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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 three distinct segments: Flowtech, Fluidpower Group Solutions and Fluidpower Group Services.
www.flowtechfluidpower.com
Below are some of the leading brands we sell and partner with:
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Shareholder enquiries can be directed to:
The Company Secretary, Flowtech Fluidpower plc
Tel: +44 (0) 1695 52759
Email: info@flowtechfluidpower.com
Contents
About the business
Strategic report
2022 Financial & Operational Highlights
Chair’s Statement
Group Overview
CEO’s Year in Review
Our Business Model
Our Strategy for Growth
Key Performance Indicators
Marketplace
Global Landscape
Sustainability Report
Corporate Social Responsibility - Section 172 Statement
Financial Review
Risk Management
Governance
The Board
Corporate Governance Report
Directors’ Remuneration Report
Directors’ Report
Financial statements
Independent Auditor’s Report
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Information
Company Income Statement
Company Statement of Financial Position
Company Statement of Changes in Equity
Notes to the Company’s Financial Information
Glossary of Terms
Company information
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FY2022
Financial & Operational Highlights
Revenue of £114.8m (2021: £109.1m), £5.7m (5.2%) up on 2021
£8.6m underlying operating profit* (2021: £5.7m), an improvement of
£2.9m as the business continued its recovery from the COVID-19
pandemic
£11.6m underlying EBITDA⁺(2021: £8.4m), an improvement of £3.2m
Measures taken to manage the cost base, in particular a significant
reduction in headcount by the end of the year, has reduced underlying
operating overheads** by £0.4m (1.3%) in an environment of significant
inflationary pressures
Significantly improved performance by the Services segment with
underlying operating profit of £1.8m (2021: -£0.1m)
Managed inventory levels (£1.0m increase in 2022) to mitigate the impact
of supply chain uncertainties and satisfy customer demand for core
products. Now reducing (£3.2m decrease in H2 2022) with more
predictable supply chains
After taking account of the separately disclosed items the loss before tax
was £5.6m
Looking forward to 2023 being a year of further improvements, with
particular focus on inventory management, and cash generation
(*) Underlying operating profit is used as an alternative performance measure to assess the trading performance of the business and is
operating profit before separately disclosed items which are amortisation and impairment of acquired intangibles, impairment of goodwill,
share based payments, and restructuring costs.
(+) Underlying EBITDA is underlying operating profit prior to depreciation charges and website amortisation.
(**) Underlying operating overheads is the total of distribution costs and administrative expenses before separately disclosed items.
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3
FY2022 Financial Highlights
Revenue £m
Gross profit £000 / %
112.1
112.4
109.1
114.8
95.1
38.9
34.7%
40.4
35.7%
32.6
34.3%
38.5
35.3%
41.0
35.7%
2018
2019
2020
2021
2022
2018
2019
2020
2021
2022
Operating profit/(loss) £m
Underlying operating profit £m(*)
7.7
5.7
3.7
-1.4
-4.4
11.4
9.6
8.6
5.7
2018
2019
2020
2021
2022
1.1
2018
2019
2020
2021
2022
Net cash from operating activities(*)£m
Net debt(*)£m
13.2
10.1
3.8
5.0
0.98
19.9
16.6
15.4
16.0
10.7
2018
2019
2020
2021
2022
2018
2019
2020
2021
2022
(*) FY 2020 cash flow restated for £1,418k VAT for Q1 2020 deferred and paid in
FY 2021 to reflect normalised net cash from operating activity.
*Net Debt is Bank Debt less cash and cash equivalents. It excludes lease
liabilities under IFRS 16
2020 includes HMRC support
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Chairman’s Statement
“We have entered 2023 with much of these strategic building blocks
in place after an array of challenges over the past three years, and
we will remain focused on completing the remaining actions of our
strategic plan. With global supply chains now more consistent, we
can reduce inventories to match our needs and return to generating
strong cashflows to support our investment activities, whilst
exploiting our new digital capabilities”
Roger McDowell, Non-Executive Chair
Introduction
2022 presented certain challenges, with the uppermost being the significant inflationary pressures impacting all aspects of our
economy and exacerbated by impacts of the conflict in Ukraine. We have therefore maintained our focus on improving gross
margins with the 42bps increase achieved in the year pleasing to note, and driving productivity wherever we can. At the same
time, we are continuing to reinforce overall business resilience to ensure we can adapt more quickly to the changing demands of
our marketplace and manage the Group’s response to our risk environment with growing maturity.
Review of 2022
In each of our operating segments, we have responded to the inflationary pressures on our cost base whilst benefiting through
the effect on inventory values. Group gross margin has been slightly enhanced and underlying costs reduced through structural
change in facilities and productivity. That said, at segment level we have seen differing outcomes compared to our initial
expectations.
Implemented at the very start of 2022, the main objectives of the consolidation work in the Flowtech division were achieved, both
commercially and operationally. Nevertheless, whilst accepting that there may be short term risk to the customer experience whilst
managing an extensive change process, it was disappointing that financial performance took a step back. External assessment has
indicated that the general markets in which the division operates have not been helpful, but our analysis accepts that
improvements can be made. With the ability to now ensure all aspects of the change become the “new normal”, our focus is on
ensuring this clearly significant group asset returns to growth, particularly with the enhancements from our digital investment.
In a different vein, for the Fluidpower Group – covering our Solutions and Services segments – we have been able to take advantage
of some of the tailwinds in the hydraulics sector and give early proof of the benefits from our structural work undertaken in 2020
and 2021. For example, in Ireland the Nelson Hi-Power operation formed in 2021 from the combination of two acquired businesses,
Nelson and Hi-Power, have used their complementary strengths to create a single market approach with financial performance
ahead of our initial expectations. Also, after its creation in 2019, our Services operation has turned its opening losses into the
profitable position more in line with the Board’s expectations. Whilst it remains a “work in progress”, it gives confidence that our
belief in its value to the Group as a coordinated entity can translate into financial gain.
We have continued to make good progress with the main framework of both our ESG and risk management agenda, with particular
focus on employee related issues. I am particularly proud our new Learning & Development plan has been established, with
technical training via enhanced apprenticeship initiatives and our next generation of leaders accessing “The Accelerate
Programme” for the first time. Investing in our people will bring benefits in the medium and long-term, and ensure we retain and
reward our most progressive employees. Across the Group we are engendering an approach to Health & Safety management,
including mental wellbeing, that encompasses all the positive aspects of modern ideals to this important task, with building culture
at its heart. This is both the right thing to do but is increasingly an essential part of our relationship with major customers and
suppliers and is also therefore creating an edge over our traditional competitors.
It is disappointing to report a non-cash £10.1m impairment against the carrying value of goodwill which has been significantly
influenced by the sizeable increase in discount rates. Within the Flowtech UK business this was also due to the reduced
performance, albeit correlated to trends as reported by the British Fluid Power Distributors Association. If last year’s discount rates
had been applied this year the impairment would have reduced to £2.0m and relate solely to one business unit, Orange County.
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Strategic progress
Since my last report, it has been another year of solid progress with many of the key elements of our strategic plan, with detail
provided in the reports of the Executive team. Whilst it has been disappointing that the introduction of our new web capabilities
was delayed, the lessons we have learned through the process will be invaluable and will help guide our next steps as we seek to
enhance functionality to drive up conversion rates, and take advantage as SEO rankings gradually improve. We are confident we
will have a class leading offering, with a growing influence on our profitability, also backed up by a more progressive “data-driven”
approach than we have historically been able to use in business development.
With regard to the simplification of our commercial structure, Flowtech is now complete and Solutions and Services are
implementing the next steps to create a single “Fluidpower Group” trading style that will further unlock synergies to add to the
strong financial performance already seen in both segments. After the lengthy change process undertaken, we see it as essential
that the customer centric agenda is now reinforced.
We have been able to gradually reduce headcount by approaching 10% over recent months, with the continued consolidation of
warehouse activities into our Skelmersdale campus a highlight, now added to by our new Engineering Modification Centre, with
both providing a sound base for managing future growth.
Dividend
It has been pleasing to note that cash generation has improved, particularly in the second half of the year in a more stable supply
chain environment, and my expectation is that this will continue in the first half of 2023, the Board will be recommending a dividend
of 2.1p per ordinary share in respect of 2022 at the AGM in June 2023. Subject to shareholder approval the dividend will be paid
on 21 July 2023 to Members on the register as at 23 June 2023 with an ex-dividend date of 22 June 2023.
Board changes
In January 2023, we announced that Nigel Richens would be retiring as a Non-Executive Director of the Company having served
on the Board since May 2014; this will be effective on release of this Report and Accounts. I would like to thank him for his sterling
service over the nine-year period and wish him a long and happy retirement. Having joined us at the start of the year, Stuart
Watson will then become chair of the Audit Committee, and I am delighted we have been able to attract a candidate of Stuart's
calibre.
Furthermore, I am delighted to welcome Mike England, previously Group COO of RS Group plc, as the new Group CEO. On behalf
of all his colleagues the Board would like to acknowledge and thank Bryce Brooks for his significant commitment, skill and
dedication to the business during his 13-year tenure with the Group.
Outlook
A year ago we believed that by the end of 2022 most of the key components of our strategic plan would be in place and providing
solid foundations to move forward and unlock our undoubted growth potential. Whilst we again face macro-economic challenges
that may suppress growth in the short term, we continue to focus on reducing costs where sensible to do so, and now seek to
consolidate the commercial and operational changes we have made to improve customer service, and grow market share. We
have entered 2023 with much of the strategic building blocks in place after an array of challenges over the past three years, and
we will remain focused on completing the remaining actions of our strategic plan. With global supply chains now more consistent,
we can reduce inventories to match our needs and return to generating strong cashflows to support our investment activities,
whilst exploiting our new digital capabilities.
I would like to thank all my colleagues for all their efforts during 2022, which was another year of significant change within the
Group. It is again of great credit to them that profitability has been maintained and, in several areas, significantly improved whilst
at the same time managing an extensive change programme.
The Board is of the view that the broad medium term outlook for the business is positive and is well underpinned our recent
change programme.
Roger McDowell
Non-Executive Chair
25 April 2023
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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”
Group Revenue %
Geographies
Our focus
Channels to Market
Our Strengths
E-commerce websites enhanced
in 2022, customer white label e-
commerce websites, 70,000+
catalogues, experienced off-line
business development teams
and external sales force, own
and customer trade counters.
Supply of both hydraulic and
pneumatic consumables,
predominantly through
distribution for maintenance and
repair operations across all
industry markets, supported by a
broad range of manufacturer
brands from Europe and the
USA, as well as quality own label
products manufactured in the
Far East.
1. Consistent cash generator,
high profits
2. Widest set of leading brands
from extensive stock
inventory
3. Purchasing synergies through
common product set
4. Essential urgent delivery,
critical for MRO market
5. Supply chain consolidation
for suppliers and customers
6. Added value customer
services
Flowtech
Share of Group revenue
48%
Revenue
FY2022
FY2021 (+)
Employees*
FY2022
FY2021 (+)
£55.6m
£57.6m
263
282
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Fluidpower Group Solutions Our focus
Channels to Market
Our Strengths
Share of Group Revenue
Engineering collaboration,
through sales offices providing
national and local coverage.
Technically strong sales teams.
Supply specialist technical
hydraulic components &
systems, predominantly into
Original Equipment
Manufacturer and End User
channels to all industry markets,
supported by supply
agreements and authorised
distributor status from a broad
range of leading European
manufacturer brands.
1.
Large volume /regular
orders into OEMs
2. High degree of technical
knowledge with the ability to
source products for urgent
customer needs
3. High levels of customer
retention
4. Strong long-term strategic
relationships with leading
manufacturers
5. Bespoke product
configurated to customers’
requirements
33%
Revenue
FY2022
FY2021 (+)
Employees*
FY2022
FY2021 (+)
£38.1m
£34.2m
157
159
*Average for the year. Excludes central employees (FY22: 50, FY21: 41)
+Values for FY 21 are re-stated to show Primary Components in Flowtech Segment (previously Fluidpower Group Solutions). Refer Note 3 for reconciliation of segment results.
Our focus
Channels to Market
Our Strengths
Fluidpower Group Services
Share of Group revenue
19%
In-house design and build,
combined with on-site
installation, servicing and
support.
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.
Capital project-based revenue.
1. Highly valued engineering
support to customers
2. Working in partnership with
suppliers and customers on
large industry projects with
cross-sell opportunities for
the Group and additionally
ongoing repeat business for
Flowtech and Solutions.
3. Bespoke assembled customer
solutions and deep technical
support
Installation, commissioning
and local servicing
4.
5. Leading manufacturer brands
in system builds
Revenue
FY2022
FY2021
Employees*
FY2022
FY2021
£21.1m
£17.4m
125
131
* Average for the year. Excludes central employees (FY22: 50, FY21: 41)
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CEO’s Year in Review
“2022 saw the completion of many of the key changes that we defined in our 2020 strategy review and
in 2023 we will continue to pursue all remaining elements with vigour.
With supply chains now more predictable, and at both sector and geographical level demand remaining
broadly good, we are confident that all the major strategy decisions we have made will create additional
shareholder value in the medium to long-term, and will quickly feed through into strong cash
generation available for further investment”
Bryce Brooks
Business Review
A multitude of macro-economic factors have impacted our core markets in recent years, and 2022 again did not see a return to
the stable outlook that we have all enjoyed for the majority of recent times. Whilst dealing with such change is part of the skills
we have, the pace with which events have unfolded in the past few years has certainly been more pronounced. Whilst necessary
to do so, we have added to these external factors by transforming the commercial and operational structure of our Group at the
same time.
We therefore entered the year with certain external challenges:-product and cost inflation, lengthy and inconsistent supply chains,
delivery issues both domestically and across the Irish Sea. Stock levels had been built to defend against some of these risks, with
the commensurate impact on net debt that was still recovering from the impacts of lockdown. All these issues had differing effects
on the sectors that we serve, most notably affecting pneumatics into MRO markets and hydraulics into Mobile OEM markets.
I believe it is of great credit therefore that my colleagues right across the Group have been up to meeting all the challenges faced,
with significant progress being made, both in financial returns, profitability and margins, and in our wider focus on strengthening
our resilience against the risks we face as a business.
In 2022 revenue grew by 5.2% to £114.8m and gross margin improved from 35.3% to 35.7%. Underlying operating profit* increased
to £8.6m (2021: £5.7m), an improvement of £2.9m as the business continued its recovery from the COVID-19 pandemic. However,
after a goodwill impairment charge of £10.1m, operating loss was at £4.4m (2021: £3.7m profit). Further details relating to this
goodwill impairment are provided in the Financial Review section and Note 10.
My review below will focus on the underlying operating results of our three segments, which excludes central costs, financing
charges, separately disclosed items and tax.
2022 (£000)
Total revenue
Underlying Segment Operating Profit (*)
Contribution %
2021 (£000)
Total revenue
Underlying Segment Operating Profit (*)
Contribution %
Flowtech
55,565
6,887
12.4%
57,552
7,543
13.1%
Solutions
38,076
4,405
11.6%
34,158
2,689
7.9%
Services
21,125
1,804
8.5%
17,397
(122)
-0.7%
Total
114,766
13,096
11.4%
109,107
10,110
9.3%
(*) Underlying Segment Operating Profit is continuing operations’ operating profit before central costs and separately disclosed items detailed in note 3.
($) FY 2021 Segment results are re-stated to show results for Primary Components (PFC) within the Flowtech Segment. Some overheads costs relating to divisional
management have been re-categorised as segment operating overheads to present a more comparable segment result. Refer to note 3 for reconciliation to prior year
reporting.
In two out of our three segments we have been able to enhance contribution rates significantly and have achieved our short term
objective of exceeding 10% as a Group. This is before our central costs, which are primarily required to implement change
management and governance, as well as operate the plc.
In Flowtech a contribution rate of 12.4% was achieved (2021: 13.1%), which was lower than our targets at the start of the year. As
detailed in our commentary on strategy development below, the segment undertook the most wide ranging change programme
in its history, and shortly afterwards replaced its multiple web offerings with a single website. Whilst we are now happy with the
changes implemented, the difficulties of the change had a negative commercial effect which impacted results.
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As we ended 2021, being the immediate post COVID-19 year, a sense that sales volumes had returned to pre-pandemic levels was
misplaced. The markets that Flowtech predominantly deal in declined, with the British Fluidpower Distributors Association
(“BFPDA”) estimating that year on year pneumatic distributor sales reduced by 5.1% (hydraulics increased by 5.3%).
We now believe that 2022 is more representative of the base market and we expect to see gradual but steady growth from this
base. Furthermore, having continued to review analysis of negative growth areas, we have used the information gathered to ensure
our focus over recent months has been on ensuring that the detailed execution areas for all our change programme – commercial,
operational and digital – are bedded down and give us the right platform for growth. With the majority of this change period
behind us, we remain of the view that this segment should target a contribution rate of at least 15% in the medium-term.
In Solutions, with the majority of product supply being furnished from European sources, whilst there have been inflationary
pressures, supply chains have been consistent for most of the year, and on top of the uplift in buffer stock that we instigated to
support our customers, this has allowed us to take advantage of the positive market conditions seen, particularly in mobile
hydraulics where many of our largest customers are heavily involved in export markets. This segment is currently implementing
an amalgamation of its sales resources in England, under the banner of Fluidpower Group Mobile, with the cost reduction work
done in 2021 and 2022 bearing fruit, producing contribution margins now well over our initial 10% target at 11.6% (2021: 7.9%).
Whilst we are aware that we have benefited from strong market growth that may not continue, we have started 2023 well.
Of particular note is the 8.5% contribution from our Services segment, where the result achieved is a significant step forward and
gives an indication of the potential that this part of our business has to drive profitability. As we have previously stated, over the
past 12 months we had built a profitable order book of deliverables scheduled for 2022, for both assembled products and
installations, and were therefore able to produce a much stronger contribution in the second half of the year. I am pleased to say
that this position has carried over into 2023, and we are expecting to report further progress in the first half of 2023. By its nature
the financial return from this segment may have more volatility than the more predictable Solutions and Flowtech income streams,
but we continue to view the segment’s value positively, as does the wider market. A highlight has been our involvement in the
Thames Tideway project in central London where hydraulic power units and cylinders, manufactured and fitted by our cross
functional team, are powering many of the sluice gates controlling this major upgrade to the sewer system.
In all our operating segments, we have responded to the inflationary pressures that all businesses have faced, with gross margins
maintained, and in some cases improved, and the upward pressures on our transactional cost base capped with careful
management. Product pricing in our sector is well informed with major manufacturer price changes widely flagged; we work in
partnership with our customers to pass these through as quickly as practicable after their implementation, and this has helped to
support some of our enhancement in gross margins. Whilst we believe we have managed this process well, if inflation recedes,
gross margins may trend towards prior norms.
The improvements in operational cost we identified in our strategic plan, detailed below, have also allowed us to reduce our
footprint in terms of property, energy and, personnel costs and this has added to the tools we have used to manage this inflation
risk. We do not operate a fixed approach to salary and benefits across the Group, and this flexibility has allowed us to manage
employee requirements in the different sectors and geographies that we operate. For example, in Northern Ireland where customer
demand has been particularly strong in a tight employment market, we have redesigned our bonus structures to improve staff
retention.
With regard to other infrastructure costs we have moved through rent review points over the past 24 months for the majority of
our mixed-use facilities, warehousing and office space. These have seen steeper increases than previous periods, for example rent
per annum for our main Pimbo Road site in Skelmersdale increased by 17.5% with effect from November 2021. With distribution
forming the majority of our operational activities, we have not experienced some of the more acute impacts from the current
energy market issues, and have also been able to cover our increased spend within our overall product pricing strategies.
With regard to the supply chain issues that the Group faced in 2021, these dissipated during the course of the year, and although
not as yet returning to long term norms, volatility has reduced and we are now able to plan more efficiently. We have continued
to work closely with our key suppliers, and in the majority of cases the lengthy lead times seen in 2021 and 2022 are now reducing.
In line with this the buffer stock holdings that we created to manage this risk is being reduced; our view remains that by the end
of 2023 this will have completely rebalanced, and will allow us to again target a full year Turn & Earn KPI of 130% by 2025 and
much reduced working capital and net debt.
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Developments in Group strategy and progress in 2022
From the beginning of 2020, we have undertaken a wide ranging redesign of many aspects of our Group’s business approach,
and in the past 12 months we have made considerable progress with many of the key projects:
Operational cost savings
In 2022 we focused on completing the key elements of our targeted reductions with further productivity improvements in both
warehousing and back-office functions. The creation of the Flowtech entity (detailed below) brought benefits in cost control. Of
particular note is the closure of our Leicester warehouse facility with effect from 31 December 2022. Our legal and property
advisors are working with a prospective new tenant who will allow us to exit from our remaining lease liability in full in the first
half of 2023. The Leicester site employed 21 staff in warehousing roles, and covers c.40,000 square feet. All stock was moved to
our largest unit in Skelmersdale, with picking activities fully integrated. Whilst this change has introduced an element of increased
operational risk, we have sought to mitigate this by modest changes in internal design, with further developments expected over
time, and have also taken on additional space at our second location nearby.
A key development target for the Group has been to consolidate engineering skills into a hub and spoke structure with a main
facility also in Skelmersdale. This “Engineering Modification Centre” (“EMC”) will be able to perform all aspects of the product
refinement required by many of our customers and represents an important aspect of authorised distributor status from our key
suppliers. This approach is allowing us to build improvements in technical training, quality control and cost management, which
we see as an important element of our future growth platform. Fully completed in March 2023, the EMC is now embedded into
our Pimbo Road operation running alongside our pick and ship operation.
Group headcount
634
618
620
605
586
572
After the work undertaken since the start of 2020, we have reduced costs across
all segments, most sharply illustrated with the reduction in headcount since late
2021 and shown in the graph. These reductions have been made by a mixture of
natural wastage and voluntary redundancies to match the productivity
improvements we have now built and have contributed significantly to our
defence against inflationary pressures. We believe the newly formed operational
structures will allow further improvements to be made over time.
Branding and organisation
On 4 January 2022 we completed a plan to integrate those businesses that were operating as part of our Flowtech segment -
namely Flowtechnology UK, Indequip, Beaumanor Fluidpower, and Hydravalve to come together into a single commercial entity,
badged as Flowtech with new livery and organisational structure. This wide-ranging project achieved all our objectives with regard
to coordinating a single market position to support our e-business aspirations, as well as allowing us to
achieve our cost management goals. Solutions and Services are also now consolidating under the single
Fluidpower Group banner, with regional variations such as the NHP brand in Ireland, and we will therefore
have also achieved our objective in creating an integrated business that can service all addressable markets
in the UK and Ireland. After this period of significant change, prolonged by the COVID-19 pandemic, in 2023
our management teams are now returning to the customer centric agenda that we are confident will use
our redesigned capabilities to exploit the growth potential available to us.
Digital
After an investment of £212,000 in the year, £973,000 in total to date, our rebuilt web platform went ‘live’ in May 2022, with full
functionality completed in October 2022. During
this period we
long-term
customers from a variety of legacy web platforms
to this single site and, although the project took
significantly longer than originally planned, we
have learnt lessons and are now pleased with the
capabilities that have been created.
transitioned our
In parallel, we have also built an infrastructure for
modern digital marketing techniques, which will
enhance the value of our web investment, and we
expect the impact of this to also build over time.
In early 2023, as our SEO rankings rise, we will continue to develop functionality to improve conversion rates, as well as react to
customer feedback from the first few months’ trading on the new architecture. Overall, we remain of the view that marginal sales
from search driven enquiries will be a good source of new revenue, enhancing our “offline” growth potential, which is now
embellished with more insightful “data-driven” knowledge.
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People
Our focus is now on building a long term framework that will allow all our employees a clear line of sight for career progression
and look to meet their own aspirations. Again, this is an area in which we believe our sector has been behind more progressive
attitudes in competing industries, and our maturing position will create an economic edge to attract and retain the best people.
The investment we instigated in our HR resources, starting in 2021, has been enhanced with specialist recruitment to lead a newly
formed Learning & Development function, with traineeships enhanced to make full use of the Apprenticeship Levy, and a new
cornerstone initiative, “The Accelerate Programme”, providing broad based management training for potential managers and
directors of the future. Our first courses have now been held with 23 delegates selected for a full year series of events, representing
our commitment to ensuring staff development is to the fore in our ESG plan.
Whilst a strong culture in our approach to Health & Safety management is clearly an essential, we also believe that we need to
take a leading role in a modernisation process across our industry. In this regard in the past two years we have invested in
recruitment and training for all employees involved in our Health & Safety framework. Whilst the inherent risks in our large
distribution centres are clear, and therefore assessments can be focused and continuously refined, in the activities of our Services
segment the risk profile is more varied, and therefore we have also chosen to invest further in specialist skills to reinforce employee
safety. Alongside our strategy to align ourselves with world class suppliers we believe this approach creates a comprehensive
package of risk management practices.
The skill sets put together in 2021 in our Management Board are now firmly established and able to lead further change, and, in
time, fast paced M&A integration. Members of our team have also been playing a leading role when it comes to shaping the
priorities for the next decade for our sector, with Group employees continuing to hold directorships of our industry body, the
British Fluid Power Association (BFPA).
Market
Much of the expansion of the Group through acquisition activity in the period 2014 to 2018, created a strong market position in
our key markets of the UK & Ireland. Around us we have seen further consolidation to continue the move towards a smaller
number of key players, and evermore away from the “owner-managed” structures that were prevalent in much of our sector’s
history. The acquisition activity undertaken over recent decades by the global manufacturers such as Parker Hannifin and Eaton
Corporation, and most recently evidenced by the absorption of Eaton Hydraulics into Danfoss Power Solutions, has forced the
distributor sector to consolidate and simplify to match with these changes. We therefore believe that the strategy changes we
have implemented are effectively managing the inherent competition risk that we face every day.
Current trading and outlook
2022 saw the completion of many of the key changes that we defined in our 2020 strategy review and in 2023 we will continue to
pursue all remaining elements with vigour. Much of what has been completed is now part of “business as usual” for our divisional
management teams; in 2022, and now carried forward into the early part of 2023, we have seen the potential for returns coming
through in both our Fluidpower Group segments – Solutions & Services – where many key changes were made in 2020 and 2021.
Flowtech has some way to go after its own fundamental changes in 2022, whilst introducing new technologies, and it will look to
regain momentum in 2023.
We have been successful to date at passing through upward pricing pressures, albeit some of this has been covered by our cost
reduction activities, most notably the closure of our Leicester distribution centre. With supply chains now more predictable, and
at both sector and geographical level demand remaining broadly good, we are confident that all the major strategy decisions we
have made will create additional shareholder value and will quickly feed through into strong cash generation available for further
investment.
Bryce Brooks *
Chief Executive Officer
25 April 2023
*Bryce Brooks stepped down as CEO on 12 April 2023
13 | P a g e
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, enhanced by sector-leading online capabilities,
makes fluid power supply convenient and efficient for customers and suppliers, driving growth and returns for Shareholders.
Resources
1.
Widest product choice
2.
Expertise in our market
Leading industry brands (500+) through key supplier
partnerships
Central purchasing, allowing cost saving synergies
Extensive stocks £31m net
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
Key Group Activities
Unrivalled, low-cost full-service provision in fluid power
3.
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
4.
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
Through our decentralised structure, we promote a
culture where location leaders have a sensible degree of
delegated authority to run their business effectively but at
the same time providing support from certain centralised
functions. Each business and its employees are further
empowered through access to training and reward
schemes
Driving Force
5.
Strong leadership culture
14 | P a g e
Our Strategy for growth
“Our sustainable business model makes fluid power supply
convenient and efficient for customers and suppliers and drives growth and returns for Shareholders”
Sales growth
Procurement &
productivity
improvement
Cash generation &
management of net
debt
IT strategy
People
Value created
6.
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
7.
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
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 and Ireland, in a fragmented marketplace.
The Board regularly monitors a range of financial and non-financial performance indicators to allow it to measure performance
against expected targets. In late 2020, we completed a full strategy review to create focus and provide a framework for future
developments, including our ambition to achieve significant growth. Whilst progress in many areas was slowed by COVID-19, we
believe that significant development has been undertaken in 2021 and 2022, and the CEO’s Year in Review details progress made
in our structural goals.
15 | P a g e
The KPIs we established at that time remain relevant, our comments in each area being provided below:
FY 2023 Plan
Having transitioned the Flowtech segment
away from its legacy web offerings to a newly
designed single solution during 2022, this
year will
that key
focus on ensuring
functionality areas are refined and improved
wherever necessary. Immediate focus will be
on using new capabilities to improve cross
and up selling opportunities within the
current customer base, as well as improving
SEO rankings with a view to attracting new
customers.
Having been established in 2022, we will use
the data analysis tools in our Customer Data
Platform across all business units, which will
be enhanced by e-marketing campaigns
built around the insight provided.
In 2023 this key productivity measure will
naturally reduce with the full year impact of
the closure of Leicester, and our focus will
be on ensuring that new working practices
are firmly established with no further
significant cost reductions expected in the
near term.
With the majority of the “pick and ship”
activity for the UK now in one facility, we will
therefore
continuous
improvement approach, which will include
the use of automation where returns can be
clearly identified.
operate
a
Target
to ensure continuous above
‘market’ sales growth with strong gross
and net margin contribution. At the Profit
Centre level, we review sales and gross
profit on a daily basis, comparing
performance against the 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
the
composition of the index to our own
business, this does give us a guide as to
how we are performing against the sector.
All online sales are undertaken in our
Flowtech segment, and a key component in
our strategy is to develop our e-business
capabilities, which are referred to in both
the Chair’s Statement and the CEO’s Year in
Review sections of this Report.
in
in
location
In the past three years the Group has
implemented an extensive programme to
centralise the majority of its mainland UK
warehouse and logistic operations into a
single
Skelmersdale,
Lancashire. In 2022 this process was
largely completed with the closure of a
major site in Leicester over the summer. In
addition, with the planned expansion of
buffer stocks to reduce risk associated
with extended lead times following the
COVID-19 pandemic, the Group has been
incurring additional storage costs that we
also expect to reduce in the latter part of
2023, and therefore continue to reduce
total warehousing costs as a proportion of
turnover.
Strategic focus
KPIs
Sales growth
Daily Gross Profit £000
2020:
2021:
2022:
£130
£155
£166
Total value of sales from
online & EDI £000
2020:
2021:
2022:
£25,501
£27,637
£25,607
Warehousing productivity
improvement (^)
Warehousing costs* (%)
2020: 8.9%
2021: 7.6%
2022: 7.2%
*Being the Group’s cost of warehousing, including
property and people, divided by associated turnover
(^) replaces Cost per pick as a measure of
operational efficiency
16 | P a g e
KPIs
FY2023 Plan
A continuous focus on reducing gearing in
the balance sheet, and the creation of
excess cash positions, will protect the
business
any macroeconomic
uncertainties, and provide opportunity for
investment.
from
Our target remains to achieve a Turn & Earn
KPI of 130% by 2025, and segment
managing directors have been set clear
targets for the middle and end of 2023 to
achieve net inventory levels in line with this
timetable.
As we have outlined
in our wider
commentary, impacts on the length and
volatility in global supply chains, have
forced us to ensure customer service is
inventory
maintained with additional
investment. We believe
that whilst
elements of these impacts remain, in the
second half of 2022 a more consistent
environment emerged that is now allowing
us to gradually reduce stocks and achieve
more optimised inventory levels.
As a result of the above actions, we believe
that we will be able to reduce working
capital as % to total revenue to below 30%
by end of 2023, with a view to falling below
25% by end of 2025, and a commensurate
reduction in net debt. *
Internal
fundamental.
Continued management of trade debtors
reports are
is
included in Board papers to ensure tight
control is maintained and managed by
monthly reviews with each business unit
leader reporting to the CFO.
Cost-effective,
secure IT environments that provide
long-term stability
for the Group’s
activities remains a key part of the
Group’s strategy.
is
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
to eventually
risk. Our strategy
standardise on two Process Systems – one
covering
Solutions
segments where
the majority of
operational activity is involved in product
movement using logistics-based software,
and a second platform covering Services
which involves more bespoke activities,
manufacturing, and site-based activities.
Flowtech
and
Replace the current 3 IT environments used
within our Services segment with a single
solution.
Our Flowtech segment now operates on a
single IT environment characterised by the
amalgamation of several software modules
and which operate
in a co-ordinated
manner. We have identified that those
elements that operate on older software
platforms should be replaced on a module
by module basis in order to reduce change
risk, and we expect to start this in late 2023
with a new Warehouse Management
System currently at shortlist stage.
In
addition, in 2023 we will be transitioning
the accounting module in Flowtech thereby
completing a single platform approach.
Cash generation &
management of Net Debt
Working capital
as a %
of total revenue
2020
2021
2022
23.9%
28.8%
32.3%
Net debt*
excludes lease liabilities
under IFRS 16
2020: £11.6m**
2021: £15.4m
2022: £16.0m
*Bank Debt less cash and cash equivalents
**Includes £0.9m HMRC COVID-19 related support
Turn & Earn % *
2020: 93%
2021: 95%
2022: 85%
include total cost of sales
*Turn & Earn calculations have been revised
to
in the
calculation of stock turn. Turn & Earn Index
is calculated by multiplying gross margin by
stock turn. In 2022, the gross margin
achieved was 35.8% and the average stock
turn achieved was 2.38, therefore the Turn
& Earn index was 85%.
DSO (days)
2020: 58.1
2021: 60.5
2022: 62.4
IT strategy
Process systems
2020: 5
2021: 4
2022: 4
Accounting systems
2019: 2
2020: 2
2022: 2
17 | P a g e
FY2023 Plan
Our ambition is to achieve a score of 75%
over the medium term.
survey
analysis
Recent
identifies
Recognition and Reward as an area for
greater focus and improvement. Our new
The Accelerate
as
initiatives,
Programme, will seek to ensure that our
high potential staff do development and
receive the recognition they deserve.
such
Our local leadership style is empowering for
employees, with high levels of trust and
responsibility. However, it can also lead to a
lack of clarity of objectives in more junior
roles. We will therefore continue to educate
and train our managers, to ensure they
succeed, and their teams thrive.
improved
We will also bring new focus on our younger
staff, ensuring they feel part of the Group
immediately, with
induction
processes, and a career line of sight for
development opportunities. To support this,
increased our apprenticeship
we have
schemes, particularly
at our main
warehousing location in Skelmersdale.
retention
Investing in our management teams
the benefits of
and staff brings
improved
talent
identification for succession planning.
We see training and development of
employees as key to our long-term
success.
and
The Group conducts an annual Employee
Engagement Survey to measure employee
satisfaction, and subsequent activities are
tailored to improve overall engagement.
In 2022, given the general economic
climate and the headcount reductions we
have implemented, we have seen a small
drop in certain areas of the business that
particularly encompass lower paid roles,
such as in our warehousing activities.
However, overall “Challenge,” “Freedom”
and “Clarity” score highly across the Group,
and we believe that we are improving at
providing enjoyable, relevant work, that
allows for flexibility and gives clear goals
and purpose.
KPIs
People
Group employment
engagement
2020: 69%
2021: 66%
2022: 64%
18 | P a g e
Marketplace
A growing fluid power market
We operate in a growing fluid power market, worth £1.1 billion in the UK, €14.4 billion across Europe and $56 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.
Hydraulics
Whilst there has been some evidence of recent consolidation, the hydraulic market generally remains fragmented, comprising a
large number of manufacturers, supplying direct to manufacturers of specialised Original Equipment Manufacturers (“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 equipment
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
19 | P a g e
*British Fluid Power Association (2021) CETOP (2021)
In the UK and Ireland, we estimate Flowtech Fluidpower currently holds around 11% market share in fluid power. Across the
Benelux, we hold around 2% market share. We partner with over 500 supplier brands, giving us potential access to a large share
of the €14.4 billion European fluid power market. As global manufacturers lean towards supply chain consolidation through closer
partnerships with major distributors, the Group aims to further support this consolidation and grow its market share. Some of the
key manufacturers include Parker Hannifin, with turnover of £13.1bn, Danfoss £6.9bn, Rexroth £5.4bn & Festo £2.7bn. Overall,
manufacturers’ direct supply accounts for approximately 65% of demand, with an increasing emphasis on the remaining 35% via
the distribution channel.
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. 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.
Prepared in October 2022, the BFPA 2023 outlook was positive with growth expected in both Hydraulics and Pneumatics (a full
table of their predictions is shown below). Whilst there is an element of caution within the BFPA forecast as this was prepared
during the mini-budget, it was forecast that many supply chain issues would be resolved, and the sector would benefit from
decreasing lead-times and fulfilment of orderbooks.
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, with a similar makeup to our sales in the Benelux.
UK fluid power forecast 2022: % change (year-on-year)*
UK indirect sales
UK indirect sales
Hydraulic equipment
Pneumatic equipment
Hydraulic
Pneumatic
*BFPA/Oxford Economics
2020
-23.3
-3.7
29.8
38.5
2021
28.0
12.8
28.5
37.9
2022
10.3
5.5
31.4
36.7
2023
3.3
4.9
30.4
36.9
One example of our sector dealing with climate related issues, is where electrification is gaining traction in “mobile” markets, and
one of the most obvious changes facing the hydraulics market is the potential replacement in favour of electromechanical
solutions. Traditional hydraulics continues to offer unmatched power density, however, there are applications with low power
demands which could foster this kind of hydraulic substitution. We have a natural defence against much of these long term
market changes by aligning ourselves as appointed distributor to the major manufacturers, but we are also now developing
electromechanical skills within our Services Division in order to ensure we create internal capabilities to keep pace with these
developments, and this will be in addition to the core strengths we are creating in our EMC.
20 | P a g e
Sustainability Report
This is our third year reporting on our Environmental, Social and Governance (ESG) agenda.
Our Sustainability Report examines our Environmental and Social aspects, with Governance being
covered later in this report. This section focuses on three core areas: Our Environment, Our People,
and Our Communities.
Our environment
As a Group we strive to be vigilant and mindful of our operations and their potential impact on the environment. We
encourage all our sites to implement systems that have positive impacts on our carbon footprint.
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)
Use recycling bins at most sites and recycle non-re-usable pallets
At our Gloucester site, over 80% of their power is generated by solar panels.
The Group is currently examining the feasibility of using this technology at
other sites
Encourage cycle use through local government initiatives in both the UK, ROI, and the
Netherlands
Use FedEx as our main carrier; FedEx are undertaking a “reduce, replace, revolutionise” campaign
which plans to significantly improve energy efficiency and reduce emissions in Europe across
aircraft, vehicles, and facilities by 2025
Utilise our Engineering Modification Centre – instead of scrapping products, product life-cycle
inspections are performed to assess options to change products, prices, places items are sold,
how products are used and promoted. We believe this serves to prolong product lives and
reduce waste
Continue to support and accept hybrid working by our employees who wish to do so. This helps
to reduce unnecessary travel by our employees
Avoid unnecessary paper usage and waste through various eco-friendly schemes such as,
Electronic Data Exchange (EDI) for sales ordering and invoicing, SICON Invoicing Sage Software
for non-stock invoice approvals, and utilising online signature software for authorisations
Source packaging from Forest Stewardship Council (FRC) certified sources, utilising reusable, or
recyclable packaging materials for the majority of our products
Use suitable packaging that reduces damages and returns to lower the overall carbon footprint
Continue to install more EV charging points at our sites to encourage the use of electric and
hybrid vehicles
Company vehicles
In 2022, we leased an additional 8 (2021: 52) new company cars across the Group with five of these being fully electric (2021: 6)
and the other 3 being plug-in hybrids (2021: 40). The addition of these vehicles has increased our hybrid and electric total to 79%
(2021: 72%) for the Group. Alphabet, our lease provider, indicate we are performing extremely well in our transition from petrol
to electric vehicles.
Delivery efficiency
In collaboration with FedEx, we have remodeled our delivery process. This involves splitting all consignment addresses between
the North and South of the UK, with an aim of reducing the miles incurred and thereby emissions for each delivery.
Prior to the implementation of this change, the average miles per delivery was 209. Since the start of this initiative this has now
reduced to an average of 138. As FedEx are responsible for approximately 70% of the Group’s shipments, this change has had a
significant positive environmental impact. This has not affected FedEx service levels; in fact customer satisfaction as measured by
FedEx has improved as a result of this (from 93.3% to 95.8%).
21 | P a g e
Thames Tideway Project
Fluidpower Group Services are proud to have been contributing to the construction of 25km ‘Super Sewer’ under the river Thames in
London. The aim of this project is to limit the spill of untreated, raw sewage into the river. Our team have designed, manufactured, and
have now commenced installation of hydraulic power units, cylinders, and electronic equipment, to control a series of sluice gates across
the city. This project forms an integral part of the plan to limit pollution in our capital city and is set to benefit millions of people.
Carbon reporting
We continue to engage with Carbon Responsible to assist in our reporting requirements. Carbon Responsible have produced a report
using the GHG (greenhouse gas) Corporate Reporting & Accounting Standard and UK Government Reporting & Conversion methodology
and conversion factors. Their report dated 1 March 2023 covers data for 2021 and 2022.
Our full emissions report covers all the main emissions 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.
An in house Flowtech team has worked with Carbon Responsible to provide data to measure the full impact of Scope 1 & 2 emissions
and as much Scope 3 impact for which data points were available. For 2022 this includes a degree of granularity of actual data on a site-
by-site basis where estimates were used last year; for example, this year’s data captures freight impacts from certain third-party providers
and water consumption. A consequence of this is that it is difficult to draw meaningful comparisons between the two years for Scope 3
data. We will be using the more complete data capture in 2022 for our new baseline.
The majority of the emissions impact comes from our own offices, premises, and staff. It includes all businesses within the Group. It also
includes significant impacts from activities that are not owned by us, but over which we exert financial control. As suggested by Carbon
Responsible, going forward we will use FY22 as the baseline year and revise in line with further improvement in reporting.
The findings are summarised in the table below:
Scope 1 (Gas Consumption)
Scope 2 (Electricity Consumption)
Scope 3 (Other Direct Emissions)
Totals
2022
2021
tCO2e
494
328
1,802
2,624
kwh
2,291,089
1,565,729
545,337
4,402,155
tCO2e*
507
403
692
1,602
kwh
2,334,538
1,824,653
80,882
4,240,073
*Whilst reviewing 2021 data for comparison with 2022, an error was identified whereby some freight impact was missing from the 2021 total; this has been amended.
Of the 2,624 tCO2e emissions for 2022, 2,318 tCO2e is related to UK sites and 306 tCO2e is related to non-UK sites. Site level emissions
were not calculated for 2021, therefore the split of emissions by UK and non-UK is not possible. Going forward we intend to present
emissions using this geographical split for both current and comparative periods.
Scope 1 – a modest 2.5% reduction – an increase in vehicle use, likely linked to the recovery from the operating environment linked to
COVID-19, offset reductions linked to a materially lower level of diesel usage.
Scope 2 – an 18% reduction driven by a transition of company vehicles to hybrid and electric as well as benefitting from progress made
by the National Grid in its own “green” agenda through increased production of grid electricity from renewables.
Scope 3 – for the first time the 2022 data includes data from Well-To-Tank impacts for fuel, third party vehicle use and certain freight
providers. This means that the two years cannot be directly compared. Carbon Responsible have estimated that had we had the
opportunity to apply the same methodology and degree of granularity to the 2021 data, the like for like comparison would have been an
approximate 6% reduction.
We continue to use revenue and FTE intensity from Scope 1, 2 and 3 emissions, as we think they from the best available intensity measure
for our business. Our intensity metrics for FY22 are as follows:
Tonnes CO2e per £100,000 of revenue
Tonnes CO2e per FTE
2022
2021
2.28
4.90
1.37
2.37
22 | P a g e
Our main priorities for 2023 are:
Continuing to work with Carbon Responsible to further improve the granularity of data
capture, in particular around scope 3 areas
Capture data from an increasing population of freight providers
Seek to capture data for business travel
Develop a carbon strategy linked to the Net Zero agenda, designed to deliver a combination of
operational cost and emissions reduction benefits.
Our people
We continually strive to ensure we invest in our people through a broad range of areas including Learning & Development and
career progression planning. Other areas of particular focus include important areas such as the mental and physical wellbeing of
our employees and ensuring we have an appropriate and developing reward package.
Fundamental to this vision is a strong culture focused on recruiting the right people to the right roles within our business and
thereafter investing in their development. We seek to encourage employees to work collaboratively with customers, suppliers as
well as each other and empower them to provide a contribution to shaping the future of our business and the fluid power sector.
We believe such an approach breeds passion and a genuine desire to achieve the best solutions for all of our stakeholders.
Through a friendly and supportive culture, allied with efficient processes and technical competence, we believe we offer an
unrivalled service enabling us to drive added value actions throughout the business.
Employee statistics
Demographics
Number of employees *
Retention **
2022
595
72%
2021
612
78%
Length of service ***
7.9 years
8.6 years
* Annual Average
** (1-leavers during 2022/average number of employees) *100%
*** Average number of years served by current employees
(2021: - Male 74%, Female 26%)
Mental health
After appointing 15 mental health champions across the group in 2021, this team has now extended to 19. Each member has
completed training with Mental Health First Aid England (MHFA) which teaches practical skills to spot potential signs and triggers
of mental health concerns in their colleagues. This programme aims to create a culture of employee awareness and support
around mental health, using both reactive and pro-active methodologies. The champions complete additional training every 2
years and meet together on a quarterly basis to discuss any common issues across the Group that could affect employees’ health,
such as the current cost of living crisis. Employees are encouraged to utilise the Employee Assistance Programme that is provided
by AXA Health, which is a confidential employee benefit programme that provides 24/7 mental health support. The aim is that the
EAP will help employees deal with personal problems that might adversely impact their health, well-being, and work performance.
AXA provide access to nurses, pharmacists as well as their LifeManagement™ team. This team is there to support and offer
guidance to employees through any concerns and difficulties. Since the cost-of-living crisis started, our employee uptake in the
AXA services has increased significantly. Our EAP provides people with up to five counselling sessions per employee. In instances
where further support is required, additional counselling sessions may be provided.
Learning & development(L&D)
Our commitment to the learning and development of our employees has continued this year with the recruitment of a Learning
and Development Manager, as part of our HR Team. The Power Academy will be launched in early 2023, and aims to provide a
range of resources, advice, support, and guidance to assist in promoting and managing capability through compliance and career
development.
As a Group we aim to support our employees’ career development by utilising our Apprenticeship Levy scheme and focusing on
our competency framework. We believe that L&D is a three-way relationship, which is led by the employee, supported by the
manager, and facilitated by the Power Academy. Employees and managers have regular conversations to discuss current job roles,
set objectives, talk about wellbeing, discuss performance and development potential.
23 | P a g e
Apprenticeships
We are currently recruiting for 3 more apprentices in Procurement and Engineering. As a Group we are utilising 130% of the
apprenticeship levy on a monthly basis and have not had any of our contributions expire since April 2022.
Apprenticeships started
Apprenticeships completed
Apprenticeships funded
2022
2021
18
1
23
5
1
12
University and College Links
We are in talks with Edge Hill University, with the aims of offering industrial placements and supporting students with their projects.
We have also been discussing work placements with The Engineering College for their students on trainee programmes.
HR system
We are rolling out a HR system across our operations based in UK and Ireland, covering about 92% of our staff. The system is
designed to consolidate and digitize employee records and payroll administration, thus significantly enhancing management and
oversight of this area. The System will provide the employees with single point access to their contractual terms and conditions
and employee benefits. The system has the potential to improve employee engagement through its use as a repository of company
policies and procedures.
We have engaged a professional firm to review the benefits being offered by the business. To aid decision making, we conducted
a survey amongst staff to obtain their feedback on how benefits could be best aligned to their needs. The recommendations from
the professional firm and feedback from staff are currently being considered. The HR System also enhances our ability to
implement changes to benefits more efficiently.
Share-options to staff
We expanded the issue of share options to key members of the operational and managerial teams during last year, with a view to
rewarding these key staff on achievement of long-term growth objectives of the Group. The new issues are detailed in Note 22
Employee benefits.
Health & Safety
As a Group we are committed to ensuring the safety and health of our employees, visitors, and the public, as far as reasonably
practical. We fully recognise our statutory duties and take the necessary actions to ensure our compliance with health and safety
legislation. Our Chief Executive Officer continues to hold overall responsibility for Health and Safety and chairs the quarterly Health
Safety Steering Group which is attended by key business heads, ensuring that all risks and concerns raised by the location directors
and staff, are dealt with through validated risk assessment, and follow up audits.
As a result of our numerous business acquisitions, we have historically had differing health and safety practices at each of our
sites. As part of our continued commitment to promote and develop effective health and safety management, we have recently
implemented a refreshed Group Health, Safety and Well-being policy. This will include the introduction of a committed Health
and Safety Team and ensure each of our sites has dedicated personnel to manage daily health and safety matters.
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.
Respect for human rights is 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.
24 | P a g e
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.
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.
Gender pay gap
We are striving to ensure we have an inclusive workforce with no unconscious bias and that employees in similar roles are paid
equitably; we are determined that where pay differences exist, they are not based on gender. This is different from Equal Pay.
Equal Pay deals with pay differences between men and women who carry out the same jobs, similar jobs, or work of equal value.
This is the second gender pay gap report published by the Group. It has been prepared in accordance with legislation that came
into force in April 2017, whereby UK employers, with more than 250 employees, are required to publish the gender pay gap using
5 April 2022 as the snapshot date. Hourly rates include basic pay, allowances and shift premium pay, but not overtime. For the
purposes of these calculations, only the UK-based workforce have been included. Under the requirements of the Gender Pay gap
regulation, only relevant employees have been included. This excludes any employees who for whatever reason did not receive a
full months’ pay, including sick leave and parental leave.
Difference between men & women
Mean (average) %
Median (middle) %
Gender pay gap
Gender bonus gap
Key findings:
2022
18.4
3.7
2021
22.6
23.0
2022
8.45
5.62
2021
16.38
28.12
The percentage of males in the business is 74%
2022 results show a significant reduction in the gender pay gap in both hourly rate and bonuses
paid
General benchmarking of has allowed us to align salaries for specific job roles regardless of
gender, helping to reduce the gap
We consider the median gender pay gap to be a better reference point rather than the mean
result as the mean data is distorted by the relative % in quartile 1
For those who received a bonus, the average bonus pay as a percentage of annual salary was
3.42% (2021: 6.38%) for men, compared with 3.93% (2021: 5.45%) for women. This change goes
someway to explaining why the gap for bonus pay has reduced significantly compared to the
pay gap between 2021 and 2022.
Gender mix across the Group
Board
Management Board
Senior management
All other employees
25 | P a g e
2022
Male
83%
67%
93%
73%
2022
Female
17%
33%
7%
27%
2021
Male
100%
67%
94%
73%
2021
Female
0%
33%
6%
27%
Group breakdown:
Female
26%
Male
74%
Percentage of men and women receiving a bonus (Group):
Female
89%
Percentage of men and women in each pay quartile:
Male
76%
Female
Male
QUARTILE 1
Female
17%
QUARTILE 2
Female
26%
Female
Male
Male
74%
QUARTILE 3
Female
28%
QUARTILE 4
Female
35%
Female
Male
Female
Male
Male
65%
Male
83%
Male
72%
26 | P a g e
Corporate Social Responsibility (CSR)
Stakeholder engagement and 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 2022, 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 to its wider stakeholders.
We are aware of the potential impact that our decisions have on all our stakeholders and seek to take a balanced approach to
safeguard their respective interests. We seek to recognise and respect issues which are important to our stakeholders, including
our colleagues, customers and suppliers, as well as our Shareholders. Our reputation is of paramount importance to us and we
always seek to ensure that whatever decisions we take, we do so by maintaining suitable high ethical mindsets, always seeking
to treat each category of stakeholder with respect and in the same manner we would like to be treated ourselves.
The Board seeks to ensure there is always an appropriate balance between the impact any key decision may have on the short
as well as the medium to long-term. It also recognises that certain decisions may be more aligned to the interests of one
category of stakeholder over another and this is always taken account of when debating options and ultimately making
decisions.
The Board is committed to effective engagement with all stakeholders and takes steps to ensure this mindset is filtered down
throughout the business. Whilst our business model delegates certain day to day operational decisions to local management,
we encourage all involved to adopt the same behaviours by which the PLC Board is measured in their day to day activities. We
have a “balanced scorecard” approach to our reward scheme which is designed to flex reward based on a number of behaviours,
including those captured within the spirit of the s172 legislation.
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:
Colleagues
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. We have made further recent investments in this area, including the
recruitment of an experienced manager focused entirely on the learning and development of our people. The steps taken this
year to develop the aforesaid agenda are more fully discussed in the Learning & Development section of the Sustainability
report.
The Sustainability report also details the progress made in the last year towards improving support for mental health to our
employees, by way of access to mental health first aiders and Employee Assistance Program provided by AXA.
This year, we have expanded the offer of share options to a number of key staff in operational and managerial roles as a way
to reward them for achieving the long term goals of the business.
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 elsewhere in this report.
Our HR Director is a member of our Management Board which sits immediately below the PLC Board. As such all issues are
regularly tabled at these meetings and, if necessary, escalated to the PLC Board agenda.
27 | P a g e
Suppliers
We work closely with our key suppliers, developing strong mutually beneficial partnerships. Suppliers are keen for their products
to be distributed via a professional distribution channel and for their brand/reputation to be protected when doing so. During
the year we began a program of expansion and upgrade of our EMC facilities, these are designed to enhance our authorised
distributor status with key suppliers. This year, we have increased investment in specialist health and safety skills amongst staff to
create a suite of management practices that align ourselves with our key suppliers. We regularly meet with key suppliers to
develop these relationships, largely with a view to providing the best possible experience for our broad network of customers.
Issues associated with supplier relations are discussed, when necessary, at Board meetings and our Management Board includes
representation from the Supply Chain and Logistics side of our business. On occasions presentations are delivered to the Board
to provide up to date commentary and to enable any issues to be discussed, debated and, if necessary, addressed.
Customers
The interests of our customers are at the heart of our business all of the time. 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. The Group’s Commercial Director, John Farmer,
Vice President of the BFPA since 2019, has been formally elected as their new President. On a similar note, Rob Woodley, the
Managing Director at Derek Lane was elected as BFPDA Council Chairman. It is hoped that these positive steps will continue to
align our Group activities within the industry bodies and help to shape our industry for the future, especially in the areas of
compliance and talent management.
Environment and communities
We believe acting responsibly and respecting both the environment and our communities goes hand in hand with commercial
success. The Group remains committed to providing a safe and healthy working environment and supports individual business
unit 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 within the Sustainability section of this report. The Group is mindful of the responsibilities
it has to respect the local, National and global climate related agenda; from a business perspective it also recognises the associated
risks and seeks to put in place processes and actions to mitigate any such factors.
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. Of particular note in 2022 was the Group wide fundraising initiatives for the Pancreatic Cancer UK charity – this
involved many of our people at various sites and resulted in effective team building exercises as well as raising a significant amount
of money for an extremely worthwhile charitable cause.
Investors
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 from time to time, independent information is received through
the Company’s Advisers, from both investors and analysts. On an ongoing basis, the Board is also furnished with brokers’ and
analysts’ reports when published.
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 appointed NOMAD. We are committed to maintaining an open
and constructive dialogue with our Shareholders, providing objective information regarding performance and strategy.
Communication with shareholders
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 2023 and beyond.
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. 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.
28 | P a g e
Beyond the Annual General Meeting, the Chief Executive Officer, Chief Financial Officer and, where appropriate, other members
of the senior management team meet regularly with investors, analysts and media to provide them with updates on the Group’s
business and to obtain feedback regarding the market’s expectations of the Group.
The Company engages in a minimum of two investor roadshows per annum, with meetings undertaken either in person
through the use of video technology. Since 2021 we have used the services offered by the Investor Meets Company platform
to present our results to a wide reach of existing and potential new Investors.
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.
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 Nominated Adviser and Sole Broker, Liberum Capital (see
page 122 for details).
29 | P a g e
Financial Review
“In a period in which the business has experienced extreme inflationary pressures it is pleasing to report a significant increase in
underlying profitability. This has been achieved by focusing on ensuring our gross margin is protected by passing on price
increases to our customer base and our continued efforts to extract cost from the business, most notably by a reduction in our
headcount”
Russell Cash, CFO
Overview
The CEO Year in Review section provides commentary on the results from each of our three
reporting segments. Without wishing to repeat what has been said elsewhere I believe the following
points are worthy of emphasis:
The improvement in the gross profit percentage is, at least in part, due to our ability to pass
on price increases to our customers. The quality of our gross margin remains integral to the way we
operate the business
The costs we have taken out of the business, notably as a result of the reduction in headcount,
has enabled us to report a reduction in underlying operating overheads notwithstanding the
significant inflationary pressures which we have faced, and
The improved performance within the Services segment is particularly pleasing.
Group revenue
Gross profit
Gross profit %
Distribution expenses
Administrative expenses before central costs and separately
disclosed items
Underlying segment operating profit
Central costs
Underlying operating profit *
Less Separately disclosed items
Operating (loss)/profit
Financing costs
(Loss)/profit before tax
Tax
(Loss)/Profit after tax
2022
£m
114.8
41.0
35.7%
2021
£m
109.1
38.5
35.3%
Change
£m / %
5.2%
6.4%
42bps
(4.4)
(4.7)
0.3
(23.5)
13.1
(4.5)
8.6
(13.0)
(4.4)
(1.2)
(5.6)
(0.7)
(6.3)
(23.7)
10.1
(4.4)
5.7
(2.0)
3.7
(0.8)
2.9
(0.7)
2.1
0.2
3.0
(0.1)
2.9
(11.0)
(8.1)
(0.4)
(8.5)
0.1
(8.4)
Underlying EBITDA*
11.6
8.4
3.2
(*) Underlying operating profit is used as an alternative performance measure to assess the trading performance of the business and is operating profit before separately
disclosed items which are amortisation and impairment of acquired intangibles, impairment of goodwill, share based payments, and restructuring costs. Underlying
EBITDA is underlying operating profit prior to depreciation charges and website amortisation.
Central costs
A summary of central costs is provided below:
Management
PLC costs
Finance & Internal Audit
Project Management/Health & Safety/other
Total
30 | P a g e
2022
£000
2,084
523
864
1,039
4,510
2021
£000
2,118
536
732
1,034
4,420
Management costs include the employment costs of the Executive Officers, Management Board members excluding those that
have specific segment responsibilities, and the cost of the Head Office function. It absorbs Group wide costs in a number of areas,
notably professional fees and insurance costs. Overall savings made in certain areas, notably a reduction in professional costs have
been offset by the full year impact of senior recruits who now form part of a mature central management team.
PLC costs capture the salaries of Non-Executive Directors and professional fees associated with our PLC status. The impact of an
increased number of Non-Executive Directors has offset reductions achieved in other areas of cost.
Finance & Internal Audit covers the salary costs of the central finance and internal audit function. The increase in the year reflects
a slightly increased headcount and the impact of pay increases.
Other areas of cost primarily relate to our project management and central health and safety teams.
Separately disclosed items
Share option costs
Amortisation of acquired intangibles
Impairment of acquired intangibles
Impairment of goodwill
Restructuring costs
Acquisition costs
Total
2022
£000
372
943
168
10,072
1,411
-
12,966
2021
£000
166
1,054
673
-
74
11
1,978
Impairment of goodwill
The impairment of goodwill charge relates to three cash generating units: Flowtechnology UK (“FTUK”) (£7.1m), Orange County
(£2.8m) and Hi-Power Transport (£0.2m).
The cash generating units subject to impairment have been, and are expected to remain, profitable parts of our business. However,
the net present value of future cash flows have been particularly impacted by changes to discount rates related to external factors.
The table below sets out the pre-tax discount rates used this year and last year, the degree of impairment necessarily taken this
year and the impact that using last year’s, less onerous, rates would have had on the calculations.
Pre-tax discount rate
2021
2022
Impairment position
2022 deficit
£m
Impact of
change in
discount rate
£m
23.0
0.8
2.4
2022 deficit
based on 2021
discount rates
Nil
2.0
Nil
FTUK
Orange County
Hi-Power Transport
13.1%
15.4%
13.6%
10.4%
10.7%
6.9%
-7.1
-2.8
-0.2
In summary had the discount rates been the same as last year there would have been no requirement to impair FTUK or Hi-Power
Transport and the impairment against Orange County would have reduced by £0.8m.
Restructuring costs
Restructuring includes £1.1m costs relating to our exit from the distribution centre at Leicester, write off of the net book value of
old websites £0.1m, and other costs £0.2m relating to the amalgamation of business units implemented under the Group’s
development strategy as detailed in the CEO’s Year in Review section.
Taxation
The tax charge for the year was £680K (2021: £741k). If the impact of impairment entries and prior period adjustments is removed
the effective rate is 21.5% (2021: 20.6%).
31 | P a g e
Net Debt
Our Net Debt position (excluding lease liabilities) increased by £0.6m from £15.4m to £16.0m, with a summary of the key drivers
summarised in the chart below:
Cash generated from operations of £10.6m compares favourably to a prior year figure of £8.0m; this was to be expected given
2021 was a year in which certain of our business were still recovering from the impact of the COVID-19 pandemic. The investment
we chose to make in increasing stock levels, combined with the impact of improved revenue on our debtor position, contributed
to an overall £5.4m increase in working capital (2021:£8.7m), and it is the carrying cost of this additional working capital that, as
expected, has increased net financing costs to £1.2m (2021:£0.8m) Our investment in capital expenditure totalled £1.7m.
Lease liabilities, which are not included in the graph below, decreased by £0.4m to £6.7m (2021: £7.1m).
In H2 2022 bank debt reduced by £3.7m (from £19.7m to £16.0m) and lease liabilities by £0.3m (from £7.0m to £6.7m).
(*) Opening and closing figures exclude IFRS 16 related liabilities. IFRS16 debt reduced by £0.4m in 2022.
Banking facilities
Our year end balance sheet shows net £16.0m current liability in respect of our net bank debt position. This was classified in this
way as the revolving credit facility was due to expire in November 2023, within a year from the year end balance sheet date.
Under terms agreed in February 2023 our £20m revolving credit facility provided by Barclays Bank was extended for a 3 year term
to February 2026. Covenant terms under the new agreement are consistent with those previously enjoyed, and the base charge
for credit facilities for the period of the arrangement are SONIA+2.40% and are subject to a non-utilisation fee of 0.84%. Under
the terms of the Agreement it is possible for a further extension of one year to be granted subject to certain conditions being
satisfied. The Group also has a £5m overdraft facility which was reviewed in February 2023 and on-going support was approved.
Summary
In a period in which the business has experienced inflationary pressures it is pleasing to report a significant increase in underlying
profitability. This has been achieved by focusing on maintaining the quality of our gross margin and our continued efforts to
extract cost from the business, most notably by a reduction in our headcount. The pressures on our cost base continue into 2023;
we remain alert to this and will continue to take all possible and appropriate steps to mitigate the impact.
Whilst our supply chain has become less volatile, we are still experiencing lead times for certain products which are materially in
excess of what we would view as normal and what we became familiar with prior to the impact of COVID-19. This has manifested
itself in an increase in inventory levels in each of the last two financial years (total £10m). We have plans in place to manage this
down through 2023 and beyond, at the same time remaining mindful of balancing this with the need to ensure we have ongoing
availability of products to satisfy customer demand.
Russell Cash
Chief Financial Officer
25 April 2023
32 | P a g e
Risk Management
The Board is ultimately responsible for risk and internal control systems across the Group.
In last year’s Report & Accounts we set out the established practices which we have in place as well as incremental actions
which have taken place. 2022 saw us build on this with our processes and control being centered around the following:
1.
2.
3.
4.
5.
The continued role of the Risk Committee, comprising members of our Management Board
and chaired by Russell Cash, which meets on a regular basis to discuss all aspects of the
Risk Agenda. This Committee includes Management Board representatives with certain
individuals within this Group taking ownership for key areas
Further engagement with Marsh, specialist consultants – during 2022, an exercise was
performed to assess the current key areas of risk as perceived by senior people within our
business. This led to plans being developed to address a total of 11 areas which were
identified within this review – whilst each of these were already part of our thinking the
exercise was useful in terms of applying priorities
Each of our business units is 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 and each part of our business has an opportunity to provide feedback on
those areas which they see as impacting on them and which merit further and broader
consideration at Group level – by doing so we believe this helps us to evolve our thinking
and tailor our approach to identification and management of risk factors
Specific operational risks are regularly discussed at PLC Board meetings
Regular updates from the Internal Audit function to the Chair of Audit Committee. When
issues are identified this forum includes identification of action designed to assist in such
matters not repeating
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 the protection of the
business. In any set of circumstances, emphasised over the course of the last 3 years following the onset of COVID-19, our
attitude and approach to risk is an area that needs to be considered and addressed on a regular basis. We view certain risks
as material in the context of the impact they are having, or could have, on day-to-day commercial activities.
As such the following areas are commented on in one or both of the CEO’s Year in Review and Financial Review sections of
this report:
Inflationary price pressures and our ability to maintain our strong gross profit
performance (* and **)
Inflationary cost pressures the business has experienced and the steps we have taken to
manage/mitigate this (* and **)
Instability in the economic environment (* and **)
Competition and potential loss of customers (*)
Our relationships with key suppliers (*)
The effectiveness of our website offering (*)
Health & Safety (*)
Climate related issues (*)
Development of new technology and threats it may subject the business to (*)
Ongoing challenges within the supply chain and the means by which these have been
managed – this includes steps we deliberately took to increase the breadth and depth of
our stock holding (* and **)
Liquidity and debt covenants (**)
Going concern considerations (**)
(* comment in CEO’s Year in Review section pages 10-13; ** comment in Financial Review section pages 30-32)
33 | P a g e
Other areas of risk not specifically addressed in the CEO’s Year in Review or Financial Review sections of this Report are set out
below:
1.
2.
Site disruption
Systems disruption
3.
4.
Health & safety
People issues
Site Disruption
Owner: Operations Development Director
Description
Mitigation
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 that
unplanned events (including weather/climate related events)
could disrupt the functioning of key elements of the
operational infrastructure, damaging customer service and
business reputation.
The Group has a formal Business Continuity Process underpinned by
monthly meetings of a Steering Group to assess and refresh risk
mitigation plans at key locations. Actions currently in place include:
Off-site disaster recovery provision for IT systems, including
cloud-based technologies, are embedded across our
businesses.
Fire control systems in place and regularly tested
Regular electrical and gas testing
Continual improvement is being made on testing the robustness of
our systems. Steps are taken to enhance processes; we see this as an
important, ongoing work stream to ensure our business is
continually alert to future challenges.
We have what we believe to be appropriate insurance cover in place
to compensate for any loss which proved difficult to recover.
Widespread operational equipment failure.
Examples considered include:
Mitigating steps include:
Power failure
Kardex system failure
IT failures
Problems with Forklifts, Trucks etc
Carrier delivery failure
Racking failure
On call engineers and contracts with specialist
equipment providers
Back up generators to manage power failures
Programme of preventative maintenance in place
34 | P a g e
Systems disruption
Owner: Systems Director
Description
Mitigation
Loss of critical IT systems
Loss of systems
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.
Part of our strategic focus has been, and continues to be, a
desire to reduce the number of process systems operated by
the Group.
Current mitigation measures include:
Regular on-site IT reviews continue to be carried out
and include reviews of networks and controls. Each of
our UK sites has been visited/reviewed at least once in
the last 12 months. Visits to our sites in the Netherlands
and Republic of Ireland are planned in the first half of
2023.
Secondary power generators available in certain
locations
Secondary internet connections available
All systems bar one are hosted in the cloud with dual
servers ensuring automatic switchover should one fail,
with daily backup procedures.
Cyber related
Current mitigation measures include:
Anti-virus software on all endpoints, including an EDR
package.
All incoming and internal email virus checked, and
quarantined as required (Mimecast)
Cisco firewalls running at all locations.
We continue to take measures to highlight this risk in
communications with all of our employees and work with
external providers to ensure that these messages are
embedded in all that we do within the business; this includes
regular training and tests provided by a third party specialist
organisation.
35 | P a g e
Health & Safety
Owner: HR Director
Description
Mitigation
As regards our people
The physical and mental wellbeing of our employees is
extremely important to us.
As regards suppliers
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.
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 and packaging waste regulations.
As regards our people
The majority of 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.
There is an ongoing review of relevant national and international
compliance requirements.
We have invested heavily in campaigns to look after as best we
can the mental wellbeing of our people across the Group. Each of
our sites has at least one trained mental health ambassador and
all employees have access to support both from internal sources
and, if necessary, third party providers.
More detail is provided in the Sustainability sections of this
report when we consider the Group’s responsibilities relating to
Environmental, Social and Governance issues.
As regards suppliers
Whilst the business sources certain high grade products from
the Far-East, the majority of products are sourced from
respected ‘brands’ in the UK and Europe. Group representatives
often visit suppliers’ manufacturing sites and when doing so
seek to ensure that high quality standard operating procedures
are being adhered to.
More generally
We have built on the establishment of the Health & Safety
Steering Committee in 2020 and the appointment of Senior
Managers dedicated to ensuring compliance in all areas further
evidencing the importance we attach to this area. Regular health
and safety audits and risk assessments are undertaken across
the Group and regular training is provided to our people to
ensure they understand their roles and areas they are
accountable for. Prompt incident reporting procedures are in
place across the business and all Board meetings include Health
& Safety as an integral part of the Agenda.
The new Health and Safety team consists of a H&S Director, a
Head of H&S, a H&S Onsite Services Manager, a H&S co-
ordinator and appointed site H&S representatives across the
organisation. A new H&S policy, H&S Hub and Repository of all
forms and guidance are now launched and set up to further
enhance the support and commitment the group has to H&S
across the organisation.
In addition, the newly appointed Learning and Development
Manager, has been tasked with developing and delivering a key
H&S training matrix to provide appropriate H&S training to all
staff across the group.
36 | P a g e
People issues
Owner: HR Director
Description
Mitigation
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.
Attraction and retention of employees is supported by bonus
plans, recognition and reward programmes, innovative benefit
packages and key learning and development initiatives.
There is a risk that without appropriate investment in our
people we lose key members of, and core skills within, the
team.
Our succession planning process was 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. In addition, our new Accelerate
programme has been created to support the succession and
development of the rising stars in our organisation
We also deliver Group-wide technical and sales conferences to
aid skills sharing. Further details are provided in the
sustainability section of this Report.
Our Director of Human Resources has now introduced a
Learning and Development Manager , who has been tasked
with expanding our apprenticeship programme and launching
our Power Academy.
We are currently reviewing the reward packages made
available to all of our staff and the options available to ensure
continuous learning and development opportunities where this
makes sense for both the business and the individuals
concerned.
The Strategic report, as set out on pages 4 to 37, has been approved by the Board.
Bryce Brooks, Chief Executive Officer
(resigned 12 April 2023)
25 April 2023
37 | P a g e
The Board
Roger McDowell
Non-Executive Chair
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.
Board Committees
Chair of Nomination Committee
Member of the Audit, Remuneration and
AIM Compliance and Corporate
Governance Committees
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 and British Smaller
Companies VCT II plc
Bryce Brooks
Chief Executive Officer
Appointed
March 2010 as CFO, promoted to CEO in September 2018
(stepped down 12 April 2023)
Skills & experience
Holds a degree in civil engineering and qualified as a chartered accountant with Deloitte Haskins &
Sells (now PwC) in 1989. Ten years as a Finance Director at Marlowe Holdings, an American-owned
industrial products distribution group, as well as a Group corporate development role.
Board Committees
Member of the AIM Compliance and
Corporate Governance Committee
Other committees by invitation
External appointments
None
Russell Cash
Chief Financial Officer & Company Secretary
Appointed
November 2018
Skills & experience
Qualified as a chartered accountant with Deloitte Haskins & Sells (now PwC) in 1991. Spent 27 years
working as a turnaround and restructuring professional, 20 years with PwC prior to taking Partner
roles at Baker Tilly (now RSM International) from 2008 to 2013 and FRP Advisory from 2013 to 2018.
At both Baker Tilly and FRP he played a key role in the success and expansion at both firms. Russell’s
experience in effecting change both in terms of operational improvement and cash management
have served the Group well given the focus in each of these areas in recent years.
Board Committees
Member of the AIM Compliance and
Corporate Governance Committee
Other committees by invitation
External appointments
None
38 | P a g e
Nigel Richens
Non-Executive Director & Senior Independent Director
Appointed
May 2014
Skills & experience
23 years within the accountancy sector at partner level with PwC. Experienced adviser to listed and
private equity-owned businesses across manufacturing, distribution, construction and engineering
sectors, bringing wide commercial experience and extensive knowledge of corporate governance,
compliance, risk management and financial matters.
Board Committees
Chair of the Audit and AIM Compliance and
Corporate Governance Committees
Member of the Nomination and Remuneration
Committees
External appointments
Charity Trustee
Other
In his role as Senior Independent Director,
Nigel acts as a sounding board and
intermediary for the Chair and other
Board members. He also leads the
performance evaluation of the Chair.
Stuart Watson
Non-executive Director
Appointed
January 2023
Skills & experience
Stuart is a Chartered Accountant. He was Senior Partner for EY in Yorkshire and the North East and
specialised in audit. He was also responsible for the EY Entrepreneur of the Year Programme. He retired
from EY in 2017. He served as a NED and Audit Committee Chair at Clipper Logistics plc until it was acquired
in May 2022.
Stuart is currently a NED and Audit Committee Chair at both Humber & North Yorkshire Integrated Care
Board and Vp plc, and is an Advisor to Panmure Gordon.
Board Committees
Member of the Audit, Nomination,
Remuneration and AIM Compliance and
Corporate Governance Committees.
Following Nigel Richens’ retirement Stuart
will become Chair of the Audit Committee
with effect from 26 April 2023.
External appointments
Non-Executive Director of Vp plc
Non-Executive Director of Humber & North Yorkshire Integrated Care Board
39 | P a g e
Ailsa G Webb
Non-Executive Director
Appointed
March 2022
Skills & experience
Ailsa has held a number of lead-operational management roles including at TNT and Brammer Buck and
Hickman. Until 2019, Ailsa was Chief Operating Officer for the UK, Ireland and Iceland territories at
Brammer Buck and Hickman, the UK subsidiary of Rubix Group, Europe’s largest supplier of industrial
maintenance, repair and overhaul products and services. In 2019, Ailsa joined HSS Hire Services,
Scotland, one of the UK’s largest equipment rental companies, where she is Managing Director and, in
early 2021 she took over as Managing Director for ABird and Apex Power Solutions, two service business
parts of HSS Group.
she has a wealth of digital transformation expertise driving revenue growth through e-commerce strategies.
Ailsa has a deep understanding of the industrials distribution sector, including within e-commerce where
Board Committees
Member of the Audit, Nomination, Remuneration and
AIM Compliance and Corporate Governance Committees
External appointments
No other Board appointments.
Executive role as described above.
Jamie Brooke
Non-Executive Director
Appointed
March 2022
Skills & experience
Jamie has had successful roles in listed and private equity fund management, originally starting out with
3i plc. Over his 30-year career, having sat on 20 different boards, he has focused on driving shareholder
value and has gained experience covering fund management and investing, strategy and governance,
M&A, audit and consultancy. Most recently he worked with Hanover Investors and, prior to this, Jamie
spent twelve years with the Volantis team under the umbrellas of Lombard Odier, Henderson and
Gartmore. He trained and qualified as a Chartered Accountant with Deloitte.
Board Committees
Chair of the Remuneration Committee.
Member of the Audit, Nomination, AIM
Compliance and Corporate Governance
Committees
External appointments
CIO/ Director of Kelso Group Holdings and associated companies
Director of Maitland Capital Limited
Chairman of Padelstars Limited
Non-Executive Director of Oryx International Growth Fund Plc
Non – Executive Director of Chapel
Down Group Plc
Bryce Brooks has taken the decision to step down as Chief Executive Officer and leave the Company. With effect from 12 April
2023, Mike England was appointed Group CEO. The full announcement can be found at:
http://www.rns-pdf.londonstockexchange.com/rns/8904V_1-2023-4-11.pdf
As previously announced, on 11 January 2023, Nigel Richens will be retiring as a Non-executive Director of the Company following
the publication of these published accounts.
40 | P a g e
Corporate Governance Report
Chair’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
continued clear focus on this important area of our business.
Framework for corporate governance
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.
The Company remains committed to maintaining high standards of corporate governance and has adopted the Quoted
Companies Alliance Corporate Governance Code 2018 (“the QCA code”). Our 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 continue to consider we are compliant with all aspects of the requirements of the QCA Code.
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, ever evolving business model and related key performance measures are clearly articulated in pages 14-18; the
associated risks and the Board’s view thereon are set out in the Risk Management section of this Report. 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 work hard to ensure we achieve a quality delivery of meaningful information on a consistent basis. We continue to work closely
with external advisors, notably our NOMAD, Liberum, who provide guidance in this regard. It is also helpful that certain of our
Non-Executive Directors have a wealth of experience in managing the expectations and understanding the agendas of our key
Investors.
The entire Board is updated on shareholder feedback, in particular following presentations delivered by our Executive Directors
after the announcement of half year and full year results. All Directors are encouraged to attend the Annual General Meeting.
Should Investors wish to make contact, details of all Directors are provided via our website.
Principle 3
“Take into account wider stakeholder and social responsibilities and their implication for long-term success”
The Board recognises that the Company’s relationship with customers, suppliers and employees are individually, and collectively,
critical to its success. Efforts have always, and will continue to be, made to develop strong relationships with customers and
suppliers and increasing emphasis has been placed on engagement with employees; the COVID-19 pandemic resulted in certain
incremental activities around employee wellbeing initiatives and we have since built on these initiatives. The Executive Directors
regularly engage with Divisional Directors and Senior Management within each of our segments to keep them suitably appraised
of key developments; this information is then cascaded through the organisation through specific reporting channels. Included
within this is an increased emphasis on all aspects of health and safety as well as our responsibilities under the ESG agenda.
The Company has undertaken engagement surveys across all staff for a number of years. These surveys are used to understand
what is working well and to the extent there are areas where improvements have been identified, plans are put in place to address
any concerns.
Linked to all of this 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 21-26.
41 | P a g e
Principle 4
“Embed effective risk management, considering both opportunities and threats, throughout the organisation”
Our approach to risk is set out within the Risk Management section of this report. Whilst the Board has overall responsibility, the
importance of developing our processes and controls is an area of focus for many others within the Group. The Audit Committee
has responsibility for reviewing internal controls and in this regard, there is regular communication between the Committee and
the Internal Audit team and Executive Management.
In addition we retain the services of Marsh, specialist Risk Management advisers, who provide regular external reviews of the
progress we make and highlight areas for future improvement. On pages 33-37 we have sought to identify our key areas of risk
and provide comments to demonstrate the investment we have made to put measures in place to address each of these. 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 these areas are, and will always remain, to us. We have also made a significant
investment in our Health & Safety agenda over the course of the last three years.
Principle 5
“Maintain the Board as a well-functioning team led by the Chair”
Details of the Board, and their roles within the Board environment and within Committees, is set out on pages 38-47.
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.
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. Nigel has recently announced his intention to retire from the Board after publication of the
2022 Report & Accounts; following his departure one of the other existing Non-Executive Directors will be appointed to this role.
Principle 6
“Ensure that between them, the Directors have the necessary up-to-date experience, skills and capabilities”
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 appointment of Stuart Watson will bring further valuable experience as well as incremental areas of expertise to the
Boardroom.
Brief biographies of each of our Directors are outlined on pages 38-40.
Principle 7
“Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement”
The Board undertakes an annual evaluation of its effectiveness. This exercise involves each Board 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, and
Standards of conduct.
Any areas where improvement is deemed necessary are discussed and appropriate action plans put in place.
42 | P a g e
Principle 8
“Promote a corporate culture that is based on ethical values and behaviours”
The Board aims to promote and maintain a culture of integrity across all businesses within the Group.
An open culture is encouraged within the Group, with regular communications to employees regarding progress and business
updates. Employee feedback is encouraged through line management and committee discussions.
The Group 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 with appointments being made across each of our businesses and
initiatives put in place to ensure this is consistently uppermost in our thoughts. This has included the appointment of Health &
Safety qualified professionals to provide across all of our locations.
Ever increasing emphasis is being placed on the Environmental, Social & Governance agenda, evidence of which can be seen via
the comments provided on pages 28-30 in this Report. We believe that once again good progress has been made during the
course of 2022.
Principle 9
“Maintain governance structures and processes that are fit for purpose and support good decision making by the Board”
Having invested in certain of our central functions, we are now focussing efforts and resource on the implementation of improved
processes in areas which we believe will lead to further efficiencies to better manage and control the business we currently have
and provide a robust platform to support future growth.
The narrative which follows later in this section of the report explains the roles and responsibilities across Board members and its
various Committees.
The internal audit function has further developed during 2022 with an expanded team focusing on ensuring standard processes
are complied with throughout the Group as well as reviewing certain targeted areas. We are pleased with the progress which is
being made and the Board welcomes the added accountability which our local businesses continue to feel. The Board is in receipt
of regular updates summarising the key findings of Internal Audit reviews, in particular assessments as to the degree of compliance
with key operating procedures. This enables 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.
43 | P a g e
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.
In addition to routine consideration of both financial and operational matters, the Board determines the strategic direction of the
Group.
The Board has a formal schedule of matters specifically reserved for it which includes:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
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, and
Approval of the division of responsibilities between the Chair, Chief
Executive and other Executive Directors and the terms of reference
of the Board Committees.
The Chair
The main responsibilities of the Chair are to lead the Board, ensuring its effective management of the Group’s operations and
governance. The Chair 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:
1.
2.
3.
4.
5.
6.
7.
Chairing Board meetings, setting agendas in consultation with the
Chief Executive Officer 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, and
Establishing an effective working relationship with the Chief
Executive Officer by providing support and advice whilst respecting
executive responsibility.
The Chief Executive Officer
The CEO is responsible for the day-to-day management of all the Group’s activities and the implementation and delivery of the
Board’s strategic objectives. He also promotes appropriate cultural values and standards and seeks to maintain good relationships
and communications with investors.
Company Secretary
Russell Cash, our Chief Financial Officer, is the Company Secretary and as such is responsible for legal and regulatory compliance
as well as assisting the Chair in preparation for, and the effective running of, Board meetings.
44 | P a g e
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. Nigel has recently announced his intention to retire from the Board after publication of the
2022 Report & Accounts; following his departure one of the other existing Non-Executive Directors will be appointed to this role.
Board composition
The Board comprises an independent Non-Executive Chair, two Executive Directors and four other Non-Executive Directors;
following Nigel Richens’ retirement the number of Non-Executive Directors will consequently reduce. Details of the Directors’
remuneration and terms of appointment are set out in the Directors’ Remuneration report on pages 48-50. Biographical details
of the Directors are included on pages 38-40.
Roger McDowell is Chair of the Board and the Nomination Committee. Nigel Richens is the Senior Independent Director and Chair
of the Audit and AIM Compliance and Corporate Governance Committees. Jamie Brooke is Chair of the Remuneration Committee.
The Executive Directorships are full-time positions. The roles of Chair 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 10 formal Board meetings during the year. All meetings were attended by all eligible Directors, except for Ailsa Webb
and Roger McDowell, each of whom attended all but one of their eligible meetings during their tenure.
Formal meetings are supplemented, when circumstances dictate, by other meetings often making use of teleconference facilities.
In addition, the Chair and Non-Executive Directors have met during the year without the Executive Directors.
Board Committees
Executive Management
To support the two Executive Directors, we have a Management Board which sits beneath PLC level. This Group includes individuals
who lead each of our divisions as well as those focused on Operational, Information Technology and Human Capital matters, and
manages all aspects of day-to-day activities, including:
1.
2.
3.
4.
5.
6.
7.
8.
Implementing the strategy as set out/agreed by the Board
Overseeing all commercial operations of the Group,
ensuring good and effective communication in key areas
and alignment of local business objectives to the strategic
direction at Group level
Assessment of growth opportunities, both organic and
potential acquisition opportunities
Talent management and succession planning
Product quality
Health and safety
Financial control and systems, including IT infrastructure
and development, and
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 appointment of new Directors to the Board and ensures that there is
due process used in selecting candidates.
45 | P a g e
The Remuneration Committee - Chaired by Jamie Brooke
The Remuneration Committee meets at least once a year to determine and agree remuneration packages of the Chair and
Executive Directors and other employee benefits. In the year being reported the Committee met once to discuss bonus payments
for the Executive Directors and to discuss and approve additional share option packages for the Executive Directors. The
measures put in place to reward the Executive Directors is detailed in the Directors’ Remuneration section of this Report.
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 Chair and Executive Directors. Details of the Directors’
remuneration are set out in the Directors’ Remuneration Report on pages 48-50.
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 November were attended by all
Directors.
Our NOMAD, Liberum, provided all Directors with an update with regards to Director responsibilities on 19 September 2022.
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:
1.
2.
3.
4.
5.
Monitor the integrity of the financial statements
Review the quality of the Group’s internal controls, ethical standards, and
risk management systems
Review the Group’s procedures for detecting and preventing bribery and
fraud, corruption, sanctions, and whistleblowing
Ensure that the financial performance of the Group is properly reported on
and monitored, including reviews of the annual and interim accounts, results
announcements, and accounting policies, and
Oversee the relationship with the Group’s external Auditor.
During the year, the Audit Committee discharged its responsibilities by:
1.
2.
3.
4.
5.
6.
7.
8.
9.
the Group’s draft
Reviewing
statements, preliminary
announcements and interim results statement prior to Board approval and
reviewing the external Auditor’s reports thereon
financial
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: revenue recognition;
impairment of
intangibles;
impairment of investments and intercompany receivables; going concern
impairment of goodwill and
inventory;
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
Considering policies on non-audit engagements for the Company’s Auditor,
and
10.
Reviewing reports from the Internal Audit Function and providing input to
the implementation of performance improvement measures.
46 | P a g e
The Audit Committee met twice during 2022 (21 March and 16 November) with all Directors in attendance. In accordance with
best practice, the Chairman of the Audit Committee met, and spoke, separately with the Audit Engagement Leader to provide an
opportunity for any relevant issues to be raised directly with him.
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. 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 Chair is responsible for ensuring that each Director is supplied with timely and relevant information of a quality, and in a
form, which enables them to discharge their duties.
The Chair leads an exercise performed on an annual basis to evaluate the effectiveness of the Board.
There is a policy in place by which a director may obtain independent professional advice at the Group’s expense where their
duties so require.
The training needs of Directors are discussed, and appropriate arrangements put in place. We work closely with external training
providers and have a programme in place to deliver tailored training to all members of our central and Divisional management
teams.
Each Director is required to keep up to date with developments in the Group’s areas of operation and their own knowledge base.
Regular discussions with senior members of Group management and the Group’s advisers, together with their own professional
development obligations and experience in other roles, are usually sufficient to achieve this.
Our Nominated Adviser is invited to the AIM Compliance and Corporate Governance Committee to inform the Board of
developments in these areas.
Diversity
The Board is committed to a policy of equal opportunity and diversity to attract and retain the talent needed to fulfil our
strategic aspirations. Our culture recognises the need for diversity across a wide spectrum of factors including experience, skills
and potential, as well as ethnicity, sexual orientation and gender.
Appointment and advancement are 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 important factors such as experience and capabilities.
This year sees us including comments on gender pay gap for the second time. As we state in the Sustainability section of the
Report, we are determined that gender plays no part in any decisions we make relating to recruitment, remuneration or career
progression.
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:
1.
2.
3.
4.
5.
6.
7.
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, and
Detailed investment process for major projects, including capital investment analysis.
47 | P a g e
Directors’ Remuneration Report
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. This report is voluntarily disclosed.
The Remuneration Committee
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.
The Remuneration Committee seeks to act fairly and reasonably and in the interests of the Company and Shareholders.
Remuneration policy
The remuneration policy of the Group is:
1.
2.
To provide a suitable remuneration package to attract, motivate and retain Executive
Directors, and
To ensure that all long-term incentive schemes for the Directors are in line with the
Shareholders’ interests
The Committee makes recommendations to the Board. No Director plays a part in any discussion about their own remuneration.
The Remuneration Committee members are expected to draw on their experience to judge where to position the Group, relative
to other companies’ and other groups’ rates of pay when considering remuneration packages for Executives.
The Executive Directors’ remuneration comprises:
Annual salary
Performance related cash bonus
Participation 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, and
Long-term incentive plans controlled 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.
Benefits in kind are the provision of medical insurance premiums and, in the case of Bryce Brooks*, a motor vehicle.
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.
During the year the Board, following the recommendations of the Remuneration Committee, agreed the grant of additional nil
cost options over ordinary shares of 50 pence each under the Company’s Long-Term Incentive Plan (“LTIP”) to Bryce Brooks* and
Russell Cash. The vesting of the awards is subject to both share price and EPS performance criteria measured on the results for
the three-year financial period to 31 December 2024.
*Bryce Brooks stepped down as CEO on 12 April 2023
48 | P a g e
Directors’ detailed remuneration
Executives
Bryce Brooks*
Russell Cash
Non-Executives
Roger McDowell
Nigel Richens
Jamie Brooke (appointed 8 March 2022)
Ailsa Webb (appointed 8 March 2022)
Paul Gedman (resigned November 2021)
Salary
and fees
£000
Benefits
£000
Bonus
£000
Total
2022
£000
225
200
80
55
37
37
-
634
5
2
-
-
-
-
-
7
70
9
-
-
-
-
-
300
211
80
55
37
37
-
79
720
Total
2021
£000
288⁺
252⁺
80
55
-
-
42
717
⁺ includes provisional bonus of £56,250 (Bryce Brooks) and £50,000 (Russell Cash) based on 25% of annual salary; the actual sums ultimately paid were £66,415 and
£59,035 respectively. The additional amount has been accounted for in 2022.
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:
As at 31 December 2022
number of ordinary shares
As at 31 December 2021
number of ordinary shares
Executives
Bryce Brooks*
Russell Cash
Non-Executives
Roger McDowell
Nigel Richens
Jamie Brooke
Ailsa Webb
299,160
48,175
750,000
73,500
95,000
40,121
299,160
48,175
750,000
73,500
-
-
The table below shows the interests of the Directors in office at the end of the year in the share capital of the Company’s subsidiary, Flowtech MIP Limited:
Executives
Bryce Brooks*
As at 31 December 2022
As at 31 December 2021
B shares
£1
ordinary
3,100
3,100
D shares
£1
ordinary
5
5
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 22.
*Bryce Brooks stepped down as CEO on 12 April 2023
49 | P a g e
Directors’ share options
Details of share options held by the Directors over the ordinary shares of the Company are set out below:
Scheme
As at 31
December 2021
Bryce Brooks*
EMI (Approved)
Bryce Brooks*
LTIP – 2021 issue
Bryce Brooks*
LTIP – 2022 issue
Russell Cash
EMI (Unapproved)
Russell Cash
LTIP – 2021 issue
159,999
187,500
300,000
166,667
As at 31
December
2022
Granted
-
159,999
187,500
173,077
173,077
300,000
166,667
Russell Cash
LTIP – 2022 issue
153,847
153,847
The EMI and LTIP share options were issued as part of an employee share-based remuneration scheme called the ‘Enterprise
Management Incentive Plan’ and ‘Long-Term Incentive Plan.’ Further details are provided in note 22 to the consolidated financial
statements.
*Bryce Brooks stepped down as CEO on 12 April 2023
50 | P a g e
Directors’ Report
The Directors present their Annual Report, together with the audited Group and Company financial statements for the year ended
31 December 2022.
The Group financial statements have been prepared in accordance with UK-adopted international accounting standards. 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 04-18.
Details of revenue and operating profits for each operating segment are contained in note 3 to the consolidated financial
statements. The principal subsidiaries contributing to the profits and net assets of the Group are listed in note 12 to the
consolidated financial statements.
Flowtech Fluidpower plc is incorporated in England (Company registration number 09010518) and has its Registered Office at
Bollin House, Bollin Walk, Wilmslow, SK9 1DP, Cheshire, UK.
Results and dividends
The results for the year ended 31 December 2022 are set out in the consolidated income statement on page 66.
The Group has reported an operating loss from its continuing activities of £4.4 million (2021: profit £3.7 million). After accounting
for net finance costs, the consolidated income statement shows a loss from continuing operations before taxation of £5.6 million
(2021: profit £2.9 million).
The Board will be recommending a dividend of 2.1p in respect of 2022 at the AGM in June 2023. Subject to Shareholder approval,
the dividend will be paid on 21 July 2023 to Members on the Register as at 23 June 2023 with an ex-Dividend date of 22 June
2023.
Directors
The Directors who held office during the year and up to the date of approval of the financial statements are as follows:
Bryce Brooks
Russell Cash
Roger McDowell
Nigel Richens (retires on publication of the audited accounts 26 April 2023)
Ailsa Webb (appointed 8 March 2022)
Jamie Brooke (appointed 8 March 2022)
Stuart Watson (appointed 10 January 2023)
Short biographies of each Director currently in office, including Stuart Watson who was appointed on 10 January 2023, are
provided on page 38-40.
As reported in the announcement on 12 April, Mike England was appointed Chief Executive Officer and will shortly be appointed
statutory director.
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 2022 is disclosed in the Directors’ Remuneration report on page 49.
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.
51 | P a g e
Share capital
Details of the Company’s share capital are in note 23 to the consolidated financial statements.
The Company’s share capital comprises one class of ordinary shares and as at 10 March 2023 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.
The table below shows the position as at 10 March 2023 (being the last practicable date before the publication of this Report):
Shareholders – 10 March 2023
Number of shares held
% of share capital
Odyssean Investment Trust
10,500,000
17.08
Harwood Capital
Downing LLP
Close Brothers Asset Management
Gresham House Asset Management
Charles Stanley
Janus Henderson Investors
Lazard Freres Banque (PB)
British Growth Fund (BFG)
Hargreaves Lansdown, stockbrokers
5,870,826
5,653,934
4,519,551
2,773,089
2,657,571
2,537,190
2,445,080
1,896,724
1,628,976
9.55
9.19
7.35
4.51
4.32
4.13
3.98
3.08
2.65
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 27. It is not the Group’s policy to trade in financial instruments.
Directors’ responsibility under Section 172
Comments on how the Directors have had regard for the interests of various stakeholders whilst making key decisions are
contained on page 28, 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.
Board composition
The Board aims to ensure it has the required balance of skills and experience. An assessment of the skillset and effectiveness of
the Board is performed on an annual basis.
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.
52 | P a g e
Annual general meeting
Whilst Shareholders have the right to attend, speak and vote at the meeting if they so wish, we are encouraging Shareholders to
submit a proxy vote in advance of the Annual General Meeting and to appoint the Chairman of the meeting as their proxy rather
than attend the meeting in person. We are also providing a facility which will enable Shareholders to view the meeting
electronically (although they will not be able to vote through this facility) and to submit questions prior to the AGM, which will be
addressed at the meeting or otherwise responded to.
The AGM will be held in June 2023. The Company is facilitating an online AGM experience via the Investor Meet Company platform,
details of which are contained in the Notice of Meeting.
Those joining the meeting remotely will have the opportunity to join the meeting from any remote location and to listen to the
proceedings of the meeting. The webcast will also be available on the website after the event.
Subsequent events
On 22 February 2023 the Group’s £20m revolving credit facility provided by Barclays Bank was renewed for a further 3 year period
with an option to extend for a further year. Aside from this 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 41 to 47. This 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 21 to 26. 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 21-26. 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:
Although the Group saw a £4.4m operating loss in 2022 (2021: profit £3.7m), after adding back
separately disclosed items, this represents an underlying operating profit of £8.6m, a £2.9m
increase over £5.7m achieved in 2021.
The Group is expecting to return to trade profitably in 2023 and beyond;
The Group is financed by revolving credit facilities totalling £20m and a £5m overdraft facility,
repayable on demand. These facilities were renewed in February 2023 with the terms of the
revolving credit facility extended until February 2026, with an option to extend by a further year
to February 2027;
The Group remains compliant with all covenants contained in the Banking Agreement;
At the end of 2022 the Group’s net debt was £16.0 million (£9.1 million within the aggregate
banking facilities which include a £5.0 million overdraft facility).
The Directors have prepared forecasts covering the period to December 2024. 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 banking facilities.
We have performed reverse stress testing, based on revenue reductions, and are satisfied that the Group is able to remain
Covenant compliant in these situations. The Directors view the set of circumstances required for such a situation to crystallise as
highly unlikely and as such not reasonably plausible scenarios.
The Directors believe the business will continue to operate within its agreed banking facilities and comply with all banking
covenants. As such the Group therefore continues to adopt the going concern basis is preparing its financial statements.
53 | P a g e
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.
Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Annual Report & Accounts 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
prepared the financial statements in accordance with UK-adopted international accounting standards.
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 UK-adopted international accounting standards
have been followed, subject to any material departures disclosed and explained in the financial
statements
for the Company financial statements state whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and explained in the financial statements, and
prepare the financial statements on the going concern basis unless it is inappropriate to presume that
the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure
that the financial statements 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:
1.
2.
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.
By order of the Board
Russell Cash, Chief Financial Officer & Company Secretary
25 April 2023
54 | P a g e
Independent auditor’s report to the members of Flowtech Fluidpower plc
Opinion
Our opinion on the financial statements is unmodified
We have audited the financial statements of Flowtech Fluidpower plc (the ‘parent company’) and its
subsidiaries (the ‘Group’) for the year ended 31 December 2022, which comprise the Consolidated
income statement, the Consolidated statement of comprehensive income, the Consolidated statement
of financial position, the Consolidated statement of changes in equity, the Consolidated statement of
cash flows, the Company income statement, the Company statement of financial position, the
Company statement of changes in equity and notes to the financial statements, including a summary
of significant accounting policies. The financial reporting framework that has been applied in the
preparation of the Group financial statements is applicable law and UK-adopted international
accounting standards. The financial reporting framework that has been applied in the preparation of
the parent company financial statements is applicable law and United Kingdom Accounting
Standards, including Financial Reporting Standard 101 ‘Reduced Disclosure Framework’ (United
Kingdom Generally Accepted Accounting Practice).
In our opinion:
the financial statements give a true and fair view of the state of the Group’s and of the parent
company’s affairs as at 31 December 2022 and of the Group’s loss and the parent company’s
loss for the year then ended;
the Group financial statements have been properly prepared in accordance with UK-adopted
international accounting standards;
the parent company financial statements have been properly prepared in accordance with United
Kingdom Generally Accepted Accounting Practice; and
the financial statements have been prepared in accordance with the requirements of the
Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the ‘Auditor’s responsibilities for the audit of the financial
statements’ section of our report. We are independent of the Group and the parent company in accordance with the ethical
requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied
to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that
the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
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
significant doubt on the Group’s and the parent 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 financial 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 parent company to cease to continue as a
going concern.
Our evaluation of the directors’ assessment of the Group’s and the parent company’s ability to continue to adopt the going
concern basis of accounting included:
Analysing the reasonableness of management’s forecasts and downside sensitivity;
Assessing scenario sensitivities and reverse stress tests performed by management, and determining if they are plausible;
Considering management’s historic forecasting accuracy and the extent to which this impacts the forecasts produced;
Corroborating the existence of the Group’s loan facilities and related covenant requirements for the period covered by
management’s forecasts; and
Reviewing post year end results achieved to those forecasted to determine if the business is trading in line with forecasts.
In our evaluation of management’s conclusions, we considered the inherent risks associated with the Group’s and the parent
company’s business model including effects arising from the macro-economic uncertainties such as the crisis in Ukraine and
55 | P a g e
high inflationary pressures, we assessed and challenged the reasonableness of estimates made by management and the
related disclosures and analysed how those risks might affect the Group’s and the parent company’s financial resources or
ability to continue operations over the going concern period.
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
Based on the work we have performed, 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 parent 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.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections
of this report.
Our approach to the audit
Overview of our audit approach
Overall materiality:
Group: £545,000, which represents 0.5% of the Group’s revenue,
capped at the same amount as determined for the prior year.
Parent company: £490,500, which represents 0.4% of the Parent
company’s total assets, capped at 90% of Group materiality for
Group audit purposes.
Key audit matters were identified as:
Materiality
Key audit
matters
Carrying value of the Group’s goodwill (same as previous
year);
Provision for impairment of inventories (same as previous
Scoping
year); and
Carrying value of investments in subsidiaries (same as
previous year).
Our auditor’s report for the year ended 31 December 2021
included two key audit matters that have not been reported as
key audit matters in our current year’s report, being going
concern and improper revenue recognition – sale of goods.
Going concern is not a key audit matter this year as a result of
increased headroom on forecast covenant compliance and
growth in the year following the recovery from the impact of
Covid-19 in 2020 and 2021.
We have not reported improper revenue recognition – sale of
goods as a key audit matter given the relative lack of judgement
in revenue recognition.
We have performed audits of the financial information using
component materiality (full-scope audits) for Flowtech Fluidpower
plc and the following components Fluidpower Group UK Limited,
Fluidpower Group Services Limited, Fluidpower Shared Services
Limited and Fluidpower MIP Limited.
We performed specific audit procedures on the financial
information of Flowtech Fluidpower Ireland Limited.
In total our audit procedures covered 88% of the Group’s total
assets, 82% of the Group’s revenue and 94% of the Group’s loss
before tax.
We performed analytical procedures at Group level on the
financial information of all the remaining Group components.
56 | P a g e
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.
Description
Audit
response
KAM
Disclosures
Our results
In the graph below, we have presented the key audit matters, significant risks and other risks relevant to the audit.
High
t
c
a
p
m
i
t
n
e
m
e
t
a
t
s
l
a
i
c
n
a
n
i
f
l
a
i
t
n
e
t
o
P
Low
Provision for
impairment of
inventories
Carrying value of
the Group’s
goodwill
Revenue
recognition
Cash and
bank
Inventory
Going
concern
Carrying value of
investments in
subsidiaries
Cost of sales
Trade payables
and accruals
Management
override of controls
Trade
receivables
Share options
Extent of management judgement
High
Key audit matter
Significant risk
Other risk
Key Audit Matter – Group
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.
We have pinpointed the significant risk in relation
to the carrying value of goodwill to the Primary
Fluidpower Systems, Orange County, Flowtech
UK, Hydroflex Hydraulics OUD and Hi-Power
Transport Cash Generating Units (‘CGUs’) in
respect of the valuation and allocation assertion.
There is an increased risk that goodwill held by
the Group relating to the CGU’s is impaired due
to the sensitivity to changes in the assumptions
underpinning the forecasts and discount rate.
Under International Accounting Standard IAS 36
‘Impairment of Assets’, management is required
to assess at the end of each reporting period
whether there is any indication that an asset may
be impaired and to perform an annual
assessment whether the Group’s goodwill within
a CGU is impaired.
The process for assessing whether impairment of
assets exists under IAS 36 is complex.
Management use an expert to prepare
impairment models to assess the recoverable
amount. Calculating value in use, through
forecasting cash flows related to CGUs and the
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 testing whether they were
implemented as designed;
Assessing the competence, capabilities and
objectivity of the management’s expert used
by the Group;
Assessing the mechanical accuracy of the
impairment model and the methodology
applied by management for consistency with
the requirements of IAS 36, including their
associated sensitivity analysis;
Obtaining management’s assessment over
carrying value and value in use,
understanding and challenging sensitivities
performed;
Testing the accuracy of management’s
forecasting through a comparison of prior
forecasts to actual data;
Considering the appropriateness of
management’s assumptions and sensitivities
relating to the calculations of the value in use
of CGUs and estimated future cash flows,
57 | P a g e
Key Audit Matter – Group
determination of the CGUs, appropriate discount
rate and other assumptions to be applied can be
highly judgemental and subject to management
bias or error. The selection of certain inputs into
the cash flow forecasts can also significantly
impact the results of the impairment assessment.
Relevant disclosures in the Annual Report 2022
Financial statements: Note 2.9, Accounting
policies, Intangible assets, Goodwill; and Note
10, Goodwill.
Provision for impairment of inventories
We identified provision for impairment of
inventories as one of the most significant assessed
risks of material misstatement due to error.
The Group’s total inventory as at 31 December
2022 is £31,486,000 (2021: £30,531,000), which is
recorded net of a provision of £1,693,000 (2021:
£1,421,000).
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.
58 | P a g e
How our scope addressed the matter – Group
including the growth rate and discount rate
used to assess the level of headroom;
The client performed sensitivity analysis to
understand the impact of any reasonably
possible changes in assumptions,
determining their impact on the carrying
value of the intangible assets;
Evaluating whether the goodwill and
intangible assets are allocated to the CGUs
appropriately and challenging whether the
CGUs identified and changes made are
appropriate;
We ascertained the extent to which a change
in these assumptions, both individually or in
aggregate, would result in a goodwill
impairment, and considered the likelihood of
such events occurring. We also considered
the sufficiency and appropriateness of
disclosures included in the Group’s
consolidated financial statements regarding
such events;
We used our internal valuation specialists to
inform our challenge of management, that
the assumptions used within the calculation
of WACC are reasonable and consistent with
other similar Groups; and
We assessed whether the Group’s
disclosures with respect to the carrying value
of Group goodwill are adequate and the key
assumptions are disclosed.
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 consider the disclosures with respect to the
carrying value of the Group’s goodwill to be in
accordance with IAS 36.
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;
Obtaining an understanding the design and
evaluating the implementation of processes
and controls through which the Group initiates,
records, processes and reports inventory
provisions;
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;
Assessment of sales made at a loss, both
during the financial period and subsequent to
the year end, and an assessment of the
historical accuracy of prior period’s
provisioning;
On a sample basis we vouched post year end
sales to determine if inventory is held at lower
of cost and net realisable value; and
Key Audit Matter – Group
How our scope addressed the matter – Group
Considering the suitability of the inventory
provision, including comparisons to
competitors, re-performance of the calculation
and considering historical performance
relating to inventories.
Relevant disclosures in the Annual Report 2022
Financial statements: Note 2.10, Accounting
policies, Inventories; and Note 15, Inventories.
Our results
Based on our audit work we have not identified any
material misstatements relating to the provision for
inventories.
How our scope addressed the matter– Parent
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 testing 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 discount rate provided by
management’s expert and used in
management’s impairment review;
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;
Performing sensitivity analysis on key
assumptions to understand the potential
impact on headroom. This included
sensitising the discount rate applied to the
future cash flows, and the short term growth
rates and operating income forecast; and
Assessing the adequacy of the disclosures in
the financial statements in accordance with
the requirements of IAS 36 ‘Impairment of
Assets’.
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 subsidiaries.
Key Audit Matter – Parent company
Carrying value of investments in subsidiaries
We identified the carrying value of investments in
subsidiaries as one of the most significant
assessed risks of material misstatement due to
error.
The Company statement of financial position
includes investments in subsidiaries of
£59,024,000 (2021: £59,024,000).
We have focused on this area due to the size of
the investment balance and the higher estimation
uncertainty in determining the future cashflows to
support the balance.
There is a risk that the carrying value of
investments may be overstated. The process for
assessing whether impairment exist under IAS 36
‘Impairment of Assets’ is complex and there is
significant judgement in forecasting future
cashflows and therefore assessing the value.
Management has performed an assessment of
the recoverable amount of the investment and
compared this to the carrying value using the
same cash flow methodology applied in the
impairment test for goodwill described above.
The judgements made by management in respect
of the impairment review are subject to significant
measurement uncertainty.
Relevant disclosures in the Annual Report 2022
Financial statements: Note B, Accounting
policies, Impairment of investments and
Impairment of Group balances; and Note I,
Investments and Note J, Trade and other
debtors.
59 | P a g e
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
Parent 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
£545,000, which is 0.5% of the
Group’s revenue, capped at the
same amount as determined for the
prior year.
£491,000, which is 0.4% of the
parent company’s total assets,
capped at 90% of Group materiality
for Group audit purposes.
Significant judgements
made by auditor in
determining materiality
In determining materiality, we made
the following significant judgements:
In determining materiality, we made
the following significant judgements:
The primary objective of the
parent company is to hold the
investments in the Group
undertakings, as well as to
provide financing.
Materiality for the current year is the
same as the level that we determined
for the year ended 31 December
2021 to reflect our capping at the
same percentage of the same
number as the prior year.
We determined that revenue was
the most appropriate benchmark
for the Group due to it being a
key performance indicator of the
Group (as part of the Sales
growth KPI) and providing a
consistent year on year basis for
determining materiality as it is
less volatile than the earnings for
the Group.
Materiality for the current year is the
same as the level that we determined
for the year ended 31 December
2021 to reflect our capping of the
current year’s materiality at the same
amount as the prior year.
Performance
materiality used to
drive the extent of our
testing
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.
Performance
materiality threshold
£354,000, which is 65% of financial
statement materiality.
£319,000, which is 65% of financial
statement materiality.
Significant judgements
made by auditor in
determining
performance
materiality
In determining performance
materiality, we made the following
significant judgements:
In determining performance
materiality, we made the following
significant judgements:
we assessed the strength of the
we assessed the strength of the
control environment, including the
effect of misstatements identified
in previous audits, to make our
determination.
control environment, including the
effect of misstatements identified
in previous audits, to make our
determination.
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.
60 | P a g e
Materiality measure
Group
Parent company
Specific materiality
We determined a lower level of
specific materiality for the following
areas:
We determined a lower level of
specific materiality for the following
areas:
related party transactions
excluding intercompany
transactions; and
related party transactions
excluding intercompany
transactions; and
directors’ remuneration.
directors’ remuneration.
We determine a threshold for reporting unadjusted differences to the Audit
Committee.
£27,000 and misstatements below
that threshold that, in our view,
warrant reporting on qualitative
grounds.
£25,000 and misstatements below
that threshold that, in our view,
warrant reporting on qualitative
grounds.
Communication of
misstatements to the
Audit Committee
Threshold for
communication
The graph below illustrates how performance materiality interacts with our overall materiality and the tolerance for potential
uncorrected misstatements.
Overall materiality – Group
Overall materiality – Parent company
Revenue
£115m
Total assets
£136m
PM
£354,000,
65%
FSM
£545,000,
0.5%
TFPUM
£191,000, 35%
PM
£319,000,
65%
FSM
£491,000,
0.4%,
capped at
90% of
Group
materiality
TFPUM
£172,000, 35%
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 parent 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 and its environment, including Group wide controls, and
assessed the risks of material misstatement at the Group level; and
The engagement team further considered the structure of the Group, including Group-wide processes and controls, and
used this to inform our assessment of risk.
Identifying significant components
In order to address the risks identified, the engagement team performed an evaluation on 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.
61 | P a g e
Type of work to be performed on financial information of parent and other components (including how it addressed the key audit
matters)
We performed full scope audits using component materiality on the financial statements of Flowtech Fluidpower plc and on
the financial information of the components Fluidpower Group UK Limited, Fluidpower Group Services, Fluidpower Shared
Services Limited and Fluidpower MIP.
We performed specific audit procedures on certain balances and transactions of Flowtech Fluidpower Ireland Limited.
We performed analytical procedures on the financial information of Flowtech Europe Limited, Flowtechnology Asia Limited,
Flowtechnology CZ Limited, Process Fluidpower Limited, Balu Limited, Weltac Limited Flowtechnology Benelux Limited and
Hydroflex Hydraulics Group BV.
Performance of our audit
Together, the components subject to full scope audits and specified audit procedures performed by the Group auditor were
responsible for 93% of the Group’s total assets, 91% of the Group’s revenue and 94% of the Group’s loss before tax. 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;
For the remaining eight components we performed analytical procedures on their financial information; and
Testing of the consolidation process, including re-performance of management’s calculations.
Changes in approach from previous period
Flowtechnology Fluidpower Ireland Limited, has been removed from the full-scope audit owing to its financial insignificance
in context of the Group as a whole. Additionally analytical procedures have been performed on The Hydraulics Group BV
and Flowtechnology Benelux B.V.
Audit approach
No. of
components
% coverage
total assets
% coverage
revenue
Full-scope audit
Specific-scope audit
Specified audit procedures
Review procedures
Analytical procedures
4
-
1
-
8
Other information
88%
0%
6%
0%
6%
82%
0%
9%
0%
9%
%
coverage
LBT
94%
0%
2%
0%
4%
The other information comprises the information included in the annual report, other than the financial statements and our
auditor’s report thereon. The directors are responsible for the other information contained within the annual report. 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.
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 themselves. 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.
62 | P a g e
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 parent company and their environment obtained in the
course of the audit, we have not identified material misstatements in the strategic report or the directors’ report.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report
to you if, in our opinion:
adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been
received from branches not visited by us; or
the parent company financial statements are not in agreement with the accounting records and returns; or
certain disclosures of directors’ remuneration specified by law are not made; or
we have not received all the information and explanations we require for our audit.
Responsibilities of directors
As explained more fully in the statement of directors’ responsibilities set out on page 54, the directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as
the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the parent company’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the Group or the parent company or to cease operations, or have no
realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is
a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. 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 parent company and
the industry in which they operate. We determined that the following laws and regulations were most significant; the
Companies Act 2006 and UK-adopted international accounting standards (for the Group), the Companies Act 2006 and
Financial Reporting Standard 101 ‘Reduced Disclosure Framework’ (for the parent company), and the Quoted Companies
Alliance (QCA) Corporate Governance Code.
We obtained an understanding of how the parent 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 parent company’s and the Group’s financial statements to material misstatement,
including how fraud might occur. Audit procedures performed by the Group engagement team included:
o Assessing the design and implementation of controls management has in place to prevent and detect fraud;
o 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;
63 | P a g e
o Challenging assumptions and judgments made by management in its significant accounting estimates;
o
Identifying and testing journal entries, in particular journal entries determined to be large or relating to unusual
transactions; and
o Making inquiries, in respect of fraud, of those outside the finance team, including key management and the internal
process audit team.
These audit procedures were designed to provide reasonable assurance that the financial statements were free from fraud
or error. The risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting
from error and detecting irregularities that result from fraud is inherently more difficult than detecting those that result from
error, as fraud may involve collusion, deliberate concealment, forgery or intentional misrepresentations. Also, the further
removed non-compliance with laws and regulations is from events and transactions reflected in the financial statements, the
less likely we would become aware of it;
The engagement partner’s 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.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting
Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to
state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for
the opinions we have formed.
Michael Lowe
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
Manchester
25 April 2023
64 | P a g e
Consolidated Income Statement
For the year ended 31 December
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
(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
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
65 | P a g e
Note
2022
£000
2021
£000
3
3
4
6
3
7
9
9
114,766
(73,792)
40,974
(4,428)
109,107
(70,609)
38,498
(4,683)
(27,960)
(28,125)
(12,966)
(1,978)
(40,926)
(4,380)
(1,192)
(5,572)
(680)
(6,252)
(6,252)
(6,252)
(10.17p)
(10.17p)
(30,103)
3,712
(833)
2,879
(741)
2,138
2,138
2,138
3.48p
3.45p
2022
£000
2021
£000
(6,252)
2,138
318
(5,934)
(5,934)
(5,934)
(342)
1,796
1,796
1,796
Consolidated Statement of Financial Position
Assets
Non-current assets
Goodwill
Other intangible assets
Right-of-use assets
Property, plant and equipment
Total non-current assets
Current assets
Inventories
Trade and other receivables
Prepayments
Cash and cash equivalents
Total current assets
Liabilities
Current liabilities
Interest-bearing borrowings
Lease liability
Trade and other payables
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
2022
£000
2021
£000
10
11
21
13
15
16
17
18
18,21
19
18
18, 21
20
14
23
53,092
3,523
6,091
7,234
69,940
31,486
24,620
387
3,972
60,465
19,967
1,705
19,569
1,219
42,460
18,005
-
5,008
317
1,281
6,606
81,339
30,746
60,959
187
(124)
293
3,646
159
(14,527)
81,339
63,164
4,517
6,925
6,891
81,497
30,531
21,566
472
4,562
57,131
-
1,561
21,111
604
23,276
33,855
19,927
5,586
309
1,528
27,350
88,002
30,746
60,959
187
(276)
293
3,646
(286)
(7,267)
88,002
The financial statements on pages 65-116 were approved by the Board of Directors on 25 April 2023 and were signed on its behalf by:
Russell Cash, Chief Financial Officer
Company number: 09010518
66 | P a g e
Consolidated Statement of Changes in Equity
Share
capital
£000
Share
premium
£000
Other
reserve
£000
Shares
owned by
the EBT
£000
Merger
reserve
£000
Merger
relief
reserve
£000
Currency
translation
reserve
£000
Retained
losses
£000
Total
equity
£000
30,746
60,959
187
(372)
293
3,646
343
(9,795)
86,007
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
96
-
-
96
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,138
2,138
(535)
193
(342)
(535)
2,331
1,796
-
-
(94)
(14)
82
166
45
166
(49)
(94)
197
199
30,746
60,959
187
(276)
293
3,646
(286)
(7,267)
88,002
30,746
60,959
187
(276)
293
3,646
(286)
(7,267)
88,002
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
152
-
-
-
152
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(6,252)
(6,252)
318
-
318
318
(6,252)
(5,934)
-
-
-
(25)
372
127
372
(1,228)
(1,228)
127
(127)
-
127
(1,008)
(729)
30,746
60,959
187
(124)
293
3,646
159
(14,527)
81,339
Balance at
1 January 2021
Profit for the year
Other comprehensive
income
Total comprehensive
income for the year
Transactions
with owners
Share options
settled
Share-based
payment charge
Other movements
Total transactions
with owners
Balance at 31
December 2021
Balance at
1 January 2022
Loss for the year
Other comprehensive
income
Total comprehensive
income for the year
Transactions
with owners
Share options settled
Share-based
payment charge
Dividends paid
Transfers between
reserves
Total transactions
with owners
Balance at 31
December 2022
67 | P a g e
Consolidated Statement of Cash Flows
Cash flow from operating activities
Net cash from operating activities
Cash flow from investing activities
Acquisition of property, plant and equipment
Acquisition of intangible assets
Proceeds from sale of property, plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Repayment of lease liabilities
Interest on lease liabilities
Other interest
Proceeds from sale of shares held by the EBT
Note
2022
£000
2021
£000
24
13
11
5,014
(441)
(1,645)
(1,342)
(212)
(761)
65
525
(1,792)
(1,578)
(1,673)
(1,882)
(227)
(925)
172
(246)
(547)
108
-
Dividends paid
8
(1,228)
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
17
(3,881)
(2,567)
(659)
(4,586)
4,562
9,235
69
3,972
(87)
4,562
68 | P a g e
Reconciliation of liabilities arising from financing activities
The changes in the Group’s liabilities arising from financing activities can be classified as follows:
At 1 January 2021
Cash flows:
Repayment
Other movements
Non cash:
Additions
Foreign exchange difference
At 31 December 2021
At 1 January 2022
Cash flows:
Repayment
Other movements
Non cash:
Additions
Reclassification of liabilities
Other lease movements
Foreign exchange difference
At 31 December 2022
Long-term
borrowings
£000
Short-term
borrowings
£000
Lease
liabilities
£000
Total
£000
19,887
-
7,737
27,624
-
40
-
-
19,927
19,927
-
40
-
-
-
-
-
-
(1,882)
(1,882)
(59)
(19)
-
-
-
-
-
-
-
-
-
1,424
1,424
(73)
(73)
7,147
27,074
7,147
27,074
(1,673)
(1,673)
-
40
1,369
1,369
-
(190)
60
-
(190)
60
19,967
6,713
26,680
(19,967)
19,967
Other lease movements are adjustments for the reduction in value of the lease liabilities following either the exercise of an early
termination clause or an agreement with the landlord.
69 | P a g e
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 UK adopted international accounting
standards 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 UK-adopted international accounting standards 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 as follows, which are all effective for the period beginning 1 January 2023 or later:
1.
2.
3.
4.
5.
Deferred Tax related to Assets and Liabilities arising from a Single
Transaction (Amendments to IAS 12)
Definition of Accounting Estimates (Amendments to IAS 8)
Disclosure of Accounting policies (Amendments to IAS 1 and FRS
Practice Statement 2)
Classification of Liabilities as Current or Non-current (Amendments to
IAS 1)
Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS
Practice Statement 2)
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 following standards, interpretations and amendments to existing standards are now effective and have been adopted by the
Group. The impacts of applying these policies are not considered material:
1.
2.
3.
4.
Property, Plant and Equipment: 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; and
Reference to the Conceptual Framework – Amendments to IFRS 3.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in the
consolidated financial statements.
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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:
Although the Group saw a £4.4m operating loss in 2022 (2021:£3.7m), after adding back
separately disclosed items, this represents an underlying operating profit of £8.6m, a £2.9m
increase over £5.7m achieved in 2021.
The Group is expecting to return to trade profitably in 2023 and beyond
The Group is financed by revolving credit facilities totalling £20m and a £5m overdraft facility,
repayable on demand. These facilities were renewed in February 2023 with the terms of the
revolving credit facility extended until February 2026, with an option to extend by a further year
to February 2027
The Group remains compliant with all covenants contained in the Banking Agreement
At the end of 2022 the Group’s Net Debt was £16.0 million (£9.0 million within the aggregate
banking facilities which include a £5.0 million overdraft facility).
The Directors have prepared forecasts covering the period to December 2024. 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 banking facilities.
The Directors have considered reverse stress testing, based on revenue reductions, to determine scenarios in which the Group
banking covenants could be breached. The Directors view the set of circumstances required for such a situation to crystallise as
highly unlikely and as such not reasonably plausible scenarios.
The Directors believe the business will continue to operate within its agreed banking facilities and comply with all banking
covenants. As such the Group therefore continues to adopt the going concern basis is 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.
Accordingly, the following accounting treatment was applied in respect of the share for share exchange:
1.
2.
3.
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, and
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.
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Subsidiaries
The Group’s financial statements consolidate those of the Parent Company and all of its subsidiaries as of 31 December 2022.
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 has a reporting year ending in June however this
entity is dormant and under strike off process.
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. Leases liabilities are secured on the assets
leased. Lease liabilities include the net present value of the following lease payments:
1.
2.
3.
4.
5.
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:
1.
2.
3.
4.
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 with a value of less than £3,500.
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.
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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 the reporting
period, there is no liability on account of residual value guarantees.
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:
1.
2.
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 makes use of a simplified approach in accounting for trade losses in other receivables as well as contract assets and
records the loss allowance as lifetime expected credit losses. These are the expected shortfalls in contractual cashflows,
considering the potential for default at any point during the life of the financial instrument. In calculating, the Group uses its
historical experience, external indicators and forward looking information to calculate the expected credit losses using a provision
matrix. The group assesses impairment of trade receivables on a collective basis as they possess shared credit risk characteristics
they have been grouped based on the days past due. Refer to note 16 for the movement in expected credit losses, as well as the
allocation based on the ageing profile.
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.
Derivative financial instruments and hedging activities
The Group primarily uses forward foreign currency contracts to manage its exposure to fluctuating foreign exchange rates. These
instruments are initially recognised at fair value and are subsequently remeasured at their fair value at each balance sheet date.
Any gains or losses are recognised though the Consolidated Income Statement.
Cash and cash equivalents
Cash is defined as cash in hand and on demand deposits. Cash equivalents are defined as short-term highly liquid investments
with original maturities of three months or less.
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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.
Depreciation is charged to the income statement over the estimated useful lives of each part of an item of property, plant and
equipment. In the case of Right-of-use assets, depreciation is charged over the life of the asset or its lease term, whichever is
lower. Land is not depreciated. The estimated useful lives and depreciation methods are as follows:
Property
Plant, machinery and equipment
Motor vehicles
Right-of-use property
Right-of-use motor vehicles
Up to 50 years - straight line
3 to 20 years - straight line
4 to 5 years - straight line
2 to 12 years - straight line
2 to 5 years - straight line
Depreciation methods, useful lives and residual values are reviewed at each reporting date.
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 after 1 January 2011
For acquisitions on or after 1 January 2011, the Group measures goodwill at the acquisition date as:
1.
2.
3.
4.
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).
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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 whenever the Directors consider that there has been a potential indication of
impairment.
Website development costs
Website development costs that generate economic benefits beyond one year are capitalised as intangible assets and amortised
on a straight-line basis over a period of up to six years, or by exception over a longer period where it is expected that economic
benefits are attributable over a longer period. The remaining useful life of assets is reviewed on an annual basis, or where a change
in the business or other circumstances would trigger a revision. Assets under development are not amortised but instead tested
for impairment annually. The amortisation expense on intangible assets is recognised in the income statement within
administration costs. Software as a service (“SAAS”) contract costs are expensed to the Income Statement over the life of the
contract. For SAAS and cloud based technology, integration costs are capitalised only when they represent enhancements to
Group’s existing assets. Capitalised development expenditure is stated at cost less accumulated amortisation and less accumulated
impairment losses. Capitalised costs include employee costs incurred on project management, system architecture development
and testing.
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, including, where appropriate, labour expended in processing of assembled goods.
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.
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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 or appropriate variations thereof. An expert is used to assist management
with the valuation.
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.
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.
Rebates payable to customers are recognised in line with the relevant contractual terms. Rebates payable to customers are
contingent on the occurrence or non-occurrence of a future event e.g. the customer meeting an agreed certain sales value. Rebates
are recorded using the most likely method (the single most likely amount in a range of possible consideration amounts). Accruals
are made for each individual rebate based on the specific terms and conditions of the customer agreement. Management makes
estimates on an ongoing basis, primarily based on current customer spending, historic data and its accumulated experience, in
order to assess customer revenues and to calculate total rebates earned. Rebates are charges directly to the Consolidated Income
Statement over the period to which they relate and are recognised as a deduction from revenue.
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 from bespoke longer-term services is accounted for in accordance with the policy on Revenue from contracts described
below.
Revenue from contracts
Revenue from contracts involve providing an end to end solution, involving some or all of project management, design,
manufacture, customisation, installation and commissioning that can last several months or years. To determine whether to
recognise revenue, the Group follows a 5-step process:
1.
2.
3.
4.
5.
Identifying the contract with a customer
Identifying the performance obligations
Determining the transaction price
Allocating the transaction price to the performance obligations, and then
Recognising revenue when/as performance obligation(s) are satisfied
The contract is then assessed to determine whether it contains a single combined performance obligation or multiple performance
obligations. If applicable the total transaction price is allocated amongst the various performance obligations based on their
relative stand-alone selling prices. Revenue is recognised either at a point in time or over time, when (or as) the Group satisfies
performance obligations by transferring the promised goods or services to its customers.
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Where the Group also provides a significant service of integrating components and services under the contract, the sum total of
the deliverables (solution) under the contract is treated as a single performance obligation. In this case, the Group has assessed
that control of the solution transfers to the customer over time. This is because each solution is unique to the customer (has no
alternative use) and the Group is entitled to a right to payment for the work certified as completed in the event the customer
sought to terminate the contract. Revenue for these performance obligations is recognised as the customisation or integration
work is performed, using the input method to estimate progress towards completion.
Billings on bespoke solutions contracts are based on attaining specified contract milestones. Contract assets will arise in situations
where revenue is recognised in advance of the next progress billing. When payments are received that exceed the revenue
recognised to date on a particular contract, any excess reported in the financial position as deferred income under contract
liabilities.
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 Divisions
Since the start of 2021, the Group has been operating under three distinct branded segments: Flowtech, Fluidpower Group
Solutions and Fluidpower Group Services. During the year, the Primary Components business was moved from the Fluidpower
Group Solutions Segment into the Flowtech Segment to reflect changes in internal reporting.
The Group monitors and reports business performance based on these three segments:
Flowtech:
Supply of both hydraulic and pneumatic consumables, predominantly through
distribution for maintenance and repair operations across all industry markets
and supported by supply agreements direct to a broad range of original
equipment manufacturers.
Fluidpower Group Solutions:
Supply specialist technical hydraulic components and systems predominantly
into OEMs and end-user channels to all industry markets and supported by
supply agreements direct to a broad range of manufacturer brands.
Fluidpower Group Services:
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.
Executive Management are 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.
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.
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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
‘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, and
‘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.
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.
78 | P a g e
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 (2021: 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.
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
cash generating units (CGUs) to which goodwill is allocated. Value in use is dependent on estimations of future cash flows from
the CGU and the use of an appropriate weighted average cost of capital to discount those cash flows to their present value. The
carrying value of goodwill as at 31 December 2022 is £53,092,000 (2021: £63,164,000). Refer to note 10 for further detail. Estimation
uncertainty relates to assumptions about future operating results and the determination of a suitable discount rate (see note 10).
Acquired intangibles
In assessing impairment, management estimates the recoverable amount of each asset or cash generating unit based on expected
future cash flows and uses an appropriate weighted average cost of capital to discount them. Estimation uncertainty relates to
assumptions about future operating results and the determination of a suitable discount rate (see note 10). In 2021, the Group
recognised an impairment loss on other intangibles (see note 11).
Provision for impairment of inventories
The carrying value of inventories as at 31 December 2022 was £31,486,000 (2021: £30,531,000) and included a provision against
the inventories of £1,693,000 (2021: £1,421,000). 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 is recognised in Shareholders’ equity. Neither the purchase nor sale of own shares leads to a gain or loss being
recognised in the income statement.
3. Segment reporting
From the beginning of 2021, Management reviews the operations of the business based on three segments – Flowtech, Fluidpower
Group Solutions and Fluidpower Group 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.
79 | P a g e
Segment information for the reporting periods are as follows:
For the year ended 31 December 2022
Income statement - continuing operations:
Fluidpower
Group
Solutions
£000
Fluidpower
Group
Services
£000
Inter-
segmental
transactions
£000
Flowtech
£000
Revenue from external customers
55,565
38,076
21,125
-
Inter-segment revenue
1,706
1,008
868
(3,582)
Total revenue
57,271
39,084
21,993
(3,582)
Underlying operating result (*)
Net financing costs
Underlying segment result
6,887
(141)
6,746
4,405
1,804
(68)
(5)
4,337
1,799
Separately disclosed items
(8,240)
(785)
(3,329)
(Loss)/profit before tax
(1,494)
3,552
(1,530)
Specific disclosure items
Depreciation and impairment on owned
plant, property and equipment
Depreciation on right of use assets
Impairment of goodwill
Impairment of acquired intangibles
Amortisation
Reconciliation of underlying operating
result
867
157
179
707
7,105
-
230
695
-
-
683
73
2,967
168
124
Underlying operating result (*)
6,887
4,405
1,804
Separately disclosed items
(8,240)
(785)
(3,329)
Operating (loss)/profit
(1,353)
3,620
(1,525)
-
-
-
-
-
-
-
-
-
-
-
-
-
Central
costs
£000
-
-
-
(4,510)
(978)
(5,488)
Total
continuing
operations
£000
114,766
-
114,766
8,586
(1,192)
7,394
(612)
(12,966)
(6,100)
(5,572)
2
1,205
195
-
-
-
1,670
10,072
168
1,037
(4,510)
8,586
(612)
(12,966)
(5,122)
(4,380)
(*) Underlying operating result is continuing operations’ operating profit before separately disclosed items detailed later in this note.
Segment information for 2021 has been re-stated following the movement of Primary Components from Fluidpower Group
Solutions to Flowtech segment, as this reflects the information reported to the chief operating decision maker. Some
overheads costs relating to Divisional management have been re-categorised as segment operating overheads to present a
more comparable segment result.
80 | P a g e
A reconciliation of the re-stated values to prior year is provided below this table.
For the year ended 31 December 2021
(re-stated)
Income statement - continuing
operations:
Fluidpower
Group
Solutions
£000
Fluidpower
Group
Services
£000
Inter-
segmental
transactions
£000
Central
costs
£000
Total
continuing
operations
£000
Flowtech
£000
Revenue from external customers
57,552
34,158
17,397
-
109,107
Inter-segment revenue
5,164
970
833
(6,967)
Total revenue
62,716
35,128
18,230
(6,967)
-
109,107
Underlying operating result (*)
7,543
2,689
(122)
(4,420)
5,690
Net financing costs
Underlying segment result
Separately disclosed items
(141)
7,402
(925)
(72)
2,617
(723)
Profit/(loss) before tax
6,477
1,894
Specific disclosure items
Depreciation and impairment on owned
plant, property and equipment
Depreciation on right of use assets
Impairment of acquired intangibles
Amortisation
Reconciliation of underlying operating
result
773
656
673
247
(20)
(142)
(124)
(266)
175
192
-
137
615
-
683
124
Underlying operating result (*)
7,543
2,689
(122)
Separately disclosed items
(925)
(723)
(124)
Operating profit/(loss)
6,618
1,966
(246)
(*) Underlying operating result is continuing operations’ operating profit before separately disclosed items detailed below.
-
-
(600)
(5,020)
(833)
4,857
(206)
(1,978)
-
(5,226)
2,879
-
180
-
-
1,085
1,643
673
1,054
(4,420)
5,690
(206)
(1,978)
(4,626)
3,712
-
-
-
-
-
Reconciliation of re-stated segment
information for FY 2021 to prior year
report
Fluidpower
Group
Solutions
£000
Fluidpower
Group
Services
£000
Inter-
segmental
transactions
£000
Central
costs
£000
Flowtech
£000
Revenue as per prior year report
57,299
40,545
18,230
(6,967)
Revenue for Primary Components
categorised to Flowtech segment
5,417
(5,417)
-
-
Total re-stated revenue
62,716
35,128
18,230
(6,967)
-
-
-
Total
continuing
operations
£000
109,107
-
109,107
Underlying operating result in prior year
report
Underlying operating result for Primary
Components categorised to Flowtech
segment
7,101
3,505
140
492
(492)
-
-
-
(5,056)
5,690
-
Allocation of costs to Segments
Underlying operating result, re-stated
(50)
7,543
81 | P a g e
(324)
(262)
636
2,689
(122)
-
(4,420)
5,690
-
-
A further breakdown of central costs can be found in the Financial Review on page 30.
Separately disclosed items
Separately disclosed items within administration expenses:
- Acquisition costs
- Amortisation of acquired intangibles (note 11)
- Impairment of acquired intangibles (note 11)
- Impairment of goodwill (note 10)
- Share-based payment costs (note 22)
- Restructuring
Total separately disclosed items
2022
£000
-
943
168
10,072
372
1,411
12,966
2021
£000
11
1,054
673
-
166
74
1,978
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. In 2022 restructuring costs included £627K (including £337K of redundancy costs)
relating to the de-commissioning of the distribution centre at, £106K for the write off of the old website and other costs relating
to amalgamation of business units currently underway.
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 2022
United Kingdom
Europe
Rest of the World
Total
31 December 2021
United Kingdom
Europe
Rest of the World
Sale of goods
£000
Contracts
£000
On-site services
£000
Total revenue
£000
87,326
21,136
2,839
2,176
1,289
-
-
-
-
90,791
21,136
2,839
111,301
2,176
1,289
114,766
Sale of goods
£000
Contracts
£000
On-site services
£000
Total revenue
£000
82,809
20,952
2,557
900
1,889
-
-
-
-
85,598
20,952
2,557
Non-current
assets
£000
72,914
4,492
-
77,406
Non-current
assets
£000
76,914
4,582
-
Total
106,318
900
1,889
109,107
81,496
No customers of the Group account for 10% or more of the Group’s revenue for either of the years ended 31 December 2022 or
2021. Non-current assets are allocated based on their physical location. Revenue recognised at a point in time was £113,207K
(2021: £108,209K) and revenue recognised over time was £1,559K (2021: £900K).
82 | P a g e
Some contract works begun during the year were still in progress at the end of the year. For 2022, revenue includes £580K (2021:
£nil) included in the contract liability balance at the beginning of the reporting period.
31 December 2022
£000
31 December 2021
£000
1 January 2021
£000
Contract balances
Trade receivables
Advances received for contract works
Deferred service revenue
Total contract liabilities
1,216
174
-
174
253
193
495
688
237
-
-
-
2021
£000
1,643
1,084
-
1,054
673
-
(1)
24
95
2022
£000
1,670
1,205
94
943
168
10,072
29
23
113
2022
£000
78
2021
£000
88
182
172
4. Operating loss/profit
The following items have been included in arriving at the operating loss/profit for continuing operations:
Depreciation of property, plant and equipment under right-of-use assets (note 21)
Depreciation and impairment of tangible assets (note 13)
Amortisation of intangible assets – website (note 11)
Amortisation of intangible assets – customer relationships and brands (note 11)
Impairment of intangible assets (note 11)
Impairment of goodwill (note 10)
Impairment loss/(gain) on trade receivables and prepayments
Loss on foreign currency transactions
Repairs and maintenance expenditure on plant and equipment
Services provided by the Group’s Auditor
Audit of the statutory consolidated and Company financial statements of
Flowtech Fluidpower plc
Amounts receivable by the Company’s Auditor and its associates in respect of:
Audit of financial statements of subsidiaries of the Company
No other services were provided to the Company and its subsidiaries by the Group’s auditor. Services are provided by other
professional advisers as deemed appropriate by the Board.
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
83 | P a g e
Number
2022
Number
2021
278
317
595
269
343
612
Payroll costs of these people were as follows:
Wages and salaries (*)
Social security costs
Contributions to defined contribution pension plans
Share based payments (note 22)
Total
2022
£000
20,050
2,213
659
372
2021
£000
20,336
2,126
658
166
23,294
23,286
(*) Wages and salaries in FY21 is net of £202K of COIVID-19 subsidy from the UK government for contributions to payroll costs.
Key management compensation
The remuneration of the Directors and the Chair, 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
Bonus
Social security costs
Benefits in kind
Total
The amounts set out above include remuneration in respect of the highest paid Director as follows:
Highest paid Director’s remuneration
Remuneration
Bonus
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
Overdraft interest
Amortisation of loan arrangement fee
Other financing costs
Total bank interest
Interest on lease liabilities
Total lease interest
Total finance expense
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2022
£000
634
79
113
7
833
2021
£000
602
106
73
9
790
2022
£000
2021
£000
225
70
50
5
350
225
56
27
7
315
2022
£000
2021
£000
818
91
40
16
965
227
227
1,192
546
-
40
-
586
247
247
833
7. Taxation
Recognised in the income statement
Continuing operations:
Current tax expense
UK Corporation tax
Overseas tax
Adjustment in respect of prior periods
Current tax expense
Deferred tax
Origination and reversal of temporary differences
Adjustment in respect of prior periods
Change in tax rate
Deferred tax (credit)/charge
Total tax charge - continuing operations
Reconciliation of effective tax rate
(Loss)/profit for the year
Total tax (expense)
(Loss)/profit excluding taxation
Tax using the UK corporation tax rate of 19.00% (2021: 19.00%)
Deferred tax movements not recognised
Impact of change in tax rate on deferred tax balances
Amounts not deductible
Adjustment in respect of prior periods
Other adjustments
Other tax reliefs and transfers
Total tax expense in the income statement - continuing operations
2022
£000
2021
£000
734
185
9
928
21
(183)
(86)
(248)
680
2022
£000
(6252)
(680)
(5,572)
(1,058)
(1)
(86)
2,045
(174)
(60)
14
680
493
241
(60)
674
106
(112)
73
67
741
2021
£000
2,138
(741)
2,879
547
64
181
61
(172)
60
-
741
Change in corporation tax rate.
An increase in the UK corporation tax rate from 19% to 25% (effective 1 April 2023) was substantively enacted on 24 May 2021,
and the UK deferred tax position for the group as at 31 December 2022 has been calculated based on this rate.
85 | P a g e
8. Dividends
Final dividend of 2.0p (2021: £nil) per share
Total dividends
2022
£000
1,228
1,228
2021
£000
-
-
9. Earnings per share
Basic earnings per share is calculated by dividing the earnings attributable to ordinary Shareholders by the weighted average
number of ordinary shares during the year.
For diluted earnings per share the weighted average number of ordinary shares in issue is adjusted to assume conversion of all
dilutive potential ordinary shares. The dilutive shares are those share options granted to employees where the exercise price is
less than the average market price of the Company’s ordinary shares during the year. For diluted loss per share the weighted
average number of ordinary shares in issue is not adjusted since its impact would be anti-dilutive.
Year ended 31 December 2022
Year ended 31 December 2021
Loss
after tax
£000
Weighted
average
number of
shares
Loss
per share
Pence
Profit
after tax
£000
Weighted
average
number of
shares
Earnings
per share
Pence
Basic earnings per share
Continuing operations
(6,252)
61,493
(10.17p)
2,138
61,493
3.48p
Diluted earnings per share
Continuing operations
2,138
61,894
3.45p
2022
£000
2021
£000
Weighted average number of ordinary shares for basic and diluted earnings per share
61,493
61,493
Impact of share options
277
401
Weighted average number of ordinary shares for diluted earnings per share
61,770
61,894
10. Goodwill
Cost
Balance at 1 January
Balance at 31 December
Impairment
At 1 January
Impairment charge
At 31 December
2022
£000
2021
£000
63,164
63,164
-
10,072
10,072
63,164
63,164
-
-
-
Carrying amount at 31 December
53,092
63,164
86 | P a g e
Background
The Group uses trading activity as the basis for determining reporting segments. The Group's reporting segments are Flowtech,
Fluidpower Group Solutions and Fluidpower Group Services. Goodwill has been allocated for impairment testing purposes to 10
cash-generating units (“CGU”) across these 3 segments (2021 – 14 CGUs). These CGUs represent the lowest level within the Group
at which goodwill is monitored for internal management purposes.
Various changes have been made in the current period in the identification of CGUs and the allocation of goodwill to those units
since the prior period. The main changes are:
1. FTUK, Beaumanor, Hydravalve, and Indequip businesses were integrated into a single brand called Flowtech. The
combined business operates as a single commercial entity with a single online presence; thus the businesses have been
combined into one CGU
2. OEM customers in Primary Components business were transitioned into the HTL brand
3. The remaining Primary Components business was merged into the FTUK platform.
(Note Primary Components was formerly a CGU in its own right but has now been transitioned partly into FTUK and partly onto HTL )
With the above changes, and after taking into account the impairment of FTUK, Orange County and Hi-Power Transport, the
carrying amounts of goodwill allocated now stands as at 31 December 2022 are:
Cash generating unit
FTUK
Primary Systems
HTL
HES
Hydroflex-Hydraulics Oud
Flowtechnology Benelux BV
Nelson Hi-Power
Derek Lane
Orange County
Hi-Power Transport
Total
£000
42,041
751
3,938
1,204
2,050
1,015
1,869
224
-
-
53,092
Impairment tests
The carrying amount of each CGU was determined by calculating the sum of the carrying amounts of all intangible assets (including
goodwill) and tangible assets attributable to that unit. These were then compared with the value in use calculations for each CGU
based on discounted cash flows of future period forecasts. Management prepared forecasts for each CGU for a two year period,
(extending to five years for FTUK). All forecasts have been approved by the Board.
Cash flows beyond the period forecast by management for each CGU were 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.
Goodwill impairment charges in 2022
In total an impairment charge of £10,249k has been taken in 2022, of which £10,072k was taken against Goodwill and ££177k was
taken against Intangible assets. The split of impairment charge by CGU and asset is shown below:
FTUK – £7,105k
Orange County – £2,793k
Hi-Power Transport (Goodwill)– £174k
Hi-Power Transport (Intangible) - £177k
FTUK
An impairment charge of £7,105k has been taken leaving a balance of goodwill of £42,041k. As with other CGUs the value in use
calculation is sensitive to a number of assumptions. In arriving at the impairment charge the forecasts assumed a pre-tax discount
rate of 13.1% and a revenue growth rate of 4% in each of 2024, 2025, 2026 & 2027. The calculation is extremely sensitive to any
movement in these assumptions. With regards to discount rates a 1% reduction would lead to a £7m increase in the carrying
value, whilst a 1% increase leads to a £6m reduction in the carrying value. With regards to movements in revenue growth
assumptions, the impact of a 1% movement is approximately £6m. Movements in revenue and discount rates are considered the
factors to which the value in use calculation is most sensitive.
87 | P a g e
FTUK is the principal component of the Flowtech segment. As alluded to in the Chair’s report and CEO year in review sections of
the report 2022 was a period in which the business underwent a significant degree of change and suffered from challenging
market conditions; nevertheless, the business generated a 11.9% return on revenue. Our ambition remains to see the segment as
a whole (FTUK plus Flowtechnology Benelux) deliver a return on revenue of at least 15%. The investment we have made in
operational changes and in particular the impact we expect our investment in our E-Business/Digital agenda provides us with
confidence that the assumptions used in deriving the value in use figures are appropriate. We would hope that discount rates
return to more traditional, i.e. lower, levels and that this combined with an improved performance in 2023, will provide headroom
within the calculation when next performed.
Orange County
The Orange County CGU was written down to its recoverable amount (£1,631k) by recognising an impairment charge of £2,793k
to the goodwill. This leaves £472k in intangible assets (customer relationships) and a £85k deferred tax liability at the end of the
year. Management believes the forecast assumptions underpinning the value in use of Orange County are sufficiently cautious. It
should be noted that each 1% movement in the discount rate has an impact of approximately £120k on the calculation and each
1% movement in revenue an impact of approximately £120k. Movements in revenue and discount rates are considered the factors
to which the value in use calculation is most sensitive.
Notwithstanding this necessary accounting treatment, Management remains confident that the business will continue to generate
a positive contribution.
Hi-Power Transport
An impairment charge of £342k has been taken to eliminate the carrying value of goodwill (£174k) and other intangible assets
(£168k – see note 9). Management believes the forecast assumptions underpinning the value in use of Hi-Power Transport are
sufficiently cautious. It should be noted that each 1% movement in the discount rate has an impact of approximately £150k on
the calculation and each 1% movement in revenue an impact of approximately £180k. Movements in revenue and discount rates
are considered the factors to which the value in use calculation is most sensitive.
Notwithstanding this necessary accounting treatment, Management remains confident that the business will continue to generate
a positive contribution.
Key assumptions used in value in use calculations
The Group has determined that the recoverable amount calculations are most sensitive to changes in revenue growth rates, gross
margins and discount rates. The growth rates and gross margins assumed in the calculations are consistent with recent historic
trends and approved budget level, and where appropriate, these are adjusted for expected changes to customer base and phasing
of contract works.
Discount rates have increased substantially over prior year due to increase in cost of borrowing and risk-free rates. This has had a
significant impact on the VIU calculations for all CGUs and was a key factor in the need to impair the goodwill of FTUK, Orange
County and Hi-Power Transport. Comments in this regard are provided in the Financial Review section.
Sensitivity to changes in key assumptions
The calculations to assess the value in use of each CGU are naturally based on a series of assumptions; of particular note are those
relating to revenue, EBITDA margins and discount rates. The calculations are obviously sensitive to deviations, in either direction,
to these assumptions; the comments below seek to provide some analysis and commentary around the most sensitive areas.
With regards to discount rates this is clearly driven by factors outside of the control of the business; it is worthy of note that the
discount rates used to underpin the 2022 calculations are significantly higher than those used in 2021. It is of course hoped that
economic/political factors return transition to a less volatile position which would lead to discount rates returning to more
typical/traditional levels.
Two of our CGUs are showing marginal positions based on the calculations performed, they are:
1.
Primary Systems
Primary Systems – a £59k surplus with value in use of £6,121k compared with a carrying value of £6,062k. The carrying value of
goodwill is £751k and other intangibles (net of associated deferred tax) £76k. It should be noted that each 1% movement in the
discount rate has an impact of approximately £400k on the calculation and each 1% movement in revenue an impact of
approximately £280k. Movements in revenue and discount rates are considered the factors to which the value in use calculation
is most sensitive.
88 | P a g e
Primary Systems has undergone significant change in 2022 with a much-improved trading performance as a result, particularly
evident in the second half of the year. 2023 should benefit from the impact of the majority of income/profit from the Thames
Tideway project; with the actions taken we are confident the business can consistently deliver acceptable levels of profit beyond
this period. These factors underpin the assumptions used in the value in use calculations.
2. Hydroflex
Hydroflex – a £279k surplus with value in use of £5,004k compared with a carrying value of £4,725k. The carrying value of goodwill
is £2,050k and other intangibles (net of associated deferred tax) £388k. It should be noted that each 1% movement in the discount
rate has an impact of approximately £500k on the calculation and each 1% movement in revenue an impact of approximately
£300k. Movements in revenue and discount rates are considered the factors to which the value in use calculation is most sensitive.
Hydroflex Hydraulics has produced an improved trading performance in 2022 and we expect this to be at least maintained in 2023
and beyond.
11. Other intangible assets
Acquired
Customer
relationships
Acquired
Brands
Asset under
construction
Website
Total
2022
£000
2021
£000
2022
£000
2021
£000
2022
£000
2021
£000
2022
£000
2021
£000
2022
£000
2021
£000
Balance at 1 January
9,371
9,371
1,173
1,173
761
-
-
-
-
-
-
-
-
9,371
9,371
1,173
1,173
Transfer between asset
categories
Additions
Balance at 31
December
Amortisation and
impairment
Balance at 1 January
5,657
4,711
1,131
901
168
946
-
42
-
6,726
5,657
1.173
1,131
350
108
673
Amortisation
Impairment
Balance at 31
December
Carrying amount at
31 December
-
-
761
761
-
-
-
-
-
761
212
973
-
94
-
94
-
-
-
-
-
-
-
-
11,305
10,544
-
-
212
761
11,517
11,305
6,788
5,061
1,037
1,054
168
673
7,993
6,788
(761)
-
-
-
-
-
-
2,645
3,714
-
42
-
761
879
-
3,523
4,517
The impairment charge in 2022 relates to the intangible assets associated with the Hi-Power Transport business. Amortisation is charged
to administration costs in the Consolidated Income Statement. The amortisation of customer relationships and brands of £943K (2021;
£1,054K) is a separately disclosed item and is referred to as the amortisation of acquired intangibles.
89 | P a g e
12. Subsidiary undertakings
Country of
incorporation
Principal activity
Ownership
Fluidpower MIP Limited
Fluidpower Group UK Limited
Fluidpower Group Services UK Limited
UK
UK
UK
Holding company
Distributors of engineering components
100%
100%
Assembly and distribution of engineering components
100%
Flowtech Fluidpower Ireland Limited
ROI
Assembly and distribution of engineering components
100%
Flowtechnology Benelux BV
Netherlands
Distributors of engineering components
The Hydraulic Group BV
Netherlands
Holding company
100%
100%
Hydroflex-Hydraulics BV
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%
Fluidpower Shared Services Limited
Beaumanor Engineering Limited
Balu Limited
Indequip Limited
KR Couplings Limited
Betabite Hydraulics Limited
Hydraulics (Ireland) Limited
Haitima Flow Control UK Limited
Hydravalve UK Limited
UK
UK
UK
UK
UK
UK
UK
UK
UK
Hydraulic Equipment Supermarkets Limited UK
Branch Hydraulic Systems Limited
HES Tractec Limited
UK
UK
Group Shared Service Centre
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
For all the subsidiaries above, the class of shares held are ordinary shares and all subsidiaries, except Fluidpower MIP Limited, are
indirect subsidiaries of Flowtech Fluidpower plc.
90 | P a g e
13. Property, plant & equipment
Cost
Balance at 1 January 2021
Additions
Disposals
Effect of movements in foreign exchange
Land and
property
£000
Plant,
machinery and
equipment
£000
Motor vehicles
£000
Total
£000
1,207
82
-
-
13,490
1,234
(92)
(67)
898
26
(179)
(10)
735
175
(160)
10
760
507
140
(137)
(8)
502
120
(144)
8
486
274
233
391
15,595
1,342
(271)
(77)
16,589
1,645
(377)
76
17,933
8,848
1,084
(177)
(57)
9,698
1,205
(256)
52
10,699
7,234
6,891
6,747
Balance at 31 December 2021 and 1 January 2022
1,289
14,565
Additions
Disposals
Effect of movements in foreign exchange
Balance at 31 December 2022
Depreciation and impairment
Balance at 1 January 2021
Depreciation charge for the year
Disposals
Effect of movements in foreign exchange
Balance at 31 December 2021 and 1 January 2022
Depreciation charge for the year
Disposals
Effect of movements in foreign exchange
Balance at 31 December 2022
Net book value
At 31 December 2022
At 1 January 2022
At 1 January 2021
56
-
-
1,414
(217)
66
1,345
15,828
207
36
-
-
243
46
-
-
289
1,056
1,046
1,000
8,134
908
(40)
(49)
8,953
1,039
(112)
44
9,924
5,904
5,612
5,356
Included in land and property is land at a cost of £145,000 which is not depreciated (2021: £145,000).
91 | P a g e
14. Deferred tax assets & liabilities
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are attributable to the following:
Intangible assets
Property, plant and equipment
Provisions
Employee share-based payments
Tax assets/(liabilities)
Net deferred tax liability
Movement in deferred tax during the year ended 31 December 2022
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 2021
Intangible assets
Property, plant and equipment
Provisions
Employee share-based payments
Losses and other deductibles
92 | P a g e
Assets
Liabilities
2022
£000
2021
£000
-
-
17
16
33
-
-
20
14
34
2022
£000
(450)
(864)
-
-
2021
£000
(806)
(756)
-
-
(1,314)
(1,562)
(1,281)
(1,528)
1 January
2022
£000
Recognised in
profit or loss
£000
31 December
2022
£000
(806)
(756)
20
14
-
356
(108)
(3)
2
-
(450)
(864)
17
16
-
(1,528)
247
(1,281)
1 January
2021
£000
Recognised in
profit or loss
£000
31 December
2021
£000
(1,117)
(463)
83
-
37
(1,460)
311
(293)
(63)
14
(37)
(68)
(806)
(756)
20
14
-
(1,528)
15. Inventories
Finished goods and goods for resale
2022
£000
31,486
2021
£000
30,531
Charges for finished goods recognised as cost of sales in the year amounted to £65,055,000 (2021: £62,237,000). The write-down
of inventories to net realisable value amounted to £469,000 (2021: £21,000). The write-downs and reversals are included in cost of
sales. The provision made against inventories at the year-end was £1,693,000 (2021: £1,421,000).
Estimates are made of the net realisable value of inventory at the year end. In some circumstances, inventory is subsequently sold
in excess of the net realisable value determined, which results in a reversal of the write-down.
16. Trade & other receivables
Trade receivables
Other receivables
Trade and other receivables
The ageing of trade receivables at the balance sheet date was:
2022
£000
2021
£000
22,803
20,416
1,817
1,150
24,620
21,566
Gross
2022
£000
Impairment
2022
£000
Gross
2021
£000
Impairment
2021
£000
Not past due
Past due 0-30 days
Past due 31-60 days
Past due 61-90 days
More than 90 days past due
19,422
2,648
203
573
152
70
10
26
71
18
17,711
2,283
210
195
315
22,998
195
20,714
The overall expected credit loss rate is 0.8% (2021: 1.4%).
The movement in the allowance of impairment in respect of trade receivables during each year was as follows:
2022
£000
298
(132)
29
195
Balance at 1 January 2022
Provision utilised
Increase/(decrease) in provision
Balance at 31 December 2022
93 | P a g e
27
9
62
83
117
298
2021
£000
333
(34)
(1)
298
17. Cash & cash equivalents
Cash and cash equivalents:
Sterling
Euro
Dollar
Total cash and cash equivalents
18. Interest-bearing loans & borrowings
2022
£000
1,960
1,973
39
3,972
2021
£000
3,285
1,251
26
4,562
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
27.
Non-current liabilities
Revolving credit facility ($)
Lease liabilities
Total non-current liabilities
Current liabilities
Revolving credit facility
Lease liabilities
Total current liabilities
Total
2022
£000
-
5,008
5,008
19,967
1,705
21,672
2021
£000
19,927
5,586
25,513
-
1,561
1,561
26,680
27,074
($) 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, £40k amortisation charge
is charged to the income statement during 2022 (2021: £40k). The unamortised value of the loan fee as at 31 December 2022 of £33k is netted off against the RCF Facility of
£20,000k.
Terms and debt repayment
schedule
Currency
Nominal interest rate
Year of maturity
Carrying
value 2022
£000
Carrying
value 2021
£000
Secured revolving credit facility
GBP
SONIA+ 2.65%
2023
20,000
20,000
Lease liabilities
Lease liabilities
GBP
EUR
Various
Various
2021 to 2031
2021 to 2027
5,625
1,088
6,043
1,104
26,713
27,147
Under terms agreed in February 2023, the Group renewed the Revolving credit facility for a period of 3 years, up to February 2026,
with an option to extend by a further year to February 2027. The renewed facility carries a nominal interest rate of SONIA + 2.40%
and is subject to a non-utilisation fee of 0.84% 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 was reviewed in February 2023 and
on-going support was approved. The overdraft facility does not carry an expiry date and continues until cancelled by either party.
94 | P a g e
19. Trade & other payables
Current liabilities
Trade payables
Accrued expenses and deferred income
Social security and other taxes
Accrued expenses and deferred income is broken down as follows:
Accrued expenses
Deferred income
Contract liabilities – advances received for contract work
Contract liabilities – deferred service revenue
20. Provisions
Opening balance
Amount utilised during year
Amount provided/(released) in the year
Closing balance
Provisions have been analysed between current and non-current as follows:
Current
Non-current
Total
2022
£000
2021
£000
12,560
15,719
4,200
2,809
3,555
1,837
19,569
21,111
2022
£000
3,114
912
174
-
2021
£000
2,424
443
193
495
4,200
3,555
2022
£000
309
(44)
52
317
2022
£000
-
317
317
2021
£000
367
-
(58)
309
2021
£000
-
309
309
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.
95 | P a g e
21. Right-of-use assets & lease liabilities
Right-of-use assets
Land and
property
£000
Plant,
machinery and
equipment
£000
Motor vehicles
£000
Total
£000
Cost
Balance at 1 January 2022
8,219
399
2,078
10,696
Additions
Disposals
Effect of movement in foreign exchange
Balance at 31 December 2022
Depreciation and amortisation
Balance at 1 January 2022
Depreciation charge for the year
Impairment
Disposals
Effect of movements in foreign exchange
Balance at 31 December 2022
Net book value
At 31 December 2022
At 31 December 2021
964
(462)
48
8,769
2,899
1,055
388
(288)
11
4,065
4,704
5,320
-
-
-
399
76
57
-
-
-
133
266
323
405
(281)
11
2,213
796
558
-
(264)
2
1,092
1,121
1,282
1,369
(743)
59
11,381
3,771
1,670
388
(552)
13
5,290
6,091
6,925
96 | P a g e
21. Right-of-use assets & lease liabilities continued
The statement of profit or loss shows the following amounts relating to right-of-use assets and liabilities:
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
2022
£000
2021
£000
1,055
1,067
57
558
228
-
57
519
247
9
Total expense in the income statement relating to right-of-use assets
1,898
1,899
Depreciation costs of £34K (2021: £nil) is accounted for in restructuring which is included in separately disclosed items.
Analysis by length of liability
As at 31 December 2022
As at 31 December 2021
Plant,
machinery
and
equipment
£000
60
216
276
Land and
property
£000
1,094
4,230
5,324
Motor
vehicles
£000
551
562
1,113
Total
£000
1,705
5,008
6,713
Land and
property
£000
970
4,576
5,546
Plant,
machinery
and
equipment
£000
58
274
332
Motor
vehicles
£000
533
736
1,269
Total
£000
1,561
5,586
7,147
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 termination options
Land and
property
Plant,
machinery and
equipment
17
5
Motor
vehicles
97
1-9 years
5 years
1-4 years
7
1
-
-
-
-
22. Employee benefits
22.1 Pension plans
Defined contribution plans
The Group operates a number of defined contribution pension plans. The total expense relating to these plans was £659,000 (2021:
£658,000).
22.2 Share-based employee remuneration
As at 31 December 2022, the Group maintained five share-based payment schemes for employee remuneration: the Management
Incentive Plan; the Long-Term Incentive Plan, the Enterprise Management Incentive Plan, which has two sub plans, Approved and
Unapproved; and the Company Share Option Plan.
Management Incentive Plan
The Management Incentive Plan (‘MIP’) is part of the remuneration package of the Group’s senior management. Shares held in
Fluidpower MIP Limited under this plan may be sold if certain conditions, as defined in the Articles of Association of Fluidpower
MIP Limited, are met. It is based on the growth of Flowtech Fluidpower plc’s share value within a specified holding period. In
addition, participants in this scheme must be employed by the Group until the end of the agreed holding period. At the end of
the holding period the holder may sell their shares to the Company for either cash or shares at a value determined by the growth
of Flowtech Fluidpower plc’s share value within the specified holding period.
97 | P a g e
The Plan is classified as an equity-settled scheme as there is no present obligation to settle in cash. The number of shares in
Fluidpower MIP Limited subject to options and the exercise price are:
Date of grant
Exercise period
1 June 2016
1 June 2019 to 1 June 2023
(*) 77 options granted on 21 May 2014 were allowed to lapse.
2022
number
2021
number
3,005
3,005
The fair values of the options granted were determined using a variation of the Black–Scholes model that takes into account
factors specific to share incentive plans, such as the vesting period. The following principal assumptions were used in the valuation:
Grant date
Vesting period ends
Share price at date of grant
Volatility
Option life
Dividend yield
Risk-free investment rate
Fair value at grant date
Exercise price at date of grant
Exercisable from/to
1 June 2016
31 May 2019
£1.45
31.6%
5 years
5.3%
1.29%
£1.99
£1.51
1 June 2019 to 31 May 2023
Weighted average remaining contractual life
< 1 year
Long-term incentive plan (LTIP)
The LTIP has been established to incentivise management to deliver long-term value creation for Shareholders and ensure alignment
with Shareholder interests.
The Directors were granted nil-cost options in accordance with the rules of the LTIP. The share options are subject to both share
price and EPS performance criteria measured on the results for the three year financial period to 31 December 2024. The LTIPs are
accounted for as an equity-settled share based payment transaction. The fair values of the options granted were determined using
the Monte Carlo model. The following principal assumptions were used in the valuation:
Awards
Number of awards (*)
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
98 | P a g e
LTIPs
(EPS)
163,462
29 April 2022
28 May 2025
£1.28
54.61%
3 years
0.00%
1.71%
£1.275
-
LTIPs
(Share price)
163,462
29 April 2022
28 May 2025
£1.28
54.61%
3 years
0.00%
1.71%
£0.120
-
28 May 2024 to
28 May 2031
28 May 2024 to
28 May 2031
2 years
2 years
Awards Summary
EPS Tranche
Share price Tranche
Total
Scheme
LTIP – 2021 issue
LTIP – 2022 issue
LTIP – 2021 issue
LTIP – 2022 issue
Total
Russell Cash
Bryce Brooks*
76,924
76,924
153,848
Director
86,539
86,539
173,078
2022
number
Bryce Brooks
187,500
Bryce Brooks
173,077
Russell Cash
166,667
Russell Cash
153,847
681,091
Total
163,463
163,463
326,926
2021
number
187,500
-
166,667
-
354,167
*Bryce Brooks stepped down as CEO on 12 April 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. Options under this scheme will vest if
the participant remains employed for the agreed vesting period. Upon vesting each option allows the holder to purchase one
ordinary share. The number of shares subject to options and the exercise price are:
Date of grant
Approved plan
21 May 2014
8 August 2014
Unapproved plan
21 May 2014
11 August 2015
1 July 2016
1 January 2019
25 October 2019
8 January 2020
28 May 2021
14 Feb 2022
99 | P a g e
Exercise
price
Exercise
period
2022
number
000
2021
number
000
£1.00
£1.26
4 April 2017 to 20
May 2024
4 April 2017 to 7
August 2024
£1.00
£1.32
£1.00
£1.13
£0.50
4 April 2017 to 20
May 2024
4 April 2018 to 10
August 2025
4 April 2019 to 30
June 2026
5 May 2022 to 1
September 2025
5 May 2022 to 28
January 2026
£0.50
31 March 2022 to 8
February 2030
£1.00
£1.00
15 March 2023 to
28 May 2031
01 Apr 2025 to 13
Feb 2032
390
12
402
22
60
45
9
150
50
150
90
480
12
492
37
60
45
9
150
50
150
-
04 April 2022
04 April 2022
04 April 2022
£1.33
£1.24
£1.00
04 Apr 2025 to 03
Apr 2032
04 Apr 2025 to 03
Apr 2032
04 Apr 2025 to 03
Apr 2032
75
60
85
796
1,198
-
-
-
501
993
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 2022
492
1.01
Granted
Lapsed
Forfeited
Exercised
Outstanding at 31 December 2022
-
-
-
(90)
402
-
-
-
1.00
1.01
501
310
-
-
(15)
796
0.83
1.13
-
-
1.00
0.83
993
310
-
-
(105)
1,198
Exercisable at 31 December 2022
402
1.01
336
1.31
738
The Unapproved share options granted during the year are accounted for as an equity-settled share based payment transaction.
The fair values of the options granted were determined using the Binomial model.
The following principal assumptions were used in the valuation:
Unapproved
EMI scheme
Feb
Unapproved
EMI scheme
Apr/1
Unapproved
EMI scheme
Apr/2
Unapproved
EMI scheme
Apr/3
Grant date
14 Feb 2022
04 April 2022
04 April 2022
04 April 2022
Vesting period ends
01 Apr 2025
04 April 2025
04 April 2025
04 April 2025
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
£1.33
54.86%
10 years
0.00%
1.48%
£0.921
£1.00
£1.37
54.85%
10 years
0.00%
1.50%
£0.921
£1.00
£1.37
54.82%
10 years
0.00%
1.50%
£0.872
£1.24
£1.37
54.82%
10 years
0.00%
1.50%
£0.855
£1.33
01 Apr 2025 to
13 Feb 2032
04 Apr 2025 to
03 Apr 2032
04 Apr 2025 to
03 Apr 2032
04 Apr 2025 to
03 Apr 2032
Weighted average remaining contractual life
9 years
9 years
9 years
9 years
100 | P a g e
The underlying expected volatility was determined by reference to historical share data of the Company over a historic period
matching the vesting period of the awards.
Company Share Option Plan
The Company Share Option Plan (‘CSOP’) is part of the remuneration package of certain employees. Options under this scheme
will vest if the participant remains employed for the agreed vesting period. Upon vesting each option allows the holder to purchase
one ordinary share.
The number of shares subject to options and the exercise price are:
Date of grant
11 August 2015
1 July 2016
1 January 2019
14 February 2022
04 April 2022
Exercise
price
£1.43
£1.00
£1.13
£1.29
£1.33
Exercise period
11 August 2018 to 10 August 2025
4 April 2019 to 30 June 2026
5 May 2022 to 02 Sep 2025
01 Apr 2025 to 31 Mar 2032
04 Apr 2025 to 03 Apr 2032
2022
number
000
2021
number
000
110
235
27
209
232
813
110
260
27
-
-
397
The fair values of the options granted were determined using the Binomial model. The following principal assumptions were
used in the valuation:
Grant date
Vesting period ends
Share price at date of grant
Volatility
Option life
Dividend yield
Risk-free investment rate
Fair value at grant date
Exercise price at date of grant
Exercisable from/to
CSOP Feb
CSOP Apr
14 Feb 2022
04 April 2022
01 Apr 2025
04 April 2025
£1.33
54.82%
10 years
0.00%
1.48%
£0.846
£1.29
£1.37
54.82%
10 years
0.00%
1.50%
£0.855
£1.33
01 Apr 2025 to 31 Mar 2032
04 Apr 2025 to 03 Apr
2032
Weighted average remaining contractual life
9 years
9 years
The underlying expected volatility was determined by reference to historical share data of the Company over a historic period
matching the vesting period of the awards.
101 | P a g e
Share options and weighted average exercise prices are as follows for the reporting periods presented:
Outstanding at 1 January 2022
Granted
Exercised
Forfeited
Outstanding at 31 December 2022
Exercisable at 31 December 2022
Exercisable at 31 December 2021
Number
of shares
Weighted average
exercise price
per share
397
441
(25)
-
813
372
370
1.13
1.31
1.00
-
1.23
114
1.13
The consolidated income statement includes a charge of £372,000 (2021: £166,000) in respect of all of the share options issued to
staff.
23. 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 1 January 2022
At 31 December 2022
Number
£000
61,492,673
30,746
61,492,673
30,746
102 | P a g e
24. Net cash from operating activities
Reconciliation of (loss)/profit before taxation to net cash flows from operations
(Loss)/profit from continuing operations before tax
Depreciation and impairment of property, plant and equipment (note 13)
Depreciation on right-of-use assets (IFRS 16) (note 21)
Impairment of right-of-use assets (IFRS 16) (note 21)
Finance costs (note 6)
Loss/(gain) on sale of plant and equipment
Other movements
Amortisation of intangible assets
Impairment of intangible assets
Impairment of goodwill (note 10)
Cash settled share options
Equity-settled share-based payment charge
Exchange differences on non-cash balances
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)/reclaimed
Net cash generated/(used) from operating activities
2022
£000
2021
£000
(5,572)
1,205
1,670
388
1,192
57
-
1,037
168
10,072
(42)
372
65
10,612
(2,945)
2,879
1,084
1,643
-
833
(209)
(95)
1,054
673
-
(26)
166
-
8,002
(3,325)
(738)
(8,764)
(1,702)
3,496
7
5,234
(220)
5,014
(59)
(650)
209
(441)
25. Contingent liabilities & commitments
The Group had capital expenditure of £19,000 contracted for but not provided at 31 December 2022 (2021: £34,000).
26. Related party transactions
Transactions between the Company, its Employee Benefit Trust and its subsidiaries, which are related parties, have been eliminated
on consolidation and are not disclosed in this note.
Key management includes Executive and Non-Executive Directors. The compensation paid or payable to key management is disclosed
in the Directors' Remuneration report. Dividends paid to Directors of the plc were as follows:
Bryce Brooks* (stepped down as CEO on 12 April 2023)
Russell Cash
Roger McDowell
Nigel Richens
Jamie Brooke
Ailsa Webb
103 | P a g e
2022
£000
2021
£000
6
1
15
1
2
1
26
-
-
-
-
-
-
-
27. Financial instruments
27.1 Fair values of financial instruments
Fair values
The table below analyses financial instruments into a fair value hierarchy based on the valuation technique used to determine fair
value.
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices).
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable input).
The Group is exposed to various risks in relation to financial instruments. Each of these is disclosed in the table below.
Carrying
amount
2022
£000
Fair value
2022
£000
Carrying
amount
2021
£000
Loans and receivables
Cash and cash equivalents (note 17) (*)
3,972
3,972
Trade and other receivables (note 16) (*)
24,620
24,620
Total financial assets measured at amortised costs
28,592
28,592
Financial assets
28,592
28,592
4,562
21,566
26,128
26,128
Financial liabilities measured at amortised cost
Other interest-bearing loans and borrowings (note 18)
(26,713)
(26,713)
(27,147)
Trade payables and accruals (note 19) (*)($)
(15,674)
(15,674)
(19,274)
Total financial liabilities measured at amortised cost
(42,387)
(42,387)
(46,421)
Fair value
2021
£000
4,562
21,566
26,128
26,128
(27,147)
(19,274)
(46,421)
Total financial liabilities
(42,387)
(42,387)
(46,421)
(46,421)
Total financial instruments
(13,889)
(13,889)
(20,293)
(20,293)
(*) In respect of the financial instruments such as short-term trade receivables and payables, interest bearing loans and borrowings, and cash and cash equivalents , we believe
the carrying value is a reasonable approximation of the fair value.
($) Trade payables and accruals includes £12,560K of trade payables ad £3,114K of accrued expenses. Deferred income is excluded.
Financial instruments measured at fair value
Valuation technique
Forward exchange contracts
Bank loans and other interest-bearing borrowings
The Group hedges a part of the net expected exposure to euros and
dollars in a phased manner over 3 – 6 month period using fixed
price forward contracts. The hedging process aims to achieve an
averaging of market rates over a period of time, and significant
gain/loss on open contracts is recognised in the income statement
at year end.
Interest-bearing borrowings are recognised 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.
104 | P a g e
27.2 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 considers 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
2022
£000
2021
£000
19,477
17,112
3,054
272
2,789
515
22,803
20,416
The Group establishes an allowance for impairment that represents its estimate of expected losses in respect of trade receivables,
see note 16. Failure to make payments and failure to engage with the Group on alternative payment arrangements are considered
indicators of no reasonable expectation of recovery. 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.
27.3 Liquidity risk
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 2022
Non-derivative financial liabilities
Liabilities relating to right-of-use assets
Revolving credit facility *
Trade payables and accrued expenses
Carrying
amount
£000
Contractual
cash flows
£000
1 year
or less
£000
1 to 2
years
£000
2 to 5
years
£000
6,713
19,967
15,674
42,354
6,879
20,513
15,674
1,825
20,513
15,674
1,392
1,433
-
-
-
-
43,066
38,012
1,392
1,433
* The revolving credit facility will expire in November 2023. This has been replaced by a renewed facility, the details of which are disclosed in
note 18.
105 | P a g e
Year ended 31 December 2021
Non-derivative financial liabilities
Liabilities relating to right-of-use assets
Revolving credit facility
Trade payables
Carrying
amount
£000
Contractual
cash flows
£000
1 year
or less
£000
1 to 2
years
£000
2 to 5
years
£000
7,147
19,927
15,719
42,793
7,906
21,562
15,719
1,758
545
15,719
1,597
545
–
2,889
20,472
–
45,187
18,022
2,142
23,361
There are no contractual maturities over five years, save for liabilities relating to right-of-use assets.
27.4 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. Fixed
price forward contracts are entered into to hedge the net exposure to euros and dollars in a phased manner over a 3 – 6 month
period.
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 2022
Cash and cash equivalents
Trade and other receivables
Revolving credit facility
Sterling
£000
1,960
21,128
(19,967)
Euro
£000
1,973
3,492
-
Liabilities relating to right-of-use assets
(5,625)
(1,088)
Trade payables and accrued expenses ($)
(9,834)
(5,717)
Net exposure
(12,338)
(1,340)
US Dollar
£000
Other
£000
39
-
-
-
(105)
(66)
-
-
-
-
(18)
(18)
($) Trade payables and accruals includes £12,560K of trade payables ad £3,114K of accrued expenses. Deferred income is excluded.
31 December 2021
Cash and cash equivalents
Trade and other receivables
Revolving credit facility
Sterling
£000
Euro
£000
US Dollar
£000
Other
£000
3,285
1,251
18,583
2,982
(19,927)
-
-
-
-
-
26
1
-
-
(40)
(13)
(17)
(15,719)
(17)
(16,665)
Liabilities relating to right-of-use assets
(6,043)
(1,104)
Trade payables
Net exposure
(10,145)
(5,517)
(14,247)
(2,388)
Sensitivity analysis
A 10% weakening of the following currencies against the pound sterling at 31 December 2022 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.
106 | P a g e
Total
£000
3,972
24,620
(19,967)
(6,713)
(15,674)
(13,762)
Total
£000
4,562
21,566
(19,927)
(7,147)
The analysis is performed on the same basis for the year ended 31 December 2021.
Profit or loss and equity
€
$
2022
£000
79
6
2021
£000
195
1
A 10% strengthening of the following currencies against the pound sterling at 31 December 2022 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 2021.
Profit or loss and equity
€
$
2022
£000
(97)
(7)
2021
£000
(238)
(1)
Market risk – interest rate risk
Profile: At the reporting date, the interest rate profile of the Group’s interest-bearing financial instruments was:
Variable rate instruments
Financial liabilities (carrying value)
2022
£000
2021
£000
19,967
19,927
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 2021.
Equity
Increase of 100 basis points
Decrease of 100 basis points
Profit or loss
Increase of 100 basis points
Decrease of 100 basis points
2022
£000
(200)
200
(200)
200
2021
£000
(199)
199
(199)
199
107 | P a g e
27.5 Capital management
The capital structure of the Group is presented in the statement of financial position and includes equity, cash and borrowings.
The statement of changes in equity provides details of equity and note 18 provides details of loans and overdrafts. Funding
requirements are provided by a combination of revolving credit (£20m) and overdraft (£5m) facilities. The Group’s objectives when
managing capital is to safeguard its ability to continue as a going concern and to have access to adequate funding for business
opportunities, so that it can provide returns for Shareholders and benefits for other stakeholders. The Group manages the capital
structure and makes adjustments in the light of changes in economic conditions and risk characteristics of the underlying assets.
In order to maintain or adjust the capital structure the Group may issue new shares or draw down debt. The Group is not subject
to externally imposed regulatory capital requirements and there are no specific ratios used by the Group in assessing its
management of capital levels.
The Group is subject to covenants in respect of its bank facilities and remains covenant compliant. 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.
28. Subsequent events
On 22 February 2023 the Group’s £20m revolving credit facility provided by Barclays Bank was renewed for a 3 year period with
an option to extend for a further year. Aside from this in the opinion of the Board, there have been no significant events occurring
since the balance sheet date.
108 | P a g e
Company income statement
Note
Continuing operations
Administrative expenses
Operating loss
Financial income
Financial expenses
Net financing income
(Loss)/Profit from continuing operations before tax
Taxation
(Loss)/Profit for the year attributable to the owners of the parent
E
E
F
Company statement of financial position
Note
I
J
K
L
K
N
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
Other reserves
Merger relief reserve
Retained earnings
Total equity
109 | P a g e
2022
£000
(1,163)
(1,163)
2,100
(948)
1,152
(11)
-
(11)
2022
£000
59,532
59,532
5
76,207
76,212
19,967
8,444
28,411
47,801
107,333
-
-
2021
£000
(861)
(861)
3,000
(585)
2,415
1,554
(38)
1,516
2021
£000
59,421
59,421
15
75,964
75,979
-
7,250
7,250
68,729
128,150
19,927
19,927
107,333
108,223
30,746
60,959
187
453
14,988
107,333
30,746
60,959
187
453
15,878
108,223
Company statement of changes in equity
Balance at 1 January 2021
Profit for the year
Total comprehensive income for the year
Transactions with owners
Share options - granted to subsidiary
employees
Share options settled
Total transactions with owners
Share
capital
£000
30,746
Share
premium
£000
Other
reserve
£000
Merger relief
reserve
£000
Retained
earnings (*)
£000
Total
equity
£000
60,959
187
453
14,210
106,555
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,516
1,516
1,516
1,516
166
(14)
152
166
(14)
152
Balance at 1 January 2022
30,746
60,959
187
453
15,878
108,223
(Loss) for the year
Total comprehensive income for the year
Transactions with owners
Equity dividends paid (note G)
Share options – granted to subsidiary
employees
Share options settled
Total transactions with owners
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(11)
(11)
(11)
(11)
(1,228)
(1,228)
372
372
23
(879)
23
(879)
Balance at 31 December 2022
30,746
60,959
187
453
14,988
107,333
(*) Retained earnings and share based payment reserve.
The financial statements on pages 65 to 116 were approved by the Board of Directors on 25 April 2023 and were signed on its
behalf by:
Russell Cash, Chief Financial Officer
Company Registration Number:
09010518
25 April 2023
110 | P a g e
Notes to the Company’s 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 2022 were authorised for issue by the Board
of Directors on 25 April 2023 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 2022.
The Company has taken advantage of the following disclosure exemptions under FRS 101:
a. the requirement in paragraph 38 of IAS 1 ‘Presentation of Financial Statements’ to present comparative information in respect
of:
i. paragraph 79(a)(iv) of IAS 1;
ii. paragraph 73(e) of IAS 16 ‘Property, Plant and Equipment’;
b. the requirements of paragraphs 10(d), and 134-136 of IAS 1 ‘Presentation of Financial Statements’ and the requirements of
IAS 7 ‘Statement of Cash Flows’;
c. the requirements of paragraphs 30 and 31 of IAS 8 ‘Accounting Policies, Changes in Accounting Estimates and Errors’;
d. the requirements of paragraph 17 of IAS 24 ‘Related Party Disclosures’;
e. the requirements in IAS 24 ‘Related Party Disclosures’ to disclose related party transactions entered into between two or more
members of a group, provided that any subsidiary which is a party to the transaction is wholly owned by such a member.
f. disclosure requirements of IFRS 7 ‘Financial Instruments’.
Investments
Investments in Group Undertakings are recorded at cost, which is the fair value of the consideration paid. Investments are tested
for impairment and carried at cost less accumulated impairment losses. The Company considers impairment of its investment in
subsidiaries by estimating the recoverable amounts of the investments, which are based on either the net assets of the subsidiary,
or value-in-use calculations.
Employee Benefit Trust (EBT)
The EBT is not treated as an extension of the parent and therefore not included in the parents individual accounts and only
consolidated in the group accounts. The costs of purchasing own shares held by the EBT are shown as a deduction within
shareholders equity in the consolidated statement of changes in equity.
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 at the transaction price. 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.
111 | P a g e
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.
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, grouped under
retained earnings.
Financing income and expenses
Financing expenses comprise interest payable. Financing income comprises interest receivable on funds invested. Interest income
and interest payable is recognised in profit or loss as it accrues, using the effective interest method.
Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement except to the
extent that it relates to items recognised in other comprehensive income, in which case it is recognised in other comprehensive
income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or
substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial
recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in
a business combination; and differences relating to investments in subsidiaries to the extent that they will probably not reverse in
the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the
carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which
the temporary difference can be utilised.
Dividends
Dividend distributions payable to equity Shareholders are included in other liabilities when the dividends have been approved in
general meeting prior to the reporting date.
Pensions
Company employees are members of defined contribution pension schemes where the obligations of the Company are charged
to the profit and loss account as they are incurred.
Significant judgements, key assumptions and estimates
In the process of applying the Company’s accounting policies, which are described above, management have made judgements
and estimations about the future that have the most significant effect on the amounts recognised in the financial statements. The
estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the
period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if
the revision affects both current and future periods.
Significant management estimates
The following estimates have the most significant effect on the financial statements.
112 | P a g e
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 2 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 12% to 15% (2021: 7% to 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 2022 is £59,532,000 (2021: £59,421,000). 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 £76,083,000 (2021: £75,688,000). There was no impairment charge during
the year.
C. 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
2022
£000
78
2021
£000
88
D. 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:
2022
£000
6
2022
£000
634
79
113
7
833
2021
£000
4
2021
£000
602
106
73
9
790
Administration
The aggregate payroll costs of these persons were as follows:
Remuneration
Bonus
Social security costs
Benefits in kind
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The amounts set out above include remuneration in respect of the highest paid Director as follows:
Highest paid Director’s remuneration
Remuneration
Bonus
Social security costs
Benefits in kind
Total highest paid Director’s remuneration
E. 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
F. Taxation
Reconciliation of effective tax rate
(Loss)/Profit for the year
Total (credit)/tax expense
(Loss)/Profit excluding taxation
Tax using the UK corporation tax rate of 19.00% (2021: 19.00%)
Impact of change in tax rate on deferred tax balances
Deferred tax movements not recognised
Group relief
Income not taxable
Adjustments in respect of prior periods
Amounts not deductible
Total (credit)/tax expense in the income statement
Change in corporation tax rate
2022
£000
2021
£000
225
225
70
50
5
56
27
7
350
315
2022
£000
2,100
2,100
2022
£000
948
948
2022
£000
(11)
-
(11)
(2)
1
-
361
(399)
(2)
41
-
2021
£000
3,000
3,000
2021
£000
585
585
2021
£000
1,516
38
1,554
295
-
(1)
421
(570)
15
38
An increase in the UK corporation tax rate from 19% to 25% (effective 1 April 2023) was substantively enacted on 24 May 2021,
and the UK deferred tax position for the group as at 31 December 2021 has been calculated based on this rate.
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G. Dividends
Final dividend of 2.0p (2021: £nil) per share
Total dividends
2022
£000
1,228
1,228
2021
£000
-
-
H. Share-based payments
Details of share-based payments are shown in note 22 to the consolidated financial statements.
I. Investments
Cost and net book value
At 1 January 2021
Additions net of exercise of options in the year
At 31 December 2021
At 1 January 2022
Additions net of exercise of options in the year
At 31 December 2022
Investments in
subsidiaries’
unlisted shares
£000
Subsidiaries’
share-based
payment reserves
£000
59,024
-
59,024
59,024
-
59,024
334
63
397
397
111
508
Total
£000
59,358
63
59,421
59,421
111
59,532
The subsidiaries of the Company are listed in note 12 of the consolidated company accounts on page 91. For all the subsidiaries
listed, the class of shares held are ordinary shares and all subsidiaries, except Fluidpower MIP Limited, are indirect subsidiaries of
Flowtech Fluidpower plc.
J. Trade and other debtors
Current:
Deferred tax asset
Prepayments and accrued income
Amounts owed by Group undertakings *
Total trade and other debtors
2022
£000
2021
£000
1
123
1
275
76,083
75,688
76,207
75,964
* Amounts owed by group undertakings are payable on demand. An exercise has been undertaken to assess the recoverability
of group debtors under IFRS 9 and established the expected credit loss provision required is immaterial and has not been
recognised.
K. Interest-bearing loans and borrowings
Non-current liabilities:
Revolving credit facility
Total non-current liabilities
Total current liabilities
Total interest-bearing loans and borrowings
115 | P a g e
2022
£000
2021
£000
-
-
19,967
19,927
19,927
-
19,967
19,927
Under terms agreed in February 2023, the company renewed the Revolving credit facility for a period of 3 years, up to February
2026, with an option to extend by a further year to February 2027. The renewed facility carries a nominal interest rate of SONIA +
2.40% and is subject to a non-utilisation fee of 0.84% 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 was reviewed in February
2023 and on-going support was approved. The overdraft facility does not carry an expiry date and continues until cancelled by
either party.
L. Trade and other creditors
Social security and other taxes
Accruals and deferred income
Amounts owed to other Group undertakings
Total trade and other creditors
2022
£000
118
163
8,163
8,444
2021
£000
107
144
6,999
7,250
Amounts owed to group undertakings are unsecured, interest free, have no fixed date of repayment and are repayable on
demand.
M. Deferred taxation
Deferred tax assets comprise:
At start of year
Total deferred tax credit in profit and loss account for the year
At end of year
2022
£000
1
-
1
2021
£000
39
(38)
1
A deferred tax asset of £nil (2021: nil) in respect of cumulative share-based payments of £218,000 (2021: £77,000) has not been
recognised due to uncertainty surrounding the availability of future profits, against which these payments can be utilised.
N. Share capital
Allotted, called up and fully paid:
At 1 January 2022
At 31 December 2022
Number
£000
61,492,673
30,746
61,492,673
30,746
O. Contingent liabilities & commitments
The Company has no capital expenditure contracted for but not provided as at 31 December 2022 (2021: nil).
P. 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 £124,000 (2021: £276,000) remains outstanding. There are no other related party transactions other than those relating to
Directors that have been disclosed in note 26 to the consolidated financial statements.
Q. Ultimate controlling party
The Directors consider that there is no ultimate controlling party.
116 | P a g e
Glossary of terms
The Group uses a number of alternative performance measures (“APMs”) in addition to those measures reported in accordance
with IFRS. The APMs are useful to assess the underlying performance of the Group by excluding any one-off, non-operating and
non-cash items. Items excluded in this way are grouped under separately disclosed items on the face of the income statement.
In doing so, the APMs provide comparability and consistency of trading performance between periods.
The APMs are used to manage and budget for the Group’s performance, and for determining the performance rewards for
Executive Directors and that of other management throughout the business. The APMs are also used in presentations to
investors to communicate the underlying performance of the Group.
The APMs are described in detail, and reconciled to IFRS measures in the table below:
Underlying Operating Profit
Underlying Operating Profit is the measure used by the Directors to assess trading performance of the Group. In the context of
presenting the performance of the Group’s segments, this measure is referred to as Underlying segment result or underlying
operating result, as appropriate. The reconciliation of this APM to the Operating profit in the Consolidated income statement is
shown below:
Underlying operating profit (result)
Less Separately disclosed items:
- Acquisition costs
- Amortisation of acquired intangibles (note 11)
- Impairment of acquired intangibles (note 11)
- Impairment of goodwill (note 10)
- Share-based payment costs (note 22)
- Restructuring
Operating profit
2022
£000
8,586
(943)
(168)
(10,072)
(372)
(1,411)
(12,966)
(4,380)
2021
£000
5,690
(11)
(1,054)
(673)
-
(166)
(74)
(1,978)
3,712
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Underlying Segment result
Underlying Segment Operating Profit is Underlying Operating profit that relates to the performance of the segments (Flowtech,
Fluidpower Group Solutions and Fluidpower Group Services) and therefore excludes any central costs. The APM is used to
measure the contribution from each Segment. The Directors use contribution % from a segment to set targets for, and to
manage the profitability of the segments. The reconciliation of this APM for 2022 to the Operating profit in the Consolidated
income statement, along with the derivation for Contribution % is shown below:
For 2022. All values in £000
Flowtech
Solutions
Services
Total
Segments
Central
Costs
Group
Income
statement
Total Revenue
55,565
38,076
21,125
114,766
-
114,766
Operating (loss)/profit
(1,353)
3,620
(1,525)
742
(5,122)
(4,380)
Less: Separately disclosed items
- Amortisation of acquired
intangibles (note 11)
- Impairment of acquired
intangibles (note 11)
- Impairment of goodwill (note
10)
- Share-based payment costs
(note 22)
- Restructuring
Total separately disclosed items
Underlying Segment Operating
Profit
Contribution %
(Underlying Segment Operating
Profit / Revenue)
(136)
(683)
(124)
(168)
(943)
(168)
(943)
(168)
(7,105)
(2,967)
(10,072)
(10,072)
(999)
(102)
(10)
(60)
(10)
(362)
(372)
(1,161)
(250)
(1,411)
(8,240)
(785)
(3,329)
(12,354)
(612)
(12,966)
6,887
4,405
1,804
13,096
(4,510)
8,586
12.4%
11.6%
8.5%
11.4%
7.5%
Underlying operating overheads
Underlying operating overheads is total of distribution costs and administrative costs before separately disclosed items. The
APM has been introduced this year to spotlight the management of overheads attributable to “business as usual” trading
activity in the current inflationary environment. The calculation for Working Capital is shown below.
Lines in Income statement
Administrative expenses before separately disclosed items
Distribution expenses
Total
2022
£000
27,960
4,428
32,388
2021
£000
28,125
4,683
32,808
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Net Debt
Net Debt is Bank Debt less the value of cash and cash equivalents. It excludes lease liabilities under IFRS 16. Bank Debt is the
value of Barclays RCF facility of £20m and any utilised value of £5m overdraft facility, less any unamortised value of loan
arrangement fee referred to in Note 18. For FY 2020 Net Debt also includes value of unpaid COVID-19 related HMRC support.
Net Debt is a key APM used by the Directors to monitor the indebtedness of the Group.
Cash and Cash equivalents (Note 17)
Interest bearing borrowings (Note 17)
Net Debt
2022
£000
3,972
(19,967)
15,995
2021
£000
4,562
(19,927)
15,365
Working Capital
Working Capital is inventories (Note 15), trade and other receivables (Note 16) and prepayments less trade and other payables
(Note 19). The APM is used to monitor the working capital levels across the Group, with a view to manage the indebtedness of
the Group within the desired levels. The calculation for Working Capital is shown below.
Inventories (Note 15)
Trade and other receivables (Note 16)
Prepayments
Trade and other payables (Note 19)
Working capital
2022
£000
31,486
24,620
387
(19,569)
36,924
2021
£000
30,531
21,566
472
(21,111)
31,458
Warehousing Costs
Warehousing costs is the cost of warehousing, including property and people divided by Revenue, expressed as a %. The APM
is relevant for the Flowtech Segment (comprising Flowtech, Flowtechnology Benelux) and the Fluidpower Group Solutions
business (comprising HTL, HES Tractec, Nelson Hi-Power, Hydroflex Hydraulics profit centres, but excluding Derek Lane) that
operate largely on a pick and ship basis. The APM is used by the Directors to monitor the operational efficiency of these profit
centres. This replaces the Cost per Pick APM in use until last year.
2022
Segment Revenue
Warehousing costs
Warehousing costs %
2021
Segment Revenue
Warehousing costs
Warehousing costs %
Flowtech
55,565
Solutions
38,076
Derek Lane
-4,605
Flowtech
57,552
Solutions
34,158
Derek Lane
-4,214
Total
89,036
6,411
7.2%
Total
87,496
6,623
7.6%
119 | P a g e
Turn & Earn
The Directors use Turn & Earn to track the velocity and profitability of product ranges. The calculation of this APM is shown
below.
Inventories (Note 15) £000
Average of opening and closing inventory (a)
Cost of sales (income statement) (b) £000
Average stock turn during the year (c=a/b)
Revenue (Income statement) £000
Gross profit (Income statement) £000
Gross profit % (d)
Turn & Earn (c*d)
2020
21,994
2022
31,486
31,009
73,792
2.4
114,766
40,974
35.7%
85%
2021
30,531
26,263
70,609
2.7
109,107
38,498
35.3%
95%
Daily Gross Profit
The Directors Daily Gross Profit to track the daily performance of the Group as a whole. The APM is reported each trading day
and used by key management teams within the Group to track performance against the Budget and Prior year. Trading days
refers to the days in the year, excluding weekends and bank holidays. The APM allows the Group to measure gross profit
performance on a like for like basis across two years that might have different working days dues to one – off holidays such as
the additional bank holidays declared in 2022 for the Queens’s Funeral and Her Majesty’s Platinum Jubilee. The calculation of
this APM is shown below.
Gross profit (Income statement, £000)
Trading days
Gross Profit £1000/ days
2022
40,974
247
£166
2021
38,498
249
£155
DSO (days)
The Directors use Daily Sales Outstanding (DSO) days to track the efficiency of collecting from customers. The metric is
reviewed across all of the profit centres to monitor the performance of the credit control teams in collecting as per terms agreed
with customers. The calculation for this APM is shown below. Since the credit terms range from 30-90 days, the DSO is
calculated based on the revenue for the last quarter of the financial year.
Trade receivables (gross) (Note 16) £000
Revenue for Oct – Dec £000 (a)
VAT on revenue @ 20% (b)
Trading days during Oct – Dec ©
Daily revenue including VAT (d) = (a+b)/c
DSO (days) (Trade receivables / Daily revenue
including VAT)
2022
22,998
28,258
5,651
92
£369
62.4
2021
20,714
26,247
5,249
92
£342
60.5
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Company information
Flowtech Fluidpower plc
Registered Office
Bollin House
Bollin Walk
Wilmslow
Cheshire
SK9 1DP
Company number: 09010518
Company Secretary
Russell Cash
Contact:
Tel: +44 (0) 1695 52759
Email: info@flowtechfluidpower.com
Website: www.flowtechfluidpower.com
Nominated adviser and sole stockbroker
Liberum Capital Limited
Ropemaker Place
Level 12 25 Ropemaker Street
London
EC2Y 9LY
Auditor
Grant Thornton UK LLP
Landmark
St Peter’s Square
1 Oxford Street
Manchester
M1 4PB
Bankers
Barclays Bank PLC
1 Churchill Place
London
E14 5HP
Investor & media relations
TooleyStreet Communications Ltd
15 Colmore Row
Birmingham
B3 2BH
121 | P a g e
Solicitors
DLA Piper UK LLP
1 St Peter's Square
Manchester
M2 3DE
Company registrars
Link Group
10th Floor
Central Square
29 Wellington Street
Leeds
LS1 4DL
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