AIM listed specialist technical fluid power products supplier Flowtech Fluidpower plc (LSE:FLO), has announced this morning the further strengthening of its Process division through acquisition of Orange County Limited.
ACQUISITION OF ORANGE COUNTY
On Friday, 7 July 2017, Flowtech completed the acquisition of the business and assets of OCL, an exclusive UK supplier and distributor of high-quality products for the storage and movement of fuels, liquids and gases.
OCL was founded in 1994 and holds a market leading position in the UK. The business employs in total 18 people at its site in Spennymoor, County Durham. OCL will operate as an independent sister company within the Flowtech Group and will continue to be managed by the current executive management team who have been in place for many years, reporting directly to Flowtech’s CEO, Sean Fennon.
The Acquisition provides a further complementary business to the Group and establishes relationships with world-leading manufacturers of pipes, valves, gauges and leak detection equipment, including Brugg Pipesystems in Germany and Ebsray Pumps in Australia. It is focused on technical sales, provided by experienced sales engineers to a wide range of end users from fuel supply systems for the automotive industry to cooling systems on the London Underground, as well as large Data Centres across the UK.
For the year ended 31 December 2016, OCL achieved sales of GBP4.1 million producing EBIT of GBP1.0 million. Net assets excluding net cash at the same date were GBP0.8 million. As well as some immediate back office savings, the Group expects to deliver synergy opportunities over the medium term by exploiting the OCL offer across the Group’s wider customer base, as well as enhancing internal supply arrangements.
The Acquisition is being funded from Flowtech’s own resources and comprises GBP1.5m on completion with additional payments expected to be cGBP2.1m subject to an earn-out over the 24-month period to 30 June 2019. The maximum consideration payable is GBP9.0m. In addition, the Group will pay a sum of GBP1.7m equivalent to the net cash resources of OCL at the same date. With adjustments to the salary base for the management team post acquisition and current exchange rates reducing margins from previous highs, the Board expects OCL to contribute annual EBIT of cGBP0.6m in the short to medium term.
Sean Fennon, CEO Flowtech Fluidpower plc commented:“OCL is the third acquisition we have made this year and we are delighted to expand our knowledge base, add complementary technical products and skilled engineers to the Group’s already robust customer offering. We take this opportunity to welcome all new colleagues to the Group and see this momentum as an exciting opportunity for everyone. We remain committed to our strategic objective of building a focused Fluid Power Group that serves a wide number of industry sectors.”
GROUP Trading Update
It is very pleasing to report that Group revenue during the first half of the current year increased by 24.7%. Our strong performance is being driven by the continued momentum across all the business divisions and further enhanced by the contribution from new subsidiaries.
Revenue for the period ended 30
June 2017
GBP'000 HY1 HY1 Growth
2017 2016
Flowtechnology 19,326 18,093 + 6.8%
Power Motion
Control (PMC) 12,706 8,268 + 53.7%
Process 2,120 1,026 + 106.6%
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Total Group
revenue for
the period 34,152 27,387 +24.7%
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Net debt 8.3 14.1
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The Flowtechnology division has increased its revenues by 6.8%. As well as the acquisition of Indequip in February 2016, this improvement has been powered by strong organic growth within the core business, set against market conditions that remain generally challenging. The Flowtechnology division has continued to develop its product set and service offering while increasing its market opportunities; this depth of understanding has been the foundation for the growth. Underlying trading is solid and we expect to make further positive progress over the year and beyond.
Power Motion Control division has also increased its revenues by 53.7% which is a mix of strong underlying growth from each business and a contribution from recent acquisitive activity already covered. All the businesses within this unit are highly technical and complementary to each other. Under the PMC banner we deliver a collaborative approach to our customers and this has created increased impetus and opportunity for the Group. The order book is solid and we enter the second half of the year in a good position that indicates that further growth will be achieved.
Growth in the newest division Process reflects a mix of organic and full year effects from the acquisition of Hydravalve in March 2016, and will now be enhanced by the acquisition of Orange County which has been announced today. http://www.rns-pdf.londonstockexchange.com/rns/5220K_1-2017-7-9.pdf
FINANCIALS
The Group’s ongoing focus on GP across all the divisions, linked to our flexible pricing models and specialised procurement programmes has enabled the business to maintain and develop its Gross Margins in line with market expectations; the balance sheet remains strong, with cash generation also in line with our targets set. Net Debt continues to be well within available facilities and covenants providing further scope for the Company to utilise its own resources to fund accretive acquisitions in H2.
ACQUISITONS
At the start of the six-month period, the Group acquired Hydraulics & Transmissions Limited (HTL) (20 January 2017). This business has strengthened our position with key global suppliers and delivers incremental revenue to the Group that previously it could not address. HTL has been successfully integrated into PMC. On the 23 June 2017, we further boosted the PMC offering by adding new technical expertise through the acquisition of Hi-Power Limited, a distributor of hydraulic components and systems design. Although Hi-Power has not contributed to the H1 results, it will as we move forward deliver incremental revenue as well as extending Flowtech’s position with key European suppliers. The Group’s acquisition and control processes which are in place have allowed the integration of both HTL and Hi-Power into the business quickly and with little disturbance to the customer facing trading businesses. Both these businesses are trading strongly.
The successful capital raising at the end of March 2017 has let us more actively pursue acquisitions; under a separate announcement today we have acquired a further complementary business with high level technical engineering skills and established relationships with world-leading manufacturers. http://www.rns-pdf.londonstockexchange.com/rns/5220K_1-2017-7-9.pdf
The acquisition and product pipeline remains strong and continues to develop; we have several more opportunities that will add value and enhance our current brand portfolio and offering and, we are confident that we will conclude a number of these transactions over the coming months.
INVESTMENT FOR THE FUTURE
As part of the ongoing development of the overall business, the Shared Logistics Centre based at Skelmersdale is in the process of redevelopment. This investment initiative which is expected to be completed by the end of September 2017, will increase capacity by over 40%, and will deliver greater operational and stocking efficiencies for use by the entire Group.
SUMMARY
Our focus continues to be growth through both acquisitive and organic means backed up by our four-layered approach to extracting synergistic benefits over the short, medium and long term. This targeted approach ensures we can achieve both a concentration and enhancement to our product set which is the core of our business model. The Board believe that the acquisitions so far this year clearly reinforce the ongoing strategy to develop a focused Fluid Power Group that serves a wide number of industry sectors, allowing a de-risking of some of the cyclic nature of the business.
The Group’s current underlying performance will deliver another year of solid progress. As a business, we are confident in our strategy, commercial opportunities and the prospects of the Group and, the business remains on track to meet current market expectations for the year ending 31 December 2017.
