The Group has a clear view of growth objectives – to create a specialist fluid power organisation that remains focused on its core competencies through its delivery of “class leading” service and support. Our long-term growth model is based on organic growth, coupled with complementary acquisitions in UK and Europe in a very fragmented marketplace. The Board regularly monitors a range of financial and non-financial performance indicators to allow it to measure performance against expected targets

1

Sales Growth

KPIs

Continuous “GDP+” sales growth with strong gross and net margin contribution.

At Profit Centre level we review sales and gross profit on a daily basis, comparing performance against either prior year or, in the case of a recently acquired business, plan. In addition, each business has additional reporting available from local systems detailing overall sales and gross margin performance on a summarised customer and product group basis, with further detail available at individual product level. The Group also measures organic sales growth on a quarterly basis and compares this to market information produced by our industry trade associations.

Daily Gross Profit

£000

Organic Sales Growth

%

FY2019

  • Continued daily reporting and analysis of sales and gross profit to the Executive Team
  • Coordination of extensive training for all profit centre and using external agencies under the leadership of the Chief Operating Officer

2

procurement and operational cost improvement

KPIs

After an extended period of growth driven primarily by acquisition, the Group looks to use our wider resources to both improve purchasing terms with our major supplier partners, as well as improve our operational efficiency.

At individual Profit Centre level various KPIs are measured to cover service levels including stock availability. However, during 2019 the Group is developing a number of additional measures to be able to compare efficiency levels accurately between Profit Centres, and these will include such KPIs as overall cost per pick, cost per delivery (both in overall quantum and as percentage of sales), and number of suppliers for both stock and expense supplies, with an overall view to support the various cost improvement initiatives being undertaken.

FY2019

  • Under the leadership of the Chief Operating Officer, coordination of all purchasing activities operated by Profit Centres within each division
  • Under the leadership of the Chief Executive Officer, an operating cost review steering group has been established to identify and implement short, medium and long-term initiatives to improve operational efficiencies across the Group
  • Coordination of engineering resources under a single leadership team for a newly established Services division

3

cash generation and management of net debt

KPIs

A focus on reducing gearing in the balance sheet, and the creation of excess cash positions will protect the business from any macroeconomic uncertainties, provide strong dividend cover and support further acquisition activity.

Working capital as a percentage of total revenue

32%

Net operational cash flow

Net debt to total facilities ratio %

FY2019

  • Net operational cash flow in 2018 fell below expectations for the first time since IPO in 2014. Initiatives to improve the performance include the following:
  • Under the leadership of the Chief Financial Officer, a working capital steering group has been established to provide a broad framework around cash collection, extension of payment terms, and inventory turn, including extended KPI set.
  • Continued training and measurement on a monthly basis for all Profit Centre Directors of local return on average working capital employed during the course of the month and year-to-date.

4

IT Strategy

KPIs

Cost-effective, secure IT environments that provide long term stability for the Group’s activities remains a key part of the Group’s strategy.

The Board believes that a reduction in the number of IT systems that operate within the Group is a key element in improving overall efficiency and control and reducing risk. The long-term objective is to have a single integrated process and accounting system. However, in the medium term the focus will be on reducing the number of process systems to three or less, and with a single accounting system for aggregating financial performance summaries, sales credit management and supplier payment processing.

During 2019 the Board will also develop KPIs around overall IT costs that can be used to benchmark against comparable companies in the industrial distribution sectors.

Process System

Accounting System

FY2019

  • IT Steering Group established under the leadership of the Chief Executive Officer.
  • Implementing a cloud hosted environment for all business systems to facilitate legal compliance, improvements against cyber threats, and deliver 99.99% uptime.
  • Implementation of IT policies to deliver Cyber IASME plus accreditations for all Profit Centres.
  • Reducing number of discrete legacy systems to provide future proof systems for Profit Centres, including selection of long-term global Enterprise Resource Planning (ERP) system partners.

5

People

KPIs

Investing in our management teams and staff brings the benefits of improved retention and talent identification for succession planning. We see training and development of employees as key to our long-term success.

In October 2018 the Group introduced an Employee Engagement Programme to measure and strengthen employee satisfaction. It is expected that the initial review and determination of engagement ‘score’ will be completed by the end of June 2019. Following this the Group will look to create suitable KPIs to measure progress from that point.

Employee Retention

FY2019

  • Installation of a rolling two-year programme of executive leadership training for Profit Centre Directors and above.
  • Extensive employee engagement and satisfaction survey to be completed by the end of June 2019 with follow-up programmes also completed by December 2090.
  • Establishment of a Group-wide technical forum providing single point of reference for the Group’s many technical support functions.