Statement of Compliance with the 2018 QCA Corporate Governance Code

Chairman’s Introduction

As an AIM-listed Company, Flowtech Fluidpower plc intends to adopt and comply with the corporate governance principles of the 2018 Quoted Companies Alliance Corporate Governance Code (the “QCA Code”). The QCA Code identifies ten principles to be followed as a guide to help companies deliver value for shareholders over the medium and long term. This relies on efficient and effective management by the Board, accompanied by good communication which develops confidence and trust.

The sections below set out the ways in which the Group applies the ten principles of the QCA Code in support of the Group’s medium to long-term success.

Malcolm Diamond
Non-Executive Chairman

QCA Principles

Deliver growth

1. Establish a strategy and business model which promote long-term value for shareholders

Flowtech Fluidpower has a clear strategy; to create a specialist fluid power organisation, focused on the delivery of class-leading service and support, which will allow us to grow by both organic and acquisitive means in a highly fragmented distributor marketplace.

As a unique aggregator of fluid power specialists, we seek to develop our existing businesses and acquire complementary ones; reducing their operating costs, while maximising their commercial value to ensure we’re the most cost-efficient provider of high-quality fluid power products and solutions in the market.

Our sustainable business model makes fluid power supply convenient and efficient for customers and suppliers and drives growth and returns for Shareholders.

Acquiring complementary businesses enables the Group to expand its portfolio of products and services, facilitating growth by product choice, brand exclusivity and specialist manufacturing and servicing capability. With c10% market share in the UK and Ireland, and significant opportunities in both home countries and across Europe, the Directors believe this approach will deliver long-term value for shareholders.

Further details on the Group’s business model and strategy are set out on pages 6 to 15 of our 2018 Annual Report.

2. Seek to understand and meet shareholder needs and expectations

The Group aims to maintain a regular dialogue with both existing and potential Shareholders through an established investor relations programme, managed by the Chief Executive Officer (CEO), Chief Financial Officer (CFO) and Company brokers. All Shareholders receive a printed copy of the Annual Report and Accounts and at the same time receive the Notice of the Annual General Meeting (AGM).

Beyond the Annual General Meeting, the CEO, CFO and, where appropriate, other members of the senior management team meet regularly with investors, analysts and media to provide them with updates on the Group’s business and to obtain feedback regarding the market’s expectations of the Group.

The Company engages in a minimum of two investor roadshows per annum. Presentations by the Executive Directors of interim and full-year results are offered to all major Shareholders. Other Shareholders are welcome to contact the Company and wherever possible their concerns or questions are responded to by a Director in person. Furthermore, the Group invites investors and potential investors to visit the premises of its subsidiary companies, should they wish to see day-to-day operations and speak with representatives from the Group in a more informal setting.

General information about the Group is also available via the Company’s corporate website, which includes further information about the business, reports and key documents and recent company announcements. Interested parties have the opportunity to register for RNS alerts, to keep them informed when important announcements are released. Shareholder feedback is regularly presented and reviewed at Board meetings.

Investors may also make contact requests through the Company’s joint brokers, Zeus Capital and FinnCap.

3. Take into account wider stakeholder and social responsibilities and their implications for long-term success

The Group is aware of its corporate social responsibilities (CSR) and the value in maintaining effective long-term working relationships across its key stakeholder groups including employees, suppliers and customers, and additionally trade bodies, associated communities and wider industry.

The Group has implemented processes and procedures to ensure through regular communication, feedback and improvement, that our relationships and responsibilities are maintained. Examples of our involvement with key stakeholders include:

Employees – The Group circulates regular announcements via email and noticeboards to all Profit Centre Directors, who then cascade to their teams. We encourage annual performance reviews for every employee and in 2018 introduced an employee engagement scheme to assess the level of engagement across the Group.

Suppliers – Each Profit Centre engages regular with key manufacturers within the industry. At a Group level we are increasingly working with selected third-party suppliers, introducing Group-wide initiatives, to enhance our product proposition and service level to customers. We proactively invite key suppliers to present at the many collaborative meetings and conferences throughout the year, ensuring that all Profit Centre management have relevant opportunities to improve their business.

Customers – All customers across the Group are supported by internal or external business development, technical and marketing personnel, who engage regularly to provide information, support specific customer requests and obtain vital feedback. Many of the Profit Centres invite customers to events, for educational and networking opportunities.

Further details can be found in our Corporate Responsibility Statement on pages 34 to 36 of the 2018 Annual Report. Some examples of the improvements resulting from our dialogue with stakeholders are detailed on the case studies page of our website.

The Group has a zero-tolerance approach towards slavery, which is outlined in our Modern Slavery Statement online.

The Board is updated on key stakeholder activity and social responsibility progress through monthly reports from each Profit Centre.

4. Embed effective risk management, considering both opportunities and threats, throughout the organisation

The Board acknowledges its responsibility for risk management and internal control and for reviewing their effectiveness.

The Board believes that our strategy, which is designed to exploit opportunities created by the market, places the Group in a strong position relative to others, particularly where those markets are volatile.

No system can fully eliminate risk and therefore the understanding of operational risk is central to management processes. For the risks that can be controlled, the Group operates a system of internal control and risk management in order to provide assurance that we are managing risk while achieving our business objectives. The long-term success of the Group depends on the continual review, assessment and control of the key business risks it faces.

The Board meets on a regular basis to consider new risks and opportunities presented to the Group. Risk is also formally addressed at Profit Centre Director strategy meetings, held twice per annum.

Further detail on the principal risks and mitigating actions are set out on pages 26 to 29 of the Group’s 2018 Annual Report.

Maintain a Dynamic Management Framework

5. Maintain the Board as a well-functioning, balanced team led by the Chair

The Chairman has overall responsibility for Board composition and effectiveness, which currently comprises one Chairman, two Executive Directors and two independent Non-Executive Directors. All of the Directors are subject to election by shareholders at the first Annual General Meeting after their appointment to the Board and in accordance with the code, all Directors will also stand for re-election at AGMs.

Directors’ biographies are detailed on the Board of Directors page of our website and in our latest Annual Report.

The Board considers itself to be sufficiently independent. The QCA Code suggests that a Board should have at least two independent Non-Executive Directors. All 3 of the Non-Executive Directors who currently sit on the Board of the Company are regarded as independent under the QCA Code’s guidance for determining such independence.

Four Board committees support the Board. These include the Audit, Remuneration, Nomination and the AIM Compliance Committee.

Further details of the composition of the Board are set out on pages 37 to 40 in the 2018 Annual Report.

6. Ensure that between them, the Directors have the necessary up-to-date experience, skills and capabilities

The Board is satisfied that it has an appropriate balance of sector-specific experience and public-market skills to add strength and objectivity in the operational and financial development of the Group. The Board also has access to external advisors and skills developed via day-to-day operations are augmented by training and mentoring as required.

The Directors’ biographies are detailed on the Board of Directors page of our website and in our latest Annual Report.

The Chairman has specific remit to regularly review the composition of the Board to ensure that it has the necessary breadth and depth of skills to support the ongoing development of the Group, and will discuss areas for development with the Board on a regular basis.

Further information regarding the Board’s effectiveness can be found on page 39 of the 2018 Annual Report.

7. Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement

Collectively and individually, the Directors monitor the performance of the Board and its members on a range of measures, The Non-Executive Directors discuss regularly, the performance of the Executive Directors. Hitherto this process, apart from the establishment of medium-term goals and targets, has been relatively informal. In 2019 the Executive Directors, together with the recently appointed Chief Operating Officer (COO), have been set challenging objectives covering a range of financial, operational and personal matters. These will be subject to a more formal process overseen by the Remuneration Committee. In addition, Nigel Richens will, in his role as Senior Independent Director, coordinate a review of the Chairman’s effectiveness. The Chairman will manage the process to consider the effectiveness of the other Non-Executive Directors.

Each Director has the responsibility to arrange appropriate training, if identified as a requirement from the evaluation process.

The Nomination Committee also has a full role to play with a core part of this Committee’s function centred around the development of the Board structure and succession planning. Regular formal meetings are held to discuss these areas.

The Board continues to believe that a formal evaluation of Board performance by an outside agency would not be cost effective and is inappropriate given the size of the Board.

8. Promote a corporate culture that is based on ethical values and behaviours

The Board aims to promote and maintain a culture of integrity across all businesses within the Group.

All new Companies joining the Group are integrated quickly via a 100-day plan to streamline accounting, payroll, HR, systems and health and safety processes. Standard Practice Instructions (SPIs) help guide personnel and ensure consistency across the Group. These SPIs capture business ethics and focus on the high standards expected as part of the Group. They are supplemented by a Group Employee Handbook, and are accessible to all employees either in written or electronic formats.

The Group is committed to corporate social responsibility which includes equal opportunities in recruitment and employee development, diversity in the workplace, human rights, environment, health and safety and supporting local and associated communities.

Further information about ethical Group practices can be found in the Corporate Social Responsibility section of our latest Annual Report.

9. Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board

The main responsibilities of the Board are the creation and delivery of sustainable shareholder value by promoting the long-term success of the Company and upholding good corporate governance.

The Board, in addition to routine consideration of both financial and operational matters, determines the strategic direction of the Group.

The main responsibilities of the Chairman are to lead the Board, ensuring its effective management of the Group’s operations and governance, and to maintain relations with major shareholders thus enabling the Board to gain an understanding of their views. The Chairman sets the Board’s agenda and promotes a strong culture of challenge and debate.

The Chief Executive is responsible for the day-to-day management of all the Group’s activities and the implementation and delivery of the Board’s strategic objectives. He also promotes appropriate cultural values and standards and maintains good relationships and communications with investors.

In accordance with their terms of reference, certain matters are delegated to the Committees of the Board. The Board formally delegates responsibility to four committees; the Audit, Remuneration, Nomination and the AIM Compliance and Corporate Governance Committees.

The Audit Committee meets at least twice a year with the Group’s Auditor and as otherwise required. Its duties are to:

  • Monitor the integrity of the financial statements;
  • Review the quality of the Group’s internal controls, ethical standards and risk management systems;
  • Review the Group’s procedures for detecting and preventing bribery and fraud; corruption, sanctions and whistleblowing
  • Ensure that the financial performance of the Group is properly reported on and monitored, including reviews of the annual and interim accounts, results announcements and accounting policies; and
  • Oversee the relationship with the Group’s external Auditor

The Remuneration Committee meets to determine and agree remuneration packages of the Chairman and Executive Directors and other employee benefits. 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 Nomination Committee is heavily involved in the development of Board structure and succession planning,

The AIM Compliance and Corporate Governance Committee 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.

Full terms of reference for each committee can be found on our website.

10. Communicate how the Group is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders

The Group maintains regular dialogue with Shareholders and wider stakeholders through the Annual Report, Interim Report, quarterly trading updates, the Annual General Meeting (AGM), Investor roadshows and one-to-one meetings with existing and potential Shareholders on request.

The Groups financial reports, Notice of General Meetings and Shareholder voting results from each AGM can be found under the Reports and Key Documents of our corporate website.

The CEO and Head of Corporate Governance are responsible for ensuring that all Corporate Governance policies are adhered to and clearly communicated. More information about our Governance policies can be found within our Governance section on our website and on pages 37 to 40 of the 2018 Annual Report.

Last Reviewed: 7 May 2019