the present value of future principal
and interest cash flows, discounted at the market rate of interest at the
reporting date.
31.2 Credit risk
Financial risk management
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual
obligations, and arises principally from the Group’s receivables from customers. The Group’s exposure to credit risk is influenced mainly
by the individual characteristics of each customer. Management also consider the factors that may influence the credit risk of the Group’s
customer base, including the default risk of the industry and country in which the customers operate. The Group has an established credit
policy under which the credit status of each new customer is reviewed before credit is advanced. This includes external evaluations where
possible. Credit limits are established for customers and outstanding balances are reviewed regularly by management.
The concentration of credit risk for trade receivables at the balance sheet date by geographic region was:
UK
Europe
Rest of the World
Credit quality of financial assets and impairment losses
The ageing of trade receivables at the balance sheet date was:
Not past due
Past due 0-30 days
More than 30 days
2017
£000
16,343
3,561
344
20,248
Gross
2016
£000
12,222
393
195
12,810
2016
£000
11,025
1,272
273
12,570
Impairment
2016
£000
84
6
150
240
Gross
2017
£000
18,364
1,433
919
20,716
Impairment
2017
£000
81
32
355
468
Some of the unimpaired trade receivables are past due as at the reporting date. These past due debtors are not resultant from any major
disputes with customers. There have been no other indicators that would cast doubt over the creditworthiness of such customers.
Stock code: FLOwww.flowtechfluidpower.comFINANCIAL STATEMENTS 98
Notes to the consolidated financial information
continued
31. Financial instruments continued
The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade receivables. The
movement in the allowance for impairment in respect of trade receivables during each year was as follows:
Balance at 1 January
Net change due to acquisitions and disposals of subsidiaries
Provision utilised
Increase in provision
Balance at 31 December
2017
£000
240
266
(65)
27
468
2016
£000
187
66
(116)
103
240
The allowance account for trade receivables is used to record impairment losses unless the Group is satisfied that no recovery of the
amount owing is possible; at that point the amounts considered irrecoverable are written off against the trade receivables directly.
31.3 Liquidity risk
Financial risk management
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. Management monitor and manage
liquidity for the Group and ensure that the Group has sufficient headroom in its committed facilities to meet unforeseen or abnormal
requirements. Available headroom is monitored via the use of detailed cash flow forecasts. Particular focus is given to management of
working capital.
The following are the contractual maturities of financial liabilities, including estimated interest payments:
Year ended 31 December 2017
Non-derivative financial liabilities
Secured bank loan
Finance lease liabilities
Revolving credit facility
Trade payables
Derivative financial liabilities
Other forward exchange contracts:
Net payment
Year ended 31 December 2016
Non-derivative financial liabilities
Secured bank loan
Finance lease liabilities
Revolving credit facility
Trade payables
Derivative financial liabilities
Other forward exchange contracts:
Net payment
There are no contractual maturities over five years.
Carrying
amount
£000
Contractual
cash flows
£000
4,000
159
15,000
12,208
4,260
190
15,342
12,208
11
31,378
11
32,011
Carrying
amount
£000
Contractual
cash flows
£000
4,857
112
12,000
4,960
57
21,986
4,979
143
12,066
4,960
57
22,205
1 year
or less
£000
80
74
15,342
12,208
11
27,715
1 year
or less
£000
945
40
12,066
4,960
57
18,068
1 to 2
years
£000
80
117
—
—
—
197
1 to 2
years
£000
4,034
40
—
—
—
4,074
2 to 5
years
£000
4,100
—
—
—
—
4,100
2 to 5
years
£000
—
63
—
—
—
63
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 99
31.4 Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices, will affect the Group’s
income or the value of its holdings of financial instruments.
While currently the Group’s term bank debt is floating Libor linked, the Board reviews its option to fix the rates attached to this debt through
the use of interest rate swap derivatives.
Market risk — foreign currency risk
The main currency related risk to the Group comes from forward purchasing of inventories and from its foreign operations. This risk is mainly
managed by entering into forward currency contracts. The Group does not apply hedge accounting in respect of these forward currency
contracts; the changes in fair value have been recognised in the profit or loss.
The Group’s exposure to foreign currency risk is as follows. This is based on the carrying amount for monetary financial instruments except
derivatives when it is based on notional amounts.
31 December 2017
Cash and cash equivalents
Trade and other receivables
Secured bank loans
Revolving credit facility
Finance lease liabilities
Trade payables
Forward exchange contracts
Net exposure
31 December 2016
Cash and cash equivalents
Trade and other receivables
Secured bank loans
Revolving credit facility
Finance lease liabilities
Trade payables
Forward exchange contracts
Net exposure
Sterling
£000
3,189
15,133
(4,000)
(15,000)
(101)
(6,434)
—
(7,213)
Sterling
£000
3,176
11,704
(5,000)
(12,000)
(111)
(2,729)
—
(4,960)
Euro
£000
1,278
5,629
—
—
(59)
(4,998)
(698)
1,152
Euro
£000
564
968
—
—
—
(2,032)
(540)
(1,040)
US Dollar
£000
121
104
—
—
—
(776)
—
(551)
US Dollar
£000
84
340
—
—
—
(199)
—
225
Total
£000
4,588
20,866
(4,000)
(15,000)
(160)
(12,208)
(698)
(6,612)
Total
£000
3,824
13,012
(5,000)
(12,000)
(111)
(4,960)
(540)
(5,775)
Sensitivity analysis
A 10% weakening of the following currencies against the pound sterling at 31 December 2017 would have increased/(decreased) equity and
profit or loss by the amounts shown below. This calculation assumes that the change occurred at the reporting date and had been applied
to risk exposures existing at that date. This analysis assumes that all other variables, in particular other exchange rates and interest rates,
remain constant.
The analysis is performed on the same basis for the year ended 31 December 2016.
€
$
Profit or loss and equity
2016
£000
2017
£000
(138)
38
95
(20)
A 10% strengthening of the following currencies against the pound sterling at 31 December 2017 would have increased/(decreased) equity
and profit or loss by the amounts shown below. This calculation assumes that the change occurred at the balance sheet date and had been
applied to risk exposures existing at that date. This analysis assumes that all other variables, in particular other exchange rates and interest
rates, remain constant.
Stock code: FLOwww.flowtechfluidpower.comFINANCIAL STATEMENTS 100
Notes to the consolidated financial information
continued
31. Financial instruments continued
The analysis is performed on the same basis for the year ended 31 December 2017.
€
$
Market risk – interest rate risk
Profile
At the reporting date the interest rate profile of the Group’s interest-bearing financial instruments was:
Fixed rate instruments
Financial liabilities
Variable rate instruments
Financial liabilities (carrying value)
Profit or loss and equity
2016
£000
2017
£000
169
(47)
(116)
25
2017
£000
159
2016
£000
112
19,389
16,857
Sensitivity analysis
A change of 100 basis points in interest rates at the reporting date would have increased/(decreased) equity and profit or loss by the
amounts shown below. This calculation assumes that the change occurred at the reporting date and had been applied to risk exposures
existing at that date.
This analysis assumes that all other variables, in particular foreign currency rates, remain constant and considers the effect of financial
instruments with variable interest rates, financial instrument at fair value through profit or loss and the fixed rate element of interest rate
swaps. The analysis is performed on the same basis for the year ended 31 December 2016.
Equity
Increase of 100 basis points
Decrease of 100 basis points
Profit or loss
Increase of 100 basis points
Decrease of 100 basis points
2017
£000
(190)
190
(190)
190
2016
£000
(168)
168
(168)
168
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 101
31.5 Capital management
The capital structure of the Group is presented in the statement of financial position and includes equity cash and borrowings. The statement
of changes in equity provides details of equity and note 18 provides details of loans and overdrafts. Short and medium term funding
requirements are provided by a revolving credit facility. Longer term funding is sourced from a combination of these facilities. The Group’s
objectives when managing capital including short to medium term working capital and amortising, long term borrowings are to safeguard its
ability to continue as a going concern and to have access to adequate funding for business opportunities, so that it can provide returns for
Shareholders and benefits for other stakeholders. The Group manages the capital structure and makes adjustments in the light of changes
in economic conditions and risk characteristics of the underlying assets. In order to maintain or adjust the capital structure the Group may
issue new shares or draw down debt. The Group is not subject to externally imposed regulatory capital requirements. There are no specific
ratios used by the Group in assessing its management of capital levels.
The Group is subject to covenants in respect of its bank loans and facilities. The Group remains compliant. There were no changes in the
Group’s approach to capital management during each year.
Management assess the Group’s capital requirements in order to maintain an efficient overall financing structure while avoiding excessive
leverage. This takes into account the subordination levels of the Group’s various classes of debt. The Group manages the capital structure
and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to
maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to Shareholders, return capital to Shareholders,
issue new shares, or sell assets to reduce debt.
The Group maintains sufficient cash levels to enable it to meet its liabilities as they fall due. Management review cash flow forecasts on a
regular basis to determine whether the Group has sufficient cash reserves to meet future working capital requirements, financing obligations
and to take advantage of business opportunities. In reviewing cash flows and identifying the need for further funds, management consider
the nature of cash flow requirements and take appropriate action.
32. Subsequent events
Balu Limited and its UK subsidiaries was acquired on 19 March 2018 for an initial consideration of £4.65 million in cash, £0.5 million in
shares with additional estimated consideration of £3 million anticipated to be paid within 12 months. The cash consideration was funded
through existing resources, supplemented by a share issue on 4 April as detailed below. The acquisition will add significantly to the Group’s
procurement relationship with key global suppliers of hydraulic components, in particular Parker Hannafin. Balu Limited has two trading
subsidiaries. Beaumanor is an importer and distributor of fluid power equipment in the UK. Based in Leicester, it will form part of the
Flowtechnology division. Secondly, Derek Lane is a supplier of fluid power products and engineered solutions based in Newton Abbot, Devon.
Derek Lane will form part of the PMC division.
The Group will disclose the book value of the identifiable assets and liabilities and their fair values in the 2018 interim financial statements as
required under IFRS 3 ‘Business Combinations’. The initial accounting and fair value exercise is incomplete at the time of this announcement
due to the proximity of the accounting date.
On 15 March 2018 and 4 April 2018 Flowtech Fluidpower plc raised approximately £11 million (before expenses) via the placing of 6,470,589
new ordinary shares at 1.70 pence per share.
There are no other material adjusting or non-adjusting events subsequent to the reporting date.
Stock code: FLOwww.flowtechfluidpower.comFINANCIAL STATEMENTS 102
Company income statement
Continuing operations
Administrative expenses
Operating loss
Financial income
Financial expenses
Net financing income
Profit from continuing operations before tax
Taxation
Profit for the year attributable to the owners of the Parent
Note
C
F
F
G
2017
£000
(242)
(242)
4,495
(350)
4,145
3,903
—
3,903
2016
£000
(194)
(194)
5,000
(116)
4,884
4,690
(34)
4,656
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 Company statement of financial position
Fixed assets
Investments
Total fixed assets
Current assets
Trade and other debtors
Cash and cash equivalents
Total current assets
Creditors: amounts falling due within one year
Interest-bearing loans and borrowings
Trade and other creditors
Total creditors: amounts falling due within one year
Net current assets
Total assets less current liabilities
Creditors: amounts falling due after more than one year
Interest-bearing loans and borrowings
Total creditors: amounts falling due after more than one year
Net assets
Capital and reserves
Called up share capital
Share premium account
Share-based payment reserve
Other reserves
Retained earnings
Total equity
Note
J
K
L
M
N
M
P
2017
£000
57,367
57,367
51,546
11
51,557
15,000
3,005
18,005
33,552
90,919
4,000
4,000
86,919
26,409
52,370
447
187
7,506
86,919
103
2016
£000
57,541
57,541
36,546
11
36,557
12,857
1,753
14,610
21,947
79,488
4,000
4,000
75,488
21,539
46,880
622
—
6,447
75,488
The financial statements on pages 102 to 111 were approved by the Board of Directors on 16 April 2018 and were signed on its behalf by:
Bryce Brooks
Director
Company Registration Number: 09010518
Stock code: FLOwww.flowtechfluidpower.comFINANCIAL STATEMENTS 104
Company statement of changes in equity
Balance at 1 January 2016
Profit for the year
Total comprehensive income for the year
Transactions with owners
Share options – cost
Share options – granted to subsidiary
employees
Equity dividends paid (note H)
Total transactions with owners
Balance at 1 January 2017
Profit for the year
Total comprehensive income for the year
Transactions with owners
Issue of share capital
Share options issued as consideration
Share options – cost
Share options – granted to subsidiary
employees
Equity dividends paid (note H)
Total transactions with owners
Balance at 31 December 2017
Share
capital
£000
21,539
Share
premium
£000
46,880
—
—
—
—
—
—
—
—
—
—
—
—
21,539
46,880
—
—
—
—
4,870
5,490
—
—
—
—
—
—
—
—
4,870
26,409
5,490
52,370
Share-based
payment
reserve
£000
Other
reserve
£000
332
—
—
—
290
—
290
622
—
—
—
—
—
(175)
—
(175)
447
—
—
—
—
—
—
—
—
—
—
—
187
—
—
—
187
187
Retained
earnings
£000
4,015
4,656
4,656
63
—
(2,287)
(2,224)
6,447
3,903
3,903
—
—
33
—
(2,877)
(2,844)
7,506
Total
equity
£000
72,766
4,656
4,656
63
290
(2,287)
(1,934)
75,488
3,903
3,903
10,360
187
33
(175)
(2,877)
7,528
86,919
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 Notes to the Company financial information
105
A. Authorisation of Financial Statements and Statement of Compliance with FRS 101
The financial statements of Flowtech Fluidpower plc for the year ended 31 December 2017 were authorised for issue by the Board of
Directors on 16 April 2018 and the Statement of Financial Position was signed on the Board’s behalf by Bryce Brooks. Flowtech Fluidpower
plc is incorporated and domiciled in England and Wales.
These financial statements were prepared in accordance with Financial Reporting Standard 101 ‘Reduced Disclosure Framework’ (FRS 101)
and in accordance with applicable accounting standards. The Company’s financial statements are presented in sterling.
These financial statements have been prepared on a going concern basis and on the historical cost basis except for the modification to a fair
value basis for certain financial instruments as specified in the accounting policies below.
The principal accounting policies adopted by the Company are set out in note B.
B. Accounting policies
The accounting policies which follow set out those policies which apply in preparing the financial statements for the year ended 31 December
2017.
The Company has taken advantage of the following disclosure exemptions under FRS 101:
a.
the requirement in paragraph 38 of IAS 1 ‘Presentation of Financial Statements’ to present comparative information in respect of:
i. paragraph 79(a)(iv) of IAS 1;
ii. paragraph 73(e) of IAS 16 ‘Property, Plant and Equipment’;
b. the requirements of paragraphs 10(d), and 134-136 of IAS 1 ‘Presentation of Financial Statements’ and the requirements of IAS 7
‘Statement of Cash Flows’;
c.
the requirements of paragraphs 30 and 31 of IAS 8 ‘Accounting Policies, Changes in Accounting Estimates and Errors’;
d. the requirements of paragraph 17 of IAS 24 ‘Related Party Disclosures’;
e.
the requirements in IAS 24 ‘Related Party Disclosures’ to disclose related party transactions entered into between two or more members
of a group, provided that any subsidiary which is a party to the transaction is wholly owned by such a member.
The disclosure requirements of IFRS 7 ‘Financial Instruments’ are as follows:
Investments
All investments are initially recorded at cost, being the fair value of consideration given including the acquisition costs associated with the
investment. Subsequently, they are reviewed for impairment on an individual basis if events or changes in circumstances indicate the carrying
value may not be fully recoverable.
Financial instruments
Non-derivative financial instruments comprise trade and other debtors, cash and cash equivalents, loans and borrowings, and trade and other
creditors.
Trade and other debtors
Trade and other debtors are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the
effective interest method, less any impairment losses.
Trade and other creditors
Trade and other creditors are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the
effective interest method.
Cash and cash equivalents
Cash and cash equivalents comprise cash, bank balances net of bank overdrafts and short term deposits held with banks by the Company,
and are subject to insignificant risk of changes in value.
Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-
bearing borrowings are stated at amortised cost using the effective interest method, less any impairment losses. Any change in their value
through impairment or reversal of impairment is recognised in profit or loss. Discounting is omitted were the effect is immaterial.
Stock code: FLOwww.flowtechfluidpower.comFINANCIAL STATEMENTS 106
Notes to the Company financial information
continued
B. Accounting policies continued
Derivative financial instruments
Derivative financial instruments held by the Company include forward foreign currency contracts and are recognised at fair value. The gain or
loss on remeasurement to fair value is recognised immediately in profit or loss.
Derecognition of financial liabilities
The Company derecognises a financial liability (or its part) from the statement of financial position when, and only when, it is extinguished,
i.e. when the obligation specified in the contract is discharged, cancelled or expires. The difference between the carrying amount of a
financial liability (or a part of a financial liability) extinguished and the consideration paid, including any non cash assets transferred or
liabilities assumed, is recognised in profit or loss.
Share-based payments
The fair value of employee share plans is calculated using a variation of the Black–Scholes model. In accordance with IFRS 2 ‘Share-based
payment’, the resulting cost is charged to the profit and loss account over the vesting period of the plans.
Where the individuals are employed by the Parent Company, the fair value of options granted is recognised as an employee expense with
a corresponding increase in equity. Where the individuals are employed by a subsidiary undertaking, the fair value of options to purchase
shares in the Company that have been issued to employees of subsidiary companies is recognised as an additional cost of investment by
the Parent Company. An equal amount is credited to other equity reserves.
Financing income and expenses
Financing expenses comprise interest payable and finance charges on finance leases recognised in profit or loss using the effective interest
method. Financing income comprises interest receivable on funds invested. Interest income and interest payable is recognised in profit or
loss as it accrues, using the effective interest method.
Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement except to the extent that
it relates to items recognised in other comprehensive income, in which case it is recognised in other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively
enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill; the
initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination; and differences
relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred
tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates
enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the
temporary difference can be utilised.
Dividends
Dividend distributions payable to equity Shareholders are included in other liabilities when the dividends have been approved in general
meeting prior to the reporting date.
Pensions
Company employees are members of defined contribution pension schemes where the obligations of the Company are charged to the profit
and loss account as they are incurred.
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 C. Operating loss
The following items have been included in arriving at the operating loss for continuing operations:
Acquisition costs
Share-based payment costs (note 23)
Restructuring
107
2017
£000
297
33
—
2016
£000
151
63
60
• 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 the provision 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: employee redundancies and IT integration.
D. Services provided by the Company’s Auditor
During the period the Company obtained the following services provided by the Company’s Auditor at the costs detailed below:
Audit of the statutory financial statements of Flowtech Fluidpower plc
E. Directors and employees
Details of Directors and employees are shown in note 5 to the consolidated financial statements.
The average number of persons employed by the Company (including Directors) during each year was as follows:
Administration
The aggregate payroll costs of these persons were as follows:
Remuneration
Social security costs
Benefits in kind
The amounts set out above include remuneration in respect of the highest paid Director as follows:
Highest paid Director’s remuneration
Remuneration
Social security costs
Benefits in kind
Total highest paid Director’s remuneration
Details of Directors’ emoluments are included in the Directors’ Remuneration Report on pages 43 to 45.
2017
£000
20
2017
£000
4
2017
£000
524
61
5
590
2017
£000
235
31
2
268
2016
£000
20
2016
£000
4
2016
£000
587
62
4
653
2016
£000
280
38
2
320
Stock code: FLOwww.flowtechfluidpower.comFINANCIAL STATEMENTS 108
Notes to the Company financial information
continued
F. Financial income and expense
Finance income for the year consists of the following:
Finance income arising from:
Dividends received from Group undertakings
Total finance income
Finance expenses for the year consist of the following:
Finance expense arising from:
Bank loans
Total finance expense
G. Taxation
Recognised in the income statement
Deferred tax
Origination and reversal of temporary differences
Adjustment in respect of prior periods
Total tax expense/(income) in the income statement
2017
£000
4,495
4,495
2017
£000
350
350
2017
£000
—
—
—
2016
£000
5,000
5,000
2016
£000
116
116
2016
£000
2
32
34
No income tax was recognised in other comprehensive income or directly in equity for either of the years ended 31 December 2017 or 2016.
Reconciliation of effective tax rate
Profit for the year
Total tax expense
Profit excluding taxation
Tax using the UK corporation tax rate of 19.25% (2016: 20.00%)
Deferred tax movements not recognised
Group relief
Impact of change in tax rate on deferred tax balances
Income not taxable
Amounts not deductible
Adjustment in respect of prior periods
Total tax expense in the income statement
2017
£000
3,903
—
3,903
751
10
133
—
2016
£000
4,656
34
4,690
938
11
15
1
(961)
(1,000)
67
—
—
37
32
34
Change in corporation tax rate
A reduction in the UK corporation tax rate to 19% (effective from 1 April 2017) and to 18% (effective 1 April 2020) was substantively enacted
on 26 October 2015, and an additional reduction to 17% (effective 1 April 2020) was substantively enacted on 6 September 2016. This
will reduce the Company’s future current tax charge accordingly. The deferred tax assets and liabilities at 31 December 2017 have been
calculated based on these rates.
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 H. Dividends paid and proposed
Final dividend of 3.67p (2016: 3.50p) per share
Interim dividend of 1.93p (2016: 1.84p) per share
109
2017
£000
1,878
999
2,877
2016
£000
1,499
788
2,287
In addition, the Directors are proposing a final dividend in respect of the financial year ended 31 December 2017 of 3.85p (2016: 3.67p) per
share which will absorb an estimated £2.0 million of Shareholders’ funds. It will be paid on 13 July 2018 to Shareholders who are on the
register of members on 8 June 2018.
I. Share-based payments
Details of share-based payments are shown in note 23 to the consolidated financial statements.
J. Investments
Cost and net book value
At 1 January 2017
Additions net of exercise of options in the year
At 31 December 2017
K. Trade and other debtors
Current:
Prepayments and accrued income
Amounts owed by Group undertakings
Total trade and other debtors
L. Cash and cash equivalents
Sterling
Total cash and cash equivalents
Investments in
subsidiaries’
unlisted
shares
£000
Subsidiaries’
share-based
payment
reserves
£000
56,919
—
56,919
622
(174)
448
2017
£000
57
51,489
51,546
2017
£000
11
11
Total
£000
57,541
(174)
57,367
2016
£000
379
36,167
36,546
2016
£000
11
11
Stock code: FLOwww.flowtechfluidpower.comFINANCIAL STATEMENTS 110
Notes to the Company financial information
continued
M. Interest-bearing loans and borrowings
Non-current liabilities:
Secured bank loans
Total non-current liabilities
Current liabilities:
Revolving credit facility
Secured bank loans
Total current liabilities
Total interest bearing loans and borrowings
2017
£000
4,000
4,000
15,000
—
15,000
19,000
2016
£000
4,000
4,000
12,000
857
12,857
16,857
The secured bank loan is repayable on 1 March 2021 and is secured by legal charges over certain assets of the Flowtech Group which
include trade receivables and stock.
The revolving credit facility is up to £16,000,000 and is subject to a non-utilisation fee of 0.7% and is due for renewal in March 2021. A
further £5,000,000 is available to draw down on the revolving credit facility subject to the availability of Group trade receivables and stock
as security. The bank loans and revolving credit facility are secured by legal charges over certain of the Group’s assets which include trade
receivables and stock.
N. Trade and other creditors
Social security and other taxes
Accruals and deferred income
Amounts owed to other Group undertakings
Total trade and other creditors
O. Deferred taxation
Deferred tax assets comprise:
Provisions
Total deferred tax
At start of year
Deferred tax credit in profit and loss account for the year
At end of year
2017
£000
26
379
2,600
3,005
2017
£000
—
—
—
—
—
2016
£000
22
104
1,627
1,753
2016
£000
—
—
34
(34)
—
A deferred tax asset of £44,000 (2016: £38,000) in respect of cumulative share-based payments of £255,000 (2016: £223,000) has not been
recognised due to uncertainty surrounding the availability of future profits, against which these payments can be utilised.
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 P. Share capital
Allotted, called up and fully paid:
At 1 January 2017
Shares issued
Shares issued in respect of exercise of employee share options
Shares issued in respect of loan to Employee Benefit Trust
Shares issued in respect of acquisition (note 24.6)
Shares issued in respect of acquisition (note 24.7)
At 31 December 2017
111
Number
43,078,282
8,333,333
15,000
235,400
495,178
661,804
£000
21,539
4,166
7
118
248
331
52,818,997
26,409
Potential issue of shares
Details of the potential issue of shares relating to employee share-based payment schemes are shown in note 23 to the consolidated
financial statements.
Q. Contingent liabilities and commitments
The Company has no capital expenditure contracted for but not provided at 31 December 2017.
R. Related party transactions
The Company has taken advantage of the exemption under paragraph 8(k) of FRS 101 not to disclose transactions with entities that are
wholly owned subsidiaries of the Flowtech Fluidpower plc Group. Repayments of £298,000 have been made by the Flowtech Fluidpower
Employee Benefit Trust; £40,000 remains outstanding. There are no other related party transactions other than those relating to Directors
that have been disclosed in note 30 to the consolidated financial statements.
S. Company principal subsidiaries
The principal subsidiaries of the Company are listed in note 12 to the consolidated financial statements.
T. Ultimate controlling party
The Directors consider that there is no ultimate controlling party.
Flowtech Fluidpower plc
Registered office
Pimbo Road
Skelmersdale
Lancashire
WN8 9RB
www.flowtechfluidpower.com
Email: info@flowtechfluidpower.com
Stock code: FLOwww.flowtechfluidpower.comFINANCIAL STATEMENTS 112
Flowtech Fluidpower plcAnnual Report for the year ended 31 December 2017 Company information
IBC
Solicitors
DLA Piper UK LLP
One St Peter’s Square
Manchester
M2 3DE
Company registrars
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Bankers
Barclays Bank PLC
1 Churchill Place
London E14 5HP
Investor relations
TooleyStreet Communications Ltd
Regent Court
Birmingham
West Midlands B3 1UG
Registered office
Pimbo Road
Skelmersdale
Lancashire WN8 9RB
Company Secretary
Bryce Brooks
Contact
info@flowtechfluidpower.com
www.flowtechfluidpower.com
Tel: +44 (0) 1695 52796
Nominated adviser
and broker
Zeus Capital Limited
41 Conduit Street
London W1S 2YQ
and
82 King Street
Manchester M2 4WQ
Joint broker
finnCap Limited
60 New Broad Street
London
EC2M 1JJ
Auditor
Grant Thornton UK LLP
4 Hardman Square
Spinningfields
Manchester M3 3EB
Stock code: FLOwww.flowtechfluidpower.comFINANCIAL STATEMENTS Flowtech Fluidpower plc
Registered office
Pimbo Road
Skelmersdale
Lancashire
WN8 9RB
www.flowtechfluidpower.com
Email: info@flowtechfluidpower.com