Annual Report
for the year ended 31 December 2020
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.
Governance
The Board
Corporate Governance Report
42
44
Directors’ Remuneration Report 49
Directors’ Report
Statement of Directors’
Responsibilities
51
53
Contents
Strategic Report
Highlights
Chairman’s Statement
Group Overview
CEO’s Year in Review
Our Business Model
Our Strategy for Growth
Marketplace
Sustainability Report
01
02
04
06
12
14
18
20
Corporate Social Responsibility 32
Financial Review
Risk Management
34
39
Financial Statements
Independent Auditor’s Report
54
Consolidated Income Statement 63
Notes to the Consolidated
Financial Information
Consolidated Statement
of Comprehensive Income
Consolidated Statement
of Financial Position
Consolidated Statement
of Changes in Equity
Consolidated Statement
of Cash Flows
Company Income Statement
64
65
66
67
Company Statement
of Financial Position
Company Statement
of Changes in Equity
Notes to the Company
Financial Information
Company Information
69
106
107
108
109
116
Read more about our Group
on pages 4 and 5.
Highlights
Financial Highlights
Revenue (*) £000
£95.1m
Gross Profit (*) £000
£32.6m
Operating Loss/Profit £000
£(1.4)m
,
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-
,
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
Net Debt £million (†)
£11.6m
Net Cash from Operating
Activities £000
£10.1m
Working Capital as a
% of Total Revenue
23.9%
.
m
1
3
1
£
.
m
9
4
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2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
n Bank debt
n HMRC COVID-19 related support
(*) All results relate to continuing operations.
(†) Net debt excludes lease liabilities under IFRS 16.
Financial & Operational Highlights
Revenue reduction restricted to 15.4% full year, largely caused by COVID-19,
with improving trend since April 2020.
Targeted operational cost savings achieved.
Generated £10.1m net cash from operating activities driven by effective
management of working capital.
Net Debt reduced by £5.0m.
Ongoing investment in e-business platform to deliver future organic growth.
Multi-disciplinary Management Board established.
01
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Chairman’s Statement
Emphasis will be on Long-term
Growth in Market Share
“What has become clear is that Flowtech Fluidpower is a
fundamentally good business, and there is significant opportunity
for future growth.”
Roger McDowell
Non-Executive Chair
In addition to commercial matters, we have established improved
processes to our governance of health and safety at work, led by
the Chief Executive, and enhanced the overall functioning of the
various Board subcommittees, with a strong platform built.
Also included in this report is our first consolidated sustainability
review, covering all aspects of how Group strategy impacts on our
major stakeholders, and with a particular focus on our employees
and our environmental footprint. This is clearly the start of a
long journey, but it is the Board’s intention to set targets for
improvement in material areas, ensuring that we are all
accountable for affecting positive change through the business.
Banking & Net Debt
It is pleasing to note that the Executive team has continued to
manage the debt position carefully, obviating any need to raise new
finance to strengthen the balance sheet. This careful management
has been reflected in the fact that across the year net debt has
reduced by £5.0m, from £16.6m to £11.6m, and the stability that
comes from this will stand the business in good stead.
In addition, as a reflection of the faith that our bankers show in the
Group, we have successfully renewed our facilities with Barclays
for a further three year period to June 2023, without any material
change in terms, and with appropriate ‘carve out’ in covenants to
cover the demanding 2020 trading period.
However, in any distribution business, the right inventory is the key
to success. Whilst sensible management of the supply chain and
availability has to be undertaken, I firmly believe that they should
never be at the expense of the upside that comes from being the
sector’s largest stock holder, particularly when we are seeing some
extended lead times as the world’s supply lines recover from the
disruption of COVID-19. We are highly regarded by our key
suppliers and considered a vital link in the supply chain.
Introduction
My first annual report as Chairman is set against the background of
the COVID-19 pandemic which has impacted all our personal lives
and businesses in an unprecedented manner. Throughout this time,
the Board has prioritised the health and safety of our employees
above all else and I’m grateful to everyone who has continued to
support the business and work so hard through this difficult period.
Review of Business & Strategy
My normal practice when assuming a new Chairman role would be
to perform a full review, including site visits, to assess the relative
strengths of the organisation. Notwithstanding the fact that
movements were restricted between locations during the peak of
the pandemic, I have visited the Group’s principal sites, and as
soon as practicably possible after the lockdown is relaxed I will
seek to complete this process.
What has become clear is that Flowtech Fluidpower is a
fundamentally good business, and there is significant opportunity
for future growth. The staff are both skilled and enthusiastic, with
considerable domain knowledge and good technical capability.
I have therefore sought to ensure the Executive team are well
supported, as the strong market position and capabilities of the
organisation are clear.
As part of the process of building on these strengths, during the
latter part of 2020 we completed a full strategy review, to create
focus and provide a framework for the future. The main elements
of this thinking will be outlined in this report. However, emphasis
will be on long-term growth in market share to exploit the clear
market opportunities available to us, and further enhance profitability
and cash generation. Of particular note is the commitment that
the Group is making with its e-business capabilities, and the
operational resources to support this initiative. I firmly believe that
the investment now being made in this area will prove fruitful over
the medium term, enhancing organic sales growth, and be a key
differentiator between Flowtech and its competitors.
We will also have input and support from our Non-Executive
Director Paul Gedman, who joined us in July, having held senior
positions including as Divisional CEO at The Hut Group. Paul has
extensive experience in the e-business arena and a wealth of
practical knowledge in growing international businesses through
leveraging data and digital capabilities.
02
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 “The Board is cautiously optimistic that
we should see a return to the sales levels
seen in 2019 within the medium term.”
Roger McDowell
Chairman
Dividend
We recognise that dividends are important to shareholders.
However, we believe it is prudent to assess the capital needs of
both growing and investing in the business in considering the size
and timing of any future distributions. The Board remain keen to
reintroduce a final payment for the financial year 2021, and
thereafter adopt a balanced approach to dividend policy.
Summary
In the short term, we continue to work hard to finalise the process
of cost reduction. Whilst clearly the COVID-19 lockdown position
has delayed some of this progress, notwithstanding it is pleasing
to note that meaningful results have been achieved. Absolute
focus remains on cash and cost management, and a key aspect of
the approach will be to ensure that the Executive team, and the
Management Board beneath them, remain action orientated,
continuing the pace of change throughout 2021 and beyond.
With the relatively high operational gearing that the Group
possesses, any significant increase in sales produces magnified
growth at the bottom line, albeit naturally reversing some of the
reductions seen in working capital. However, with the immediate
concerns associated with COVID-19 hopefully now receding, albeit
now with the difficulties of adapting to Brexit, the Board is
cautiously optimistic that we should see a return to the sales levels
seen in 2019 within the medium term.
Finally, I would like to pay thanks to my predecessor Malcolm
Diamond, who has clearly supported the business well and
provided wise guidance to help create the platform on which we
can now move forward. In the handover process, Malcolm
emphasised the passion and commitment of everyone he met
within the Group, and my own interaction to date has confirmed
that this enthusiasm remains in place.
Roger McDowell
Chairman
19 April 2021
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
84%
£79.6m
Employees
455*†
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.
*Excludes 47 Central employees.
† Average in 2020.
04
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 Group
Employees†
Locations
627
19
Superior
brands
500+
Geographies
Group Revenue %
n UK – 77%
n Europe – 21%
n Rest of world – 2%
Services
Group Revenue
16%
£15.4m
Employees
125*†
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 47 Central employees.
† Average in 2020.
05
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements
CEO’s Year in Review
Dealing with the Effects of the
COVID-19 Pandemic
“We end 2020 having made progress in creating the platform that will ensure
our future growth. We have extracted efficiencies and associated cost
savings from our network, tightened our working capital position, invested
in systems, and strengthened our management skills and bandwidth.”
Bryce Brooks
Chief Executive Officer
Group revenue
Operating (loss)/profit
Net cash generated from operations (pre-tax)
Net debt ($)
($) Net debt at 31 December 2020 comprises £10.7m bank debt and £0.9m of COVID-19 related HMRC support.
2020
£95.1m
(£1.4m)
£10.7m
£11.6m
2019
£112.4m
£5.7m
£16.3m
£16.6m
Any review of the year would have to cover the considerable
impact that the COVID-19 pandemic had on not just UK economic
activity, but also in our other ‘home’ geographies of the Republic
of Ireland and the Benelux.
Our financial performance has been considerably impacted with
the significant reduction in Revenue in the middle and latter part
of the year having a resultant effect on profitability, and we detail
below some of the direct effects.
It is some comfort that data we obtain from the British Fluid Power
Association suggests we have achieved a modest increase in
market share in 2020, but it has overall been a year of ensuring
a pragmatic approach to customer service and supply chain
management. However, it is particularly satisfying that with pre-tax
cash flow from operating activities of £10.7m during the year
(2019: £16.3m) mostly derived from our management of working
capital, we have been able to ensure that our balance sheet has
been well protected.
Dealing with the Effects of the COVID-19 Pandemic
Prior to the first national lockdown in March 2020, revenue
was slightly ahead of our expectations. However, the impact
of the pandemic resulted in Q2 of 2020 ending 33% down, H1
overall being 22% down and H2 8% down against comparative
2019 periods.
Unlike other industries where the immediate impact of the
lockdown measures were quite clear, in our case we had many
variables affecting us as we sought to understand the best course
of action in the Spring of 2020. For example, in Northern Ireland,
and in particular the centre for the fluid power dependent
industries in County Tyrone, the reaction from customers was
to effectively close entirely for a number of weeks.
In stark contrast, with many of the health related industries
dependent on pneumatic product supply, Flowtechnology UK,
Beaumanor and Indequip were able to counteract some of the
across-the-board reductions in activity, with clearly identifiable
pockets of high demand. The position was best illustrated by the
fact that our industry body, the BFPA, quickly lobbied Parliament
and the sector was designated as an essential industry, and its
workers also identified as such. Overall therefore we worked hard
to ensure that we remained ‘open for business’.
With the level of demand dropping off at different rates across the
Group, we made an early decision to take advantage of the various
government furlough schemes. In order to ensure that
implementation was immediate, and our workforce remained
united, we covered all employees affected by guaranteeing to pay
a full salary in April. This ensured there was broad acceptance of
the rapid measures that we took, and at its peak we had over 200
employees being supported by the various government schemes,
with a reduction in company contribution only applied when the
long-term position was becoming clear.
In total, the support we received was £1.2m from a combination of
the UK, Irish and Dutch authorities, and this ensured that we were
able to protect employment in the short term, as well as ensure
that our investment programmes continued throughout the year.
At the same time we were able to comply with the Work From
Home (‘WFH’) directives. We have adapted to the use of video
communications technology, and now firmly believe that this
enforced experiment will be a permanent part of our toolkit.
We have kept in good contact throughout with both customers
and suppliers alike, albeit the ability to negotiate new pricing and
alternative sourcing has had to give way, for the time being, to
security of supply.
06
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 In terms of the direct effects of the COVID-19 virus on our
workforce, our other main focus was on ensuring that our
warehousing and engineering facilities had the lowest possible risk
of a COVID-19 outbreak; whilst office activities would likely deal
well with this issue, any enforced shut down elsewhere would have
been significantly detrimental to service and sales. To date, despite
office staff on occasion being hard hit, and particularly in our North
West of England facilities in October, we have managed to achieve
this protection and not a single days’ operation has been lost due
to a need to isolate staff.
Currently the biggest short term obstacle as we seek to rebound
from 2020 is the knock on effects of the past twelve months to
the natural balance of global supply chains. Whilst our direct
dependence on China has reduced as the Group has expanded
over recent years, it is also clear that some of our European
partners have outsourced parts of supply to the low cost
economies. With the fluid power industry worldwide seeing
evidence of a strong rebound as stock levels are replenished,
the prioritisation of supply and physical movement of goods via
container is currently disrupted. Whilst our own supply chain
teams are actively managing the situation as best as possible,
our view is that availability will hinder some growth in 2021 and
the circumstances behind this are likely to persist for the majority
of the year; we do not expect this to impact on the quality of our
gross margin. On top of the natural system driven increase to
match demand, it is therefore likely there will also be a need to add
further elements of buffer to protect against this situation.
Almost all of the Group’s key suppliers are based overseas, either
in Europe or the Far East, and with the recent travel restrictions
this has meant that our trading relationships have by necessity
migrated to being online rather than face-to-face. Whilst the status
of the Group has ensured that these relationships have remained
sound, we will be particularly vigorous in ensuring that close
contact is re-established as the sector rebounds from the
restrictions of lockdown.
Delivering on Operational Cost Savings
In our previous reports, we outlined a plan to reduce our
warehouse operating costs by transferring the majority of pick
and ship activities from the network of local facilities in the UK
and Ireland to a centrally operated structure based on our centres
in Skelmersdale and Leicester. All of the savings indicated have
now been achieved, albeit the in-year timing of implementation
was effected by the various lockdowns. In total, we have reduced
our operational sites by five and warehouse headcount by 43.
The cash outlay on the changes implemented in the year was
£1.1m with £0.6m relating to costs and the balance investment
most predominantly in IT systems and plant. Throughout, there
has been a continuous process of ‘lessons learned’, and we expect
this experience to stand us in good stead for future activities in
the same vein.
In the last completed change, in December 2020, Nelson
Hydraulics in Lisburn, Northern Ireland, and Dublin in the RoI,
closed its operations and relocated to an existing site in
Dungannon, County Tyrone and the Hi Power site in Dublin –
creating a combined Components business, Nelson Hi-Power,
covering the whole Island of Ireland. This plan was amended
relatively late in the process to take account of the post Brexit
trading arrangements implemented from 1 January 2021. Whilst
the vast majority of the targeted cost savings were made, no
day-to-day warehouse activities were transferred to our central
functions, a change to our original intention as we saw a need to
ensure that the new business was not immediately impeded by
any cross Irish Sea delivery issues.
However, it was necessary to make pragmatic decisions to defer
further initiatives, as the need to balance short-term risk to
customer service whilst working under lockdown conditions was
deemed disproportionately high. Once conditions allow, we will
therefore continue to pursue and implement identified operating
cost reductions with necessary rigour.
Of particular note is that we have now established an Engineering
& Modifications Centre (EMC) in the main logistics hub in
Skelmersdale. For the first time at a single key location, the Group
has a mix of sector-leading logistics along with engineering and
test capabilities. In the short term, this will allow us to reduce
operating costs, but in the medium term we can expand the offer
for all Group entities, as well as be a key differentiator when our
e-business platform starts to drive sales to a wider market.
Mixing logistics and engineering with online capabilities is a key
requirement for our global supplier partners and a strong base is
being built.
Services Division
The Services division entered 2020 with a strong order book and it
was initially able to continue at satisfactory levels. However, with
around 40% of its normal activities being ‘on-site’, and by definition
subject to much more stringent working environments, principally
as a subcontractor, a number of key orders were deferred and the
negative effects of COVID-19 became equally as pronounced as
elsewhere in the sector. That said, and partly as a result of the cost
reduction programme centred on the Components segment
creating a clearly defined cost profile, the mechanics of its
methods for pricing, cost control and organisation have been
exposed and it is now midway through a ‘root and branch’ review
to ensure all areas are improved.
07
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements
CEO’s Year in Review
Developments in Group Strategy & Progress in 2020
Our first consolidated sustainability review forms part of this
report. In it, we highlight the most material impacts our business
has on its most important stakeholder groups. Suffice it to say, we
believe an ongoing process of setting and refining improvement
targets in this area will further ensure the success and longevity of
our business model. In addition, our strategy has been developed
with the following key areas of enhancement:
Branding Style & Organisation
In 2019, we changed our reporting structure to a two segment
approach – Components and Services. Much of the cost out
initiatives described above had an element of physically separating
Components operations from Services, for example Nelson
Hi-Power has aggregated its industrial component distribution,
whilst Hi-Power Truck is now separately identified. In 2021, this will
allow both elements to have a clear delineation of operating
resources, and develop strategies to suit their specific
characteristics and requirements.
As a next step, we reviewed our trading styles, including branding,
as we seek to further co-ordinate our approach. Previously, each
Profit Centre has traded under its legacy name and style to ensure
a focus on local identity. We firmly believe that with the market
moving to a more online led approach, in a way that is now
working through many business to business environments, we
must adapt to this change. Therefore, from 2021, we will evolve to
two branding styles depending on the precise sector in which each
Profit Centre operates. The new branding of ‘Flowtech’ and ‘The
Fluidpower Group’ will eventually create commercial identities that
will marry together both offline and online capabilities and ensure
the Group maximises the opportunities that are available. As
described further in the Financial Review on page 34, from a
reporting perspective we will operate three segments from 2021,
with Flowtech and Fluidpower Group Solutions forming what is
now ‘Components’, and Fluidpower Group Services the remainder.
08
E-Business
We have previously outlined how our strategy is to develop a
fully-fledged e-business operation, and transition from being
essentially a highly efficient customer ‘order-portal’. During 2020, a
dedicated team has been working on the next stage of this, and
identified early in the year a path to redesign our online infrastructure,
covering microservices architecture, front-end website capability,
and insight from a Customer Data Platform. Behind this, we are
creating the most extensive Product Information Management
system in the sector. Whilst the initial £0.75m capital outlay
necessary to implement this strategy was delayed from Q1 to Q3
due to COVID-19, I am pleased to report that since that date good
progress has been made and we expect to have a working
platform available to us in the latter part of 2021 for the Flowtech
business, with The Fluidpower Group following in 2022.
IT Development
We started the year with a target to reduce our operational IT
systems to four by the end of the year. Whilst some progress has
been made, and cyber security risk reduced, managing further
change whilst under lockdown has meant that we have not
achieved this objective. We are also now ensuring that appropriate
priority is made in the development of our e-business platform.
As such, we have deferred any further IT system implementations
until a swift change can be achieved.
In the meantime, we are now examining an eventual move to a
single ERP provider. In outline, we believe that a move across the
Group to a modern package will provide us with considerable
additional functionality, particularly in Warehouse Management,
Supply Chain and Management Information. The current investment
in our new online platform has been designed to be functional with
any standard software platform at relatively modest cost, and we
therefore believe the time is now right to start the change process
with a view to completing in a timely manner.
Management Board
A further aspect of the strategy review was a bolstering of the
senior team’s resources.
Having joined the Group with the acquisition of Indequip in 2016,
and overseen a more than doubling of sales in the period since,
in 2021 Ian Simpson has now stepped up to combine running
Flowtechnology UK with leadership of the Flowtech division.
At the same time, Nick Fossey has moved from the Chief
Operating Officer role to focus entirely on The Fluidpower Group
as Divisional Director. Both Ian and Nick are responsible for the
commercial development of their respective divisions and are
focused on the COVID-19 recovery, re-establishing customer and
supplier relationships, and leading the brand transition.
In early 2021, we recruited Stephen Ashton to become Operations
Development Director, and Howard Ormesher to Director of
Customer Insight. These new roles follow the appointment of
Stephen Merrie in 2020 to Product Quality & Engineering
Compliance Director. Along with Anne Fogg, Systems Director,
the Divisional Directors and the Executive Team, the Management
Board now established provides the range of skills necessary
to support a sales led organisation, as well as implement any
change programme.
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020
Target Markets
Since coming to market in 2014, the Group has been of the view
that the commonality of supply across Europe would allow growth
away from the legacy home territories of the UK, RoI and the
Netherlands. In recent years, European based aggregators, almost
exclusively Private Equity owned, have widened their influence in
this market place. Therefore, when coupled with the clear
opportunities for further growth in our existing operations, we have
concluded that a focus at home for at least the medium term is
essential. This has been further reinforced by Brexit, with the
likelihood of diverging regulatory environments, on top of what we
are already experiencing, likely to consume time and resources.
People
The COVID-19 period has required a shift in focus from our normal
processes of recruitment, training and improving the skill set
across the Group In its place has been a constant review of our
Health & Safety at Work procedures, initially identifying all the
necessary changes to ensure appropriate physical distancing –
a challenging process with many of our facilities ‘industrial’ in
nature and with a wide variety of layouts. More latterly, this has
turned to ensuring that the mental well-being of all staff has been
at the forefront; our sector has not historically been seen as a
leading light in this area. We are therefore proud of the fact that
we were the first members of the BFPA to introduce mental health
first aiders, and recently we have provided an Employee Assistance
Programme to all staff and their immediate families, as well as
mental health training for all levels of management in the Group.
Our supportive approach was reflected in the significant upwards
move in our overall Employment Engagement Score when tested
in October 2020, and confirms the widely held team ethos across
all parts of the Group, even under these trying times.
The passion and commitment shown by the many staff members
employed across the Group, has been exemplary. On behalf of the
Executive team, and the Management Board, I would like to thank
everyone for their efforts. Since the onset of the COVID-19 pandemic
we have maintained a full service to our customer base, whilst
protecting as best we can the health and well-being of our people. We
are extremely grateful to all our employees for the resilience they have
shown in the face of this adversity, from the office workers who have
adapted to WFH at short notice, to the warehouse and engineering
teams who have kept all our facilities open on a daily basis, and
ensured that our status as an ‘essential industry’ was not undermined.
Current Trading & Outlook
We have been encouraged by our performance over the past
quarter, with both revenue and margins trending slightly above our
expectations. The combination of Brexit and COVID-19, and in
particular the current challenged nature of global supply chains,
continue to make underlying trading difficult to interpret. What is
clear is there has been a continued upward trend in our ‘resellers’
business, and evidence of restocking in our OEM customers. We
believe if current patterns continue, we could exit 2021 with a run
rate revenue at a similar level to 2019. We are also seeing the
benefit of the actions we took to reduce operational costs being
reflected in our margins, which has provided support for the
significant investment in our online platforms which we expect to
begin to provide a meaningful contribution in 2022 and beyond.
Summary
This year has represented a test of our management skills right
across the Group. Without question, there has been a considerable
learning experience in many areas, not just at Profit Centre and
Divisional Director level, but undoubtedly at Executive level. With
hindsight, there are areas that we could have improved on,
particularly around the pace with which we have been able to
extract cost from our order, pick and drop activities, that will be
essential to our future success. In addition, some of the deep-rooted
inefficiencies in the constituent parts of the Services segment
could have been highlighted and improved sooner. However, we
end 2020 having made progress in creating the platform that will
ensure our future growth. We have extracted efficiencies and
associated cost savings from our network, tightened our working
capital position, invested in systems, and strengthened our
management skills and bandwidth. Most latterly, this has been
achieved against the backdrop of a global pandemic, and although
in some areas this has slowed our progress, we have been able to
refine our strategy and will be rigorous in the pursuit of further
efficiency initiatives once the lockdown periods are complete.
With much hard work now behind us, we can now look forward
positively. The Group’s heritage is essentially as an ‘offline’
business, but our continued investment in the ‘online’ world will
transition us to a fully-fledged e-business, with an improved
customer experience and all the commercial and competitive
advantages that come with being a data-driven organisation. Our
market position and scale should also not be underestimated, is
testimony to the positive changes we have made, and gives us the
flexibility to leverage our dominant position in the industry to
deliver growth and superior returns for our shareholders.
Bryce Brooks
Chief Executive Officer
19 April 2021
“I am encouraged by the recent
momentum in our business, and while
mindful that COVID-19 and Brexit might
still be disruptive in the medium term, the
benefits from the progress we have
made, and the dedication of our
employees, mean that the longer term
outlook is positive.”
Bryce Brooks
Chief Executive Officer
09
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements
Group News
How We Demonstrated Resilience
During a Worldwide Pandemic
The business took a very proactive approach when COVID-19 impacted the
world, realising quickly that it needed to strike a balance between employee
safeguarding and remaining operational to support critical industries.
In March, a COVID Committee, was set up with weekly meetings to
discuss and devise plans around workplace safety, working from home
and IT support, the furlough scheme, customer support, supply chain
and the impact on stock levels, etc. As government advice changed,
and in many cases with little notice, the business demonstrated an
agility to react and adapt quickly, with employee safety being the
number one priority. The COVID committee has continued to meet at
least every two weeks and has been instrumental in limiting potential
damages caused by COVID-19. We have many examples of how
we have adapted to protect our business and wider communities.
Developing Safer Working Environments
For teams who needed to work on site during lockdown, the Company
quickly appointed Health & Safety officers at each site, responsible
for implementing COVID safe measures. In preparation for the safe
return of more colleagues, thorough risk assessments were
conducted and measures implemented including distance signage,
divider screens, PPE (masks, gels, gloves), fogging routines as well as
rota-based return, visitor rules and policing employee movement
around the building. All employees received return to work
questionnaires including a HSE work station checklist, which line
managers discussed with each employee to plan their safe return. All
our sites were independently audited and certified as ‘COVID safe’ by
our insurance partner Croner. Stricter policies including mandatory
mask wearing were implemented to prevent office-wide outbreaks.
Improving Communication
Senior managers embraced social media to maintain communications
and morale with colleagues via a WhatsApp Group and regular
Zoom calls, an approach which was equally adopted by wider teams
across the business. The prolonged COVID-19 situation essentially
fast-tracked some of the planned IT projects, including the roll-out
of Office 365, giving employees easy access to meet virtually via
Microsoft teams without restriction. This was accompanied by
training sessions and tools and has proven to be an excellent
collaboration tool, increasing efficiency through instant chat/
messaging, document sharing, checking colleague availability
and an increasing organisation chart across the business.
Assessing Impact on Employees
It was imperative for the business to understand how colleagues
felt about the process and a survey was circulated to all employees
in October. Results indicated our people felt they were able to work
effectively from home if they chose to and appreciated the support
offered by the Group in many areas.
Supporting Employee Health & Welfare
The furlough process, remote working, home-schooling have put
additional strain on management and colleagues having to adapt
to new ways of working. The business recognised these additional
pressures and in February rolled out an Employee Assistance
Programme. This provides all of our employees with an opportunity
to seek confidential support should they feel the need to do so. We
have invested in providing training to a number of our staff and
done our best to ensure each site has at least one local ‘champion’
to ensure we are continually considering this important area.
Keeping Vital Industries Going
The business has been involved with many initiatives to support the
NHS, as well as help protect the nation, including supply of silicone
tube and nitrogen filtering equipment used in breathing apparatus,
air receivers, PPE, hospital beds and disinfectant fogging machines.
The business was proactive in promoting these remarkable efforts
via our individual company social media channels.
Case Study
New Business Selling
Own-branded PPE
As a result of COVID-19, Beaumanor
saw increased sales of PPE and
antibacterial products. They
subsequently introduced their own
COVID-19 brand and brochure,
generating £180k of new business.
Case Study
Misting Technology for COVID-19 Prevention
Indequip supplies nozzles
for fogging cannons used in
various applications such as
dust suppression at quarry
sites. During the pandemic,
the team considered options
for a disinfectant spray and
successfully found a supplier
in the UK. They launched the
FP-500 fogger for use in
hospitals, schools, leisure
centres, restaurants, dairy
farms, warehouses, etc.
They generated an additional
£400k in sales over the
last year.
Supporting Communities
Employees have done their bit locally to support those in need
including enlisting as NHS responders, delivering medicines, etc,
and those on furlough have aimed to use their time effectively; for
example, Hi-Power employee Stevie Evans raised over £11k for the
Air Ambulance by taking pictures of agricultural machinery and
creating a calendar for sale.
10
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 New Engineering Modification Centres
to Support Components Division
In some instances, commodity items may need slight modification or
assembly to fit a specific requirement. To give customers a greater level of
service, the Group is creating two new Engineering Modification Centres
(EMCs) to sit within the main logistics hubs at Skelmersdale and Leicester.
The purpose and role of the EMC is to carry out a number of
services on behalf of the supplier for main line warehouse
distributed products. These services include:
Product modification – adding or replacing parts of a standard
product with another product using genuine manufacturer
standard new parts.
Product assembly – a kit of items bolted together to produce
a recognised manufacturers stock product.
Testing.
Pump / valve / set up.
Fault inspection – a product fault reported from a customer
within a 12-month warranty period that needs investigating.
Service and returns for those products held within the
All work will be carried out by fully trained and certified
competent staff for each product task.
All modification work and testing will be carried out to IAW
manufacturers’ working instructions and referenced data
recorded on work sheet records.
All product modification to be individually identified with a
company date mark on product plate / body. All label module
codes to be changed professionally where appropriate.
All work will be carried out to service level standards
Product modifications – next day shipped if orders received
by 4pm.
Product assembly – 2 to 3 days.
Build manuals will be documented to ensure consistency
Flowtech range.
of approach.
Minor repairs on products within our portfolio which fall within
the warranty period.
Warranty adjudication – agreement from a supplier to
adjudicate warranty claims and action under supplier licence.
There will be a designated customer service desk and call centre
to manage all enquiries, governed by a Service Level Agreement.
The facility will be designed as a show piece for the Group and
a training centre for engineering, with the production flow of
activities based on lean manufacturing practices and governed
by a number of quality assurance processes:
Quality assured management.
All repair service provided investigated and tested to IAW
supplier terms and conditions of reissue.
EMC quality plan to be adhered to during all engineering
processes.
Both EMCs will be future-proofed to allow for sufficient space for
both current and anticipated volume growth. Where economical,
it will utilise the best equipment and operate to all required health
and safety standards. Its staff will be highly trained, with multi-
disciplined skills.
The EMCs will also be instrumental in adhering to Waste
Directives; instead of scrapping products, a product life cycle
inspection will take place to assess options to change the product,
price, place it is sold, how it is used and promoted, thus prolonging
its life and reducing waste disposal.
11
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Our Business Model
High Quality Fluid Power
Products & Solutions
As the largest and leading player in the UK and Irish market, we aim to provide high-quality
fluid power products and solutions, based around the distribution of leading global brands.
Our sustainable business model, now enhanced by sector-leading online capabilities,
makes fluid power supply convenient and efficient for customers and suppliers, driving
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 £22m 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 2020 Our Strategy
for Growth
Value Created
Sales Growth
Procurement &
Productivity Improvement
Cash Generation &
Management of Net Debt
IT Strategy
People
Short to Medium Term
Widest brand choice from a single source, with tailored options,
supported by technical expertise, efficient solutions, and reliable added-value
services for customers (98% on-time delivery for MRO).
Respected collaborative supplier partnerships with the world’s leading brands.
Rewarding and progressive careers for employees, through training
and incentive schemes.
Support for our local communities through local apprenticeships
and charitable work.
As we emerge from the worst effects of COVID-19, sustained annual growth with
strong financial performance and attractive returns for investors.
Long Term
Most cost-efficient provider of a high-quality service in fluid power.
Sector-leading e-business platform and digital insight capabilities.
Sustainable long-term growth, through reliable repeat business.
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 through
offline and online activities, coupled with complementary acquisitions in the UK, Ireland and the Benelux, 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. Whilst progress in many areas has been slowed by COVID-19, we believe that 2021 will allow a
resumption of actions in many areas. As referred to in the Chairman’s statement during the latter part of 2020, we completed a full
strategy review to create focus and provide a framework for future developments, including our ambition to achieve significant growth. On
the whole, the KPIs we established in 2019 remain relevant, our comments in each area being provided below:
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.
Clearly COVID-19 has impacted our ability to achieve sales growth in 2020.. A key
component of our recent strategy review was to develop our thinking and to commit to
the necessary associated improvement in our e-business capabilities which are referred
to in both the Chairman’s Statement and the CEO’s Year in Review sections of this report.
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, 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.
A continued focus on reducing
gearing in the balance sheet, and the
creation of excess cash positions,
will protect the business from any
macroeconomic uncertainties.
Working Capital as a
% of Total Revenue
%
2
2
3
.
%
8
6
2
.
%
9
.
3
2
2018 2019 2020
Sales Growth
Procurement
& Productivity
Improvement
Cash Generation
& Management
of Net Debt
14
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 FY2021 Plan
We will establish a single e-business platform using
established resources in this area capable of being
available to all business units. In 2020, the new
platform was designed and investment made, with a
target implementation date of Q4 2021.
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.
Daily Gross Profit
£000
Total Value of Sales
from Online & EDI
£000
6
7
£
7
0
1
£
6
5
1
£
1
6
1
£
0
3
1
£
,
1
6
8
8
2
£
,
3
4
6
8
2
£
,
1
0
5
4
2
£
2016 2017 2018 2019 2020
2018 2019 2020
Group Cost
per Pick*
Group Cost
per Pick*
£3.32
2019
£4.32
2020
*Being the Group’s total cost of warehousing, including property and
people, divided by number of invoiced lines in the year.
Significant progress was made in 2020 and we intend
to complete the Group-wide warehouse and logistics
plan in 2021. This will significantly reduce cost base in
this area, and provide 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.
In 2020, we closed five warehouse facilities with
associated headcount reduction.
Clearly, the depressed volumes in 2020 affected the
cost per pick; we expect 2021 and beyond to result in
materially lower cost per pick metrics and continue to
target £2.40 per pick in the fullness of time.
Net Debt £million (†)
Turn & Earn %
.
m
1
3
1
£
.
m
9
4
1
£
.
m
9
9
1
£
.
m
6
6
1
£
m
6
.
1
1
£
2016 2017 2018 2019
2020
%
5
9
%
1
8
2019 2020
n Bank debt
n HMRC COVID-19 related support
(†) Net debt excludes lease
liabilities under IFRS 16.
Turn & Earn Index is calculated
by multiplying gross margin by
stock turn. In 2020, the gross
margin achieved was 34.3% and
the average stock turn achieved
was 2.37, therefore the Turn &
Earn index was 81.
Due to COVID-19, the Group has focussed on short-
term trends. In 2021, we will resume our progress with
a target to achieve a Turn & Earn KPI of 130% by 2024.
Inventory levels are continually monitored. Whilst we
continue to have targets for improved stock turn in
the medium term, we have sought to ensure we have
mitigated the supply chain challenges caused by Brexit
by increasing in inventory levels in the short term.
Management of trade debtors is fundamental and
we believe we remain alert to the challenges which
COVID-19 may ultimately present to certain of our
customers/debtors.
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.
In order to improve leadership skills at management levels from Profit Centre and
above, all senior staff will undertake training at Leadership Trust. This process
was deferred in 2020 due to COVID-19, but will resume when lockdown restrictions
are lifted.
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 2020 Process Systems
Accounting Systems
FY2021 Plan
By the end of 2021 two further businesses will have
moved from Sage and OGL to the KEA platform,
meaning all five businesses with an e-commerce
website will use the KEA ERP.
Our focus in the short term includes the development
of IT architecture and the customer data platform to
support our e-business strategy and the opportunities
we believe this presents.
In the medium term, we are developing plans to
transition to one ERP system.
8
8 7 5
8
2 2 2
2017*
2018 2019 2020
2017*
2018 2019 2020
*Increase due to acquisition activity.
Group Employee
Engagement
Group Employee
Engagement
64%*
2019
69%
2020
*2019 figure reported in 2019 Report & Accounts at 66% but restated
to calculate on a weighted average basis and thereby provide a like for
like comparison.
We had targeted to improve our overall engagement
score from 64% to 72%. Whilst this was not achieved,
we are extremely pleased with a 5% improvement in
the score given the circumstances and challenges
presented by COVID-19.
We will now look to improve again to 75% by
December 2021.
All Profit Centre Directors and above to complete
Leadership Trust training by the end of 2021. The
impact of COVID-19 meant the original target of 2020
completion did not prove possible.
Within the sustainability section of this report, we refer
to a number of areas we have invested in, notably the
mental well-being programme. We believe the manner
in which we treated our people during the pandemic
conditions has been of huge significance and serves to
ensure we have motivated/committed people to assist
us in delivering our strategic objectives.
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
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020
*British Fluid Power Association (2017) CETOP (2019).
This was predicated on a vaccine for COVID-19 being identified by
mid-2021 which has been achieved, but was prepared before the
latest series of lockdowns in the UK, Ireland and other western
European economies. Our view is that the premise on which it was
prepared remains sound but that recovery will be delayed by
around six months to a year as a result of the recent events.
In terms of the normal composition of Flowtech Group sales in
the UK & Ireland, we believe that we are broadly around 40%
Pneumatic and Industrial and 60% Hydraulic overall, with a similar
makeup to our sales in the Benelux.
Market Trends in the UK & Ireland
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 the pandemic led to sharp declines across the Fluid
Power sector in Q2 2020, most notably within the hydraulic sector,
from August onwards UK manufacturing showed signs of
recovery, confirming the initial sudden drop was more a result of
enforced restrictions rather than reduced demand.
Prepared in October 2020, and therefore just before the latest
series of lockdowns, the BFPA 2021 outlook prepared by Oxford
Economics was positive with expected hydraulic sales growth of
21.0% to partly offset the predicted 25.8% decline in 2020, and for
the pneumatics sector a predicted return to pre-COVID sales with
an expected increase of 6.7% to offset the 6.6% reduction in 2020.
Moreover, the BFPA predicted growth to continue in 2022 for both
sectors by 6.8% and 4.8% respectively. A full table of their
predictions is shown below.
BFPA UK Fluid Power Forecast 2020: % Change (Year-on-Year)
Hydraulic Equipment Sales
Pneumatic Equipment
Sales
Distribution % market share
Hydraulic
Pneumatic
2018
10.7%
8.4%
28.9%
39.6%
2019
-0.8%
0.0%
2020
-25.8%
-6.6%
30.8%
39.9%
38.3%
34.9%
2021
21.0%
6.7%
34.3%
36.9%
Source: Oxford Economics UK Fluid Power Outlook BFPA Annual Conference – October 2020.
2022
6.3%
4.8%
2023
5.7%
3.3%
2024
4.3%
3.1%
32.3%
37.8%
31.3%
38.3%
30.8%
38.6%
How We Responded to the Brexit Ruling
The UK formally left the EU on 31 January 2020. In preparation for
this, we established a Steering Committee to ensure we developed
plans to deal with all identified risks, both from a commercial and
compliance perspective. As part of our planning, we took account
of the research which our industry body, the British Fluid Power
Association, had performed and the issues which they had
identified as part of this.
Stock availability
We took the decision to invest in building inventory levels in
certain areas, a theme which has developed into 2021. Whilst
we inevitably encountered certain disruption to our supply chain,
the effort we put into planning for circumstances such as this
has meant that we have not been as affected as would otherwise
have been the case.
Supply chain considerations
We discussed the challenges which Brexit presented with our
logistics partners and benefited from the relationships we have
developed over a number of years. By working closely together,
we have been able to provide the best aggregate solutions and
the minimum possible disruption of the flow of our products into,
and out of, our logistic centres.
We had to carefully consider the position in the island of Ireland;
given complications which would otherwise have arisen and the
potential for incremental freight/duty costs, we have taken the
decision to retain a degree of stockholding in Ireland rather than
rely entirely on distribution from our UK logistic centres – a minor
amendment to our restructuring plans but one which we consider
to be entirely sensible.
Technical compliance
We are mindful of new requirements in respect of product
compliance and markings; we have refreshed initiatives led by our
Product & Engineering Compliance Director to ensure we address
each issue to the required standards and on time. Amongst other
things, this has involved working closely with a number of our
suppliers to ensure we secure information regarding changes in
CE / UKCA (UK Conformity Assessed) products we purchase for
sale in the UK and into the EU. A number of these issues do not
need to be in place until 1 January 2022 but work is well
progressed to ensure we easily achieve these timescales.
19
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements
Sustainability Report
CEO Statement
“2020 has been a tumultuous year for all of us, but one thing it has
done is clearly highlight the responsibilities companies such as
ourselves have to the wider internal and external communities we
operate in and to the ecosystem we are part of.”
Bryce Brooks
Chief Executive Officer
Ours is an employee-led organisation and I believe that our actions
in 2020 clearly highlighted that culture in action. It was
unimaginable for us to create two tiers of employees, those on
furlough and those at work, so the decision to top the government
payments up to a full salary in April was an instinctive one.
Preserving a safe environment for those that continued to work
from our sites was also of paramount importance and, recognising
the strain the pandemic was putting on everyone, we have
supplemented our industry-leading healthcare provisions with
mental health awareness training for all our line managers.
Finally, it is important that the executive management team is held
formally to account by the Board to ensure that all these ambitions
turn into positive actions that make a difference.
We view this consolidated report as our first statement of real
intent in this area. We recognise that the subject is not black and
white but many shades of grey, and best practice is evolving all the
time. While the challenges we set for ourselves are our current
best efforts, they will develop as our business and the environment
we operate in evolves. What is not in doubt is our commitment to
aim for the highest standards of execution and transparency.
Bryce Brooks
Chief Executive Officer
I am delighted to introduce you to the Group’s first consolidated
sustainability report, where we discuss our approach to the most
material impact which our corporate strategy has on our
sustainability agenda.
2020 has been a tumultuous year for all of us, but one thing it has
done is clearly highlight the responsibilities companies such as
ourselves have to the wider internal and external communities we
operate in and to the ecosystem we are part of. By taking those
responsibilities seriously we believe we will build a stronger and
more successful business. As such, in the long-term we see no
trade-offs between the needs of our shareholders and our other
stakeholders; all should benefit equally.
This report focuses on those issues will matter to us, namely:
Energy management and our impact on the environment;
Employee health, safety, engagement, diversity, and inclusion;
The relationships we have with our suppliers and customers;
Our impact on the local communities in which we operate.
In each area, we aim to clearly articulate our vision for the future,
setting targets and timelines for improvement and making us fully
accountable for their implementation. Where those targets remain
work in progress, we will give clear indications of the direction
of travel.
On emissions, we have been working with Carbon Responsible,
leading independent emissions management specialists, to audit
our current situation and provide a clear base year from which we
can track progress. The immediate focus is on Scope 1 and 2
emissions which relate to our own activities, but we acknowledge
that the nature of our distribution business also results in
significant Scope 3 emissions relating to the activities of third
parties which we also need to be capture. This report is a first step
to comply with existing reporting requirements, but we will be
attempting to integrate full Task Force on Climate-related Financial
Disclosures (TCFD) standards in subsequent years.
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Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 S
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Our sustainability agenda focuses on three core areas:
Our Environment
Our People
Our Communities
Stock code: FLO – www.flowtechfluidpower.com
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Sustainability Report
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 sites to introduce
environmentally-friendly practices available for their business.
As a norm we:
Use low energy, motion-sensored and LED lighting within
warehouses and most of our offices.
Recycle as much as possible (100% paper, oil rags and
cardboard bails across all sites)
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.
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 e-commerce.
Reduce unnecessary travel by online meeting software.
Some examples of our progress this year include:
In 2020, we leased 17 vehicles, 71% of which were hybrid. This
brings our hybrid vehicle total to 56% across the Group.
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.
Sustainable warehouse automation – in February 2021 we
introduced our first warehouse Robot; fully electric, it is
designed to reduce the travel time of warehouse operatives
in their daily duties by carrying products to and from work
cells, allowing greater productivity, accuracy and output.
This represents the first part of a range of testing processes
we will undertake as we design the automated operation.
A new fleet of narrow aisle trucks, including all maintenance
and a brand new fleet every seven years.
New Engineering Modification Centre – instead of scrapping
products, a product life-cycle inspection will take place to
assess options to change the product, price, place its sold,
how its used and promoted, thus prolonging its life and
reducing waste disposal.
22
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 Based on currently available data, CO2e represented in metric tons
(tCO2e) and related kWh totals are as follows:
tCO2e
kWh
Scope 1 (gas consumption)
939.37
4,412,097
Scope 2 (elecricity consumption)
418.21
1,617,471
Scope 3 (other direct emissions)
85.94
NA
Totals
1443.52
6,029,568
Carbon Intensity
tCO2e per FTE
tCO2e per £100,000 revenue
2.38
1.52
We have not yet purchased any carbon offsets for the reported
period. This is currently under consideration by the Board and our
report will be updated in the event of purchase.
Our full emissions report covers all the main emissions sources
that are required to be reported under the Streamlined Energy &
Carbon Reporting requirements and for which data has been
collected. Optional disclosure of Scope 3 impacts has been
undertaken as far as practicable to reflect the impact from our
core operations.
This is our first year of reporting as a Group and we have no prior
emissions data to indicate any year-on-year changes. This report
was prepared by Carbon Responsible using the GHG (greenhouse
gas) Corporate Reporting & Accounting Standard, using UK
Government Reporting & Conversion methodology and conversion
factors on the 16th of March 2021. It is for the period 1 January
2020 to 31 December 2020.
We have used the financial control approach. Most of the
emissions impact comes from our own offices, premises, and
staff. It also includes significant impacts from activities that are
not owned by us, but over which we exert financial control. We will
use FY20 as our baseline year, and revise in line with further
improvement in our reporting framework.
We have not set forward reduction targets for our business but will
look to set them once we have completed further analysis of our
emissions profile and associated plans for the business.
We have chosen revenue and FTE intensity from Scope 1, 2 and 3
emissions, as we think they form the best available intensity
measures for our business.
We have measured our Scope 1, 2 and certain Scope 3 emissions
and estimated emissions where we have reasonable supporting
data to do so. Where we have not estimated a percentage for
exclusions, it is because we have not carried out this estimation
yet or an estimation is not possible from the current available data.
We expect our reporting capability to improve in future years,
increasing the quality and extent of overall measurement.
There are two key omissions to the data which are worthy of note
that we will be focusing on for the next reporting period. Firstly,
limited data is available for the supply of LPG used in our gas
operated forklifts, and so it has not been possible to estimate the
full impact of this usage. Secondly, although Scope 3 data
reporting is currently optional, we consider the emissions from our
distribution suppliers to be material. However, one of those major
suppliers is unable to provide that data for 2020 until June 2021
due to a systems failure.
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Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements
Sustainability Report
Our People
Our people and the services they provide are critical to our success as well as driving
many initiatives at the heart of the sustainability agenda. We believe focusing on the following
will lead to a committed and productive workforce.
Strong and
supportive
culture
Attracting,
retaining and
developing
talent
Maintaining
and
promoting
diversity
Engagement
Healthy
working
environment
Statistics
Gender
Committed productive workforce
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.
n Male – 73% n Female – 27%
(2019: – Male 76%, Female 24%)
Age Range
n 2020
n 2019
12%
24%
22%
22%
17%
2%
16-25
26-35
36-45
46-55
56-65
66-75
12%
25%
21%
19%
20%
3%
Demographics
Number of
Employees*
Retention†
627
(2019 – 631)
83%
(2019 – 83%)
Length of Service**
9.2 years
(2019 – 7.5 years)
*Average in 2020.
**Average number of years.
† (1- leavers [during 2020]/average number
of employees).
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Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 Attracting, Retaining & Developing Talent
Apprentices
We are keen to attract and retain apprentices and currently employ
eleven apprentices across the Group, two in office positions and
nine 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 administration
apprentice for our supply chain team at Flowtech Fluidpower plc.
We also support local students and communities where possible
with work experience opportunities.
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 were
completed by October 2020, and the engagement score increased
from 64% to 69%.
We currently share information via email and noticeboard
communications as well as forums, meetings and shared servers
or Dropbox.
The pandemic and a shift towards more remote working led us to
adopt more virtual means to stay in touch, namely via WhatsApp
to boost morale and Teams to collaborate efficiently with
colleagues regardless of location.
Attracting 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
and General Intelligence Assessment 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 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.
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.
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Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements
Sustainability Report
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 Executive Officer, which
rewards employees and in many cases offers an additional
motivational incentive for future years.
Flowtech Fluidpower plc operates two share based Enterprise
Management Incentive (EMI) option schemes for the benefit of its
staff and senior management. The aim of the share-based EMI
option schemes is to align the interests of employees with those
of the Company’s Shareholders.
At 31 December 2020, the total shares in the Company held
by the Enterprise Management Incentive Plans were 973,000
representing 1.6% of the issued capital. Further details are
provided in note 23 to the consolidated financial statements.
Flowtech Fluidpower plc operates a share based Company Share
Option Plan scheme (CSOP) for the benefit of its staff and senior
management. The aim of the share-based CSOP scheme is to
align the interests of employees with those of the Company’s
Shareholders. Please refer to note 23 for the exercise period
of the schemes.
At 31 December 2020, the total shares in the Company held by the
Company Share Option Plan was 462,000 representing 0.8% of the
issued capital. Further details are provided in note 23 to the
consolidated financial statements.
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 27% 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.
The company recognises that the respect for human rights is an
integral part of its Health & Safety and social responsibility and
that is has a responsibility to take a robust approach to slavery and
human trafficking. We understand the requirements of the Modern
Slavery Act 2015 are committed to ensuring that no modern
slavery takes place within our organisation.
We are committed to preventing workers from being subjected to
modern slavery in our supply chains and within the businesses of
our partners and affiliates.
We are committed to continuous improvement in relation to our
practices to combat slavery and human trafficking.
The respect for human rights in implicit in our employment
practices; the rights of every employee is treated with dignity
and consideration.
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 will continue to audit supply chains, mitigate risk,
monitor and track progress and immediately inform our customers
if and when a supplier risk is no longer acceptable and the source
of supply has been disengaged. The visits are coordinated by the
Commercial Director.
Providing a Healthy Work Environment
The Group remains committed to providing a safe and healthy
working environment. The Chief Executive 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 Profit Centre and must be included as
part of new employee inductions and new acquisitions.
H&S assessments are carried out annually by Croner. To maintain
employee safety throughout the pandemic, every site was audited
and awarded a COVID-safe status by October 2020. During mid
2020, a Group H&S committee was established with a Manager
responsible for each Division.
Additionally, each business has a H&S representative who liaises
closely with their divisional Manager and is 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. In June 2020, we appointed a
Product Quality & Compliance Director, Stephen Merrie, to focus on
raising awareness and best practice to safeguard employees and,
in turn, customers when manufacturing, modifying or advising on
product use. Stephen works very closely with both H&S Managers
to maintain safe working procedures and create a more structured
approach to H&S within the Group. 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.
26
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020
New Employee Assistance Programme & Mental
Health Ambassadors
This year especially, there has been a greater awareness over
mental health, with many of our sites seeking to improve mental
well-being also, attending courses and spreading awareness with
the aim of reducing stress levels.
In February 2021, the Company introduced an Employee
Assistance Programme, provided through AXA insurance, to
support employees and their immediate families with a variety of
services including lifestyle management, emotional and physical
stress, financial advice, etc. The service provides 24/7 support and
advice via telephone, face-to-face, as well as access to videos and
podcasts. In addition, in April the business appoint official Mental
Health Ambassadors, similar to First Aiders, each will attend
training over two-and-a-half days and be closely involved in the
Group’s health and well-being strategy, including identifying signs
and symptoms of mental health concerns, providing immediate
assistance well as directing employees towards support
resources, helping shape the business’s Health & Safety policy.
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.
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 2020
(2019: none) and 11 lost time accidents (2019: one lost time accident).
A review of the causes underlying the lost time incidents is undertaken
to identify any appropriate corrective action.
We continue to work with Croner to standardise procedures across
our UK and Irish sites. Croner regularly visit all our sites to ensure
compliance. 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.
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Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements
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Training & Collaboration
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
Each year we hold an annual Sales Conference for business
development individuals from every business across the Group.
This assists in developing cross-selling opportunities across
the Group.
The last event, over two days in February 2020, 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 Medalist, 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.
While we couldn’t host any events over the last 12 months,
we hope to resume both events in 2021.
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Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020
Forecast Meetings
Held bi-annually, 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 presented including 2019 Best Improvement in
return on Working Capital, 2019 Best Return on Working Capital,
2019 Best Organic Growth, and 2019 Best Idea/Initiative. We
intend to host a similar event in 2021.
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.
Despite the restriction that we all faced during 2020 and as we
became more accustomed to the virtual world, 70 of our sales
team attended a two-day course on sales excellence with Pareto.
Training Academy
With the objective of creating a framework to help develop our
employees’ technical competence and improve our support to
customers, our training academy has now been firmly established
with over 100 employees participating in an in-depth self-appraisal
December 2020. As part of this development, the steering
committee have joined forces with Fluid Power Design Solutions,
headed by Stephen Dilks, a highly experience fluid power training
consultant. Together they are committed to developing a robust
training framework to help individuals enhance their knowledge
base and further support the needs of our customers.
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Sustainability Report
Our Communities
Aligned with our strategy to support and develop our people, we believe it is 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 benefi ts.
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
offi ce in Wilmslow, our investment in an AquAid water cooler is
helping supply clean water to communities in Africa.
The Group has collected donated toys, clothes, food, bedding and
also raised £8k in total, supporting local charities such as:
The Birchwood Centre – a charity located in Lancashire
providing vital support and accommodation services for
vulnerable people at critical points in their lives.
Rainbow’s Hospice – providing care and support to life-limited
children and their families.
Northern Ireland Hospice – a local charity delivering specialist
rehabilitation and respite care for children and adults.
Charitable Donations
As a Group, we are committed to supporting local and national
charities and encourage employees to participate in regular
fundraising events.
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.
The impact of COVID-19 has affected the plans we had to work
more closely with the Princes Trust. We have re-engaged with the
team over the last six months and are now making plans to
support on work-based learning and skills development projects as
well as Group-wide charity events.
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Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020
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31
Corporate Social Responsibility (CSR)
Section 172 Statement
The Board takes regular account of the significant social, environmental
and ethical matters. The following specific matters fall under the broad
definition of ‘social responsibility’:
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 2020, 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.
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.
32
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 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.
Communication with Shareholders
The Group works alongside Investor Relation specialists who are
well known and, we believe, highly respected by a number of our
key investors. We have, and will continue to, work 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 2021 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.
33
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements
Financial Review
Close Control Over Cash and Costs
Delivering Further Debt Reduction
“Given the enormous challenges which the COVID-19 pandemic
placed on the business, the Board is satisfi ed with the trading
result. By controlling all within our control, we have achieved a
further signifi cant reduction in our debt position.”
Russell Cash
Chief Financial Offi cer & Company Secretary
Operational Review
Group revenue (*)
Gross profi t (*)
Gross profi t %
Group operating (loss)/profi t
Net Debt (**)
(*) All results relate to continuing operations.
2020
£95.1m
£32.6m
34.3%
-£1.4m
£11.6m
2019
Change
£112.4m
£40.2m
35.7%
£5.7m
£16.6m
-15.4%
-18.9%
-146bps
-£7.1m
-£5.0m
(**) Net Debt at 31 December 2020 comprises £10.7m Bank debt and £0.9m of COVID-19 related HMRC support but excludes lease liabilities under IFRS 16.
Revenue
For the year as a whole, Revenue reduced by 15.4%. The year
started with us achieving Revenue slightly in excess of our
expectations but clearly the onset of the pandemic had a very
signifi cant impact. At the height of the fi rst national lockdown in
April, our Revenue was 41% down; pleasingly, we have seen a
gradual road to recovery since that date with Revenue recovering
to a position whereby Q4 saw us only 5% down against the
comparative period. This trend has continued into the early
part of 2021.
Operating Overheads
Operating overheads in 2020 totalled £34.0m, £0.5m lower than
2019. Investments we have made in certain areas, notably in relation
to our e-business strategy and to further develop our infrastructure,
have partly offset the £1.2m furlough-related support.
Gross Profi t Margins
Our overall gross margin reduced by 146bps. This follows an
improving trend over recent years with margin increasing from
33.8% in 2017 to 35.7% in 2019. The reduction is largely explained
by the absence of high margin catalogue Revenue in 2020 together
with an element of labour costs, which is fi xed in nature, forming
part of cost of sales. Our underlying margin on product sales
remains constant.
We are pleased that we continue to deliver strong margins;
sustaining this position remains at the core of our sales ethos.
We remain confi dent that over time we can achieve modest
improvements to this already strong gross margin as our
businesses increasingly work together to generate improved terms.
Operating (Loss)/Profi t
As a result of the above factors, 2020 saw an operating loss of
£1.4m compared with an operating profi t of £5.7m in 2019.
34
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020
Results by Division
Revenue
Components
Services
Group
Gross Profit
Components
Services
Group
Operating Profit/(Loss)
Components
Services
Less allocation of central costs
Group
Separately disclosed items (note 3)
Adjustments in respect of IFRS 3 and IFRS 16 in 2019
Underlying operating profit
Revenue
Overall revenues reduced by £17.3m (15.4%) split:
Components – £16.7m (17.3%) reduction.
Services – £0.6m (3.9%) reduction.
2019
£000
96,348
16,070
112,418
36.5%
31.2%
35.7%
12.9%
-4.6%
2020
£000
79,638
15,443
95,081
2019
£000
35,167
5,016
40,183
2019
£000
12,412
(747)
11,985
(6,240)
5,745
3,712
150
9,607
35.5%
27.9%
34.3%
6.4%
-9.6%
2020
£000
28,279
4,315
32,594
2020
£000
5,104
(1,476)
3,628
(5,022)
(1,394)
2,466
–
1,072
35
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements
Financial Review
Gross Profit Margins
The absence of catalogue income and fixed labour costs were the
primary contributing factor to the reduction of margins within the
Components segment. We remain pleased with our strong
underlying margin performance.
Statement of Financial Position & Cash Flow
In a year in which our ability to generate cash from trading
activities was heavily restricted, it is pleasing to see that we
achieved a £5.0m reduction in Net Debt. The chart below shows
the key components of the cash flow.
The business generated £3.0m (2019: £10.4m) of positive
operating cash flow. This was augmented by the effect of the
continued focus on management of working capital with an overall
benefit of £6.9m in the year (2019: £5.8m) and £0.9m HMRC
COVID-related support. The aggregate total of £10.8m enabled the
following to be funded:
Taxation (£0.6m).
Lease payments and IFR16 related interest (£1.6m).
Capital expenditure (£1.7m).
Interest (£0.9m).
Other items (£0.3m net).
Reduction in bank debt (£5.9m).
Services
As referred to in the CEO’s Year in Review section, the second half
of 2020 has been a challenging period for the Services division. We
are currently mid-way through a ‘root and branch’ review of all
parts of the division.
Central Costs
Central costs comprise executive management, finance and IT
departments, divisional sales and the cost of running the plc.
We have made significant investment in these areas since the
second half of 2018. Most recently we have invested in bolstering
our project management and our e-business/digital infrastructure,
recognising both of these areas are crucial for our effective future
development. These costs have reached a mature level and will not
materially increase in the foreseeable future.
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
£16.6m
£3.0m
£7.7m
£0.3m
£0.6m
£1.7m
£0.4m
£1.6m
n Increase
n Decrease
n Total
£10.7m
£0.9m
FY19
Cash
generated
from
operations
Working
capital
movement
Other
Tax paid
Fixed
assets
purchased
Acquisition
and deferred
consideration
Payment of
lease
liabilities
Interest and
loan fee
paid
FY20
£18.0m
£16.0m
£14.0m
£12.0m
£10.0m
£8.0m
£6.0m
£4.0m
£2.0m
£0.0m
36
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 Dividends
The Chairman’s Statement contains comments on our current view
regarding Dividends.
Taxation
The tax charge for the year was £24k (2019 charge: £968k).
2021 Segmentation
In the CEO’s Year in Review section, we detail our refreshed
approach to our trading styles and branding. As a result, we have
concluded that it is appropriate to transition to reporting using
three segments in 2021 and beyond. The table below shows the
impact on the 2020 result had we been using three segments
during this period:
Fluidpower
Group
Solutions
£000
Fluidpower
Group
Services
£000
Flowtech
£000
Interco
transactions
£000
Central Costs
£000
Total
continuing
operations
£000
Total revenue
48,144
34,159
16,002
(3,224)
–
95,081
Underlying operating result
Net financing costs
Separately disclosed items
Profit before tax
5,038
(146)
(862)
4,030
1,790
(1,236)
(104)
(862)
824
(6)
(240)
(1,482)
–
–
–
–
(4,520)
(498)
(502)
(5,520)
1,072
(754)
(2,466)
(2,148)
The aggregate of the Flowtech and Fluidpower Group Solutions figures equate to
the Components segment used in the 2020 reporting.
“In a year in which our ability to generate
cash from trading activities was heavily
restricted, it is pleasing to see that we
achieved a £5.0m reduction in Net Debt.”
Russell Cash
Chief Financial Officer
37
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements 38
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020
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 look to 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.
In 2019, we worked alongside Marsh, specialist consultants in
establishing and developing MSH management frameworks. This
resulted in an improved roadmap which we committed to work on
in 2020 and which was detailed in our 2019 Report and Accounts.
The impact of COVID-19 has meant that our ability to make
significant progress has been hampered. We have focussed
heavily on developing an improved culture around all aspects of
the health and safety agenda. Our focus on health has been not
only on ensuring our work practices provide a suitably safe and
compliant environment, but increasingly to developing processes
designed to ensure we look after the mental well-being of all our
people, in particular recognising the impact of the pandemic in
this regard.
39
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Risk Management
Risks
2020 Challenges & New Areas of Focus
2020 saw us faced with the combined challenges of Brexit
planning, which we were clearly expecting, alongside the
unforeseen and much greater issues which COVID-19 presented.
Brexit
We are pleased with the manner in which we have dealt with the
challenges presented by both COVID-19 and Brexit. We planned for
the implications of the UK’s departure from the European Union
and feel we have done all we could have been expected to do
ahead of and beyond 1 January 2021. There have been challenges
with supply chain disruption in the early part of 2021 and we are
working hard to minimise the impact of these issues.
COVID-19
COVID-19 presented what we hope is once-in-a-lifetime challenges
for the business. We are proud with the manner in which our
organisation and our people within it came together to manage
the situation. At the onset of the pandemic we saw our Revenue
reduced by 41% in April but are very pleased with the gradual
recovery we have seen since that point.
At the outset of the pandemic, we established a COVID working
group to focus on all the challenges presented – initially this group
of senior management met daily to deal with the impact; over time
the frequency of the meetings has reduced to fortnightly with the
emphasis recently turning to ensure our staff’s wellbeing is an
area of focus.
Whilst there clearly remains a risk that there could be further
spikes in activity, we feel we have demonstrated the business is
capable of taking remedial action and that our markets have a
degree of resilience to manage any such situation. It is also
pleasing to have renewed our Banking facilities and as part of this
our covenants have been re-visited to ensure we have a degree of
comfort within them.
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.
Regular on-site IT reviews are carried out
including reviews of networks and controls.
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
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, the central services function has
invested heavily in 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.
40
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 Trend:
Risk increasing
No risk movement
Risk decreasing
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 19.
Competition
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.
Website Offering
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.
Core Risks Identified Prior to Distraction of COVID-19
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.
Quality Control
Owner: Chief Executive Officer
Talent Management
& Succession Planning
Breach of Regulations
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 have created the new
role of Director of Product and Engineering
Compliance to oversee all the Group’s
Quality Control procedures.
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 Profit
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. Further
details are provided in the sustainability
section of this report.
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.
2020 has seen the Group establish a
Health & Safety Steering Committee
and the appointment of Senior Managers
dedicated to ensure compliance in
all areas.
The Strategic Report, as set
out on pages 01 to 41, has
been approved by the Board.
Bryce Brooks
Chief Executive Officer
19 April 2021
41
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements The Board
Bryce Brooks
Chief Executive Offi cer
Russell Cash
Chief Financial Offi cer
& Company Secretary
Roger McDowell
Non-Executive Chair
C
C
N
A
R
C
Appointed
March 2010 as CFO, promoted to CEO
in September 2018.
Appointed
November 2018.
Skills & Experience
Holds a degree in civil engineering
and qualifi ed 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
Qualifi ed 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 fi rms. 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.
Appointed
June 2020 as Independent Director, and
Non-Executive Chair from August 2020.
Skills & Experience
Roger is a highly successful
businessman and entrepreneur, with
a strong record of delivering
shareholder value. He was Managing
Director of Oliver Ashworth for 18 years
before IPO and subsequent sale to
Saint-Gobain, and won the Sunday
Times AIM Non-Executive Director
of the Year award in 2017 for his
Chairmanship of Avingtrans plc,
a precision engineering business.
External Appointments
Non-Executive Chair of Hargreaves
Services plc, Avingtrans plc and
Brand Architekts Group plc.
Senior Non-Executive Director of
Tribal Group plc.
Non-Executive Director of Proteome
Sciences plc, Augean plc and British
Smaller Companies VCT II plc.
Board Committees
Chair of Nomination Committee.
Member of the Audit, Remuneration
and AIM Compliance and Corporate
Governance Committees.
42
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020
i
S
t
r
a
t
e
g
c
R
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
i
F
n
a
n
c
a
i
l
S
t
a
t
e
m
e
n
t
s
Key:
A
N
R
C
Committee Chair
Audit
Nomination
Remuneration
AIM Compliance and
Corporate Governance
Nigel Richens
Non-Executive Director
& Senior Independent Director
Paul Gedman
Non-Executive Director
A
C
R
N
N
A
R
C
Appointed
May 2014.
Appointed
July 2020.
Skills & Experience
Holds a degree in business studies from
Leeds Metropolitan University.
Extensive experience in global
e-commerce having held positions that
include CEO of the Beauty, Wellness and
Luxury Divisions of The Hut Group
(THG) over an eight-year period. Prior to
this he served as Head of Online at
Littlewoods Clearance (part of the Shop
Direct Group).
External Appointments
None.
Board Committees
Member of all Board Committees.
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 fi nancial matters.
External Appointments
Trustee of various charities.
Board Committees
Chair of the Audit, Remuneration
and 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 also leads the
performance evaluation of the Chairman.
Stock code: FLO – www.flowtechfluidpower.com
43
Corporate Governance Report
Chairman’s Statement on Corporate Governance
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.
The Company is committed to maintaining high standards of corporate governance and
has adopted the Quoted Companies Alliance Corporate Governance Code 2018 (“the QCA
code”). The Company’s’ approach in relation to complying with each of the ten principles of
the QCA code is set out below.
I am pleased to report that we consider we are compliant with all aspects of the
requirements of the QCA Code.
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.
Principle 3
“Take into account wider stakeholder and social
responsibilities and their implication for long-term success.”
Our comments in respect of Section 172 of the Companies Act
2006 requirements and in a variety of other areas are provided in
our Sustainability report on pages 20-31.
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 39-41
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. 2020 has
also seen us make a big investment in our Health & Safety agenda.
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.”
We continue to work with respected external advisors and believe
we have made progress in this area over the last 12-18 months.
This will be an ongoing area of focus and we are working hard to
ensure we achieve a quality delivery of quality and meaningful
information on a consistent basis.
The Board is updated on the latest shareholder information and
feedback they provide on a regular basis, in particular following our
presentations after the announcement of half year and full year
results. Prior to the challenges resulting from COVID-19, all
Directors were encouraged to attend the Annual General Meeting.
Should Investors wish to make contact, details are provided via
our website.
44
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 Principle 5
Principle 8
“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 42-43.
“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.
The Board is chaired by Roger McDowell and meets regularly with
formal Board meetings taking place in most months of the year.
Audit Committee meetings are held regularly around announcement
activity and Remuneration Committee and Nomination Committee
meetings on an as and when needed basis.
Nigel Richens and Paul Gedman sit alongside the Chairman as
Non-Executive Directors. The Non-Executive Directors are
considered to be independent of management and from any
business relationship which could materially interfere with their
independent judgement. The Senior Non-Executive Director is Nigel
Richens and is available to shareholders if they have any concerns.
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
42-43. 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.
Principle 7
“Evaluate Board performance based on clear and relevant
objectives, seeking continuous improvement.”
The Board has recently undertaken an internal evaluation of its
effectiveness and the intention is for this exercise to be repeated at
least annually. This exercise involved each Board/Committee
member completing an assessment which provides numeric
scoring against specific categories as well as an opportunity for
recommendations for improvement to be provided. The areas
reviewed include:
Board/Committee composition (including
succession planning)
Board/external reporting and information flows
Board processes, internal control and risk management
Board accountability
Executive management effectiveness
Standards of conduct
The review highlighted a limited number of areas to be addressed.
An action plan has now been developed to ensure each of these
points is progressed.
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 COVID-19 related conditions we
have experienced in 2020 have led to us investing heavily in this
area with additional, targeted communication, in particular to
ensure the well-being of all our people within the business.
The Group has systems in place designed to ensure compliance
with all applicable laws and regulations and conformity with all
relevant codes of business practice.
Compliance with the Bribery Act 2010 involves the adoption
of Standard Practice initiatives with appropriate training
being provided.
The Group takes appropriate steps to comply with the provisions of
the Market Abuse Regulations and the Modern Slavery Act.
The Group has invested heavily in Health & Safety agenda in 2020
with appointments being made across each of our businesses and
initiatives put in place to ensure this is consistently uppermost in
our thoughts.
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.
In 2018, the Audit Committee reconsidered the need to establish an
internal audit function; this has further developed during 2020 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.
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.
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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 49-50. Biographical
details of the Directors are included on pages 42-43.
Roger McDowell 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 Remuneration
Committees.
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 all Directors will also stand for re-election annually at
the AGM.
Meetings of the Board
There were 12 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.
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. 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. This is achieved by:
Chairing Board meetings, setting agendas in consultation
with the Group Chief Executive and encouraging the Directors
to participate actively in Board discussions.
Leading the performance evaluation of the Board, its
Committees and individual Directors.
Promoting high standards of corporate governance.
Ensuring timely and accurate distribution of information
to the Directors.
Ensuring effective communication with shareholders.
Periodically holding meetings with fellow Non-Executive
Directors without the Executive Directors being present.
Establishing an effective working relationship with the Group
Chief Executive by providing support and advice whilst
respecting executive responsibility.
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.
46
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 Board Committees
Executive Management
As outlined in the CEO’s Year in Review section, we have invested
in the recruitment of a number of experienced, extremely capable
people into senior roles. They form part of a recently established
eight-person Management Board which focusses on all aspects of
day-to-day management, including:
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.
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 whistle-blowing.
Assessment of growth opportunities, both organic and
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.
Considering policies on non-audit engagements for the
Company’s Auditor.
The Audit Committee met twice during 2020 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 limited number of
areas of concern.
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.
The Board formally delegates responsibility to four committees:
the Audit, Remuneration, Nomination, and the AIM Compliance
& Corporate Governance Committees. Full terms of reference for
each committee can be found on our website.
The Nomination Committee
Chaired by Roger McDowell
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. During 2020 members
of the Nominations Committee met to oversee the introduction of
both Roger McDowell and Paul Gedman to the Board.
The Remuneration Committee
Chaired by Nigel Richens
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 one occasion – 10 September 2020.
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 49-50.
The AIM Compliance & Corporate Governance Committee
Chaired by Nigel Richens
The AIM Compliance & 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 October were attended
by all Directors.
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Corporate Governance Report
Board Effectiveness
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. Clearly
this has proven more difficult than normal given COVID-19
considerations. 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. Again this has proven more difficult than normal given the
challenges presented by COVID-19.
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.
48
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 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 investors assess and understand the
remuneration policy in the light of the strategy for the Group.
The role of the Remuneration Committee is to assist the Board in
fulfilling its responsibilities in 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
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.
The Executive Directors have service contracts which provide for
notice periods of twelve months. Each of the Non-Executive
Directors has a service contract which provides for a notice period
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.
Recent Developments
During the year the Board, following the recommendations of the
Remuneration Committee, agreed to the following actions:
To replace the Management Incentive Plan with a new
long term incentive plan which will provide annual awards
of options to the Executive Directors conditional upon the
achievement of stretching targets based on total shareholder
return and/or earnings per share over a vesting period of three
years. The awards will be capped at 100% of salary and be
subject to appropriate malus and clawback provisions. It is
expected that this plan will be put in place shortly after the
publication of this Report and Accounts at which time further
details will be reported. Thus, the first awards under the new
scheme will vest no sooner than approximately one year after
the remaining awards under the previous MIP scheme have
vested or expired.
To establish a cash bonus scheme for the Executive
Directors in respect of the financial year 2021, conditional
upon the achievement of results significantly above market
expectations and capped at 100% of salary. Appropriate
malus and clawback provisions will also apply. It is expected
that annual bonus plans will be established in respect of
future periods although the levels of award and performance
conditions may vary as circumstances dictate.
To grant Russell Cash an option over ordinary shares of 50
pence each in the Company (“Ordinary Shares”) pursuant
to the rules of the Unapproved Sub-Plan of the Flowtech
Fluidpower plc Enterprise Management Incentive Plan. The
award will provide for an option to acquire a total of 150,000
Ordinary Shares at an exercise price of £1 per Ordinary
Share. The option will be exercisable upon the publication
of the Company’s accounts for the financial period to 31
December 2022 and is not subject to the achievement of any
performance criteria. It is expected that the grant of award will
occur shortly after the publication of this Report and Accounts.
To amend the rules of the Flowtech Fluidpower plc Enterprise
Management Incentive Plan to empower the Board to
reduce future awards in certain circumstances, including the
underlying financial performance of the Company, and to
include appropriate malus and clawback provisions.
Long term incentive plans and annual bonus plans will be
established, controlled and operated by the Remuneration
Committee who have the authority to vary payments from
amounts arising from agreed formulae/structures and vary the
structure and policy each year. The Remuneration Committee
will act fairly and reasonably and in the interests of the Company
and shareholders.
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Directors’ Remuneration Report
Directors’ Detailed Remuneration
Executives
Bryce Brooks
Russell Cash
Non-Executives
Roger McDowell
Nigel Richens
Paul Gedman
Malcolm Diamond MBE
Bill Wilson
Salary
and fees
£000
Benefits
£000
Bonus
£000
Total 2020
£000
Total 2019
£000
224
189
41
54
19
46
31
604
18
3
–
–
–
–
–
21
–
–
–
–
–
–
–
0
242
192
41
54
19
46
31
241
182
–
55
–
80
45
625
603
Messrs Brooks, Cash, Richens and Diamond each waived £1,250
of remuneration during the early stages of the pandemic; similar
salary sacrifices were made by other senior employees.
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:
The table below shows the interests of the Directors in office at the
end of the year in the share capital of the Company’s subsidiary,
Flowtech MIP Limited:
As at 31
December
2020
number of
ordinary
shares
As at 31
December
2019
number of
ordinary
shares
299,160
48,175
299,160
28,570
–
–
73,500
73,500
–
–
A shares
£1 ordinary
B shares
£1 ordinary
D shares
£1 ordinary
77
77
3,100
3,100
5
5
Executives
Bryce Brooks
As at 31 December
2019
As at 31 December
2020
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.
Executives
Bryce Brooks
Russell Cash
Non-Executives
Roger McDowell
Nigel Richens
Paul Gedman
Directors’ Share Options
Details of share options held by the Directors over the ordinary
shares of the Company are set out below:
Bryce Brooks
Russell Cash
Scheme
EMI (Approved)
EMI (Unapproved)
As at 31
December
2019
159,999
150,000
Granted
Exercised
Cancelled
–
–
–
–
–
–
As at 31
December
2020
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.
50
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 Directors’ Report
The Directors present their Annual Report, together with the
audited Group and Company financial statements for the year
ended 31 December 2020. The Group financial statements have
been prepared in accordance with international Accounting
standards in conformity with the requirements of the 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).
A review of the Group’s trading and an indication of future
developments are contained in the Strategic Report on pages
6-17. 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 11 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 2020 are set out in
the consolidated income statement on page 63. The Group has
reported an operating loss from its continuing activities of £1.4
million (2019: profit of £5.7 million). After accounting for net
finance costs, the consolidated income statement shows a loss
from continuing operations before taxation of £2.1 million
(2019: profit of £4.7 million).
The Chairman’s Statement comments on our current thoughts
on Dividends.
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 (retired 1 August 2020)
Nigel Richens
Bryce Brooks
Russell Cash
Bill Wilson (resigned 10 June 2020)
Roger McDowell (appointed 10 June 2020)
Paul Gedman (appointed 28 July 2020)
Short biographies of each Director currently in office are provided
on pages 42-43.
The interest which the Directors serving at the end of the year, or
at the date of this report, had in the ordinary share capital of the
Company, and its subsidiaries, at 31 December 2020 is disclosed
in the Directors’ Remuneration report on page 50.
Details of the Directors’ share options are provided in the Directors’
Remuneration report on page 50.
Material Interest in Contracts
No Director, either during or at the end of the financial year, was
materially interested in any significant contract with the Company
or any subsidiary undertaking.
Share Capital
Details of the Company’s share capital are in note 25 to the
consolidated financial statements.
The Company’s share capital comprises one class of ordinary
shares and as at 01 April 2021 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 01 April 2020 (being the last
practicable date before the publication of this report):
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Shareholder
Odyssean Capital
Close Asset Management
Gresham House
Chelverton Asset Management
Downing
River & Mercantile Asset Management
3,561,702
Charles Stanley
Lazard Freres Gestion
3,097,851
2,620,080
Canaccord Genuity Wealth Management
2,173,099
Hargreaves Lansdown Asset Management
2,093,115
BGF
1,896,724
Number
of shares
held
% of
share
capital
9,265,447
15.07
5,128,220
4,805,439
4,100,000
3,896,658
8.34
7.81
6.67
6.34
5.79
5.04
4.26
3.53
3.4
3.08
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 29. It is not the Group’s policy to trade in
financial instruments.
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 32, under the Corporate Social
Responsibility section.
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.
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Directors’ Report
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
3 June 2021. Shareholders are not permitted to attend. Two
Directors will attend as the minimum quorum.
Subsequent Events
In the opinion of the Board, there have been no significant events
occurring since the balance sheet date.
Corporate Governance
The Group’s statement on corporate governance can be found in
the corporate governance report on pages 44 to 48. The corporate
governance report forms part of this Directors’ report and is
incorporated into it by way of this cross reference.
Our Environment
The Group’s comments as regards the impact our operations
have on the environment, and recent initiatives that have been
introduced with regards to streamlined energy and carbon
reporting requirements, are referred to in the sustainability section
of this report on pages 20 to 31. These comments form part of
this Directors’ report by way of this cross reference.
Engagement with Employees, Suppliers,
Customers and Others
The Group’s comments in these areas are included in the
sustainability section of this report on pages 20-31.
These comments form part of this Directors’ report by way
of this cross reference.
Going Concern
The financial statements are prepared on a going concern
basis which the Directors believe to be appropriate for the
following reasons:
Following the challenges presented by COVID-19 and the
impact on 2020 performance, the Directors are forecasting a
return to profitability in 2021 and beyond;
Significant debt reduction has been achieved in 2020 and the
Group is now operating with Debt of approximately half of the
level it had at the end of 2018;
The Group is financed by revolving credit facilities totalling
£20m (recently extended to November 2023) and a £5m
overdraft facility, repayable on demand;
At the end of 2020 the Group’s Net Bank Debt was £10.7m
(£14.3m within the aggregate banking facilities).
The Directors have prepared forecasts covering the period to
December 2022. 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.
We have based our stress testing on Revenue reduction scenarios.
This exercise resulted in the Directors believing it is still likely that
the business would continue to operate within the aggregate £25m
banking facility and satisfy each of the banking covenants.
The Group therefore continues to adopt the going concern basis is
preparing its financial statements.
Disclosure of Information to Auditor
The Directors who held office at the date of approval of this
Directors’ Report confirm that, so far as they are each aware, there
is no relevant audit information of which the Company’s Auditor is
unaware; and that each Director has taken all the steps that he
ought to have taken as a Director to make himself aware of any
relevant audit information and to establish that the Company’s
Auditor is aware of that information.
Auditor
Grant Thornton UK LLP was reappointed as Auditor of the
Company during the year and a resolution to appoint them will be
proposed at the Annual General Meeting.
52
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Annual 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 to prepare the financial statements in accordance with
international accounting standard in conformity with the
requirements of the Companies Act 2006. 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;
make judgements and accounting estimates that are
reasonable and prudent;
for the consolidated financial statements state whether
international accounting standards in conformity with
the Companies Act 2006 have been followed, subject
to any material departures disclosed and explained in
the financial statements;
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 comply with the Companies Act
2006. 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 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 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.
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By order of the Board.
Russell Cash
Chief Financial Officer & Company Secretary
for the company financial statements state whether
19 April 2021
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.
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53
Stock code: FLO – www.flowtechfluidpower.com
Independent Auditor’s Report to the Members of Flowtech Fluidpower plc
Opinion
Our opinion on the fi nancial statements is unmodifi ed
We have audited the fi nancial statements of Flowtech
Fluidpower Plc (the ‘the Company’) and its subsidiaries (the
‘Group’) for the year ended 31 December 2020, which
comprise the consolidated income statement, the
consolidated statement of comprehensive income, the
consolidated statement of fi nancial position, the consolidated
statement of changes in equity, the consolidated statement of
cash flows, the Company income statement, the Company
statement of fi nancial position, the Company statement of
changes in equity and notes to the fi nancial statements,
including a summary of signifi cant accounting policies. The
fi nancial reporting framework that has been applied in the
preparation of the Group fi nancial statements is applicable
law and international accounting standards in conformity with
the requirements of the Companies Act 2006. The fi nancial
reporting framework that has been applied in the preparation
of the Company fi nancial 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 fi nancial statements give a true and fair view of the
state of the Group’s and of the Company’s affairs as
at 31 December 2020 and of the Group’s loss and the
Company’s profi t for the year then ended;
the Group fi nancial statements have been properly
prepared in accordance with international accounting
standards in conformity with the requirements of the
Companies Act 2006;
the Company fi nancial statements have been properly
prepared in accordance with United Kingdom Generally
Accepted Accounting Practice; and
the fi nancial 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 fi nancial statements’ section of
our report. We are independent of the Group and the Company in
accordance with the ethical requirements that are relevant to our
audit of the fi nancial statements in the UK, including the FRC’s
Ethical Standard as applied to listed entities, and we have fulfi lled
our other ethical responsibilities in accordance with these
requirements. We believe that the audit evidence we have obtained
is suffi cient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
We are responsible for concluding on the appropriateness of the
Directors’ use of the going concern basis of accounting and, based
on the audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast signifi cant
doubt on the Group’s and the Company’s ability to continue as a
going concern. If we conclude that a material uncertainty exists,
we are required to draw attention in our report to the related
disclosures in the fi nancial statements or, if such disclosures are
inadequate, to modify the auditor’s opinion. Our conclusions are
based on the audit evidence obtained up to the date of our report.
However, future events or conditions may cause the Group or the
Company to cease to continue as a going concern.
A description of our evaluation of management’s assessment of
the ability to continue to adopt the going concern basis of
accounting, and the key observations arising with respect to that
evaluation is included in the Key Audit Matters section of our
report.
Based on the work we have performed, we have not identifi ed any
material uncertainties relating to events or conditions that,
individually or collectively, may cast signifi cant doubt on the
Group’s and the Company’s ability to continue as a going concern
for a period of at least twelve months from when the fi nancial
statements are authorised for issue.
In auditing the fi nancial statements, we have concluded that the
Directors’ use of the going concern basis of accounting in the
preparation of the fi nancial statements is appropriate.
The responsibilities of the Directors with respect to going concern
are described in the ‘Responsibilities of Directors for the fi nancial
statements’ section of this report.
Overview of Our Audit Approach
Overall materiality:
Group: £332,784, which represents 0.35% of the
Group’s revenue.
Company: £218,000, which represents 0.20% of
the Company’s net assets, capped at a portion of
Group materiality.
Key audit matters were identifi ed as:
Going Concern assumption (new in the year); and
Revenue recognition (same as previous year)
Goodwill impairment assessment (same as previous year)
Provision for impairment of inventories (same as
previous year)
Recoverability of the Carrying Value of Investments in
and Inter-company Receivables Due from Subsidiaries
(same as previous year)
Our auditor’s report for the year ended previous year included
one key audit matter that has not been reported as key audit
matter in our current year’s report. This relates to the prior year
implementation of an IT system & suffi ciency of reconciliation
procedures, the key audit matter has not been reported in the
current year as we have noted improvements in the Group’s
reconciliation procedures.
We have performed audits of the fi nancial information (full
scope audits) using component materiality for Company,
Flowtech Fluidpower plc and the following subsidiaries;
Fluidpower Group UK Limited, Fluidpower Group Services
Limited, Flowtech Fluidpower Ireland Limited, Fluidpower Shared
Services Limited and Fluidpower MIP Limited.
We performed specifi c audit procedures on Flowtechnology
Benelux Limited and Hydroflex Hydraulics Group BV.
In total our audit procedures covered 100% of the Group’s total
assets, 98% of the Group’s revenue and 93% of the Group’s loss
before tax.
54
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020
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 the graph below, we have presented the key audit matters,
significant risks and other risks relevant to the audit.
High
l Key audit matter
l Significant risk
Description
Audit Response
KAM
Disclosures
Our Results
Impairment of
inventories
Carrying value
of goodwill
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Low
Management override
of controls
Going concern
Revenue
recognition
Carrying values
of investments
and intercompany
receivables
Extent of Management Judgement
High
55
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements
Independent Auditor’s Report to the Members of Flowtech Fluidpower plc
Key Audit Matter – Group
Going Concern
We have identified a key audit matter related to going concern as
one of the most significant assessed risks of material
misstatement due to fraud and error as a result of the judgement
required to conclude whether there is a material uncertainty
related to going concern.
COVID-19 is one of the most significant economic events
currently faced globally, and at the date of this report its
effects are subject to unprecedented levels of uncertainty.
This event could adversely impact the future trading performance
of the Group.
In undertaking their assessment of going concern for the Group,
the Directors considered the impact of COVID-19 related events
in their forecast future performance of the Group and anticipated
cash flows.
As a result, there is significantly more judgment applied in
developing forecasted revenue and profits of the Group.
How Our Scope Addressed the
Matter – Group
In responding to the key audit matter, we performed
the following audit procedures:
Obtaining an understanding of the design and
implementation of controls over management’s going
concern assessment;
Obtaining and assessing management’s analysis and
assessment of going concern, including the forecasts
covering the period to 31 December 2022 and challenging
the assumptions used in the cash flow forecasts, as
approved by the Board;
Analysing how the reasonableness of forecasts and related
disclosures may be impacted by the inherent risk associated
with COVID-19 and how this may affect the Group’s and
the Company’s financial resources or ability to continue
operations over the going concern period;
Corroborating the existence of the Group’s loan facilities and
related covenant requirements for the period covered by
management’s forecasts;
Assessing the impact of the mitigating factors available
to management in response to the downside sensitivity
applied and the Group’s ability to comply with covenant
requirements.
Comparing post year end results achieved to those
forecasted to determine if the business is trading in line with
forecast; and
Assessing the adequacy of the going concern disclosures
within the Financial statements.
Relevant Disclosures in the Annual Report
& Accounts 2020
The Group’s accounting policies on the Going concern
assumption are shown in note 2.2, Summary of significant
accounting policies
Additional disclosures are included in the Directors Report
on page 52.
Our Results
Based on the work we have performed, we are satisfied that the
assumptions made in management’s assessment of the use of
the going concern assumption in preparation of the financial
statements were appropriate. Further, we have not identified any
material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
Group’s and the Company’s ability to continue as a going concern
for a period of at least twelve months from when the financial
statements are authorised for issue.
56
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 Key Audit Matter – Group
Key Audit Matter – Group
Improper Revenue Recognition – Sale of Goods
We identified improper revenue recognition as one of the most
significant assessed risks of material misstatement due to
fraud.
The revenue recognised in respect of Sale of goods totalled
£91.1m for the year ended 31 December 2020 (2019: £109.4m).
Revenue generated from the sale of goods is recognised at the
point of dispatch and includes delivery charged to customers as
a single performance obligation. The inherent risk identified in
this revenue stream relates to the potential for manipulation of
revenue recognised during the year through the use of non-
standard journal entries, that is, journal entries that do not
appropriately reflect the substance of an underlying transaction.
How Our Scope Addressed the
Matter – Group
In responding to the key audit matter, we performed
the following audit procedures:
Obtaining an understanding of the processes through
which the Group initiates, records, processes and report’s
revenue transactions and determining whether they were
implemented as designed;
Assessing whether revenue has been recognised in
accordance with the Group’s accounting policies including
IFRS 15 ‘Revenue from Contracts with Customers’;
Utilising data analytics to interrogate and test the revenue
populations, including the analysis of revenue postings
from inception to cash and identifying non-standard
revenue postings. We tested the operating effectiveness
of controls over bank reconciliations process to support
this testing;
Utilising journals testing to identify non-standard revenue
posting. Where we were unable to utilise data analytics
testing a sample of revenue entries for all revenue streams
to supporting documentation; and
Performing cut-off testing to ensure transactions have
been recorded within the correct period.
Relevant Disclosures in the Annual Report
& Accounts 2020
The Group’s accounting policies on revenue recognition
are shown in note 2.15, Summary of significant accounting
policies.
Related disclosures are included in note 3.
Our Results
Based on our audit work we did not identify any material
misstatement in the revenue recognised in the year ended
31 December 2020.
Carrying Value of the Group’s Goodwill
We identified valuation of goodwill as one of the most significant
assessed risks of material misstatement due to error.
The Group carried £63.2m of goodwill in its consolidated
statement of financial position as at 31 December 2020
(2019: £63m).
The recoverability of the carrying value of goodwill is
determined based on the cash flow forecast of the underlying
cash-generating units (CGU’s) and there is a risk that if these
cash flows do not meet the managements forecasts the
goodwill may be impaired.
These forecasts are subject to estimation uncertainty and
significant management judgement is required in forecasting
future operating cashflows and determining the appropriate
discount rate.
No impairment charge was recognised by management in the
year ended 31 December 2020.
How Our Scope Addressed the
Matter – Group
In responding to the key audit matter, we performed
the following audit procedures:
Obtaining an understanding of the design of the controls
in place over the impairment of goodwill and determining
whether they were implemented as designed;
Assessing the competence, capabilities and objectivity of
the management’s expert used by the Group;
Assessing the appropriateness of the methodology and
discount rates provided by management’s expert and used
in management’s impairment review;
Challenging the assumptions included within
management’s calculation of the value in use, which
included gaining an understanding of the key factors and
judgements applied in determining future forecast results
including the growth rate and discount rates;
Evaluating management’s sensitivity analysis to understand
the impact of any reasonable possible changes in
assumptions and evaluating the headroom available on the
carrying value of goodwill; and
Assessing the adequacy of disclosures in the financial
statements in accordance with IAS 36 ‘Impairment of Assets’.
Relevant Disclosures in the Annual Report
& Accounts 2020
The Groups accounting policies on goodwill and
impairment of intangible assets are shown in note 2.9
summary of significant accounting policies.
The related disclosures in respect of goodwill impairment
are included in note 10.
Our Results
Based on our audit work we have identified that the valuation of
goodwill was accounted for in accordance with the Group’s
accounting policies. We have not identified any material
misstatements in the carrying value of goodwill.
57
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Independent Auditor’s Report to the Members of Flowtech Fluidpower plc
Key Audit Matter – Group
Provision for Impairment of Inventories
We identified provision for impairment of inventories as a
significant risk, which was one of the most significant assessed
risks of material misstatement.
The Group’s total inventory as at 31 December 2020 totals
£21,994,000 (2019: £24,000,000), which is recorded net of a
provision of £1,716,000 (2019: £2,046,000).
Inventory management is one of the key challenges facing
management and one of the main determinants of the Group’s
underlying performance.
The provision for impairment of inventories is calculated based
on historical sales trends, and management’s estimation of
recoverability of inventory on hand and is therefore subject to
estimation uncertainty. Key assumptions made by management
include those in relation to expected future sales and levels of
excess inventory.
How Our Scope Addressed the
Matter – Group
In responding to the key audit matter, we performed
the following audit procedures:
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 recognised in accordance with the Group’s
accounting policies.
Understanding the design and evaluating the implementation
of processes and controls through which the Group initiates,
records, processes and reports inventory provisions;
Considering the reasonableness of the change in
management assumptions relating to the period of sales
data used to calculate the standard provision, prior to
management adjustments;
Challenging the appropriateness of the provision
percentage applied to excess stock over five years
and performing sensitivity on the assumptions used in
managements adjustments;
Agreeing the integrity of the underlying data used in the
calculation of the inventory provisions to sales data;
Considering the suitability of the inventory provision,
including re-performance of the calculation and considering
historical performance relating to inventories.
Relevant Disclosures in the Annual Report
& Accounts 2020
The Group’s accounting policies on inventories are shown
in note 2.10 of significant accounting policies.
The related disclosures in respect on inventories impairment
are included in note 15.
Our Results
Based on our audit work we have not identified any material
misstatements relating to the provision for inventories.
58
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 Key Audit Matter – Company
Recoverability of the Carrying Value of Investments in
and Inter-company Receivables Due from
Subsidiaries
We identified the recoverability of the carrying value of
investments in and intercompany receivables from subsidiaries
as a significant risk, which was one of the most significant
assessed risks of material misstatement.
The Company statement of financial position includes
investments in subsidiaries of £59,358,000 (2019: £59,002,000)
and receivables from those subsidiaries of £68,621,000 (2019:
£64,912,000).
There is a risk that the carrying value of investments and
intercompany 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 and there is significant judgement in forecasting future
cashflows and therefore assessing the value.
How Our Scope Addressed the
Matter – Company
In responding to the key audit matter, we performed
the following audit procedures:
Assessing management’s impairment review including
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 the implementation
of the processes and controls through which the Company
initiates, records, processes and reports impairments of
investments in subsidiaries;
Assessing the competence, capabilities and objectivity of the
management expert used by the Company;
Assessing the appropriateness of the methodology and
Management have assessed the recoverability with reference to
both their fair value valuations and the forecast performance.
discount rate provided by management’s expert and used in
management’s impairment review;
The judgements made by management in respect of the
impairment review are subject to significant measurement
uncertainty.
Challenging the assumptions included within management’s
calculation, which included gaining an understanding of the
key factors and judgements applied in determining future
forecast results including the growth rate and discount rates;
Assessing the accuracy of management’s forecasts by
comparing forecasts to 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 on key assumptions to
understand the potential impact on headroom; and
Assessing the adequacy of the disclosures in the financial
statements in accordance with the requirements of IAS 36
‘Impairment of Assets’.
Relevant Disclosures in the Annual Report
& Accounts 2020
The Company’s accounting policies on impairment of
investments and Group balances is shown in note B to the
Company financial statements.
The related disclosures in respect of impairment of
investment and Group balances are included in note B to the
Company financial statements.
Our Results
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.
59
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Independent Auditor’s Report to the Members of Flowtech Fluidpower plc
Our Application of Materiality
We apply the concept of materiality both in planning and performing the audit, and in evaluating the effect of identified misstatements
on the audit and of uncorrected misstatements, if any, on the financial statements and in forming the opinion in the auditor’s report.
Materiality was determined as follows:
Materiality
measure
Group
Company
Materiality for
financial statements
as a whole
We define materiality as the magnitude of misstatement in the financial statements that, individually or in the
aggregate, could reasonably be expected to influence the economic decisions of the users of these financial
statements. We use materiality in determining the nature, timing and extent of our audit work.
Materiality threshold
£332,784 which is 0.35% of revenue.
£218,000 which is 0.20% of net assets, capped at a
portion of Group materiality.
Significant
judgements made by
auditor in
determining the
materiality
In determining materiality, we made the following
significant judgements:
In determining materiality, we made the following
significant judgements:
• The selection of an appropriate benchmark
• The selection of an appropriate benchmark
Materiality for the current year is higher than the level we
determined for the year ended 31 December 2019 to
reflect the higher Group materiality. Group materiality is
higher as a result of the change in benchmark used to
determine materiality.
•
The selection of an appropriate percentage to apply to
that benchmark; and
• The consideration of qualitative factors
We determined that revenue was the most appropriate
benchmark for the Group due to it being a key
performance indicator for the Group’s stakeholders and is
less volatile than earnings for the Group following a loss
recorded in the year.
Materiality for the current year is higher than the level we
determined for the year ended 31 December 2019. This is
the result of a change in the benchmark used to
determine materiality from a three-year average of 5% of
the Group’s profit before tax. The change in benchmark
was determined to be appropriate because of the
fluctuation of the Group’s earnings.
Performance
materiality used to
drive the extent of
our testing
Performance
materiality threshold
Significant
judgements made by
auditor in
determining the
performance
materiality
We set performance materiality at an amount less than materiality for the financial statements as a whole to reduce to
an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds
materiality for the financial statements as a whole.
£249,588, which is 75% of financial statement materiality.
£163,500, which is 75% of financial statement materiality.
In determining performance materiality, we made the
following significant judgements:
In determining performance materiality, we made the
following significant judgements:
•
•
Risk assessment – our risk assessment procedures
did not identify any significant changes or additional
complexity in the Group’s business activities
Our experience with auditing the financial statements
of the Group –significant adjustments have not been
made to the Group’s financial statements in prior years
•
•
Risk assessment – our risk assessment procedures
did not significant changes or additional complexity in
the Company’s business activities
Our experience with auditing the financial statements
of the Company - significant adjustments have not
been made to the Company’s financial statements in
prior years
Specific materiality
We determine specific materiality for one or more particular classes of transactions, account balances or disclosures
for which misstatements of lesser amounts than materiality for the financial statements as a whole could reasonably
be expected to influence the economic decisions of users taken on the basis of the financial statements.
Specific materiality
For both the Group and Company we determined a lower level of specific materiality for related party transactions and
Directors’ remuneration.
Communication of
misstatements to
the audit committee
We determine a threshold for reporting unadjusted differences to the audit committee.
Threshold for
communication
£16,650 and misstatements below that threshold that, in
our view, warrant reporting on qualitative grounds.
£10,900 and misstatements below that threshold that, in
our view, warrant reporting on qualitative grounds.
60
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 The graph below illustrates how performance materiality interacts
with our overall materiality and the tolerance for potential
uncorrected misstatements.
Overall materiality – Group
n
Revenue
£95m
FSM
£333k, 0.35%
Overall materiality – Company
n
Net Assets
£47m
FSM
£218k, 0.5%
PM
£249k, 75%
TFPUM
£84k, 25%
PM
£164k, 75%
TFPUM
£54k, 25%
FSM: Financial statements materiality, PM: Performance materiality,
TFPUM: Tolerance for potential uncorrected misstatements.
An Overview of the Scope of our Audit
We performed a risk-based audit that requires an understanding of
the Group’s and the Company’s business and in particular matters
related to:
Understanding the Group, its components, and their
environments, including Group-wide controls
The engagement team obtained an understanding of the
Group, its environment and risk profile, including Group-wide
controls, and assessed the risks of material misstatement
at the Group level. We considered the structure of the Group,
its processes and controls and the industries in which the
components operate.
Identifying significant components
In order to address the risks identified, the engagement team
performed an evaluation of identified components to identify
significant components 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, revenue, inventories and profit
before taxation.
We have performed full scope audits using component
materiality for Company, Flowtech Fluidpower plc and the
subsidiaries Fluidpower Group UK Limited, Fluidpower Group
Services Limited, Flowtech Fluidpower Ireland Limited,
Fluidpower Shared Services Limited and Fluidpower
MIP Limited.
We performed specific audit procedures over certain balances
and transactions on Flowtechnology Benelux Limited and
Hydroflex Hydraulics Group BV. Together, the components
subject to full scope audits and specified audit procedures
were responsible for 98% of the Group’s revenue, 93% of the
Group’s loss before tax, and 100% 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;
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.
Matter 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 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
Company, or returns adequate for our audit have not been
received from branches not visited by us; or
the 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.
61
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Independent Auditor’s Report to the Members of Flowtech Fluidpower plc
Responsibilities of Directors for the
Financial Statements
As explained more fully in the Directors’ responsibilities statement,
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 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 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.
Explanation as to what extent the audit was considered
capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with
laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. Owing to the inherent
limitations of an audit, there is an unavoidable risk that material
misstatements in the financial statements may not be detected,
even though the audit is properly planned and performed in
accordance with the ISAs (UK).
The extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below:
we obtained an understanding of the legal and regulatory
frameworks applicable to the Group and the industry in
which it operates. We determined that the following laws and
regulations were most significant; IFRS, Companies Act 2006,
Quoted Companies Alliance (QCA) Corporate Governance
Code and taxation laws.
We obtained an understanding of how the Company and
the Group are complying with those legal and regulatory
frameworks by making inquiries of management, those
responsible for legal and compliance procedures and the
company secretary. We corroborated our inquiries through
our review of board minutes and papers provided to the
Audit Committee.
We assessed the susceptibility of the Company’s and Group’s
financial statements to material misstatement, including how
fraud might occur. Audit procedures performed by the Group
engagement team included:
• Assessing the design and implementation of controls
management has in place to prevent and detect fraud;
• Obtaining an understanding of how those charged with
governance considered and addressed the potential for
override of controls or other inappropriate influence over the
financial reporting process;
• Challenging assumptions and judgments made by
management in its significant accounting estimates;
Identifying and testing journal entries, in particular journal
entries determined to be large or relating to unusual
transactions.
Making inquiries, in respect of fraud, of those outside the
finance team, including key management and the internal
process audit team.
The assessment of the appropriateness of the collective
competence and capabilities of the engagement team
included consideration of the engagement team’s
knowledge of the industry in which the client operates, and
the understanding of, and practical experience with, audit
engagements of a similar nature and complexity through
appropriate training and participation; and
The engagement team’s discussions in respect of potential
non-compliance with laws and regulations and fraud included
the risk of fraud in revenue recognition. We identified improper
revenue recognition as a key audit matter. The key audit
matters section of our audit report explains the matter in
more detail and also describes the specific procedures we
performed in response to the key audit matter.
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
19 April 2021
62
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 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 (loss)/profit
Financial expenses
Net financing costs
(Loss)/Profit from continuing operations before tax
Taxation
(Loss)/Profit from continuing operations
(Loss)/Profit for the year attributable to:
Owners of the parent
Earnings per share
Basic earnings per share – continuing operations
Diluted earnings per share – continuing operations
Note
2020
£000
2019
£000
3
95,081
(62,487)
32,594
(4,286)
112,418
(72,235)
40,183
(4,547)
3
4
6
3
7
9
(27,236)
(26,179)
(2,466)
(3,712)
(29,702)
(29,891)
(1,394)
(754)
(754)
(2,148)
(24)
(2,172)
(2,172)
(2,172)
(3.54p)
(3.54p)
5,745
(1,038)
(1,038)
4,707
(968)
3,739
3,739
3,739
6.12p
6.10p
63
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Consolidated Statement of Comprehensive Income
(Loss)/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 (loss)/income for the year
Total comprehensive (loss)/income for the year attributable to:
Owners of the parent
2020
£000
(2,172)
289
(1,883)
(1,883)
(1,883)
2019
£000
3,739
(394)
3,345
3,345
3,345
64
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 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
Tax receivable
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
Note
2020
£000
2019
£000
10
11
22
13
15
16
17
18, 22
19
20
18
18, 22
21
14
25
63,164
63,014
5,483
7,490
6,747
6,573
8,228
6,528
82,884
84,343
21,994
18,415
477
257
9,235
50,378
–
1,459
17,805
–
–
19,264
31,114
19,887
6,278
367
1,459
27,991
86,007
30,746
60,959
187
(372)
293
3,646
343
(9,795)
86,007
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
The financial statements on pages 63-105 were approved by the Board of Directors on 19 April 2021 and were signed on its behalf by:
Russell Cash
Chief Financial Officer
Company number: 09010518.
65
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements 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
Total
equity
£000
30,460
60,793
187
293
(413)
3,575
664
(8,146)
20
87,433
–
–
–
25
–
94
–
–
–
–
–
–
–
45
–
121
–
–
–
–
119
166
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
41
–
41
–
–
–
–
–
24
–
–
–
–
24
–
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)
(3,574)
(20)
(3,244)
30,579
60,959
187
293
(372)
3,599
244
(7,955)
–
–
–
167
–
–
167
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
47
–
–
–
(2,172)
381
(92)
381
(2,264)
–
–
(282)
282
–
142
47
(282)
424
30,746
60,959
187
293
(372)
3,646
343
(9,795)
–
–
–
–
–
–
–
–
–
87,534
(2,172)
289
(1,883)
214
–
142
356
86,007
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
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 2020
(Loss) for the year
Other comprehensive
income
Total comprehensive
income for the year
Transactions
with owners
Shares issued as
consideration
Exchange reserve
realised
Share-based
payment charge
Total transactions
with owners
Balance at 31
December 2020
66
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 Consolidated Statement of Cash Flows
Cash flow from operating activities
Net cash from operating activities
Cash flow from investing activities
Acquisition of subsidiary, net of cash acquired
Acquisition of property, plant and equipment
Proceeds from sale of property, plant and equipment
Payment of deferred and contingent consideration
Net cash used in investing activities
Cash flows from financing activities
Net proceeds from issue of share capital
Repayment of right-of-use lease liabilities
Repayment of lease liabilities
Interest on right-of-use leases
Other interest and loan arrangement fee
Proceeds from sale of shares held by the EBT
Share option payments to staff
Dividends paid
Net cash used in financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at start of year
Exchange differences on cash and cash equivalents
Cash and cash equivalents at end of year
Note
2020
£000
2019
£000
26
24
13
10,083
13,246
(164)
(1,652)
105
(219)
(1,930)
(38)
(756)
39
(2,635)
(3,390)
–
70
22
(1,550)
(1,561)
–
(264)
(603)
–
–
–
(2,417)
5,736
3,446
53
9,235
(71)
(282)
(756)
47
(61)
(3,749)
(6,363)
3,493
253
(300)
3,446
8
17, 18
67
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:
Long-term
borrowings
£000
Short-term
borrowings
£000
Lease
liabilities
£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
Right of
use lease
liabilities
£000
–
9,047
Total
£000
20,134
9,047
134
–
(71)
(1,561)
(1,632)
–
–
–
–
(96)
980
–
(96)
980
–
–
–
–
–
–
–
–
–
–
4,000
16,000
63
8,370
28,433
At 1 January 2020
Recategorisation of lease liability
4,000
16,000
63
(63)
8,370
63
28,433
–
Cash flows:
Repayment
Proceeds
–
–
–
–
Transfer between facilities (note 18)
16,000
(16,000)
Other movements
Non cash:
Additions
At 31 December 2020
(113)
–
19,887
–
–
–
–
–
–
–
–
–
(1,550)
(1,550)
–
–
–
–
(116)
(229)
970
7,737
970
27,624
Net bank debt at 31 December is £10.6m, being £19.9m RCF less
cash balance £9.2m available to offset loan balance.
Net debt at 31 December 2020 comprises £10.7m bank debt and
£0.9m of COVID-19 related HMRC support.
68
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 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 Accounting standards
in conformity with the requirements of the 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.
Accounting standards issued but not yet effective
There are a number of standards, amendments to standards, and
interpretations which have been issued by the IASB that are
effective in future accounting periods that the Group has decided
not to adopt early. The most significant of these is are as follows,
which are all effective for the period beginning 1 January 2021:
References to the Conceptual Framework.
Proceeds before Intended Use (Amendments to IAS 16).
Onerous Contracts – Cost of Fulfilling a Contract
(Amendments to IAS 37).
Annual Improvements to IFRS Standards 2018-2020 Cycle
(Amendments to IFRS 1, IFRS 9, IFRS 16, IAS 41).
Classification of Liabilities as Current or Non-current
(Amendments to IAS 1).
These standards are not expected to have a material impact on the
entity in the current or future reporting periods and on foreseeable
future transactions.
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:
Following the challenges presented by COVID-19 and the
impact on 2020 performance, the Directors are forecasting a
return to profitability in 2021 and beyond;
Significant debt reduction has been achieved in both 2019
and 2020 and the Group is now operating with Debt of
approximately half of the level it had at the end of 2018;
The Group is financed by revolving credit facilities totalling
£20m (recently extended to November 2023) and a £5m
overdraft facility, repayable on demand;
At the end of 2020 the Group’s Net Bank Debt was £10.7m
(£14.3m within the aggregate banking facilities).
The Directors have prepared forecasts covering the period to
December 2022. 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.
The Directors have based their stress tests on Revenue reduction
scenarios. This exercise resulted in the Directors believing it is still
likely that the business would continue to operate within the
aggregate £25m banking facility whilst seeking to ensure all bank
covenants were complied with.
The Group therefore continues to adopt the going concern basis in
preparing its financial statements.
2.3 Basis of consolidation
On 24 April 2014, the Company was incorporated under the name
Flowtech Fluidpower Limited. On 7 May 2014, Flowtech Fluidpower
Limited acquired the entire issued share capital of Fluidpower
Shared Services (formerly Flowtech Holdings Limited) via a share
for share exchange with the shareholders of Fluidpower Shared
Services Limited. On 7 May 2014, Flowtech Fluidpower Limited
was re-registered as a public limited company with the name
Flowtech Fluidpower plc. Following the share for share exchange
referred to above, Flowtech Fluidpower plc became the ultimate
legal parent of the Group.
In the absence of an IFRS which specifically deals with similar
transactions, management judge it appropriate to refer to other
similar accounting frameworks for guidance in developing an
accounting policy that is relevant and reliable. The Directors
consider the share for share exchange transaction to be a Group
reconstruction rather than a business combination in the context
of IFRS 3 (revised), ‘Business Combinations’, which has been
accounted for using merger accounting principles. Therefore,
although the share for share exchange did not occur until 7 May
2014, the consolidated financial statements of Flowtech
Fluidpower plc are presented as if the Flowtech Group of
companies had always been part of the same Group.
69
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 2020.
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. Beaumanor Engineering
Limited and PMC Fluidpower Group Limited have a reporting year
ending in June, whilst BALU Limited and Derek Lane & Co Limited
have 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.
2.4 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 (i) 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.
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.
70
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 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 is defined as cash in hand and on demand deposits. Cash
and equivalents are defined as short term highly liquid investments
with original maturities of three months or less.
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
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:
Property
Up to 50 years – straight line
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. Following the various
restructuring initiatives, management assessed the assets no
longer used by the Group for impairment and provided £112k as
restructuring costs in the year.
71
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements
Notes to the Consolidated Financial Information
2. Accounting Policies continued
2.8 Business combinations
Subject to the transitional relief in IFRS 1 ‘First time adoption of
IFRSs’, all business combinations are accounted for by applying
the acquisition method. Business combinations are accounted for
using the acquisition method as at the acquisition date, which is
the date on which control is transferred to the Group.
Acquisitions prior to 1 January 2011
(date of transition to IFRSs)
IFRS 1 grants certain exemptions from the full requirements of
adopted IFRSs in the transition period. The Group elected not to
restate business combinations that took place prior to 1 January
2011. In respect of acquisitions prior to 1 January 2011, goodwill is
included at 1 January 2011 at the amount recorded.
Acquisitions after 1 January 2011
For acquisitions on or after 1 January 2011, the Group measures
goodwill at the acquisition date as:
the fair value of the consideration transferred; plus
the recognised amount of any non-controlling interests in the
acquiree; plus
the fair value of the existing equity interest in the acquiree; less
the fair value of the identifiable assets acquired and
liabilities assumed.
When the excess is negative, a bargain purchase gain is
recognised immediately in profit or loss.
Costs related to the acquisition, other than those associated with
the issue of debt or equity securities, are expensed as incurred and
included in the separately disclosed ‘acquisition costs’ as part of
administration expenses.
Any contingent consideration payable is recognised at fair value at
the acquisition date. 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.
2.9 Intangible assets
Goodwill
Goodwill is stated at cost less any accumulated impairment
losses. Goodwill is allocated to operating segments and is not
amortised but is tested annually for impairment, or earlier if there
is an indication of impairment.
Acquired intangibles
Intangible assets acquired as part of business combinations are
capitalised at fair value at the date of acquisition. Following the
initial recognition, the carrying amount of an intangible is its cost
less accumulated amortisation and any accumulated impairment
losses. Amortisation is charged on the basis of the estimated
useful life on a straight-line basis and the expense is taken to the
income statement and included in the separately disclosed
‘amortisation of acquired intangibles’ as part of administration
expenses (note 11).
The Group has recognised customer relationships and brand
identity as separately identifiable acquired intangible assets. The
useful economic life attributed to each intangible asset is
determined at the time of the acquisition and ranges from five to
ten years. Impairment reviews are undertaken annually and
whenever the Directors consider that there has been a potential
indication of impairment.
2.10 Inventories
Inventories are stated at the lower of cost and net realisable value,
after making allowance for obsolete and slow-moving items. Cost
includes expenditure incurred in acquiring the inventories and other
costs in bringing them to their existing location and condition.
2.11 Impairment
Financial assets (including receivables)
A financial asset not carried at fair value through profit or loss is
assessed at each reporting date to determine 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.
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.
72
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 2.12 Employee benefits
Defined contribution plans
A defined contribution plan is a post-employment benefit plan
under which the Group pays fixed contributions into a separate
entity and will have no legal or constructive obligation to pay
further amounts. Obligations for contributions to defined
contribution pension plans are recognised as an expense in the
income statement in the periods during which services are
rendered by employees.
2.13 Share-based payments
The Group issues equity-settled share-based payments to certain
employees. Equity-settled share-based payments are measured at
fair value at the date of grant. The fair value determined at the
grant date of the equity-settled share-based payments is expensed
on a straight-line basis over the vesting period, based on the
Group’s estimate of shares that will eventually vest. Fair value is
measured by use of the Black-Scholes model.
2.14 Provisions
A provision is recognised in the statement of financial position
when the Group has a present legal or constructive obligation as a
result of a past event that can be reliably measured and it is
probable that an outflow of economic benefits will be required to
settle the obligation. Provisions are determined by discounting the
expected future cash flows at a pre-tax rate that reflects risks
specific to the liability.
2.15 Revenue
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 on-site 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.
2.16 Cost of sales
Cost of sales includes all costs incurred up to the point of
despatch including operating expenses of the warehouse.
2.17 Distribution expenses
Distributions costs are costs directly relating to despatch of
goods and indirect costs including advertising and other sales
related expenses.
2.18 Operating segments
The Group monitors and reports 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.
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.
During 2021, the Board has decided to review business
performance relating to Components in greater detail, split
into two further segments called Flowtech and Fluidpower
Group Solutions. This follows adoption of two branding
styles depending on the precise sector in which the business
operates. The three segments will be:
• Flowtech: catalogue-based businesses supplying both
hydraulic and pneumatic consumables, transitioning to an
e-commerce-centric model
• Fluipdower Group Solutions: businesses supplying both
hydraulic and pneumatic consumables primarily through
off-line channels to a range of OEMs
• Fluidpower Group Services: will mirror the erstwhile
Services segment.
The impact of segment reporting on the new segments is
disclosed in the Financial Review.
The Board is considered to be the chief operating decision maker
(CODM). The CODM manages the business using an underlying
profit figure. Only finance income and costs secured on the assets
of the operating segment are included in the segment results.
Finance income and costs relating to loans held by the Company
are not included in the segment result that is assessed by the
CODM. Transfer prices between operating segments are on an
arm’s length basis.
2.19 Financing income and expenses
Financing expenses comprise interest payable, 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.
73
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements
Notes to the Consolidated Financial Information
2. Accounting Policies continued
2.20 Taxation
Tax on the profit or loss for the year comprises current and
deferred tax. Tax is recognised in the income statement except
to the extent that it relates to items recognised in other
comprehensive income, in which case it is recognised in other
comprehensive income.
Current tax is the expected tax payable or receivable on the
taxable income or loss for the year, using tax rates enacted or
substantively enacted at the reporting date, and any adjustment
to tax payable in respect of previous years.
Deferred tax is provided on temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. The
following temporary differences are not provided for: the initial
recognition of goodwill; the initial recognition of assets or liabilities
that affect neither accounting nor taxable profit other than in a
business combination; and differences relating to investments in
subsidiaries to the extent that they will probably not reverse in the
foreseeable future. The amount of deferred tax provided is based
on the expected manner of realisation or settlement of the carrying
amount of assets and liabilities, using tax rates enacted or
substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is
probable that future taxable profits will be available against which
the temporary difference can be utilised.
2.21 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.
2.22 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.
74
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 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
£5,483,000 (2019: £6,573,000). Refer to note 11 for further detail.
Provision for impairment of inventories
The carrying value of inventories as at 31 December 2020 was
£21,994,000 (2019: £24,000,000) and included a provision against
the inventories of £1,710,000 (2019: £2,046,000). The provision for
impairment of inventories is based on sales trends for all inventory
and management’s estimation of recoverability. Where appropriate,
the provision contains an uplift to reflect the slower rate of sale
due to the impact of COVID-19. As always, there is a risk that the
provision will not match the inventories that ultimately prove to
be impaired.
2.24 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.
2.25 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.
2.26 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.
Foreign operations
In the Group’s financial statements, all assets, liabilities and
transactions of Group entities with a functional currency other
than sterling are translated into sterling upon consolidation.
The functional currency of the entities in the Group has remained
unchanged during the reporting period.
The assets and liabilities of foreign operations are translated to the
Group’s presentational currency, sterling, at foreign exchange rates
ruling at the reporting date. The revenues and expenses of foreign
operations are translated at an average rate for the year where this
rate approximates to the foreign exchange rates ruling at the dates
of the transactions.
Exchange differences arising from this translation of foreign
operations are reported as an item of other comprehensive income
and accumulated in the currency translation reserve. The Group
has taken advantage of the relief available in IFRS 1 to deem the
cumulative translation differences for all foreign operations to be
zero at the date of transition to Adopted IFRSs (1 January 2011).
On disposal of a foreign operation, the related cumulative translation
differences recognised in equity are reclassified to profit or loss
and are recognised as part of the gain or loss on disposal.
2.23 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 (2019: 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 2020 is £63,164,000 (2019:
£63,014,000). Refer to note 10 for further detail. There was no
impairment charge during the year.
75
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Information
3. Segment Reporting
Management reviews the operations of the business based on two
segments – Components and Services, as explained in note 2.18.
These operating segments are monitored by the Group’s Chief
Operating Decision Maker and strategic decisions are made on the
basis of adjusted segment operating results. Inter-segment
revenue arises on the sale of goods between Group undertakings.
The Directors believe that the underlying operating profit provides
additional useful information on underlying trends to Shareholders.
The term ‘underlying’ is not a defined term under IFRS and may not
be comparable with similarly titled profit measurements reported
by other companies. A reconciliation of the underlying operating
result to operating result from continuing operations is shown
below. The principal adjustments made are in respect of the
separately disclosed items as detailed later in this note; the
Directors consider that these should be reported separately as
they do not relate to the performance of the segments.
Segment information for the reporting periods are as follows:
For the year ended 31 December 2020
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
Underlying segment result
Separately disclosed items
Profit/(loss) before tax
Specific disclosure items
Depreciation and impairment on owned plant,
property and equipment
Depreciation on right of use assets
Amortisation
Reconciliation of underlying operating result
Underlying operating result (*)
Separately disclosed items
Operating profit/(loss)
79,638
2,665
82,303
6,828
(250)
6,578
(1,724)
15,443
559
16,002
(1,236)
(6)
(1,242)
(240)
4,854
(1,482)
861
1,417
966
309
66
124
6,828
(1,236)
(1,724)
(240)
5,104
(1,476)
–
(3,224)
(3,224)
–
–
–
–
–
–
–
–
–
—
–
–
–
–
(4,520)
(498)
(5,018)
(502)
(5,520)
–
124
–
(4,520)
(502)
(5,022)
95,081
–
95,081
1,072
(754)
318
(2,466)
(2,148)
1,170
1,607
1,090
1,072
(2,466)
(1,394)
(*) Underlying operating result is continuing operations’ operating profit before separately disclosed items detailed later in this note.
76
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 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
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
Operating profit/(loss)
Components
£000
Services
£000
Inter-segmental
transactions
£000
Central
costs
£000
Total
continuing
operations
£000
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)
—
—
—
–
–
—
—
—
—
—
—
–
–
—
—
–
–
–
(4,329)
(708)
(5,037)
–
(10)
(1,909)
(6,956)
–
106
–
(4,329)
–
(2)
(1,909)
(6,240)
112,418
–
112,418
9,607
(756)
8,851
(297)
(135)
(3,712)
4,707
916
1,701
1,051
9,607
(297)
147
(3,712)
5,745
(*) Underlying operating result is continuing operations’ operating profit before separately disclosed items, IFRS 16 (note 22) and 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.
77
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Information
3. Segment Reporting continued
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 29.1)
Total separately disclosed items
Acquisition costs relate to stamp duty, due diligence, legal fees,
finance fees and other professional costs incurred in the
acquisition of businesses.
Share-based payment costs relate to charges made in accordance
with IFRS 2 ‘Share-based payment’ following the issue of share
options to employees.
Restructuring costs relate to restructuring activities of an
operational nature following acquisition of business units and
other restructuring activities in established businesses. Costs
include consultancy for operational cost reviews and, in 2019,
includes provision for stock in respect of businesses moving to
integrated warehousing facilities, employee redundancies and
IT integration.
2020
£000
2019
£000
94
183
1,090
1,051
142
921
219
2,466
143
1,739
596
3,712
78
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 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 2020
United Kingdom
Europe
Rest of the World
Total
31 December 2019
United Kingdom
Europe
Rest of the World
Total
Sale of goods
£000
Contracts
£000
On-site services
£000
Total revenue
£000
69,238
20,424
1,424
91,086
1,687
2,308
–
–
–
–
1,687
2,308
73,233
20,424
1,424
95,081
Non-current
assets
£000
78,208
4,676
–
82,884
Sale of Goods
£000
Contracts
£000
86,757
21,589
1,054
109,400
744
–
–
744
Services
£000
2,274
–
–
89,775
21,589
1,054
2,274
112,418
Total Revenue
£000
Non-current
Assets
£000
Revenue from contracts relate to contracts completed during the
year and there are no assets or liabilities relating to contracts at
the year end. No new long-term contracts were entered into during
the year.
No customers of the Group account for 10% or more of the
Group’s revenue for either of the years ended 31 December 2020 or
2019. Non-current assets are allocated based on their physical
location.
Central costs relate to the Service Centre team and central
activities, Executive Management team, plc costs and finance
expenses associated with Group loans as detailed in note 6 and
separately disclosed items, as detailed earlier in this note.
Revenue recognised at a point in time was £93,394k
(2019: £111,674k) and revenue recognised over time was
£1,687k (2019: 744k).
79,318
5,025
–
84,343
79
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Information
4. Operating Profit/(Loss)
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 (note 22)
Depreciation and impairment of tangible assets (note 13)
Depreciation of owned property, plant and equipment held under leases (note 13)
Amortisation of intangible assets (note 11)
Changes in amounts accrued for contingent consideration (note 29.1)
Impairment loss/(gain) on trade receivables and prepayments
Loss/(gain) on foreign currency transactions
2020
£000
1,607
1,170
–
2019
£000
1,701
879
37
1,090
1,051
219
152
240
596
(133)
(20)
Repairs and maintenance expenditure on plant and equipment
100
136
Services provided by the Group’s Auditor
Audit of the statutory consolidated and Company financial statements of Flowtech Fluidpower plc
Disclosure below based on amounts receivable in respect of other services to the Company
and its subsidiaries
Amounts receivable by the Company’s Auditor and its associates in respect of:
Audit of financial statements of subsidiaries of the Company
Services are provided by other professional advisers as deemed
appropriate by the Board.
2020
£000
92
2019
£000
60
171
115
80
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 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
Total
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)
Total
COVID subsidy netted off against payroll costs during the year: (*)
Wages and salaries
Social security costs
Contributions to defined contribution pension plans
Total
Payroll costs, net of COVID subsidy, charged to Income statement:
Wages and salaries
Social security costs
Contributions to defined contribution pension plans
Share based payments (note 23)
Total
Number
2020
Number
2019
262
365
627
2020
£000
18,925
2,040
630
142
272
359
631
2019
£000
18,573
1,824
752
143
21,737
21,292
2020
£000
1,148
17
37
1,202
2020
£000
17,777
2,023
593
142
2019
£000
–
–
–
–
2019
£000
18,573
1,824
752
143
20,535
21,292
(*) COVID subsidy credit relates to contribution to payroll costs received from governments in UK, Republic of Ireland and the Netherlands
under the respective local COVID support schemes.
81
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Information
5. Directors & Employees continued
Key management compensation
The remuneration of the Directors and the Chairman, who are all
statutory Directors and are the key management of the Group, is
set out below in aggregate for each of the key categories specified
in IAS 24 ‘Related Party Disclosures’.
Remuneration
Social security costs
Benefits in kind
Total
Directors waived remuneration totalling £5k during the months of
May-June 2020 as part of steps taken by the Group in order to
mitigate the impact of COVID-19 on the business. As part of this
initiative, the wider management waived a further £15.4k of
remuneration. The amounts set out above include remuneration in
respect of the highest paid Director as follows:
Highest paid Director’s remuneration
Remuneration
Social security costs
Benefits in kind
Total highest paid Director’s remuneration
6. Financial Expenses
Finance expenses for the year consist of the following:
Finance expense arising from:
Interest on revolving credit facility (*)
Bank loans
Other credit related interest
Total bank interest
Lease interest
Right-of-use liability interest under IFRS 16
Total lease interest
Imputed interest on deferred and contingent consideration
Total non-credit related interest
Total finance expense
(*) Interest on revolving credit facility includes amortisation charge of loan fee £7k.
82
2020
£000
604
76
21
701
2019
£000
587
75
16
678
2020
£000
2019
£000
224
30
18
272
225
30
16
271
2020
£000
2019
£000
384
104
–
488
2
264
266
–
–
754
591
117
1
709
19
282
301
28
28
1,038
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020
7. Taxation
Recognised in the income statement
Continuing operations:
Current tax expense
Current year (credit)/charge
Overseas tax
Adjustment in respect of prior periods
Current tax expense
Deferred tax
Origination and reversal of temporary differences
Adjustment in respect of prior periods
Change in tax rate
Deferred tax (credit)
Total tax (credit)/expense – continuing operations
Reconciliation of effective tax rate
(Loss)/(profit) for the year
Total tax (credit)/expense
(Loss)/profit excluding taxation
Tax using the UK corporation tax rate of 19.00% (2019: 19.00%)
Deferred tax movements not recognised
Effect of tax rates in foreign jurisdictions
Impact of change in tax rate on deferred tax balances
Income not taxable
Amounts not deductible
Adjustment in respect of prior periods
Other tax reliefs and transfers
Total tax (credit)/expense in the income statement – continuing operations
Change in corporation tax rate
In the Spring Budget 2021, the Government announced that from
1 April 2023 the corporation tax rate will increase to 25% for
companies with profits of £250,000 or greater. For companies with
profits of £50,000 or less, the corporation tax rate will remain at
19%. A tapered rate will be introduced for companies with profits
greater than £50,000 and less than £250,000. Since the proposal
to increase the corporation tax rates had not been substantively
enacted at the balance sheet date, its effects are not included in
these financial statements.
2020
£000
(73)
146
17
90
(80)
(16)
30
(66)
(24)
2020
£000
(2,172)
24
(2,148)
(400)
149
–
31
(6)
233
1
16
24
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
83
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements
Notes to the Consolidated Financial Information
8. Dividends Paid
Final dividend NIL (2019: 4.04p) per share
Interim dividend NIL (2019: 2.13p) per share
Total
During 2020, due to the uncertainty of COVID-19, the Directors
suspended all dividend payments in order to retain as much cash
in the business as possible.
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.
2020
£000
–
–
–
2019
£000
2,453
1,296
3,749
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 2020
Year ended 31 December 2019
Loss
after tax
£000
Weighted
average number
of shares
Loss
per share
Pence
Earnings
£000
Weighted
average number
of shares
Earnings
per share
Pence
Basic earnings per share
Continuing operations
(2,172)
61,424
(3.54)
3,739
61,067
6.12
Diluted earnings per share
Continuing operations
(2,172)
61,488
(3.54)
3,739
61,286
6.10
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
Acquired through business combinations (note 24)
Other movements
Balance at 31 December
Impairment
At 1 January
Impairment charge
At 31 December
Carrying amount at 31 December
84
2020
£000
61,424
64
61,488
2019
£000
61,067
219
61,286
2020
£000
2019
£000
63,014
63,022
195
(45)
–
(8)
63,164
63,014
–
–
–
—
—
—
63,164
63,014
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 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 14 cash-generating units across
these two segments (2019: 15 cash-generating units). These
cash-generating units represent the lowest level within the Group
at which goodwill is monitored for internal management purposes.
Cash-generating units (CGU) were identified by grouping profit
centres within individual statutory entities which together
represent sets of independent cash flows. The following changes
have been made in the current period in the identification of
cash-generating units or the allocation of goodwill to those units
since the prior period.
1.
2.
During 2020, the Group purchased outright one of its
customers, Weltac Limited, ensuring forward integration of
lines being distributed by this online business. The business
of Weltac has since been fully incorporated into
Beaumanor Engineering.
In May 2020, the business announced the merger of the
Nelson and Hi Power brands to create a one stop shop for
Components and hose assembly business across the Island of
Ireland, which also delivered supply chain savings to the Group.
3.
Hi Power business was split between ‘Industrial’ (Components)
and ‘Transport’ (Services) in Cork, Dublin and Belfast, and the
‘Industrial’ business merged with the Nelson business at Cork,
Dublin and Dungannon to create a single joined up consumer
facing business. The merger became fully operational on
1 February 2021. Goodwill identified to the Hi Power business
is allocated between ‘Industrial’ and ‘Transport’ based on the
operating profit for 2020.
Primary Components business was carved out of Knowsley
and moved to Skelmersdale. The logistics, purchasing and
supply chain functions for Primary Components is now
absorbed into Skelmersdale’s logistics centre and Flowtech’s
purchasing system. The sales team for Primary Components
operates out of Skelmersdale. Goodwill identified to the
Primary business is allocated between Components and
Systems based on the Gross profit. Gross profit has been used
as a metric since Systems has an operating loss for 2020.
4.
TSL business has merged with Primary Systems and is no
longer reported as a separate CGU.
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 – Components
Primary Fluid Power – Systems
HTL
HES
Hydroflex Hydraulics Oud
Flowtechnology Benelux BV
Nelson Hi-Power Components & Hose Assembly
Hydravalve
Indequip
Hi-Power Transport
Derek Lane
Total at 31 December
£000
41,677
4,687
2,793
1,883
751
2,447
2,073
2,050
1,015
1,804
954
632
174
224
63,164
85
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements
Notes to the Consolidated Financial Information
10. Goodwill continued
Impairment tests
During the year ended 31 December 2020, the Group determined
that there was no impairment of any of its cash-generating units
containing goodwill.
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 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 2021 and in some cases, further updated the
assumptions for 2022, based on those 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.
The revenue growth rates used in the calculations reflect the
average growth rate for the industry as a whole experienced by the
Group, adjusted for circumstances specific to the individual CGUs.
For the majority of CGUs, revenue is assumed is expected to grow
by 7.1% p.a. (2019: 2.5%) in the initial two-year forecast period.
For certain CGUs, growth rates of between 10.0% and 15% were
assumed where post-COVID recovery was expected to occur faster.
Beyond the initial forecast period, the growth rates for all the CGUs
taper downward to the expected long-term growth rate over the
next three years.
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
7.4% to 11.9% (2019: 11.0%). This discount rate has been derived
from the Group’s weighted average post-tax cost of capital and
taking into account external market factors.
Sensitivity to changes in key assumptions
Other than is noted hereinafter, 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. Orange County’s goodwill is the most sensitive to changes
in the assumption given its modest level of headroom. Whilst
management do not believe there to be an impairment, for
illustrative purposes only a reduction in trading of over 1.0% in
revenue or an increase in the discount rate to 13.8% would result
in an impairment.
11. Other Intangible Assets
Customer relationships
Brands
Gross carrying value
Balance at 1 January 2020
Balance at 31 December 2019
Amortisation and impairment
Balance at 1 January 2020
Amortisation
Balance at 31 December 2020
Carrying amount at 31 December 2020
2020
£000
2019
£000
9,371
9,371
3,729
982
4,711
4,660
9,371
9,371
2,786
943
3,729
5,642
2020
£000
1,173
1,173
242
108
350
823
2019
£000
1,173
1,173
134
108
242
931
Total
2020
£000
10,544
10,544
3,971
1,090
5,061
5,483
2019
£000
10,544
10,544
2,920
1,051
3,971
6,573
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.
86
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
12. Subsidiary Undertakings
Country of
incorporation Principal activity
Distributors of engineering components
Assembly and distribution of engineering components
100%
Assembly and distribution of engineering components
100%
Ownership
100%
Fluidpower Group UK Limited
Fluidpower Group Services UK Limited
Flowtech Fluidpower Ireland Limited
Derek Lane & Co 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
PMC Fluidpower Group Limited
Balu Limited
Fluidpower MIP Limited
Flowtechnology Benelux BV
The Hydraulic Group BV
Hydroflex-Hydraulics BV
UK
UK
ROI
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
Dormant
Dormant
Dormant
Dormant
Dormant
Holding company
Holding company
Holding company
Holding company
Holding company
Dormant
Holding company
Netherlands
Distributors of engineering components
Netherlands
Holding company
Netherlands
Assembly and distribution of engineering components
100%
Hydroflex-Hydraulics Rotterdam BV
Netherlands
Assembly and distribution of engineering components
100%
Hydroflex-Hydraulics Belgium NV
Belgium
Assembly and distribution of engineering components
100%
Flowtech Mid-Co Limited
Vitassem Limited
IPL Fluidpower 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
Weltac Limited
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
Hong Kong
Dormant
UK
Dormant
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.
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
87
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Information
13. Property, Plant & Equipment
Cost
Balance at 1 January 2019
Additions
Disposals
Balance at 31 December 2019 and 1 January 2020
Additions
Disposals
Effect of movements in foreign exchange
Balance at 31 December 2020
Depreciation and impairment
Balance at 1 January 2019
Depreciation charge for the year
Disposals
Balance at 31 December 2019 and 1 January 2020
Depreciation charge for the year
Impairment
Disposals
Effect of movements in foreign exchange
Balance at 31 December 2020
Net book value
At 31 December 2020
At 1 January 2020
At 1 January 2019
Land and
property
£000
Plant,
machinery and
equipment
£000
1,131
11,784
53
–
1,184
23
–
–
1,207
117
40
–
157
50
–
–
–
207
627
–
12,411
1,419
(398)
58
13,490
6,589
735
–
7,324
856
50
(137)
41
8,134
Motor vehicles
£000
Total
£000
744
76
(56)
764
212
(87)
9
898
218
141
(9)
350
152
62
(59)
2
507
13,659
756
(56)
14,359
1,654
(485)
67
15,595
6,924
916
(9)
7,831
1,058
112
(196)
43
8,848
6,747
6,528
6,735
1,000
5,356
391
1,027
1,014
5,087
414
5,195
526
Included in land and property is land at a cost of £145,000 which is
not depreciated (2019: £145,000).
88
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 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
Losses and other deductions
Tax assets/(liabilities)
Net deferred tax liability
A deferred tax asset of £Nil (2019: £142,000) in respect of
cumulative share-based payments of £Nil (2019: £748,000) 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 2020
Intangible assets
Property, plant and equipment
Provisions
Employee share-based payments
Losses and other deductibles
Movement in deferred tax during the year ended
31 December 2019
Intangible assets
Property, plant and equipment
Provisions
Employee share-based payments
15. Inventories
Finished goods and goods for resale
Assets
Liabilities
2020
£000
–
–
84
–
37
121
2019
£000
—
—
95
43
–
138
2020
£000
(1,117)
(463)
–
–
–
2019
£000
(1,315)
(342)
—
—
–
(1,580)
(1,459)
(1,657)
(1,519)
1 January
2020
£000
Recognised in
profit or loss
£000
31 December
2020
£000
(1,315)
(342)
95
43
–
(1,519)
198
(121)
(11)
(43)
37
60
(1,117)
(463)
84
–
37
(1,459)
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)
2020
£000
2019
£000
21,994
24,000
Charges for finished goods recognised as cost of sales in the year
amounted to £54,974,000 (2019: £65,417,000). The write-downs
and reversals are included in cost of sales. The provision made
against inventories at the year end was £1,710,000 (2019:
£2,046,000).
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.
89
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:
2020
£000
17,872
543
18,415
2019
£000
21,058
319
21,377
Gross
2020
£000
Impairment
2020
£000
Gross
2019
£000
Impairment
2019
£000
28
8
273
309
2019
£000
585
(143)
(133)
309
2019
£000
2,263
1,122
61
3,446
Not past due
Past due 0-30 days
More than 30 days
16,574
1,151
480
18,205
30
10
293
333
18,458
1,656
1,253
21,367
The overall expected credit loss rate is 1.6% (2019: 1.4%).
The movement in the allowance of impairment in respect of trade
receivables during each year was as follows:
2020
£000
309
(128)
152
333
2020
£000
7,980
1,226
29
9,235
Balance at 1 January
Provision utilised
Increase/(decrease) in provision
Balance at 31 December
17. Cash & Cash Equivalents
Cash and cash equivalents:
Sterling
Euro
Dollar
Total cash and cash equivalents
90
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 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 29.
Non-current liabilities
Secured bank loans
Revolving credit facility ($)
Lease liabilities
Right-of-use liabilities
Total non-current liabilities
Current liabilities
Revolving credit facility
Lease liabilities
Right-of-use liabilities
Total current liabilities
Total
2020
£000
2019
£000
–
4,000
19,887
–
6,278
26,165
–
–
1,459
1,459
27,624
–
8
6,735
10,743
16,000
55
1,635
17,690
28,433
($) RCF loan arrangement fee of £120k was paid in Nov 2020. The loan arrangement fee is amortised over the life of the loan (36 months).
Accordingly, £7k amortisation charge is charged to the income statement during 2020. The unamortised value of the loan fee as at 31 December 2020
of £113k is netted off against the RCF Facility of £20,000k.
Terms and debt repayment schedule
Currency
Nominal interest rate
Year of maturity
Secured bank loan
Secured revolving credit facility
Finance lease liabilities
Secured revolving credit facility
Right-of-use liabilities
Right-of-use liabilities
GBP
GBP
GBP
GBP
GBP
EUR
BoE + 2.1%
BoE + 2.1%
Various
2021
2021
2020 to 2021
Libor + 2.65%
2023
Various
Various
2020 to 2031
2020 to 2027
Carrying
value 2020
£000
Carrying
value 2019
£000
–
–
–
20,000
6,548
1,189
27,737
4,000
16,000
63
–
6,926
1,444
28,433
Under terms agreed in November 2020, the secured bank loan of
£4,000,000 was ceased and the revolving credit facility was
increased to £20,000,000. The revolving credit facility is subject
to a non-utilisation fee of 0.9275% and is due for renewal in 2023.
The facility is secured by legal charges over certain of the Group’s
assets which include trade receivables and stock. The Group also
has a £5,000,000 overdraft facility which is subject to annual
review, next such review due on 31 July 2021.
91
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 (*)
2020
£000
2019
£000
10,792
3,088
3,925
17,805
10,356
3,073
2,081
15,510
(*) Social security and other taxes include VAT liability of £1,418k relating to Q1 2020 VAT deferred under the COVID support scheme offered by HMRC.
20. Deferred & Contingent Consideration
2020
£000
2019
£000
–
–
–
–
–
2020
£000
417
(74)
24
367
2020
£000
–
367
367
–
–
214
214
214
2019
£000
399
–
18
417
2019
£000
–
417
417
Non-current liabilities
Contingent consideration
Total non-current liabilities
Contingent consideration
Total current liabilities
Total
On 16 April 2020, the contingent consideration payable following
purchase of 10% minority interest in Derek Lane & Co Limited
was settled by issue of 335,546 ordinary shares in
Flowtech Fluidpower plc at 63.74 pence each.
21. Provisions
Balance at 1 January 2020
Amount utilised during the year
Amount provided in the year
Balance at 31 December 2020
Provisions have been analysed between current and non-current as follows:
Current
Non-current
Total
Provisions comprise dilapidation provisions 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.
92
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 22. Right-of-use Assets & Lease Liabilities
Right-of-use assets
Land and
property
£000
Plant,
machinery and
equipment
£000
Motor vehicles
£000
Cost
Balance at 1 January 2020
Additions
Disposals
Effect of movement in foreign exchange
Other lease movements
Balance at 31 December 2020
Depreciation and amortisation
Balance at 1 January 2020
Depreciation charge for the year
Disposals
Effect of movements in foreign exchange
Balance at 31 December 2020
Net book value
At 31 December 2020
At 31 December 2019
8,855
168
(210)
94
(149)
8,758
1,351
1,163
(210)
23
2,327
6,431
7,504
Other lease movements is an adjustment for the reduction in value
of right-of-use assets of £149,000 following the exercise of an
early termination clause for two property leases.
The statement of profit or loss shows the following amounts
relating to right-of-use assets:
Depreciation charge of right-of-use assets
Land and property
Plant, machinery and equipment
Motor vehicles
Interest expenses (included in finance cost)
Exchange movements in income statement
Total expense in the income statement relating to right-of-use assets
–
399
–
–
–
1,172
404
(332)
15
–
Total
£000
10,027
971
(542)
109
(149)
399
1,259
10,416
–
19
–
–
19
380
–
448
425
(299)
6
580
679
724
1,799
1,607
(509)
29
2,926
7,490
8,228
2020
£000
2019
£000
1,163
1,263
19
425
264
(3)
1,868
–
438
282
(15)
1,968
93
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
Recategorisation of lease liability
Repayment
Additions to right-of-use assets in exchange for increased lease liabilities
Disposals
Other lease movements
At 31 December
Within other lease movements is an adjustment for the reduction
in liability totalling £149,000 following the exercise of an early
termination clause in relation to two property leases.
Analysis by length of liability
2020
£000
8,370
63
2019
£000
9,047
–
(1,550)
(1,561)
970
(48)
(68)
980
–
(96)
7,737
8,370
As at 31 December 2020
As at 31 December 2019
Plant,
machinery
and
equipment
£000
56
326
382
Land and
property
£000
1,040
5,651
6,691
Motor
vehicles
£000
363
301
664
Total
£000
1,459
6,278
7,737
Land and
property
£000
1,250
6,408
7,658
Plant,
machinery
and
equipment
£000
–
–
–
Motor
vehicles
£000
385
327
712
Total
£000
1,635
6,735
8,730
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
Number of leases with extension options
Number of leases with options to purchase
Number 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 £593,000 (net
of COVID-19 Subsidy) (2019: £752,000).
23.2 Share-based employee remuneration
As at 31 December 2020, 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
27
Plant,
machinery and
equipment Motor vehicles
5
94
1-11 years
7 years
1-4 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.
94
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 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 21 May 2021
1 June 2016
1 June 2019 to 1 June 2023
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:
2020
number
77
3,005
2019
number
77
3,010
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
8 January 2020
Exercise price
Exercise period
2020
number
£000
2019
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
£0.50
5 May 2022 to 28 January 2026
31 Mar 2022 to 8 February 2030
610
12
622
37
60
45
9
150
50
351
973
610
12
622
37
130
45
9
150
–
371
993
95
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 2020
622
1.01
Granted
Lapsed
Forfeited
Exercised
Outstanding at 31 December 2020
Exercisable at 31 December 2020
Exercisable at 31 December 2019
–
–
–
–
622
622
622
–
–
–
–
1.01
1.01
1.01
371
50
(70)
–
–
351
143
212
0.91
0.50
1.32
–
–
0.76
0.88
0.84
993
50
(70)
–
–
973
765
834
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
08 January 2020
31 March 2022
£1.15
39.00%
10 years
6.00%
0.45%
£0.07
£0.50
31 March 2022 to
07 January 2030
9 years
Grant date
Vesting period ends
Share price at date of grant
Volatility
Option life
Dividend yield
Risk-free investment rate
Fair value at grant date
Exercise price at date of grant
Exercisable from/to
Weighted average remaining contractual life
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.
96
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020
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 2020
Granted
Exercised
Forfeited
Outstanding at 31 December 2020
Exercisable at 31 December 2020
Exercisable at 31 December 2019
In total, £142,000 (2019: £143,000) of employee remuneration
expenses, all of which related to equity-settled share-based
payment transactions, has been included in the Consolidated
Income Statement.
2020
number
000
2019
number
000
110
352
27
489
110
365
27
502
Weighted
average
exercise
price per
share
Number
of shares
502
–
–
(13)
489
462
475
1.10
–
–
1.00
1.07
1.13
1.10
97
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Book value £000
Fair value
£000
2
5
252
(28)
(10)
221
2
5
252
(28)
(10)
221
£000
416
(221)
195
Notes to the Consolidated Financial Information
24. Acquisitions & Disposals
Acquisition of Weltac Limited
On 11 March 2020, the Group acquired 100% of the share capital
of Weltac Limited, a UK based supplier of parts for pipe fittings and
motor garages. The total consideration was £415,530 in cash.
The acquisition integrates a profitable business and customer into
the wider Flowtech business. Details of the provisional fair value of
identifiable assets and liabilities acquired, and purchase
consideration and goodwill are as follows:
Property, plant and equipment
Trade receivables
Cash balances
Trade and other payables
Current tax balances
Total net assets
Amount settled in cash
Less net assets acquired
Goodwill on acquisition
Fair values
Fair values are provisional as subject to management estimations
at the reporting date. Acquisition costs amounting to £21,350 have
been recognised as an expense in the consolidated income
statement as part of the separately disclosed administration costs.
Goodwill
Goodwill of £195,000 is primarily related to expected future
profitability. Goodwill has been allocated to components operating
segment and is not expected to be deductible for tax purposes.
Hive up
The trade and assets of Weltac Limited were hived up to
Fluidpower Group UK Limited at the close of business on
30th April 2020.
Weltac Limited’s contribution to the Group results
Weltac Limited generated sales of £65,629 and operating profit of
£13,392 for the period 12 March to 30 April 2020, at the end of
which period the business was hived up and merged with the
business of Beaumanor. Prior to its acquisition, for the period
1 January to 11 March 2020, Weltac Limited generated sales of
£75,134 and operating profit of £19,613. Had Weltac been acquired
at the start of this financial year, the Group revenue would have
been £95,155,764 and the Group operating loss would have been
£1,372,866.
98
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 25. Equity
The share capital of the Company consists only of fully paid
ordinary shares with a nominal value of 50p per share. All shares
are equally eligible to receive dividends and the repayment of capital
and represent one vote at Shareholders’ meetings of the Company.
Allotted and fully paid ordinary shares of 50p each at 31 December 2020
Shares authorised for share-based payments
Total shares authorised at 31 December 2020
Allotted and fully paid ordinary shares of 50p each
At 1 January 2020
Shares issued as consideration
At 31 December 2020
On 16 April 2020, 335,546 ordinary shares of 50p each were issued
at 63.74 pence each in settlement of contingent consideration
owed for purchase of minority interest in Derek Lane & Co Limited.
26. Net Cash from Operating Activities
Reconciliation of profit before taxation to net cash flows from operations
Loss/(profit) from continuing operations before tax
Depreciation and impairment of property, plant and equipment
Depreciation on right-of-use assets (IFRS 16)
Finance costs (note 6)
Loss on sale of plant and equipment
Write back liabilities
Amortisation of intangible assets
Profit on sale of shares
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
Number
61,492,673
6,666,667
68,159,340
£000
30,746
3,333
34,079
Number
£000
61,157,127
30,579
335,546
167
61,492,673
30,746
2020
£000
2019
£000
(2,148)
1,170
1,607
754
184
(19)
1,090
–
142
219
–
–
2,999
3,455
2,207
2,118
(47)
10,732
(649)
10,083
4,707
916
1,701
1,038
6
–
1,051
140
143
596
123
12
10,433
4,006
4,667
(2,862)
18
16,262
(3,016)
13,246
(*) Change in trade and other payables includes VAT payments of £1,418k relating to Q1 2020 VAT deferred under the COVID support scheme offered by HMRC.
27. Contingent Liabilities & Commitments
The Group had capital expenditure of £50,000 contracted for but
not provided at 31 December 2020 (2019: £274,000).
99
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Information
28. 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
Roger McDowell
Nigel Richens
Paul Gedman
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.
29. Financial Instruments
29.1 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.
2020
£000
–
–
–
–
–
–
–
–
2019
£000
18
4
2
–
5
–
1
30
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
2020
£000
–
–
Fair value
2020
£000
Level 3
2020
£000
–
–
–
–
Carrying
amount
2019
£000
(214)
(214)
Fair value
2019
£000
(214)
(214)
There have been no transfers in either direction during the years
ended 31 December 2020 and 31 December 2019.
The reconciliation of the carrying amounts of financial instruments
classified within level 3 is as follows:
Balance at 1 January
Arising on business combinations
Changes in amounts accrued for contingent consideration
Issue of share capital towards settlement of contingent liability
Payment of contingent consideration (*)
Balance at 31 December
(*) The Group acquired BALU Limited and its subsidiaries in March 2018. Additional deferred consideration
of £219k refers to re-payment to the vendors of tax deduction/refunds realised in the recently concluded
corporation tax submission of these companies, as agreed in the SPA.
2020
£000
214
–
219
(214)
(219)
–
Level 3
2019
£000
(214)
(214)
2019
£000
2,240
214
596
–
(2,836)
214
100
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 The Group is exposed to various risks in relation to financial
instruments. Each of these is disclosed in the table below.
Loans and receivables
Cash and cash equivalents (note 17) (*)
Trade and other receivables (note 16) (*)
Total financial assets measured at amortised costs
Total financial assets at fair value
Financial assets
Financial liabilities measured at amortised cost
Carrying
amount
2020
000
Fair value
2020
£000
Carrying
amount
2019
£000
Fair value
2019
£000
Level 3
2019
£000
9,235
18,415
27,650
–
9,235
18,415
27,650
–
3,446
21,377
24,823
–
3,446
21,377
24,823
–
27,650
27,650
24,823
24,823
Other interest-bearing loans and borrowings (note 18)
(27,737)
(27,737)
(28,433)
(28,433)
Trade payables and accruals (note 19) (*)
(13,880)
(13,880)
(13,429)
(13,429)
Total financial liabilities measured at amortised cost
(41,617)
(41,617)
(41,862)
(41,862)
Financial liabilities at fair value
Contingent consideration (note 20)
Total financial liabilities at fair value
Total financial liabilities
Total financial instruments
–
–
–
–
(214)
(214)
(214)
(214)
(214)
(214)
(41,617)
(41,617)
(42,076)
(42,076)
(13,967)
(13,967)
(17,253)
(17,253)
(*) 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. Values for other interest-bearing loans and borrowings for
2019 are corrected to be consistent with note 18.
Financial instruments measured at fair value
Valuation technique
Forward exchange contracts
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.
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.
101
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Information
29. Financial Instruments continued
29.2 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
29.3 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.
2020
£000
14,951
2,653
268
17,872
2019
£000
17,811
2,858
389
21,058
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 2020
Non-derivative financial liabilities
Liabilities relating to right-of-use assets
Revolving credit facility
Trade payables
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
Carrying
amount
£000
Contractual
cash flows
£000
7,737
20,000
10,792
38,529
8,910
21,492
10,792
41,194
Carrying
amount
£000
Contractual
cash flows
£000
4,000
8,370
63
16,000
10,356
38,789
4,141
8,370
70
16,376
10,356
39,313
1 year
or less
£000
1,689
535
10,792
13,016
1 year
or less
£000
94
1,635
60
16,376
10,356
28,521
1 to 2
years
£000
1,422
535
–
2 to 5
years
£000
3,054
20,422
–
1,957
23,476
1 to 2
years
£000
4,047
1,162
10
–
–
2 to 5
years
£000
–
2,049
–
–
–
5,219
2,049
There are no contractual maturities over five years, save for liabilities relating to right-of-use assets.
102
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 29.4 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
activities. 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 2020
Cash and cash equivalents
Trade and other receivables
Revolving credit facility
Liabilities relating to right-of-use assets
Trade payables
Net exposure
31 December 2019
Cash and cash equivalents
Trade and other receivables
Secured bank loans
Revolving credit facility
Sterling
£000
7,980
15,654
(20,000)
(6,549)
(7,699)
(10,614)
Sterling
£000
2,263
18,434
(4,000)
(16,000)
Euro
£000
1,226
2,635
–
(1,188)
(3,711)
(1,038)
Euro
£000
1,122
2,750
–
–
Liabilities relating to right-of-use assets
(6,915)
(1,455)
Lease liabilities
Trade payables
Net exposure
(63)
(5,229)
(11,510)
–
(5,101)
(2,684)
US Dollar
£000
Other
£000
Total
£000
9,235
18,415
(20,000)
(7,737)
(10,792)
–
27
–
–
–
27
(10,879)
29
99
–
–
618
746
US Dollar
£000
Other
£000
61
193
–
–
–
–
(26)
228
–
–
–
–
–
–
–
–
Total
£000
3,446
21,377
(4,000)
(16,000)
(8,370)
(63)
(10,356)
(13,966)
Sensitivity analysis
A 10% weakening of the following currencies against the pound
sterling at 31 December 2020 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 2020 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 2019.
The analysis is performed on the same basis for the year ended
31 December 2019.
€
$
Profit or loss and equity
Profit or loss and equity
2020
£000
94
(68)
2019
£000
244
(21)
€
$
2020
£000
(115)
83
2019
£000
(298)
25
103
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Notes to the Consolidated Financial Information
29. 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)
2020
£000
2019
£000
–
63
19,887
20,000
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 2019.
Equity
Increase of 100 basis points
Decrease of 100 basis points
Profit or loss
Increase of 100 basis points
Decrease of 100 basis points
2020
£000
(199)
199
(199)
199
2019
£000
(200)
200
(200)
200
104
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 The Group is subject to covenants in respect of its bank facilities
and remains covenant compliant. 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.
29.5 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.
30. Subsequent Events
There are no material adjusting or non-adjusting events
subsequent to the reporting date.
105
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
2020
£000
2019
£000
C
F
F
G
(827)
(827)
9,000
(488)
8,512
7,685
39
7,724
(943)
(943)
4,350
(708)
3,642
2,699
–
2,699
106
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 Company Statement of Financial Position
Fixed assets
Investments
Total fixed assets
Current assets
Cash and cash equivalents
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 106-115 were approved by the
Board of Directors on 19 April 2021 and were signed on its behalf by:
Russell Cash
Chief Financial Officer
Company Registration Number: 09010518
Note
2020
£000
2019
£000
J
K
L
M
L
O
59,358
59,358
15
73,059
73,074
–
5,990
5,990
67,084
59,002
59,002
–
65,292
65,292
16,000
5,819
21,819
43,473
126,442
102,475
19,887
19,887
106,555
30,746
60,959
334
187
453
13,876
106,555
4,000
4,000
98,475
30,579
60,959
192
187
406
6,152
98,475
107
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Merger
relief
reserve
£000
Retained
earnings (*)
£000
7,163
2,699
2,699
—
(11)
102
140
(3,749)
(3,518)
6,344
7,724
7,724
142
—
142
382
–
–
24
—
—
—
—
24
406
—
—
—
47
47
453
Total
equity
£000
98,985
2,699
2,699
309
(11)
102
140
(3,749)
(3,209)
98,475
7,724
7,724
142
214
356
14,210
106,555
Company Statement of Changes in Equity
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)
Share
capital
£000
30,460
–
–
Share
premium
£000
60,793
–
–
119
166
—
—
—
—
—
—
—
—
Total transactions with owners
119
166
Other
reserve
£000
187
–
–
—
—
—
—
–
-
Balance at 1 January 2020
30,579
60,959
187
Profit for the year
Total comprehensive income for the year
Transactions with owners
Share options – granted to subsidiary
employees
Issue of share capital
Total transactions with owners
—
—
—
167
167
—
—
—
—
—
—
—
—
—
—
Balance at 31 December 2020
30,746
60,959
187
(*) Retained earnings and share based payment reserve.
108
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 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 2020 were authorised for issue by
the Board of Directors on 19 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 2020.
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
109
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 12% (2019: 8%-11%). 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 2020 is
£59,358,000 (2019: £59,002,000). The value in use of investment
in subsidiaries is in excess of the carrying value. 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 effect on the ability of each of the Group
companies to repay the amounts due.
The amounts owed by subsidiary undertakings were £72,648,000
(2019: £64,912,000). 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
Restructuring
2020
£000
–
–
2019
£000
35
69
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.
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
2020
£000
92
2019
£000
60
110
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 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
Social security costs
Benefits in kind
The amounts set out above include remuneration in respect of the
highest paid Director as follows:
Highest paid Director’s remuneration
Remuneration
Social security costs
Benefits in kind
Total highest paid Director’s remuneration
Directors waived remuneration totalling £5k during the months of
May-June 2020 as part of steps taken by the Group in order to
mitigate the impact of COVID-19 on the business.
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, and amortisation of loan arrangement fee
Total finance income
2020
£000
4
2020
£000
604
85
21
710
2019
£000
4
2019
£000
587
75
16
678
2020
£000
2019
£000
224
30
18
272
225
30
16
271
2020
£000
9,000
9,000
2020
£000
488
488
2019
£000
4,350
4,350
2019
£000
708
708
111
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Notes to the Company Financial Information
G. Taxation
Reconciliation of effective tax rate
Profit for the year
Total (credit)/tax expense
Profit excluding taxation
Tax using the UK corporation tax rate of 19.00% (2019: 19.00%)
Deferred tax movements not recognised
Group relief
Effect of share option exercises
Income not taxable
Amounts not deductible
Total (credit)/tax expense in the income statement
Change in corporation tax rate
In the Spring Budget 2021, the Government announced that from
1 April 2023 the corporation tax rate will increase to 25% for
companies with profits of £250,000 or greater. For companies with
profits of £50,000 or less the corporation tax rate will remain at
19%. A tapered rate will be introduced for companies with profits
greater than £50,000 and less than £250,000.
H. Dividends Paid
Final dividend NIL (2019: 4.04p) per share
Interim dividend NIL (2019: 2.13p) per share
2020
£000
7,724
(39)
7,685
1,461
(2)
212
–
(1,710)
–
(39)
2019
£000
2,699
–
2,699
513
–
310
–
(827)
4
–
Since the proposal to increase the corporation tax rates had not
been substantively enacted at the balance sheet date, its effects
are not included in these financial statements.
2020
£000
–
–
–
2019
£000
2,453
1,296
3,749
During 2020, due to the uncertainty of COVID-19, the Directors suspended all dividend payments
in order to retain as much cash in the business as possible.
I. Share-based Payments
Details of share-based payments are shown in note 23 to the
consolidated financial statements.
J. Investments
Cost and net book value
At 1 January 2019
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 2019
At 1 January 2020
Shares issued in consideration for acquisition of indirect subsidiaries
Additions net of exercise of options in the year
At 31 December 2020
Investments in
subsidiaries’
unlisted shares
£000
Subsidiaries’
share-based
payment reserves
£000
Total
£000
58,772
109
58,881
–
38
–
58,810
58,810
214
–
59,024
–
–
83
192
192
–
142
334
–
38
83
59,002
59,002
214
142
59,358
112
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
The principal subsidiaries of the Company are listed below: Country of
incorporation Principal activity
Distributors of engineering components
Assembly and distribution of engineering components
100%
Assembly and distribution of engineering components
100%
Ownership
100%
Fluidpower Group UK Limited
Fluidpower Group Services UK Limited
Flowtech Fluidpower Ireland Limited
Derek Lane & Co 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
PMC Fluidpower Group Limited
Balu Limited
Fluidpower MIP Limited
Flowtechnology Benelux BV
The Hydraulic Group BV
Hydroflex-Hydraulics BV
UK
UK
ROI
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
Dormant
Dormant
Dormant
Dormant
Dormant
Holding company
Holding company
Holding company
Holding company
Holding company
Dormant
Holding company
Netherlands
Distributors of engineering components
Netherlands
Holding company
Netherlands
Assembly and distribution of engineering components
100%
Hydroflex-Hydraulics Rotterdam BV
Netherlands
Assembly and distribution of engineering components
100%
Hydroflex-Hydraulics Belgium NV
Belgium
Assembly and distribution of engineering components
100%
Flowtech Mid-Co Limited
Vitassem Limited
IPL Fluidpower 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
Weltac Limited
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
Hong Kong
Dormant
UK
Dormant
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.
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
113
Stock code: FLO – www.flowtechfluidpower.comStrategic ReportGovernanceFinancial Statements Notes to the Company Financial Information
K. Trade & Other Debtors
Current:
Deferred tax asset
Prepayments and accrued income
Amounts owed by Group undertakings
Total trade and other debtors
L. Interest-bearing Loans & Borrowings
Non-current liabilities:
Secured bank loans
Revolving credit facility
Total non-current liabilities
Current liabilities:
Revolving credit facility
Total current liabilities
Total interest-bearing loans and borrowings
Under terms agreed in November 2020, the secured bank loan of
£4,000,000 was ceased and the revolving credit facility was
increased to £20,000,000. The revolving credit facility is subject to
a non-utilisation fee of 0.9275% and is due for renewal in 2023.
The facility is secured by legal charges over certain of the Group’s
assets which include trade receivables and stock. The Group also
has a £5,000,000 overdraft facility which is subject to annual
review, next such review due on 31 July 2021.
M. Trade & Other Creditors
Social security and other taxes
Accruals and deferred income
Amounts owed to other Group undertakings
Total trade and other creditors
2020
£000
2019
£000
39
372
72,648
73,059
2020
£000
–
19,887
19,887
–
–
19,887
–
380
64,912
65,292
2019
£000
4,000
–
4,000
16,000
16,000
20,000
2020
£000
92
213
5,685
5,990
2019
£000
83
113
5,623
5,819
114
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 N. 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 Nil (2019: £12,000) in respect of cumulative
share-based payments of Nil (2019: £58,000) has not been
recognised due to uncertainty surrounding the availability of future
profits, against which these payments can be utilised.
O. Share Capital
Allotted, called up and fully paid:
At 1 January 2020
Shares issued in consideration for acquisition of indirect subsidiaries
At 31 December 2020
2020
£000
2019
£000
—
—
—
39
39
—
—
—
—
—
Number
£000
61,157,127
30,579
335,546
167
61,492,673
30,746
P. Contingent liabilities & Commitments
The Company has no capital expenditure contracted for but not
provided as at 31 December 2020 (2019: £274,000).
Q. 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. Amount owing by Flowtech Fluidpower
Employee Benefit Trust is £372,000 remains outstanding. There
are no other related party transactions other than those relating to
Directors that have been disclosed in note 28 to the consolidated
financial statements.
R. 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
115
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 Group
10th Floor
Central Square
29 Wellington Street
Leeds
LS1 4DL
Bankers
Barclays Bank plc
1 Churchill Place
London
E14 5HP
Investor Relations
TooleyStreet Communications Ltd
Regent Court
Birmingham
West Midlands
B3 1UG
116
Flowtech Fluidpower plc – Annual Report for the year ended 31 December 2020 Flowtech Fluidpower plc
Registered Offi ce
Bollin House
Bollin Walk
Wilmslow
SK9 1DP
info@flowtechfluidpower.com
www.flowtechfluidpower.com