Flowtech Fluid. Regulatory News (FLO)

The information contained within this announcement is deemed by the Company to constitute inside information stipulated under the Market Abuse Regulation (EU) No. 596/2014. Upon the publication of this announcement via the Regulatory Information Service, this inside information is now considered to be in the public domain.

FLOWTECH FLUIDPOWER PLC

("Flowtech Fluidpower", the "Group" or "Company")

2019 Trading Update

and details of restructuring activities

London: Thursday, 13 February 2020: AIM listed specialist technical fluid power products supplier Flowtech Fluidpower (LSE: symbol FLO), is pleased to announce the following unaudited update on its performance for the year ended 31 December 2019 and to the period up to this announcement:

2019 TRADING UPDATE

2019 was undoubtedly a disappointing year, with volumes inflated as customers built up stock ahead of a Brexit hiatus that never occurred. As the year progressed, we saw a significant slowdown in some of our key end markets, most particularly cyclical services associated to our OEM business, which culminated in the profit downgrade of 14 January 2020.

This trend is reflected in industry data from the British Fluid Power Association, with the latest report showing a decline in distribution revenue of 8% in December and in excess of 14% in November for manufacturers within the sector. Our Q4 revenue was consistent with this.

For 2019 we expect to report Group revenue of £112.5m and underlying profit before tax* of £9.0m, consistent with the announcement made on 14 January 2020. After accounting for the Balu acquisition in March 2018, the organic revenue decline was 1.9%.

RESTRUCTURING ACTIVITITIES

Against this more challenging backdrop we have been taking decisive action to reduce our cost base. This comes after an extensive programme of investment in our centralised delivery platform, to integrate fully the most recent acquisitions and prepare for future growth.

In the last few weeks a major restructuring programme was announced, as we transition warehousing and picking operations to materially more efficient centres. Overall in the UK we will be closing four warehousing facilities with the loss of 32 staff.

The annualised savings attached to this are estimated at £1.4m, with a £0.8m impact in 2020. Combined with an additional c.£0.2m saving from the closure of three of our smaller sites in late 2019, this produces aggregate annualised savings of £1.6m. The cash cost of this restructuring is estimated at £1.8m (of which £0.5m was incurred in 2019), with £0.9m relating to capital investment in IT upgrades and additional Kardex racking systems.

Importantly, we believe there is further scope for significant cost savings, particularly in warehousing, our procurement activity (where we expect to take the number of suppliers down from over 1,000 to around 500), and the centralising of certain back office functions.

BALANCE SHEET

2019 was a year in which great emphasis was placed on working capital and net debt management. Despite the disappointing trading outcome, net debt reduced by £3.3m, after paying c.£2.6m in earn out considerations relating to historic acquisition activity.

A combination of strong operational cash flow, the absence of any further payments of deferred consideration, and the continued focus on working capital, should see our net debt reduce again in 2020 and 2021.

OUTLOOK

The actions we are taking to reduce costs, and the investments we have made in our central platform will continue to strengthen and streamline the operating efficiency of the Company. At this stage, we expect revenue for the full year 2020 to be down by low single digit percentage points, with a weak first half largely offset by a return to growth in the second, leaving underlying profit at a similar level to 2019. A return to revenue growth in 2021, coupled with further planned cost savings, should deliver significant leverage to both margins and profit.

DIVIDEND

Finally, given the continued strong cash generation and good progress on both working capital and net debt reduction, we are leaving our dividend policy unchanged. The Board is therefore intending to propose a final dividend which will once again deliver 5% growth over the prior year.

NOTICE OF RESULTS

The Company will update shareholders further at the time of the 2019 preliminary results announcement, scheduled to be released in mid-April 2020.