Job Number 30 April 2019 8:56 am Proof 1025922 30 April 2019 8:56 am PROOF 10FLOWTECH FLUIDPOWER PLC Annual Report for the year ended 31 December 2018Stock Code: FLOANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018FLUID THINKING, MAKING A POWERFUL DIFFERENCEFlowtech Fluidpower Annual Report 2018.indd 330/04/2019 08:59:10 WHO WE ARE
FLOWTECH FLUIDPOWER PLC
IS A SPECIALIST GROUP, SUPPLYING
TECHNICAL FLUID POWER
COMPONENTS AND SERVICES.
OUR VISION
TO BE A
TRUSTED PARTNER IN
FLUID POWER, DELIVERING ADDED
VALUE FOR OUR CUSTOMERS,
SUPPLIERS AND INVESTORS.
INVEST IN OUR STRENGTHS
MOST COST-EFFICIENT
PROVIDER OF A HIGH
QUALITY, RELIABLE
SERVICE
WIDEST BRAND AND
PRODUCT CHOICE WITH
TAILORED OPTIONS
RELIABLE REPEAT
BUSINESS THROUGH
A MULTI-CHANNEL
STRATEGY
PROVEN ORGANIC
AND ACQUISITIVE
GROWTH
ROBUST REVENUE
STREAM WITH
CONSISTENTLY HEALTHY
MARGINS
SUSTAINABLE
LONG-TERM
SHAREHOLDER VALUE
WITH PROGRESSIVE
DIVIDENDS
Read more about Our Group on
pages 4 and 5
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Annual Report for the year ended 31 December 2018
HIGHLIGHTS
Financial highlights
Revenue
£000
Gross profit
£000
Underlying operating profit*
£000
£111.1m
£38.6m
£11.4m
,
1
5
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7
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14
15 16 17 18
13
14
15 16 17 18
13
14
15 16 17 18
Operating profit
£000
£7.7m
Total dividend
6.07p
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Operational highlights
• Revenue growth of 42% on previous
year including organic growth in each
division and 5.7% in aggregate.
• 0.9% increase in overall gross margin.
•
•
Underlying operating profit growth of
25% on previous year.
Successful acquisition and integration
of Balu Limited and its subsidiaries;
Beaumanor Engineering and
Derek Lane & Co.
• Significant progress in establishing
Components and Services divisional
structure, under single Chief Operating
Officer role.
•
•
New Board appointments of Russell
Cash as CFO, Bill Wilson as Independent
Non-Executive Director and appointment
of Bryce Brooks to CEO.
Executive Management team enhanced
and focused on cost and working capital
management.
8
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15 16 17 18
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* Underlying operating profit is continuing
operations operating profit before
separately disclosed items (note 4) and
the impact of fair value adjustment to
inventory (note 24.1)
Contents
Strategic report
Highlights
Chairman’s statement
Group at a glance
CEO’s year in review
Our business model
Our strategy
Fluid power in action
Marketplace
Financial review
Risk
Corporate responsibility statement
01
02
04
06
10
12
16
18
22
26
30
34
Governance
The Board
Chairman’s statement on
36
corporate governance
37
Corporate governance report
41
Directors’ remuneration report
Directors’ report
43
Statement of Directors’ responsibilities 46
47
54
Financial statements
Independent Auditor’s report
Consolidated income statement
Consolidated statement of
comprehensive income
55
Consolidated statement of financial position 56
Consolidated statement of changes in equity 57
Consolidated statement of cash flows
58
Notes to the consolidated
59
financial information
97
Company income statement
Company statement of financial position
98
Company statement of changes in equity 99
Notes to the Company financial information 100
106
Company information
Stock code: FLO
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Flowtech Fluidpower plc
CHAIRMAN’S STATEMENT
A FIRMER FOCUS ON
LONG-TERM PROSPERITY
MALCOLM DIAMOND MBE, CHAIRMAN
Dear Shareholder,
It is widely accepted that one of the most
demanding challenges for company
senior managers is presiding over an
organisation’s desire to instigate continuous
operational improvement preceded by
structural changes.
During 2018, in order to achieve Group
“joined up systemic thinking”, it became
obvious that with many immediate and
achievable market opportunities on offer,
there needed to be an evolving, strengthened
and unified senior management team to
take the Group to a higher resourced and
performance level – both in the UK and
Europe. I am proud to confirm to you that
this action has now been successfully
undertaken, resulting in a highly skilled
and motivated senior team that has
bedded in and is concentrating on the cost
synergy consolidation and working capital
management that awaits determined and
immediate action.
I would also like to sincerely acknowledge
our former CEO colleague, Sean Fennon’s
core strategic business foundations that he
introduced over his nine-year tenure, and
we all wish him well following his retirement
in late 2018. Bryce Brooks (former CFO)
has now taken on Sean’s role as CEO.
The Board has since brought in Russell
Cash as the new CFO; Russell is a widely
respected finance professional with an
extensive advisory background, in particular
in the key areas of cost and working
capital management. In addition, we have
expanded the role performed by Nick
Fossey, the most senior non-board member
of our team, who has been appointed as
Chief Operating Officer for the Group with
focus on ensuring each component of
our business in both the UK and Europe is
closely aligned in all commercial areas.
Finally, we have further strengthened our
Board with Bill Wilson, a highly experienced
international NED in the industrial distribution
sector. I call our increased introduction
of experienced and skilled managers as
‘putting in an additional damp-proof course’
where we can realistically achieve long-term
prosperity as opposed to the short-term
profitability that influences most plc boards.
It will probably come as no surprise to
reiterate the feelings of insecurity and stress
that corporate change can induce with
staff, customers and suppliers; however,
I am delighted to reassure you that all our
stakeholders have been loyally supportive
and upbeat throughout the 2018 realignment
process, for which our Board is sincerely
appreciative.
www.flowtechfluidpower.com
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Annual Report for the year ended 31 December 2018
I call our increased induction of experienced and skilled
managers as ‘putting in an additional damp-proof course’
where we can realistically achieve long-term prosperity
as opposed to the short-term profitability that influences
most plc boards.”
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I would like to take this opportunity to
thank several key Shareholders for their
wise counsel in encouraging the Board
to profitably leverage the cost benefits
deriving from our existing acquisitions and
demonstrate strong management in all
areas of working capital before embarking
on a subsequent buy and build period.
From a point that is now well into 2019, it
remains disappointing that at the date of
this report we are yet to gain clarity on the
probable trading settlement between the
United Kingdom and its main European
trading partners after Brexit. Despite this
our sector has remained resilient and
we remain confident that whatever the
outcome, any potential short-term effects
will be suppressed by the strength of the
wider Group and our position as the UK’s
leading fluid power distributor.
The scope for considerable future growth
in investor returns from the amalgamation
of our various synergy initiatives I believe
remains compelling, and the restructured
executive management team has a clear
platform firmly established. I am honestly
comforted by what the future holds for our
Company - both within the UK and Europe,
and we look forward to keeping you in
regular touch with our positive progress.
Yours sincerely
Malcolm Diamond MBE
Chairman
29 April 2019
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Flowtech Fluidpower plc
GROUP AT A GLANCE
A VITAL PARTNER IN THE FLUID
POWER SUPPLY CHAIN
Our Group
We are a fast-moving, fast-growing Group of fluid power specialists.
Working in partnership with customers and suppliers, we deliver
essential components, custom solutions and high-quality servicing
support. Through efficiency in operations and maximising business
synergies, we are able to sustain healthy organic growth and
operating margins.
Our divisions
Flowtechnology (distribution)
573
29
Employees
Locations
Geographies
Group revenue %
250+
Superior
brands
UK – 78%
Europe – 20%
Rest of World – 2%
Group revenue %
Employees
200
41%
£45.2m
Supply urgently required components for maintenance, repair and
overhaul (MRO) market for use in all industrial applications. Route
to market through industry catalogues and e-commerce.
Read more about Our Group online:
www.flowtechfluidpower.com
www.flowtechfluidpower.com
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Annual Report for the year ended 31 December 2018
Fluid power uses fluid, either hydraulic liquid (oil or water) or pneumatic gas
(compressed air) under pressure to generate, control and transmit power”
Process
Power Motion Control (PMC) and Onsite Services
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Group revenue %
Employees
Group revenue %
Employees
37
7%
£8.3m
321
52%
£57.6m
Supply, install and commission high-quality valves, actuation,
specialist pipework and leak detection, predominantly to end users
in processing, packaging and infrastructure sectors.
Supply specialist technical components and design, build, install
and service hydraulic systems for original equipment manufacturers
(OEMs) across many manufacturing industries.
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Flowtech Fluidpower plc
CEO’S YEAR IN REVIEW
STRATEGIC GROWTH THROUGH
GROUP SYNERGY
BRYCE BROOKS, CHIEF EXECUTIVE OFFICER
Group strategy
The Group has a clear vision of its growth
strategy; to create a specialist fluid power
organisation, focused on the delivery of
class-leading service and support, which
will allow us to grow by both organic and
acquisitive means in a highly fragmented
distributor marketplace. The fluid power
market itself has a long history of ‘GDP plus’
growth, coupled with a focus on strong
margins, and this backdrop allows the
Group significant scope to build a profitable
long-term proposition for the benefit of all its
key Stakeholders. Our position as a leading
distributor ensures that we can also maintain a
majority of sales associated with maintenance,
repair and overhaul (MRO) applications, and
the consistency of return that this sector
brings, in addition to supplying a broad base
of industries engaged in the manufacture of
capital equipment.
The acquisition of Balu Limited in March
2018, and the successful £10.6 million
fundraising to support the transaction,
signified the culmination of a four-year
period of significant growth, and has given
the Group ‘critical mass’ in our current home
geographies of the United Kingdom, the
Republic of Ireland and the Netherlands. Our
next period of development will focus clearly
on extracting the considerable synergy
potential, with emphasis on the following:
• Cross-selling opportunities.
•
Improved procurement terms from
our major supplier partners.
• Optimisation of our operational cost
base.
• Making efficient use of our considerable
working capital base, and wherever
possible making improvements.
We believe it is now essential, having
significantly grown our capital base since
2014, that the Group looks to support its
future M&A activity from free cash flow and
therefore create an expected ‘compounding’
effect on investor return.
Our market is also characterised by a
relatively narrow group of multinational
manufacturers with a global operational
infrastructure, supplying both direct to the
ultimate end user, and through a highly
fragmented distributor network. Our growth
strategy targets the development of strong,
www.flowtechfluidpower.com
long-term relationships with this supplier
base, ensuring that we become a trusted
partner and their distributor ‘of choice’. It
is pleasing to note that from a relatively
low base in 2014, the Group is now making
significant progress with many of these
global manufacturers which brings further
opportunity for profitable growth.
Business model
Since our first acquisition, the Group has
created a distinct “Profit Centre” structure
where each business leader acts in a
semi-autonomous manner, backed by
relatively light touch support from our
central services function. This philosophy
encourages the following:
• Decision making and operating
responsibility at an appropriate level
– Profit Centre Directors are the core of
day-to-day decision making.
• Creates a focus on a ‘Sales Driven
Culture’, with inventory management
at a local level.
• The centralisation of support functions
such as accounting and IT.
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Annual Report for the year ended 31 December 2018
This model is then supported by an annual
Profit Share Scheme which rewards those
business units that achieve a return on
average working capital employed of more
than 20%. Following the implementation of
this scheme in 2017, I am pleased to report
that we now have an increasing number
of Profit Centres that have achieved this
benchmark in 2018. Our total accrual for
profit share payments earned under the
scheme in the year was £515,000 (2017:
£217,000), which was paid at the end of
March 2019. The Board firmly believes that
a profit-sharing culture across the Group
focused on a ‘return on capital’ metric at a
local level, is one of the keys to developing
a sustainable organisation that will reward
investors over the long term, and the
Executive team has a clear plan to assist
all our other Profit Centres in achieving this
target by the end of 2019.
This approach naturally supports an
entrepreneurial culture across the Group
and ensures that we remain focused on
delivering customer service at its highest
level, responsive to both immediate and
strategic needs, and safeguards growth
before any centrally sponsored initiatives
need to enhance this. This strategy has
also been very attractive to both business
vendors and their management teams
alike, as it most closely reflects the agility
of the small or medium-sized business but
with the support of a much larger umbrella
organisation.
Year in review
The operational highlight of the year
was the acquisition of Balu Ltd and its
subsidiaries, Beaumanor Engineering and
Derek Lane & Co in March 2018. Beaumanor
was the largest direct competitor to our
original Flowtechnology business, and while
we retained a clear Profit Centre identity
for the new operation, the potential for
coordination of activities between these
two, very similarly structured organisations
is attractive, and it is pleasing to note
that good progress has been made in
the 12 months since the deal took place.
The senior team in each business, and in
particular the Profit Centre Directors (PCDs),
Mark Cropper and Rob Woodley, have also
added considerably to the strength of our
management grade.
Outside of this, with the Group achieving
sales above £100 million for the first time,
The Board firmly believes that a profit-sharing culture
across the Group, focused on a ‘return on capital’ metric at
a local level, is one of the keys to developing a sustainable
organisation that will reward investors over the long term.”
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between our core ‘distribution’ activities – the
Components division (which accounts for
c. 87% of turnover), with the balance in added
value activities in engineering services and
the manufacture of hydraulic power packs
and associated components – the Services
division.
People
At PCD level, Ian Simpson who joined us
with the acquisition of Indequip in 2016,
after a near doubling of turnover in the
intervening period, with commensurate
bottom line effect, has now expanded
his role to include coverage for the sister
business within the Flowtechnology division
in the Benelux. In addition, Jon Burke,
having previously held a number of finance
roles within the Group, stepped up to the
position of PCD in charge of the services
division of Primary Fluid Power. Both these
promotions illustrate how the expansion
of the Group via acquisitive and organic
means is giving exceptional managers the
opportunity to grow their careers within our
organisation.
We are always acutely aware that our
progress is achieved with the continued
commitment and effort of all our
employees, and with our profit-sharing
scheme we are confident in our ability to
retain and attract the best staff the industry
can offer. The passion and commitment
shown by the many staff members
employed across the Group, particularly
through periods of change, has been
exemplary. On behalf of the Executive
Management team, and the plc Board,
I would like to thank everyone for their
efforts, and the continued support that has
been shown in 2019.
Bryce Brooks
Chief Executive Officer
29 April 2019
we have a very clear ‘scale’ within our home
marketplaces, and with a gross margin overall
back at c. 35% (2018: 34.8%, 2017: 33.9%).
In late 2018 the Executive Management
team was enhanced to create a focused
three-man structure of CEO, Russell Cash
as Chief Financial Officer, and Nick Fossey
as Chief Operating Officer. I believe that
this structure provides the most effective
method of coordinating our activities
across the Group. As well as day-to-day
leadership and guidance, the Executive
team is responsible for chairmanship in
steering groups covering working capital
control, operational cost optimisation and
IT strategy. Beneath this we have now
instigated an effective series of regular
conferences for our PCDs, covering
essential areas of common interest
such as sales coordination, procurement
initiatives, and leadership training.
This process culminates in an Annual
Forecast presentation by each PCD to the
main plc Board in January of each year,
where individual target setting, both on a
commercial and financial level, are debated
and established. In addition to this, below
PCD level, we have also created annual
conferences covering our wider resources
in both sales and technical manpower.
Following the retirement of Sean Fennon,
there were clearly challenges to face in
transitioning the senior management team
into a position well placed to exploit the
obvious growth potential that the Group
possesses. As part of this transition we are at
an advanced stage of developing an amended
organisational structure that will move from
the previous Flowtechnology, Process and
PMC structure into a two-division format
based around ‘Components’ and ‘Services’.
The key reason for this change is to ensure
that we provide the most appropriate structure
for the business to extract synergy, both in
cost and working capital. As a natural by-
product we can then provide investors with
a clear picture of the Group’s activities, split
Stock code: FLO
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Flowtech Fluidpower plc
CEO’S YEAR IN REVIEW
IMPROVING OUR SOLUTIONS TO
CUSTOMERS THROUGH GROUP
SYNERGY
Our first Group sales conference
Members of every Profit Centre engaged with some inspiring training and enjoyed our first awards evening.
The event was run in January 2019 and attended by over 50 of our sales teams.
Added value to our business and customers by:
• Helping understand the synergy and strengths across the Group,
maximising cross-selling opportunities.
• Rewarding our sales teams for their dedication.
• Group training initiatives to allow our team to grow and flourish.
• Attendance by major global suppliers which further enhanced
these strong supplier relationships.
Biannual meeting of Group technical team
Over 30 team members across the Group attended events in
Gloucester and Skelmersdale last year. Our first Group technical
meeting was held on 4 July 2018, and saw over 40 of our technical
team come together to share their ideas and experience, with a view
to improving the solutions we provide for customers. As part of this
programme, a new internal online technical portal was launched,
enabling open discussion and a library of technical knowledge
Key strengths of the team:
• Wide range of skills from product sourcing experts and hose
assemblers to fabrication welders and application engineers.
• Collaborative team with a desire to find simple solutions to
complex problems.
• Over 1,000 years combined fluid power experience who
understand customers’ problems and how to solve them.
www.flowtechfluidpower.com
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Annual Report for the year ended 31 December 2018
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Flowtech Fluidpower plc
OUR BUSINESS MODEL
As a unique aggregator of fluid power specialists, we buy and develop complementary businesses; reducing their
operating costs, while maximising their commercial value to ensure we’re the most cost-efficient provider of high
quality fluid power products and solutions in the market. Our sustainable business model makes fluid power
supply convenient and efficient for customers and suppliers and drives growth and returns for Shareholders.
Widest product choice
Expertise in our market
Leading
industry brands
(250+) through
key supplier
partnerships
Central
purchasing,
allowing cost
saving synergies
Extensive stocks
£28.7m
Established
businesses
between 10
and 50 years
in operation
Highly
skilled, highly
knowledgeable
employees with
extensive supplier
and business
training
Robust IT, systems
and processes
by working with
expert third parties,
e.g. ecommerce
and logistic
partners
Unrivalled, low cost full service provision in fluid power
Vital products and solutions
We have a healthy balance of operational and capex driven
revenue. We have the largest market share in our sector for the
indirect supply of urgently required fluid power components,
vital for maintenance and repair operations across all industry
segments. Additionally, we design, manufacture and install
bespoke solutions across all industry sectors, predominantly
sold to OEMs and driven by capital investment.
Vital high quality service
High quality service, which is both responsive and delivers
significant value to customers, whether that be next day
delivery from stock, technical support, customer training,
onsite servicing or added value services such as bespoke
sales and marketing support or e-commerce solutions.
Strong leadership culture
Through our decentralised structure, we promote an entrepreneurial spirit, where the leaders of each business within the
Group have the freedom to run their businesses independently and at the same time benefit from central resource and
support. Each business and its employees is further empowered through access to training and reward schemes.
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Annual Report for the year ended 31 December 2018
Our strategy for growth
Value created
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SALES GROWTH
PROCUREMENT SYNERGY
AND OPERATIONAL COST OUT
SYNERGIES
CASH GENERATION
IT STRATEGY
PEOPLE
Short to medium term
Sustained annual growth with strong financial
performance and attractive returns for Investors
– total dividend of 6.07p for 2018.
Widest brand choice from a single source, with
tailored options, supported by technical expertise and
reliable added-value services for customers (98%
on-time delivery for MRO).
Respected collaborative supplier partnerships.
Rewarding and progressive careers for employees,
through training and profit share scheme.
Reliable, efficient solutions for industry.
Support for our local communities through local
apprenticeships and charitable work.
Long term
• Most cost-efficient provider of a high quality
service in fluid power
• Sustainable long-term growth, through
reliable repeat business and carefully selected
acquisitions
• Experience, stability and strength to support large
long-term projects
• Critical mass, with resources to adapt and explore
new market opportunities
• Thought leadership in fluid power with innovative
solutions for industry
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Flowtech Fluidpower plc
OUR STRATEGY
Strategic focus
KPIs
1
2
3
SALES GROWTH
Continuous “GDP+” sales growth with strong gross and net margin contribution.
At Profit Centre level we review sales and gross profit on a daily basis, comparing
performance against either prior year or, in the case of a recently acquired
business, plan. In addition, each business has additional reporting available
from local systems detailing overall sales and gross margin performance on
a summarised customer and product group basis, with further detail available
at individual product level. The Group also measures organic sales growth on
a quarterly basis and compares this to market information produced by our
industry trade associations.
After an extended period of growth driven primarily by acquisition, the Group
looks to use our wider resources to both improve purchasing terms with our
major supplier partners, as well as improve our operational efficiency.
PROCUREMENT AND
OPERATIONAL COST
IMPROVEMENT
CASH GENERATION
AND MANAGEMENT
OF NET DEBT
A focus on reducing gearing in the
balance sheet, and the creation
of excess cash positions will
protect the business from any
macroeconomic uncertainties,
provide strong dividend cover and
support further acquisition activity.
Working capital
as a percentage of
total revenue
32%
www.flowtechfluidpower.com
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Annual Report for the year ended 31 December 2018
The Group has a clear view of growth objectives – to create a specialist fluid power organisation that remains focused on its core
competencies through its delivery of “class leading” service and support. Our long-term growth model is based on organic growth,
coupled with complementary acquisitions in UK and Europe in a very fragmented marketplace. The Board regularly monitors a range
of financial and non-financial performance indicators to allow it to measure performance against expected targets
FY2019
• Continued daily reporting and analysis of sales and gross
profit to the Executive Team
• Coordination of extensive training for all profit centre and
using external agencies under the leadership of the Chief
Operating Officer
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Daily gross profit
£000
Organic sales growth
%
3
5
1
£
7
0
1
£
%
2
8
.
%
7
5
.
7
7
£
2
6
£
3
5
£
14 15 16 17 18
17 18
At individual Profit Centre level various KPIs are measured to
cover service levels including stock availability. However, during
2019 the Group is developing a number of additional measures
to be able to compare efficiency levels accurately between Profit
Centres, and these will include such KPIs as overall cost per pick,
cost per delivery (both in overall quantum and as percentage
of sales), and number of suppliers for both stock and expense
supplies, with an overall view to support the various cost
improvement initiatives being undertaken.
• Under the leadership of the Chief Operating Officer,
coordination of all purchasing activities operated by
Profit Centres within each division
• Under the leadership of the Chief Executive Officer, an
operating cost review steering group has been established
to identify and implement short, medium and long-term
initiatives to improve operational efficiencies across the
Group
• Coordination of engineering resources under a single
leadership team for a newly established Services division
Net operational
cash flow
Net debt to total
facilities ratio %
0
0
6
6
,
3
4
9
5
,
6
6
1
4
,
0
9
7
3
,
5
7
2
2
,
%
0
9
%
7
6
%
6
6
%
6
6
%
4
7
14 15 16 17 18
14 15 16 17 18
• Net operational cash flow in 2018 fell below expectations
for the first time since IPO in 2014. Initiatives to improve
the performance include the following:
• Under the leadership of the Chief Financial Officer, a
working capital steering group has been established
to provide a broad framework around cash collection,
extension of payment terms, and inventory turn, including
extended KPI set.
• Continued training and measurement on a monthly basis
for all Profit Centre Directors of local return on average
working capital employed during the course of the month
and year-to-date.
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Flowtech Fluidpower plc
OUR STRATEGY
Strategic Focus
KPIs
4
IT STRATEGY
Cost-effective, secure IT environments that provide long term stability for the
Group’s activities remains a key part of the Group’s strategy.
The Board believes that a reduction in the number of IT systems that operate
within the Group is a key element in improving overall efficiency and control and
reducing risk. The long-term objective is to have a single integrated process and
accounting system. However, in the medium term the focus will be on reducing
the number of process systems to three or less, and with a single accounting
system for aggregating financial performance summaries, sales credit
management and supplier payment processing.
During 2019 the Board will also develop KPIs around overall IT costs that can be
used to benchmark against comparable companies in the industrial distribution
sectors.
PEOPLE5
Investing in our management teams and staff 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.
In October 2018 the Group introduced an Employee Engagement Programme
to measure and strengthen employee satisfaction. It is expected that the initial
review and determination of engagement ‘score’ will be completed by the end of
June 2019. Following this the Group will look to create suitable KPIs to measure
progress from that point.
www.flowtechfluidpower.com
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Annual Report for the year ended 31 December 2018
Process System
Accounting System
88
8
4
4
2
16 17 18
16 17 18
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FY2019
•
•
•
IT Steering Group established under the leadership of the
Chief Executive Officer.
Implementing a cloud hosted environment for all business
systems to facilitate legal compliance, improvements
against cyber threats, and deliver 99.99% uptime.
Implementation of IT policies to deliver Cyber IASME plus
accreditations for all Profit Centres.
• Reducing number of discrete legacy systems to provide
future proof systems for Profit Centres, including selection
of long-term global Enterprise Resource Planning (ERP)
system partners.
Employee Retention
%
7
%9
7
8
%
3
9
%
8
8
%
9
8
14 15 16 17 18
•
Installation of a rolling two-year programme of executive
leadership training for Profit Centre Directors and above.
• Extensive employee engagement and satisfaction survey
to be completed by the end of June 2019 with follow-up
programmes also completed by December 2090.
• Establishment of a Group-wide technical forum providing
single point of reference for the Group’s many technical
support functions.
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Flowtech Fluidpower plc
FLUID POWER IN ACTION
HYDRAULICS
POWER DENSITY AND PRECISION
Uses hydraulic fluid (mineral oil or synthetics) under pressure to control, manage and transmit power.
Hydraulics on a
construction vehicle
Tubing, hoses, fittings, manifolds
distribute pressurised fluid
throughout the system.
Hydraulic pump pumps
liquid from tank to the system.
Valves control
pressure and
direction of flow.
Hydraulic cylinder is
driven by fluid to deliver
mechanical power.
Hydraulics in industrial applications tend to use a
hydraulic power unit consisting of a hydraulic tank,
electric motor to drive the pump, as well as valves,
hose and a filter to clean the system.
Core applications
Widely used in mobile applications where hydraulics provide the
power and control to move equipment and machinery.
It’s also used in heavy industrial equipment for lifting, pressing,
bending and forming activities.
Agriculture/forestry
Construction
Defence/aerospace
Marine/offshore
Power generation
Off-/on-highway vehicles
Metal forming
Entertainment
Mining
Shipbuilding
Associated technologies
In addition to mainstream fluid power, some of our businesses
are involved with other technologies which involve either fluid
transfer or fluid power to assist these applications.
Two examples are:
Fluid transfer
Using specialised pipework to move water, oil or gas around
buildings and sites as part general infrastructure, such as cooling
www.flowtechfluidpower.com
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Annual Report for the year ended 31 December 2018
PNEUMATICS
LIGHTWEIGHT, CLEAN, HIGH SPEED, LOW COST
Uses pneumatic gas (normally compressed air) under pressure to control and transmit power.
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Pneumatics in a factory
Tubes, fittings and
manifolds carry
compressed air to
components.
Compressor
compresses air to
desired pressure
to feed pneumatic
components.
Air preparation unit
filters impurities,
regulates pressure
and lubricates the
pneumatics.
Air receiver holds
air needed for
system.
Ring main system
carries compressed
air around the
factory.
Valves control the
flow of air.
Actuators:
cylinders, motors,
rotary actuators,
grippers, vacuum
cups and other
components that
perform the end
function of the fluid
power system.
Core applications
Typically used in more industrial than mobile applications, such as
processing and packaging for repetitive, high-speed operations.
Pneumatics is a more cushioned approach than hydraulic or
electric technology.
Food/beverage
Electric components
Rail
Defence
Aerospace
Packaging
Medical/pharmaceutical
Automotive
Paper/plastics
Mining/quarrying
systems in data centres, backup generator systems for hospitals,
fuel transfer systems at forecourts and petrochemical plants.
Process control
Using manual or actuated valves to direct fluid in large processing
applications. Pneumatic or hydraulic actuators are used as a
valve control mechanism over electrical actuation in potentially
hazardous environments such as oil and gas plants.
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Flowtech Fluidpower plc
MARKETPLACE
We operate in a growing fluid power market, worth £1 billion in the UK, €12.6 billion across Europe and $42.3 billion globally (British Fluid
Power Association, (BFPA), 2017).
It is broadly estimated that ‘distribution’ accounts for between 30% and 50% of this market, with the balance covered by direct supply from
product manufacturers to eventual end user.
Our market
Fluid power technology is widely utilised in all
industrial sectors. It is split into two distinct
sectors: hydraulics and pneumatics. Of the total
UK fluid power market, hydraulics represents
approximately 70%, pneumatics 20% and the
remaining 10% in industrial products which act
as conduits for gases and liquids.
The hydraulic market is highly fragmented
comprising a large number of manufacturers,
supplying direct to manufacturers of specialised
equipment (OEMs) or resellers who sell onto
OEMs. This market is further split between mobile
hydraulics (56%) and industrial hydraulics (44%).
Core products include: pumps, motors, valves,
cylinders, filters, hose, fittings and tubing. Key
industry drivers include: construction, agriculture,
defence, aerospace, oil and gas, heavy machinery
for lifting and moving equipment.
The pneumatic market comprises a smaller
number of key players, who supply direct to
end users or to resellers who then sell onto the
end user. Core products include: compressors,
filtration, valves, cylinders and vacuum products.
Key industry drivers include; food processing,
electronics, medical, automotive and packaging.
Our divisions
Flowtech Fluidpower is a full-service provider of fluid power. In 2018 we
operated across three divisions, in 2019, Flowtech Fluidpower moved
to a two-division structure to more clearly define its business under the
broad categories as detailed below.
Components
Supply of both hydraulic and pneumatic consumables, predominantly
through distribution for maintenance and repair operations across all
industry markets, but supported by supply agreements direct to a broad
range of OEMs.
Consistent operational high margin revenue.
87% Group Revenue
89% GP
Services
Bespoke design, manufacturing, commissioning, installation and
servicing of systems to manufacturers of specialised industrial and
mobile hydraulic original equipment manufacturers (OEMs) and
additionally a wide range of industrial end users.
Capital project-based revenue.
13% Revenue
11% GP
www.flowtechfluidpower.com
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Job Number 30 April 2019 8:56 am Proof 10STRATEGIC REPORTGlobal landscapeIn the UK and Ireland, we estimate Flowtech Fluidpower currently holds around 11% market share in fluid power. Across the Benelux, we hold around 2% market share (Benelux is €657 million – BFPA, 2016). We partner with over 250 supplier brands, giving us potential access to a large share of the €12.6 billion fluid power market. As global manufacturers lean towards supply chain consolidation, through closer partnerships and purchasing synergies the Group aims to further support supplier supply chain consolidation and grow its market share. Below are some of the leading brands we sell and partner with.Stock code: FLO19Annual Report for the year ended 31 December 2018Flowtech Fluidpower Annual Report 2018.indd 1930/04/2019 08:59:41 20
Flowtech Fluidpower plc
MARKETPLACE
Market trends in the UK
The BFPA provisional fluid power UK sales
forecast for 2018 indicated that overall
growth in sales for the sector was 5.1%
(7.2% for hydraulic sales and 0.2% for
pneumatic sales). This is largely attributed
to an upturn in industrial activity, particularly
across Europe, combined with renewed
strength in oil prices, leading to investment.
As a Group we experienced organic sales
growth of 4.0% (unaudited) in the first
quarter of 2019, and overall, we would expect
to generally grow marginally ahead of the
market forecast by the BFPA due to the
strong market position that the Group has
created. (At the date of this report market
data on a similar basis is not available for
the Republic of Ireland and the Netherlands,
being the other countries in which the Group
has operating centres, although the Board
believes that the trend in these markets is
broadly similar to that in the UK).
Hydraulic
The hydraulics market has shown
significant expansion over the last two
years, and the BFPA expects a more modest
increase in 2019, with a further growth
trend beyond that (average 3.9% between
2020 and 2022). Investment should regain
momentum over the coming years as plans
around Brexit become clearer, subject to a
positive outcome.
While electric solutions are at the forefront
of energy efficiency innovation, the power
density delivered by hydraulic solutions is
largely unmatched by electric technologies.
Moreover, high purchase costs combined
with limitations around battery charging for
remote applications such as off-highway
vehicles ensure hydraulics remains the
preferred technology for such applications
and limits any threat posed by electric only
alternatives. As industry shifts towards
more energy efficient solutions that still
fulfil the required power density, a combined
approach involving electro-hydraulic
solutions is evident and expected to
increase. As a Group we have been involved
in a number of such projects for example
railway shunters and train cooling systems.
www.flowtechfluidpower.com
CETOP – hydraulic products
(estimated market): €8.8 billion
Pumps 13%
Actuators 21%
Valves 19%
Other hydraulic 35%
Assemblies 12%
CETOP – pneumatic products
(estimated market): €3.8 billion
Filtration 8%
Actuators 28%
Valves 31%
Other hydraulic 30%
Assemblies 3%
Estimated €12.6 billion European
fluid power market by country
Germany 35%
Italy 18%
France 10%
UK 9%
Nordic 10%
Eastern Europe 7%
Benelux 5%
Spain 4%
Switzerland 2%
Estimated €12.6 billion European
fluid power market by product
Filtration 2%
Actuators 23%
Valves 23%
Other product 33%
Assemblies 9%
Pumps 2%
Source: CETOP: European Fluid Power Directory 2017/18.
https://www.cetop.org/directory/hydraulics-buyers-guide/
Despite the short-term uncertainty around
Brexit and the deficit apparent in the oil
and gas and automotive sectors, long-term
growth trends are expected across
transportation, engineering and metal goods
and construction (BFPA, 2018). For example
in June the UK government approved a third
runway at Heathrow, to support heightened
passenger demand and the shipbuilding
sector is likely to suffer least from Brexit,
partly due to UK and US defence and rail
budgets.
Pneumatic
The BFPA expect previous sales growth
to remain low during 2019, before picking
up again in 2020 (average 3.6% growth
between 2020 and 2022). Stability in food
production, along with increased demand
in the production of electronics will likely
bolster any deficit from a continued decline
in automotive activity. Rising import prices
has generated a trend in food substitution
and estimated a 5.9% increase in sector
investment in 2018. Electronic production,
the second most important driver for
pneumatics, was expected to grow by
10.5% in 2018; an upward trend is likely to
continue. With a strengthened emphasis
on environmental and energy efficiency,
we are experiencing increased demand
for pneumatics in health and safety
technologies, such as misting technology
used for dust control.
Around £800 million will be invested in
offshore wind power over the next 11 years,
which is expected to provide one-third of the
UK’s electricity by 2030.* This will benefit
both pneumatic and hydraulic markets.
* Source: https://www.theguardian.com/environment/2019/
mar/07/government-throws-its-weight-behind-offshore-wind-
power-expansion (08.03.2019).
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21
Annual Report for the year ended 31 December 2018
How we are positioned to respond
The Flowtech Fluidpower Group services an extensive range of industry sectors, thus spreading the risk of adverse market conditions and
creating many opportunities for the Group. Despite the uncertainty around Brexit, there are a number of positive trends and initiatives that
we are ideally positioned to capitalise on:
• Securing new business in growing sectors such as transport and renewable energy.
• Driving down cost in our business by maximising purchasing synergies and operational efficiencies.
• Consolidation of stock, allowing us to maintain margins despite increased pressure on import costs.
• Market penetration as one Group, ensuring we cross-sell to keep business within the Group.
• Expansion into European markets through acquisition and e-commerce.
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How we’re preparing for Brexit
At the date of this report, the UK’s exact trading relationship with the European Union remains unknown. While the potential impact of Brexit
is difficult to assess, we have reviewed our business and consider our Group to be relatively stable. We have taken the following measures to
safeguard our business as much as possible.
Risk
Product compliance
Logistics – potential threat to
supply chain
Response
We have reviewed product standards e.g. CE marking
We have mapped out our supply chain, identifying any potential threat to our business.
For 90% of our business, we hold 4–6 months stock as standard and the majority of any
potential disruption relates to supply by global brands from their manufacturing sites in the EU.
We therefore believe we have some “buffer” against short-term disruption, with medium and
long-term issues to be negotiated in due course. We also have no significant EU supply lines
where the product is unique to the Group.
We also have a supplier base in Ireland and Europe, so have the option to ship to these
countries if significant delays are apparent.
Tariffs and customs
We have reviewed trade tariffs, rules of origin and associated additional costs.
Employees right to work in the UK
We have audited all permanent employees and established their right to work in the UK.
Intellectual Property
Reviewed IP and international contracts. We were advised by our Patent Lawyers that a
transition grace period will be in place until 31 December 2020.
The BFPA has been heavily involved with the European ISO/CETOP standards agencies to gain alignment with British standards. An
agreement was reached that regardless of the outcome of Brexit, alignment would be maintained and they would continue working together.
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22
Flowtech Fluidpower plc
FINANCIAL REVIEW
A CLEAR FOCUS ON MANAGING OUR
COST BASE AND ALL COMPONENTS
OF WORKING CAPITAL
RUSSELL CASH, CHIEF FINANCIAL 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
Add impact of fair value adjustment to inventory (note 24)
Less separately disclosed items (note 4)
Operating profit
2018
£111.1m
£38.6m
34.8%
£7.68m
£11.38m
2017
Change %
£78.3m
£26.5m
33.9%
£6.61m
£9.08m
2018
£000
11,381
(382)
(3,321)
7,678
+41.9%
+45.3%
+0.9%
+16.1%
+25.3%
2017
£000
9,081
(2,467)
6,614
* All results relate to continuing operations.
† Underlying operating profit is continuing operations’ operating profit before separately disclosed items (note 4) and the impact of fair value adjustment to inventory (note 24).
Once again, we are delighted to report a period of solid growth, both in terms of revenue but, more importantly, underlying and actual
operating profit.
www.flowtechfluidpower.com
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Revenue
Revenue increased by 42% (2017: 46%).
While the impact of acquisitions accounts
for the majority of the growth, there was
underlying organic growth of 5.7%.
Gross profit margins
Our overall gross margin improved by 0.9%.
Gross margin remains a key indicator for
each of our businesses; this, combined
with increasing focus on businesses within
the Group working together to generate
improved terms, sees us well placed to
retain and improve on these strong margins
in the future.
Underlying Operating Profit
Underlying operating profit increased by
£2.3 million (25%); after taking account of
separately disclosed items, actual operating
profit rose by £1.1 million (16%). These
figures compare favourably to 2017 growth
of £1.6 million (22%) and £0.5 million (8%)
respectively.
23
Annual Report for the year ended 31 December 2018
Separately disclosed items
Share option costs
Amortisation intangibles
Additional deferred consideration
Restructuring costs
Acquisition costs
Total
2018
191
1,040
264
1,002
824
3,321
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E
G
I
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E
P
O
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2017
272
768
229
117
1,081
2,467
Results by division
During 2018 we assessed performance within our three-segment structure. This is
consistent with prior years.
The table immediately below summarises revenue, gross profit and underlying operating
profit by segment.
Revenue
Flowtechnology
Power Motion Control
Process
Group
Gross Profit
Flowtechnology
Power Motion Control
Process
Group
2017
£000
£37,239
£34,806
£6,242
£78,287
%
37.1
29.1
41.8
33.9
%
20.2
8.0
17.7
2018
£000
£45,218
£57,533
£8,300
£111,051
2017
£000
£13,831
£10,122
£2,612
£26,565
2017
£000
£7,524
£2,788
£1,105
£11,417
(2,336)
£9,081
%
38.6
30.9
40.7
34.8
%
21.2
6.4
15.7
2018
£000
£17,453
£17,775
£3,376
£38,604
2018
£000
£9,574
£3,694
£1,300
£14,568
(3,188)
£11,380
An example of our commitment
to our people is the tailored
programme we have designed
with valuable input from third
party training providers to
develop the skills of our current,
and future, business leaders at
profit centres and within central
functions.”
Underlying Operating Profit/
Operating Margin
Flowtechnology
Power Motion Control
Process
Less allocation of central costs
Group
Revenue
Overall revenues grew by £32.8 million, split:
• Flowtechnology – £8.0 million (£6.5m through acquisition activity and £1.5 million
(4.0%) organic)
• Power Motion Control – £22.7 million (£20.4 million through acquisition activity
and £2.3 million (6.7%) organic)
• Process – £2.1 million (£1.6 million through acquisition activity and £0.5 million
(8.3% organic)
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Flowtech Fluidpower plc
FINANCIAL REVIEW
Statement of financial position and cash flow
£000
,
)
0
0
0
5
1
£
(
,
0
0
9
1
1
£
)
0
0
2
5
£
(
,
)
0
0
1
1
£
(
,
)
0
0
3
1
£
(
,
,
)
0
0
9
9
1
£
(
)
0
0
6
3
£
(
,
)
0
0
7
£
(
)
0
0
0
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£
(
,
,
)
0
0
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4
1
£
(
,
0
0
4
0
1
£
)
0
0
3
£
(
0
0
1
£
As at
31 Dec
2017
Underlying
operating
profit
Working
capital
Taxation
Capital
expenditure
Acquisiton
related
costs
Net
proceeds
from
share
issue
Dividends
Interest
Re-
organisation
costs
Lease
payments
Other
items
As at
31 Dec
2018
Statement of financial position
and cash flow
The business generated £11.9 million of
positive operating cash flow. Over the year
the net Bank debt increased by £4.9 million
to £19.9 million (2017: £15.0 million). If
account is taken of £3.5 million paid out in
respect of deferred/earn out consideration,
the underlying increase in net debt was £1.5
million. Other major cash outflows included:
• Dividends – £3.6 million.
• Capital expenditure – £1.3 million.
• Taxation paid – £1.1 million.
•
Interest – £0.7 million.
Overall, working capital increased by £5.2
million; the impact of the 5.7% organic
growth accounts for approximately £2.0
million of this.
There has been a very clear focus on managing
working capital towards the end of 2018 and
into 2019. We are expecting the 2018 adverse
trend to reverse and progress made in 2019 to
date has been very encouraging. Our efforts
are spread across each of the three working
capital categories and across all areas of our
business. In particular we anticipate significant
cash savings through underlying stock
reduction and extension of certain supplier
payment terms.
Dividends
Subject to Shareholder approval at the
Annual General Meeting, the Directors are
proposing a final dividend of 4.04p per share.
This, together with the interim dividend of
2.03p per share (paid on 26 October 2018),
brings the total for the year to 6.07p per
share. The total per annum dividend has
therefore increased from 5.0p per share in
respect of 2014 to 6.07p per share in respect
of 2018. This, combined with the increased
number of shares has seen the cash impact
increasing from £2.2 million in 2015 to
£3.6 million in 2018. 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 £1.99 million
(2017: £1.21 million), with an effective tax
rate of 27.6% (2017: 17.0%). The 27.6%
effective rate results in part from an
underprovision in 2017 of £202,000 (note 7)
and in part from a prudent estimate as to
what 2018 expenses may prove disallowable
for tax purposes.
Gross profit margins
We have seen an improvement in gross
margin in the Flowtechnology and PMC
divisions.
Margins in the Process division remained
healthy; the small erosion is not unexpected
given the nature of the work which our
businesses within this division perform
with margins more variable than other
businesses within the Group.
Underlying operating profit
We have seen material growth in each of
our three divisions. 2019 will see focus on
extracting cost savings from businesses
acquired in recent years; we believe this,
combined with modest levels of organic
growth, will lead to increased underlying
operating profit in each of our divisions.
Central costs
Central costs comprise executive
management, finance and IT departments,
divisional sales and the cost of running the plc.
We have made significant investment in
these areas during 2018, both in terms of
the recruitment of senior individuals into
key roles and systems. An example of our
commitment to our people is the tailored
programme we have designed with valuable
input from third party training providers to
develop the skills of our current, and future,
business leaders at profit centres and within
central functions. In terms of systems we
are focusing on investment in technology
to provide us with ever improving platforms
of information to gain commercial leverage
and also a transition to common IT systems
on a sensibly phased basis across all parts
of our business. This provides a robust
platform to deliver material cost and working
capital savings. The Board believes we are
well placed to capitalise on future growth
opportunities, both organic and when the time
is right through acquisition activity.
Acquisitions
We are delighted with the performance of
the Balu businesses which were acquired
in March 2018. In the nine-month period
following acquisition the businesses
contributed £1.1million of operating profit,
very much in line with the expectation of
annual operating profit of £1.5 million which
supported the price paid. We are beginning
to see the benefits of the expanded
Flowtechnology business in terms of
enhanced procurement opportunities.
www.flowtechfluidpower.com
Flowtech Fluidpower Annual Report 2018.indd 24
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Annual Report for the year ended 31 December 2018
Statement of financial position and cash flow
£000
)
0
0
0
,
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1
£
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1
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0
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0
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)
0
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,
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1
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(
0
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,
0
1
£
related
costs
from
share
issue
As at
31 Dec
2017
profit
Underlying
Working
Taxation
Capital
Acquisiton
Net
Dividends
Interest
Re-
Lease
operating
capital
expenditure
proceeds
organisation
payments
costs
Other
items
As at
31 Dec
2018
2019 segmentation
As outlined in the Chief Executive’s review, 2019 will see the Group start monitoring and reporting our business performance based on two
segments, Components and Services. Had this policy been in place in 2018 the Revenue results by segment would have been approximately
as follows:
Revenue
Components
Services
Group
2018
£000
£96,985
£14,066
£111,051
%
87
13
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Flowtech Fluidpower plc
RISK
HOW THE BUSINESS MANAGES RISK
Risk management
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. However, 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 and this
is done formally by the Board on an annual basis. From 2019 each
significant risk area is managed via a subcommittee chaired by a
member of the Executive Management team with attendance on
an ad hoc basis by a Non-Executive member of the plc Board.
Risk management is a key part of the twice-yearly meetings
that each Profit Centre Director (PCD) has with the Board. These
meetings focus on financial and operational plans, opportunities
presented by the market and by other businesses in the Group and
the potential threats and risk that the PCDs consider may hamper
progress.
The risks identified form the basis of the Board’s risk management
process designed to identify and manage significant risks wherever
possible. Each risk is owned by a member of the executive
management team and reported on regularly to the Board.
www.flowtechfluidpower.com
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Annual Report for the year ended 31 December 2018
Talent management and
succession planning
1
Trend
Inability to recognise and
control cyber exposures
S
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2
Trend
Description
There is a risk that the
business is not able to
attract and retain high
performing employees.
The Group also needs to
maintain engagement with
the employees to ensure
they remain supportive of
the business strategy.
Description
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.
Owner
Chief Executive Officer
Mitigation
Attraction and retention of
employees is supported by
bonus plans, recognition and
reward programmes and
innovative benefit packages.
Profit sharing scheme
introduced in 2017 and
enhanced in 2018.
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. Profit Centre
Directors to attend rolling
programme at Leadership
Trust in 2019 and 2020.
Group-wide technical and
sales conferences to aid
skills sharing.
Owner
Chief Executive Officer
Mitigation
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.
Risk
increasing
No risk
movement
Risk
decreasing
Stock code: FLO
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Flowtech Fluidpower plc
RISK
HOW THE BUSINESS MANAGES RISK
System and site disruption
Quality control
3
Trend
Description
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.
Owner
Chief Executive Officer
Mitigation
Offsite disaster recovery
provision for IT systems,
including cloud-based
technologies.
Business continuity plans
in place at key operational
locations. As the Group
increases in size, resilience
to disruption increases as
distribution and production
activities can be rerouted to
other sites.
Business continuity plan has
been tested successfully
at the Skelmersdale
Logistics Centre. A regular
test programme has been
introduced across the Group.
4
Trend
Description
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 and customer
relationships, and potential
legal consequences.
Owner
Chief Executive Officer
Mitigation
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 majority at Group sites
comply 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.
Risk
increasing
No risk
movement
Risk
decreasing
www.flowtechfluidpower.com
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Annual Report for the year ended 31 December 2018
5
Trend
Breach of regulations
Inability to effectively manage
and control IT hardware and
software changes
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6
Trend
Description
Inadvertent breaches of
regulations could lead to
prosecution and significant
fines. Regulations impacting
the Group include: Health
and Safety at work, Control
of Substances Hazardous
to Health; packaging waste
regulations.
Owner
Chief Operating Officer
Mitigation
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
being standardised across
the Group with target for
full compliance by the end
of 2019.
Description
A part of our strategic
focus is to reduce the
number of process
systems operated by the
Group and also operate
from a single accounting
environment. In order to
create this position, the
Group will need to identify,
plan and implement a
number of hardware and
software changes that
will require a significant
amount of project
management skill and
resource.
Owner
Chief Executive Officer
Mitigation
Under the leadership of the Head
of Business Process, in 2018 and
early 2019 the central services
function added full-time skills in
User Acceptance Testing and
Project Management. In addition,
the Group is planning to transition
towards software applications
that are widely used in both the
industry and the Group already, in
particular Sage 200, and reduce
the use of software systems
that do not have a wide support
framework.
In addition, the Group has also
engaged external support from
reputable consultants with a
view to defining an internal
“Standard Practice Instruction”
covering project management
best practice generally and have
introduced the main components
defined by this process to all
current IT change projects.
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Flowtech Fluidpower plc
CORPORATE RESPONSIBILITY STATEMENT
Flowtech Fluidpower seeks to create sustainable long-term value across all stakeholder groups. Its people and the service they deliver are at
the heart of this objective.
Our people
Engaged and committed employees are integral to our overall Group performance and the delivery of great customer service. The Board
places a strong emphasis on employee recruitment and retention, which starts from the top; giving leaders the appropriate support, training
and tools to build confident, motivated teams. Employees across each business are supported and rewarded in varying degrees through
performance reviews, training, additional holidays for attendance, profit share schemes and other softer perks.
This year a number of new employee development initiatives have been introduced. Each profit centre has the freedom to use whichever
tools are appropriate for their business and is also supported with individual initiatives at a local level. Retention is currently measured by
average turnover and length of service. These statistics are outlined in the table below;
Employee statistics
Number of employees*
Length of service
Avg employee turnover
* Annual average..
Apprentices
Many of our businesses have long
traditions 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
2018 we retained all three apprentices who
graduated across the Group, one in the
FTUK supply chain team, one in purchasing
at Group HES and one in business
administration at Orange County UK.
Employee engagement
The Board recognises the value employee
engagement has on business performance
and customer loyalty. In October 2018 the
Group introduced an Employee Engagement
Programme to measure and strengthen
employee satisfaction across the Group.
All Profit Centres will have implemented this
programme by June 2019 and be working
on individual areas of improvement. This
survey will be conducted annually by each
Profit Centre Director.
Continuous learning through training
Business 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 Standard Practice Instructions
(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), the North Notts College,
local colleges or training with our company
mentors. Across the Group, over 300 courses
were attended by employees in 2018. To
build and share technical knowledge across
the Group, in 2018 an online technical forum
was introduced, allowing engineers and
salespeople across the Group to post and
answer questions.
2018
573
7.5
11%
2017
414
8.9
9%
2016
291
9.6
7%
Leadership Trust
This year, the ‘Leadership Trust’ programme
was introduced for all Profit Centre
Directors, which includes an initial three-day
or five-day course, followed by an ongoing
coaching programme. The programme
incorporates a 360-degree leader audit
along with tailored expert coaching,
designed to help managers understand
and motivate teams and shape culture for
maximum impact. It is expected all Profit
Centre Directors will have completed by the
programme by the end of 2020.
Mentor programme
Fluid power is a niche industry; loss of trained,
specialist personnel poses a significant risk
for the business. Each business is responsible
for its own business continuity plans, which
are supported by the Group in terms of
training and development of key personnel. In
2018, the Group started a mentor programme,
which sees former Group business owners
and important industry contacts guide and
assist various members of the Group on
a one-to-one basis. This investment will
ensure Group leaders have the appropriate
knowledge and support to take their business
forward in the years ahead.
www.flowtechfluidpower.com
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Annual Report for the year ended 31 December 2018
Employee rewards
In 2017 a profit share scheme was
introduced across the Company. All profit
centres are invited to take part; however,
they must meet a minimum performance
threshold of 20% annual return on
investment to be included in the scheme.
Profit Centre Directors then have the
autonomy to allocate this financial reward
on an annual basis across their teams
subject to approval by the Chief Operating
Officer, which rewards employees and in
many cases offers an additional motivational
incentive for future years. Those profit
centres not in the scheme can choose to
reward employees from their own profits.
Diversity
The Company is an Equal Opportunity
Employer and recruits based on merit. This
means that the Company’s established
policy is to ensure that no unlawful
discrimination occurs, against any person
on the grounds of colour, sex, sexual
orientation, marital status, race, religion,
nationality, ethnic or national origin or
age. The Company’s policy covers direct
and indirect discrimination and failure to
make reasonable adjustments for disabled
employees, victimisation and harassment.
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 24% females across the
Group with 27% of senior management
positions occupied by females. In 2018 the
Group appointed its first female operations
board member, Tamara Reiners, who was
promoted to Profit Centre Manager for
Flowtechnology Benelux in October 2018.
The Group recognises the importance of
work-life balance, especially for employees
with family commitments. Where the
demands of the business allow, flexible
working is encouraged. A number of
females in the business have returned to
work following maternity leave and this
additional flexibility, and in many cases career
progression, has increased their commitment
and attitude towards the business.
Engaged and committed employees are integral to our
overall Group performance and the delivery of great
customer service.”
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Human rights and modern slavery
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. Our
Modern Slavery Statement can be found
online at www.flowtechfluidpower.com/
investors/governance/modern-slavery-
statement
Environment, health & safety
The Group remains committed to providing
a safe and healthy working environment
and supports individual profit centre efforts
which reduce the Group’s overall impact on
the environment. The Chief Operating Officer
has overall responsibility for health and safety
(H&S) practices, ensuring all PCDs review and
address any concerns on a monthly basis in
accordance with their business needs, risk
profile and local regulations.
SPIs across the Group, along with local
requirements provide guidance for each profit
centre and must be included as part of new
employee inductions and new acquisitions.
Additional training is requested for employees
depending on their job role and forms part
of an ongoing improvement process. Over
120 H&S related courses were attended by
employees in 2018.
Each business has either a H&S
representative or H&S committee,
responsible for monitoring and improving
H&S procedures and practices. H&S is
measured through accident rates. Our
accident rates are very low given the number
of employees and the amount of manual
work, with only one RIDDOR incident and
11 lost time accidents (2017: No lost time
accidents). We are currently working with
Croner to standardise procedures across our
UK and Irish sites. Croner advise the Board
that all sites except for Skelmersdale will go
into the programme later in 2019.
All incidents are investigated thoroughly
and preventative measures put in place to
mitigate any further reoccurrences.
Local initiatives towards health and fitness
are encouraged, such as onsite gyms or
subsidised membership to local leisure
facilities, cycle to work schemes, fresh fruit
and water for employees. Examples of local
improvements made with various profit
centres this year include: introduction of anti-
fatigue mats, ergonomic work stations, air-
purification plants, weekly fruit for employees.
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Flowtech Fluidpower plc
CORPORATE RESPONSIBILITY STATEMENT
The environment
The Group is mindful of the impact that its
operations have on the environment and is
committed to reducing its carbon footprint,
encouraging individual profit centres to
introduce environmentally friendly practices
available for their business.
Some of the measures in place include:
• Recycling of as much waste as possible
including plastic, paper, metals and
cardboard. One hundred percent of
paper is recycled across all sites.
Orange County UK recycle 100% of
oil rags. At most warehousing and
production sites, paper and cardboard
are shredded and reused again in
packaging. Personal recycling bins
are used at most sites. This year
Flowtechnology UK (FTUK) found a local
source for recycling non-usable pallets.
•
Low energy, motion-sensored lighting
within warehouses.
• 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. 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 apps and scanners to aid customer
ordering, Dropbox for data sharing and
online meeting software. This year,
Zoom software has proved to be a highly
efficient tool to aid business performance
and a reduced need to travel for meetings.
• Financial reports are issued to the
majority of Shareholders as an
interactive report on our website
• Reduced print of paper where possible. In
2018 FTUK made the decision to revert to
a two-year rather than annual catalogue,
reducing printing ink and paper use. The
Company is also working on a “Digital
Distributorship” where customers no
longer requiring a hard copy catalogue
will still be able to retain their distributor
status, which would reduce the company’s
carbon footprint even further.
Partnerships with customers
As a trusted partner in fluid power, we aim
to be the most cost-effective provider of a
quality service to all customers, ensuring
we deliver end-to-end fluid power solutions
from a single source.
Regardless of size, our Group values every
customer and is committed to developing
mutually beneficial relationships at local,
national and international level. Continued
dialogue has enabled the Group to develop
its product and service offer and so match
these changing requirements.
Through our agile approach, our Group
employees are driven towards finding
solutions which create efficiencies for
ourselves but more importantly our
customers. This requires extensive
knowledge, creativity and collaboration with
customers and suppliers. Here are some of
the ways the Group added value in 2018.
•
Introducing a new website platform
for customers to market to their own
customers.
• New supplier partnership in dust
suppression.
•
Launch of new hose builder for
customers.
• Growth through customer partnerships.
Partnerships with 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, the Group has placed increased
emphasis on building strategic partnerships
with key suppliers. New activities introduced
in 2018 include:
•
Invitation to present at Operational
Board Meetings, technical forums and
sales conferences, giving insight into
the latest manufacturer trends and
developments. This year the following
suppliers have presented at these
events: Parker, Eaton, Tec, Pareto Law.
• Joint marketing initiative with Roquet
and Honeywell at the LAMMA trade
shows to strengthen the marketing
of both the manufacturer brand and
the Flowtech Fluidpower Group profit
centres, and training to Group sales
personnel.
•
Increased supplier training – a number
of companies within the Group have
travelled abroad to suppliers for specific
product training and factory tours and
equally suppliers have held training at
our company premises.
• Enhanced communications through a
biannual supplier newsletter.
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.
Four significant developments include:
• Group HES – partnership with National
Instruments
• Group HES – distribution rights for
Parker Complete Piping Solution
product.
• Hydravalve being awarded sole
distributorship in the UK for J&J
Electric Actuators and formed a new
supplier relationship with Prisma,
through attendance at the BVAA Spring
conference in May.
•
Indequip – now partnering with Focgo
and Aircom, and additionally securing
sole distribution for Insert Deal and
Eletrotec.
www.flowtechfluidpower.com
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Representatives from the Group either
exhibited at or attended over 15 supplier
and end user trade shows in 2018 in the UK,
Europe and Asia.
Highlights included the FTUK 2018
Distributor Convention, held at The Royal
Armouries Museum in Leeds which was
attended by over 40 key suppliers and
120 distributors, who enjoyed a Pioneers
of Industry theme. In January four profit
centres within the PMC division exhibited as
one ‘Fluidpower Group’ at the LAMMA 2018
agricultural and machinery show. The wider
Fluidpower Group also attended Hillhead
Expo which brings together over 500
manufacturers in construction and quarry
management. Over 20,000 visitors attended
this three-day event. Hydravalve attended
Valve World in Dusseldorf, enabling the
Company to meet up with Chinese and
European suppliers and additionally find
new business.
We continue to have close ties with trade
associations such as BFPA, FADA, BVAA
and NFPC with various members across
the Group sitting on their committees.
This year we exhibited at the North Notts
Training Centre, where over 60 distributors
and manufacturers share ideas and new
products, with student attendance also.
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 the Group
raised over £10k for 12 charities.
The Strategic Report as set out on
pages 01 to 33 has been approved by
the Board.
Bryce Brooks
Chief Executive Officer
29 April 2019
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Flowtech Fluidpower plc
THE BOARD
BRYCE BROOKS
CHIEF EXECUTIVE OFFICER
RUSSELL CASH
CHIEF FINANCIAL OFFICER AND
COMPANY SECRETARY
MALCOLM DIAMOND MBE
NON-EXECUTIVE CHAIRMAN
C
C
N
A
R
C
Appointed
March 2010 as CFO, promoted to CEO
in September 2018.
Skills and experience
Holds a degree in civil engineering and
qualified as a chartered accountant
with Deloitte Haskins & Sells (now
PwC) in 1989.
Ten years as a Finance Director at
Marlowe Holdings, an American-
owned industrial products distribution
group, as well as a group corporate
development role.
External appointments
None
Board Committees
Member of the AIM Compliance and
Corporate Governance Committee and
other committees by invitation.
Appointed
November 2018.
Appointed
May 2014
Skills and experience
49-year career in industry. Strong
commercial and marketing experience
as well as City investor knowledge
and expertise. Experienced Chairman
and Non-Executive having worked
across industrial, pharmaceutical and
investment sectors.
External appointments
Non-Executive Chairman, Trifast plc,
Non-Executive Chairman, discoverIE.
Board Committees
Chair of Nomination Committee and
a member of the Audit, Remuneration
and AIM Compliance and Corporate
Governance Committees.
Skills and experience
Qualified as a chartered accountant
with Deloitte Haskins & Sells (now
PwC) in 1991.
Spent 27 years working as a turnaround
and restructuring professional, 20 years
with PwC prior to taking Partner roles
at Baker Tilly (now RSM International)
from 2008 to 2013 and FRP Advisory
from 2013 to 2018. At both Baker
Tilly and FRP he played a key role in
the success and expansion at both
firms. Russell’s experience in effecting
change both in terms of operational
improvement and cash management
should serve the Group well given the
focus in each of these areas in 2019
and beyond.
External appointments
None
Board Committees
Member of the AIM Compliance and
Corporate Governance Committee and
other committees by invitation.
www.flowtechfluidpower.com
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Annual Report for the year ended 31 December 2018
G
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Key:
Committee Chair
A
N
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Audit
Nomination
Remuneration
AIM Compliance
and Corporate
Governance
NIGEL RICHENS
NON-EXECUTIVE DIRECTOR AND
SENIOR INDEPENDENT DIRECTOR
BILL WILSON
NON-EXECUTIVE DIRECTOR
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Appointed
May 2014
Skills and experience
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,
bringing wide commercial experience and extensive
knowledge of corporate governance, compliance, risk
management and financial matters.
External appointments
Trustee of various charities.
Board Committees
Chair of the Audit, Remuneration (to September 2018)
and AIM Compliance and Corporate Governance
Committees and member of the Nomination and
Remuneration Committees.
Other
In his role as Senior Independent Director, Nigel
acts as a sounding board and intermediary for the
Chairman and other Board members. He leads the
performance evaluation of the Chairman and attends
meetings with major Shareholders and analysts to
gain an understanding of any issues or concerns.
Appointed
September 2018
Skills and experience
30+ years in global manufacturing
and industry. Extensive domestic and
international commercial experience
in the private equity, private company
and public company arena. Extensive
involvement in international M&A.
Previously Non-Executive Chairman at
Flowtech Holdings Ltd for 18 months
prior to the IPO. Bill’s appointment
adds considerably to the Board’s
commercial and industrial knowledge
and he will be of significant benefit
to the executives in overcoming the
challenges ahead.
External appointments
James Briggs Ltd (Chair), Coryton
Advanced Fuels Ltd (Chair).
Board Committees
Chair of the Remuneration Committee
and member of the Audit, Nomination
and AIM Compliance and Corporate
Governance Committees.
Stock code: FLO
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Flowtech Fluidpower plc
CHAIRMAN’S STATEMENT ON CORPORATE GOVERNANCE
There are three key elements of my role as
Chairman:
but those who will be able to develop
into such roles in the future.
• To lead the Board ensuring its effective
management of the Group’s operations.
• To meet major Shareholders and take
on board their concerns.
• To oversee the adoption, delivery and
communication of the Group’s corporate
governance model.
This final element is vitally important as it
underpins all our activities; without effective
corporate governance we are considerably
hampered in achieving our goals.
We welcome the recent requirement for
all AIM companies to adopt a corporate
governance code and believe that the QCA
Code best suits Flowtech Fluidpower plc at
this stage in our development.
We have aspirations, at some future point,
to join the main market and, as such, we will
be working hard to meet the requirements
of the UK Corporate Governance Code.
We reported our adoption of the QCA
Code in September. At this time we were
pleased to note that the cornerstones of
good corporate practice were firmly in
place, and had been since we came to the
market in 2014. We also recognised the
need to demonstrate this by improving our
documentation of processes as well as
communicating ever more effectively with
stakeholders.
We have a clear strategy and business
model, focused risk management,
an effective and experienced Board,
appropriate governance structures and
good dialogue with our major Shareholders.
We will continue to develop our culture and
our dialogue with the wider stakeholder
interests as well as all classes of
Shareholder.
We need to enhance our processes to
ensure the effectiveness of the Board,
not least being a formal assessment of
my own performance. We have found,
however, that with a small, tightly knit and
enthusiastic Board, the openness and desire
to contribute have led to almost constant
suggestions for improvement. Examples of
this have included:
• A clear focus on talent management
and putting in plans to develop not only
the leaders of our business right now
• The establishment of a number of
subcommittees to focus on a broad
range of areas including product quality,
business continuity, health & safety, IT
steering and financial control.
• An assessment performed by external
advisers as to the degree to which our
staff are engaged with our management
in each of our businesses. While the
results overall are pleasing it is very
encouraging to see actions being put
in place to address any development
points which have arisen as a result of
this exercise.
The Board aims to promote and maintain
a culture of integrity across all businesses
within the Group.
All new Companies joining the Group
are integrated quickly, removing any
administrative burden, and enabling
each company to focus on maximising
commercial gain. A specific 100-day plan is
rolled out by the Acquisitions Team which
aims to streamline accounting, payroll, HR,
systems and health and safety processes.
Standard Practice Instructions (SPIs) help
guide personnel and ensure consistency
across the Group. These SPIs include
chapters on business ethics and focus on
the high standards expected as part of the
Group. They are supplemented by a Group
Employee Handbook, and are accessible to
all employees either in written or electronic
formats.
An open culture is encouraged within the
Group, with regular communications to
employees regarding progress and business
updates. Employee feedback is encouraged
through line management and committee
discussions.
The Group places significant emphasis on
developing talent from within, continually
evaluating employee performance and
supporting training requirements through
a flexible appraisal process driven at ‘local’
level, which will add value for the business
and its long-term goals.
Over the last year the restructuring of
the executive team, our focus on people
and talent management, the regular
PCD conferences and training events
have provided additional opportunities to
promote and monitor a healthy corporate
www.flowtechfluidpower.com
culture. The regular contact between the
PCDs and the executive team, along with
the employee engagement and satisfaction
surveys provide important feedback to the
Board as to the current state of the Group’s
culture.
Other than the changes to the Board and
senior management described elsewhere,
there have been no significant changes to our
governance arrangements. A key objective
of our IT strategy is to improve control and
efficiency by centralising routine accounting
and administrative procedures. During the
year an interface design to transfer data
regarding inventory purchase invoices from
seven profit centres to the central payments
system, despite assurances from our IT
contractors, was found not to be working
as intended. More labour-intensive manual
procedures were implemented to replace
the interface but there were backlogs in
processing and reconciliation activities.
Processing delays were eliminated quickly
and most reconciliations had been completed
by the commencement of the year-end
audit. Unfortunately, some reconciliations
took longer than expected to complete. This
resulted in additional efforts for the central
finance team and required extended audit
procedures by Grant Thornton causing
slippage in the overall audit timetable. All
reconciliations were completed satisfactorily
and procedures are now in place to prevent
a recurrence of the situation. Further
implementation in controls are planned before
half year.
I am pleased that we have been able to start
a programme whereby the operation of basic,
but important, controls is tested on a regular
basis.
We have made significant investment in the
central team with recruitment into areas
such as finance, internal audit, business
processing and credit control. We believe
we now have the foundations which see the
Group well placed to control the operations
we have today as well as those which we
develop into in future years.
I believe that the current Board has an
appropriate balance of sector specific and
public market skills and experience to add
strength and objectivity to the pursuit of our
strategic goals. As the Group develops the
composition of the Board will be reassessed
regularly to ensure that its skills and
experience remain appropriate.
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Annual Report for the year ended 31 December 2018
CORPORATE GOVERNANCE REPORT
Framework for
corporate governance
As an AIM listed entity, the Company
complies with the corporate governance
principles of the Quoted Companies Alliance
Corporate Governance Code (the “QCA
Code”) except in respect of the evaluation of
the Board which will be addressed in 2019.
The QCA Code identifies ten principles to
be followed as a guide to help companies
deliver value for shareholders. This relies
of efficient and effective management
by the Board, accompanied by good
communication which serves to develop
confidence and trust.
The Statement of Compliance with the 2018
QCA Corporate Governance Code can be
found online at www.flowtechfluidpower.com.
The Board
The main responsibilities of the Board are
the creation and delivery of sustainable
Shareholder value by promoting the
long-term success of the Company and
upholding good corporate governance.
The Board, in addition to routine
consideration of both financial and
operational matters, determines the
strategic direction of the Group. The
Board has a formal schedule of matters
specifically reserved for it which includes:
• Development and approval of the
Group’s strategic aims and objectives.
• Approval of annual operating and capital
expenditure budgets.
• Oversight of the Group’s operations.
• Approval of the Group’s announcements
and financial statements.
• Declaration and recommendation of
dividends.
• Approval of major acquisitions,
disposals and capital expenditure.
• Succession planning and appointments
to the Board and its Committees.
• Maintenance of sound internal control
and risk management systems.
• Approval of the division of
responsibilities between the Chairman,
Chief Executive and other executive
directors and the terms of reference of
the Board Committees.
The Chairman
The main responsibilities of the Chairman
are to lead the Board, ensuring its effective
management of the Group’s operations
and governance, and to maintain relations
with major Shareholders thus enabling the
Board to gain an understanding of their
views. The Chairman sets the Board’s
agenda and promotes a strong culture
of challenge and debate.
The Chief Executive is responsible for the
day-to-day management of all the Group’s
activities and the implementation and delivery
of the Board’s strategic objectives. He also
promotes appropriate cultural values and
standards and maintains good relationships
and communications with investors.
In accordance with their terms of reference,
certain matters are delegated to the
Committees of the Board. These terms
of reference are available on the Group’s
website and summarised later in this report
along with the main activities of each
Committee during the year.
Board composition
The Board comprises an independent
Chairman, two Executive Directors and
two independent Non-Executive Directors.
Details of the Directors’ remuneration and
terms of appointment are set out in the
Directors’ Remuneration Report on pages 41
and 42. Biographical details of the Directors
are included on pages 34 and 35.
Malcolm Diamond is Chairman of the Board
and the Nomination Committee. Each of
the independent Non-Executive Directors
performs additional roles: Nigel Richens
is the Senior Independent Director and
Chairman of the Audit and AIM Compliance
and Corporate Governance Committees and
Bill Wilson is Chairman of the Remuneration
Committee.
The Executive Directorships are full-time
positions. The Roles of Chairman and Non-
Executive Director require a commitment of
approximately five days per month. All the
Non-Executive Directors have confirmed
their ability to meet such commitment. Each
Non-Executive Director is required to inform
the Board of any changes to their other
appointments.
Executive Management
The Executive Directors, together with Nick
Fossey (Chief Operating Officer) constitute
a separate Executive Board. The activities
of this Executive Board include:
•
Implementing the strategy as set out/
agreed by the Board
• Overseeing all commercial operations
of the Group, ensuring good
communication in key areas and
alignment of local business objectives
to the strategic direction at Group level
• Assessment of growth opportunities,
both organic and potential acquisition
opportunities
• Talent management and succession
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planning
•
Investor relations
• Product quality
• Health and safety
• Financial control and systems, including
IT infrastructure and development
• Risk management
Meetings of the Board
There were eight formal Board meetings
during the year, six prior to the retirement of
Sean Fennon and appointment of Bill Wilson
and Russell Cash and two thereafter. Other
than the meeting in September, for which
Sean Fennon gave his apologies, all meetings
were attended by all eligible Directors.
Formal meetings are supplemented, when
circumstances dictate, by other meetings
often making use of teleconference
facilities. In addition, the Chairman and
Non-Executive Directors have met during
the year without the Executive Directors.
Company Secretary
Russell Cash is the Company Secretary
and is therefore responsible for legal and
regulatory compliance as well as assisting
the Chairman in preparation for and
effective running of Board meetings.
Since he is also an Executive Director, Nigel
Richens, as the Senior Independent Director
and Chairman of the Audit Committee,
acts as a conduit for all Directors, giving
advice and guidance where appropriate.
The Chairman plays a key role in investor
relations and corresponds with major
Shareholders as he sees fit.
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Flowtech Fluidpower plc
CORPORATE GOVERNANCE REPORT
Board committees
The Board formally delegates responsibility
to four committees: the Audit, Remuneration,
Nomination and the AIM Compliance and
Corporate Governance Committees. Full
terms of reference for each committee can
be found on our website.
The Nomination Committee
Chaired by Malcolm Diamond
During the year the Nomination Committee
was heavily involved in the development of
Board structure and succession planning,
culminating in the appointment of Bill
Wilson and Russell Cash and the promotion
of Bryce Brooks. Sean Fennon retired
during the year and, although not a Board
position, the Nomination Committee was
instrumental in the creation of the Chief
Operating Officer role and the appointment
of Nick Fossey.
The number of discussions held by Malcolm
Diamond and Nigel Richens, both separately
and together with other members of
the Board, obviated the need for formal
meetings of the Committee. The changes
to the composition of the Board were
approved by the Board as a whole.
Recruitment specialists were engaged
to identify potential director candidates
to add to the recommendations of other
advisers and members of the Board. Those
candidates shortlisted were interviewed
by the recruitment specialists and Bryce
Brooks. Candidates progressing to the
next stage were interviewed by Malcolm
Diamond and Nigel Richens and took
part in a psychometric assessment. The
appointees were further interviewed by
our Nominated Adviser to assess their
suitability for a public company directorship.
The Remuneration Committee
Chaired by Nigel Richens until September,
thereafter by Bill Wilson
The Remuneration Committee meets at
least once a year to determine and agree
remuneration packages of the Chairman
and Executive Directors and other employee
benefits. This year it met in September prior
to the appointment of Bill Wilson; both Nigel
Richens and Malcolm Diamond participated.
Where appropriate, the Committee seeks
advice from remuneration consultants to
gain an understanding of current trends and
latest developments. In addition, taxation
and legal advisors will usually be involved in
drafting and finalising reward agreements.
The remuneration of the Non-Executive
Directors is agreed by the Chairman and
Executive Directors. Details of Directors’
remuneration are set out in the Directors’
Remuneration Report on pages 41 to 42.
The AIM Compliance and
Corporate Governance Committee
Chaired by Nigel Richens
The AIM Compliance and Corporate
Governance Committee usually 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 meeting in May 2018 was attended by
all Directors. The meeting scheduled for
September was deferred until January 2019
to allow the recently appointed Directors
to make a full contribution. All Directors
attended that meeting.
The Audit Committee
Chaired by Nigel Richens
The Audit Committee meets at least twice
a year with the Group’s Auditor and as
otherwise required. Its duties are to:
• 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; corruption, sanctions and
whistleblowing
• 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
• provisions
• new accounting standards
• going concern, covenants and
cash headroom;
•
•
•
•
•
considering the adequacy of accounting
resource and the development of
appropriate systems and controls;
reviewing the risk register;
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.
Three Audit Committee meetings were held
in the year, each attended by all eligible
Directors. In addition, the Chairman of the
Audit Committee met with the Audit partner
privately on two occasions.
www.flowtechfluidpower.com
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Annual Report for the year ended 31 December 2018
Each Director is required to keep up to date
with developments in the Group’s areas
of operation and their own knowledge
base. Regular discussions with senior
members of Group management and the
Group’s advisers together with their own
professional development obligations
and experience in other roles are usually
sufficient to achieve this.
Our Nominated Adviser is invited to
the AIM Compliance and Corporate
Governance Committee to inform the
Board of developments in these areas. The
Non-Executive Directors also participate
in teams set up to focus on key Group
initiatives, currently IT, health and safety,
talent management, product quality,
business continuity planning and the
financial control environment.
A recent initiative has seen the appointment
of a number of Group Mentors. These
part-time positions are designed to
accommodate individuals with specific
skills or recently retired former members
of senior management so that the Group
can have access to, and benefit from, their
knowledge and experience.
Diversity
The Nomination Committee reviews various
matters when considering the constitution of
the Board, including diversity alongside other
factors such as experience and capabilities.
The Board is committed to this policy of
equal opportunity and diversity to attract and
retain the talent needed to fulfil our strategic
aspirations. Our culture recognises the
need for diversity across a wide spectrum
of factors including experience, skills
and potential as well as ethnicity, sexual
orientation and gender. Appointment and
advancement is based on merit with no
positive or negative discrimination. We
recognise that further strengthening our
diversity as and when opportunities arise is
important to our future well-being.
Board effectiveness
Collectively and individually, the Directors
monitor the performance of the Board
and its members on a range of measures,
The Non-Executive Directors discuss
regularly the performance of the Executive
Directors. Hitherto this process, apart from
the establishment of medium-term goals
and targets, has been relatively informal. In
2019 the Executive Directors, together with
the recently appointed COO, have been set
challenging objectives covering a range of
financial, operational and personal matters.
These will be subject to a more formal
process overseen by the Remuneration
Committee. In addition, Nigel Richens will,
in his role as Senior Independent Director,
coordinate a review of the Chairman’s
effectiveness. The Chairman will manage
the process to consider the effectiveness
of the other Non-Executive Directors.
The Board continues to believe that a formal
evaluation of Board performance by an outside
agency would not be cost effective and is
inappropriate given the size of the Board.
Knowledge and training
Each newly appointed Director is provided
with an induction programme comprising
visits to Group locations, meetings with
key personnel and introductions to the
Group’s advisers. In addition, care is taken
to ensure each new Director has as good
an understanding as soon as possible
with regards to the Group’s strategy, risks,
challenges and control and governance
procedures.
The Chairman is responsible for ensuring
that each Director is supplied with timely
and relevant information of a quality, and
in a form, that enables them to discharge
their duties.
There is a policy in place by which a Director
may obtain independent professional advice
at the Group’s expense where their duties
so require.
The training needs of Directors are
discussed and appropriate arrangements
put in place. We work closely with external
training providers and have a programme
in place to deliver tailored training to all
members of our central and divisional
management teams.
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Internal controls and
risk management
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 reconsidered the
need to establish a formal internal audit
function and such a process has started
work in 2019.
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Flowtech Fluidpower plc
CORPORATE GOVERNANCE REPORT
Presentations by the Executive Directors
of interim and full-year results are offered
to all major Shareholders. Other Shareholders
are welcome to contact the Company
and wherever possible their concerns or
questions are responded to by a Director
in person.
Furthermore, the Group invites investors
and potential investors to visit the premises
of its subsidiary companies, should they
wish to see day-to-day operations and
speak with representatives from the
Group in a more informal setting.
General information about the Group is
also available via the Company’s corporate
website, www.flowtechfluidpower.com,
which includes further information about
the business, reports and key documents
and recent company announcements.
Interested parties have the opportunity
to register for RNS alerts, to keep them
informed when important announcements
are released.
Shareholder feedback is regularly presented
and reviewed at Board meetings. On an
ongoing basis, the Board is also furnished
with brokers’ and analysts’ reports when
published.
The Company maintains a dedicated email
address and telephone number which
investors may use to contact the Company
which, together with the Company’s
address, are prominently displayed on
the Contacts page of the Company’s
website. Investors may also make contact
requests through the Company’s joint
brokers, Zeus Capital and FinnCap.
Communication with Shareholders
To ensure the Board is aware of Shareholder
opinion and concerns, the Non-Executive
Directors receive regular Shareholder
feedback which is communicated at
Board meetings. Additionally, independent
information is received through the
Company’s Advisers, from both investors
and analysts.
The Group aims to maintain a regular
dialogue with both existing and potential
Shareholders through an established
investor relations programme, managed by
the CEO, CFO and Company brokers.
All Shareholders receive a printed copy of
the Annual Report and Accounts and at
the same time receive the Notice of the
Annual General Meeting (AGM). By way
of proxy form, Shareholders may vote in
advance of the AGM. All Shareholders are
invited to attend the AGM at which the
results are considered and questions may
be answered by the Board. Following each
AGM, a notice is posted on the corporate
website confirming that all resolutions have
been passed. To provide more information
to Shareholders, following future AGMs,
a notice will be posted outlining the
specific results of voting on all resolutions
including any actions to be taken as a result
of resolutions for which votes against
have been received from at least 20% of
independent Shareholders.
Beyond the Annual General Meeting, the Chief
Executive Officer, Chief Financial Officer and,
where appropriate, other members of the
senior management team meet regularly
with investors, analysts and media to provide
them with updates on the Group’s business
and to obtain feedback regarding the market’s
expectations of the Group.
The Company engages in a minimum of
two investor roadshows per annum.
www.flowtechfluidpower.com
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Annual Report for the year ended 31 December 2018
DIRECTORS’ REMUNERATION REPORT
The Remuneration Committee
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.
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 and motor vehicles.
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.
One of the Executive Directors participates
in the EMI option; these options are
exercisable 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
Salary
and fees
£000
Benefits
£000
Bonus
£000
Notice
£000
Total
2018
£000
Total
2017
£000
Executives
Sean Fennon
Bryce Brooks
Russell Cash
Non-Executives
Malcolm Diamond MBE
Bill Wilson
Nigel Richens
262
175
29
80
13
55
614
2
9
–
–
–
–
90*
188*
–
–
–
–
–
–
–
–
–
–
11
90
188
542
184
29
80
13
55
903
291
206
–
78
–
50
625
* Amounts relate to compensation for loss of office.
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:
G
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E
Executives
Bryce Brooks
Non-Executives
Malcolm Diamond MBE
Bill Wilson
Nigel Richens
As at
31 December
2018
No. of
ordinary
shares
As at
31 December
2017
No. of
ordinary
shares
299,160
94,000
66,028
20,000
73,500
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:
As at 31 December 2017 and
31 December 2018
A shares £1
ordinary
B shares £1
ordinary
D shares £1
ordinary
Executives
Bryce Brooks
As at 31 December 2017
180
3,100
Acquired by Flowtech Fluidpower plc in
consideration for share option exercise
As at 31 December 2018
(103)
77
–
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.
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Flowtech Fluidpower plc
DIRECTORS’ REMUNERATION REPORT
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
As at
31 December
2017
Scheme
Exercised
Cancelled
As at
31 December
2018
EMI (Approved)
EMI (Unapproved)
249,999
222,223
(249,999)
(222,223)
EMI (Approved)
249,999
(90,000)
–
–
–
–
–
159,999
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.
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Annual Report for the year ended 31 December 2018
DIRECTORS’ REPORT
The Directors present their Annual
Report, together with the audited Group
and Company financial statements for
the year ended 31 December 2018. 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
12 to 15. 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
Bollin House, Bollin Walk, Wilmslow,
SK9 1DP.
Results and dividends
The results for the year ended 31 December
2018 are set out in the consolidated income
statement on page 54. The Group has reported
an operating profit from its continuing activities
of £7,678 million (2017: £6.614 million).
After accounting for net finance costs, the
consolidated income statement shows a profit
from continuing operations before taxation of
£6,923 million (2017: profit of £6.039 million).
The Directors are recommending a final
dividend of 4.04 pence per ordinary share
amounting to £2.5 million payable on
12 July 2019 to Shareholders on the
Company’s register at the close of business
on 7 June 2018. The shares will be quoted
ex dividend from 6 June 2019.
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
Bryce Brooks
Russell Cash (from 1 November 2018)
Bill Wilson (from 18 September 2018)
Short biographies of each Director are
provided on pages 34 to 35.
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 2018 which is disclosed in
the Directors’ Remuneration report on
pages 41 to 42.
Details of the Directors’ share options are
provided in the Directors’ Remuneration
report on pages 41 to 42.
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 29 April
2019 there were in issue 60,920,386 fully
paid ordinary shares of 50p each. All shares
are fully transferable and rank pari passu for
voting and dividend rights.
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.
The Company has been notified of the
following interest in more than 3% of the
Company’s issued share capital at 29 April
2019 (being the last practicable date before
the publication of this report):
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Number of
shares held
% of issued
share capital
5,838,908
5,338,886
4,250,000
4,201,401
3,642,000
3,217,840
3,074,183
2,573,774
2,408,112
1,955,802
9.58
8.76
6.98
6.90
5.98
5.28
5.05
4.22
3.95
3.21
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.
Close Brothers Asset Management
Premier Fund Management
Chelverton Asset Management
Miton Asset Management
Odyssean Capital
Canaccord Genuity Wealth Management
Charles Stanley
Lazard Freres Gestion
Hargreaves Lansdown Asset Management
Janus Henderson Investors
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 30.
It is not the Group’s policy to trade in
financial instruments.
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’:
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
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Flowtech Fluidpower plc
DIRECTORS’ REPORT
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.
Re-election
All Directors of the Board are subject to
election by the Shareholders at the first
AGM following their appointment by the
Board and in accordance with the Code,
all Directors will also stand for re-election
annually at the AGM.
Liability insurance
In line with market practice, each Director
is covered by appropriate Directors’ and
Officers’ liability insurance (“D&O”), at the
Company’s expense. The D&O insurance
covers the Directors and Officers against
the costs of defending themselves in legal
proceedings taken against them in that
capacity and in respect of any damages
resulting from those proceedings. The
Company also indemnifies its Directors
and Officers to the extent permitted by law.
Neither the insurance nor the indemnity
provides cover where the Director or Officer
has acted fraudulently or dishonestly.
Annual general meeting
The Annual General Meeting will be held on
5 June 2019 at 10.00 am at our head office,
at Bollin House, Bollin Walk, Wilmslow,
SK9 1DP.
Charitable donations
As a Group we are committed to supporting
local and national charities and encourage
employees to participate in regular
fundraising events.
Conflicts of interest
In line with the Companies Act 2006, all
Directors have a duty to avoid situations
where they have or could have a direct
or indirect conflict of interest with the
Company. The Act allows directors of
public companies to authorise conflicts
and potential conflicts where appropriate
to avoid a breach of duty. The Group has
specific procedures in place to deal with
any potential conflicts of interest and during
this financial year, no actual or potential
conflicts have arisen.
Board composition
The Board aims to ensure it has the required
balance of skills and experience. In 2018
the following changes were made at Board
level:
• Sean Fennon (Chief Executive Officer)
retired on 19 September 2018. He
remained with the Company in an
advisory role until 31 December 2018.
• Bryce Brooks was appointed as new
Chief Executive Officer on 19 September
2018 and continued his role as Chief
Financial Officer, until Russell Cash
was appointed.
• Russell Cash joined the Group on
1 November 2018 as Chief Financial
Officer.
• Bill Wilson joined the Group on
18 September 2018 as Non-Executive
Director.
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 2018 the total shares
in the Company held by the Enterprise
Management Incentive Plans were 644,999
representing 1.1% 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 2026.
At 31 December 2018 the total shares in
the Company held by the Company Share
Option Plan was 597,300 representing
0.98% 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.
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Annual Report for the year ended 31 December 2018
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
Russell Cash
Chief Financial Officer and Company
Secretary
29 April 2019
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 30.3 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.
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Flowtech Fluidpower plc
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
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.
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 applicable
IFRSs, as adapted by the European
Union have been followed, subject to
any material departures disclosed and
explained in the financial statements;
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;
• prepare the financial statements on
the going concern basis unless it is
inappropriate to presume that the Group
and Company will continue in business.
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Annual Report for the year ended 31 December 2018
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 2018 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 2018
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; 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.
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 twelve
months from the date when the financial statements are authorised for issue.
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Overview of our audit approach
• Overall materiality: £346,000, 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, provision for impairment of inventories, implementation of new IT system and sufficiency
of reconciliation procedures, and impairment of the parent Company’s investments in its subsidiaries and
amounts due from subsidiary undertakings.
• 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 significant
components based upon Group materiality. We performed specified procedures on Flowtechnology Benelux BV
and Hydraulic Group BV
Grant Thornton
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INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF FLOWTECH FLUIDPOWER PLC
Key audit matters
Key audit matters are those matters that, in our professional judgment, 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
Financial Reporting Standard (IFRS) 15: ‘Revenue
from contracts with customers’.
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 the
most significant assessed risks of material
misstatement
Our audit work included, but was not restricted to:
• Consideration of revenue recognition policies to assess whether the policies are
in accordance with International Financial Reporting Standard (IFRS) 15: ‘Revenue
from contracts with customers’;
• Assessment 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; and
• Agreement of a sample of revenue entries for material revenue streams to
supporting documentation.
The group’s accounting policy on revenue is shown in note 2.15 to the financial
statements and related disclosures are included in note 3.
Key observations
Our procedures did not identify any material misstatements in respect of the
recognition of revenue for the Group’s material revenue streams. We are satisfied that
the Group’s accounting policies provide sufficient information regarding the Group’s
material revenue streams and that they comply with International Financial Reporting
Standard (IFRS) 15: ‘Revenue from contracts with customers’.
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Annual Report for the year ended 31 December 2018
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 and
goodwill. The group has undertaken an acquisition
during the year and performed an assessment
of the nature and value of the intangible
assets acquired in the business combination.
Management have also assessed the fair value of
all assets acquired in the business combination.
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 the 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:
• Consideration 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’
• Assessment of whether intangible assets have been accounted for in accordance
with the group’s accounting policies;
• Assessing management’s impairment review and challenging the valuation
approach used;
• Assessing the accuracy of management’s forecasting through a comparison of
historical data to actual results and projections for following periods;
• Challenging the appropriateness of management’s assumptions, including the
growth rate and discount rate used;
• Performance of sensitivity analysis to understand the impact of any reasonably
possible changes in assumptions, and evaluate the headroom available from
different outcomes so as to assess whether goodwill and intangible assets could
be impaired;
• Assessing the adequacy of the disclosures in the financial statements for the
requirements of IAS 36 ‘Impairment of Assets’.
The group’s accounting policy on goodwill and intangibles are shown in note 2.9 to the
financial statements and related disclosures are included in notes 10 and 11.
Key observations
Our procedures did not identify any material misstatements in respect of the allocation
and valuation of the Group’s intangible assets and goodwill. No impairments of
intangible assets or goodwill were identified from the work performed. The assumptions
used in the valuation and impairment model were considered appropriate. We consider
the disclosures in the financial statements to provide sufficient information regarding
both the acquisition in the year and management’s impairment review of goodwill and
intangible assets.
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Provision for impairment of inventories
The Group trading entities hold 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.
Inventory management is one of the key
challenges facing management and one of the
main determinants of the Group’s underlying
performance.
We therefore identified provision for impairment
of inventories 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:
• Consideration of the Group’s accounting policy in respect of the impairment of
inventories to assess whether it 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 provision
• Comparison of inventory values to sales prices for a sample of inventory lines
• Consideration of the reasonableness of the inventory provision, including re-
performance of the calculation of the provision and consideration of historical
performance.
The Group’s accounting policy on provision for impairment of inventories is shown in
note 2.11 to the financial statement and related disclosures are included in note 15.
Key observations
We consider the inventory provision to be reasonable.
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INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF FLOWTECH FLUIDPOWER PLC
Key audit matter – Group
How the matter was addressed in the audit – Group
Our work included, but was not restricted to:
• Assessment of management’s reconciliation process and investigation of unusual
reconciling items.
•
Investigation and agreement of transactions processed post year end, to determine
whether liabilities recorded at 31 December 2018 were materially complete.
• Consideration of payables cut off and agreement of transactions processed at the
year end, to determine whether liabilities were recorded in the correct period.
• Assessment of payables ledgers and accruals which involved consideration of
large or unusual balances, testing a sample of debit balances to assess whether
they had been accounted for appropriately and using analytical procedures in
evaluate the reasonableness of payables and accruals.
• Agreement of a sample of payables and accruals to underlying records, to assess
the accuracy of the information and calculations prepared by management.
•
Identification and investigation of unusual journals associated with these
processes.
Key observations
We determined management’s response to the challenges presented by the system
implementation and reconciliation processes to be appropriate. No material
unrecorded liabilities or cut off errors were identified from the audit procedures listed
above. Our testing of unusual journals and transactions did not identify any material
misstatements.
Implementation of new IT system and
sufficiency of reconciliation procedures
The Group introduced a new IT system into
several of its subsidiaries during the year. The
implementation of the new IT system proved
challenging due to difficulties experienced with
an IT interface and insufficient reconciliation
procedures performed during the year. In
particular, this gave rise to concerns regarding
the completeness of payables and accruals
and the accuracy of payables cut off. The
implementation of the new system also resulted in
the requirement to process a higher than expected
number of manual transactions and journals,
particularly at the year end.
Management has assessed the impact of the
challenges presented by the implementation
of the new system by performing a detailed
review of trade payables, accruals and cut off.
Management has also performed a detailed
review of the reconciliations performed at the year
end, including associated journals.
The challenges presented by the implementation
of the new IT system and sufficiency of the
reconciliation procedures, and the resulting
requirement for a higher than expected number
of manual transactions and journals, increase
the risk of material misstatement of the financial
statements. These matters were initially brought
to our attention by management at the planning
stage of the audit. However, the full extent of
the challenges presented by these matters did
not become apparent until later in the audit
process. We accordingly reassessed the risk of
material misstatement of the financial statements
based upon our revised understanding. We
consequently identified the implementation
of the new IT system and sufficiency of the
reconciliation procedures as a significant risk, and
therefore one of the most significant assessed
risks of material misstatement
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Annual Report for the year ended 31 December 2018
Key audit matter – Parent
How the matter was addressed in the audit – Parent
Impairment of investments in subsidiaries
and amounts due from subsidiary
undertakings
The parent Company holds significant
investments in subsidiary undertakings. The
parent Company also has significant amounts due
from subsidiary undertakings.
Management have performed an impairment
review of the parent Company’s investments in
subsidiary undertakings. Management have also
assessed whether amounts owed by subsidiary
undertakings to the parent Company are impaired
at the year end.
The judgements made in respect of the
impairment review are subject to significant
measurement uncertainty. We therefore identified
impairment of investment in subsidiaries and
amounts due from subsidiary undertakings
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:
• Assessing management’s impairment review and challenging the valuation
approach used;
• Assessing the accuracy of management’s forecasting through a comparison of
historical data to actual results and projections for following periods;
• Challenging the appropriateness of management’s assumptions, including the
growth rate and discount rate used;
• Performance of sensitivity analysis to understand the impact of any reasonably
possible change in key assumptions; and
• Assessing the adequacy of the disclosures in the financial statements for the
requirements of IAS 36 ‘Impairment of Assets’.
The company’s accounting policy on impairment is shown in note B to the parent
Company financial statements and related disclosures are included in note J to the
parent Company financial statements.
Key observations
No impairment of investment in subsidiary undertakings and amounts owed by
subsidiary undertakings were identified from the work performed.
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
£346,000, 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.
Materiality for the current year is higher than the level
that we determined for the year ended 31 December
2017 to reflect the increase in the Group’s profit
before tax.
£260,000, which is based on 2% of the company’s
net assets, capped at Group performance
materiality.
Materiality for the current year is higher than
the level that we determined for the year ended
31 December 2017 to reflect the increase in the
Group’s profit before tax, which is the key driver of
Parent materiality.
Performance materiality used to
drive the extent of our testing
75% of financial statement materiality.
75% of financial statement materiality.
Specific materiality
We have applied a specific materiality to Directors’
emoluments.
We have applied a specific materiality to Directors’
emoluments.
Communication of
misstatements to the audit
committee
£17,300 and misstatements below that threshold
that, in our view, warrant reporting on qualitative
grounds.
£13,000 and misstatements below that threshold
that, in our view, warrant reporting on qualitative
grounds.
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Flowtech Fluidpower plc
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF FLOWTECH FLUIDPOWER PLC
The graph below illustrates how performance materiality interacts with our overall materiality and the tolerance for potential uncorrected
misstatements.
Overall materiality – Group
Overall materiality – Parent
25%
25%
75%
75%
n Tolerance for potential uncorrected mis-statements n Performance materiality
An overview of the scope of our audit
Our audit approach was a risk-based approach founded on a thorough 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
total assets, revenues and profit before tax;
• 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 84% of the Group’s revenue, 94% of the Group’s profit before tax and 62%
of the Group’s total 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;
• Performance of specified procedures on specific balance in entities which do not require full scope audit procedures for the purposes
of the Group audit opinion. Our specified procedures covered Flowtechnology Benelux BV and Hydraulics Group BV, and focused 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; and
• 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.
The only changes in scope from the prior year relate to specified procedures being performed in respect of Hydraulic Group BV and
procedures performed in relation to the Group’s acquisitions.
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.
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Annual Report for the year ended 31 December 2018
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 46, 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.
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.
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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.
Use of our report
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.
Michael Frankish
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
Manchester
29 April 2019
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Flowtech Fluidpower plc
CONSOLIDATED INCOME STATEMENT
Continuing operations
Revenue
Cost of sales
Gross profit
Distribution expenses
Administrative expenses before separately disclosed items:
— Separately disclosed items
Total administrative expenses
Operating profit
Financial income
Financial expenses
Net financing costs
Profit from continuing operations before tax
Taxation
Profit from continuing operations
Profit for the year attributable to:
Non-controlling interest
Owners of the parent
Earnings per share
Basic earnings per share – continuing operations
Diluted earnings per share – continuing operations
Note
3
4
3, 4
6
6
3
7
9
2018
£000
2017
£000
111,051
(72,447)
38,604
(4,216)
(23,389)
(3,321)
(26,710)
7,678
11
(766)
755
6,923
(1,992)
4,931
20
4,911
4,931
8.34p
8.28p
78,287
(51,722)
26,565
(3,175)
(14,309)
(2,467)
(16,776)
6,614
6
(581)
(575)
6,039
(1,207)
4,832
–
4,832
4,832
9.69p
9.58p
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Annual Report for the year ended 31 December 2018
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
Total comprehensive income for the year attributable to:
Non-controlling interest
Owners of the parent
2018
£000
4,931
–
128
5,059
20
5,039
5,059
2017
£000
4,832
(28)
279
5,083
–
5,083
5,083
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Flowtech Fluidpower plc
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 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 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
Shares owned by the Employee Benefit Trust
Merger reserve
Merger relief reserve
Currency translation reserve
Retained losses
Total equity attributable to the owners of the Parent
Non-controlling interest
Total equity
Note
2018
£000
2017
£000
10
11
13
15
16
17
18
19
20
22
18
20
21
14
25
63,022
7,624
6,735
77,381
28,667
25,475
668
2,248
57,058
18,078
18,372
2,240
2,115
–
40,805
16,253
4,051
–
399
1,751
6,201
87,433
30,460
60,793
187
(413)
293
3,575
664
(8,146)
87,413
20
87,433
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
(40)
293
3,194
536
(8,085)
74,864
–
74,864
The financial statements on pages 54 to 105 were approved by the Board of Directors on 29 April 2019 and were signed on its behalf by:
Russell Cash
Chief Financial Officer
Company number: 09010518
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Annual Report for the year ended 31 December 2018
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share
capital
£000
Share
premium
£000
Other
reserve
£000
Merger
reserve
£000
Shares
owned by
the EBT
£000
Merger
relief
reserve
£000
Currency
translation
reserve
£000
Retained
losses
£000
Non-
controlling
interest
£000
Balance at 1 January 2017 21,539
46,880
Profit for the year
Other comprehensive
income
Total comprehensive
income for the year
Transactions with owners
–
–
–
–
–
–
Issue of share capital
4,870
5,490
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
–
–
–
–
–
–
–
–
–
–
4,870
5,490
Balance at 1 January 2018 26,409
52,370
Profit for the year
Other comprehensive
income
Total comprehensive
income for the year
Transactions with owners
–
–
–
–
–
–
Issue of share capital
3,450
8,423
Share owned by the EBT
–
Issue of shares in exchange
for shares in subsidiary
undertaking
Share-based payment
charge
Share options settled
Equity dividends paid
(note 8)
Total transactions
with owners
Balance at 31 December
2018
601
–
–
–
4,051
8,423
–
–
–
–
–
–
–
–
–
–
187
–
–
–
–
187
187
–
–
–
–
–
–
–
–
–
–
Total
equity
£000
60,849
4,832
251
5,083
11,468
187
(246)
272
128
(2,877)
8,932
74,864
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293
(338)
2,086
257
(9,868)
–
–
–
–
–
–
–
–
–
-
–
–
–
–
–
(246)
–
544
–
–
–
–
1,108
–
–
–
–
–
298
1,108
4,832
279
(28)
279
4,804
–
–
–
–
–
–
-
–
–
–
272
(416)
(2,877)
(3,021)
293
(40)
3,194
536
(8,085)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(650)
–
277
–
–
–
–
381
–
–
–
–
–
(373)
381
–
4,911
20
4,931
128
–
–
128
128
4,911
20
5,059
–
–
–
–
–
–
–
–
–
(1,303)
191
(302)
(3,558)
(4,972)
–
–
–
–
–
–
–
–
12,254
(650)
(702)
191
(25)
(3,558)
7,510
30,460
60,793
187
293
(413)
3,575
664
(8,146)
20
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Flowtech Fluidpower plc
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 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
Note
26
24
13
8
17,18
17
18
2018
£000
2017
£000
3,790
6,600
(9,703)
(1,343)
64
(3,546)
(14,528)
10,161
–
1,000
(343)
–
(722)
276
(3,558)
6,813
(3,925)
4,199
(21)
253
2,248
(1,995)
253
(11,798)
(1,802)
22
(1,649)
(15,227)
9,531
(857)
3,000
(58)
6
(476)
722
(2,877)
8,991
364
3,824
11
4,199
4,588
(389)
4,199
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 2018
Cash flows:
Repayment
Proceeds
Non cash:
Acquisition
At 31 December 2018
Company number: 09010518
Long-term
borrowings
£000
Short-term
borrowings
£000
Lease
liabilities
£000
Total
£000
4,000
15,000
159
19,159
–
–
–
–
1,000
–
4,000
16,000
(343)
–
318
134
(343)
1,000
318
20,134
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Annual Report for the year ended 31 December 2018
NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION
1. General information
The principal activity of Flowtech Fluidpower plc (the “Company”) and its subsidiaries (together, the “Group”) is the distribution of engineering
components and assemblies, concentrating on the fluid power industry. The Company is a public limited company, incorporated and
domiciled in the United Kingdom. The address of its registered office is Bollin House, Bollin Walk, Wilmslow, SK9 1DP. The registered number
is 09010518.
News updates, regulatory news, and financial statements can be viewed and downloaded from the Group’s website, www.flowtechfluidpower.
com. Copies can also be requested from: The Company Secretary, Flowtech Fluidpower plc, Bollin House, Bollin Walk, Wilmslow, SK9 1DP.
Email: info@flowtechfluidpower.com; 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.
New standards adopted as at 1 January 2018
IFRS 15 ‘Revenue from Contracts with Customers’
IFRS 15 ‘Revenue from Contracts with Customers’ and the related ‘Clarifications to IFRS 15 Revenue from Contracts with Customer’
(hereinafter referred to as ‘IFRS 15’) replace IAS 18 ‘Revenue’, IAS 11 ‘Construction Contracts’, and several revenue-related Interpretations.
Management have reviewed the impact of IFRS 15 on the Group’s revenue streams, and have concluded that the new standard does affect
the timing or measurement of revenue recognised in relation to the Group’s revenue streams for the year ended 31 December 2018 or the
year ended 31 December 2017. In making their assessment, management considered how the standard applied to contracts which were
incomplete as at 1 January 2018, as required by the standard.
IFRS 9 ‘Financial Instruments’
IFRS 9 replaces IAS 39 ‘Financial Instruments: Recognition and Measurement’. It makes major changes to the previous guidance on the
classification and measurement of financial assets and introduces an ‘expected credit loss’ model for the impairment of financial assets.
Management have reviewed the impact of IFRS 9 on the Group’s financial instruments, and have not identified any differences arising from
the adoption of IFRS 9 in relation to classification, measurement and impairment of financial assets or liabilities. In making their assessment,
management have considered how the standard applied to financial assets and liabilities held at 1 January 2018, and have not identified any
transitional adjustments.
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. Current banking facilities are due for renewal in March 2021.
Accordingly, the Directors continue to adopt the going concern basis in preparing these financial statements.
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Flowtech Fluidpower plc
NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION
2. Accounting policies 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 2018. 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.
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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.
IFRS 9 ‘Financial instruments’ was adopted during the year, there was no impact on transition. There would be no material impact from
applying the expected credit loss model to the Group’s financial assets.
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:
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Motor vehicles
50 years – straight-line
4 to 5 years – reducing balance
Depreciation methods, useful lives and residual values are reviewed at each reporting date.
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2. Accounting policies 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.
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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 cash generating units. The goodwill acquired in a business combination, for the purpose of
impairment testing, is also allocated to the relevant cash generating unit. Goodwill acquired in a business combination is allocated to cash
generating units 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 cash generating units exceeds its estimated recoverable amount.
Impairment losses are recognised in the income statement. Impairment losses recognised in respect of cash generating units are allocated
first to reduce the carrying amount of any goodwill allocated to the cash generating units, and then to reduce the carrying amounts of the
other assets in the cash generating unit on a pro rata basis.
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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.
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2. Accounting policies continued
2.15 Revenue
Revenue for sale of goods is the total amount receivable by the Group for goods supplied, excluding VAT and discounts. Revenue from
the sale of goods is recognised in the income statement at a point in time 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 services provided are recognised at a point in time when the service has been delivered to the customer.
Revenues from contracts with customers for site installation projects is recognised as a performance obligation satisfied over time. Revenue
is recognised for each contract based upon its stage of completion. Revenue is measured on an output basis, as the transfer of economic
benefit depends on the value transferred relative to the remaining goods and services promised under the contract. The Group recognises
contract liabilities for consideration received in respect of unsatisfied performance obligations. Similarly, if the Group satisfies a performance
obligation before it receives the consideration, the Group recognises a receivable in its statement of financial position.
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.
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2.21 Adopted IFRS not yet applied
New standards and interpretations currently in issue (as at 2 November 2019) but not effective, for accounting periods commencing on
1 January 2019 are:
•
•
IFRS 16 Leases (effective date 1 January 2019).
IFRIC Interpretation 23 Uncertainty over Income Tax Treatments (effective date 1 January 2019).
• Amendments to IFRS 9: Prepayment features with negative compensation (effective date 1 January 2019).
• Annual Improvements to IFRS Standards 2015 — 2017 Cycle (not yet endorsed).
• Amendments to IAS 19: Plan Amendment, Curtailment or Settlement (not yet endorsed).
• Amendments to IFRS 3: Business Combinations (not yet endorsed).
• Amendments to IAS 28: Long-term Interests in Associates and Joint Ventures (not yet endorsed).
• Amendments to References to the Conceptual Framework in IFRS Standards (not yet endorsed).
• Annual improvements to IFRS 2014 — 2016 Cycle (Issued 8 December 2016) - Relating to IFRS 12 Disclosure of interest in other entities
(not yet endorsed).
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 16 ‘Leases’
This standard, which will replace IAS 17, requires lessees to recognise assets and liabilities for all leases, unless the lease term is 12 months
or less or the underlying asset is low value. As at 31 December 2018, the Group holds a significant number of operating leases which
currently, under IAS 17, are expensed on a straight-line basis over the lease term (see note 27).
Retrospective application in the comparative year ended 31 December 2018 is optional. The Group is not taking this optional application
and will apply the standard from the transitional date using the modified retrospective approach, adjusting opening retained earnings and
not restating comparatives. This involves calculating the right-of-use asset and lease liability based on the present value of remaining lease
payments on all applicable lease contracts as at the transition date.
The Group is progressing well in analysing the implementation of IFRS 16 and expects the most significant leases to relate to property and
vehicles. Management are yet to fully assess the impact of the standard and are therefore unable to provide quantifiable information.
The discount rate, the renewal of and changes to the lease portfolio and exchange rates on translation of non-sterling operations are all
subject to change in future years, which will impact the actual transitional adjustment as at the expected transition date.
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NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION
2. Accounting policies 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.
‘Non-controlling interest’ relates to profits attributable to non-material non-controlling interests held in subsidiaries.
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 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 re-translated 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 re-translated 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.
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2.24 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.
Significant management judgements
The following judgements have the most significant effect on the financial statements.
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.
Estimation uncertainty
Information about estimations and assumptions that may have the most significant affect on recognition and measurement of assets,
liabilities, income and expenses is provided below. Actual results may be substantially different.
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
2018 is £63,022,000 (2017: £57,938,000). 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 £7,624,000 (2017: £7,430,000). Refer
to note 11 for further detail.
Provision for impairment of inventories
The carrying value of inventories as at 31 December 2018 was £28,667,000 (2017: £24,333,000) and included a provision against the
inventories of £767,000 (2017: £814,000). During the year £201,000 (2017: £329,000) of the provision was utilised following the scrapping
and sale of obsolete inventory. During the year a further provision of £154,000 was made (2017: provision of £212,000). 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.
2.25 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.
2.26 Investment in own shares
Own shares held by the Group’s Employee Benefit Trust have been classified as deductions from Shareholders’ funds.
2.27 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.
2.28 Non-controlling interests
The Group attributes total comprehensive income or losses of subsidiaries between the owners of the parent and the non-controlling
interests based on their respective ownership interests.
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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
Underlying segment result
Impact of fair value adjustment to inventory
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*
Impact of fair value adjustment to inventory
Separately disclosed items (see note 4)
Operating profit/(loss)
Flowtechnology
£000
45,218
2,031
47,249
9,574
(13)
9,562
(382)
(432)
8,748
605
100
9,574
(382)
(432)
8,760
Power
Motion
Control
£000
57,533
772
58,305
3,694
(41)
3,653
–
(2,199)
1,454
286
747
3,694
–
(2,199)
1,495
For the year ended 31 December 2018
Inter-
segmental
transactions
£000
Process
£000
Central
costs
£000
Total
continuing
operations
£000
8,300
151
8,451
1,300
(73)
1,226
–
779
2,005
50
193
1,300
–
779
2,079
–
(2,954)
(2,954)
—
—
—
–
—
—
—
—
—
–
—
—
–
–
–
(3,187)
(629)
(3,816)
–
(1,468)
(5,284)
111,051
–
111,051
11,380
(755)
10,625
(382)
(3,321)
6,923
–
–
941
1,040
(3,187)
11,380
–
(1,468)
(4,655)
(382)
(3,321)
7,678
* Underlying operating result is continuing operations’ operating profit before the fair value adjustment to inventory acquired through business combinations, acquisition costs, amortisation of
acquired intangibles, share-based payment costs and restructuring costs.
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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
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
For the year ended 31 December 2017
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
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:
31 December 2018
31 December 2017
Sale of
goods
£000
83,886
22,606
1,911
Contracts
£000
Services
£000
Total
revenue
£000
Non-
current
assets
£000
732
1,916
86,534
72,526
–
–
–
–
22,606
5,732
1,911
–
United Kingdom
Europe
Rest of the World
Total
108,403
732
1,916
111,051
78,258
Sale of
goods
£000
62,905
12,299
1,484
76,688
Contracts
£000
Services
£000
Total
revenue
£000
Non-
current
assets
£000
543
1,056
64,504
65,754
–
–
–
–
12,299
5,684
1,484
—
543
1,056
78,287
71,438
Revenue from contracts relate to contracts completed during the year and there are no assets or liabilities relating to contracts at the year
end. No new long term contracts were entered into during the year.
No customers of the Group account for 10% or more of the Group’s revenue for either of the years ended 31 December 2018 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.
F
I
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A
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C
I
A
L
S
T
A
T
E
M
E
N
T
S
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Flowtech Fluidpower plc
NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION
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
(Gain)/loss 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 30.1)
Loss/(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:
2018
£000
64
(262)
154
899
42
1,040
264
9
1,369
482
203
2018
£000
20
2017
£000
27
266
212
627
13
768
229
(3)
1,014
289
151
2017
£000
20
Audit of financial statements of subsidiaries of the Company
149
117
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 30.1)
Total separately disclosed items
2018
£000
824
1,040
191
1,002
264
3,321
2017
£000
1,081
768
272
117
229
2,467
• The fair value uplift of inventory acquired through business combinations is recognised in accordance with IFRS 3 ‘Business
Combinations’ to record the inventory acquired at fair value and its subsequent release into the income statement.
• 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.
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Annual Report for the year ended 31 December 2018
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
2018
Number
2017
258
315
573
2018
£000
17,806
1,815
475
99
197
217
414
2017
£000
11,707
1,211
328
136
20,195
13,382
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
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*
Notice pay*
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*
Notice pay*
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 41 to 42.
* Remuneration includes £90,000 in respect of compensation for loss of office. Notice pay of £188,000 also relates to compensation for loss of office.
2018
£000
704
188
78
11
981
2018
£000
352
188
34
2
576
2017
£000
525
–
58
5
588
2017
£000
235
–
31
2
268
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Flowtech Fluidpower plc
NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION
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
Fair value gains on forward exchange contracts held for trading
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 charge/(credit)
Total tax expense – continuing operations
2018
£000
2017
£000
–
11
11
6
–
6
2018
£000
2017
£000
20
454
21
191
17
703
63
–
63
766
2018
£000
1,623
164
202
1,989
(24)
27
–
3
1,992
8
262
10
88
12
380
190
11
201
581
2017
£000
1,258
167
(89)
1,336
(111)
—
(18)
(129)
1,207
No income tax was recognised in other comprehensive income or directly in equity for either of the years ended 31 December 2017 or 2018.
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Annual Report for the year ended 31 December 2018
Reconciliation of effective tax rate
Profit for the year
Total tax expense
Profit excluding taxation
Tax using the UK corporation tax rate of 19.00% (2017: 19.25%)
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
Deferred tax arising on acquisition
Income not taxable
Amounts not deductible
Adjustment in respect of prior periods
Total tax expense in the income statement – continuing and discontinued
2018
£000
4,931
1,992
6,923
1,315
(40)
(38)
(47)
–
(4)
(6)
(314)
897
229
1,992
2017
£000
4,832
1,207
6,039
1,162
38
(101)
29
(12)
(8)
—
(96)
284
(89)
1,207
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 2018 have been
calculated based on these rates.
8. Dividends
Final dividend of 3.85p (2017: 3.67p) per share
Interim dividend of 2.03p (2017: 1.93p) per share
Total dividends
2018
£000
2,330
1,228
3,558
2017
£000
1,878
999
2,877
The Directors are proposing a final dividend in respect of the financial year ended 31 December 2018 of 4.04p (2017: 3.85p) per share which
will absorb an estimated £2.5 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 12 July 2019 to Shareholders who are on the register of members on 7 June 2019.
F
I
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A
N
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I
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L
S
T
A
T
E
M
E
N
T
S
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Flowtech Fluidpower plc
NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION
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 2018
Year ended 31 December 2017
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
Diluted earnings per share
Continuing operations
4,911
58,889
4,911
59,278
8.34
8.28
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 acquisitions
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
The goodwill acquired during the year relates to the acquisition of Balu Limited; see note 24.
The goodwill has been recognised in the Flowtechnology operating segment.
Goodwill analysed by segment is as follows:
Flowtechnology (Fluidpower Limited, Flowtechnology Cz Limited, Balu 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
www.flowtechfluidpower.com
4,831
49,835
9.69
4,831
50,409
2018
£000
58,889
389
59,278
2018
£000
57,938
399
4,685
63,022
–
–
–
9.58
2017
£000
49,835
574
50,409
2017
£000
47,927
227
9,784
57,938
—
—
—
63,022
57,938
2018
£000
48,016
11,249
3,757
63,022
2017
£000
43,330
10,864
3,744
57,938
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Annual Report for the year ended 31 December 2018
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. 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 2019, which are
extrapolated for a further four years.* The Group’s latest financial forecasts, which cover a two year period, are reviewed by the Board.
* Using growth rates as follows: Fluidpower Limited, Balu Limited and Flowtechnology Benelux: 2.5%; PMC Fluidpower Limited, The Hydraulic Group BV, Hi-Power Limited and Nelson Hydraulics
Limited: 2.5%; Process Fluidpower Limited: 2.5%
Discount rates
The pre-tax discount rate used to calculate value is 9% (2017: 9%). 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 £51 million. Increasing
the discount rate to 27% and leaving all other factors the same would lead to the recoverable amount being equal to the carrying value
of the fixed assets attributed to Fluidpower Limited.
In respect of the goodwill attributed to PMC Fluidpower Limited, the headroom compared to the carrying value exceeds £31 million.
Increasing the discount rate to 28% and leaving all other factors the same would lead to the recoverable amount being equal to the carrying
value of the fixed assets attributed to PMC Fluidpower Limited.
In respect of the goodwill attributed to Process Fluidpower Limited, the headroom compared to the carrying value exceeds £11 million.
Increasing the discount rate to 48% and leaving all other factors the same would lead to the recoverable amount being equal to the carrying
value of the fixed assets attributed to Process 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.
F
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M
E
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11. Other intangible assets
Gross carrying value
Balance at 1 January 2019
Acquired through business combinations
– brands
Acquired through business combinations
– customer relationships (note 24)
Balance at 31 December 2018
Amortisation and impairment
Balance at 1 January 2018
Amortisation
Balance at 31 December 2018
Carrying amount at 31 December 2018
Customer relationships
Brands
Total
2018
£000
2017
£000
2018
£000
2017
£000
2018
£000
2017
£000
9,214
5,796
96
–
—
1,077
157
9,371
1,845
941
2,786
6,585
3,418
9,214
1,096
749
1,845
7,369
—
1,173
35
99
134
1,039
96
—
—
96
16
19
35
61
9,310
5,892
1,077
157
10,544
1,880
1,040
2,920
7,624
—
3,418
9,310
1,112
768
1,880
7,430
Additions in the year to customer relationships relate to the acquisition of Balu 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.
Additions in the year to brands relate to the acquisitions of Balu 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.
Stock code: FLO
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Flowtech Fluidpower plc
NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION
12. Subsidiary undertakings
Country of
incorporation Principal activity
Ownership
Holding company
Distributors of engineering components
Distributors of engineering components
Dormant
Dormant
Assembly of engineering components
Holding company
Holding company
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
Dormant
Assembly and distribution of engineering components
Distributors of engineering components
Dormant
Dormant
Assembly and distribution of engineering components
Assembly and distribution of engineering components
Assembly and distribution of engineering components
Dormant
Dormant
UK
Flowtech Mid-Co Limited
UK
Fluidpower Limited
Netherlands
Flowtechnology Benelux B.V.
UK
Vitassem Limited
UK
IPL Fluidpower Limited
UK
Flowtechnology CZ Limited
UK
Flowtech Europe Limited
UK
Flowtechnology Asia Limited
China
Flowtechnology HK Limited
UK
Fluidpower Shared Services Limited
UK
Fluidpower MIP Limited
UK
Fluidpower Properties Limited
UK
Fluidpower Group Limited
UK
Indequip Limited
Onsite Fluidpower Limited
UK
PMC Fluidpower Group Limited (formerly PMC Fluidpower Limited) UK
PMC Fluidpower Limited (formerly Primary Fluid Power Limited) UK
UK
KR Couplings Limited
UK
Betabite Hydraulics Limited
UK
Titan Fluid Power Limited
UK
Nelson Hydraulics Limited
UK
Hydraulics (Ireland) Limited
UK
Process Fluidpower Group Limited (formerly Process
Fluidpower Limited)
Process Fluidpower Limited (formerly Hydravalve (UK) Limited) UK
UK
Haitima Flow Control UK Limited
UK
HUK Valves Limited
UK
Hydraulics and Transmissions Limited
ROI
Hi-Power Limited
UK
Orange County Limited
UK
Primary Fluid Power Limited
UK
Hydravalve UK Limited
Netherlands Holding company
The Hydraulic Group BV
Netherlands
Hydroflex-Hydraulics BV
Netherlands
Hydroflex-Hydraulics Rotterdam BV
Belgium
Hydroflex-Hydraulics Belgium NV
UK
Group HES Limited
UK
Hydraulic Equipment Supermarkets Limited
UK
Branch Hydraulic Systems Limited
UK
HES Tractec Limited
UK
HES Lubemec Limited
UK
HES Automatec Limited
UK
Balu Limited
UK
Beaumanor Limited
UK
Derek Lane & Co Limited
UK
Derek Lane (Contracts) Limited
UK
Derek Lane & Co (South West) Limited
UK
DLC Defence Ltd
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
Holding company
Distributors of engineering components
Assembly and distribution of engineering components
Dormant
Dormant
Dormant
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
90%
100%
100%
100%
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Annual Report for the year ended 31 December 2018
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 13 March 2018, the Group acquired 100% of the ordinary shares in Balu Limited, and its trading subsidiaries, Beaumanor Limited and
Derek Lane & Co Limited and also its dormant subsidiaries Derek Lane (Contracts) Limited, Derek Lane & Co (South West) Limited and DLC
Defence Ltd.
The group includes one subsidiary with a non-material non-controlling interest, Derek Lane & Co Limited. The proportion of ownership
interest and voting rights held by the non-controlling interest is 10%.
13. Property, plant and equipment
Cost
Balance at 1 January 2017
Additions
Disposals
Acquisitions through business combinations
Effect of movements in foreign exchange
Balance at 31 December 2017 and 1 January 2018
Additions
Disposals
Acquisitions through business combinations (note 24)
Fair value amendment relating to prior year acquisitions
Effect of movements in foreign exchange
Balance at 31 December 2018
Depreciation and amortisation
Balance at 1 January 2017
Depreciation charge for the year
Disposals
Effect of movements in foreign exchange
Balance at 31 December 2017 and 1 January 2018
Depreciation charge for the year
Disposals
Effect of movements in foreign exchange
Balance at 31 December 2018
Net book value
At 31 December 2018
At 1 January 2018
At 1 January 2017
Plant,
machinery
and
equipment
£000
Motor
vehicles
£000
7,929
1,831
(87)
792
20
10,485
1,248
–
359
(312)
4
235
9
(22)
243
–
465
95
(82)
266
–
–
Land and
property
£000
1,131
–
–
–
–
1,131
–
–
–
–
–
Total
£000
9,295
1,840
(109)
1,035
20
12,081
1,343
(82)
625
(312)
4
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
1,131
11,784
744
13,659
59
29
–
–
88
29
–
–
5,255
570
(41)
26
5,810
779
–
–
117
6,589
1,014
1,043
1,072
5,195
4,675
2,674
82
41
(10)
–
113
133
(28)
–
218
526
352
153
5,396
640
(51)
26
6,011
941
(28)
–
6,924
6,735
6,070
3,899
At year end the net book value of leased plant, machinery and equipment was £229,000 (2017: £169,000). Included in land and property is
land at a cost of £145,000 which is not depreciated (2017: £145,000).
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Flowtech Fluidpower plc
NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION
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
Provisions
Employee share-based payments
Tax assets/(liabilities)
Net deferred tax liability
Assets
Liabilities
2018
£000
—
—
51
26
77
2017
£000
—
—
37
69
106
2018
£000
(1,513)
(315)
—
—
(1,828)
(1,751)
2017
£000
(1,418)
(248)
—
—
(1,666)
(1,560)
A deferred tax asset of £77,000 (2017: £117,000) in respect of cumulative share-based payments of £405,000 (2017: £615,000) 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 2018
Intangible assets (note 24)
Property, plant and equipment
Provisions
Employee share-based payments
Movement in deferred tax during the year ended 31 December 2018
Intangible assets
Property, plant and equipment
Provisions
Employee share-based payments
15. Inventories
Finished goods and goods for resale
1 January
2018
£000
Recognised
in profit
or loss
£000
Acquired
during
the year
£000
31 December
2018
£000
(1,418)
(248)
37
69
(1,560)
115
(8)
11
(43)
75
(210)
(60)
3
–
(1,513)
(315)
51
26
(267)
1,751
1 January
2018
£000
Recognised
in profit
or loss
£000
Acquired
during
the year
£000
31 December
2018
£000
(950)
(182)
47
66
(1,019)
148
(12)
(10)
3
129
(616)
(54)
–
–
(1,418)
(248)
37
69
(670)
(1,560)
2018
£000
28,667
2017
£000
24,333
Charges in finished goods recognised as cost of sales in the year amounted to £63,683,000 (2017: £46,797,000). The write-down of inventories
to net realisable value amounted to £154,000 (2017: write-down of £212,000). The write-downs and reversals are included in cost of sales. The
provision made against inventories at the year end was £767,000 (2017: £814,000).
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.
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Annual Report for the year ended 31 December 2018
16. Trade and other receivables
Trade receivables
Other receivables
Trade receivables and other receivables
The ageing of trade receivables at the balance sheet date was:
Not past due
Past due 0–30 days
More than 30 days
Gross
2018
£000
22,949
1,317
1,124
25,390
Impairment
2018
£000
240
36
309
585
The movement in the allowance of 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
17. Cash and cash equivalents
Cash and cash equivalents:
Sterling
Euro
Dollar
Total cash and cash equivalents
2018
£000
24,805
670
25,475
Gross
2017
£000
18,364
1,433
919
20,716
2018
£000
468
146
(94)
65
585
2018
£000
1,606
371
271
2,248
2017
£000
20,248
618
20,866
Impairment
2017
£000
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
81
32
355
468
2017
£000
240
266
(65)
27
468
2017
£000
3,189
1,278
121
4,588
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Flowtech Fluidpower plc
NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION
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 30.
Non-current liabilities
Secured bank loans
Finance lease liabilities
Total non-current liabilities
Current liabilities
Bank overdraft
Revolving credit facility
Finance lease liabilities
Total current liabilities
Total
Terms and debt repayment schedule
Secured bank loan
Secured revolving credit facility
Finance lease liabilities
Currency
GBP
GBP
Nominal
interest rate
Libor + 2.9%
Libor + 2.9%
Year of
maturity
2021
n/a
GBP Various 4.8% to 31.0% 2018 to 2021
2018
£000
4,000
51
4,051
1,994
16,000
84
18,078
22,129
Carrying
value
2018
£000
4,000
16,000
135
20,135
2017
£000
4,000
97
4,097
389
15,000
62
15,451
19,548
Carrying
value
2017
£000
4,000
15,000
159
19,159
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. The Group also has a £5,000,000 overdraft facility which
expires on 30 June 2019; the Bank has indicated a willingness to extend this beyond 30 June 2019 should it be required.
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Annual Report for the year ended 31 December 2018
Minimum
lease
payments
2018
£000
84
51
135
Interest
2018
£000
Principal
2018
£000
16
12
28
100
63
163
Minimum
lease
payments
2017
£000
73
116
189
Finance lease liabilities
Finance lease liabilities are payable as follows:
Less than one year
Between one and five years
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
2017
£000
Principal
2017
£000
14
16
30
2018
£000
10,853
4,776
2,743
18,372
2018
£000
–
–
2,240
2,240
2.240
59
100
159
2017
£000
12,208
4,455
2,320
18,983
2017
£000
2,706
2,706
2,865
2,865
5,571
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
The contingent consideration is payable to the former owners of Hi-Power Limited in the first quarter of 2019. Contingent consideration is
also payable to the former owners of Orange County Limited in two instalments at six-monthly intervals in the coming year. A final instalment
of contingent consideration is payable to the former owners of Hydraulics and Transmissions Limited in 2019. Details of acquisitions in the
current year are given in note 24.
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Flowtech Fluidpower plc
NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION
21. Provisions
Balance at 1 January 2018
Acquisitions through business combinations
Amount provided in the year
Balance at 31 December 2018
Provisions have been analysed between current and non-current as follows:
Current
Non-current
Total
Dilapidation
provision
£000
341
35
23
399
2018
£000
–
399
399
Total
£000
341
35
23
399
2017
£000
—
341
341
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
2018
£000
2017
£000
–
11
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 £475,000
(2017: £328,000).
23.2 Share-based employee remuneration
As at 31 December 2018, 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.
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
2018
Number
77
3,010
2017
Number
540
3,010
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Annual Report for the year ended 31 December 2018
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
MIP scheme
£000
21 May 2014
3 April 2017
£1.00
30.7%
6.25 years
5.15%
2.11%
£1.00
£1.30
MIP scheme
£000
1 June 2016
31 May 2019
£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
Weighted average remaining contractual life
5 years
3 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:
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
Date of grant
Approved Plan
21 May 2014
8 August 2014
Unapproved Plan
21 May 2014
11 August 2015
1 July 2016
Exercise price
Exercise period
£1.00
£1.26
£1.00
£1.32
£1.00
4 April 2017 to 20 May 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
2018
Number
000s
2017
Number
000s
645
12
657
37
130
45
212
869
1,001
25
1,026
384
130
45
559
1,585
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Flowtech Fluidpower plc
NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION
23. Employee benefits continued
Share options and weighted average exercise prices are as follows for the reporting periods presented:
Enterprise Management Incentive Plan
Approved scheme
Unapproved scheme
Weighted
average
exercise
price per
share
Number
of shares
000
Weighted
average
exercise
price per
share
Number
of shares
000
Outstanding at 1 January 2018
1,026
1.01
Granted
Lapsed
Forfeited
Exercised
Outstanding at 31 December 2018
Exercisable at 31 December 2018
Exercisable at 31 December 2017
–
–
–
(369)
657
657
1,026
–
–
–
1.01
1.01
1.01
1.00
559
–
(8)
(100)
(239)
212
167
384
1.07
–
1.00
1.00
1.00
1.20
0.80
1.00
Total
number
of shares
000
1,585
(8)
(100)
(608)
869
824
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
7 years
6 years
5 years
5 years
5 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.
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Annual Report for the year ended 31 December 2018
The number of shares subject to options and the exercise price are:
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
Share options and weighted average exercise prices are as follows for the reporting periods presented:
Outstanding at 1 January 2018
Granted
Exercised
Forfeited
Outstanding at 31 December 2018
Exercisable at 31 December 2018
Exercisable at 31 December 2017
2018
Number
000s
2017
Number
000s
110
440
550
110
440
550
Weighted
average
exercise
price per
share
Number
of shares
550
1.09
–
–
–
550
110
–
–
–
–
1.09
1.43
–
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
2017
CSOP scheme
2016
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
7 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.
In total, £191,000 (2017: £272,000) of employee remuneration expenses, all of which related to equity-settled share-based payment
transactions, has been included in the Consolidated Income Statement.
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
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Flowtech Fluidpower plc
NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION
24. Acquisitions and disposals
24.1 Acquisition of Balu Limited
On 19 March 2018, the Company acquired 100% of the share capital of Balu Limited, a UK based holding company, and its UK subsidiaries,
thereby obtaining control.
The initial consideration paid was £8,391,000 in cash and £500,000 in shares in the ultimate parent company, Flowtech Fluidpower plc.
The cash consideration was funded through existing resources, supplemented by a share issue by Flowtech Fluidpower plc on 4 April. The
acquisition will add significantly to the Company’s procurement relationship with key global suppliers and enhance our position in the supply
of MRO fluid power products in the UK and Ireland. 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
Overdrafts
Finance leases
Trade and other payables
Current tax balances1
Deferred tax liability
Provisions
Total net assets
1.
Tax assets of £143,000 owned by a subsidiary, Beaumanor Limited, 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)
Book value
£000
Fair value
adjustment
£000
918
–
2,706
2,945
(1,312)
(318)
(2,183)
24
(57)
–
2,723
(298)
828
(90)
–
–
–
–
–
(35)
405
Intangible
asset
recognised
on
acquisition
£000
–
1,234
–
–
–
–
–
–
(156)
–
Provisional
fair value
£000
620
1,234
3,534
2,855
(1,312)
(318)
(2,183)
24
(213)
(35)
1,078
4,206
£000
8,391
500
8,891
(4,206)
4,685
Fair values are provisional as subject to management estimations at the reporting date.
Consideration transferred
The total consideration was £8,891,000. This comprised £8,391,000 in cash and £500,000 represented by the issue of new Flowtech Fluidpower
plc ordinary shares at a value of 1.70p each. The premium on share issue arising of £354,000 has been credited to the merger relief reserve.
Acquisition costs amounting to £92,000 have been recognised as an expense in the Consolidated Income Statement as part of separately
disclosed administration costs.
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Annual Report for the year ended 31 December 2018
Goodwill
Goodwill of £4,685,000 is primarily related to expected future profitability, expected cost synergies, the substantial skill and expertise of
its workforce and technical know-how. Goodwill for Balu Limited has been allocated to the Flowtechnology operating segment and is not
expected to be deductible for tax purposes.
Intangible assets
An intangible asset of £1,077,000 has been provisionally identified related to the brand identity of Balu’s subsidiary Beaumanor Limited. The
estimated useful life has been determined as ten years based on the expected future cash flows that it would generate in arriving at their fair
value. The components of the brand considered in the valuation comprised the website, catalogue and awareness of brand in the industry.
Sales growth over the ten-year period has been assumed to be 1.9%. Amortisation of brand identity is not expected to be deductible for tax
purposes. An intangible asset of £157,000 has been provisionally identified related to the customer relationships of Balu’s subsidiary Derek
Lane & Co 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 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 1.0% with an attrition rate of 3.0% 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 £298,000 based on market valuations at the time of acquisition.
The book value of inventories acquired was increased by £828,000 to reflect its estimated fair value, as required by IFRS 3 – Business
Combinations. At 31 December 2018, the inventory related to £382,000 of this increase had been sold. Accordingly, the gross profit margin
recorded was £382,000 lower than it would have been had the inventory been recorded at its book value on acquisition.
The value of debtors has been decreased by £90,000 to reflect the alignment of the Company’s debtor provisioning policy with that of
the Group.
The value of provisions has been increased by £35,000 to reflect a provision for dilapidation costs relating to properties leased by the
Company.
Balu Limited’s contribution to the Group results
Balu Limited generated a profit after tax of £1,044,000 for the nine months from 19 March 2018 to the reporting date. If Balu Limited
had been acquired on 1 January 2018, revenue for the Group would have been £113,511,000 and profit after tax for the year would have
increased by £181,000.
Summary aggregated financial information on Balu Limited for the period from 1 January 2018 to 19 March 2018 when it became a
subsidiary:
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
Revenue
Profit
Profits post acquisition are stated after deducting inter company recharges of £267,000.
2018
£000
2,460
181
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Flowtech Fluidpower plc
NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION
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 2018
Shares authorised for share-based payments
Total shares authorised at 31 December 2018
Allotted and fully paid ordinary shares of 50p each
At 1 January 2018
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 24.1)
Shares issued in respect of settlement of deferred consideration
At 31 December 2018
Number
60,920,383
6,666,667
67,587,050
£000
30,460
3,333
33,793
Number
£000
52,818,997
6,470,589
26,409
3,235
927,431
366,644
292,942
43,780
464
184
146
22
60,920,383
30,460
On 15 March 2018, 3,235,284 ordinary shares were issued at 170.0 pence each to fund acquisitions.
On 16 March 2018, 90,000 ordinary shares were issued at 100.0 pence each directly to an employee in satisfaction of MIP share option
exercises. The Flowtech Fluidpower Employee Benefit Trust (EBT) immediately acquired 55,000 shares relating to this issue under a loan
agreement with the EBT.
On 20 March 2018, 292,942 ordinary shares were issued for 170.0 pence each, in partial consideration for an indirect subsidiary’s acquisition
of 100% of the share capital of Balu Limited and its subsidiaries.
On 3 April 2018, 3,235,305 ordinary shares were issued at 170.0 pence each to fund acquisitions.
On 11 May 2018, 472,222 ordinary shares were issued at 100.0 pence each and 731,853 ordinary shares were issued at 178.0 pence each
directly to an employee in satisfaction of MIP share option exercises. Shares were issued in exchange for shares in a subsidiary undertaking
which was already under 100% control of Flowtech Fluidpower plc. The Flowtech Fluidpower Employee Benefit Trust (EBT) immediately
acquired 311,644 shares relating to this issue under a loan agreement with the EBT.
On 30 October 2018, 43,780 ordinary shares were issued for 114.2 pence each, in partial consideration for an indirect subsidiary’s settlement
of deferred consideration due.
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Annual Report for the year ended 31 December 2018
26. Net cash from operating activities
Reconciliation of profit before taxation to net cash flows from operations
Profit from continuing 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
27. Operating leases
Non-cancellable operating lease rentals are payable as follows:
Less than one year
Between one and five years
More than five years
2018
£000
6,923
941
(11)
766
(9)
1,040
(23)
191
264
10,082
(1,509)
(844)
(2,843)
(23)
4,863
(1,073)
3,790
2018
£000
1,623
3,615
3,419
8,657
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
2017
£000
1,450
3,103
3,479
8,032
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
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 2018, 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
2018
2017
Land and
buildings
£000
1,287
3,374
3,419
8,080
Other
£000
336
241
–
577
Land and
buildings
£000
1,059
2,654
3,479
7,192
Other
£000
391
449
–
840
During the year £1,852,000 was recognised as an expense in the income statement in respect of operating leases relating to continuing
operations (2017: £1,303,000).
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NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION
28. Contingent liabilities and commitments
The Group had capital expenditure of £105,000 contracted for but not provided at 31 December 2018 (2017: £510,000).
29. 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 41 to 42.
Dividends paid to Directors of the plc were as follows:
Bryce Brooks
Malcolm Diamond MBE
Bill Wilson
Nigel Richens
2018
£000
17
3
–
4
24
2017
£000
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.
30. Financial instruments
30.1 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
2018
£000
Fair
value
2018
£000
Level 2
2018
£000
Level 3
2018
£000
Carrying
amount
2017
£000
Fair
value
2017
£000
Level 2
2017
£000
Level 3
2017
£000
Financial liabilities at fair value through profit or
loss (including all derivatives) (note 22)
Forward exchange contracts
Contingent consideration (note 20)
–
–
(2,240)
(2,240)
Total financial liabilities at fair value through
profit or loss
(2,240)
(2,240)
–
–
–
–
(11)
(11)
(2,240)
(5,571)
(5,571)
(11)
—
—
(5,571)
(2,240)
(5,582)
(5,582)
(11)
(5,571)
There have been no transfers in either direction during the years ended 31 December 2018 and 31 December 2017.
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
www.flowtechfluidpower.com
2018
£000
5,571
–
(3,595)
264
2,240
2017
£000
1,630
5,361
(1,649)
229
5,571
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Annual Report for the year ended 31 December 2018
Changes in amounts accrued for contingent consideration relates to the calculation of the contingent consideration as follows:
Underprovided consideration:
• £684,000 in final settlement for the acquisition of Hydravalve Limited, acquired in 2016. The consideration was based on net profit
targets.
• £525,000 in final settlement for the acquisition of Hydraulics and Transmissions Limited acquired in 2017. The consideration was based
on net profit targets. £684,000 in final settlement for the acquisition of Nelson Hydraulics Limited acquired in 2015. The consideration
was based on net profit targets.
• £694,000 in final settlement for the acquisition of Hi-Power Limited acquired in 2017. The consideration was based on net profit targets.
• £13,000 in final settlement for the acquisition of Balu Limited acquired in 2018. The consideration was based on net working capital
targets.
Overprovided consideration:
• £1,652,000 in final settlement for the acquisition of Orange County Limited acquired in 2017. 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
2018
£000
Fair
value
2018
£000
Level 2
2018
£000
Level 3
2018
£000
Carrying
amount
2017
£000
Fair
value
2017
£000
Level 2
2017
£000
Level 3
2017
£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
2,248
25,475
27,723
–
27,723
(22,129)
(15,629)
(37,758)
4,588
20,866
25,454
—
25,454
(19,548)
(16,663)
(36,211)
–
–
(2,240)
(2,240)
(2,240)
(2,240)
(39,998)
(2,240)
(12,275)
(2,240)
–
–
–
–
–
–
(11)
(11)
(2,240)
(2,240)
(2,240)
(2,240)
(5,572)
(5,572)
(5,583)
(5,583)
(41,794)
(5,583)
(16,340)
(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, interest bearing loans and borrowings, and cash and cash equivalents,
because their carrying amounts are a reasonable approximation of fair values.
F
I
N
A
N
C
I
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L
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T
A
T
E
M
E
N
T
S
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Flowtech Fluidpower plc
NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION
30. Financial instruments continued
Financial instruments measured at fair value
Forward exchange contracts
Contingent consideration
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 2018 relates to the
acquisitions of Hydraulics and Transmissions Limited, Hi-Power Limited and
Orange County Limited, all in 2017. It is estimated using a present value technique.
The £2,240,000 fair value is measured by reference to the future cash outflows.
The cash outflows reflect management’s best estimate of the amount payable.
Financial instruments not measured at fair value
Valuation technique.
Bank loans and other interest-bearing borrowings
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.
30.2 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
2018
£000
20,319
4,017
469
24,805
2017
£000
16,343
3,561
344
20,248
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.
The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade receivables, see note
16. 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.
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Annual Report for the year ended 31 December 2018
30.3 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 2018
Non-derivative financial liabilities
Secured bank loan
Finance lease liabilities
Revolving credit facility
Trade payables
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
There are no contractual maturities over five years.
Carrying
amount
£000
Contractual
cash flows
£000
4,000
135
16,000
10,823
30,958
4,348
161
16,464
10,823
31,796
Carrying
amount
£000
Contractual
cash flows
£000
4,000
159
15,000
12,208
4,260
190
15,342
12,208
1 year
or less
£000
116
99
16,464
10,823
27,502
1 year
or less
£000
80
74
15,342
12,208
11
11
11
31,378
32,011
27,715
1 to 2
years
£000
116
62
–
–
178
1 to 2
years
£000
80
117
—
—
—
197
2 to 5
years
£000
4,116
–
–
–
4,116
2 to 5
years
£000
4,100
—
—
—
—
4,100
F
I
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A
N
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I
A
L
S
T
A
T
E
M
E
N
T
S
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Flowtech Fluidpower plc
NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION
30. Financial instruments continued
30.4 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 2018
Cash and cash equivalents
Trade and other receivables
Secured bank loans
Revolving credit facility
Finance lease liabilities
Trade payables
Net exposure
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
Sterling
£000
1,606
21,544
(4,000)
(16,000)
(96)
(5,084)
(2,030)
Sterling
£000
3,189
15,133
(4,000)
(15,000)
(101)
(6,434)
—
(7,213)
Euro
£000
371
3,870
–
–
(39)
(4,744)
(542)
Euro
£000
1,278
5,629
—
—
(59)
(4,998)
(698)
1,152
US Dollar
£000
271
61
–
–
–
Total
£000
2,248
25,475
(4,000)
(16,000)
(135)
(1,025)
(10,853)
(693)
(3,265)
US Dollar
£000
121
104
—
—
—
Total
£000
4,588
20,866
(4,000)
(15,000)
(160)
(776)
(12,208)
—
(551)
(698)
(6,612)
Sensitivity analysis
A 10% weakening of the following currencies against the pound sterling at 31 December 2018 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 2018.
€
$
Profit or loss and
equity
2018
£000
(10)
73
2017
£000
(138)
38
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Annual Report for the year ended 31 December 2018
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.
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
2018
£000
12
(90)
2017
£000
169
(47)
2018
£000
2017
£000
135
159
21,995
19,389
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 2017.
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
Equity
Increase of 100 basis points
Decrease of 100 basis points
Profit or loss
Increase of 100 basis points
Decrease of 100 basis points
2018
£000
(220)
220
(220)
220
2017
£000
(190)
190
(190)
190
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Flowtech Fluidpower plc
NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION
30. Financial instruments continued
30.5 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.
31. Subsequent events
There are no material adjusting or non-adjusting events subsequent to the reporting date.
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Annual Report for the year ended 31 December 2018
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
2018
£000
(929)
(929)
4,890
(628)
4,262
3,333
–
3,333
2017
£000
(242)
(242)
4,495
(350)
4,145
3,903
—
3,903
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
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Flowtech Fluidpower plc
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
Merger relief reserve
Retained earnings
Total equity
Note
J
K
L
M
N
M
P
2018
£000
58,881
58,881
63,715
–
63,715
16,000
3,611
19,611
44,104
102,985
4,000
4,000
98,985
30,460
60,793
109
187
382
7,054
98,985
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
The financial statements on pages 97 to 105 were approved by the Board of Directors on 29 April 2019 and were signed on its behalf by:
Russell Cash
Chief Financial Officer
Company Registration Number: 09010518
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Annual Report for the year ended 31 December 2018
COMPANY STATEMENT OF CHANGES IN EQUITY
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 1 January 2018
Profit for the year
Total comprehensive income for the year
Transactions with owners
Issue of share capital
Merger relief arising on shares issued in
consideration for acquisition of an indirect
subsidiary
Share options – granted to subsidiary employees
Equity dividends paid (note H)
Total transactions with owners
Balance at 31 December 2018
Share
capital
£000
21,539
—
—
Share
premium
£000
46,880
—
—
4,870
5,490
—
–
—
—
4,870
26,409
–
–
—
–
—
—
5,490
52,370
–
–
4,051
8,423
—
—
—
—
—
—
4,051
30,460
8,423
60,793
Other
reserve
£000
Merger relief
reserve
£000
Retained
earnings
£000
—
—
—
—
187
—
–
—
187
187
–
–
—
—
–
–
–
187
—
—
—
—
—
—
—
—
—
—
—
—
—
382
—
—
382
382
7,069
3,903
3,903
—
—
33
(175)
(2,877)
(3,019)
7,953
3,333
3,333
—
—
(564)
(3,558)
(4,122)
7,163
Total
equity
£000
75,488
3,903
3,903
10,360
187
33
(175)
(2,877)
7,528
86,919
3,333
3,333
12,473
382
(564)
(3,558)
8,733
98,985
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
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Flowtech Fluidpower plc
NOTES TO THE COMPANY FINANCIAL INFORMATION
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 2018 were authorised for issue by the Board of
Directors on 29 April 2019 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 2018.
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.
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.
www.flowtechfluidpower.com
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Annual Report for the year ended 31 December 2018
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.
Significant judgements, key assumptions and estimates
In the process of applying the Company’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.
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Significant management judgements
The following judgements have the most significant effect on the financial statements.
Impairment of investments and Group balances
The carrying value of investments and Group balances are assessed for impairment. This requires an estimation of the value in use of the
operations underpinning the investments and Group balances.
The value in use of the investment is calculated from cash flow projections for the relevant entity based on financial projections covering a
period of 5 years plus a terminal value, assumed growth rates and discount rates relevant to the individual entity.
The key assumptions for the value in use calculations are those regarding discount rates, growth rates and expected cash flows. Changes in
revenues and expenditure are based on past experience and expectations of future growth.
The pre-tax discount rate applied in the impairment review is 9% (2017: 9%). This discount rate is derived from the Group’s weighted average
cost of capital.
The carrying value of the investments at 31 December 2018 is £58,881,000 (2017: £57,367,000) and amounts owed by subsidiary
undertakings were £63,715,000 (2017: £51,489,000). There was no impairment charge during the year.
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Flowtech Fluidpower plc
NOTES TO THE COMPANY FINANCIAL INFORMATION
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
2018
£000
135
–
422
2017
£000
297
33
—
• 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*
Notice pay*
Social security costs
Benefits in kind
* Remuneration includes £90,000 in respect of compensation for loss of office. Notice pay of £188,000 also relates to compensation for loss of office.
The amounts set out above include remuneration in respect of the highest paid Director as follows:
Highest paid Director’s remuneration
Remuneration*
Notice pay*
Social security costs
Benefits in kind
Total highest paid Director’s remuneration
* Remuneration includes £90,000 in respect of compensation for loss of office. Notice pay of £188,000 also relates to compensation for loss of office.
Details of Directors’ emoluments are included in the Directors’ Remuneration Report on pages 41 to 42.
www.flowtechfluidpower.com
2018
£000
20
2018
£000
4
2018
£000
704
188
78
11
981
2018
£000
352
188
34
2
576
2017
£000
20
2017
£000
4
2017
£000
524
–
61
5
590
2017
£000
235
–
31
2
268
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Annual Report for the year ended 31 December 2018
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 and revolving credit facility
Total finance expense
2018
£000
4,890
4,890
2018
£000
628
628
2017
£000
4,495
4,495
2017
£000
350
350
G. Taxation
No income tax was recognised in other comprehensive income or directly in equity for either of the years ended 31 December 2018 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 19.00% (2016: 19.25%)
Deferred tax movements not recognised
Group relief
Effect of share option exercises
Income not taxable
Amounts not deductible
Total tax expense in the income statement
2018
£000
3,335
–
3,335
634
(40)
351
(42)
(929)
26
–
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2017
£000
3,903
–
3,903
751
10
133
–
(961)
67
–
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 2018 have been
calculated based on these rates.
H. Dividends paid and proposed
Final dividend of 3.85p (2017: 3.67p) per share
Interim dividend of 2.03p (2017: 1.93p) per share
2018
£000
2,330
1,228
3,558
2017
£000
1,878
999
2,877
In addition, the Directors are proposing a final dividend in respect of the financial year ended 31 December 2018 of 4.04p (2017: 3.85p) per
share which will absorb an estimated £2.5 million of Shareholders’ funds. It will be paid on 12 July 2019 to Shareholders who are on the
register of members on 7 June 2019.
I. Share-based payments
Details of share-based payments are shown in note 23 to the consolidated financial statements.
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Flowtech Fluidpower plc
NOTES TO THE COMPANY FINANCIAL INFORMATION
J. Investments
Cost and net book value
At 1 January 2018
Increase in holding in direct subsidiary
Shares issued in consideration for acquisition of indirect subsidiaries
Additions net of exercise of options in the year
At 31 December 2018
Details of the Company’s investments are shown in note 12 to the consolidated financial statements.
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
M. Interest-bearing loans and borrowings
Non-current liabilities:
Secured bank loans
Total non-current liabilities
Current liabilities:
Revolving credit facility
Total current liabilities
Total interest bearing loans and borrowings
Investments
in
subsidiaries’
unlisted
shares
£000
Subsidiaries’
share-based
payment
reserves
£000
56,919
1,303
550
–
58,772
448
–
–
(339)
109
2018
£000
492
63,223
63,715
2018
£000
–
–
2018
£000
4,000
4,000
16,000
16,000
20,000
Total
£000
57,367
1,303
550
(339)
58,881
2017
£000
57
51,489
51,546
2017
£000
11
11
2017
£000
4,000
4,000
15,000
15,000
19,000
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
www.flowtechfluidpower.com
2018
£000
42
525
3,044
3,611
2017
£000
26
379
2,600
3,005
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Annual Report for the year ended 31 December 2018
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
2018
£000
2017
£000
—
—
—
—
—
—
—
—
—
—
A deferred tax asset of £4,000 (2018: £44,000) in respect of cumulative share-based payments of £22,000 (2017: £255,000) has not been
recognised due to uncertainty surrounding the availability of future profits, against which these payments can be utilised.
P. Share capital
Allotted, called up and fully paid:
At 1 January 2018
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 24.1)
Shares issued in respect of settlement of deferred consideration
Number
52,819,000
6,470,589
927,431
366,644
292,942
43,780
£000
26,409
3,235
464
184
146
22
At 31 December 2018
60,920,386
30,460
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 2018.
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. Shares of value £650,000 were issued to the Flowtech Fluidpower
Employee Benefit Trust and repayments of £278,000 were made; £412,000 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.
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Flowtech Fluidpower plc
Registered office:
Bollin House
Bollin Walk
Wilmslow
SK9 1DP
www.flowtechfluidpower.com
Email: info@flowtechfluidpower.com
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Flowtech Fluidpower plc
COMPANY INFORMATION
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
Bollin House
Bollin Walk
Wilmslow
SK9 1DP
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
www.flowtechfluidpower.com
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Job Number 30 April 2019 2:13 pm Proof 10Job Number 30 April 2019 2:13 pm Proof 10FLOWTECH FLUIDPOWER PLC Annual Report for the year ended 31 December 2018Stock Code: FLOFlowtech Fluidpower plcRegistered office Bollin HouseBollin WalkWilmslowSK9 1DPwww.flowtechfluidpower.cominfo@flowtechfluidpower.comANNUAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2018FLUID THINKING, MAKING A POWERFUL DIFFERENCEFlowtech Fluidpower Annual Report 2018.indd 1,330/04/2019 14:13:46