FLOWTECH FLUIDPOWER PLC — Interim / Quarterly Report 2016

Sep 13, 2016

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RNS Number : 6250J

Flowtech Fluidpower PLC

13 September 2016

Tuesday, 13 September 2016

FLOWTECH FLUIDPOWER PLC

(Flowtech, the Group or Company)

Specialist technical fluid power products supplier

2016 HALF-YEAR REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2016

"Group organic growth and acquisition strategy underpins the platform for future development"

FINANCIAL HIGHLIGHTS	HY2016 30.6.16 UNAUDITED	HY2015 30.6.15 UNAUDITED	FY2015 31.12.15 AUDITED	GROWTH %
·      REVENUE: -Flowtechnology -Power Motion Control (PMC) -Process GROUP TOTAL REVENUE	£18.093m £8.268m £1.026m £27.387m	£17.488m £3.935m - £21.423m	£33.168m £11.680m - £44.848m	+3% +110% - +28%
·      GROSS PROFIT	£9.551m	£7.203m	£15.345m	+33%
·      UNDERLYING OPERATING PROFIT	£4.059m	£3.404m	£6.868m	+19%
·      OPERATING PROFIT	£3.290m	£3.012m	£5.491m	+9%
·      HALF-YEAR DIVIDEND	1.84p	1.75p		+5%
·      EARNINGS PER SHARE (basic)	5.91p	5.62p		+5%
·      NET DEBT	£14.1m	£7.5m	£9.0m

OPERATIONAL HIGHLIGHTS
·      SOLID FIRST HALF PERFORMANCE IN CHALLENGING MARKET CONDITIONS
·      STRONG MOMENTUM WITHIN THE RECENTLY ESTABLISHED PMC AND PROCESS DIVISIONS
·      GROSS MARGINS REMAIN RESILIENT ACROSS ALL DIVISIONS
·      ACQUISITION STRATEGY DELIVERING EXCELLENT OPPORTUNITIES TO ACQUIRE NICHE BUSINESSES WITH SPECIALIST SECTOR FOCUS: - THREE COMPLETED IN 2016 AND SIX SINCE BECOMING A PLC - ALL INTEGRATIONS ON TARGET - CONFIDENT OF FURTHER PROGRESS BEFORE THE END OF THE YEAR
·      EXPANDED CUSTOMER PROFILE INTO NEW END USER MARKETS including: - AGRICULTURE, RAILWAY, ENVIRONMENTAL, WATER, PHARMACEUTICAL
·      STRONG FOCUS ON INVESTING IN GROUP RESOURCES FOR THE FUTURE
·      NET DEBT COMFORTABLY WITHIN AVAILABLE FACILITIES AND COVENANTS

"Flowtech remains confident in its ability to execute its proven strategy to develop in its technically specialised sectors in the UK and internationally.  The Company is recognised as a skilled and resilient business operating in a fragmented fluid power distribution market.  In addition to organic sales growth there remains a number of opportunities to further enhance Flowtech's multi-channel approach through; its investment in people and increased sales resource, the ongoing development of Exclusive Brand and OEM product offering, as well as through earnings enhancing acquisitions."

SEAN FENNON, CEO

FLOWTECH FLUIDPOWER PLC

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.

ENQUIRIES:
Flowtech Fluidpower plc AiM: FLO Malcolm Diamond MBE, Non-Executive Chairman Sean Fennon, Chief Executive Officer Bryce Brooks, Chief Financial Officer Today: 13 September 2016 Tel: +44 (0) 1695 52796 Email: info@flowtechfluidpower.com	Zeus Capital Limited (Nominated Adviser and Broker) Andrew Jones, Dominic King Tel: +44 (0) 207 533 7727	TooleyStreet Communications (IR and media relations) Fiona Tooley Tel: +44 (0) 7785 703523 Email: fiona@tooleystreet.com

EDITORS NOTE:

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. Its catalogues are recognised as the definitive source for fluid power products, containing approximately 106,000 individual product lines and are distributed to more than 85,000 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. This is the newest division in the Group, formed by the acquisition of Hydravalve in March 2016. 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 324 people.

The Group has a clear view of its growth objectives - to create a specialist fluid power organisation that remains focused on its core competencies whilst servicing the varied industrial and manufacturing sectors 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 a very fragmented marketplace.

FLOWTECH FLUIDPOWER PLC

HALF-YEAR FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2016

INTRODUCTION

It is pleasing to report that since joining AiM in 2014 the Group has:

ü Expanded its portfolio through the launch of over 3,000 new lines across existing and new product categories

ü Completed six acquisitions: Primary, Albroco, Nelson, Indequip, Hydravalve and TSL

ü Established three clearly-focussed divisions: Flowtechnology, Power Motion Control and Process; and

ü Developed new strategic sales refinements and data processing resources which will deliver improved operating efficiencies across the organisation in the long term

As a business:

Ø We are in a unique position within the fluid power supply chain, as we are aligned to both the global supply base and its distributor network.  We are in an exciting phase. Our offer continues to develop to the varied industrial and manufacturing customers we supply everyday around the UK and overseas. 

As a Board:

Ø We remain optimistic that our wide range of revenue enhancing development programmes, when linked to our acquisition strategy based on a clear multi-channel approach, will continue to create significant opportunity for further growth and increased market penetration. By developing our offer, we ensure that the Group maintains its competitive advantage in each of the markets in which it trades.

2016 HALF-YEAR FINANCIAL PERFORMANCE

We are pleased to report an encouraging first half trading performance, all achieved against a backdrop where the economic conditions have been challenging in most industrial markets across the key territories of the UK and mainland Europe.  Whilst accomplished primarily on the back of acquisition activity, overall turnover growth year on year of 28% has continued to raise our profile across new channels, assisting the business in adding market share and reinforcing our position as one of the leading players in the fluid power sector.

Although not defined under IFRS, the Directors believe that the underlying operating results give a better understanding of the business' performance.  The table below details this is in summary and further information is contained in note 3 of this Report.

Continuing operations Underlying operating result*	Six months ended 30 June  2016 £000	Six months ended 30 June 2015 £000	% Change	Year ended 31 December 2015 £000
Flowtechnology Power Motion Control Process Central costs	4,164 930 150 (1,185)	4,086 284 - (966)	2% 227% - 23%	7,571 1,228 - (1,931)
Underlying operating result*	4,059	3,404	19%	6,868

* Underlying operating result is continuing operations' operating profit before acquisition costs, amortisation of acquired intangibles, share-based payment costs and restructuring costs.  Underlying operating result is reconciled to statutory profit before tax in note 3 to the HY Report.

At divisional level, Flowtechnology UK was able to replace business lost mainly in larger accounts with exposure to more difficult sectors, such as the oil and gas industry.  In addition, the acquisition of the trade and assets of Indequip has added to our product portfolio, and allowed a more direct market approach with significant sections of the potential customer base.  There remain many opportunities to develop our offer and the Group has continued to invest in sales and marketing functions to exploit these.  In the Benelux, sales grew by 11.3% (5.3% in constant currency) which has again lifted bottom line contribution proportionately.

In the Power Motion Control division, revenue in the first half grew by 110% to £8.3m, with the majority coming from the year on year effects of the acquisitions of Nelson and Albroco. However, Primary also continued to expand its sales profile after the erosion of its oil and gas related business in early 2015.  The Process division, established in the first half of the 2016 has started well and contributed £1.0m to revenue.

Gross profit margins across all divisions remained consistent and strong with no erosion experienced.

Our cost profiles in people, property and administration remain on target.  Central costs have increased year on year by £0.219m which includes bonuses of £0.113m paid to the executive directors to reflect the increased scale and complexity of the Group achieved since 2014. Overall the Group continues to ensure that its central resources are able to support an expanding operational profile as necessary whilst obtaining appropriate "economies of scale", and it is firmly believed that the current resources available can support considerable further growth in the Group's activities.

The Group is therefore able to report an underlying operating profit of £4.059m (2015: £3.404m), an increase of 19% year on year. 

Restructuring costs of £0.118m (2015: £0.010m) relate exclusively to the cost of integration of new acquisitions into the Group and include redundant short term property lease costs and redundancy of back office services. 

The Group outsources all professional services required to cover due diligence and administrative integration, including IT, of new acquisitions into the group and with three completed in the year to the date of this report these costs have therefore increased to £0.238m (2015: £0.050m).

OUR BUSINESS STRATEGY FOR GROWTH

Our Group's core philosophy is unchanged - ie. to deliver profitable growth while maintaining consistent high levels of service to our diverse customer base.  We have a solid technically based and resilient business model which is underpinned by its ability to deliver strong cash generation and profitable returns for all stakeholders.

During the last six months, we have added three successful businesses to the Group further enhancing our exposure to specialist hydraulics, pneumatics and the process industrial sectors: -

DATE	BRAND	FINANCIALS ON ACQUISITION	TOTAL CONSIDERATION (net of cash in balance sheet)
FEBRUARY 2016	Indequip	Revenue: £2.6m PBT: £0.1m Net assets: £0.5m	£0.9m
MARCH 2016	Hydravalve	Revenue: £4.0m PBT: £0.6m Net assets: £1.2m	£3.8m of which £1.7m is contingent on financial performance in the two-year period to March 2018
JULY 2016	TSL Fluidpower*	Revenue: £1.2m PBT: £0.15m Net assets: £0.5m	£0.90m which £0.4m is contingent on financial performance in the two-year period to July 2018

*the trading style of Triplesix Ltd

There remains significant opportunity to add more niche acquisitions and enhance organic growth through a mix of product development, value add services and new customer opportunities. 

FINANCIAL POSITION INCLUDING CASH FLOW AND BANK DEBT

Net operating cash flows (note 9) were £0.188m (2015: £1.659m), a reduction of £1.471m.  However, the majority of this variance relates to the expected build-up of working capital in Indequip following the purchase of the trade in February 2016, as well as the seasonal nature of working capital movements in the Nelson operation, which was not included in the comparative due to the acquisition date being after June 2015. The balance of the variance represents the heavier bias in stock investment year on year as previously reported. This was carried out to take advantage primarily of better pricing opportunities in the Far East.   This also has the added advantage of providing some cushion against recent currency movements following the Brexit vote in June 2016.

Net borrowings at 30 June 2016 were £14.1m. The extended bank facilities agreed with Barclays and first reported last year have supported the Group's acquisition activity and current headroom and covenants remain comfortable. Overall the Board expects strong cash generation in the second half of 2016. Cash collections remain good across all sectors.

OUR PEOPLE

Delivering our goals and objectives we now have over 324 technically-skilled staff employed across four countries and in nine locations.  In order to continue our development, we need good people with determination, drive and technical know-how.  We take this opportunity to welcome all new colleagues who joined us during the first half of the year.  The Board thanks everyone around the business for their continuous hard work, dedication and loyalty, which underpins both the high level customer relationships and the Group's overall performance.

At Operating Board level, we congratulate John Farmer in his promotion to Managing Director of Flowtechnology UK, and, we welcome both Hydravalve's Managing Director, Andrew Newham and TSL's Managing Director, Steve Rushworth.  In March, we also welcomed Nick Fossey, joining the group from Eaton Corporation, in his key role leading the future development of the PMC division across the UK and Europe, where the opportunities for us to grow are extensive. 

OUTLOOK

The Flowtech Group is developing both strength and depth across its product portfolio, customer reach and, following recent acquisitions, it has been able to widen the geographical areas and the industrial fluid power markets it serves.  It continues to develop a theme based on being a "specialist" rather than a "generalist" and the margin opportunities this allows.

Low global confidence and economic uncertainty is influencing many industrial sectors, particularly in the UK. We do believe this hiatus to be short term, and remain confident for the future. As we previously indicated, the Group operates in a "live" pricing environment and it is increasingly certain that input prices for many core product lines will increase in HY2 and early 2017 on the back of the sterling downgrade. The Board is confident that we will be able to maintain overall margins by a mixture of selling price increases and supplier support.  The fluid power sector as a whole has come to expect a heavy bias towards US Dollar and Euro denominated supply lines and the macro economic situation is well understood by the sector's decision makers.

Trading is in line with management expectations despite some disruption over the immediate post Brexit vote period.  Overall, we remain positive that we can deliver results in line with market consensus forecasts and are confident about the future.  Our acquisition pipeline remains dynamic and the Group is now established as a very credible option for investors and owner managers across the sector who wish to exit their position.

DIVIDEND

As shareholders are aware, the Board is focused on capital growth and increasing ROCE.  We are also committed to a progressive dividend policy based on the Group's operational performance as a whole whilst balancing our investments in the business for the future. 

The Board is therefore pleased to declare a half-year dividend of 1.84p (2015: 1.75p), a 5% increase.  This interim dividend will be paid on 25 October 2016 to Members on the Register at the close of business on 30 September 2016.  The shares will become ex-dividend on 29 September 2016.  The dividend is covered 3.4 times by earnings.

We look forward to keeping investors updated on our progress over the coming months.

By order of the Board

12 September 2016

CONSOLIDATED INCOME STATEMENT

FOR THE SIX MONTHS ENDED 30 JUNE 2016

Notes

Unaudited

Six months ended 30 June

2016

£000

Unaudited

Six months ended

30 June

2015

£000

Audited

Year ended

31 December

2015

£000

Continuing operations

Revenue

Cost of sales

3

27,387

(17,836)

21,423

(14,220)

44,848

(29,503)

Gross profit

Distribution expenses

9,551

(1,318)

7,203

(1,065)

15,345

(2,245)

Administrative expenses before separately disclosed items:

-Acquisition costs

-Amortisation of acquired intangibles

-Share based payment costs

-Restructuring costs

3

3

3

3

(4,174)

(238)

(264)

(149)

(118)

(2,734)

(50)

(160)

(172)

(10)

(6,232)

(299)

(413)

(342)

(323)

Total administrative expenses

(4,943)

(3,126)

(7,609)

Operating profit

3

3,290

3,012

5,491

Financial income

Financial expenses

-

(223)

33

(96)

22

(233)

Net financing costs

(223)

(63)

(211)

Profit from continuing operations before tax

Taxation

3

4

3,067

(521)

2,949

(542)

5,280

(1,057)

Profit from continuing operations

2,546

2,407

4,223

Loss from discontinued operations, net of tax

-

(73)

(131)

Profit for the period attributable to the owners of the parent

2,546

2,334

4,092

Earnings per share

Basic earnings/(loss) per share

Continuing operations

Discontinued operations

5.91p

-

5.62p

(0.17p)

9.85p

(0.31p)

Basic earnings per share

6

5.91p

5.45p

9.54p

Diluted earnings/(loss) per share

Continuing operations

Discontinued operations

5.86p

-

5.45p

(0.17p)

9.73p

(0.30p)

Diluted earnings per share

6

5.86p

5.38p

9.43p

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED 30 JUNE 2016
	Unaudited Six months ended 30 June 2016 £000	Unaudited Six months ended 30 June 2015 £000	Audited Year ended 31 December 2015 £000
Profit for the period	2,546	2,334	4,092
Other comprehensive income/ (expense) -  items that will be reclassified subsequently to profit or loss Exchange differences on translating foreign operations	302	(95)	85
Total comprehensive income in the period attributable to the owners of the parent	2,848	2,239	4,177

CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2016
		Unaudited  30 June 2016 £000	Unaudited 30 June 2015 £000	Audited 31 December 2015 £000
Assets Non-current assets Goodwill Other intangible assets Property, plant and equipment		48,312 4,889 3,702	44,962 3,342 3,014	46,412 4,179 3,265
Total non-current assets		56,903	51,318	53,856
Current assets Inventories Trade and other receivables Prepayments Other financial assets Cash and cash equivalents		16,752 14,718 725 32 1,711	10,466 11,601 224 31 784	13,254 10,367 316 32 1,841
Total current assets		33,938	23,106	25,810
Liabilities Current liabilities Interest-bearing loans and borrowings Trade and other payables Deferred and contingent consideration Tax payable Provisions Other financial liabilities		10,905 9,313 1,068 937 50 16	2,957 5,151 2,277 904 63 -	5,986 6,625 1,250 758 86 15
Total current liabilities		22,289	11,352	14,720
Net current assets		11,649	11,754	11,090
Non-current liabilities Deferred and contingent consideration Interest-bearing loans and borrowings Provisions Deferred tax liabilities		2,789 4,950 130 1,042	85 5,286 121 702	898 4,874 130 901
Total non-current liabilities		8,911	6,194	6,803
Net assets		59,641	56,878	58,143
Equity directly attributable to owners of the parent Share capital Share premium Share-based payment reserve Merger reserve Shares owned by the EBT Merger relief reserve Currency translation reserve Retained losses		21,539 46,880 529 293 (338) 2,086 209 (11,557)	21,414 46,664 307 293 - 2,086 (273) (13,613)	21,539 46,880 380 293 (338) 2,086 (93) (12,604)
Total equity		59,641	56,878	58,143

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 30 JUNE 2016
	Share capital £000	Share premium £000	Share-based payment reserve £000	Merger reserve £000	Merger relief reserve £000	Currency translation reserve £000	Shares owned by EBT £000	Retained losses £000	Total equity £000
Six months ended 30 June 2015 - unaudited
Balance at 1 January 2015 Profit for the period Other comprehensive expense	21,414 - -	46,664 - -	148 - -	293 - -	2,086 - -	(178) - (95)	- - -	(14,521) 2,334 -	55,906 2,334 (95)
Total comprehensive income for the period	-	-	-	-	-	(95)	-	2,334	2,239
Transaction with owners Share-based payment charge Equity dividends paid (note 5)	- -	- -	159 -	- -	- -	- -	- -	- (1,426)	159 (1,426)
Total transactions with owners	-	-	159	-	-	-	-	(1,426)	(1,267)
Balance at 30 June 2015	21,414	46,664	307	293	2,086	(273)	-	(13,613)	56,878
Year ended 31 December 2015 - audited
Balance at 1 January 2015 Profit for the year Other comprehensive expense	21,414 -	46,664 - -	148 - -	293 - -	2,086 - -	(178) - 85	- - -	(14,521) 4,092 -	55,906 4,092 85
Total comprehensive income for the year	-	-	-	-	-	85	-	4,092	4,177
Transaction with owners Issue of share capital Shares owned by the EBT Share-based payment charge Share options settled Equity dividends paid (note 5)	125 - - - -	216 - - - -	- - 342 (110) -	- - - - -	- - - - -	- - - - -	- (338) - - -	- - - - (2,175)	341 (338) 342 (110) (2,175)
Total transactions with owners	125	216	232	-	-	-	(338)	(2,175)	(1,940)
Balance at 31 December 2015	21,539	46,880	380	293	2,086	(93)	(338)	(12,604)	58,143
Six months ended 30 June 2016 - unaudited
Balance at 1 January 2016 Profit for the period Other comprehensive income	21,539 - -	46,880 - -	380 - -	293 - -	2,086 - -	(93) - 302	(338) - -	(12,604) 2,546 -	58,143 2,546 302
Total comprehensive income for the period	-	-	-	-	-	302	-	2,546	2,848
Transaction with owners Share-based payment charge Equity dividends paid (note 5)	- -	- -	149 -	- -	- -	- -	- -	- (1,499)	149 (1,499)
Total transactions with owners	-	-	149	-	-	-	-	(1,499)	(1,350)
Balance at 30 June 2016	21,539	46,880	529	293	2,086	209	(338)	(11,557)	59,641

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED 30 JUNE 2016
	Note	Unaudited Six months ended 30 June 2016 £000	Unaudited  Six months ended 30 June 2015 £000	Audited  Year ended 31 December 2015 £000
Cash flow from operating activities
Net cash from operating activities	9	188	1,659	5,943
Cash flow from investing activities Acquisition of subsidiary, net of cash acquired Acquisition of property, plant and equipment Proceeds from sale of property, plant and equipment Payment of deferred consideration		(3,309) (353) 22 -	(477) (351) 7 -	(3,063) (750) 7 (1,603)
Net cash used in investing activities		(3,640)	(821)	(5,409)
Cash flows from financing activities Proceeds from new loan Repayment of long term borrowings Net change in short term borrowings Repayment of finance lease liabilities Cash settled share options Purchase of own shares Interest received Interest paid Dividends paid		- - 5,000 (18) - - - (110) (1,499)	- (430) (269) (11) (12) - - (99) (1,426)	6,523 (2,357) (2,096) (32) (105) (338) 14 (244) (2,175)
Net cash generated from/ (used in) financing activities		3,373	(2,247)	(810)
Net change in cash and cash equivalents		(79)	(1,409)	(276)
Cash and cash equivalents at start of period Exchange differences on cash and cash equivalents		1,725 54	1,979 (50)	1,979 22
Cash and cash equivalents at end of period		1,700	520	1,725

Cash and cash equivalents		1,711	784	1,841
Bank overdraft		(11)	(264)	(116)
Cash and cash equivalents at end of period		1,700	520	1,725

NOTES TO THE HALF-YEAR REPORT FOR THE SIX MONTHS ENDED 30 JUNE 2016
1.	General information
The principal activity of Flowtech Fluidpower plc (the "Company") and its subsidiaries (together, the "Group") is the distribution of engineering components, concentrating on the fluid power industry. The Company is incorporated and domiciled in the UK. The address of its registered office is Pimbo Road, Skelmersdale, Lancashire WN8 9RB. The registered number is 09010518. As permitted, this Interim Report has been prepared in accordance with the AIM rules and not in accordance with IAS 34 "Interim Financial Reporting". The consolidated financial statements are prepared under the historical cost convention, as modified by the revaluation of certain financial instruments. This consolidated Interim Report and the financial information for the six months ended 30 June 2016 does not constitute full statutory accounts within the meaning of section 434 of the Companies Act 2006 and are unaudited. This unaudited Interim Report was approved by the Board of Directors on 12 September 2016. The Group's financial statements for the year ended 31 December 2015 have been filed with the Registrar of Companies.  The Group's auditor's report on these financial statements was unqualified and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006. ELECTRONIC COMMUNICATIONS The Company is not proposing to bulk print and distribute hard copies of this Interim Report for the six months ended 30 June 2016 unless specifically requested by individual shareholders. The Board believes that by utilising electronic communication it delivers savings to the Company in terms of administration, printing and postage, and environmental benefits through reduced consumption of paper and inks, as well as speeding up the provision of information to shareholders. News updates, Regulatory News, and Financial statements, can be viewed and downloaded from the Group's website, www.flowtechfluidpower.com.  Copies can also be requested from; The Company Secretary, Flowtech Fluidpower plc, Pimbo Road, Skelmersdale, Lancashire, WN8 9RB. email: info@flowtechfluidpower.com

2	aCCOUNTING POLICIES
Basis of preparation The financial information set out in this consolidated Interim Report has been prepared under International Financial Reporting Standards (IFRS) as adopted by the European Union and in accordance with the accounting policies which will be adopted in presenting the Group's Annual Report and Financial Statements for the year ended 31 December 2016. These are consistent with the accounting policies used in the Financial Statements for the year ended 31 December 2015, except for taxes; taxes on income in the interim periods are accrued using the rate of tax that would be applicable to expected total annual earnings. GOING CONCERN The Group meets it day-to-day working capital requirements through its bank facilities. The Directors have carefully considered the banking facilities and their future covenant compliance in light of the current and future cash flow forecasts and they believe that the Group is appropriately positioned to ensure the conditions of its funding will continue to be met and therefore enable the Group to continue in operational existence for the foreseeable future by meeting its liabilities as they fall due for payment.

3.	OPERATING SEGMENTS
The Group comprises of the following three operating segments which are defined by geographic area and trading activity: ·    Flowtechnology Division distribution and assembly of engineering components, principally to distributors and end users, split geographically between the UK and Europe ·    Power Motion Control Division distribution and assembly of engineering components and hydraulic systems to distributors and end users in the international market - based in the UK and Republic of Ireland ·    Process Division the distribution of industrial components to the process sectors - based in the West Midlands The Board is considered to be the chief operating decision maker (CODM).  The CODM manages the business using an underlying profit figure.  Only finance income and costs secured on the assets of the operating segment are included in the segment results.  Finance income and costs relating to loans held by the Company are not included in the segment result that is assessed by the CODM.  Transfer prices between operating segments are on an arm's length basis. The Directors believe that the underlying operating profit provides additional useful information on underlying trends to Shareholders.  The term "underlying" is not a defined term under IFRS and may not be comparable with similarly titled profit measurements reported by other companies.  A reconciliation of the underlying operating result to operating profit / (loss) from continuing operations is shown below.  The principal adjustments made are in respect of the separately disclosed items are as detailed at the end of this note.  Segment information for the reporting periods is as follows:

	Flowtechnology		Power Motion Control	Process	Inter-segmental transactions	Central  Costs	Total Continuing Operations
	UK £000	Europe £000	£000	£000	£000	£000	£000
Six months ended 30 June 2016
Income statement - continuing operations:
Revenue from external customers	16,011	2,082	8,268	1,026	-	-	27,387
Inter segment revenue	782	77	327	24	(1,210)	-	-
Total revenue	16,793	2,159	8,595	1,050	(1,210)	-	27,387
Underlying operating result	3,941	223	930	150	-	(1,185)	4,059
Net financing costs	(92)	-	(1)	5	-	(135)	(223)
Underlying segment result	3,849	223	929	155	-	(1,320)	3,836
Separately disclosed items	(127)	(11)	(27)	(37)	-	(567)	(769)
Profit/(loss) before tax	3,722	212	902	118	-	(1,887)	3,067
Specific disclosure items Depreciation Amortisation	181 6	14 -	55 236	8 22	- -	- -	258 264
Reconciliation of underlying operating result to operating profit: Underlying operating result Separately disclosed items	3,941 (127)	223 (11)	930 (27)	150 (37)	- -	(1,185) (568)	4,059 (769)
Operating profit/(loss)	3,814	212	903	113	-	(1,753)	3,290

	Flowtechnology		Power Motion Control	Process	Inter-segmental transactions	Central  Costs	Total Continuing Operations
	UK £000	Europe £000	£000	£000	£000	£000	£000
Six months ended 30 June 2015
Income statement - continuing operations:
Revenue from external customers	15,617	1,871	3,935	-	-	-	21,423
Inter segment revenue	430	42	138	-	(610)	-	-
Total revenue	16,047	1,913	4,073	-	(610)	-	21,423
Underlying operating result	3,916	170	284	-	-	(966)	3,404
Net financing costs	4	-	-	-	-	(67)	(63)
Underlying segment result	3,920	170	284	-	-	(1,033)	3,341
Separately disclosed items	(47)	(12)	(172)	-	-	(161)	(392)
Profit/(loss) before tax	3,873	158	112	-	-	(1,194)	2,949
Specific disclosure items Depreciation Amortisation	(184) -	(13) -	(39) (160)	- -	- -	- -	(236) (160)
Reconciliation of underlying operating result to operating profit: Underlying operating result Separately disclosed items	3,916 (47)	170 (12)	284 (172)	- -	- -	(966) (161)	3,404 (392)
Operating profit/(loss)	3,869	158	112	-	-	(1,127)	3,012
	Flowtechnology		Power Motion Control	Process	Inter-segmental transactions	Central  Costs	Total Continuing Operations
	UK £000	Europe £000	£000	£000	£000	£000	£000
Year ended 31 December 2015
Income statement - continuing operations:
Revenue from external customers	29,439	3,729	11,680	-	-	-	44,848
Inter segment revenue	860	99	231	-	(1,190)	-	-
Total revenue	30,299	3,828	11,911	-	(1,190)	-	44,848
Underlying operating result	7,169	402	1,228	-	-	(1,931)	6,868
Net financing costs	(65)	-	3	-	-	(149)	(211)
Underlying segment result	7,104	402	1,231	-	-	(2,080)	6,657
Separately disclosed items	(144)	(22)	(505)	-	-	(706)	(1,377)
Profit/(loss) before tax	6,960	380	726	-	-	(2,786)	5,280
Specific disclosure items Depreciation Amortisation	389 -	23 -	93 413	- -	- -	- -	505 413
Reconciliation of underlying operating result to operating profit: Underlying operating result Separately disclosed items	7,169 (144)	402 (22)	1,228 (505)	- -	- -	(1,931) (706)	6,868 (1,377)
Operating profit/(loss)	7,025	380	723	-	-	(2,637)	5,491

SEPARATELY DISCLOSED ITEMS
·      Acquisition costs relate to stamp duty, due diligence, legal fees, bank fees and other professional costs incurred in the acquisition of businesses ·      Share-based payment costs relate to the provision made in accordance with IFRS 2 "Share-based payment" following the issue of share options to employees ·      Restructuring costs relate to restructuring activities of an operational nature and covers the closure of business units, employee redundancies within these units, continuing property costs post closure and other onerous lease obligations
	Six months ended 30 June 2016 £000	Six months ended 30 June 2015 £000	Year ended 31 December 2015 £000
Separately disclosed items within administration expenses: -Acquisition costs -Amortisation of acquired intangibles -Share based payment costs -Restructuring	238 264 149 118	50 160 172 10	299 413 342 323
Total separately disclosed items	769	392	1,377

4.	TAXATION
		Six months ended 30 June 2016 £000	Six months ended 30 June 2015 £000	Year ended 31 December 2015 £000
Current tax on income for the period - continuing operations: UK tax Foreign tax Deferred tax credit Adjustments in respect of prior years		620 - (45) (54)	618 - (76) -	1,231 3 (101) (76)
Total taxation		521	542	1,057
The taxation for the period has been calculated by applying the estimated tax rate for the financial year ending 31 December 2016. Deferred tax liabilities have also been adjusted to £1,042,000 to reflect capital allowances in excess of depreciation and other short term timing differences.

5.	DIVIDENDS
		Six months ended 30 June 2016 £000	Six months ended 30 June 2015 £000	Year ended 31 December 2015 £000
Final dividend of 3.50p (2015: 3.33p) per share		1,499	1,426	1,426
Interim dividend of 1.75p per share		-	-	749
		1,499	1,426	2,175
In addition, the Directors are proposing a half-year dividend in respect of the financial year ended 31 December 2016 of 1.84p per share which will absorb an estimated £0.8 million of shareholders' funds.  It will be paid on the 25 October 2016 to Shareholders who are on the Register of Members on 30 September 2016.

6.    EARNINGS PER SHARE
Basic earnings/(loss) per share is calculated by dividing the earnings/(loss) attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.  For diluted earnings/ (loss) per share the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The dilutive shares are those share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the period.
	Six months ended 30 June 2016			Six months ended 30 June 2015			Year ended 31 December 2015
	Earnings £000	Weighted average number of shares 000's	Earnings per share Pence	Earnings £000	Weighted average number of shares 000's	Earnings per share Pence	Earnings £000	Weighted average number of shares 000's	Earnings per share Pence
Basic earnings/(loss) per share Continuing operations Discontinued operations	2,546 -	43,078 43,078	5.91 0.00	2,407 (73)	42,828 42,828	5.62 (0.17)	4,223 (131)	42,869 42,869	9.85 (0.31)
Basic earnings per share	2,546	43,078	5.91	2,334	42,828	5.45	4,092	42,869	9.54
Diluted earnings/(loss) per share Continuing operations Discontinued operations	2,546 -	43,472 43,472	5.86 0.00	2,407 (73)	43,413 43,413	5.54 (0.17)	4,223 (131)	43,387 43,387	9.73 (0.30)
Diluted earnings per share	2,546	43,472	5.86	2,334	43,413	5.38	4,092	43,387	9.43

	Six months ended 30 June 2016 £000	Six months ended 30 June 2015 £000	Year ended 31 December 2015 £000
Weighted average number of ordinary shares for basic and diluted earnings per share Impact of share options	43,078 394	42,828 585	42,869 518
Weighted average number of ordinary shares for diluted earnings per share	43,472	43,413	43,387

7.	ACQUISITIONS
7.1     INDEQUIP
On 19 February 2016, the Group acquired 100% of the trade and certain assets of Indequip, a UK-based business.  The acquisition was made to enhance the Group's position in the pneumatic market and bring new customers to the Group. The total consideration was £893,000 and was paid in cash. GOODWILL Goodwill of £345,000 is primarily related to expected future profitability and expected cost synergies. Goodwill has been allocated to the Flowtechnology operating segment and is not expected to be deductible for tax purposes. INTANGIBLE ASSET An intangible asset of £96,000 has been provisionally identified related to the brand identity of Indequip. The estimated useful life has been determined as five years based on the expected future cash flows that it would generate in arriving at their fair value. The components of the brand considered in the valuation comprised the website, catalogue and awareness of brand in the industry. Sales growth over the five-year period has been assumed to be 1% with an attrition rate of 3% for customers. Growth and attrition rates are based on management experience and expectations. Amortisation of the brand is not expected to be deductible for tax purposes. Details of the provisional fair value of identifiable assets and liabilities acquired, purchase consideration, goodwill and intangible assets are as follows:
		Book value £000	Fair value adjustment £000	Intangible asset recognised on acquisition £000	Provisional fair value £000
Property, plant and equipment		68	-	-	68
Intangible assets		-	-	96	96
Inventories		392	-	-	392
Trade and other receivables		11	-	-	11
Deferred tax liability		-	-	(19)	(19)
Total net assets		471	-	77	548
					£000
Fair value of consideration paid
Amount settled in cash					893
Total consideration					893
Less net assets acquired					(548)
Goodwill on acquisition					345

7.2    HYDRAVALVE
On 18 March 2016, the Group acquired 100% of the share capital of Hydravalve Limited, a UK-based business, thereby obtaining control.  The acquisition was made to establish the Group's position in the process market.  The total consideration was £3,814,000.  This comprised £2,105,000 in cash and £1,709,000 contingent cash consideration. The additional consideration is based on profit targets for the Company's customer base and is payable on the first and second anniversaries of the acquisition.  The fair value of £1,709,000 has been calculated using management forecasts of Hydravalve's Limited's performance discounted at the weighted average cost of capital. GOODWILL Goodwill of £1,551,000 is primarily related to expected future profitability and expected cost synergies. Goodwill has been allocated to the Process operating segment and is not expected to be deductible for tax purposes. INTANGIBLE ASSET An intangible asset of £879,000 has been provisionally identified related to customer relationships. The estimated useful life has been determined as ten years based on the expected future cash flows that they would generate in arriving at their fair value. The customer relationships considered in the valuation comprise the sales to significant customers.  Long term sales growth over the ten-year period has been assumed to be 1.0% with an attrition rate of 7.5% for customers. Growth and attrition rates are based on management experience and expectations. Amortisation of customer relationships is not expected to be deductible for tax purposes. Details of the provisional fair value of identifiable assets and liabilities acquired, purchase consideration, goodwill and intangible assets are as follows:
	Book value £000	Fair value adjustment £000	Intangible asset recognised on acquisition £000	Provisional fair value £000
Property, plant and equipment	228	-	-	228
Intangible assets	-	-	879	879
Inventories	1,635	-	-	1,635
Trade and other receivables	942	-	-	942
Cash and cash equivalents	(312)	-	-	(312)
Trade and other payables	(605)	-	-	(605)
Finance leases	(71)			(71)
Current tax balances	(216)	-	-	(216)
Deferred tax liability	(41)	-	(176)	(217)
Total net assets	1,560	-	703	2,263
				£000
Fair value of consideration paid
Amount settled in cash				2,105
Fair value of contingent consideration				1,709
Total consideration				3,814
Less net assets acquired				(2,263)
Goodwill on acquisition				1,551

8.   SUBSEQUENT EVENTS
Triplesix Limited ("TSL") was acquired on 29 July 2016 for a total consideration of £1.1m comprising £0.45m in cash and £0.65m contingent cash consideration.  This is a provisional figure subject to the finalisation of the completion accounts.  Contingent consideration is based on the profitability of the company post acquisition. The acquisition was made to enhance the Group's position in the hydraulic cylinder market.  Included within the net assets of TSL was £0.4m of cash retained within the business on acquisition.  The cash consideration was funded out of existing cash resources. The Group will disclose the book value of the identifiable assets and liabilities and their fair values in the 2016 full year financial statements as required under IFRS 3 "Business Combinations".  The initial accounting and fair value exercise is incomplete at the time of this announcement due to the proximity of the accounting date.

9.	NET CASH FROM OPERATING ACTIVITIES
		Six months ended 30 June 2016 £000	Six months ended 30 June 2015 £000	Year ended 31 December 2015 £000
Reconciliation of profit before taxation to net cash flows from operations: Profit from continuing operations before tax Loss from discontinued operations before tax Depreciation Financial income Financial expense Profit on sale of plant and equipment Amortisation Equity settled share-based payment charge		3,067 - 258 - 223 (8) 264 149	2,949 (73) 236 (33) 96 - 160 172	5,280 (131) 505 (22) 232 (7) 413 342
Operating cash inflow before changes in working capital and provisions Change in trade and other receivables Change in stocks Change in trade and other payables Change in provisions		3,953 (3,696) (1,299) 1,915 (36)	3,507 (1,720) 1,068 (499) (48)	6,612 1,628 (688) (136) (60)
Cash generated from operations Tax paid		837 (649)	2,308 (649)	7,356 (1,413)
Net cash generated from operating activities		188	1,659	5,943

10.    TOTAL VOTING RIGHTS
For the purposes of the Disclosure and Transparency Rules, the Company's total issued share capital at the date of this announcement is 43,078,282 ordinary shares of £0.50 each.  The total number of voting rights in the Company is therefore 43,078,282.  There are no ordinary shares held in Treasury.  This figure may be used by shareholders as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in, the Company, under the FCA's Disclosure and Transparency Rules.

PRINCIPAL RISKS AND UNCERTAINTIES
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.  The Directors set out in the 2015 Annual Report and Financial Statements the principal risks identified during this exercise, including quality control, systems and site disruption and employee retention.  The Board does not consider that these risks have changed materially in the last six months.
FORWARD-LOOKING STATEMENTS This document contains certain forward-looking statements which reflect the knowledge and information available to the Company during the preparation and up to the publication of this document.  By their very nature, these statements depend upon circumstances and relate to events that may occur in the future thereby involving a degree of uncertainty.  Although the Group believes that the expectations reflected in these statements are reasonable, it can give no assurance that these expectations will prove to have been correct. Given that these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. The Group undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

This information is provided by RNS

The company news service from the London Stock Exchange

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