The IPO was a vehicle to fundamentally reduce debt and interest burden, and be a springboard for long-term growth

Bryce Brooks

Chief Financial Officer

Underlying Operating Results

The underlying operating result can be summarised as follows:

Continuing operations Underlying Operating Result*2014
Central costs(1,619)(1,423)(196)(13.8)%
Underlying operating result6,1465,32482215.4%

* Underlying operating result is continuing operations' operating profit before acquisition costs, amortisation of intangible assets, share-based payment costs, restructuring costs, and IPO costs. Underlying operating result is reconciled to statutory profit before tax in note 3 to the consolidated financial statements.

Underlying operating result




Net debt position


2013: £69.8m

The Flowtechnology businesses have delivered very satisfactory increases in operating result before central costs, driven largely by volume increases on consistent gross margins, supported by sensible local cost control. The Benelux result is further emphasised by a negative exchange impact of 2.5% and in local currency growth was 7.5%. Despite increasing challenges in its offshore sector, Primary traded in line with expectations post acquisition and being based close to the main Group facility will allow greater sharing of operational and staffing resources in the medium term.

Central costs include Group departments covering Accounting, Creative Services, Marketing and IT, as well as all costs relating to the operation of the plc itself including Directors' remuneration. The conversion to plc status has by necessity increased this cost base. Moving forward the Directors believe that cost control measures should be balanced with a need to ensure appropriate investment in central services which will support growth as it occurs.

Following the IPO, the Group now enjoys a significantly reduced interest burden which is highlighted by the table below detailing financial expense costs pre and post 21 May 2014:

Analysis of finance expensePre IPO
1 January
to 21 May 2014
Post IPO
22 May 2014 to
31 December
Year ended
31 December
Shareholder loans1,6481,648
Bank loans and short term borrowing234108342
Finance expense1,8821081,990

IPO and Associated Costs

The IPO was a vehicle to fundamentally reduce debt and interest burden, and be a springboard for long-term growth.

After funding the overall costs of the IPO of £4.6 million (which has been allocated as £2.3 million charged to operating profit, see note 4 for details, and £2.3 million charged to share premium account), the balance of the £47.0 million equity and net bank debt raised was used to part clear loans from the previous private equity owners. The remaining £29.0 million of shareholder loans were subject to a debt for equity swap with the resultant gain on settlement being recognised in the consolidated income statement.

As a result of the options issued under the Enterprise Management Incentive plan, the vast majority of which were issued to staff members of the Flowtechnology businesses on 21 May 2014, the Group is required to account for the fair value of these incentives as "Share-based Payments", calculated using the Black Scholes method over the period from issuance to the earliest vesting date which is May 2017. The charge for the year was £148,000. The Directors believe that the share option schemes will have a positive effect on staff motivation and morale, and the ability to share the financial rewards of profitable growth between all stakeholders is a principle which will underpin our development strategy.


Final dividend


Total dividend


The tax charge for the year was £1.2 million (2013: £0.9m), with an effective tax rate of 20.3% and a blended tax rate based on the geographical regimes of 21.5%. As detailed in note 7, the Group incurred an adjustment to the current year tax charge in respect of prior years of £67,000 which related to charges resulting from an Advanced Thin Capitalisation Agreement with HMRC. This agreement fixed the element of shareholder loan interest which was allowable for corporation tax purposes for the period 2007 to 2014.

Statement of Financial Position and Cash Flow

The net debt position at the year-end was £6.7 million (as detailed in notes 18 and 19) (2013: £69.8m). The Directors believe this represents a satisfactory performance in both working capital and cash management, which was ahead of expectations and ensures the Group enters 2015 in a strong position.

During the year the Group has continued to invest in its core information technology systems. This includes the commencement of a process to upgrade all the Group's computer servers, which will be concluded in 2015, and will ensure that both response times and reliability are leading-edge for the sectors in which we operate.

The Group currently operates from a mixture of property facilities which are either owned or leased from third parties. Where sensible to do so the Board's strategy is to examine options wherever possible to acquire any sites that are likely to form the basis for the Group's long term operational structure.

Investment in stock is seen as the lifeblood of the business and a delicate balance is always required between the requirement to ensure high service levels are maintained against the need to ensure appropriate protection against the cost of maintaining any slow-moving and redundant items. The Board believes that it maintains prudent and appropriate policies for provision against such items and ensures that sensible key performance indicators with regard to their measurement are maintained across all Group companies.

The principal use of cash flow from operating activities was the investment in the Primary acquisition which was part satisfied by £2.7 million funded through our own resources at completion (being £5.1 million in cash less the purchase of £2.4 million of cash held by Primary). Deferred consideration of £1.6 million will be paid in August 2015. Further details are given in note 25. The acquisition increased the balance of goodwill by £2.1 million and created intangible assets of £3.1 million, on which annual amortisation of £0.3 million will be charged.

Group Banking

The Group had combined facilities within the UK of £13.0 million at 31 December 2014, and the business traded well within its facilities and covenants. As indicated in note 19, the annual repayment commitment under these facilities is £0.9 million for 2015, which will be replicated in 2016 and the 2017, followed by a final "bullet" payment in 2018 of £4.0 million. The Board expects to renegotiate well ahead of this date and therefore believes the overall financial commitments under these banking arrangements remains amply covered by the Group's free cash flow. As described previously, the strategy for growth includes the pursuit of appropriate acquisition opportunities as and when they arise. It is believed that many of these opportunities can be funded from within these existing facilities, as well as additional facilities that we believe can be sensibly added without undue risk to the Group's strong financial position.


The Board sees the retention of a strong dividend policy as a cornerstone for the investment case in the Group

Bryce Brooks

Chief Financial Officer

Subject to Shareholder approval at the Annual General Meeting which is to be held on 21 May 2015, the Directors are proposing a final dividend of 3.33p per share. This, together with the interim dividend of 1.67p (paid on 24 October 2014), brings the total for the year to 5.00p, and matches the commitment made at the date of the IPO. The Board sees the retention of a strong dividend policy as a cornerstone for the investment case in the Group, and will work hard to ensure that the Group's development, both organically and by acquisition, will continue to balance the requirement for both self-generated growth capital and dividend flow.

Key Performance Indicators (KPIs)

The main KPIs that management monitor within the Group are:

  • Daily gross profit generated against forecast and prior year

    The Directors believe that the accurate daily reporting of gross profit achieved by each trading entity across the Group and comparison to forecast and prior year is a fundamental performance measure. This is further supported by additional calculations giving indicative full month estimates on a daily basis. As part of any acquisition programme, new businesses that join the Group will be required to comply with this daily reporting requirement as soon as it is practicable. The main benefit is to allow the Directors to reinforce close scrutiny of trading performance and provide local management focus, as well as providing an early indication of any negative growth. The majority of staff reward schemes by way of monthly bonus payments are linked to any growth in gross profit achieved.

    Performance achieved:

    Average gross profit per day £000
    Operating segmentYearPrior yearForecast
    Flowtechnology UK51.1948.5951.87
    Flowtechnology Benelux8.988.459.27

    The gross profit monitored is related to product and direct labour only and is not calculated on the same basis as presented in the consolidated income statement.

  • Monthly sales and gross profit by customer account and product against forecast and prior year

    Both the Flowtechnology and Primary businesses have a clear focus on the management of profitability at customer and product levels. Within the Group's IT systems, appropriate business intelligence modules are maintained to allow ease of analysis on a timely basis to underpin sales development initiatives at a strategic and tactical level, as well as quickly identify underperformance.

  • Stock provisions calculated at item level

    The Group maintains accurate stock provision measures down to item level on a minimum twice monthly basis, or as otherwise required in specific cases. This can then be analysed by individual product group or supplier to ensure that action to alleviate any potential costs associated with slow-moving or redundant items can be made at the earliest point in a product life-cycle.

    Regular review of the provision calculations and prompt remedial action has resulted in no further provision being required against stock in the Flowtechnology UK and Benelux segments during the year.

  • Operating profit before separately disclosed items against forecast and prior year

    The Group reports on a standard calendar monthly basis using a consistent format across all trading businesses and, as well as sales and the gross margin measures, will include comparison of cost types detailing actual against forecast, 12 month average, year-to-date and prior year-to-date. The Group achieved this measure against prior year in 8 out of 12 months, which for the year overall was 10% above the prior year. Against forecast, the measure was 3% down.

  • Service levels

    The distribution segments of the Group monitor service level achievement for stock availability against required customer delivery date. Performance is measured against prior year levels and by product rank.

    Performance achieved:

    Service level
    Operating segmentYearPrior year
    Flowtechnology UK
    Top 500 products99.4%98.9%
    Average all products96.0%95.9%
    Flowtechnology Benelux
    Top 500 products98.4%98.3%
    Average all products92.7%92.8%