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Flowtech Fluidpower plc
("Flowtech", "Company" or "Group")
2016 Trading Update, Acquisition, Strategy Update
Notice of Full-Year Results
London: Monday, 23 January 2017: Specialist technical fluid power products supplier Flowtech Fluidpower plc (AIM: FLO), is pleased to announce the following update on its performance for the year ended 31 December 2016, together with details of acquisition and strategy update:-
The 2016 performance can be summarised as follows:
· Against difficult trading conditions the Group has delivered a solid performance
· Group revenue was c.19.9% up on 2015 at approximately c.£53.7 million (c.19.3% in constant currency)
· British Fluid Power Distributors Association Market Survey indicates 2016 fluid power overall distributor sales growth was negative 3.9% (hydraulics -5.9%, pneumatics 0.2%)†
· Post Brexit currency movements with resultant impact on input prices have to date been successfully passed on to customers due to our flexible pricing model, with 2016 exit margins maintained. However, some margin contraction was experienced in H2 while prices were managed upwards on products sourced in Euro and USD and sold in GBP markets
· Three acquisitions successfully integrated into the Group, each delivering benefits, and a third "Process" division established focused on process industries, including Pharma, Environmental, and Steam
· Net debt at year end was c.£13.0 million
· Significant investment in central and sales resources aimed at optimising cross channel opportunities, and future acquisition integration programme underpinning long term growth
· As a result of these investments and the gross margin contraction in H2, the Board expects underlying* PBT will be in the range £7.0m to £7.2m.
The Directors remain confident in the Group's overall performance and future. As such the Board intends to propose to shareholders a final dividend which will deliver a 5% increase over 2015 and in line with current market expectations. In addition, the Board is committed to ensuring a continued focus on cash generation as part of our model and believe that when appropriate to do so, the Group will have the capacity to improve on its current distribution policy and trend.
ACQUISITION OF HYDRAULICS & TRANSMISSIONS LIMITED ("HTL")
The Group is pleased to announce the further strengthening of its Power Motion Control ("PMC") division through the acquisition of HTL which completed on 20 January 2017. The consideration comprises £0.75 million on completion and additional payments expected to be c.£1.0 million subject to an earn-out over the two-year period to 31 December 2018. In addition, the Group will assume a further £0.9 million being the net debt position held at completion giving a total of £2.65 million. The consideration is being funded from the Company's own resources.
HTL (www.htluk.co.uk) was established in 1973, and has been managed by the current ownership team since an MBO in 2007. It currently employs 25 staff and distributes hydraulic equipment and components from its location in Ludlow, Shropshire. HTL provides fluid power solutions predominantly to the mobile market segment and supplies some of the market leaders such as JCB, McConnell and Alamo. The acquisition provides incremental revenue to the Group that we could not previously address, strengthens our position with key global suppliers including Eaton, Walvoil and Casappa, and complements our previous acquisitions of Primary Fluid Power and Nelson Hydraulics.
HTL will operate as an independent sister company within PMC. Managing Director, Ian Teece and Commercial Director, Richard Salisbury, who have led the business for over 10 years will also join the Group's Operational Board.
For the year ended 31 December 2015, HTL's turnover was £5.2 million producing EBIT of £0.3 million. Net assets at the same date were £0.5 million. As well as some immediate back office savings, the Group expects to deliver synergy opportunities over the medium term through coordinated procurement and operational activities.
The Group has a clear view of its 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 both organic growth, coupled with complementary acquisitions in the UK and Europe in a very fragmented marketplace.
The successful integration of new businesses into the Group is critical, maintaining momentum and ensuring an ability to continue to trade with their customers seamlessly. To support this an experienced integration team has been created tasked with delivering a smooth and speedy transitions process. During 2016, Indequip, Hydravalve & TSL, were acquired and successfully integrated into the Group - these acquisitions fit within the defined strategy previously outlined of developing a Focused Fluid Power Group.
As a result of the negative trends experienced by many businesses in our marketplace during the second half of 2016, the Group was more cautious in its pursuit of opportunities, particularly in Q4. However, the acquisition pipeline remains strong and continues to develop; we have several acquisition and product opportunities being actively pursued and, we are pleased to announce our most recent acquisition detailed above.
The Flowtech Group now operates three divisions: Flowtechnology, Power Motion Control & Process. This structure has delivered greater opportunity to focus on fluid power solutions while at the same time, developing a deeper technical expertise within our complementary businesses; specialising our offering in the fluid power sector and, delivering high service levels to all our customers across our business. This formulation gives us a solid platform for growth as well as opening and creating new opportunities in new and exciting sectors.
Our business has shown resilience in a difficult market, with our most recent acquisitions beginning to deliver growth. The Board remains confident in the strategy, commercial opportunities and the prospects of the Group as a whole, and expects to deliver further solid growth over the coming years building on the resilient performance seen in 2016.
NOTICE OF RESULTS
The Directors look forward to updating shareholders further on the Group's performance and the outlook for 2017 at the time of the 2016 full year results, scheduled to be released on Tuesday, 4 April 2017.
† Source: British Fluid Power Distributors Association Monthly Survey January to November 2016 v 2015 (www.bfpa.co.uk/show_statistics.asp?id=19)
*Excludes acquisition costs, restructuring costs, share-based payment costs, amortisation of acquired intangibles and notional interest on deferred consideration
Flowtech Fluidpower plc
Sean Fennon, Chief Executive Officer
Bryce Brooks, Chief Financial Officer
Tel: 44 (0) 1695 52796
Zeus Capital Limited
(Nominated Adviser and Joint Broker)
Andrew Jones, Jonathan Sharp (corporate finance)
Dominic King, John Goold (sales and broking)
Tel: 44 (0) 20 3829 5000
Ed Frisby, Kate Bannatyne (corporate finance)
Rhys Williams, Emily Morris (sales and broking)
Tel: 44 (0) 20 7220 0500
(IR and media relations)
Tel: 44 (0) 7785 703523
Flowtech Fluidpower plc, founded as Flowtech in 1983, is the UK's leading specialist supplier of technical fluid power products. The Group has three divisions: Flowtechnology, Power Motion Control and Process. All three of the Group's divisions have overlapping product sets, allowing procurement synergies to be maximised.
The Flowtechnology division focuses on supplying distributors and resellers of industrial MRO (maintenance, repair and operation) products, primarily serving urgent orders rather than bulk offerings. It is formed from Flowtechnology UK, Flowtechnology Benelux and Indequip. It offers an unrivalled range of Original Equipment Manufacturer (OEM) and Exclusive Brand products to over 3,400 distributors and resellers and the catalogues are recognised as the definitive source for fluid power products, containing 100,000 individual product lines and are distributed to more than 80,000 industrial Maintenance, Repair and Overhaul end users (MRO). The Power Motion Control division specialises in the design, assembly and supply of engineering components and hydraulic systems and is further enhanced by a service and repair function. The division is formed from Primary Fluid Power, Nelson Hydraulics and TSL Fluidpower. The Process division focuses on the supply of industrial components to the process sectors.
The Group's main distribution centre is in Skelmersdale, Lancashire with further distribution centres in the Netherlands and China. The Power Motion Control division (PMC) has operations in Merseyside, Northern Ireland, the Republic of Ireland, and Yorkshire; Process operates from the West Midlands. In total the business employs 349 people.