How the business manages risk

In common with all organisations, Flowtech faces risks which may affect its performance. The Group operates a system of internal control and risk management in order to provide assurance that we are managing risk whilst achieving our business objectives. No system can fully eliminate risk and therefore the understanding of operational risk is central to management processes. The long term success of the Group depends on the continual review, assessment and control of the key business risks it faces. In view of this the Board has recently engaged with a team of risk specialists to ensure risk identification and mitigation is a key strategy focus for the Group.

The principal risks identified include:

Inability to recognise and control cyber exposures
The Group recognises there is an increasing exposure to cyber risk, including advanced techniques to disrupt our websites and direct attacks on Group systems with the potential loss of confidential information.

Current mitigation measures for local business systems include anti-virus software, virus scans on incoming emails and firewall protection.

The main Group website is hosted in the cloud with dual servers ensuring automatic switchover should one fail and daily backup procedures.

Quality control
Many of the key components and products supplied by the Group are for industrial use, often in hazardous environments. These components and products must be fit for purpose to ensure that their reliability, performance and safety is of the necessary standard. Failure in this quality will cause damage to the Group's reputation, customer relationships and potential legal consequences.

The Group has quality specialists based in China who regularly visit suppliers' manufacturing sites to ensure that high quality standard operating procedures are being adhered to.

The Group complies with ISO9001 ensuring quality standards are maintained through all its operations.

Continual testing procedures are in place for both components and manufactured products.

Employees involved in assembly processes are qualified with the relevant industry body awards and continue with regular internal and external training.

System and site disruption
There is heavy operational dependence on the resilience of warehousing and IT infrastructure to support business operations and maintain high service levels. The risk is present that unplanned events could disrupt the functioning of key elements of the operational infrastructure damaging customer service and business reputation.

Off-site disaster recovery provision for IT systems including call centre relocation.

Business continuity plans in place at operational locations. These are currently being reviewed with input from external consultants specifically engaged to ensure compliance with up-to-date industry standards.

Breach of regulations
Inadvertent breaches of regulations could lead to prosecution and significant fines. Regulations impacting the Group include COSHH, packaging waste regulations, health and safety at work, Bribery and Corruption Act and corporate governance.

The Group engages external specialists as required to ensure internal procedures and policies are in place to ensure compliance with the regulatory frameworks.

There is an ongoing review of relevant national and international compliance requirements.

Employee retention

There is a risk that the business is not able to attract and retain high performing employees.

The Group also needs to maintain engagement with the employees to ensure they remain supportive of the business strategy.

Attraction and retention of employees is supported by bonus plans, recognition and reward programmes and innovative benefit packages.

Engagement is maintained through programmes such as the Esprit de Corps.

Training forms a key part of all employees' development within their roles. Training is arranged to support the Group's business plans and the personal goals of all employees.

Failure to integrate acquisitions and align strategies to existing business model.

The Group has limited recent experience in the necessary controls and project management skills required to successfully integrate new acquisitions into the Group's commercial and administrative functions.

The Directors believe that the fluid power marketplace is highly fragmented, and the Group's core trading entities operate in well-defined channels. Acquisition opportunities that fit within these channels will be key targets. However, this fragmented nature will often introduce channel overlap that could undermine trading performance in other parts of the Group.

The Board includes both Executive and Non-Executive Directors with considerable acquisition experience. Given that the development of the Group in the fluid power market is likely to include multiple opportunities to acquire trading companies in both the UK and Europe, future appointments will also be made as required to strengthen skills and knowledge in this area. Since the IPO, the Group has also added professionals in both general accounting and mergers and acquisitions to its internal resources in support of this process.

Prior to engaging in any process the Chief Financial Officer will review any acquisition opportunity for conformance with the Board's strategy on channel management. Further detailed assessment with regard to channel conflict will be a key part of the due diligence process which will include consultation with the Group's Operational Board prior to plc Board approval and any commitment to buy.