Fluid Thinking
Making a powerful
difference
Annual Report
for the year ended
31 December 2019
Company number: 09010518
Flowtech Fluidpower plc is a specialist Group,
supplying technical fluid power components and services.
We aspire to be a trusted partner in fluid power, delivering
added value for our customers, suppliers and investors.
Read more about our Group
on pages 4 and 5.
2020 Indequip catalogue front
cover image, designed in-house.
Highlights
Financial Highlights
Revenue* £000
£112.4m
Gross Profit* £000
£40.2m
Underlying Operating Profit† £000
£9.6m
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2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
Operating Profit £000
£5.7m
Total Dividend £000
2.13p
Net Cash from Operating
Activities £000
£13.2m
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2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
*All results relate to continuing operations. Prior year values have been restated as described in note 2.30.
†Underlying operating profit is continuing operations’ operating profit before separately disclosed items (note 4) and the impact of fair value adjustment to inventory
(note 3). Underlying operating profit for 2019 also excludes the impact of restating operating lease rentals under IFRS 16 (note 22).
Operational Highlights
£13.2m positive cash flow from operating activities,
Organic revenue decline but at a modest level
£9.4m in excess of £3.8m in 2018.
100bps improvement in GP%.
in difficult market conditions.
Underlying operating profit of £9.6m in the year.
Profit before tax of £4.7m in the year (2018: £6.9m).
Contents
Strategic Report
Highlights
Chairman’s Statement
Group Overview
CEO’s Year in Review
Our Business Model
Our Strategy for Growth
Marketplace
Financial Review
Risk Management
Corporate Social
Responsibility
Governance
The Board
Chairman’s Statement
on Corporate Governance
Corporate
Governance Report
Directors’
Remuneration Report
Directors’ Report
Statement of Directors’
Responsibilities
36
38
40
46
48
51
01
02
04
06
12
14
18
22
26
30
Notes to the Consolidated
Financial Information
65
Financial Statements
Independent Auditor’s
Report
Consolidated Income
Statement
52
59
Consolidated Statement
of Comprehensive Income 60
Consolidated Statement
of Financial Position
Consolidated Statement
of Changes in Equity
Consolidated Statement
of Cash Flows
61
62
Company Income
Statement
Company Statement
of Financial Position
Company Statement
of Changes in Equity
Notes to the Company
Financial Information
63
Company Information
102
103
104
105
112
01
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Chairman’s Statement
Dealing with COVID-19 while Retaining
a Firm Focus on Long-term Prosperity
“Over time, we are therefore confident of achieving further reductions
in both operating cost and working capital investment, which will
further underpin our financial defence against the COVID-19 crisis.”
Malcolm Diamond MBE
Chairman
Dear Shareholder,
It will possibly come as no surprise to you for me to confirm that
2019 has been not only a challenging year, but also a
transformative one. With the UK political situation at least
appearing to have some sense of stability re-established, the
Group was very much looking forward to 2020 as a year in which
this transformation would be fully embedded. However, the global
impact of the COVID-19 pandemic has clearly forced many
companies, including our own, to take emergency action to protect
all stakeholders as best as can be achieved.
To this end, I would firstly like to cover our main asset, our staff.
Despite many businesses needing to take immediate action to cut
costs, we took the view that, for at least March and April, we would
guarantee that all our staff, whether currently working or
furloughed, would continue to be paid in full. For the many that
remain working but cannot work remotely, we have implemented
robust procedures to ensure we protect staff as best we can,
whilst at the same time ensuring that we continue to provide a
service to industry, including many of those sectors specifically
involved in dealing with the crisis.
We also recognise that there are several of our smaller suppliers
and customers under stress, and we have been assisting them
as much as we can by ensuring that cash continues to flow
through the system while keeping all doors open to support
urgent supplies.
Despite the difficulties associated with working from home in
what is a ‘teams’ and physical assets business, we have continued
to progress our rationalisation and productivity improvement
programmes, and all activities outlined in our CEO’s report have
not been derailed – if anything, with the support of the whole
management team, these activities have gathered pace in a way
that emphasises the skill and commitment of everyone involved
in the Group. Over time, we are therefore confident of achieving
further reductions in both operating cost and working capital
investment, which will further underpin our financial defence
against the COVID-19 crisis. Along with our decision to cancel
the final dividend for 2019, this gives us the strong belief that the
business will continue to generate positive cash flow in 2020.
We are only too aware of the patience and understanding
displayed by our staff and managers as we have gone through this
major refocus and the challenges of COVID-19, for which we are
extremely appreciative. Ultimately, the best thing we can do for all
our stakeholders is to ensure that when life does return to normal,
the measures we take during this upheaval leave us stronger in
every respect.
The situation we find ourselves in is moving rapidly but we feel our
business, and our balance sheet, will prove resilient. However,
following a detailed re-forecasting exercise including downside
scenario planning, the Directors’ assessment on going concern will
include reference to material uncertainty in common with many
other businesses. Further details around the consideration the
Directors have given to going concern are contained elsewhere in
this report, notably note 2.2. Notwithstanding this, the Directors
confirm that, after due consideration, they have an expectation that
the Group has adequate resources to continue for the foreseeable
future and we have thereby continued to adopt the going concern
basis in preparing the financial statements. We believe we are in a
much better position than ever to deal with these unexpected
challenges. Bryce Brooks’ CEO’s Year in Review includes further
comments on the impact and our response to COVID-19.
Moving on to our broader activities, having executed a number
of acquisitions between 2014 and 2018, due to the fact that we
do not consider turnaround targets, and all the additions were
profitable in themselves, revealing cost synergies via consolidation
of duplicated activities was not seen as a priority whilst we
focused on transitioning local leadership teams from an
owner-managed model to a group format. However, having
made significant changes to our organisational structure since
Bryce Brooks became CEO in late 2018, and invested in the
necessary central functions, notably finance, systems and project
management to provide the resources and infrastructure to
support a change programme, we have now very much moved our
focus towards releasing the undoubted productivity and cost out
opportunities that our business possesses. Just as importantly, all
our staff engaged in front line sales have undergone retraining in
sales techniques as we drive towards order makers – rather than
order takers. This is also supported with individual performance
monitoring going forward.
I refer you to Russell Cash’s Financial Review on page 22 for a
fuller account of our results for 2019.
02
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 “We believe we are in a much better
position than ever to deal with these
unexpected challenges.”
Malcolm Diamond MBE
Chairman
Finally, given the pivotal point that we are now at in our
transformation, I have decided to retire as Chairman with effect
from the AGM and hand over the reins to my colleague, Bill Wilson.
Whilst this will be Bill’s first time as a PLC Chairman, he has
extensive experience in similar and larger organisations in both the
role and the sector, and I know I will leave the Group in very good
hands. Having been Chair since 2014, I have had the pleasure of
working with ambitious and dedicated colleagues over the past six
years as we have expanded rapidly, dealing with several challenges
along the way. It has been a pleasure to support Bryce as he
stepped up to be CEO, and welcome Bill, Nigel Richens and Russell
Cash on to the Board. I feel that the benefits of our actions are now
becoming tangible, and it is therefore the right time to retire.
In addition, I look forward to working with Roger McDowell when
he joins the team following the AGM. Roger is a highly successful
businessman and entrepreneur, with a strong record of delivering
shareholder value. The Board’s objective is to have three Executive
Directors, supported by three Non-Executives. A search has
already commenced for the additional Non-Executive Director so I
can fully step down, but until the right candidate has been
identified I will continue to serve until the search is concluded.
I would like to thank all my Flowtech colleagues for their passion
and commitment over my period at the helm and, once the obvious
threat of COVID-19 has passed, I am sure the business will prosper
in a way that rewards all those who have invested in its future.
Malcolm Diamond MBE
Chairman
29 April 2020
03
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements
Group Overview
A Vital Partner in the
Fluid Power Supply Chain
Flowtech Fluidpower is a Group of specialist fluid power businesses. Working in partnership
with customers and suppliers, we deliver essential components, custom solutions and
high-quality servicing support to keep global industry moving.
Our business is separated into two distinct segments: Components and Services.
Components
Group Revenue
86%
£96.3m
Employees
466*
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 original equipment
manufacturers (OEMs).
Channels to Market
E-commerce websites, customer white label e-commerce
websites, 100,000+ catalogues, own and customer trade counters.
Strengths
Consistent cash generator, high profits.
Widest set of leading brands from extensive stock inventory.
Purchasing synergies through common product set.
Essential urgent delivery, critical for MRO market.
Supply chain consolidation for suppliers and customers.
Added value customer services.
04
*Excludes 44 Central employees.
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 Group
Employees**
Locations
631
22
Superior
brands
500+
Geographies
Group Revenue %
n UK – 80%
n Europe – 19%
n Rest of world – 1%
Services
Group Revenue
14%
£16.1m
Employees
121*
Bespoke design, manufacturing, commissioning, installation and
servicing of systems to manufacturers of specialised industrial
and mobile hydraulic OEMs and, additionally, a wide range of
industrial end users.
Channels to Market
In-house design and build, combined with on-site installation,
servicing and support.
Strengths
Working in partnership with suppliers and customers
on large industry projects with cross-sell opportunities
for the Group and, additionally, ongoing repeat business
for Components division.
Bespoke assembled customer solutions and deep
technical support.
Installation, commissioning and local servicing.
Leading manufacturer brands in system builds.
Read more about our Group online at
www.flowtechfluidpower.com
*Excludes 44 Central employees.
** Average in 2019.
05
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements
CEO’s Year in Review
Transforming the
Way We Operate
“The Board believes that further progress will be made in improving
productivity across the Group and looks forward to updating investors
as we make further progress during the remainder of 2020.”
Bryce Brooks
Chief Executive Officer
Group revenue (*)
Underlying operating profit (†)
Net cash generated from operations
Net debt (‡)
2019
2018
£112.4m
£112.1m
£9.6m
£13.2m
£16.6m
£11.4m
£3.8m
£19.9m
(*) Prior year values have been restated as described in note 2.30.
(†) Underlying operating profit is continuing operations’ operating profit before separately disclosed items (note 4), the impact of fair value adjustment
to inventory (note 3) and IFRS 16 (note 22).
(‡) Excludes IFRS 16 lease dept.
2018 was a year in which relatively buoyant conditions in the first
half were replaced with more benign conditions in the latter part of
the year – this, combined with the deferment of planned activity on
one project resulted in a downgrade to profit expectations being
reported in September 2018. The start of 2019 saw a return to
more favourable trading conditions.
Creating the framework for change has involved some short-term
increase in resources, which, when coupled with the more negative
sales environment, has affected our profit growth, but it is
particularly satisfying for the Executive team to see strong cash
flow underlying this position, with Net Cash Generated from
Operations of £13,246,000 (2018: £3,790,000), leaving Net Debt
at the year-end of £16.6m (2018: £19.9m).
The COVID-19 crisis has cast a considerable shadow across most
sectors, but the improvement in cash resources created, and the
change programme detailed below, will stand the Group in good
stead when markets start to take shape again after the lockdown,
and the Board is confident that the changes being made will
become a real differentiator against our competitors.
Group Strategy & Progress in 2019
In 2018, we laid out a clear vision focused on the delivery of
best-in-class service and support as the UK’s leading fluid power
distributor within a highly fragmented marketplace. We have
looked to maintain the majority of our sales being associated with
maintenance, repair and overhaul (MRO) applications, and the
consistency of return that this sector brings, complemented by the
supply of products and services to a broad base of industries
engaged in the manufacture of capital equipment.
At the same time we outlined a change in our structure to a two
segment approach – Components and Services – with different
divisional management teams that has allowed us to develop
strategy in each segment to suit their specific characteristics and
requirements, and which the Board firmly believes will lead to
enhanced profit growth over the medium term.
We have also established a Group central services team and
facility in South Manchester and invested in the necessary skills in
Accounting, Credit Management, IT Operations and Project
Management to ensure we have the best platform to support the
business as it currently stands, most crucially in the extensive
change process now being implemented and detailed below, and
to ensure future growth is long term in nature.
Whilst this investment has increased overall costs in the short
term, we are convinced this has given us a resilient position from
which to move forward in a controlled manner. After a four-year
period of significant growth had given the Group ‘critical mass’, in
2019 we therefore used our new structure and resources to focus
on extracting the considerable synergy potential available, with
emphasis on the following:
Optimisation of our operational cost base
At the date of this report last year we had completed an initial
review of our resources and made a preliminary assessment of
what our optimal operating structure might look like with regard to
warehousing and logistics within our Components division, and
how this might then support the engineering capabilities of our
Services division. The Executive team progressed this plan during
the remainder of the year and has actioned several elements to
date, with further activity planned in 2020.
In summary, the multiple sites and IT systems acquired as part of
our acquisition programme since IPO can now be combined into a
‘hub and spoke’ system, with the majority of pick and ship activities
undertaken by a centrally operated structure, predominantly our
distribution centres based in Skelmersdale and Leicester, led by a
06
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 network of customer-facing sales units. These two sites currently
undertake around 70% of the Group’s warehouse movements,
producing class-leading efficiency rates, and following the
assessment the Board is convinced that with only relatively
modest capital investment, their activity levels can be enhanced to
absorb the majority of similar activity for the UK and Republic of
Ireland, without undermining the service to the legacy
Flowtechnology and Beaumanor businesses.
This has resulted in the following actions designed to both reduce
cost and improve service:
In September 2019, Hi-Power in Stockport, Cheshire, was
closed and merged with Primary Fluid Power in Knowsley.
In October 2019, TSL in Mytholmroyd, West Yorkshire, was
closed and also merged with Primary Fluid Power.
In January 2020, we announced that the Components element
of Primary Fluid Power would move to Skelmersdale site with
a target for full implementation by May 2020.
Also in January 2020, we announced that Hydravalve, in
Willenhall in the West Midlands, would move to Skelmersdale
with a target for full implementation by May 2020.
Again, in January 2020, we announced that HES Durham would
close with immediate effect and relocate to Orange County in
Spennymoor, County Durham.
In February 2020, we announced that Nelson Hydraulics in
Lisburn, Northern Ireland, would close and its operation relocated
to either Dungannon in County Tyrone or Skelmersdale with a
target for full implementation by June 2020.
Also in February 2020, we announced that the warehousing
and distribution of HES Gloucester, Birmingham and Leeds
would close and be serviced from Leicester, with a target for
full implementation by June 2020.
All the above projects require both IT implementations as well as
physical stock movements under tightly managed project governance
supported by the investment we have made in the last 12 months.
I am pleased to confirm that to date all have been completed or are
progressing to timetable and within expected budget.
The annualised savings attached to the above are estimated at
£1.6m, with a £0.8m impact in 2020. The cash cost of this
restructuring is estimated at £1.8m (of which £0.5m was incurred
in 2019), with £0.9m relating to capital investment in IT upgrades
and additional Kardex racking systems.
Making efficient use of our considerable working capital base,
and wherever possible making improvements
As a natural by-product of reducing our warehousing requirements,
and beginning the process of ‘centralisation’ of the bulk of our
stockholding, the Executive team were also keenly aware that the
stockholding profile of the Group should be improved substantially.
During 2019, via a mixture of stock clearance programmes and
improved supply chain management, the Group has reduced its
investment in Net Inventory (being Inventories less Trade and
Other Payables) from £10,295,000 at 31 December 2018 to
£8,490,000 at 31 December 2019, and Gross Inventory was
reduced by c£7m, without any reduction in service levels.
*Turn and Earn Index is calculated by multiplying gross margin by stock turn. In
2019, the gross margin achieved was 35.7% and the average stock turn achieved
was 2.67, therefore the Turn and Earn index was 95.
Whilst an element of this reduction results from scrappage of slow
moving items and a resultant reduction in our stock provision, a
bigger proportion reflects the underlying reduction in the level of
stock our businesses are carrying; this element of the reduction
naturally flows into free cash flow. This remains a focus of the
business in 2020 and we anticipate further reductions being
achieved. The overall metric that we use to measure against will be
‘Turn and Earn’* with a target by 2022 of 130% versus an average
of 95% achieved in 2019. This indicates an optimum stock
investment of between £20m and £21m which compares with an
actual of £24.0m at year end (2018: £28.7m).
Improved procurement terms from our major supplier partners
In July 2019, the Group appointed John Farmer into a new role of
Group Commercial Director, with the express focus on actively
co-ordinating our supply strategy and building on the huge steps
forward we have taken in extracting regular procurement data from
across the Group’s trading systems. A clearly defined supplier strategy
has now been developed, focused on enhancing terms with a much
narrower group of multinational manufacturers with global standing
and operational infrastructure, thereby improving pricing and Net
Inventory investment. Whilst the direct effects in 2019 can only be
limited, it is pleasing to see that Gross Margins have again improved
to 35.7% (2018: 34.7%) and I expect this trend to continue in 2020.
Organic sales growth
The above three elements of our strategic focus will ensure we
build the best platform from which to operate. At the same time,
the Group must ensure that it continues to develop a ‘proactive’
sales organisation, building on the important position of its legacy
Profit Centre operations. To this end, long term strength is being
built from the following focused initiatives:
1. E-business capabilities – the Group already holds a
sector-leading position with regard to e-commerce trading
with over £28m of sales transacted by its customers online.
However, with advances made by both our supplier base and
the multi-sector international distribution organisations, we
must continue to enhance our resources in this area in order
to ensure competitive advantage remains and gives scope for
considerable organic growth. The Group is currently improving
the customer experience with a view to overlaying a single
platform for its online trading which, when coupled with
the transition of stockholding to a reduced number of sites
described above, will mean that all the Group’s stock will be
within ‘one click’ of being sold by the close of 2020.
2. Key Account Management – in 2019, the Group traded
with over 10,000 live accounts. Within this, only 200 accounts
accounted for around 50% by value and they represent most
of the leading players in our marketplace. Building an effective
cross-selling infrastructure to support these key accounts will
be an important engine for growth.
3. Training and Technical Capabilities – as described on pages
10 and 11.
Importantly, we believe there is further scope for significant cost
savings, particularly in warehousing, our procurement activity
(where we expect to take the number of suppliers down from over
1,000 to around 500), and the centralising of certain back office
functions. The Board looks forward to updating investors as we
make further progress during the remainder of 2020, with a target
to complete all activity in this area by the end of the calendar year.
07
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements
CEO’s Year in Review
Business Model
Since our first acquisition, the Group has operated a distinct
‘Profit Centre’ structure, where each business leader acts in a
semi-autonomous manner, which has encouraged local
decision-making and ensured that we have been able to
successfully transition previously owner-managed businesses
to a Group structure. The move to the centralisation of supply
chain activities within the Components division refocuses some
of this local management responsibility. However, the key
elements of customer-facing activities and importantly price
management remain local. This approach will continue to support
an entrepreneurial culture across the Group and ensures that
we remain focused on delivering customer service at its highest
level, responsive to both immediate and strategic needs, and
safeguards growth before any centrally sponsored initiatives
need to enhance this.
Year in Review
The start of 2019 was characterised by a continuance of the
generally buoyant sector conditions seen in 2018. However, as the
year progressed it became clear that uncertainty in the UK political
situation was acting as a drag on growth, in both domestic and
export markets for our customers, and with a December general
election this particularly affected Q4, which saw an organic decline
in revenue. This resulted in two separate downgrades to our
forecasts, one issued in September 2019 and one in January 2020.
The new year did start with a clear view that the sector would
return to growth quickly and this trend was beginning to appear
just as the COVID-19 crisis took hold. Therefore the Executive team
has, for the duration of this period in which negative growth was
the norm, operated with increasing focus on the mantra of
‘controlling the controllable’ and ensuring that both the cost base
and working capital are managed downwards effectively.
Therefore, whilst it is disappointing that overall underlying
operating profit has reduced in the year, we believe that the
platform for future strong growth is being established.
In 2018, the operational highlight of the year was the acquisition of
our major competitor, Balu Ltd, and its subsidiaries, Beaumanor
Engineering and Derek Lane & Co, in March 2018. In 2019, the two
businesses contributed an Operating Profit of £1,844,000 (2018:
£1,347,000) and the level of integration achieved with the rest of
the Group’s operations has been particularly satisfying for the
teams involved, and in line with our expectations.
The organisational structure announced last year, where we
moved into a two-division format based around ‘Components’ and
‘Services’, has also proved to be a significant change. The
large-scale redevelopment of our logistics platform currently being
implemented underpins the collective reporting for the
Components division, and the focus that has been brought to the
Services division is ensuring that shared engineering and technical
support is now being used more effectively.
The reduction in profitability seen in the Services division has been
a function of the market downturn in late 2019, with many of the
initiatives instigated by the divisional leadership team beginning to
bear fruit in the early part of 2020. The division adds considerably
to the technical resources of the whole Group. However, the sector
as a whole operates at lower financial margins that the intrinsic
niche value suggest should be achieved, and I remain focused on
the clear need for this division to improve its overall profitability.
The change to a single coordinated leadership team and reporting
structure will assist in this process.
IT Development
In conjunction with our operational review, we have reviewed our
long-term IT strategy and we now believe that we can move
towards an optimised position in the medium term without the
need for enterprise-wide IT change. This will be achieved by
focusing on only three or four providers with each being capable of
being linked to each, thereby creating a single framework, backed
up by a cloud-based hardware solution that was successfully
established in May 2019. These platforms can all be used in
conjunction with our developing e-business operation and place us
at the forefront of the sector.
As an example of how our investment in both resources and
personnel has started to provide tangible benefit to the Group,
following the announcement by the Government of the ‘Work From
Home’ guidance on 16 March 2020, the Group successfully created
a framework allowing over 200 people to effectively transfer their
working base from office to home, including telecoms, within a
working week using the cloud-based infrastructure established
during the previous twelve months. This ensured that customer
contact was retained and operations seamlessly transitioned
during what became a stressful period for all.
People
In March 2019, Jon Burke was promoted to take overall
responsibility for Services and is now working to co-ordinate all
sales and operational matters across the various businesses
within the division. In July 2019, Ian Simpson was promoted to
Divisional Director within the Components segment with a specific
remit covering the cluster of business units that focus on
catalogue and web sales with a high-service offering. Finally, in
November 2019, having previously worked as a consultant to the
Group, Anne Fogg was appointed to the new role of Systems
Director with responsibility for all the Group’s IT, Internal Audit and
Project Management resources.
In addition to the senior appointments described above, we are
committed to training and development with several initiatives
implemented in the period in leadership, sales training, technical
and employee engagement.
We are always acutely aware that our progress is achieved with
the continued commitment and effort of all our employees, and
with our status in the sector developing, we are confident in our
ability to retain and attract the best staff the industry can offer.
The passion and commitment shown by the many staff members
employed across the Group, particularly through periods of
change, has been exemplary. On behalf of the Executive
Management team, and the plc Board, I would like to thank
everyone for their efforts, and the continued support that has
been shown in 2020.
08
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019
COVID-19
Prior to the COVID-19 lockdown, Q1 2020 performance was in line
with our expectations at that time: down on the buoyant conditions
seen in early 2019, but with a return to growth in customer order
patterns and outlook. However, the final few weeks of this period
created an altogether different position going into April 2020.
Many of our suppliers and customers suspended operations,
although recent indications suggest that some have either
already reopened or are planning to reopen in May, albeit with
reduced capacity.
On a daily basis the Board now receives reports on, amongst other
things: headroom over banking facilities, use of governments’
support, debtor collections, despatches from major distribution
sites, COVID-19 staff illness, and the number of major suppliers
and customers closed or reopening for business. In addition, we
are holding weekly board meetings, as well as daily video
conference calls amongst the operational leadership team, and our
focus is on supporting our staff, suppliers and customers and
matching our cost base to the emerging trends in activity.
As a result of our actions, since safe working guidance was
introduced last month, costs have been reduced by a combination
of internal actions and the utilisation of ‘furlough’ or equivalent
schemes introduced in the UK, Republic of Ireland, and the
Netherlands. We estimate that our cost base has fallen by around
25%, with further savings still to come from our restructuring
activities. We will therefore continue to pursue our rationalisation
and cost reduction programmes, creating operational efficiencies
in our procurement, logistics, sales, and back office activities.
Whilst the full impact of the COVID-19 lockdown remains unclear,
it is not possible to make any accurate predictions for the
remainder of the year. A significant part of our sales depends on
the manufacturing and construction sectors, both of which have
seen large scale shut-downs. It is possible that these sectors will
begin to reopen during early May, and our current plan is to ensure
that we continue to support/service our customers and react as
quickly and effectively as possible if this were to happen. However,
if there is a need to undertake further cost reductions should the
lockdown extend further into the year, we must ensure that we are
in a position to initiate change without detriment to our future
business and our customers. This being said, the work undertaken
as part of our restructuring activities over the past 12 months is
helping our planning enormously in this regard.
Bryce Brooks
Chief Executive Officer
29 April 2020
“We are only too aware of the patience
and understanding displayed by our staff
and managers as we have gone through
this major refocus and the challenges of
COVID-19, for which we are extremely
appreciative.”
Malcolm Diamond
Chairman
09
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements
CEO’s Year in Review
Improving our Solutions to Customers
through Leadership & Unity
The Group’s strategy is to continually support and develop our people and we continue to invest
in training and forums which unite like-minded individuals to share and inspire each other,
nurturing a culture of reward and empowerment to achieve the best results for our customers.
Our Annual Sales Conference
This event, held in February 2020, was attended by over 80
business development individuals from every brand across the
Group, a 70% increase on last year, to develop cross-selling
opportunities across the Group.
The two-day event involved thought-provoking presentations and
informative workshops, along with views of the future landscape
of the fluid power sector.
Highlights of the event included an awards evening, with ten awards
presented for outstanding performance during 2019, along with a
presentation from former Olympian and World Champion Gold
Medallist Derek Redmond, which included a clearly emotive video
of determination with clear messages linked to our own business.
Our Technical Conference
This biannual event, held at various locations during the summer
and winter, invites around 30 team members from across the
Group over two days to share ideas and experience, partake in
product training and learn more about strategy and techniques to
improve the solutions and services we provide to customers.
This cross-fertilisation of ideas has generated additional sales
opportunities via an increased number of collaborative projects
between businesses within the Group, combined with a heightening
number of inter-company referrals.
The conference is further supported by an online forum, including
a profile for each business and a Q&A chat feature, to promote
collaborative problem-solving.
“This cross-fertilisation of ideas has generated additional sales opportunities
via an increased number of collaborative projects.”
Bryce Brooks
Chief Executive Officer
10
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 Forecast Meetings
Held annually in January with an update meeting in June, these
meetings invite all Profit Centre Directors (PCDs) to present their
annual forecast and plans for the year ahead to the Board. At the
2020 meeting, held in London, a number of awards were also
presented including; 2019 Best Improvement in return on Working
Capital, 2019 Best return on Working Capital, 2019 Best Organic
Growth, 2019 Best Idea/Initiative as well as a 25 Years’ Service
Award to Flowtechnology UK’s Managing Director, Keith Dickinson.
Elite Training Programmes
We have been proactive in approaching premium training
partners who share our ethos for building partnerships and
delivering outstanding performance.
The Leadership Trust
Introduced to the Group in 2018, the Leadership Trust is a
five-day residential programme available to all PCDs across the
Group and includes a 360-degree leader audit along with tailored
expert coaching, designed to help managers understand and
motivate teams and shape culture for maximum impact.
Since rolling out the programme, we have progressed five
colleagues through this programme, with a further four
completing in 2020.
Pareto Training
Pareto is a professional sales training and recruitment agency
with over 25 years’ experience of delivering improvement in
sales performance to over 100,000 delegates.
Since beginning to work with them in 2018, over 100 employees
have received training, on courses of various duration from single
day courses to full development programmes. For those trained,
we have witnessed a significant improvement in terms of
motivation and performance.
11
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements
Our Business Model
High Quality Fluid Power
Products & Solutions
As an 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.
Resources
Key Group
Activities
Driving Force
Widest Product Choice
Leading industry brands (500+)
through key supplier partnerships.
Central purchasing, allowing cost
saving synergies.
Extensive stocks £24m net.
Expertise in Our Market
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. e-commerce and logistic partners.
Unrivalled, Low-cost Full-service
Provision in Fluid Power
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.
Vital Products & 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, on-site
servicing or added value services
such as bespoke sales and marketing
support or e-commerce solutions.
12
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 Our Strategy
for Growth
Value Created
Sales Growth
Procurement &
Productivity Improvement
Cash Generation &
Management of Net Debt
IT Strategy
People
Short to Medium Term
Sustained annual growth with strong financial performance and
attractive returns for investors.
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 incentive schemes.
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.
“Our sustainable business model makes fluid power supply
convenient and efficient for customers and suppliers and
drives growth and returns for Shareholders.”
13
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements
Our Strategy for Growth
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 the 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.
Strategic Focus
KPIs
Target to ensure continuous above ‘market’ 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 prior year and plan. 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. Whilst there are some differences in the composition of the index
to our own business, this does give us a guide as to how we are performing against
the sector.
After an extended period of growth driven primarily by acquisition, we look to use our
wider resources to both improve purchasing terms with our major supplier partners, as
well as improve our operational efficiency.
At individual Profit Centre level, various KPIs are measured to cover service levels
including stock availability. However, during 2020 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.
Sales Growth
Procurement
& Productivity
Improvement
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
scope for the payment of dividends and support further acquisition activity when
appropriate to do so.
Cash Generation
& Management
of Net Debt
Working capital as
a percentage of
total revenue
Working capital as
a percentage of
total revenue
32.2%
2018
26.8%
2019
14
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 Daily Gross Profit
£000
Total Value of Sales
from Online & EDI
£000
2
6
£
6
7
£
7
0
1
£
*
6
5
1
£
1
6
1
£
,
1
6
8
8
2
£
,
3
4
6
8
2
£
2015 2016 2017 2018 2019
2018 2019
Group Cost
per Pick**
Group Cost
per Pick**
£3.32
2019 (2018: £3.94)
£2.40
2020 target
FY2020
We will establish a single e-business platform using
established resources in this area capable of being
available to all business units.
We will now look to grow sales above market by 3%
using the significant cross-selling opportunities and
customer data now available whilst managing
resources carefully.
*Prior year values have been restated as described in note 2.30.
We will complete the Group-wide warehouse and
logistics plan significantly reducing cost base in this
area, and providing a platform for future growth.
Return on sales in each operating segment will be a
key metric to ensure productivity measures across the
Group are improved.
**Being the Group’s total cost of warehousing, including property and
people, divided by number of invoiced lines in the year.
Net Debt to
Total Facilities
Ratio %
Turn & Earn %†
The Group has a target to achieve a Turn & Earn KPI
of 130% by 2022.
%
6
6
%
6
6
%
4
7
%
0
9
%
6
6
%
9
8
%
5
9
2015
2016
2017 2018 2019
2018
2019
†Turn and Earn Index is calculated by multiplying gross margin by
stock turn. In 2019, the gross margin achieved was 35.7% and the
average stock turn achieved was 2.67, therefore the Turn and Earn
index was 95.
15
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Our Strategy for Growth
Strategic Focus
KPIs
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 four or less, and with a single accounting system
for aggregating financial performance summaries, sales credit management and
supplier payment processing.
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.
Starting in 2019, in order to improve leadership skills at management levels from
Profit Centre and above, all senior staff will undertake training at Leadership Trust.
In October 2018, the Group introduced an Employee Engagement Programme
operated by Thomas International to measure and strengthen employee satisfaction.
Following this, the Group has introduced various activities tailored to each business
unit with a view to improve overall employee engagement.
IT Strategy
People
16
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 FY2020
Process Systems
Accounting Systems
The Group will reduce the number of business process
systems in use across the Group from the current
7 to 4 by the end of 2020.
4
8
8 7
4
8
2 2
2016
2017*
2018 2019
2016
2017*
2018 2019
*Increase due to acquisition activity.
Group Employee
Engagement
Group Employee
Engagement
66%
2019
72%
2020 target
We look to improve our overall engagement score from
66 to 72, as measured by our annual survey in
December 2020.
All Profit Centre Directors and above to complete
Leadership Trust training by the end of 2020.
17
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Marketplace
A Growing Fluid Power Market
We operate in a growing fluid power market, worth £1 billion in the UK, €13.9 billion across
Europe and $49.2 billion globally*. It is broadly estimated that ‘distribution’ accounts for
between 30% and 40% 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.
Global Landscape
In the UK and Ireland, we estimate Flowtech Fluidpower currently
holds around 10% market share in fluid power. Across the Benelux,
we hold around 2% market share (Benelux is €646 million – BFPA,
latest available statistics). We partner with over 500 supplier
brands, giving us potential access to a large share of the €13.9
billion European 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.
Hydraulics
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 and tubing
Fittings
Key industry drivers include:
Construction
Agriculture
Defence
Aerospace
Oil and gas
Heavy machinery
for lifting and moving
equipment
Pneumatics
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
Vacuum products
Key industry drivers include:
Food processing
Electronics
Medical
Automotive
Packaging
18
*British Fluid Power Association (2017) CETOP (2019).
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 Market Trends in the UK
The British Fluid Power Association (BFPA) captures market insight
based on two key channels: direct sales from manufacturers to
OEMs/end users and indirect sales via distribution (approximately
30% of the hydraulic market and 37% of the pneumatic market).
The former having a higher involvement in more volatile capex
spending, and the latter supporting maintenance, repair and
operations (MRO), present different trends in the fluid power market.
While manufacturers witnessed a slight drop in sales for 2019,
distributors reported an increase of 2.2% since 2018. Anecdotal
evidence points towards Brexit as a significant contributor to this
situation, with capex projects being put on hold as industry
adopted a ‘make do’ attitude, focusing on maintaining and
repairing older machines to keep production on track.
We would expect to generally grow 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 recent short term trends in these
markets is broadly similar to that in the UK.
UK End User Market Composition – BFPA 2018
Flowtech Fluidpower – Market Segmentation 2019
n Construction machinery
– 32%
n Resale – 31%
n Other industries
less than 2% – 10%
n Other industrial – 8%
n Automotive/commercial
vehicles – 7%
n Machinery and tools
– 4%
n Marine and off-shore
– 4%
n Mechanical handling
– 2%
n Agriculture – 2%
n Resale – 38%
n Other industries – 20%
n Construction machinery
– 15%
n Automotive/commercial
vehicles – 8%
n Marine and off-shore
– 6%
n Machinery and tools
– 6%
n Mechanical handling
– 4%
n Agriculture – 3%
19
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements
20
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019
Marketplace
How We’re Responding to the Brexit Ruling
The UK formally left the EU on 31 January 2020. At the date of this
report, the potential impact of Brexit is difficult to assess as the UK
moves through a transition period to establish what the future
relationship will look like.
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.
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
Tariffs and customs
Employees right to work in the UK
Intellectual property
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 up to 3 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 a supplier base in Ireland and Europe, so have the option to
ship to these countries if significant delays are apparent.
We have reviewed trade tariffs, rules of origin and associated
additional costs.
We have audited all permanent employees and established
their right to work in the UK.
We have 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.
21
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements
Financial Review
A Transformation in the
Level of Cash Generation
“The Board believes that areas capable of being controlled have
been suitably focused on and results delivered. We are particularly
pleased that efforts to reduce working capital has been a key
factor in a £3.3m reduction in our Net Debt.”
Russell Cash
Chief Financial Officer & Company Secretary
The focus on working capital management, combined with our profitable trading performance,
has delivered a transformation in the level of cash generation.
Operational Review
Group revenue (*)
Gross profit (*)
Gross profit %
Group operating profit
Underlying operating profit (†)
2019
2018
Change %
£112.4m
£112.1m
£40.2m
£38.9m
35.7%
£5.7m
£9.6m
34.7%
£7.7m
£11.4m
0.3%
3.2%
100bps
(25.2%)
(15.6%)
(*) All results relate to continuing operations. Prior year values have been restated as described in note 2.30.
(†) Underlying operating profit is continuing operations’ operating profit before separately disclosed items (note 4), the impact of
fair value adjustment to inventory (note 3). Underlying operating profit for 2019 also excludes the impact of re-stating operating
lease rentals under IFRS 16 (note 22).
Reconciliation of Underlying Operating Profit to Operating Profit
Underlying operating profit
Less impact of fair value adjustment to inventory (note 24)
Add impact of re-statement under IFRS 16 on operating profit (note 22)
Less separately disclosed items (note 4)
Operating profit
2019
£000
9,607
(297)
147
(3,712)
5,745
2018
£000
11,381
(382)
–
(3,321)
7,678
Headline Commentary
Given the background of increasingly challenging market
conditions encountered in 2019, in particular the final quarter of
the year, the Board is satisfied with the trading result.
The Board believes that areas capable of being controlled have
been suitably focused on and results delivered. We are particularly
pleased that the efforts to reduce working capital has been a key
factor in a £3.3m reduction in our Net Debt (£19.9m reducing to
£16.6m). The underlying reduction is £5.9m if account is taken of
the c£2.6m paid out in respect of historic acquisition activities.
Earlier in 2020 we announced our plans to take cost out of certain
of our businesses to build on the more modest savings which were
achieved in 2019. These plans revolve around getting much better
benefit from certain of our more efficient distribution facilities. The
Board remains confident that further, significant, savings will be
achieved in the next two to three years.
22
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 Revenue
Revenue increased by 0.3% (2018: 42%). After accounting for the
impact of the Balu acquisition (March 2018) there was underlying
organic decline of 1.9% (2018: growth of 5.7%). 2019 was a story
of two halves with organic growth of c3% in H1 being more than
offset by decline of c7% in H2 with Q4, in line with the overall
market, being particularly challenging.
Gross Profit Margins
Our overall gross margin improved by 100bps. This is particularly
pleasing and builds on a 81bps gain in 2018. Gross margin
remains a key indicator for each of our businesses; this, combined
with increasing focus on businesses within the Group working
together to generate improved terms, sees us well placed to retain
and improve on these strong margins in the future.
Underlying Operating Profit
Underlying operating profit reduced by £1.8m (15.6%). After taking
account of separately disclosed items, statutory operating profit
reduced by £1.9m (25.2%).
Separately Disclosed Items
Share option costs
Amortisation intangibles
Additional deferred consideration
Restructuring costs
Acquisition costs
Total
2019
143
1,051
596
1,739
183
3,712
2018
191
1,040
264
1,002
824
3,321
Results by Segment
During 2019 we began to review and measure our business under
the two reporting segments of Components and Services. The
rationale for this was to enable us to draw a distinction between
the relatively predictable Components business with a large
proportion of business being maintenance and repair related and,
in contrast, the Services division which provides a broader
spectrum of offering and which is more difficult to predict but
which our key suppliers view as being a major reason why they
wish to develop strategic partnerships with the Group.
Revenue
Components
Services
Group
(*) Prior year values have been restated as described in note 2.30.
Gross Profit
Components
Services
Group
(*) Prior year values have been restated as described in note 2.30.
Underlying Operating Profit (Loss)
Components
Services
Less allocation of central costs
Group
Revenue
Overall revenues grew by £0.3m, split:
2019
£000
96,348
16,070
2018 (*)
£000
94,581
17,527
112,418
112,108
2019
£000
35,167
5,016
40,183
2019
£000
13,995
(59)
13,936
(4,329)
9,607
%
36.5
31.2
35.7
%
14.5
(0.4)
2018 (*)
£000
33,362
5,587
38,949
2018
£000
14,254
314
14,568
(3,187)
11,381
%
35.3
31.9
34.7
%
15.2
1.8
Components – £1.8m increase (£2.5m increase through acquisition activity and £0.7m (0.8%) organic decline.
Services – £1.5m (9.1%) decline.
23
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Financial Review
Gross Profit Margins
It is pleasing to see a 1.2% improvement in an already strong
margin within our Components businesses. We continue to see
benefits of the creation of a central Commercial/Procurement
Director in prices we are achieving with our suppliers as buying
decisions are made on a consolidated Group basis rather than
by individual Profit Centres.
The margin within the Services division typically vary more.
We have plans in place which should see both gross, and
more importantly, net margins improving within this part
of our business.
Underlying Operating Profit
Underlying operating profit within our Components division
remains strong at £13.9m, a margin of 14.5%. Whilst the lack of
contribution from our Services businesses is disappointing, the
division remains key in developing our ever stronger relationships
with key suppliers. Actions are now in place to improve the
performance, through a combination of extracting operational
efficiencies and by charging more appropriately for certain of the
services which are provided.
Central Costs
Central costs comprise executive management, finance and IT
departments, divisional sales and the cost of running the plc.
We made significant investment in these areas during the second
half of 2018 and early 2019. We believe an element of these costs
will not recur in 2020; this, combined with the focus we have on
managing our overall cost base down, means we are confident
that these costs have reached a mature level and will not
materially increase in the foreseeable future.
This provides a robust platform to deliver material cost and
working capital savings. The Board believes we are well placed to
capitalise on future growth opportunities, both organic and when
the time is right through acquisition activity.
Statement of Financial Position & Cash Flow
In a year where trading conditions were challenging it is pleasing to
see that we achieved a £3.3m reduction in Net Debt, in particular
given £2.6m was paid out in respect of contingent consideration
relating to historic acquisition activity.
This performance reflects the emphasis which the entire business
placed on management of working capital. In 2019 cash generated
from operations activities totalled £13.2m (2018: £3.8m).
Statement of Financial Position & Cash Flow
£20.0m
£19.9m
£10.4m
In terms of working capital achievements:
Net stock levels were reduced by c£4.7m and our focus
on achieving further reductions has continued into 2020.
The average payment term with suppliers was increased
from c45 days to c55 days – this was achieved by agreeing
enhanced terms with a number of our key suppliers.
We agreed reduced payment terms with a certain number of
our customers – as a result our debtor days reduced by c3
days (c£1.0m in cash terms).
The chart at the foot of this page shows the key components of
the cash flow.
The business generated £10.4m (2018: £10.1m) of positive
operating cash flow. This was augmented by the effect of the
focus on management of working capital with an overall benefit of
£5.8m in the year. The aggregate total of £16.2m enabled the
following to be funded:
Dividends (£3.7m).
Earn out consideration in respect of historic acquisitions (£2.6m).
Taxation (£3.0m).
Lease payments & IFR16 related interest (£1.9m).
Capital expenditure (£0.8m).
Interest (£0.8m).
Other items (£0.2m).
Reduction in bank debt (3.3m).
Dividends
Given the challenges presented by the COVID-19 pandemic, the
Board has concluded it is in the best interests of all stakeholders
to suspend the dividend policy. As such, the interim dividend of
2.13p per share (paid on 29 October 2019), will not be added to.
The Board will review the dividend policy once more stable
conditions have returned.
Taxation
The tax charge for the year was £0.97m (2018: £1.99m), with an
effective tax rate of 20.6% (2018: 28.8%). The significant reduction
in the effective rate primarily relates to the fact that there is a
much lower level of disallowable acquisition-related expenditure in
2019 as compared with 2018.
n Increase
n Decrease
n Total
£16.6m
£0.2m
£1.0m
£1.6m
£5.8m
£3.7m
£0.8m
£2.6m
£3.0m
Tax paid
FY18
Cash
generated
from
operations
Working
capital
movement
Fixed
assets
purchased
Contingent
consideration
Dividends
Payment
of lease
liabilities
Other
Interest
paid
FY19
£15.0m
£10.0m
£5.0m
£0.0m
24
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 “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.”
Russell Cash
Chief Financial Officer
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Stock code: FLO – www.flowtechfluidpower.com
25
Risk Management
Risk Management
Framework
The Board is responsible for risk and internal control systems
across Flowtech Fluidpower. Each of our Profit Centres are asked
to provide input into this thinking on at least an annual basis.
This oversight ensures regular and consistent challenge is applied
to all parts of the organisation.
We continually integrate new risk mitigations into the way we work
to ensure risk management is effective and practically embedded
throughout the organisation. This ensures the safety of our staff,
the public and protection of the business.
During the past year, we have continued to build and enhance our
risk management framework. We began this process by working
alongside Marsh, specialist consultants in this area; Marsh has
undertaken an independent maturity assessment of our risk
processes across multiple exposures. This has resulted in an
improved roadmap which the organisation has committed to work
on over 2020 and which is referred to in this section of our report
These improvements include the alignment of the risk
management framework to ISO 31000 and the establishment
of a Risk Management Committee (RMC).
Core Risk Management Process
1
Identify
Risks
2
Analyse
& Assess
3
Respond
& Control
4
Monitor
& Review
Identify internal and
external sources
of risk (threats and
opportunities).
Determine risks, causes
and consequences.
Define categorisation,
connectivity and
ownership of risks.
Conduct qualitative
Determine risk response
Review and aggregate
analysis across multiple
impacts.
Determine financial
exposure.
Assess inherent and
residual level of risk.
Align against risk
appetite.
(treat, terminate,
tolerate, transfer).
Implement control
strategies.
Set up controls
process (ownership,
time frames).
Develop further action
plans and align with
risk appetite.
risk data.
Monitor risk profile
changes.
Measure Enterprise Risk
Management (ERM)
performance against
key risk indicators.
Monitor control
effectiveness and
compare with incidents
and claims.
The RMC will be attended by a selection of department heads
and managers from the different business units and will be a
regular forum to discuss the changing risk landscape facing the
organisation and suitable mitigations. Outputs from the RMC will
be provided to the Board in line with the insurance renewal process.
Risks will be escalated to the RMC and the Board based on the
risk appetite of the organisation. Those risks which exceed this
acceptable level will be escalated to the RMC and then onto
the Board for discussion.
Risk Governance Structure
Board
Direction and decision.
Risk Management Committee
Suggested approaches.
Specialists & Department Heads
Invited based on topic discussed at meeting.
26
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 Risk Hierarchy
Level 1
Level 2
Level 3
Group Principal Risks
Adverse circumstances that could have the ability to effect all
business units operating within the Group. These risks could
destroy the organisation or seriously impair its ability to perform.
Business Unit Risks
Risks that have the potential to impact specific business unit
activities. Teams will feed into this level, which are in turn are
reported up to the Board based on risk appetite.
Team/Functional Risks
Risks that may impact teams or functions within the business
units. Risks are normally specific to the individual teams who
could retain ownership and control.
Three Lines of Defence
Flowtech Fluidpower will operate a three lines of defence model in line with good practice for priority
risk areas. This will ensure constructive challenge and continuous improvement is maintained.
3
2
1
Third Line of Defence
Second Line of Defence
First Line of Defence
Business as Usual
Perform business activities to
fulfil strategic objectives in line with
risk appetite.
Accountable for risks incurred in
these activities.
Manage risks via avoidance, mitigation,
transfer or acceptance.
Design and operate effective primary
controls and procedures in line with
frameworks and policies.
Internal or External Assurance
Independent review of adherence to
risk and control standards, mandates
and guidelines.
Opinion on adequacy and effectiveness
of first and second line risk
management approaches.
Risk & Compliance
Support the establishment of an
effective risk management framework
and definition of risk appetite.
Monitor risk profile and escalate
as appropriate.
Provide advisory support and
challenge to first line of defence.
27
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements
Risk Management
Risks
The most significant risk faced by the Group is the economic
disruption caused by the COVID-19 pandemic and the knock on
effect on the UK’s withdrawal from the European Union. Our
response to the pandemic is discussed in the Chairman’s
statement and the CEO’s year in review and our preparation for
Brexit is set out on page 21. The implications for the Group are
included in note 2.2 Going concern and note 31 Subsequent
events. This risk is managed by the Board as a whole and is the
subject of, at least, weekly meetings.
Notwithstanding our position as market leader in the UK, our
businesses constantly remain alert to the potential threat of our
competitors. We believe investments we have made in an array of
areas provide resilience in this regard and should lead to our
position in the market further improving; this is an ongoing
mindset and one which is certainly continued in 2020,
notwithstanding the challenges presented by COVID-19.
Of particular note is the investment we have made in our people,
both those that have been with us for a time and those who we
recruited and welcomed into our businesses more recently.
A further area of particular significance is the focus we have
applied to developing our already strong website offering with the
aim of improving our reach to an ever increasing proportion of our
customers who purchase through this forum. This is viewed as
crucial to our ambition to achieve future growth and further
develop the relationship with key suppliers who want to put
increasing volumes through a limited number of trusted
distribution partners.
Set out below are the risks identified by the Group’s risk management
process. These represent the other significant risks faced by the
Group, each of which is owned by a member of the Executive
Management team and reported on regularly to the Board.
Inability to Recognise
& Control Cyber
Exposure
Owner: Chief Executive Officer
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.
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.
We have taken measures to highlight
this risk in several communications
with all of our employees and worked
with external providers to ensure that
these messages are becoming
embedded in all that we do within the
business. This has assisted in our
business successfully defending efforts
to infiltrate our systems.
An on-site 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.
System & Site
Disruption
Owner: Chief Executive Officer
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.
Mitigation
Off-site 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
improves as distribution and production
activities can be rerouted to other sites.
The robustness of our systems has been
regularly tested throughout the year and,
where appropriate, steps taken to
enhance processes; we see this as an
important, ongoing work stream to
ensure our business is continually alert
to future challenges.
A business continuity plan has been
tested successfully at the Skelmersdale
Logistics Centre. A regular test
programme has been introduced
across the Group.
Inability to Effectively
Manage & Control
IT Hardware &
Software Changes
Owner: Chief Executive Officer
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.
Mitigation
Under the leadership of the Systems
Director, in 2018 and early 2019 the
central services function added full-time
skills in user acceptance testing and
project management.
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.
28
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 Trend:
Risk increasing
No risk movement
Risk decreasing
Breach of
Regulations
Owner: Chief Operating Officer
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.
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.
Quality Control
Owner: Chief Executive Officer
Description
Many of the key components and
products supplied by the Group are for
industrial use, often in hazardous
environments. They 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.
Mitigation
The majority of the Group’s products are
sourced from reputable ‘brands’ in the
UK and Europe; while the business
continues to source certain products
from China, this is far less prevalent
than it once was. 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. Our people
have been supported where felt
necessary by external input and in 2020
we will create the new role of Director
of Product and Engineering Compliance
to oversee all the Group’s Quality
Control procedures.
Talent Management
& Succession
Planning
Owner: Chief Executive Officer
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.
Mitigation
Attraction and retention of employees is
supported by bonus plans, recognition
and reward programmes and innovative
benefit packages.
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.
In recent years there has been a
programme put in place to support the
development of each member of our
Profic Centre, divisional and executive
management teams. The feedback we
have received from participants has
been exceptionally good with each
person acknowledging the relevance
of the content to their role within
the business.
Group-wide technical and sales
conferences to aid skills sharing.
29
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Corporate Social Responsibility (CSR)
The Board has overall responsibility for
Corporate Social and Environmental
Responsibility and is committed to developing
and implementing processes and policies
which protect the environment and create
long-term value for the business and
wider communities
Our CSR responsibility focus on three core areas:
1
2
3
Our People
Our Communities
Our Environment
Our People
Our people and the service they provide are critical to our success as well as driving
many CSR initiatives. We believe focusing on the following will lead to a committed
and productive workforce:
Statistics
Gender
Strong and
supportive
culture
Attracting,
retaining and
developing
talent
Maintaining
and
promoting
diversity
Engagement
Healthy
working
environment
Committed productive workforce
Age Range
n
Male – 76%
n
Female – 24%
(2018 – no change)
Strong & Supportive Culture
We continually strive to challenge the status quo in our market, aiming to be the most
convenient and efficient provider of a high-quality service in fluid power.
Fundamental to this vision is a strong culture focused on recruiting and developing the
right people in the right roles within our business – encouraging employees to work
collaboratively with customers, suppliers and each other and empowering them to directly
shape the future of our business and fluid power. This, we feel, breeds passion and a
genuine desire to achieve the best solutions for our customers, and through a friendly,
supportive culture focused on efficiency, technical competence and unrivalled service,
we’re in a strong position to drive added value right through the fluid power supply chain.
12%
25%
21%
19%
20%
3%
16-25
26-35
36-45
46-55
56-65
66+
(no figures for 2018)
Number of
Employees*
Retention†
631
(2018 – 573)
83%
(2018 – 89%)
Length of Service**
7.5 years
(2018 – 7.5 years)
*Average in 2019.
**Average number of years.
† (1- leavers during 2019)/average number
of employees.
30
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 Attracting, Retaining & Developing Talent
The Board places a strong emphasis on employee recruitment and retention, giving
leaders the appropriate support, training and tools to build confident, motivated teams.
Attracting the Best Talent
It is important that we ensure our people are the right fit for
their role and the business in which they work.
As part of the recruitment process, we utilise workplace behaviour
profiling to help confirm whether a candidate is an ideal match for
the role. Many senior managers are trained practitioners, able to
understand and give feedback on profiled behaviour.
We recruit using a number of methods deemed most appropriate
for the position and we’re increasingly utilising social media,
namely LinkedIn as a channel to promote awareness of our brand
and opportunities within each Group business. This enables us to
reach out to talent within fluid power and potential candidates who
may follow us for such opportunities. Since opening an office in
Wilmslow we have successfully recruited employees, consultants
and service providers from Manchester and Cheshire.
Apprentices
We are keen to attract and retain apprentices and currently
employ ten apprentices across the Group, two in office positions
and eight in engineering roles.
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 2019,
we retained two apprentices who graduated across the Group, an
engineer at Primary Fluid Power and a business admininstration
apprentice for our supply chain team at Flowtech Fluidpower plc.
We also support local students and communities where possible
with work experience opportunities.
Retaining & Developing Talent
Business performance and ongoing success are directly related to
the quality and effective performance of employees. We openly
encourage employees to enhance skills via continuous learning,
giving them appropriate access to 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) as well as a Group Employee
Handbook. 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.
In 2018 a technical forum was introduced for technical personnel
to share knowledge. This has created an additional revenue stream
via an increased number of collaborative projects between
businesses within the Group, combined with a heightening number
of inter-company referrals.
We work with a number of high-quality training partners,
accessible by business unit. Examples include:
The ‘Leadership Trust’ – a programme for all MDs which
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.
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.
Reward Schemes
Employees undertake annual performance reviews and are
rewarded via additional holidays for attendance, financial rewards
and other softer perks. A Group profit share scheme was
introduced in 2017, eligible to all businesses, subject to a minimum
performance threshold of 20% annual return on investment at
each business. Each Profit Centre Director has 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.
31
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Corporate Social Responsibility (CSR)
Providing a Healthy
Work Environment
The Group remains committed to providing a safe and healthy
working environment. The Chief Operating Officer has overall
responsibility for health and safety (H&S) practices, ensuring all
MDs 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 Profic Centre and must be included as
part of new employee inductions and new acquisitions.
H&S assessments are carried out annually by Croner and
additionally each business has either a H&S representative or
H&S committee, responsible for monitoring and improving H&S
procedures and practices. Employees within assembly and
services facilities represent the highest risk of employees for H&S.
To supplement ongoing assessment, in November 2019 we
appointed a H&S and Compliance Manager who will specifically
support our services businesses to maintain safe working
procedures and create a more structured approach to H&S within
the division. All service engineers are fully H&S trained before
arrival at customer premises and additional training is requested
for employees depending on their job role and forms part of an
ongoing improvement process.
Each H&S practice is measured through accident rates. Our accident
rates are very low given the number of employees and the amount of
manual work, with no RIDDOR incidents in 2019 (2018: one incident)
and only one lost time accident (2018: 11 lost time accidents).
We are currently working with Croner to standardise procedures
across our UK and Irish sites. Croner advised the Board that all
sites except for Skelmersdale would go into the programme late
2019. All sites were visited and a second round of visits will be
completed by end 2020. All incidents are investigated thoroughly
and preventative measures put in place to mitigate any further
reoccurrences. Equally, all employees are encouraged to remain
vigilant and report any potential hazards and warn colleagues.
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.
This year there has been a greater awareness over mental health,
with many of our sites seeking to improve mental wellbeing also,
attending courses and spreading awareness with the aim of
reducing stress levels. In January and February, three personnel
from the Group attended courses in mental health first aid,
allowing them to understand the different types of mental health
issues and direct colleagues to appropriate support resources and
mitigate any time off sick.
Maintaining & Promoting Diversity
It is our Group policy to recruit and promote based on ability and
attitude, regardless of gender, sexuality, ethnicity, disability, age,
religion or belief, parenting, caring or marital status.
Promoting a culture of respect and equal opportunity is as
important as ensuring the right skills fit our business. In instances
where an employee becomes disabled, where practicable the
Group has policies to providing continuing employment and career
development where appropriate.
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.
We have witnessed a very high return rate of female employees
following maternity leave, additional flexibility, and in many cases
career progression, has increased their commitment and attitude
towards the business. We currently employ 24% females across
the Group with 27% of senior management positions occupied
by females.
Human Rights & Modern Slavery
The Group does not tolerate bullying or harassment. We are
committed to fair employment practices and comply with national
legal requirements regarding wages and working hours.
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.
Boosting Engagement & Productivity
Engaged and committed employees are integral to our overall
Group performance and the delivery of great customer service.
In 2018 the Group introduced an Employee Engagement
Programme; surveys are conducted annually by a third party
provider and each business unit is responsible for implementing
ways to boost engagement. The second round of surveys will be
completed by October 2020, at which point we’ll be able to see
progress made.
We currently share information via email and noticeboard
communications as well as forums, meetings and shared servers
or Dropbox. To improve efficiencies and Group collaboration we
are exploring an intranet platform; we also see this as a positive
step towards boosting employee engagement by virtually uniting
teams in different locations.
32
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 Our Communities
Supporting Our Communities
Aligned with our strategy to support and develop our people, we
believe it’s important to extend this focus to local communities,
which is why our charitable activities are geared towards
supporting and developing people outside our organisation.
This in turn brings together employees outside of work, further
promoting cohesion in the workplace.
Local Community Engagement
We proactively encourage and support employees to take on
additional roles which positively impact local communities and the
environment. Each business unit has the freedom to choose their
own local charities, enabling them to engage directly and see
tangible benefits.
The Group has collected donated toys, clothes, food, bedding and
also raised £12k in total, supporting local charities such as:
Birchwood Centre – a charity located in Lancashire providing
vital support and accommodation services for vulnerable
people at critical points in their lives – see case study.
Digmoor Food Bank – a food bank in the Skelmersdale area
helping local people in crisis with much needed supplies.
Gloucester City Mission – a charity who work with the
homeless and vulnerable, providing food, clothes, showers
and support.
Rainbow’s Hospice – providing care and support to life-limited
children and their families.
Prince’s Trust
At a Group level we have recently engaged with the Prince’s Trust,
who will be our chosen charity, and focus on providing a better
future for 8-25 year olds with education and upskilling.
During 2020 we intend to work more closely with the charity
by supporting this age group with skills development and work
experience across our business.
Helping Communities Worldwide
We also aim to help other communities in much need of support
from businesses worldwide. In 2019, we signed up to the AquAid
project. At the same time as hydrating colleagues at our head
office in Wilmslow, our investment in an AquAid water cooler is
helping supply clean water to communities in Africa.
Case Study
Flowtechnology UK Start New Community
Partnership with Birchwood Centre
In November, FTUK started to support local charity
The Birchwood Centre, who help prevent homelessness
with accommodation options, reducing social isolation and
improving health and well-being.
Birchwood began their journey more than 30 years ago and
over the years they have progressed in expanding their work
within West Lancashire. Over time they have grown and
developed their services, connecting to more and more people
through methods such as counselling services, mediation
services, therapeutic accommodation, dispersed services in the
community, support with employment, training, a ‘Junk Food
Café’ and many more!
The Junk Food Café is a brilliant initiative that Birchwood have
orchestrated, and is a clear example of how this charity are
committed to helping as many members of our community as
they can. The aim of the café is simple: to reduce the amount of
waste food that ends up in landfill.
The café is run by Birchwood staff and some amazing
volunteers; they turn up every week to create a safe space for
people to come together and socialise with one another. Not
only are those who come along able to socialise, but they will
also be able to receive a plate full of nutritious food to enjoy.
Birchwood also offers a service called ‘Birchwood Catering’,
where they offer numerous catering options for a range of
events across West Lancashire.
“Here at Flowtechnology UK, we have recently tried
and tested their catering – and the food really is
delicious! (See below the amazing spread we had
prepared for us). What’s more, all of the profit
generated by the catering services is reinvested back
into the charity.”
33
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Corporate Social Responsibility (CSR)
Our 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 Profic Centres to introduce
environmentally friendly practices available for their business.
As a norm we:
Some examples of our progress this year include:
Use low energy, motion-sensored lighting within warehouses
In 2019, we swapped over 57% of new leases to Hybrid
vehicles, bringing our total hybrid vehicle count across the
Group to 31%. We anticipate further conversion throughout
2020 with plans to be fully converted to hybrid and electric
vehicles by 2025.
Our chosen carrier is Fedex who, as part of their ‘reduce,
replace, revolutionise’ campaign, plan to improve energy
efficiency and reduce emissions in Europe across aircraft,
vehicles and facilities over the next five years.
and most of our offices.
Recycle as much as possible (100% paper across all sites,
100% oil rags at OCUK).
At most warehousing and production sites, paper and
cardboard are shredded and reused again in packaging.
Personal recycling bins are used at most sites.
Recycle non-usable pallets (FTUK).
Over 80% of Group HES’s power is generated by solar panels
which were fitted in 2014.
All warehouse vehicles such as forklift trucks are electric.
Encourage cycle use through local government initiatives in
both the UK and the Netherlands.
Aim to reduce paper usage, e.g. by Electronic Data Interchange
(EDI) for ordering and invoicing, reducing print frequency of
catalogues and investing in ecommerce.
Reduce unnecessary travel by online meeting software.
34
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 Section 172 Statement
In accordance with Section 172 of the Companies Act 2006 (S172)
the Directors, collectively and individually, confirm that during the
year ended 31 December 2019, they have acted in good faith and
have upheld their ‘duty to promote the success of the company’
to the benefit of its members, with consideration for its wider
stakeholders. Section 172 describes a diverse range of stakeholders
whose interests are said to feature in the ‘success of the
Company’; comments on each of these areas are provided below:
As a quoted company with a leading position in the fluid
power industry, we are acutely aware of the potential impact
that our decisions may have on certain stakeholders, including
our employees, customers and suppliers, as well as our
Shareholders. Our sustainable business model makes the
procurement and supply of fluid power supply products
efficient for customers and suppliers, thereby supporting
our ambition of delivering growth and return for Shareholders.
More information on the long-term value this gives is
outlined on pages 12-13.
The investment we have made in the Engagement Surveys
across each of our businesses, combined with the training and
career development plans we have put in place for a number
of employees, demonstrates our commitment to ensuring our
workplaces provide a positive environment for our staff.
Of course, on occasion, decisions necessarily have to be taken
which adversely impact on employees; in such scenarios we
are careful to provide the necessary degree of compassion
with the processes we adopt without removing the focus to
deliver the commercial benefit for the greater good of the
business. Through our flexible 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. The Board always aims to act fairly
towards employees, further information outlining our approach
to recruitment, development and diversity can be found earlier
in this section.
We work closely with our key suppliers, developing
relationships in partnership with them. Suppliers are keen for
their products, and in many cases an increasing proportion of
their products, to be distributed via a professional distribution
channel and for their brand/reputation to be protected when
doing so. We regularly meet with key suppliers to develop
these relationships, largely with a view to accomplishing a
collective ambition of achieving the best possible experience
for our vast network of customers.
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.
We are a member of a number of trade bodies in the fluid
power industry, including the British Fluid Power Association
(BFPA) and the British Fluid Power Distributors Association
(BFPDA). We work closely with these organisations and
invest in them with representation from the Group at their
various gatherings throughout the year. In November 2019, the
Group’s Commercial Director, John Farmer was appointed as
Vice President for the BFPA, which is a positive step towards
further aligning our Group activities within the industry bodies
and helping to shape our industry for the future, especially in
the areas of compliance and talent management.
Our businesses have been supporting their local communities
for many years and the Board encourages them to continue
this good work. This takes many forms, including supporting
charitable events, recruitment of local apprentices, open day
support for local schools and educational events with local
communities where Group members carry out projects to
make the environment or services better. 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. Through sharing
ideas and resources, every year we find new ways to reduce
our impact on the environment. Many of our businesses also
proudly support industrial users who are increasingly
implementing more stringent environmental practices and
seeking hydraulic and pneumatic solutions to facilitate this.
Further information can be found earlier in this section.
In addition to good governance practices mentioned in the
Corporate Governance Report (pages 40 - 45), through our
Group Handbook, Standard Practice Instructions, Health and
Safety committees and various Group-wide and localised
initiatives, we ensure that best practices are adopted for our
employees, suppliers, customers and in turn Shareholders.
The Strategic Report, as set out on pages
01 to 35, has been approved by the Board.
Bryce Brooks
Chief Executive Officer
29 April 2020
35
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements
The Board
Bryce Brooks
Chief Executive Officer
Russell Cash
Chief Financial Officer
& Company Secretary
Malcolm Diamond MBE
Non-Executive Chairman
C
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Appointed
March 2010 as CFO, promoted to CEO
in September 2018.
Appointed
November 2018.
Appointed
May 2014.
Skills & 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.
Other committees by invitation.
Skills & 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 have already served 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.
Other committees by invitation.
Skills & 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, discoverIE.
Board Committees
Chair of Nomination Committee.
Member of the Audit, Remuneration
and AIM Compliance and Corporate
Governance Committee.
36
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 Key:
A
N
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Committee Chair
Audit
Nomination
Remuneration
AIM Compliance and
Corporate Governance
Nigel Richens
Non-Executive Director
& Senior Independent Director
Bill Wilson
Non-Executive Director
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Appointed
May 2014.
Appointed
September 2018.
Skills & 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
Charity trustee.
Board Committees
Chair of the Audit, AIM Compliance
and Corporate Governance Committee.
Member of the Nomination and
Remuneration Committee.
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.
Skills & 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 has been
of significant benefit to the executives in
meeting recent challenges as well as
those which lay ahead of the business
in 2020 and beyond.
External Appointments
None.
Board Committees
Chair of the Remuneration
Committee.
Member of the Audit, Nomination
and AIM Compliance and Corporate
Governance Committee.
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Stock code: FLO – www.flowtechfluidpower.com
Chairman’s Statement on Corporate Governance
“…the Board is now confident we have a mature and robust
central function which sees us well placed to effectively control
what we as a business have today…”
Malcolm Diamond MBE
Non-Executive Chairman
Continued investment in our People. Of particular note is the
work we have performed on Engagement Surveys across all
of our businesses. This involves an assessment, performed
by external advisers, as to the degree to which our staff are
engaged with our management in each of our businesses;
we now have plans in place within each location resulting from
the findings of this work and have an objective of improving
the results as we repeat this exercise later this year.
A clear focus on talent management and putting in plans to
develop not only the leaders of our business right now but
those who will be able to develop into such roles in the future.
Having listened to feedback from Investors, we are working
hard on improving our messaging. We have recently engaged
with an Investor Relations organisation and are confident that
we will be delivering clearer messages, linked to the strategic
ambitions we have set ourselves, with clear and measurable
key performance indicators attached to each area.
As a result of these, and other actions not highlighted, the Board is
now confident we have a mature and robust central function which
sees us well placed to effectively control what we as a business
have today, as well as ensuring future growth is controlled and the
benefits gained lead to enhanced shareholder value.
In my Chairman’s Statement earlier in this Report, I refer to the
proposed changes to the Board which have recently been
announced. As well as bringing additional experience and acumen
to the Board table, I believe this will further enhance our approach
to all areas of corporate governance.
On behalf of the Board I hope this provides you with evidence of
the importance which we are placing on corporate governance;
we see this as intrinsic to developing our business model and
protecting shareholders’ interests.
A key component of my role is to oversee the development of the
Group’s corporate governance model and ensure there is a clear
focus on this increasingly important area of our business.
Last year we reported on our adoption of the QCA Code and
concluded that whilst cornerstones of best practice were firmly in
place, there were areas which we needed to invest in. During 2019
the Board has been driving our governance standards forward with
an objective of ultimately reaching a position where best practice
is exceeded. The Board sees this as an important objective to
support our ambition to control the growth of our business, in
particular if in time we return to acquisition activity. I am pleased
to report that we consider we are compliant with both the website
and Annual Report disclosure requirements of the QCA Code.
Following a period of acquisition activity between 2015 and early
2018, the second half of 2018 and the entirety of 2019 has seen
focus turn to two key areas: (1) control of our costs and cash, and
(2) investment in our people and systems. I am delighted with
progress made in each of these areas, the first is covered within
the CEO and CFO reports, the second merits further comment
from myself.
The investment we have made largely occurred in the second half
of 2018 and the first half of 2019. Highlights within this included:
The establishment of a cost-effective Head Office function
in Wilmslow, close to the origins of our business but,
importantly, in a perfect location to efficiently commute
to our other businesses based across the UK, Ireland and
the Netherlands.
The establishment of a completely new central finance
function which has taken back responsibility for preparation
of our accounts from an expensive external provider. This
has resulted in a significant improvement to the quality of
accounting and management information with associated
benefits already being seen across the entire business. This
new team has implemented improvements in areas of financial
control and the reporting of key performance indicators
relating to both profit and working capital measures.
The recruitment of IT, Internal Audit and Project Managers.
We believe this now sees the business in a much more
resilient position and able to ensure all projects, in particular
those relating to operational efficiencies, are robustly
managed and, as a result, ensuring the benefits are fully
extracted on a timely basis without undue disruption to
the business.
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Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 i
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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). The QCA Code
identifies ten principles to be followed as a guide to help
companies deliver value for shareholders. This relies on effective
management by the Board, accompanied by good communication
which serves to develop confidence and trust.
Compliance with the QCA Corporate
Governance Code
Within our Annual Report, we are required to demonstrate
compliance with each of the Principles:
Principle 1
“Establish a strategy and business model which promote
long-term value for shareholders.”
Our strategy, business model and linked key performance
measures are clearly articulated in pages 12-17; we believe this
provides existing, and potential new, Investors with evidence of
our determination to achieve long term shareholder value.
Principle 2
“Seek to understand and meet shareholder needs
and expectations.”
Later in this section of the Report we refer to the focus we apply to
Investor Relations. This is an area where we accept improvements
need to be made and we are working hard with respected
advisors to ensure we achieve this on a consistent basis.
Principle 4
“Embed effective risk management, considering both
opportunities and threats, throughout the organisation.”
In conjunction with Marsh, specialist Risk Management
advisors, we have sought to identify our key areas of risk on
pages 26-29 and comments provided throughout this section
demonstrate the investment we have made to put measures in
place to address each of these areas. In particular, the systems
of internal controls and the investment we have made in our
Business Systems, Internal Audit and Project Management
functions demonstrates how important this area is, and will
always remain, to us.
An assessment of risk is a recurring agenda item at each
Board meeting with issues requiring discussion brought to the
attention of the full Board. In addition, the Systems Director
meets regularly with Board members, including Non-Executive
Directors, to provide relevant updates.
Principle 5
“Maintain the Board as a well-functioning team
led by the Chair.”
Details of the Board, and their roles within the Board
environment and within Committees, is set out on pages 36-37.
Malcolm Diamond and Nigel Richens are independent Directors.
As Bill Wilson is about to take up Executive responsibilities, he
is no longer deemed to be independent. In the announcement
on 27 March 2020, the Board set out its plans to recruit two
further independent Non-Executive Directors.
Principle 3
Principle 6
“Ensure that between them, the Directors have the
necessary up-to-date experience, skills and capabilities.”
Brief biographies of each of our Directors are outlined on pages
36-37. A key role of the Nomination Committee is to ensure that
the requisite skills and relevant experience are evident in
candidates for Board roles. At the time of appointment, each
Director is provided with training provided by our NOMAD and
legal advisers, covering the responsibilities of a Director
generally and in particular the requirements when involved in
the Board of a listed company.
The Board regularly engages with external advisors to offer
specialist, often technical, input as and when this is felt
necessary or beneficial to the issues or projects being
considered. In addition, support is often provided by senior
professionals on a consultancy basis, current examples of this
being with both our operational cost review and our project to
develop our e-commerce offering.
“Take into account wider stakeholder and
social responsibilities and their implication
for long-term success.”
We welcome the requirement of Section 172 of the
Companies Act 2006 and our comments thereon are provided
in the CSR section on page 35.
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.
The Group invests time in developing relationships with a
number of key leading fluid power suppliers; this leads to a
position where suppliers have confidence and trust in us to
deliver their products as well as dealing with after sales
enquiries in an entirely professional manner. This ethos sees us
well placed to capitalise on new business should the suppliers
want put additional volume through distribution channels
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 and bonus schemes.
40
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 Principle 7
Principle 9
“Maintain governance structures and processes
that are fit for purpose and support good decision
making by the Board.”
We have made significant investment in certain of our central
functions and feel we now have a mature and robust
infrastructure to manage the business we currently have and,
over time, effectively manage an expanded operation. The
narrative which follows later in this section of the report
explains the roles and responsibilities across Board members
and its various Committees.
Principle 10
“Communicate how the company is governed and is
performing by maintaining a dialogue with shareholders
and other relevant stakeholders.”
Details relating to this are contained in the Group’s website –
www.flowtechfluidpower.com. This provides details of matters
reserved for the Board, the role of Board Committees and other
aspects relating to corporate and social responsibility.
The website provides further detail relating to some of
these requirements.
“Evaluate Board performance based on clear and relevant
objectives, seeking continuous improvement.”
During the year, a more formal but straightforward process
was adopted involving discussion between each individual
Director and, separately, the Chairman and Senior
Non-Executive Director. The assessed criteria included
contribution to Board discussion, development of strategic
thinking, demonstration of experience, expertise and wisdom,
and identification of opportunities for improvement as well as
individual personal objectives. Feedback from Shareholders
and advisors was also taken into account. A similar review will
be conducted each year.
The review concluded that, as announced on 27 March 2020
and following the decision of Malcolm Diamond to step down
from the Board, and the proposed appointment of Bill Wilson as
Executive Chairman, there was a need to recruit additional
independent Non-Executive Directors. The Board identified
Roger McDowell as possessing the business skills and
governance experience to meet the Board’s needs. Once the
proposed appointments take place at the forthcoming AGM, it
is felt that the Board will have the necessary skills, but in order
to improve the governance balance of the Board an additional
independent Non-Executive Director is required. The specific
skills of the successful candidate will be addressed by the new
Board post AGM, particularly in the light of the developing
COVID-19 pandemic. Succession planning will also be
considered in the light of the proposed changes. Following the
Board evaluation no bonuses were awarded.
Principle 8
“Promote a corporate culture that is based on
ethical values and behaviours.”
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, our focus on people and talent management,
the regular Profit Centre Director (PCD) conferences and
training events have provided additional opportunities to
promote and monitor a healthy corporate 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.
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Corporate Governance Report
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.
Approval of new Bank facilities or significant changes
to existing facilities.
Declaration and recommendation of dividends.
Approval of major acquisitions, disposals and
capital expenditure.
Succession planning and appointments to the Board
and its Committees.
Review of the Group’s overall corporate governance
arrangements and reviewing the performance of 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. He also plays a key role in investor
relations and corresponds with major Shareholders as he sees fit.
The Chief Executive
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 seeks to maintain good
relationships and communications with investors.
Company Secretary
Russell Cash, our Chief Financial Officer, is the Company Secretary
and as such is responsible for legal and regulatory compliance as
well as assisting the Chairman in preparation for, and the effective
running of, Board meetings.
Senior Independent 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.
Board Composition
The Board comprises an independent Chairman, two Executive
Directors and two Non-Executive Directors. Details of the Directors’
remuneration and terms of appointment are set out in the
Directors’ Remuneration Report on pages 46 and 47. Biographical
details of the Directors are included on pages 36 and 37.
Malcolm Diamond is Chairman of the Board and the Nomination
Committee. Each of the 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.
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.
Meetings of the Board
There were 11 formal Board meetings during the year.
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.
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 planning.
Investor relations.
Product quality.
Health and safety.
Financial control and systems, including IT infrastructure
and development.
Risk management.
42
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 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
This Committee is responsible for ensuring that the Board is
sufficiently well equipped to ensure that the Group continues
to be governed by suitably qualified people with the breadth and
depth of experience required to effectively lead the business.
The Committee recommends and reviews nominees for the
appointments of new Directors to the Board and ensures that
there is due process used in selecting candidates.
The most recent changes to the Board were enacted in late
2018 and as such the activities of this Committee have been
restricted during 2019.
The Remuneration Committee
Chaired 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 on two occasions – 4 March and 25 October 2019.
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 46 to 47.
The AIM Compliance & 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 meetings in January and September were
attended by all Directors.
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.
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 control.
Engaging with external providers to assist with certain
aspects of accounting disclosure.
Review of progress in introducing best practice systems
and procedures Group-wide.
Reviewing the plans and progress to interface and integrate IT
systems, in particular in areas where operational improvements
and transition of warehousing functions are being progressed.
Considering policies on non-audit engagements for the
Company’s Auditor.
The Audit Committee met twice during 2019 and meetings were
attended by all Directors.
In accordance with best practice, the Chairman of the Audit
Committee met separately with the Audit partner to provide an
opportunity for any relevant issues to be raised directly with him.
The key findings of last year’s audit were discussed and plans put
in place with a view to addressing the areas of concern. We believe
significant progress has been made in this regard during 2019. In
addition, Nigel Richens, as head of the Audit Committee, met with
the Systems Director to discuss findings from internal audit work
performed, to understand what necessary action was to be taken
and to agree on areas of future focus.
COVID-19 Considerations
The Board renewed the financial information prepared by executive
management to support the assumption of going concern and
considered the implications of various trading sensitivities,
especially that of COVID-19. The considerations are described in
greater detail under note 2.2 Going Concern.
The Board has considered the basis of preparation of the accounts
against this background of material uncertainty and have
concluded that it remains appropriate to prepare the accounts on
a going concern basis.
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Corporate Governance Report
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. In 2019, the Executive Directors, together with
the COO, were set challenging objectives covering a range of
financial, operational and personal matters. Progress against these
objectives were considered regularly at Board meetings.
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 & 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
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.
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.
Diversity
The Board is committed to a 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.
The Nomination Committee reviews various matters when
considering the constitution of the Board, including diversity
alongside other factors such as experience and capabilities.
Internal Controls & 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.
Regular Board reviews 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.
In 2018, the Audit Committee reconsidered the need to establish
an internal audit function; this has developed during 2019 with the
team focusing on ensuring standard processes are complied with
throughout the Group. We are pleased with the progress which is
being made and the Board welcomes the added accountability
which our local businesses now feel. The Board is in receipt of
regular updates summarising the key findings of Internal Audit
reviews, enabling decisive action to be taken in the event any
issues are identified.
44
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 Shareholders & Stakeholders
Communication with Shareholders
The Group has recently engaged with Investor Relation specialists
who are well known and, we believe, highly respected by a number
of our key investors. We are working hard to improve the quality
of our communication to provide existing, and potential new
investors, with the information they require in a format which
they wish to see. We believe progress has already been made
and the Board is committed that this will remain a key priority
throughout 2020 and beyond.
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 who have elected for paper copies receive a
printed copy of the Annual Report and Accounts and all
Shareholders receive the Notice of the Annual General Meeting
(AGM) along with a proxy form, should Shareholders wish to vote
in advance of the AGM. In light of the COVID-19 pandemic, this
year Shareholders will be invited to vote online and a virtual AGM
will be held with a minimum quorum of two Directors. As normal,
this provides a forum for results to be 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, including 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.
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.
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Directors’ Remuneration Report
The Remuneration Committee
The Directors’ remuneration report sets out the key pillars of the
remuneration policy for the Group, as well as the rationale for any
major decisions made by the remuneration committee during the
year. This is intended to help the investors assess and understand
the remuneration policy in the light of the strategy for the Group.
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.
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
Directors’ Detailed Remuneration
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.
The Executive Directors participate in the EMI option scheme;
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.
During the year, the company granted an option over ordinary
shares of 50 pence each in the Company (‘Ordinary Shares’) to
Russell Cash pursuant to the rules of the Unapproved Sub-Plan to
the Flowtech Fluidpower plc Enterprise Management Incentive
Plan. The award provides an option to acquire a total of 150,000
Ordinary Shares at an exercise price of 50 pence per Ordinary
Share. The option is exercisable upon publication of the Company’s
accounts for the financial period to 31 December 2021 and is not
subject to the achievement of any performance criteria.
Further details are provided in note 23 to the consolidated
financial statements.
Executives
Bryce Brooks
Russell Cash
Sean Fennon (*)
Non-Executives
Malcolm Diamond MBE
Bill Wilson
Nigel Richens
(*) £188k relates to compensation for loss of office.
Salary
and fees
£000
Benefits
£000
Bonus
£000
Total 2019
£000
Total 2018
£000
225
182
–
80
45
55
587
16
–
–
–
–
–
16
–
–
–
–
–
–
–
241
182
–
80
45
55
603
184
29
542
80
13
55
903
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Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 i
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As at 31
December
2019
number of
ordinary
shares
As at 31
December
2018
number of
ordinary
shares
299,160
299,160
28,570
–
66,028
59,621
73,500
66,028
20,000
73,500
A shares £1
ordinary
B shares £1
ordinary
D shares £1
ordinary
77
77
3,100
3,100
5
5
Directors’ Share Interests
The table below shows the interests of the Directors in office at the
end of the year in the share capital of the Company:
Executives
Bryce Brooks
Russell Cash
Non-Executives
Malcolm Diamond MBE
Bill Wilson
Nigel Richens
The table below shows the interests of the Directors in office at the end of the year
in the share capital of the Company’s subsidiary, Flowtech MIP Limited:
Executives
Bryce Brooks
As at 31 December 2018
As at 31 December 2019
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.
Directors’ Share Options
Details of share options held by the Directors over the ordinary
shares of the Company are set out below:
Scheme
As at 31
December
2018
Granted
Exercised
Cancelled
Bryce Brooks
Russell Cash
EMI (Approved)
159,999
–
EMI (Unapproved)
–
150,000
–
–
–
–
As at 31
December
2019
159,999
150,000
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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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 22 April 2020 there were in issue 61,492,673
fully paid ordinary shares of 50p each. All shares are fully
transferable and rank pari passu for voting and dividend rights.
The Company has been notified of the following interest in more
than 3% of the Company’s issued share capital at 22 April 2020
(being the last practicable date before the publication of this report):
Number
of shares
held
% of
issued
share
capital
7,103,559
11.55
6,085,243
5,586,785
4,600,000
3,321,437
2,620,080
9.9
9.09
7.48
5.4
4.26
3.91
3.83
3.08
3.04
Odyssean Capital
Premier Miton Group
Close Brothers Group
Chelverton Asset Management
Charles Stanley
Lazard Freres Gestion
River & Mercantile Asset Management
2,403,000
Hargreaves Lansdown Asset Management
2,358,190
BGF Investments
Downing
1,896,724
1,867,368
Financial Instruments & 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.
Directors’ Report
The Directors present their Annual Report, together with the
audited Group and Company financial statements for the year
ended 31 December 2019. 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 & Dividends
The results for the year ended 31 December 2019 are set out
in the consolidated income statement on page 59. The Group
has reported an operating profit from its continuing activities of
£5.7 million (2018: £7.7 million). After accounting for net finance
costs, the consolidated income statement shows a profit from
continuing operations before taxation of £4.7 million (2018: profit
of £6.9 million).
In the light of the economic uncertainties relating to COVID-19,
the Directors have decided to suspend dividend payment and
retain as much cash in the business as possible until the situation
becomes clearer.
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
Bill Wilson
Short biographies of each Director are provided on pages 36 to 37
Those Directors serving at the end of the year, or at the date of
this report, had an interest in the ordinary share capital of the
Company, and its subsidiaries, at 31 December 2019 which is
disclosed in the Directors’ Remuneration report on pages 46 to 47
Details of the Directors’ share options are provided in the Directors’
Remuneration report on pages 46 to 47
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.
48
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 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 ensuring each workplace provides a
positive environment for all staff. Engagement surveys introduced
in late 2018, give the Board an overall view of staff satisfaction and
identify areas for improvement in each business. With the support
of the Board and the promotion of a culture based on collaboration
and reward, Managing Directors are encouraging employees to
take a more active role in shaping a positive working environment.
At the same time, the Group is committed to providing staff and
management with training designed to develop attitudes and skills
and give opportunities for advancement. The Group promotes good
communication and consultation with regular management
meetings, staff briefings, and a staff consultative committee to
involve staff in the progress of the Group and its future.
The Group operates various performance bonus schemes related
to KPI achievements and profitability within the operational
functions. The Group believes that these schemes demonstrate
the Group’s commitment to involving employees in performance.
It is the policy of the Group that no employee, or potential employee,
is discriminated against on the grounds of disability, age, race,
religion, sex, sexual orientation or political belief and offer the same
employment opportunities, training, career development and
promotion prospects to all.
Employee Share Scheme Incentives
Flowtech Fluidpower plc operates two sharebased 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 2019, the total shares in the Company held by
the Enterprise Management Incentive Plans were 834,000
representing 1.4% of the issued capital. Further details are
provided in note 23 to the consolidated financial statements.
Flowtech Fluidpower plc operates a sharebased 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. Please refer to note 23 for the exercise period of
the schemes.
At 31 December 2019 the total shares in the Company held by the
Company Share Option Plan was 475,000 representing 0.8% of the
issued capital. Further details are provided in note 23 to the
consolidated financial statements.
Health, Safety & Environmental Management
The Group recognises the importance of its environmental
responsibilities and operates in accordance with policies agreed
through a health and safety committee and a staff consultative
committee. Initiatives designed to minimise the Group’s impact on
the environment include recycling of waste where practical, use of
low emission vehicles and low energy lighting.
The health and safety of the Group’s employees, customers and
members of the general public is a matter of primary concern.
Accordingly, it is the Group’s policy to manage its activities so as to
avoid causing any unnecessary or unacceptable risk to the health
of its employees and members of the public. The policy is based
on the requirements of national employment legislation in the
countries where the Group operates, including the Safety, Health
and Welfare at Work Act 1989.
Operations are conducted such that they comply with all the legal
requirements relating to the environments in which they operate.
During the periods covered by this report no Group company has
incurred any fines or penalties or been investigated for any breach
of environmental regulations.
Charitable Donations
As a Group we are committed to supporting local and national
charities and encourage employees to participate in regular
fundraising events.
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Directors’ Responsibility under Section 172
The Directors welcome the requirement under Section 172 of the
Companies Act 2006. Comments on how the Directors have had
regard for the interests of various stake holders whilst making key
decisions are contained on page 35, under the Corporate Social
Responsibility section.
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Directors’ Report
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.
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
As a result of the COVID-19 pandemic, this meeting will be held
on 10 June 2020. Shareholders are not permitted to attend.
Two Directors will attend as the minimum quorum.
Subsequent Events
Note 31 contains information on the significant events occurring
since the balance sheet date. The note makes reference to the
COVID-19 pandemic and its impact on going concern which is
considered below.
Going Concern
The financial statements are prepared on a going concern
basis which the Directors believe to be appropriate for the
following reasons:
The Group generated profit before tax of £4.7m in 2019
(2018: 6.9m).
The Group is financed by revolving credit and non-amortising
loan facilities totalling £20m (recently extended to 30 June
2021) and a £5m overdraft facility, repayable on demand.
At the end of 2019 the Group’s Net Debt was £16.6m (£8.4m
within the aggregate banking facilities); this position reduced to
£15.6m at 31 March 2020 (£9.4m within facilities).
The Directors have prepared forecasts covering the period to
December 2021. Naturally these forecasts include a number of key
assumptions notably relating, inter alia, to revenue, margins, costs
and working capital balances.
In any set of forecasts there are inherent risks relating to each of
these assumptions. If future trading performance significantly
underperformed expectations, management believe there would
be the ability to mitigate the impact of this by careful management
of the Group’s cost base and working capital and that this would
assist in seeking to ensure all bank covenants were complied with
and the business continued to operate well within its aggregate
£25m banking facility.
Prior to COVID-19, results for the first quarter of 2020 were in
line with management expectations which further supports the
Director’s belief that a going concern basis of preparation
remains appropriate.
Whilst the Group’s trading and cash flow forecasts have been
prepared using current assumptions, the impact of the COVID-19
pandemic present challenges which could not previously have
been contemplated. Clearly the ultimate impact of COVID-19 is
difficult to predict; as such we have considered a range of
scenarios when stress testing the base financial forecasts for the
period to December 2021. We have based our stress testing on an
assumption of a very significant reduction in Revenue in Q2 2020
with conditions remaining difficult for a further 9 month period
before returning to a normal trading pattern by Q2 2021. In such a
set of circumstances, and with the benefit of continued careful
working capital management, the Directors believe it is still likely
that the business would continue to operate within the aggregate
£25m banking facility. However, it is possible that the leverage
covenant would be breached; in such a case we would expect to
work with the Bank to reset the Bank covenants to respond to the
circumstances created by what would have to be a long-standing
and significant COVID-19 impacted period. The Directors also note
the range of Government and banking support which have been
announced for businesses should the need arise.
The Directors have concluded that the potential prolonged impact
of the COVID-19 pandemic on the business represents a material
uncertainty that may cast significant doubt upon the Group and
parent company’s ability to continue as a going concern and,
therefore, that it may be unable to realise its assets and discharge
its liabilities in the ordinary course of business. Nevertheless, after
making enquiries, and considering the uncertainties described
above, the Directors have a reasonable expectation that the Group
and parent company has adequate resources to continue in
operational existence for the foreseeable future. For these reasons,
they continue to adopt the going concern basis in preparing the
annual report and accounts.
The financial statements do not reflect any adjustments which
would result from the going concern basis of preparation proving
to be inappropriate.
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 & Company Secretary
29 April 2020
50
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Strategic Report
and Directors’ Report, the Directors’ Remuneration Report
and the financial statements in accordance with applicable law
and regulations.
Company law requires the Directors to prepare financial statements
for each financial year. Under that law the Directors have elected to
prepare the financial statements in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the European
Union. The company financial statements have been prepared in
accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards and applicable
law, 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
Group for that period. In preparing these financial statements, the
Directors are required to:
select suitable accounting policies and then apply
them consistently;
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 Annual Report in
accordance with applicable law and regulations. The Directors
consider the Annual Report and the financial statements, taken as
a whole, provides the information necessary to assess the
company’s performance, business model and strategy and is fair,
balanced and understandable.
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.
make judgements and accounting estimates that are
To the best of our knowledge:
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reasonable and prudent;
for the consolidated financial statements state whether
applicable IFRSs as adopted by the European Union have
been followed, subject to any material departures disclosed
and explained in the financial statements;
for the 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 Company will
continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time
the financial position of the company and enable them to ensure
that the financial statements and the Directors’ Remuneration
report comply with the Companies Act 2006 and Article 4 of the
IAS Regulation They are also responsible for safeguarding the
assets of the company and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities.
the Group financial statements, prepared in accordance with
IFRSs as adopted by the European Union, give a true and fair
view of the assets, liabilities, financial position and profit or
loss of the company and the undertakings included in the
consolidation taken as a whole;
the Company financial statements, prepared in accordance with
United Kingdom Generally Accepted Accounting Practice give
a true and fair view of the assets, liabilities, financial position
and profit or loss of the Company and the undertakings
included in the consolidation taken as a whole; and
the Strategic Report and Directors’ Report include a fair review
of the development and performance of the business and the
position of the Company and the undertakings included in the
consolidation taken as a whole, together with a description of
the principal risks and uncertainties that they face.
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Stock code: FLO – www.flowtechfluidpower.com
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 2019, 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 2019 and of the group’s and parent
company’s profit for the year then ended;
the group financial statements have been properly
prepared in accordance with IFRSs as adopted by the
European Union;
the parent company financial statements have been
properly prepared in accordance with United Kingdom
Generally Accepted Accounting Practice; and
the financial statements have been prepared in
accordance with the requirements of the Companies
Act 2006.
Basis for Opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
‘Auditor’s responsibilities for the audit of the financial statements’
section of our report. We are independent of the Group and the
parent company in accordance with the ethical requirements that
are relevant to our audit of the financial statements in the UK,
including the FRC’s Ethical Standard as applied to listed entities,
and we have fulfilled our other ethical responsibilities in
accordance with these requirements. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion.
The impact of uncertainties arising from the UK exiting the
European Union on our audit
Our audit of the financial statements requires us to obtain an
understanding of all relevant uncertainties, including those arising
as a consequence of the effects of Brexit. All audits assess and
challenge the reasonableness of estimates made by the Directors
and the related disclosures and the appropriateness of the going
concern basis of preparation of the financial statements. All of
these depend on assessments of the future economic
environment and the Group’s future prospects and performance.
Brexit is one of the most significant economic events for the UK,
and at the date of this report its effects are subject to
unprecedented levels of uncertainty, with the full range of possible
outcomes and their impacts unknown. We applied a standardised
firm-wide approach in response to these uncertainties when
assessing the Group’s prospects and performance. However, no
audit should be expected to predict the unknowable factors or all
possible future implications for a Group associated with a course
of action such as Brexit.
Material uncertainty related to going concern
We draw attention to note 2.2 in the financial statements, which
indicates it is possible that the leverage covenant would be
breached if there was a longstanding and significant Covid-19
impact on the business. As stated in note 2.2, these events or
conditions, along with the other matters as set forth in note 2.2
indicate that a material uncertainty exists that may cast significant
doubt on the Group’s and parent company’s ability to continue as a
going concern. Our opinion is not modified in respect of this matter.
Overview of Our Audit Approach
Overall materiality: £284,000, which represents a 3-year
average of 5% of the Group’s profit before taxation;
Key audit matters were identified as revenue recognition,
goodwill impairment assessment, provision for
impairment of inventories, prior year implementation of IT
system and sufficiency of reconciliation procedures, and
recoverability of the carrying value of investments in and
intercompany receivables due from the parent company’s
subsidiaries; and
We performed full scope audit procedures on the financial
statements of Flowtech Fluidpower plc and on the financial
information of all subsidiary companies, which are
considered to be material components based upon Group
materiality. We performed specified audit procedures on
Flowtechnology Benelux BV and Hydraulic Group BV.
52
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 Key Audit Matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those that had
the greatest effect on: the overall audit strategy; the allocation of
resources in the audit; and directing the efforts of the engagement
team. These matters were addressed in the context of our audit of
the financial statements as a whole and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
In addition to the matter described in the material uncertainty
related to going concern section, we have determined the matters
described below to be the key audit matters to be communicated
in our report.
Key Audit Matter – Group
Revenue Recognition
The Group’s revenue totalled £112,418,000 for the year ended
31 December 2019 (2018: £112,108,000). Revenue is
recognised in accordance with the Group’s accounting policies,
including 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 of the most significant assessed risks of
material misstatement.
How the Matter was Addressed
in the Audit – Group
Our audit work included, but was not restricted to:
Assessment of whether revenue has been accounted for
in accordance with the Group’s accounting policies,
including IFRS 15;
Obtaining an understanding of the processes through
which the businesses initiate, record, process and report
revenue transactions;
Testing a sample of revenue entries for material revenue
streams to supporting documentation;
Testing journal entries within revenue postings to
supporting documentation; and
Performing cut-off testing to ensure transactions have been
recorded within the correct period.
The Group’s accounting policy on revenue is shown in note 2.16
to the Group financial statements and related disclosures are
included in note 3.
Key Observations
Our audit procedures identified a prior period adjustment
relating to the reclassification of carriage income. Our audit
procedures did not identify any other material misstatements
in respect of revenue recognition for the Group’s material
revenue streams.
Key Audit Matter – Group
Goodwill Impairment Assessment
The Group carried £63,014,000 of goodwill in its consolidated
statement of financial position at 31 December 2019 (2018:
£63,022,000).
The recoverability of the carrying value of goodwill is contingent
on future cash flows of the underlying cash-generating units
(‘CGU’s’) and there is a risk that if these cash flows do not meet
the Directors’ forecasts the goodwill may be impaired.
We focused our assessment of goodwill impairment on the
estimates and judgements used by management in the
impairment model.
No impairment charge was recognised by management in the
year ended 31 December 2019.
The judgements made in respect of the impairment review
are subject to significant measurement uncertainty. We
therefore identified impairment of goodwill as a significant risk
which was one of the most significant assessed risks of
material misstatement.
How the Matter was Addressed
in the Audit – Group
Our audit work included, but was not restricted to:
Considering whether the Group’s accounting policy for
impairment of goodwill is in accordance with the financial
reporting framework, including IAS 38 ‘Intangible Assets’
and IAS 36 ‘Impairment of Assets’;
Understanding the design and evaluating implementation of the
processes and controls through which the businesses initiate,
record, process and report impairments on goodwill balances.
Assessing management’s impairment review which was
informed by an external expert engaged by the Group,
which advised on the calculation of the discount rates and
methodology used;
Assessing the competence, capabilities and objectivity of
the management expert used by the Group;
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, discount rates and
forecasted results;
Performing 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 could be impaired; and
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 is shown in note 2.10
to the Group financial statements and related disclosures are
included in notes 10 and 11.
Key Observations
We did not identify any material impairment of goodwill from
the audit work performed. We concluded that the assumptions
used in management’s impairment model were appropriate. We
consider the disclosures in the financial statements to provide
sufficient information regarding management’s impairment
review of goodwill.
53
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Independent Auditor’s Report to the Members of Flowtech Fluidpower plc
Key Audit Matter – Group
Key Audit Matter – Group
Provision for Impairment of Inventories
The Group’s trading entities hold material inventory with total
inventory at 31 December 2019, of £24,000,000 which is
recorded net of a provision of £2,600,000.
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.
How the Matter was Addressed
in the Audit – Group
Our audit work included, but was not restricted to:
Assessing whether the Group’s accounting policy for
impairment of inventories is in accordance with the
financial reporting framework, including IAS 2 ‘Inventories’;
Considering whether the Group’s inventory provisions
have been accounted for in accordance with the Group’s
accounting policies;
Understanding the design and evaluating implementation of
the processes and controls through which the businesses
initiate, record, process and report inventory provisions.
Evaluating the appropriateness of the year on year
movement in the provision and any significant charges or
releases to the income statement;
Challenging the appropriateness of the provision
percentage applied to excess stock over five years and
performed sensitivity analysis on assumptions used;
Agreeing the integrity of the underlying data used in the
calculation of the inventory provisions to in year sales data;
Comparing of inventory values to sales prices for a sample
of inventory lines; and
Considering the suitability of the inventory provision,
including re-performance of the calculation and considering
both historical performance and exceptional activity that
has occurred in the year in relation to inventories.
The Group’s accounting policy on impairment, including
impairment of inventories is shown in note 2.11 to the Group
financial statement and related disclosures are included in
note 15.
Key Observations
The results of our audit testing were satisfactory, and we
concur with management that the level of inventory
provisioning is materially appropriate.
Prior Year Implementation of IT System
& Sufficiency of Reconciliation Procedures
The Group introduced a new IT system into several of its
subsidiaries during the prior 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 prior year
end and in the first quarter of 2019.
We therefore identified prior year implementation of IT system
and sufficiency of reconciliation procedures as a significant risk,
which was one of the most significant assessed risks of
material misstatement.
How the Matter was Addressed
in the Audit – Group
Our audit work included, but was not restricted to:
Investigation and agreement of transactions processed
post year end, to determine whether liabilities recorded at
31 December 2019 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, and
investigation of large or unusual balances;
Agreement of a sample of payables, accruals and supplier
statements 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; and
Assessment of management’s reconciliation process and
investigation of unusual transactions.
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.
54
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 Key Audit Matter –
Parent Company
Recoverability of the Carrying Value of
Investments in and Inter-company Receivables
Due from Subsidiaries
The parent company statement of financial position includes
investments in subsidiaries of £59,002,000 (2018: £58,881,000)
and receivables from those subsidiaries of £64,912,000
(2018: £63,223,000).
There is a risk that the carrying value of investments and
inter-company receivables may be overstated. The process
for assessing whether impairment exist under both IAS 36
‘Impairment of Assets’ and IFRS 9 ‘Financial Instruments’
is complex
Management have assessed the recoverability with reference to
both their fair value valuations and the forecast performance.
The judgements made by management in respect of the
impairment review are subject to significant measurement
uncertainty. We therefore identified recoverability of the carrying
value of investments in and inter-company receivables from
subsidiaries as a significant risk, which was one of the most
significant assessed risks of material misstatement.
How the Matter was Addressed
in the Audit – Parent Company
Our audit work included, but was not restricted to:
Assessing management’s impairment review and
comparing management’s forecasts with the latest Board-
approved budget;
Assessing the accuracy of management’s forecasting
through a comparison of historical data to actual results and
projections for following periods;
Understanding the design and evaluating implementation of
the processes and controls through which the businesses
initiate, record, process and report impairments of
investments in subsidiaries.
Assessing management’s impairment review which was
informed by an external expert engaged by the company,
which advised on the calculation of the discount rates and
methodology used;
Assessing the competence, capabilities and objectivity
of the management expert used by the company;
Challenging the appropriateness of management’s
assumptions, including the growth rate, discount rate and
forecast used by comparing them with historical results;
Considering any indicators of impairment such as market
capitalisation and current financial performance;
Challenging the appropriateness of assumptions used in
management’s calculation of the fair value of the business;
Performing 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’ and IFRS 9 ‘Financial Instruments’.
The company’s accounting policy on impairment of investments
and Group balances 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
Based on our audit testing, we did not identify any material
misstatements in respect of the recoverability of the carrying
value of investments in and intercompany receivables due
from subsidiaries.
55
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Independent Auditor’s Report to the Members of Flowtech Fluidpower plc
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 Company
Financial statements as a whole
£120,000, which is based on 2% of the
parent company’s net assets, capped at a
proportion of Group materiality.
Materiality for the current year is lower
than the level that we determined for the
year ended 31 December 2018 to reflect
the lower Group materiality and the lower
proportion at which it has been capped
this year.
£284,000, which is a 3-year average of
5% of the Group’s profit before tax.
We consider profit before tax to be an
appropriate measure for a listed group
and one of the key measures used by the
shareholders in assessing the
performance of the Group.
Materiality for the current year is lower
than the level that we determined for the
year ended 31 December 2018 to reflect
the change in benchmark from 5% of the
Group’s profit before tax in the prior year to
a 3-year average of 5% of the Group’s profit
before tax this year, which was lower and
which we determined to be an appropriate
reflection of the Group’s trading
performance, given the fluctuation of the
profitability of the Group this year.
Performance materiality used to drive
the extent of our testing
Specific materiality
75% of financial statement materiality.
75% of financial statement materiality.
We have applied a specific materiality
to Directors’ remuneration and related
party transactions.
We have applied a specific materiality
to Directors’ remuneration and related
party transactions.
Communication of misstatements to the
audit committee
£14,200 and misstatements below that
threshold that, in our view, warrant
reporting on qualitative grounds.
£6,000 and misstatements below that
threshold that, in our view, warrant
reporting on qualitative grounds.
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 Company
n Performance materiality – 75%
n Tolerance for potential uncorrected misstatements – 25%
56
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 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, inventories, 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 relevant to the audit;
Performance of a full scope audit on the financial information
of components representing 93% of the Group’s revenue, 70%
of the Group’s profit before tax and 87% of the Group’s total
assets. The components on which full scope audit procedures
were performed provide an appropriate basis for undertaking
audit work to address the Key Audit Matters at Group level
identified above;
Performance of specified audit procedures on specific
balances in components which do not require full scope audit
procedures for the purposes of the Group audit opinion. Our
specified audit procedures cover Flowtechnology Benelux BV
and Hydraulics Group BV, and focus on revenue, receivables,
inventory and cash. The procedures have been performed in
accordance with Group performance materiality;
Performance of analytical procedures to confirm our
conclusion that there was no significant risk of material
misstatement of the aggregated financial information of the
remaining components not subject to a full scope audit;
Testing of the consolidation process, including re-performance
of management’s calculations and
There were no changes in scope from the prior year.
Other Information
The Directors are responsible for the other information. The other
information comprises the information included in the annual
report, other than the financial statements and our auditor’s report
thereon. Our opinion on the financial statements does not cover
the other information and, except to the extent otherwise explicitly
stated in our report, we do not express any form of assurance
conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a
material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material
misstatement of this other information, we are required to report
that fact.
We have nothing to report in this regard.
Our Opinion on Other Matters Prescribed by the
Companies Act 2006 is Unmodified
In our opinion, based on the work undertaken in the course
of the audit:
the information given in the strategic report and the Directors’
report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
the strategic report and the Directors’ report have been
prepared in accordance with applicable legal requirements.
Matters on which we are Required to Report under the
Companies Act 2006
In the light of the knowledge and understanding of the Group and
the parent company and its environment obtained in the course of
the audit, we have not identified material misstatements in the
strategic report or the Directors’ report.
Matters on which we are Required to Report
by Exception
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report to
you if, in our opinion:
adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been
received from branches not visited by us; or
the parent company financial statements are not in agreement
with the accounting records and returns; or
certain disclosures of Directors’ remuneration specified by law
are not made; or
we have not received all the information and explanations we
require for our audit.
57
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Independent Auditor’s Report to the Members of Flowtech Fluidpower plc
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 2020
Responsibilities of Directors for the
Financial Statements
As explained more fully in the statement of Directors’
responsibilities set out on page 51, 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.
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.
58
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 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
2019
£000
2018
£000
3
112,418
(72,235)
40,183
(4,547)
112,108
(73,159)
38,949
(4,561)
(26,179)
(23,389)
4
(3,712)
(3,321)
(29,891)
(26,710)
3, 4
6
6
3
7
9
5,745
–
(1,038)
(1,038)
4,707
(968)
3,739
–
3,739
3,739
6.12p
6.10p
7,678
11
(766)
(755)
6,923
(1,992)
4,931
20
4,911
4,931
8.34p
8.28p
(*) In the current year, the Company adopted IFRS 16 and applied the modified retrospective approach. The adoption of IFRS 16 for 2019 has led to the elimination of
lease payments of £1,833k and the introduction of additional depreciation of £1,701k, £15k gain on exchange movements and finance costs of £282k. The impact of
this is an increase in operating profit of £147k and, after taking account of finance costs, a reduction in profit before tax of £135k.
(**) Prior year values have been re-stated as described in Note 2.30.
59
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Consolidated Statement of Comprehensive Income
Profit for the year
Other comprehensive income
— Items that will be reclassified subsequently to profit or loss
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
(*) The Company purchased minority interest in Derek Lane & Co Limited in July 2019. Details of the purchase are given in Note 24.
2019
£000
3,739
(394)
3,345
–
3,345
3,345
2018
£000
4,931
128
5,059
20
5,039
5,059
60
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 Consolidated Statement of Financial Position
Assets
Non-current assets
Goodwill
Other intangible assets
Right-of-use 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
Lease liability
Trade and other payables
Deferred and contingent consideration
Tax payable
Total current liabilities
Net current assets
Non-current liabilities
Interest-bearing borrowings
Lease liability
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
2019
£000
2018
£000
10
11
22
13
15
16
17
18
22
19
20
18
22
21
14
25
63,014
6,573
8,228
6,528
84,343
24,000
21,377
759
3,446
49,582
16,055
1,635
15,510
214
298
33,712
15,870
4,008
6,735
417
1,519
12,679
87,534
30,579
60,959
187
(372)
293
3,599
244
(7,955)
87,534
–
87,534
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
The financial statements on pages 59 to 101 were approved by the Board of Directors on 29 April 2020 and were signed on its behalf by:
Russell Cash
Chief Financial Officer
Company number: 09010518.
61
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Issue of share capital
3,450
8,423
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
26,409
52,370
187
293
(40)
3,194
536
(8,085)
–
–
–
–
–
–
–
601
–
–
–
–
–
–
–
–
4,051
8,423
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(650)
–
277
–
–
–
–
381
–
–
–
–
–
(373)
381
Total
equity
£000
74,864
4,931
128
–
20
–
–
4,911
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
87,433
–
–
–
25
–
94
–
–
–
–
–
–
–
45
–
121
–
–
–
–
119
166
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
41
–
41
–
–
–
–
–
24
–
–
–
–
25
–
3,739
(420)
26
(420)
3,765
–
–
–
–
–
3,739
(394)
3,345
70
–
–
–
–
–
–
–
–
(270)
(20)
(290)
–
133
143
169
(3,749)
–
–
–
–
–
239
133
143
210
(3,749)
(3,575)
(20)
(3,244)
30,579
60,959
187
293
(372)
3,599
244
(7,955)
–
87,534
Balance at
1 January 2018
Profit for the year
Other comprehensive
income
Total comprehensive
income for the year
Transactions
with owners
Shares 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
1 January 2019
Profit for the year
Other comprehensive
income
Total comprehensive
income for the year
Transactions
with owners
Issue of share capital
Purchase of minority
shares
Shares issued as
consideration
Other movements in
share capital
Share-based
payment charge
Share options settled
Equity dividends paid
(note 8)
Total transactions
with owners
Balance at 31
December 2019
62
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 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
Net change in short-term borrowings
Repayment of right-of-use lease liabilities (*)
Repayment of lease liabilities
Interest on right-of-use leases (*)
Other Interest paid
Proceeds from sale of shares held by the EBT
Share option payments to staff
Dividends paid
Net cash (used in)/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
2019
£000
2018
£000
26
24
13
8
17,18
17
18
13,246
3,790
(38)
(756)
39
(2,635)
(3,390)
70
–
(1,561)
(71)
(282)
(756)
47
(61)
(3,749)
(6,363)
3,493
253
(300)
3,446
3,446
–
3,446
(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
(*) Following adoption of IFRS 16, payment of £1,843k of operating lease rentals have been reclassified from operating cash flow to repayment of lease liability under
financing activity £1,561k and repayment of interest on right of use lease liability of £282k.
63
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Consolidated Statement of Cash Flows
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
Long-term
borrowings
£000
Short-term
borrowings
£000
Lease
liabilities
£000
4,000
15,000
159
–
–
–
–
1,000
–
Right of
use lease
liabilities
£000
–
–
–
–
–
–
9,047
Total
£000
19,159
(343)
1,000
318
20,134
20,134
9,047
(343)
–
318
134
134
–
(71)
(1,561)
(1,632)
–
–
–
–
(96)
–
(96)
980
980
At 31 December 2018
4,000
16,000
At 1 January 2019
4,000
16,000
Transition to IFRS 16 as at 1 January 2019
Cash flows:
Repayment
Proceeds
Other movements
Non cash:
Additions to right-of-use assets in exchange for
increased lease liabilities
–
–
–
–
–
–
–
–
–
–
At 31 December 2019
4,000
16,000
63
8,370
28,433
64
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 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.
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.
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 2019
IFRS 16 Accounting for leases has become applicable for the
current reporting period, and the Group had to change its
accounting policies as a result of adopting IFRS 16. The impact of
the adoption of the leasing standard and the new accounting
policies are disclosed below.
The accounting policies set out below have, unless otherwise
stated, been applied consistently to all periods presented in the
consolidated financial statements.
2.2 Going concern
The financial statements are prepared on a going concern
basis which the Directors believe to be appropriate for the
following reasons:
The Group generated profit before tax of £4.7m in 2019
(2018: £6.9m).
The Group is financed by revolving credit and non-amortising
loan facilities totalling £20m (recently extended to 30 June
2021) and a £5m overdraft facility, repayable on demand.
At the end of 2019 the Group’s Net Debt was £16.6m (£8.4m
within the aggregate banking facilities); this position reduced to
£15.6m at 31 March 2020 (£9.4m within facilities).
The Directors have prepared forecasts covering the period to
December 2021. Naturally these forecasts include a number of key
assumptions notably relating, inter alia, to revenue, margins, costs
and working capital balances.
In any set of forecasts there are inherent risks relating to each of
these assumptions. If future trading performance significantly
underperformed expectations, management believe there would
be the ability to mitigate the impact of this by careful management
of the Group’s cost base and working capital and that this would
assist in seeking to ensure all bank covenants were complied with
and the business continued to operate well within its aggregate
£25m banking facility.
Prior to COVID-19, results for the first quarter of 2020 were in
line with management expectations.
Whilst the Group’s trading and cash flow forecasts have been
prepared using current assumptions, the impact of the COVID-19
pandemic present challenges which could not previously have
been contemplated. Clearly the ultimate impact of COVID-19 is
difficult to predict; as such, the Directors have considered a range
of scenarios when stress testing the base financial forecasts for
the period to December 2021. The Directors have based their
stress testing on an assumption of a very significant reduction in
Revenue in Q2 2020 with conditions remaining difficult for a
further 9 month period before returning to a normal trading pattern
by Q2 2021. In such a set of circumstances, and with the benefit of
continued careful working capital management, the Directors
believe it is still likely that the business would continue to operate
within the aggregate £25m banking facility. However, it is possible
that the leverage covenant would be breached; in such a case we
would expect to work with the Bank to reset the Bank covenants to
respond to the circumstances created by what would have to be a
long-standing and significant COVID-19 impacted period. The
Directors also note the range of Government and banking support
which have been announced for businesses should the need arise.
The Directors have concluded that the potential prolonged impact
of the COVID-19 pandemic on the business represents a material
uncertainty that may cast significant doubt upon the Group and
Parent Company’s ability to continue as a going concern and,
therefore, that it may be unable to realise its assets and discharge
its liabilities in the ordinary course of business. Nevertheless, after
making enquiries, and considering the uncertainties described
above, the Directors have a reasonable expectation that the Group
and Parent Company has adequate resources to continue in
operational existence for the foreseeable future. For these reasons,
they continue to adopt the going concern basis in preparing the
annual report and accounts.
The financial statements do not reflect any adjustments which
would result from the going concern basis of preparation proving
to be inappropriate.
2.3 Changes in accounting policies
The Group has applied IFRS 16 using the modified retrospective
approach and therefore the comparative information has not been
restated and continues to be reported under IAS 17.
This note explains the impact of the adoption of IFRS 16 on the
Group’s financial statements and discloses the new accounting
policies that have been applied from 1 January 2019. The Group
has adopted IFRS 16 retrospectively from 1 January 2019, but has
not restated comparatives for the 2018 reporting period, as
permitted under the specific transitional provisions in the standard.
The reclassifications and the adjustments arising from the new
leasing rules are therefore recognised in the opening balance sheet
on 1 January 2019.
65
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Information
2. Accounting Policies continued
2.3.1 Adjustments recognised on adoption of IFRS 16
On adoption of IFRS 16, the Group recognised lease liabilities
in relation to leases which had previously been classified as
‘operating leases’ under the principles of IAS 17 Leases. These
liabilities were measured at the present value of the remaining
lease payments, discounted using the Group’s incremental
borrowing rate as of 1 January 2019. The weighted average
incremental borrowing rate applied to the lease liabilities on
1 January 2019 was 3.2%. In applying IFRS 16 for the first time,
the Group has used the following practical expedients permitted
by the standard:
the use of a single discount rate to a portfolio of leases
with reasonably similar characteristics;
reliance on previous assessments on whether leases
are onerous;
2.3.2 Impact of transition to IFRS 16
the accounting for operating leases with a remaining lease
term of less than 12 months as at 1 January 2019 as short
term leases;
the exclusion of initial direct costs for the measurement of
the right-of-use asset at the date of initial application; and
the use of hindsight in determining the lease term where the
contract contains options to extend or terminate the lease.
The Group has also elected not to reassess whether a contract is
or contains a lease at the date of initial application. Instead, for
contracts entered into before the transition date the Group relied
on its assessment made applying IAS 17 and IFRIC 4 Determining
whether an Arrangement contains a Lease.
Operating lease commitments disclosed as at December 2018 (Restated) (*)
Operating lease commitments discounted using the lessee’s incremental borrowing rate at the date of initial application
(Less): short-term leases recognised on a straight-line basis as expense
(Less): low-value leases recognised on a straight-line basis as expense
Add/(less): adjustments as a result of a different treatment of extension and termination options
Other movements
Lease liability recognised as at 1 January 2019
£000
9,209
(1,370)
(54)
(79)
1,253
88
9,047
(*) Following a detailed review of the lease commitments on transition to IFRS 16, the opening balance of the operating lease commitments in respect of Land and
Building disclosed as at 31 December 2018 was corrected.
31
December
2019
£000
7,504
724
8,228
1 January
2019
£000
8,343
704
9,047
The associated right-of-use assets for property leases and other
assets were measured at the amount equal to the lease liability,
adjusted by the amount of any prepaid or accrued lease payments
relating to that lease recognised in the balance sheet as at 31
December 2018. There were no onerous lease contracts that would
have required an adjustment to the right-of-use assets at the date
of initial application.
Land and property
Motor vehicles
Total right-of-use assets
The change in accounting policy affected the following items
in the balance sheet on 1 January 2019:
Right-of-use assets – increase by £9,047k.
Lease liabilities – increase by £9,047k.
The net impact on retained earnings on 1 January 2019 was nil.
For the year ending 31 December 2019, operating lease rentals of
£1,833K have been restated as depreciation £1,701k, exchange
gain £15k and finance costs £282k. Operating profit has increased
by £147k whereas profit before tax has reduced by £135k. As a
result, earnings per share for the year ending 31 December 2019
reduced by 0.22 pence per share.
Further analysis of the impact of IFRS 16, along with the
associated asset schedule and liability analysis, is provided in
Note 22, Right to use Assets and Lease Liabilities.
66
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 2.3.3 The Group’s leasing activities and how these
are accounted for
The Group leases various offices, warehouses, and motor vehicles.
Rental contracts are typically made for fixed periods of up to
12 years but may have extension options as described in (ii) below.
Lease terms are negotiated on an individual basis and contain a
wide range of different terms and conditions. The lease
agreements do not impose any covenants, but leased assets may
not be used as security for borrowing purposes.
Until the 2018 financial year, leases of property, plant and
equipment were classified as either finance or operating leases.
Payments made under operating leases (net of any incentives
received from the lessor) were charged to profit or loss on a
straight-line basis over the period of the lease.
From 1 January 2019, operating leases are recognised as a
right-of-use asset and a corresponding liability at the date at which
the leased asset is available for use by the Group. Each lease
payment is allocated between the liability and finance cost. The
finance cost is charged to profit or loss over the lease period so as
to produce a constant periodic rate of interest on the remaining
balance of the liability for each period. The right-of-use asset is
depreciated over the shorter of the asset’s useful life and the lease
term on a straight-line basis.
Assets and liabilities arising from a lease are initially measured on
a present value basis. Lease liabilities include the net present value
of the following lease payments:
fixed payments (including in-substance fixed payments), less
any lease incentives receivable;
variable lease payments that are based on an index or a rate;
amounts expected to be payable by the lessee under residual
value guarantees;
the exercise price of a purchase option if the lessee is
reasonably certain to exercise that option; and
payments of penalties for terminating the lease, if the lease
term reflects the lessee exercising that option.
The lease payments are discounted using the interest rate implicit
in the lease. If that rate cannot be determined, the lessee’s
incremental borrowing rate is used, being the rate that the lessee
would have to pay to borrow the funds necessary to obtain an
asset of similar value in a similar economic environment with
similar terms and conditions.
Right-of-use assets are measured at cost comprising the
following:
the amount of the initial measurement of lease liability;
any lease payments made at or before the commencement
date less any lease incentives received;
any initial direct costs; and
restoration costs.
Payments associated with short-term leases and leases of
low-value assets are recognised on a straight-line basis as an
expense in profit or loss. Short-term leases are leases with a
lease term of 12 months or less. Low-value assets comprise
IT equipment and small items of office furniture.
There are no leases with variable lease payments.
(i) Extension and termination options
Extension and termination options are included in a number of
property and equipment leases across the Group. These terms are
used to maximise operational flexibility in terms of managing
contracts. The majority of extension and termination options held
are exercisable only by the Group and not by the respective lessor.
Critical judgements in determining the lease term
In determining the lease term, management considers all facts and
circumstances that create an economic incentive to exercise an
extension option, or not exercise a termination option. Extension
options (or periods after termination options) are only included in
the lease term if the lease is reasonably certain to be extended (or
not terminated). No potential future cash outflows have been
included in the lease liability because it is not reasonably certain
that the leases will be extended (or not terminated). The
assessment is reviewed if a significant event or a significant
change in circumstances occurs which affects this assessment
and that is within the control of the lessee.
(ii) Residual value guarantees
To optimise lease costs during the contract period, the Group
sometimes provides residual value guarantees in relation to
equipment leases.
Estimating the amount payable under residual
value guarantees
The Group initially estimates and recognises amounts expected to
be payable under residual value guarantees as part of the lease
liability. The amounts are reviewed, and adjusted if appropriate,
at the end of each reporting period. At the end of reporting period,
there is no liability on account of residual value guarantees.
2.4 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.
67
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Information
2. Accounting Policies continued
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 2019.
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. Subsidiaries, except for those specifically mentioned,
have a reporting year ending in December. Flowtechnology CZ
Limited, Beaumanor Engineering Limited, PMC Fluidpower Group
Limited, and Derek Lane & Co Limited have a reporting year ending
in June, whilst BALU Limited has a reporting year ending in July.
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.
2.5 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.
b.
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
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.
2.6 Financial instruments
Non-derivative financial instruments comprise trade and other
receivables, cash and cash equivalents, loans and borrowings, and
trade and other payables.
Trade and other receivables
Trade and other receivables are recognised initially at the
transaction price in accordance with IFRS 15.
The Group applies the IFRS 9 simplified approach to measuring
expected credit losses which uses a lifetime expected loss
allowance for all trade receivables. The expected loss rates are
based on the detailed reviews of line level debtor balances, taking
into consideration historical loss rates experienced by the business
and adjusting these for changes to credit worthiness of the
customer (where information is available from third part
monitoring services) as also any macroeconomic factors affecting
the ability of the customer to settle the receivables.
At each reporting date management assesses whether any events
have occurred which have had a detrimental effect on the
estimated future cash flows of the asset causing a financial asset
to become credit-impaired. If the credit risk is significant a
provision is posted based on the recoverable amount the Group is
expected to receive per management’s assessment. Specific
provisions of this nature are excluded from the simplified credit
loss calculation using the provision matrix.
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.
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.
2.7 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.
Until 2018 financial year, 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
68
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 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.
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:
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
Property
Up to 50 years – straight line
liabilities assumed.
Plant, machinery and equipment
3 to 20 years – straight line
Motor vehicles
Right-of-use property
4 to 5 years – straight line
2 to 12 years – straight line
Right-of-use motor vehicles
2 to 5 years – straight line
Depreciation methods, useful lives and residual values are
reviewed at each reporting date. In 2019 the management have
reassessed the useful economic life of the aggregate existing IT
systems, included within property, plant and equipment, to last for
the next 6 years.
The management has also reassessed the useful life of aggregate
existing warehousing facilities at Leicester, included within
Property, plant and equipment, to last for the next 7 years.
2.8 Leased assets
Finance leases (2018)
For finance leases recognised until 2018 financial year,
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 2.7 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 (2018)
An operating lease is defined as a lease in which substantially
all of the risks and rewards incidental to ownership remain with
the lessor.
2.9 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.
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. Implied interest cost of deferred consideration
is accounted as finance cost. Subsequent changes to the fair value
of the contingent consideration are recognised in profit or loss.
2.10 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.
2.11 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.
2.12 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 expected future
losses. A financial asset is impaired if the assessment reveals
expected future losses based on detailed review of future expected
cash flows from the financial asset.
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.
69
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements
Notes to the Consolidated Financial Information
2. Accounting Policies continued
2.16 Revenue
Non-financial assets
The carrying amounts of the Group’s non-financial 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.
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.
2.13 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.
2.14 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.
2.15 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.
Revenue from sale of goods
Revenue from sale of goods is the total amount receivable by the
Group for goods supplied, excluding VAT and discounts. Revenue
from the sale of goods is recognised in the income statement at a
point in time at the point of despatch, when the control passes to
the customer.
Revenue for sale of goods includes income from delivery charged
to customers, excluding VAT. Delivery income is recognised at the
same time as the corresponding revenue for sale of goods and is a
single combined performance obligation.
Revenue from services
Service revenues comprise installation and maintenance work at
client sites. Revenue from on-site work that is standard and on-going
(as opposed to bespoke) is recognised when the performance
obligations under the work order are completed and acknowledged
by the customer, in accordance with the terms and conditions of
the work order. Very occasionally, where routine maintenance work
is agreed as part of a contract covering a year or number of years,
the performance obligation is considered to be discharged evenly
through the term of the contract and revenue is recognised over
the life of the contract. Warranties offered to customers are usually
on the back of warranties offered by suppliers of spare parts and
involve negligible costs to the business.
Revenue form bespoke longer-term services is accounted for
in accordance with the policy on Revenue from contracts
described below.
Revenue from contracts
Most contracts received by the Group involve shipping goods
without customisation or further service, and revenue from these
is recognised at a point in time as described above.
Some contracts involve providing an end to end solution, involving
design, customisation, installation and commissioning that can
last several months or years. The goods and services under such
contracts represent a single combined performance obligation
over which control is transferred over a period. The combined
product is unique to each customer (has no alternative use) and
the Group has an enforceable right to payment for the work
completed to date. The contracts contain milestones and the
Group is entitled to stage payments on completion of the
milestones. Revenues from such contracts is recognised based
upon its stage of completion. Revenue is measured on an output
basis, as the transfer of economic benefit depends on the value
transferred relative to the remaining goods and services promised
under the contract.
2.17 Cost of sales
Cost of sales includes all costs incurred up to the point of
despatch including operating expenses of the warehouse.
2.18 Distribution expenses
Distributions costs are costs directly relating to despatch of
goods and indirect costs including advertising and other sales
related expenses.
2.19 Operating segments
In the current year, the Group has decided to monitor and report
business performance based on two segments, Components
and Services:
Components – supply of both hydraulic and pneumatic
consumables, predominantly through distribution for
maintenance and repair operations across all industry
markets, but supported by supply agreements direct to a
broad range of OEMs.
70
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 Services – bespoke design, manufacturing, commissioning,
installation and servicing of systems to manufacturers of
specialised industrial and mobile hydraulic original equipment
manufacturers (OEMs) and additionally a wide range of
industrial end users. Capital project-based revenue.
The Board is considered to be the chief operating decision maker
(CODM). The CODM manages the business using an underlying
profit figure. Only finance income and costs secured on the assets
of the operating segment are included in the segment results.
Finance income and costs relating to loans held by the Company
are not included in the segment result that is assessed by the
CODM. Transfer prices between operating segments are on an
arm’s length basis.
2.20 Financing income and expenses
Financing expenses comprise interest payable, implied interest on
deferred consideration and finance costs implied in 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.
2.21 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.
2.22 Adopted IFRS not yet applied
The following relevant standards and interpretations currently in
issue (as at 2 November 2019) but not effective, for accounting
periods commencing on 1 January 2019 are:
Amendments to IAS 1 presentation of financial statement
and IAS 8 accounting policies, changes in accounting estimates
and errors (effective date 1 January 2020).
Amendments to IFRS 3 Business combination
(effective date 1 January 2020).
Amendments to references to the conceptual framework in
IFRS standards (effective date 1 January 2020).
This is a list of standards that is considered to have a significant
impact on the Group. 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.
2.23 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.
2.24 Foreign currency translation
Functional and presentation currency
The consolidated financial statements are presented in sterling,
which is also the functional currency of the Parent Company.
Foreign currency transactions and balances
Transactions in foreign currencies are translated to the respective
functional currencies of Group entities at the foreign exchange rate
ruling at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies at the reporting date are
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.
71
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Information
2.26 Separately disclosed items
Separately disclosed items are those significant items which in
management’s judgement should be highlighted by virtue of their
size or incidence to enable a full understanding of the Group’s
financial performance.
2.27 Investment in own shares
Own shares held by the Group’s Employee Benefit Trust (EBT)
have been classified as deductions from Shareholders’ funds.
The costs of purchasing own shares held by the EBT are shown as
a deduction within shareholders’ equity. The gain from the sale of
own shares are recognised in shareholders’ equity. Neither the
purchase nor sale of own shares leads to a gain or loss being
recognised in the income statement.
2.28 Contingent consideration
Where acquisition consideration includes consideration contingent
on performance outcomes being met, the consideration is valued
at the acquisition date based on performance forecasts available
at the time. Those forecasts are reviewed at the reporting date and
the consideration revised where materially different.
2.29 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.
2.30 Restatement of prior year financial statement
Over the years, the Group has evolved its offer of value-added
delivery services to its customers, and now holds a sector-leading
position with respect to e-commerce trading. In response to the
changing emphasis in fulfilment capabilities and the opportunities
for enhancement of revenue, the management has reassessed
and re-aligned its accounting policies with respect to income from
delivery charged to customers and ensured these are applied
consistently across the Group. All delivery income, excluding VAT
will henceforth be included in revenue from sale of goods and shall
no longer be netted off against delivery costs.
The 2018 financial statements presented within this Annual Report
have been restated to reflect £1,057k of delivery income in
Revenue. These have been re-categorised from cost of sales and
distribution costs as shown in the table below. There is no impact
of the reclassification on reported profit or EPS for 2018 or on the
opening reserves for 2019.
Consolidated income statement for 31 December 2018
Restated
£000
Original
£000
Variance
£000
Revenue
Cost of sales
Gross profit
112,108
111,051
(73,159)
(72,447)
38,949
38,604
Distribution expenses
(4,561)
(4,216)
Operating profit
Profit from continuing
operations
Gross profit % to
revenue
7,678
4,931
7,678
4,931
34.76
34.74
2bps
1,057
(712)
345
(345)
–
–
2. Accounting Policies continued
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.
2.25 Significant judgements, key assumptions and estimates
In the process of applying the Group’s accounting policies, which
are described above, management have made judgements and
estimations about the future that have the most significant effect
on the amounts recognised in the financial statements. The
estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the
period in which the estimate is revised if the revision affects only
that period or in the period of the revision and future periods if the
revision affects both current and future periods.
Significant management judgements
There are no significant judgements affecting the financial position
this year (2018: NIL).
Estimation uncertainty
Information about estimations and assumptions that may have the
most significant effect on recognition and measurement of assets,
liabilities, income and expenses is provided below. Actual results
may be substantially different.
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.
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 2019 is £63,014,000 (2018:
£63,022,000). 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
£6,573,000 (2018: £7,624,000). Refer to note 11 for further detail.
Provision for impairment of inventories
The carrying value of inventories as at 31 December 2019 was
£24,000,000 (2018: £28,667,000) and included a provision against
the inventories of £2,046,000 (2018: £4,574,000). During the year
£3,123,000 (2018: £201,000) of the provision was utilised following
the scrapping and sale of obsolete inventory. During the year a
further provision of £426,000 was made (2018: provision of
£154,000). 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.
72
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 3. Segment Reporting
Management has decided to consolidate the operating segments
of the business into two – components and services as explained
in note 2.19. These operating segments are monitored by the
Group’s Chief Operating Decision Maker and strategic decisions
are made on the basis of adjusted segment operating results.
Inter-segment revenue arises on the sale of goods between
Group undertakings.
The Directors believe that the underlying operating profit provides
additional useful information on underlying trends to Shareholders.
The term ‘underlying’ is not a defined term under IFRS and may not
be comparable with similarly titled profit measurements reported
by other companies. A reconciliation of the underlying operating
result to operating result from continuing operations is shown
below. The principal adjustments made are in respect of the
separately disclosed items as detailed in note 4; the Directors
consider that these should be reported separately as they do not
relate to the performance of the segments.
Central costs relate to the Service Centre team and central
activities, Executive Management team, plc costs and finance
expenses associated with Group loans as detailed in note 6 and
separately disclosed items, as detailed in note 4.
Segment information for the reporting periods are as follows:
For the year ended 31 December 2019
Income statement – continuing operations:
Revenue from external customers
Inter-segment revenue
Total revenue
Underlying operating result (*)
Net financing costs (†)
Underlying profit before tax
Impact of fair value adjustment to inventory
Impact of re-statement under IFRS 16 on profit
before tax
Separately disclosed items (see note 4)
Profit before tax
Specific disclosure items
Depreciation on owned plant, property
and equipment
Depreciation on right-of-use assets
Amortisation
Reconciliation of underlying operating result
to operating profit:
Underlying operating result (*)
Impact of fair value adjustment to inventory
Impact of re-statement under IFRS 16 on
operating profit
Separately disclosed items (see note 4)
Operating profit/(loss)
Components
£000
Services
£000
Inter-segmental
transactions
£000
Central
costs
£000
Total
continuing
operations
£000
112,418
–
112,418
9,607
(756)
8,851
(297)
–
–
–
(4,329)
(708)
(5,037)
–
(10)
(135)
(1,909)
(6,956)
(3,712)
4,707
–
106
–
(4,329)
–
(2)
(1,909)
(6,240)
916
1,701
1,051
9,607
(297)
147
(3,712)
5,745
96,348
3,199
99,547
13,995
(46)
13,949
(297)
(126)
(1,114)
12,412
763
1,503
927
13,995
(297)
143
(1,114)
12,727
16,070
232
16,302
–
(3,431)
(3,431)
(59)
(2)
(61)
–
1
(689)
(749)
153
92
124
(59)
–
6
(689)
(742)
—
—
—
–
–
—
—
—
—
—
—
–
–
—
—
(*) Underlying operating result is continuing operations’ operating profit before separately disclosed items (note 4), the impact of fair value adjustment to inventory
(note 3) and IFRS 16 (note 22). The fair value uplift of inventory acquired through business combinations is recognised in accordance with IFRS 3 ‘Business
Combinations’ to record the inventory acquired at fair value and its subsequent release into the income statement.
(†) Following adoption of IFRS 16, operating lease rentals of £1,833K have been restated as depreciation £1,701k, exchange gain £15k and finance costs £282k.
Operating profit increases by £147k whereas profit before tax reduces by £135k.
73
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Information
3. Segment Reporting continued
Segment information for 2018 has been re-stated following the
consolidation of segments into Components and Services.
For the year ended 31 December 2018
(re-stated)
Components
£000
Services
£000
Inter-segmental
transactions
£000
Central
costs
£000
Total
continuing
operations
£000
Income statement – continuing operations:
Revenue from external customers (†)
Inter-segment revenue
Total revenue
Underlying operating result
Net financing (costs)/income
Underlying profit before tax
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)
94,581
2,894
97,475
14,254
(127)
14,127
(382)
(2,015)
11,730
842
916
14,254
(382)
(2,015)
11,857
17,527
60
17,587
–
(2,954)
(2,954)
314
1
315
–
162
477
99
124
314
–
162
476
—
—
—
–
–
—
—
—
—
–
—
—
–
–
–
(3,187)
(629)
(3,816)
–
(1,468)
(5,284)
–
–
(3,187)
–
(1,468)
(4,655)
112,108
–
112,108
11,381
(755)
10,626
(382)
(3,321)
6,923
941
1,040
11,381
(382)
(3,321)
7,678
(*) Underlying operating result is continuing operations’ operating profit before separately disclosed items (note 4) and the impact of fair value adjustment to inventory
(note 3). The fair value uplift of inventory acquired through business combinations is recognised in accordance with IFRS 3 ‘Business Combinations’ to record the
inventory acquired at fair value and its subsequent release into the income statement.
(†) Prior year valves have been restated as described in note 2.30.
74
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 Geographical and category analysis of revenue
The Group operates primarily in the UK, The Netherlands, Belgium
and Republic of Ireland. Revenue generated from distribution of
hydraulic and pneumatic consumables, bespoke manufacture,
commissioning and installation of equipment are categorised as
sale of goods. Income from on-site services and revenue arising
from contracts is disclosed separately.
31 December 2019
United Kingdom
Europe
Rest of the World
Total
31 December 2018
United Kingdom
Europe
Rest of the World
Total
Sale of goods
£000
Contracts
£000
86,757
21,589
1,054
109,400
744
–
–
744
Sale of Goods (*)
£000
Contracts
£000
84,943
22,606
1,911
109,460
732
–
–
732
(*) Prior year values have been re-stated as described in Note 2.30.
Revenue from contracts that cross over into 2020 are accounted
for in accordance with IFRS 15.
No customers of the Group account for 10% or more of the
Group’s revenue for either of the years ended 31 December 2019
or 2018. Non-current assets are allocated based on their
physical location.
Total revenue
£000
Non-current
assets
£000
Services
£000
2,274
–
–
Services
£000
1,916
–
–
89,775
21,589
1,054
87,591
22,606
1,911
1,916
112,108
2,274
112,418
Total Revenue
£000
Non-current
Assets
£000
79,318
5,025
–
84,343
75,701
1,680
–
77,381
75
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Information
4. Operating Profit
The following items have been included in arriving at the operating
profit for continuing operations:
Depreciation of property, plant and equipment under right-of-use assets (*) (see note 22)
Operating lease rentals:
– Land and buildings (*)
– Other (*)
Depreciation of owned property, plant and equipment
Depreciation of property, plant and equipment held under leases
Amortisation of intangible assets (see note 11)
Changes in amounts accrued for contingent consideration (see note 30.1)
Impairment (Gain)/loss on trade receivables and prepayments
(Gain)/loss on foreign currency transactions
Impairment (Gain)/loss on inventory
Loss/(profit) on sale of plant and equipment
Repairs and maintenance expenditure on plant and equipment
2019
£000
1,701
2018
£000
–
–
1,369
–
482
879
899
37
42
1,051
1,040
596
264
(133)
64
(20)
(262)
426
154
6
9
136
203
(*) Following implementation of IFRS 16, assets under qualifying operating leases have been capitalised as ‘Right-of-use Assets’. Lease rental cost is now replaced by
depreciation charge and implied interest calculated on each qualifying lease.
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
2019
£000
60
2018
£000
20
Amounts receivable by the Company’s Auditor and its associates in respect of:
Audit of financial statements of subsidiaries of the Company (*)
115
149
(*) The allocation of audit fees between the Company and its subsidiaries was reviewed following the restructure of subsidiaries during 2019..
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
2019
£000
183
1,051
143
1,739
596
3,712
2018
£000
824
1,040
191
1,002
264
3,321
Acquisition costs relate to stamp duty, due diligence, legal
Restructuring costs relate to restructuring activities of an
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.
operational nature following acquisition of business units and
other restructuring activities in established businesses. Costs
include consultancy for operational cost reviews, provision for
stock in respect of businesses moving to integrated warehousing
facilities, employee redundancies and IT integration.
76
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019
5. Directors & 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)
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
Number
2019
Number
2018
272
359
631
2019
£000
18,573
1,824
752
143
258
315
573
2018
£000
17,806
1,815
475
191
21,292
20,287
2019
£000
587
–
75
16
678
2018
£000
704
188
78
11
981
2019
£000
2018
£000
225
–
30
16
271
352
188
34
2
576
(*) 2019 remuneration paid to Bryce Brooks, present CEO. 2018 remuneration paid to Sean Fennon, previous CEO.
(†) Remuneration in 2018 includes £90,000 in respect of compensation for loss of office. Notice pay of £188,000 in 2018 relates to compensation for loss of office paid
to Sean Fennon, previous CEO.
77
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Information
6. Financial Income & Expenses
Finance income for the year consists of the following:
Finance income arising from:
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 and bank overdraft
Lease interest
Right-of-use liability interest under IFRS 16 (*)
Bank loans
Other credit related interest
Total bank and other credit interest
Imputed interest on deferred and contingent consideration
Total non-credit related interest
Total finance expense
(*) Following implementation of IFRS 16, assets under qualifying operating leases have been capitalised as ‘Right-of-use Assets’.
Lease rental cost is now replaced by depreciation charge and implied interest calculated on each qualifying lease.
2019
£000
2018
£000
–
–
11
11
2019
£000
2018
£000
–
591
19
282
117
1
1,010
28
28
1,038
20
454
21
–
191
17
703
63
63
766
78
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019
7. Taxation
Recognised in the income statement
Continuing operations:
Current tax expense
Current year charge
Overseas tax
Adjustment in respect of prior periods
Current tax expense
Deferred tax
Origination and reversal of temporary differences
Adjustment in respect of prior periods
Change in tax rate
Deferred tax (credit)/charge
Total tax expense – continuing operations
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% (2018: 19.00%)
Deferred tax movements not recognised
Effect of share option exercises
Effect of tax rates in foreign jurisdictions
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 operations
Change in corporation tax rate
A reduction in the UK corporation tax rate from 19% to 17%
(effective from 1 April 2020) was substantively enacted on
6 September 2016, and the UK deferred tax asset/(liability) as at
31 December 2019 has been calculated based on this rate.
In the 11 March 2020 Budget it was announced that the UK tax
rate will remain at the current 19% and not reduce to 17% from 1
April 2020. This change was substantively enacted post year end
and therefore the deferred taxes at the balance sheet date
continue to be measured at the enacted tax rate of 17%.
2019
£000
888
324
(12)
1,200
(169)
(63)
–
(232)
968
2019
£000
3,739
968
4,707
894
26
–
(34)
(5)
–
(25)
187
(75)
968
2018
£000
1,623
164
202
1,989
(24)
27
–
3
1,992
2018
£000
4,931
1,992
6,923
1,315
(40)
(38)
(47)
(4)
(6)
(314)
897
229
1,992
79
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements
Notes to the Consolidated Financial Information
8. Dividends Paid
Final dividend of 4.04p (2018: 3.85p) per share
Interim dividend of 2.13p (2018: 2.03p) per share
Total dividends
In the light of the economic uncertainty due to COVID-19, the
Directors have suspended all dividend payments in order to retain
as much cash in the business as possible. Therefore, no further
dividend will be paid in respect of the financial year ended
31 December 2019 (2018: 4.04p).
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.
2019
£000
2,453
1,296
3,749
2018
£000
2,330
1228
3,558
For diluted earnings per share the weighted average number of
ordinary shares in issue is adjusted to assume conversion of all
dilutive potential ordinary shares. The dilutive shares are those
share options granted to employees where the exercise price is
less than the average market price of the Company’s ordinary
shares during the year.
Year ended 31 December 2019
Year ended 31 December 2018
Earnings
£000
Weighted
average number
of shares
Earnings
per share
Pence
Earnings
£000
Weighted
average number
of shares
Earnings
per share
Pence
Basic earnings per share
Continuing operations
3,739
61,067
6.12
4,911
58,889
8.34
Diluted earnings per share
Continuing operations
3,739
61,286
6.10
4,911
59,278
8.28
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
Cost
Balance at 1 January
Fair value amendment relating to prior year acquisitions
Acquired through business combinations
Other movements
Balance at 31 December
Impairment
At 1 January
Impairment charge
At 31 December
Carrying amount at 31 December
80
2019
£000
61,067
219
61,286
2018
£000
58,889
389
59,278
2019
£000
2018
£000
63,022
57,938
–
–
(8)
399
4,685
–
63,014
63,022
–
–
–
—
—
—
63,014
63,022
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 Background
The Group uses trading activity as the basis for determining
reporting segments. The Group’s two reporting segments are
Components and Services. Goodwill has been allocated for
impairment testing purposes to 15 cash-generating units across
these two segments. These cash-generating units represent the
lowest level within the Group at which goodwill is monitored for
internal management purposes.
Cash-generating units were identified by grouping Profit Centres
within individual statutory entities which together represent sets of
independent cash flows. There has been no change in the
identification of cash-generating units or the allocation of goodwill
to those units since the prior period.
The carrying amounts of goodwill allocated to these cash-generating
units are as follows:
Cash-generating unit
FTUK
Beaumanor Engineering
Orange County
Primary Fluid Power
HTL
HES
Hydroflex Hydraulics, Oud
Flowtechnology Benelux, BV
Nelson Hydraulics, Lisburn & Dungannon
Hydravalve
Indequip
Hi-Power Hydraulics, Cork, Dublin & Belfast
Nelson Hydraulics, Dublin
Derek Lane
TSL
Total at 31 December
Sensitivity to changes in key assumptions
Management has carried out sensitivity analyses on the key
assumptions used in recoverable amount calculations.
Management does not believe that there are any reasonably
possible changes in the assumptions used in the value in use
calculations which would result in the carrying amount of any
cash-generating unit exceeding its recoverable amount.
The table below presents the changes required to eliminate the excess
of the recoverable amount over the carrying amount of the CGUs.
2019
£000
41,677
4,395
2,793
2,480
2,447
2,125
2,050
1,015
989
954
632
579
424
300
154
63,014
Cash-generating unit
FTUK
Beaumanor Engineering
Orange County
Primary Fluid Power
HES
Hydroflex-Hydraulics Oud
All other CGUs
Change required to eliminate headroom
Excess of recoverable
amount over carrying
value of CGU
£000
Reduction of
forecast annual
revenue p.a.
%
Reduction in
EBITDA margin
%
Increase in
discount rate
%
32,120
10,158
3,207
4,661
9,958
4,367
–
10.0%
20.0%
12.6%
11.4%
21.3%
15.3%
> 25%
8.6%
9.4%
7.2%
3.8%
5.5%
4.8%
> 6%
5.6%
14.6%
7.8%
6.7%
13.7%
8.8%
>15%
81
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Information
10. Goodwill continued
Impairment testing
During the year ended 31 December 2019, the Group determines
that there is no impairment of any of its cash-generating units
containing goodwill. The carrying amount of each cash-generating
unit was determined by calculating the sum of the carrying
amounts of all intangible assets (including goodwill) and tangible
assets attributable to that unit.
The recoverable amounts (i.e. higher of value in use and fair value
less costs of disposal) of those units are determined on the basis
of value in use calculations. Management has prepared forecasts
for each cash-generating unit for the financial years ending 31
December 2020 and 2021, which have been approved by the
Board, and extended these projections for a further three years.
Cash flows beyond this five-year period have been extrapolated at
an expected long-term growth rate of 2%. This growth rate does
not exceed the long-term average growth rate for the market in
which the Group operates.
Key assumptions used in value in use calculations
The Group has determined that the recoverable amount calculations
are most sensitive to changes in the following assumptions:
revenue growth rates, gross margins and discount rates.
The revenue growth rates used in the calculations reflect the
average growth rate for the industry as a whole experienced by the
Group. Revenue is expected to grow by 2.5% p.a. (2018: 2.5%) in
the initial two-year forecast period, with this growth rate tapering
downward to the expected long-term growth rate over the next
three years. The potential impact of Brexit is difficult to assess, but
more information will become available as the UK moves through
the transition period and details of the future relationship begin to
crystallise. The Group operates across an extensive range of
industry sectors and expect there to be a number of positive trends
that the Group can capitalise on. Equally, the Group is taking
measures to safeguard the business from any risks in this
process. These risks and opportunities are outlined in the section
on Marketplace under Future Outlook.
Management has considered a range of forecasts while stress
testing the impact of COVID-19 on the business and continue to
monitor developments. However, these scenarios are not
considered for adjustment in the impairment testing of goodwill
since COVID-19 is a non-adjusting event.
The gross margins used in the calculations reflect the average gross
margins of each cash-generating unit in the period immediately
before the forecast period, adjusted for expected future changes in
selling prices and direct costs due to market conditions.
The pre-tax discount rates used in the calculations ranged from 8%
to 11% (2018: 9%). This discount rate has been derived from the
Group’s weighted average post-tax cost of capital.
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 2019
Amortisation and impairment
Balance at 1 January 2019
Amortisation
Balance at 31 December 2019
Carrying amount at 31 December 2019
Customer relationships
Brands
2019
£000
2018
£000
2019
£000
2018
£000
Total
2019
£000
2018
£000
9,371
9,214
1,173
96
10,544
9,310
–
–
9,371
2,786
943
3,729
5,642
–
157
9,371
1,845
941
2,786
6,585
–
–
1,173
134
108
242
931
1,077
—
1,173
35
99
134
1,039
–
–
10,544
2,920
1,051
3,971
6,573
1,077
157
10,544
1,880
1,040
2,920
7,624
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.
82
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019
12. Subsidiary Undertakings
Country of
incorporation
Principal activity
Fluidpower Group UK Limited
(formerly Fluidpower Limited)
Fluidpower Group Services UK Limited
(formerly PMC Fluidpower Limited)
Flowtech Fluidpower Ireland Limited
(formerly Hi-Power Limited)
Derek Lane & Co Limited
Nelson Hydraulics Limited
Process Fluidpower Group Limited
Group HES Limited
Beaumanor Limited
Process Fluidpower Limited
Flowtech Europe Limited
Flowtechnology Asia Limited
Fluidpower Shared Services Limited
Fluidpower Holdings Limited
(formerly Fluidpower Group Limited)
PMC Fluidpower Group Limited
(formerly PMC Fluidpower Limited)
Balu Limited
Fluidpower MIP Limited
Flowtechnology Benelux BV
The Hydraulic Group BV
Hydroflex-Hydraulics BV
Hydroflex-Hydraulics Rotterdam BV
Hydroflex-Hydraulics Belgium NV
Flowtech Mid-Co Limited
Vitassem Limited
IPL Fluidpower Limited
Flowtechnology CZ Limited
Fluidpower Properties Limited
Indequip Limited
Onsite Fluidpower Limited
KR Couplings Limited
Betabite Hydraulics Limited
Titan Fluid Power Limited
Hydraulics (Ireland) Limited
Haitima Flow Control UK Limited
HUK Valves Limited
Hydravalve UK Limited
Hydraulic Equipment Supermarkets Limited
Branch Hydraulic Systems Limited
HES Tractec Limited
HES Lubemec Limited
HES Automatec Limited
Derek Lane (Contracts) Limited
Derek Lane & Co (South West) Limited
DLC Defence Ltd
Flowtechnology HK Limited
UK
UK
ROI
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
Distributors of engineering components
Ownership
100%
Assembly and distribution of engineering components
100%
Assembly and distribution of engineering components
100%
Assembly and distribution of engineering components
100%
Assembly and distribution of engineering components
100%
Assembly and distribution of engineering components
100%
Assembly and distribution of engineering components
100%
Distributors of engineering components
Distributors of engineering components
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Netherlands
Distributors of engineering components
Netherlands
Holding company
Netherlands
Assembly and distribution of engineering components
100%
Netherlands
Assembly and distribution of engineering components
100%
Belgium
Assembly and distribution of engineering components
100%
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Hong Kong
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%
83
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 29 July 2019, the Group acquired 10% minority shareholding in Derek Lane & Co Limited.
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Information
13. Property, Plant & Equipment
Cost
Balance at 1 January 2018
1,131
10,485
465
12,081
Land and
property
£000
Plant,
machinery and
equipment
£000
Motor vehicles
£000
Total
£000
Additions
Disposals
Acquisitions through business combinations
Fair value amendment relating to prior years acquisitions
Effect of movements in foreign exchange
–
–
–
–
–
1,248
95
1,343
–
(82)
(82)
359
266
625
(312)
4
–
–
744
(312)
4
13,659
Balance at 31 December 2018 and 1 January 2019
1,131
11,784
Additions
Disposals
Balance at 31 December 2019
Depreciation and amortisation
Balance at 1 January 2018
53
627
76
756
–
–
(56)
(56)
1,184
12,411
764
14,359
88
5,810
113
6,011
Depreciation charge for the year
29
779
133
941
Disposals
Effect of movements in foreign exchange
–
–
–
–
(28)
(28)
–
–
Balance at 31 December 2018 and 1 January 2019
117
6,589
218
6,924
Depreciation charge for the year
40
735
141
916
Disposals
Effect of movements in foreign exchange
Balance at 31 December 2019
Net book value
At 31 December 2019
At 1 January 2019
At 1 January 2018
–
–
157
–
–
7,324
(9)
(9)
–
350
–
7,831
1,027
5,087
414
6,528
1,014
5,195
526
6,735
1,043
4,675
352
6,070
At year end, the net book value of leased plant, machinery and
equipment was £191,000 (2018: £229,000). Included in land and
property is land at a cost of £145,000 which is not depreciated
(2018: £145,000).
84
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 14. Deferred Tax Assets & 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
A deferred tax asset of £142,000 (2018: £77,000) in respect of
cumulative share-based payments of £748,000 (2018: £405,000)
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 2019
Intangible assets (note 24)
Property, plant and equipment
Provisions
Employee share-based payments
Intangible assets
Property, plant and equipment
Provisions
Employee share-based payments
15. Inventories
Finished goods and goods for resale
Assets
Liabilities
2019
£000
—
—
95
43
138
2018
£000
—
—
51
26
77
2019
£000
(1,315)
(342)
—
—
(1,657)
(1,519)
2018
£000
(1,513)
(315)
—
—
(1,828)
(1,751)
1 January
2019
£000
Recognised in
profit or loss
£000
Acquired
during the year
£000
31 December
2019
£000
(1,513)
(315 )
51
26
( 1,751)
198
(27)
44
17
232
–
–
–
–
–
(1,315)
(342)
95
43
(1,519)
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)
(59)
3
–
(1,513)
(315)
(51)
(26)
(266)
(1,751)
2019
£000
2018
£000
24,000
28,667
Charges for finished goods recognised as cost of sales in the year
amounted to £65,417,000 (2018: £63,683,000). The write-down of
inventories to net realisable value amounted to £426,000 (2018:
write-down of £154,000). The write-downs and reversals are
included in cost of sales. The provision made against inventories
at the year end was £2,046,000 (2018: £4,574,000).
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.
85
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Information
16. Trade & Other Receivables
Trade receivables
Other receivables
Trade 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
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
(Decrease)/increase in provision
Balance at 31 December
17. Cash & Cash Equivalents
Cash and cash equivalents:
Sterling
Euro
Dollar
Total cash and cash equivalents
Gross
2019
£000
Impairment
2019
£000
18,458
1,656
1,253
21,367
28
8
273
309
2019
£000
21,058
319
21,377
Gross
2018
£000
22,949
1,317
1,124
25,390
2019
£000
585
–
(143)
(133)
309
2019
£000
2,263
1,122
61
3,446
2018
£000
24,805
670
25,475
Impairment
2018
£000
240
36
309
585
2018
£000
468
146
(94)
65
585
2018
£000
1,606
371
271
2,248
86
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 18. Interest-bearing Loans & 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
Lease liabilities
Right-of-use liabilities
Total non-current liabilities
Current liabilities
Bank overdraft
Revolving credit facility
Lease liabilities
Right-of-use liabilities
Total current liabilities
Total
Terms and debt repayment schedule
Currency
Nominal interest rate
Year of maturity
Secured bank loan
Secured revolving credit facility
Finance lease liabilities
Right-of-use liabilities
Right-of-use liabilities
GBP
GBP
GBP
GBP
EUR
BoE + 2.1%
BoE + 2.1%
Various
Various
Various
2021
2021
2020 to 2021
2020 to 2031
2020 to 2027
The revolving credit facility is up to £16,000,000 and is subject to a
non-utilisation fee of 0.7%. 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 and are due for
renewal in 2021. 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 31 July 2020.
Lease liabilities
Lease liabilities are payable as follows:
2019
£000
4,000
8
6,735
10,743
–
16,000
55
1,635
17,690
28,433
2018
£000
4,000
51
–
4,051
1,994
16,000
84
–
18,078
22,129
Carrying
value 2019
£000
Carrying
value 2018
£000
4,000
16,000
63
6,926
1,444
4,000
16,000
135
–
–
28,433
20,135
Less than one year
Between one and five years
Minimum lease
payments 2019
£000
Interest
2019
£000
Principal
2019
£000
Minimum lease
payments 2018
£000
Interest
2018
£000
Principal
2018
£000
60
10
70
5
2
7
55
8
63
100
63
163
16
12
28
84
51
135
87
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements
Notes to the Consolidated Financial Information
19. Trade & Other Payables
Current liabilities
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
The contingent consideration is payable to the former owners of
Derek Lane in the 1st half of 2020, following purchase of 10%
minority interest in Derek Lane & Co Limited on 29th July 2019.
21. Provisions
Balance at 1 January 2019
Acquisitions through business combinations
Amount provided in the year
Balance at 31 December 2019
Provisions have been analysed between current and non-current as follows:
Current
Non-current
Total
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.
2019
£000
2018
£000
10,356
3,073
2,081
15,510
10,853
4,776
2,743
18,372
2019
£000
2018
£000
–
–
214
214
214
2019
£000
399
–
18
417
2019
£000
–
417
417
–
–
2,240
2,240
2,240
2018
£000
341
35
23
399
2018
£000
–
399
399
88
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 22. Right-of-use Assets & Lease Liabilities
In the current year, the Company adopted IFRS 16 and applied the
modified retrospective approach. The reclassifications and the
adjustments arising from the new leasing rules are therefore
recognised in the opening balance sheet on 1 January 2019.
Right-of-use assets
Cost
Balance at 1 January 2019
Adjustment on transition to IFRS 16 on 1 January 2019
Additions
Disposals
Balance at 31 December 2019
Depreciation and amortisation
Balance at 1 January 2019
Adjustment on transition to IFRS 16 on 1 January 2019
Depreciation charge for the year
Disposals
Land and
property
£000
Motor vehicles
£000
Total
£000
–
9,047
980
–
–
704
468
–
1,172
10,027
–
–
–
–
–
8,343
512
–
8,855
–
–
(1,263)
(438)
(1,701)
–
–
–
Effect of movements in foreign exchange
(88)
(10)
(98)
Balance at 31 December 2019
Net book value
At 31 December 2019
(1,351)
(448)
(1,799)
7,504
724
8,228
The associated right-of-use assets for property leases and other
assets were measured at the amount equal to the lease liability,
adjusted by the amount of any prepaid or accrued lease payments
relating to that lease recognised in the balance sheet as at 31
December 2018.
Right-of-use lease liabilities
The statement of profit or loss shows the following amounts
relating to right-of-use assets:
Depreciation of charge of right-of-use assets
Land and property
Motor Vehicles
Interest expenses (included in finance cost)
Exchange movements in income statement
Total expense in the income statement relating to Right to use Assets
2019
£000
2018
£000
1,263
438
282
(15)
1,968
–
–
–
–
–
89
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Information
22. Right-of-use Assets & Lease Liabilities continued
Right-of-use lease liabilities
At 1 January
Repayment
Additions to right-of-use assets in exchange for increased lease liabilities
2019
£000
9,047
(1,561)
980
(96)
8,370
2018
£000
–
–
–
–
–
Total
£000
–
–
–
As at 31 December 2019
As at 31 December 2018
Land and
property
£000
Motor
vehicles
£000
1,250
6,408
7,658
385
327
712
Total
£000
1,635
6,735
8,370
Land and
property
£000
Motor
vehicles
£000
–
–
–
–
–
–
Other lease movements
At 31 December
Analysis by length of liability
Current
Non-current
Total
The table below describes the nature of the Group’s leasing activities
by type of right-of-use assets recognised on the balance sheet.
Number of right-of-use assets leased
Range of remaining term
No. of leases with extension options
No. of leases with options to purchase
No. of leases with termination options
Lease termination options recognised as part of lease Liability £'000
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 was £752,000
(2018: £475,000).
23.2 Share-based employee remuneration
As at 31 December 2019, 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.
Land and
property
Motor
vehicles
32
85
1-12 years
1-3 years
7
1
1
300
–
–
–
–
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.
90
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 The number of shares in Fluidpower MIP Limited subject to
options and the exercise price are:
Date of grant
Exercise period
21 May 2014
11 April 2017 to 10 August 2024
1 June 2016
1 June 2019 to 31 May 2021
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
2019
number
77
3,010
2018
number
77
3,010
MIP scheme
£000
1 June 2016
31 May 2019
£1.45
31.6%
5 years
5.3%
1.29%
£1.99
£1.51
MIP scheme
£000
21 May 2014
3 April 2017
£1.00
30.7%
6.25 years
5.15%
2.11%
£1.00
£1.30
4 April 2017 to 20 May 2021
1 June 2019 to 31 May 2023
Weighted average remaining contractual life
4 years
2 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 non-UK
resident employees. Options under this scheme will vest if the
participant remains employed for the agreed vesting period. Upon
vesting each option allows the holder to purchase one ordinary share.
The number of shares subject to options and the exercise price are:
Date of grant
Approved plan
21 May 2014
8 August 2014
Unapproved plan
21 May 2014
11 August 2015
1 July 2016
1 January 2019
25 October 2019
Exercise price
Exercise period
2019
number
£000
2018
number
£000
£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
£1.13
5 May 2022 to 1 September 2025
£0.50
5 May 2022 to 28 January 2026
610
12
622
37
130
45
9
150
371
993
645
12
657
37
130
45
–
–
212
869
91
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements
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
Number
of shares
000
Weighted
average
exercise price
per share
Number
of shares
000
Weighted
average
exercise price
per share
Total number
of shares
000
Outstanding at 1 January 2019
657
1.01
Granted
Lapsed
Forfeited
Exercised
Outstanding at 31 December 2019
Exercisable at 31 December 2019
Exercisable at 31 December 2018
–
–
–
(35)
622
622
657
–
–
–
1.00
1.01
1.01
1.01
212
159
–
–
–
371
212
167
1.20
0.53
–
–
–
0.91
0.84
0.80
869
159
–
–
(35)
993
834
824
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:
Unapproved
EMI scheme
Unapproved
EMI scheme
Unapproved
EMI scheme
Unapproved
EMI scheme
Approved
EMI scheme
EMI scheme
unapproved
and approved
Grant date
1 July 2016
1 Jan 2019
25 Oct 2019
11 Aug 2015
8 Aug 2014
21 May 2014
Vesting period ends
3 April 2019
5 May 2022
5 May 2022
10 Aug 2018
3 April 2017
3 April 2017
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
£1.00
£1.15
£1.15
£1.44
£1.26
£1.00
31.60%
6.5 years
5.30%
2.11%
£1.05
37.00%
10 years
5.50%
0.93%
£0.27
39.00%
10 years
6.00%
0.45%
£0.57
36.60%
36.60%
36.60%
6.5 years
6.25 years
6.25 years
5.00%
1.50%
£1.46
5.00%
1.5%
£1.11
5.00%
1.5%
£1.11
£1.00
£1.13
£0.50
£1.32
£1.26
£1.00
4 April 2019 to
20 May 2026
5 May 2022 to
31 Dec 2029
5 May 2022 to
24 Oct 2029
11 Aug 2018 to
10 Aug 2025
4 April 2017 to
20 May 2024
4 April 2017 to
20 May 2024
6 years
9 years
9.8 years
5 years
4 years
4 years
The underlying expected volatility was determined by reference to
historical share data of a group of the Company’s peers over the
past six years in accordance with the expected exercise period of
the schemes.
92
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019
Company Share Option Plan
The Company Share Option Plan (‘CSOP’) is part of the
remuneration package of certain employees. Options under this
scheme will vest if the participant remains employed for the agreed
vesting period. Upon vesting each option allows the holder to
purchase one ordinary share.
The number of shares subject to options and the exercise price are:
11 August 2015
1 July 2016
1 January 2019
Exercise price
Exercise period
£1.43
11 August 2018 to 10 August 2025
£1.00
£1.13
4 April 2019 to 30 June 2026
5 May 2022 to 02 Sep 2025
Share options and weighted average exercise prices are as follows
for the reporting periods presented:
Outstanding at 1 January 2019
Granted
Exercised
Forfeited
Outstanding at 31 December 2019
Exercisable at 31 December 2019
Exercisable at 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
2019
number
000
2018
number
000
110
365
27
502
110
440
–
550
Weighted
average
exercise
price per
share
Number
of shares
550
27
(50)
(25)
502
475
110
1.09
1.13
1.00
1.00
1.10
1.10
1.43
CSOP scheme
2019
CSOP scheme
2017
CSOP scheme
2016
01-Jan-19
05-May-22
£1.15
37.00%
01-Jul-16
03-Apr-19
£1.00
31.60%
11-Aug-15
10-Aug-18
£1.44
36.60%
10 years
6.5 years
6.5 years
6.00%
0.93%
£0.27
£1.13
5.30%
2.11%
£1.05
£1.00
5.00%
1.50%
£1.46
£1.43
5 May 2022 to
31-Dec-29
4 April 2019 to
20-May-26
11 April 2018 to
20-May-25
Weighted average remaining contractual life
9 years
6 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.
In total, £143,000 (2018: £191,000) of employee remuneration
expenses, all of which related to equity-settled share-based
payment transactions, has been included in the Consolidated
Income Statement.
93
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Information
24. Acquisitions & Disposals
Acquisition of minority interest in Derek Lane & Co Limited
The Company entered into an agreement to purchase the minority
shareholding of Derek Lane & Co. Limited for a total maximum
consideration of £300,000, including initial consideration of
£38,250 in Consideration Shares and £38,250 in cash. The
remaining consideration is deferred and is subject to performance
criteria (‘Contingent Consideration’). The contingent consideration
will become payable in 2020.
On 29 July 2019, the Company issued 28,760 ordinary shares of
50 pence each in the Company (‘Consideration Shares’) at a price
of £1.33 per share in part settlement of the initial consideration
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.
for the minority shareholding in Derek Lane & Co. Limited. It also
made a cash payment of £38,250 to the minority shareholders
as part settlement of the purchase consideration. Based on the
performance of the underlying business, the Accounts contain
an accrual of £213,877 towards settlement of the contingent
consideration. The liability will be discharged by issuing number
of ordinary shares in Flowtech Fluidpower Plc.
The total investment value of £290,377 has been accounted for
as a charge to retained earnings.
Allotted and fully paid ordinary shares of 50p each at 31 December 2019
Shares authorised for share-based payments
Total shares authorised at 31 December 2019
Allotted and fully paid ordinary shares of 50p each
At 1 January 2019
Shares issued in respect of exercise of employee share options
Shares issued in respect of settlement of contingent consideration
Shares issued in respect of acquisition of minority interest (note 24)
At 31 December 2019
On 16 May 2019, 157,981 ordinary shares of 50p each were issued
at 126.6 pence each to Vendors of Hydraulics and Transmissions
Limited to settle contingent consideration owed to the vendors.
On 13 June 2019, 50,000 ordinary shares of 50p each were issued
at 140 pence each on exercise of share options by an employee.
On 29 July 2019, the Company issued 28,760 ordinary shares of
50 pence each in the Company (‘Consideration Shares’) at a price
of £1.33 per share in part settlement of the initial consideration
for the minority shareholding in Derek Lane & Co. Limited.
Number
61,157,124
6,666,667
67,823,791
£000
30,579
3,333
33,912
Number
£000
60,920,383
30,460
50,000
157,981
28,760
25
80
14
61,157,124
30,579
94
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 26. Net Cash from Operating Activities
Reconciliation of profit before taxation to net cash flows from operations
Profit from continuing operations before tax
Depreciation on property, plant and equipment
Depreciation on right-of-use assets (IFRS 16)
Financial income
Financial expense
Finance cost on right-of-use assets (IFRS 16)
Loss/(Profit) on sale of plant and equipment
Amortisation of intangible assets
Profit on sale of shares
Cash-settled share options
Equity-settled share-based payment charge
Change in amounts accrued for contingent consideration
Other financial items
Fair value adjustment to stock
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
2019
£000
4,707
916
1,701
–
756
282
6
2018
£000
6,923
941
–
(11)
766
–
(9)
1,051
1,040
140
–
143
596
123
12
10,433
4,006
4,667
(2,862)
18
16,262
(3,016)
13,246
2019
£000
–
–
–
–
–
(23)
191
264
–
–
10,082
(1,509)
(844)
(2,843)
(23)
4,863
(1,073)
3,790
2018
£000
1,666
3,787
3,756
9,209
(*) Following a detailed review of the lease commitments on transition to IFRS 16, the opening balance of the operating lease commitments in respect of Land and
Building disclosed as at 31 December 2018 is corrected.
Following the application of IFRS 16, qualifying operating leases
have been capitalised as right to use assets. Refer Note 22
Right-of-use Assets and Lease Liabilities for further details.
28. Contingent Liabilities & Commitments
The Group had capital expenditure of £274,000 contracted for but
not provided at 31 December 2019 (2018: £105,000).
95
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Information
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.
Dividends paid to Directors of the plc were as follows:
Bryce Brooks
Malcolm Diamond MBE
Bill Wilson
Nigel Richens
Russell Cash
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.
2019
£000
18
4
2
5
1
30
2018
£000
17
3
–
4
–
24
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 1: quoted prices (unadjusted) in active markets for identical
assets or liabilities.
Level 3: inputs for the asset or liability that are not based on
observable market data (unobservable input).
Contingent consideration (note 20)
Total financial liabilities at fair value
through profit or loss
Carrying
amount
2019
£000
(214)
(214)
Fair value
2019
£000
(214)
(214)
Level 3
2019
£000
(214)
(214)
Carrying
amount
2018
£000
(2,240)
(2,240)
Fair value
2018
£000
(2,240)
(2,240)
Level 3
2018
£000
(2,240)
(2,240)
There have been no transfers in either direction during the years
ended 31 December 2019 and 31 December 2018.
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
2019
£000
2,240
214
2018
£000
5,571
–
(2,836)
(3,595)
596
214
264
2,240
Contingent consideration reflects liability on purchase of minority
interest in Derek Lane. The liability is based on a multiple of agreed
operating profit for the business and shall be settled by issue of
equivalent value of equity shares.
The valuation was agreed and settled on 16th April 2020 with no
change to the provided amount.
Changes in amounts accrued for contingent consideration relates
to the calculation of the contingent consideration as follows:
Overprovided consideration:
£596,000 in final settlement for the acquisition of Orange
County Limited acquired in 2017. The consideration was based
on net profit targets.
96
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 The Group is exposed to various risks in relation to financial
instruments. Each of these is disclosed in the table below.
Carrying
amount
2019
000
Fair value
2019
£000
Level 3
2019
£000
Carrying
amount
2018
£000
Fair value
2018
£000
Level 3
2018
£000
Loans and receivables
Cash and cash equivalents (note 17) (*)
Trade and other receivables
(note 16) (*)
Total financial assets measured at
amortised costs
3,446
21,377
3,446
21,377
2,248
25,475
2,248
25,475
24,823
24,823
27,723
27,723
Total financial assets at fair value
–
–
Financial assets
24,823
24,823
–
–
27,723
27,723
Financial liabilities measured
at amortised cost
Other interest-bearing loans and
borrowings (note 18)
(20,063)
(20,063)
(22,129)
(22,129)
Trade payables and accruals (note 19) (*)
(13,429)
(13,429)
(33,492)
(33,492)
(15,629)
(15,629)
(37,758)
(37,758)
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
–
(214)
(214)
–
(214)
(214)
(33,706)
(33,706)
(8,883)
(8,883)
–
(214)
(214)
–
(2,240)
(2,240)
–
(2,240)
(2,240)
(39,998)
(39,998)
(12,275)
(12,275)
–
(2,240)
(2,240)
(*) 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.
Financial instruments measured at fair value
Valuation technique
Forward exchange contracts
Contingent consideration
Bank loans and other interest-bearing borrowings
The Group utilises natural hedges available as a result of its trading activities.
The net exposure is settled on maturity by purchasing the required currency on
spot basis.
The fair value of contingent consideration at 31 December 2019 relates to the
acquisition of minority interest in Derek Lane & Co Limited in 2019. It is
estimated using a present value technique. The £214,000 fair value is measured
by reference to the future cash outflows. The cash outflows reflect
management’s best estimate of the amount payable.
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.
97
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Information
30. Financial Instruments continued
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
credit status of each new customer is reviewed before credit is
advanced. This includes external evaluations where possible.
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
30.3 Liquidity risk
The Group establishes an allowance for impairment that
represents its estimate of expected 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.
2019
£000
17,811
2,858
389
21,058
2018
£000
20,319
4,017
469
24,805
Financial risk management
Liquidity risk is the risk that the Group will not be able to meet its
financial commitments as they fall due or that it fails to satisfy the
requirements of its banking covenants. Management prepares
robust annual and monthly cash flow forecasts which are fully
integrated with the core assumptions underpinning forecast
profitability and balance sheet movements; in addition, a rolling
13 week cash flow forecast is continually updated to provide
visibility as regards likely quarter end Net Debt positions.
As a result, the business has all the requisite monitoring capability
to assess the impact which any adverse trading conditions may
present. The business is as focused on managing its working
capital base as it is its profitability, a combination which the Board
views as key in continually managing this risk..
The following are the contractual maturities of financial liabilities,
including estimated interest payments:
Year ended 31 December 2019
Non-derivative financial liabilities
Secured bank loan
Liabilities relating to right-of-use assets
Lease liabilities
Revolving credit facility
Trade payables
Year ended 31 December 2018
Non-derivative financial liabilities
Secured bank loan
Finance lease liabilities
Revolving credit facility
Trade payables
Carrying
amount
£000
Contractual
cash flows
£000
1 year
or less
£000
4,000
8,370
63
16,000
10,356
38,789
4,141
8,370
70
16,376
10,356
39,313
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
94
1,635
60
16,376
10,356
28,521
1 year
or less
£000
116
99
16,464
10,823
27,502
1 to 2
years
£000
4,047
1,162
10
–
–
2 to 5
years
£000
–
2,049
–
–
–
5,219
2,049
1 to 2
years
£000
116
62
—
—
178
2 to 5
years
£000
4,116
—
—
—
4,116
There are no contractual maturities over five years, save for liabilities relating to right-of-use assets.
98
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 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.
Market risk — foreign currency risk
The main currency related risk to the Group comes from forward
purchasing of inventories and from its foreign operations. The
Group utilises natural hedges available as a result of its trading
activites. The net exposure is settled on maturity by purchasing the
required currency on spot basis.
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 2019
Cash and cash equivalents
Trade and other receivables
Secured bank loans
Revolving credit facility
Sterling
£000
2,263
18,434
(4,000)
(16,000)
Euro
£000
1,122
2,750
–
–
Liabilities relating to right-of-use assets
(6,915)
(1,455)
Lease liabilities
Trade payables
Net exposure
31 December 2018
Cash and cash equivalents
Trade and other receivables
Secured bank loans
Revolving credit facility
Finance lease liabilities
Trade payables
Net exposure
(63)
(5,229)
(11,510)
Sterling
£000
1,606
21,544
(4,000)
(16,000)
(96)
(5,084)
(2,030)
–
(5,101)
(2,684)
Euro
£000
371
3,870
–
–
(39)
(4,744)
(542)
US Dollar
£000
61
193
–
–
–
–
(26)
228
US Dollar
£000
271
61
–
–
–
Total
£000
3,446
21,377
(4,000)
(16,000)
(8,370)
(63)
(10,356)
(13,966)
Total
£000
2,248
25,475
(4,000)
(16,000)
(135)
(1,025)
(10,853)
(693)
(3,265)
Sensitivity analysis
A 10% weakening of the following currencies against the pound
sterling at 31 December 2019 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.
A 10% strengthening of the following currencies against the pound
sterling at 31 December 2019 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 2018.
The analysis is performed on the same basis for the year ended
31 December 2018.
€
$
Profit or loss and equity
Profit or loss and equity
2019
£000
244
(21)
2018
£000
(10)
73
€
$
2019
£000
(298)
25
2018
£000
12
(90)
99
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Information
30. Financial Instruments continued
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)
2019
£000
2018
£000
63
135
20,000
21,995
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 2018.
Equity
Increase of 100 basis points
Decrease of 100 basis points
Profit or loss
Increase of 100 basis points
Decrease of 100 basis points
2019
£000
(200)
200
(200)
200
2018
£000
(220)
220
(220)
220
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. Funding requirements
are provided by a combination of revolving credit (£20m) and
overdraft (£5m) facilities. The Group’s objectives when managing
capital is 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 and
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 facilities
and remains covenant compliant. Whilst the challenges presented
by COVID-19 may put pressure on the ability to remain compliant
the Directors are confident that the Bank will work with the
business and if necessary, redefine covenants which would
otherwise be breached. There were no changes in the Group’s
approach to capital management during each year.
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.
100
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 31. Subsequent Events
On 21 April 2020, the Group released a trading update statement
dealing with trading for the financial year to date, the net debt
position, restructuring activities and an outlook statement with
specific reference to the latest situation regarding the impact of
Results for 3 months to 31 March 2020
Revenue by division:
Components
Services
Total Group revenue for the period
Net debt (†)
(†) Net debt excludes IFRS 16 lease debt.
the COVID-19 pandemic. That statement is reproduced below.
There have been no significant changes to the matters set out in
the statement since 21 April 2020.
Period
2020
Unaudited
£m
Period
2019
Unaudited
£m
22.9
4.0
26.9
15.6
26.0
4.0
30.0
20.5
Change
(11.9%)
0.0%
(10.3%)
Trading
Prior to the COVID-19 lockdown, Q1 performance was in line with
our expectations: down on the buoyant conditions seen in early
2019, but with a return to growth in customer order patterns and
outlook. However, the final few weeks of the Period created an
altogether different position going into Q2. Many of our suppliers
and customers suspended operations, although recent indications
suggest that some have either already reopened or are planning to
reopen in May, albeit with reduced capacity.
The most marked effect of the current situation has been in our
Components segment, which are those Profit Centres where most
sales are directly into OEMs. The Services segment had a good
order book coming into the year, and whilst it was also affected by
the downturn in late March, revenue for the quarter remained flat
year on year.
While there are no first quarter industry statistics currently
available from the BFPDA* or BFPA**, the Board believes that the
Group has generally traded in line with the sector during the period.
Net debt/cash flow
Net debt at 31 March 2020 was £15.6m, a £1m reduction from the
position at 31 December 2019 and well within our aggregate
banking facilities of £25m. Net cash flow in April has been as
expected, and whilst we have not entered the end of month
collection period, we expect receipts to be received in full albeit
with some slight delays in timing. We believe this should not create
any significant disruption to the overall cash flow cycle.
Restructuring activities
In February 2020, we announced a major restructuring programme
to transition warehousing and picking operations to more efficient
centres. In the UK, we are currently closing four warehousing
facilities, the annualised savings from which are estimated to be
£1.6m, with a £0.8m impact/benefit in 2020. The cash cost of this
restructuring is estimated at £1.8m, of which £0.5m was incurred
in 2019. We are pleased to confirm that this complex and tightly
managed project is on time and within budget.
Since safe working guidance was introduced last month, costs
have been reduced by a combination of internal actions and the
utilisation of ‘furlough’ or equivalent schemes introduced in the UK,
Republic of Ireland, and the Netherlands. We estimate that our
cost base has fallen by around 25%, with further savings still to
come from our restructuring activities. We will continue to pursue
our rationalisation and cost reduction programmes, creating
operational efficiencies in our procurement, logistics, sales and
back office activities.
*British Fluid Power Distributors Association.
**British Fluid Power Association.
Outlook
Whilst the full impact of the COVID-19 lockdown remains unclear, it
is not possible to make any accurate predictions for the remainder
of the year. A significant part of our sales depends on the
manufacturing and construction sectors, both of which have seen
large scale shut-downs. It is possible that these sectors will begin
to reopen during early May, and our current plan is to ensure that
we continue to support/service our customers and react as quickly
and effectively as possible if this were to happen. However, if there
is a need to undertake further cost reductions should the lockdown
extend further into the year, we must ensure that we are in a
position to initiate change without detriment to our future business
and our customers. This being said, the work undertaken as part of
our restructuring activities over the past twelve months is helping
our planning enormously in this regard.
We also thank all our people for the commitment to the business
and the support of colleagues in these times. Overall, we remain
confident that, despite the disruption, our business should
generate positive cash flow through 2020 and 2021, helping to
further reduce net debt and create a solid platform for growth
when things return to a more normal situation.
The most significant negative impact of the events since the balance
sheet date is the economic disruption caused by the COVID-19
pandemic and, should this disruption continue for a prolonged
period, the creation of a material uncertainty as to the ability of the
Group to continue as a going concern and realise its assets and
discharge its liabilities in the ordinary course of business.
Note 2.2 sets out the rationale underpinning the Directors’
expectation that the Company has adequate resources to continue
in operational existence for the foreseeable future. The Directors
have also considered the possibility that any tangible assets,
intangible assets and goodwill should be impaired and, based on
the projections described in note 2.2, have determined that no
impairment is necessary. The developing situation regarding the
pandemic is kept under constant review.
The situation at 31 December 2019 was that a limited number of
cases of an unknown virus had been reported to the World Health
Organisation. The subsequent spread of the virus and its
identification as a new coronavirus does not provide additional
evidence about the situation that existed at 31 December 2019
and it is therefore a non-adjusting event. Accordingly, the financial
position and results of operations as of, and for the year ended
31 December 2019 have not been adjusted. The financial position
and results of the Group for future periods will be adjusted as and
when sufficient information on the medium to long-term impact of
COVID-19 becomes available and the prospects of the Company
are determined to have deteriorated to such an extent that
necessitates an impairment provision or other adjustment.
101
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements 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
2019
£000
(943)
(943)
4,350
(708)
3,642
2,699
–
2,699
2018
£000
(929)
(929)
4,890
(628)
4,262
3,333
–
3,333
102
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 Company Statement of Financial Position
Fixed assets
Investments
Total fixed assets
Current assets
Trade and other debtors
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
The financial statements on pages 102 to 111 were approved by the
Board of Directors on 29 April 2020 and were signed on its behalf by:
Russell Cash
Chief Financial Officer
Company Registration Number: 09010518
Note
2019
£000
2018
£000
J
K
M
N
M
P
59,002
59,002
65,292
65,292
16,000
5,819
21,819
43,473
58,881
58,881
63,715
63,715
16,000
3,611
19,611
44,104
102,475
102,985
4,000
4,000
98,475
30,579
60,959
192
187
406
6,152
98,475
4,000
4,000
98,985
30,460
60,793
109
187
382
7,054
98,985
103
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Company Statement of Changes in Equity
Share
capital
£000
26,409
–
–
Share
premium
£000
52,370
–
–
4,051
8,423
—
—
—
4,051
30,460
–
–
—
—
—
8,423
60,793
–
–
119
166
—
—
—
—
—
—
—
—
Other
reserve
£000
187
–
–
—
—
–
–
–
187
–
–
—
—
—
—
–
Merger
relief
reserve
£000
Retained
earnings
£000
Total
equity
£000
86,919
3,333
3,333
12,473
382
7,953
3,333
3,333
—
—
(564)
(564)
(3,558)
(4,122)
7,163
2,699
2,699
—
(11)
102
140
(3,558)
8,733
98,985
2,699
2,699
309
(11)
102
–
—
—
—
—
382
—
—
382
382
–
–
24
—
—
—
119
166
30,579
60,959
-
187
24
406
(3,518)
(3,209)
6,343
98,475
— (3,749)
(3,749)
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 1 January 2019
Profit for the year
Total comprehensive income for the year
Transactions with owners
Issue of share capital
Share options settled in cash
Share options – granted to subsidiary
employees
Profit on sale of shares
Equity dividends paid (note H)
Total transactions with owners
Balance at 31 December 2019
104
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 Notes to the Company Financial Information
A. Authorisation of Financial Statements
& Statement of Compliance with FRS 101
The financial statements of Flowtech Fluidpower plc for the
year ended 31 December 2019 were authorised for issue by
the Board of Directors on 29 April 2020 and the Statement of
Financial Position was signed on the Board’s behalf by Russell
Cash. 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 2019.
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.
c.
d.
e.
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’;
the requirements of paragraphs 30 and 31 of IAS 8 ‘Accounting
Policies, Changes in Accounting Estimates and Errors’;
the requirements of paragraph 17 of IAS 24 ‘Related Party
Disclosures’;
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.
f. disclosure requirements of IFRS 7 ‘Financial Instruments’.
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.
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
105
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Notes to the Company Financial Information
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.
Significant management estimates
The following estimates have the most significant effect on the
financial statements.
Impairment of investments
The carrying value of investments are assessed for impairment.
This requires an estimation of the value in use of the operations
underpinning the investments.
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 ranged
from 8% to 11% (2018: 9%). This discount rate is derived from the
Group’s weighted average post-tax cost of capital.
The carrying value of the investments at 31 December 2019 is
£59,002,000 (2018: £58,881,000). The value in use of investment
in subsidiaries was estimated at £210m, indicating a headroom
of £151m. Consequently, there was no impairment charge during
the year.
Impairment of Group balances
The carrying value of Group balances are assessed for impairment
based expected credit loss model. At each reporting date, the
management assesses whether any events have occurred which
have had a detrimental affect on the ability of each of the Group
companies to repay the amounts due.
The amounts owed by subsidiary undertakings were £64,912,000
(2018: £63,715,000). There was no impairment charge during
the year.
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
2019
£000
35
–
69
2018
£000
135
–
422
Acquisition costs relate to stamp duty, due diligence, legal
fees, finance fees and other professional costs incurred in the
acquisition of businesses.
Restructuring costs relate to restructuring activities of
an operational nature such as employee redundancies,
consultancy and IT integration.
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.
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 (*)
(*) The allocation of audit fees between the Company and its subsidiaries was renewed following the restructure of subsidiaries during 2019.
2019
£000
60
2018
£000
20
106
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 E. Directors & 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
2019
£000
4
2019
£000
587
–
75
16
678
2018
£000
4
2018
£000
704
188
78
11
981
(*) Remuneration in 2018 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
2019
£000
2018
£000
225
–
30
16
271
352
188
34
2
576
(*) 2019 remuneration paid to Bryce Brooks, present CEO. 2018 remuneration paid to Sean Fennon, previous CEO.
(†) Remuneration in 2018 includes £90,000 in respect of compensation for loss of office. Notice pay of £188,000 in 2018 relates to compensation for loss of office paid
to Sean Fennon, previous CEO.
F. Financial Income & 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 income
2019
£000
4,350
4,350
2019
£000
708
708
2018
£000
4,890
4,890
2018
£000
628
628
107
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Notes to the Company Financial Information
G. Taxation
No income tax was recognised in other comprehensive income or
directly in equity for either of the years ended 31 December 2019
or 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% (2018: 19%)
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
Change in corporation tax rate
A reduction in the UK corporation tax rate from 19% to 17%
(effective from 1 April 2020) was substantively enacted on 6
September 2016, and the UK deferred tax asset/(liability) as at 31
December 2019 has been calculated based on this rate. In the 11
March 2020 Budget it was announced that the UK tax rate will
remain at the current 19% and not reduce to 17% from 1 April 2020.
H. Dividends Paid
Final dividend of 4.04p (2018: 3.85p) per share
Interim dividend of 2.13p (2018: 2.03p) per share
In the light of the economic uncertainty due to COVID-19, the
Directors have suspended all dividend payments in order to retain
as much cash in the business as possible. They are therefore not
proposing a final dividend for year ended 31 December 2019.
I. Share-based Payments
Details of share-based payments are shown in note 23 to the
consolidated financial statements.
2019
£000
2,699
–
2,699
513
–
310
–
(827)
4
–
2018
£000
3,335
–
3,335
634
(40)
351
(42)
(929)
26
–
This change was substantively enacted post year end and
therefore the deferred taxes at the balance sheet date continue
to be measured at the enacted tax rate of 17%.
2019
£000
2,453
1,296
3,749
2018
£000
2,330
1,228
3,558
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
At 1 January 2019
Increase in holding in direct subsidiary
Shares issued in consideration for acquisition of minority interest
Additions net of exercise of options in the year
At 31 December 2019
Investments in
subsidiaries’
unlisted shares
£000
Subsidiaries’
share-based
payment reserves
£000
Total
£000
56,919
1,303
550
–
58,772
58,772
–
38
–
58,810
448
57,367
–
–
(339)
109
109
–
–
83
192
1,303
550
(339)
58,881
58,881
–
38
83
59,002
108
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 The principal subsidiaries of the Company are listed below:
Country of
incorporation
Principal activity
Fluidpower Group UK Limited
(formerly Fluidpower Limited)
Fluidpower Group Services UK Limited
(formerly PMC Fluidpower Limited)
Flowtech Fluidpower Ireland Limited
(formerly Hi-Power Limited)
Derek Lane & Co Limited
Nelson Hydraulics Limited
Process Fluidpower Group Limited
Group HES Limited
Beaumanor Limited
Process Fluidpower Limited
Flowtech Europe Limited
Flowtechnology Asia Limited
Fluidpower Shared Services Limited
Fluidpower Holdings Limited
(formerly Fluidpower Group Limited)
PMC Fluidpower Group Limited
(formerly PMC Fluidpower Limited)
Balu Limited
Fluidpower MIP Limited
Flowtechnology Benelux BV
The Hydraulic Group BV
Hydroflex-Hydraulics BV
Hydroflex-Hydraulics Rotterdam BV
Hydroflex-Hydraulics Belgium NV
Flowtech Mid-Co Limited
Vitassem Limited
IPL Fluidpower Limited
Flowtechnology CZ Limited
Fluidpower Properties Limited
Indequip Limited
Onsite Fluidpower Limited
KR Couplings Limited
Betabite Hydraulics Limited
Titan Fluid Power Limited
Hydraulics (Ireland) Limited
Haitima Flow Control UK Limited
HUK Valves Limited
Hydravalve UK Limited
Hydraulic Equipment Supermarkets Limited
Branch Hydraulic Systems Limited
HES Tractec Limited
HES Lubemec Limited
HES Automatec Limited
Derek Lane (Contracts) Limited
Derek Lane & Co (South West) Limited
DLC Defence Ltd
Flowtechnology HK Limited
UK
UK
ROI
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
Distributors of engineering components
Ownership
100%
Assembly and distribution of engineering components
100%
Assembly and distribution of engineering components
100%
Assembly and distribution of engineering components
100%
Assembly and distribution of engineering components
100%
Assembly and distribution of engineering components
100%
Assembly and distribution of engineering components
100%
Distributors of engineering components
Distributors of engineering components
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Netherlands
Distributors of engineering components
Netherlands
Holding company
Netherlands
Assembly and distribution of engineering components
Netherlands
Assembly and distribution of engineering components
Belgium
Assembly and distribution of engineering components
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Hong Kong
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%
109
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 29 July 2019, the Group acquired 10% minority shareholding in Derek Lane & Co Limited.
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Notes to the Company Financial Information
K. Trade & Other Debtors
Current:
Prepayments and accrued income
Amounts owed by Group undertakings
Total trade and other debtors
L. Cash & Cash Equivalents
Sterling
Total cash and cash equivalents
M. Interest-bearing Loans & 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
The secured bank loan is repayable on 30 June 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 June 2021.
A further £5,000,000 is available to draw down under an overdraft
facility which expires on 31 July 2020. 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 & Other Creditors
Social security and other taxes
Accruals and deferred income
Amounts owed to other Group undertakings
Total trade and other creditors
2019
£000
2018
£000
380
64,912
65,292
492
63,223
63,715
2019
£000
–
–
2019
£000
4,000
4,000
2018
£000
–
–
2018
£000
4,000
4,000
16,000
16,000
20,000
16,000
16,000
20,000
2019
£000
83
113
5,623
5,819
2018
£000
42
525
3,044
3,611
110
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 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
A deferred tax asset of £12,000 (2019: £4,000) in respect of
cumulative share-based payments of £58,000 (2018: £22,000) 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 2019
Shares issued in respect of exercise of employee share options
Shares issued in respect of settlement of deferred consideration
Shares issued in respect of acquisition (note 24.1)
At 31 December 2019
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 & Commitments
The Company has capital expenditure of £274,000 contracted for
but not provided as at 31 December 2019 (2018: £105,000).
R. Related Party Transactions
The Company has taken advantage of the exemption under
paragraph 8(k) of FRS 101 not to disclose transactions with
entities that are wholly owned subsidiaries of the Flowtech
Fluidpower plc Group. Repayments from Flowtech Fluidpower
Benefit Trust of £40,000 were received and; £372,000 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. Ultimate Controlling Party
The Directors consider that there is no ultimate controlling party.
Flowtech Fluidpower plc Registered office:
Bollin House, Bollin Walk, Wilmslow, SK9 1DP
www.flowtechfluidpower.com
Email: info@flowtechfluidpower.com
2019
£000
2018
£000
—
—
—
—
—
—
—
—
—
—
Number
£000
60,920,386
30,460
50,000
157,981
28,760
25
80
14
61,157,127
30,579
111
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Company Information
Registered Office
Bollin House
Bollin Walk
Wilmslow
SK9 1DP
Company Secretary
Russell Cash
Contact
info@flowtechfluidpower.com
www.flowtechfluidpower.com
Tel: +44 (0) 1695 52759
Nominated Adviser & 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
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
112
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2019 Flowtech Fluidpower plc
Registered Office
Bollin House
Bollin Walk
Wilmslow
SK9 1DP
info@flowtechfluidpower.com
www.flowtechfluidpower.com