Our Strategy for Growth
The Group has a clear view of growth objectives – to create a specialist fluid power organisation that remains focused on its core competencies through its delivery of class-leading service and support. Our long-term growth model is based on organic growth through offline and online activities, coupled with complementary acquisitions in the UK, Ireland, and the Benelux, in a very fragmented marketplace. The Board regularly monitors a range of financial and non-financial performance indicators to allow it to measure performance against expected targets.
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 has been slowed by COVID-19, we believe that significant development has been undertaken in 2021, and the CEO’s Year in Review details progress made in our structural goals, Here.
The KPIs we established at that time remain relevant, our comments in each area being provided below:
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KPIs
Target to ensure continuous above ‘market’ sales growth with strong gross and net margin contribution. At Profit Centre level, we review sales and gross profit on a daily basis, comparing performance against prior year and plan. Each business has additional reporting available from local systems detailing overall sales and gross margin performance on a summarised customer and product group basis, with further detail available at individual product level. The Group also measures organic sales growth on a quarterly basis and compares this to market information produced by our industry trade associations. Whilst there are some differences in the composition of the index to our own business, this does give us a guide as to how we are performing against the sector.
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.
Daily Gross profit
£000
Total Value of Sales from Online & EDI
£000
FY2022
- We will complete the transition to a single e-business platform available to all business units, and supported by new market leading SEO capabilities
- We will introduce advanced data analysis tools using a new Customer Data Platform across all business units, and which will be enhanced by e-marketing campaigns built around the data insight provided
- In addition to the Flowtech Division, which now operates on a single platform, we will now look to create a consolidated structure in the Solutions and Services segments under the “Fluidpower Group” banner
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KPIs
KPIs are measured to cover service levels including stock availability. However, the Group has developed a number of additional measures to be able to compare efficiency levels accurately between Business Units, 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.
In 2020 and 2021, our ability to make substantial improvements has been made difficult with firstly dealing with the immediate fallout from the 2020 lockdown, and more latterly substantial disruption in supply chains. In 2022 we believe that markets will continue to normalise, and we can then return to a clear focus on productivity improvement.
Group Cost per Pick (2019)*
£3.32
Group Cost per Pick (2020)*
£4.32
*Being the Group’s total cost of warehousing, including property and people, divided by number of invoiced lines in the year.
FY2022
- Significant progress was made in 2020 and we intended to complete the Group-wide warehouse and logistics plan in 2021. This was not possible due to the continued Covid19 restrictions, but has resumed in 2022, when underlying annualised savings of £1m are being targeted
- Return on sales in each operating segment will be a key metric to ensure productivity measures across the Group are improved
- The volumes in 2020 and 2021 were affected by COVID-19 factors and therefore the cost per pick was higher than would be expected; we expect 2022 and beyond to result in materially lower cost per pick metrics and continue to target below £3.00 cost per pick in the fullness of time
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KPIs
A continued focus on reducing gearing in the balance sheet, and the creation of excess cash positions, will protect the business from any macroeconomic uncertainties.
This proved beneficial in the pandemic period when working capital reduction allowed Net Debt to be managed down, and now that volumes have increased, we are using the capacity created to invest in an enhanced inventory profile.
A continued focus on controlling credit risk and, where possible, putting in place more favourable terms.
Working Capital as a % of Total Revenue (2020)
23.9%
Net Debt £million (†) (2020)
11.6m
Turn & Earn %(2020)
81%
*Bank Debt less cash and cash equivalents
**Includes £0.9m HMRC COVID-19 related support
Turn & Earn Index is calculated by multiplying gross margin by stock turn. In 2021, the gross margin (achieved was 35.33% and the average stock turn achieved was 2.37, therefore the Turn & Earn index was 84%.
FY2022
- Due to COVID-19, the Group has focused on short-term trends. Once supply chains are normalised, we will resume our progress with a target to now achieve a Turn & Earn KPI of 130% by 2025
- Inventory levels are continually monitored. Whilst we have targets for improved stock turn in the medium term, in the short-term we have increased buffer stocks to mitigate challenges in global supply chains
- Continued management of trade debtors is fundamental
- Internal reports are included in Board papers to ensure tight control is maintained and managed by monthly reviews with each business unit leader
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KPIs
Cost-effective, secure IT environments that provide long-term stability for the Group’s activities remains a key part of the Group’s strategy.
The Board believes that a reduction in the number of IT systems that operate within the Group is a key element in improving overall efficiency and control and reducing risk. The long-term objective is to have a single integrated process and accounting system. However, in the medium term, the focus will be on reducing the number of process systems to four or less, and with a single accounting system for aggregating financial performance summaries, sales credit management and supplier payment processing.
Process Systems
Accounting Systems
FY2022
- Work is on-going to further reduce the number of process systems by the end of 2023
- Our focus in the short-term continues to be the development of a single IT architecture and the Customer Data Platform to support our e-business strategy and the opportunities we believe this presents. We expect that all aspects of this development will have been fully implemented during the course of 2022
- In the medium term, we are developing plans to transition to one ERP system, and expect to have identified the timetable to this position during the course of the year
*Increase due to acquisition activity.
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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.
To improve leadership skills at management levels all senior staff will undertake training at Leadership Trust.
The Group conducts an annual Employee Engagement Survey to measure employee satisfaction, and subsequent activities are tailored to improve overall engagement.
Employee Engagement (2019)
64%*
Employee Engagement (2020)
69%
*2019 figure reported in 2019 Report & Accounts at 66% but restated to calculate on a weighted average basis and thereby provide a like for like comparison.
FY2022
- We had targeted to improve our overall engagement score from 64% to 75%. In 2021 this was not achieved. However, this was against the backdrop of widespread lockdown periods in the UK, Netherlands and Ireland
- Our ambition to achieve a score of 75%, ideally more, remains; we will certainly be focussing on behaviours which we believe are important to support this.
- All Profit Centre Directors and above to complete Leadership Trust training by the end of 2022
- Within the sustainability section of this report, we refer to a number of areas we have invested in, notably the mental well-being programme. We believe the manner in which we treated our people during the pandemic conditions has been of huge significance and serves to ensure we have motivated/committed people to assist us in delivering our strategic objectives