Flowtech Fluidpower (LSE:FLO) — Half Year Results

0:01 Good morning, ladies and gentlemen, and welcome to the FLOWTECH FLUIDPOWER PLC Half Year Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time via the Q and A tab It's just situated on the right hand corner of your screen. Please just simply type in your questions at any time and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, all questions submitted today will be reviewed The response is published on the

0:31 Investor Meet company platform where it is appropriate to do so. Before we begin, I would like to submit the following poll. And as usual, if you could give that your kind attention, I'm sure the company would be most grateful. And I'd now like to hand you over to CEO, Bryce Brooks. Good morning, sir. Yeah. Good morning. Thank you very much, Jake, and good morning to everybody joining us this morning. Our presentation today is broadly in sort of three sections. For those who don't or aren't familiar with FLOWTECH, I'll try and give a quick counter through some of the basics of our organization and what we're about. I'll then pass over to my colleague, Russell Cash, CFO, to talk through some of the financial information that we've disclosed this morning. And I'll then following that with some of the strategic developments and outlook that we see for our marketplace over the coming sort of six months plus.

1:22 So without further ado, in terms of our fundamental offering, everything remains broadly the same as some investors will know. We operate in a very fragmented marketplace. Many players in our marketplace Of recent note is Diploma PLC have acquired an organization called RG Fluid Power who operate in certain aspects of our market, but are more predominantly in industrial tube and fittings. That was a recent transaction. We operate in the three countries, The Netherlands, Ireland, and obviously, The UK. Our capital structure is something that's proven to stand us in good stead over recent years. We've come through pandemics, supply chain issues.

2:09 We've started recommence the dividend payments this year, all without recourse to any external funding requirements and all within our own sort of facilities. And we'd like to think we've got a leadership team that has some experience and skill sets. Talking of the leadership team, obviously, myself as chief executive, I've been with the organization since 2010, previously as CFO but chief exec since 2018. Russell joined me in 2018. Many of you will know Roger McDowell through many other investments of which he's been is chairman of. Nigel Richens, our senior nonexec, been with us since FLOWTECH in 2014. And then, during the course of this year, we've added the skill sets of Jeremy Brook, and I also Webb, as nonexecutive directors, who brought considerable additional skill sets, both operational, commercial and financial.

3:03 So we feel our Board is now very broadly based. And certainly, Russell and I are very pleased with the input that we get from our colleagues. Overall, we are The UK market leader with around 20% hose fittings and valves filling certain aspects of the industrial side of things. Crucially, though, and underpinning our digital strategy is we have thousands of touch points to our sector, both as customers, suppliers, stocking and in terms of the locations. We'll talk about some of the productivity improvements that have come through.

3:49 But overall, we still operate at 16 locations in our home geographies. The key suppliers that come through to us are all the major global brands. Parker, recently with the acquisition of Meggitts, is now at 30,000,000,000 turnover, but one of the cornerstones of the global marketplace in pneumatics and hydraulics. Bosch Rexroth, many people will know of. Danfoss have recently acquired the hydraulics arm of Eton, so now operating about €7,000,000,000. So there's some very significant players in this marketplace. Valvoline Interpump brands from Italy. We have representations of all the key partners in this particular sector.

4:35 The pneumatics and hydraulic industries are very widespread in their bias. Pneumatics, particularly so, across a number of industrial sectors, food processing, electronics, medical, whereas hydraulics has a bias towards the construction sector, about 40% in that particular side of things, and a broad split between what we call mobile hydraulics or an application on things such as a a JCB, a piece of plant, and industrial application. So for example, in a bottling plant for for moving forward. Overall, our organization is owned with the investment funds shown on the screen, about 64% covering the top 10. Very solid register, very growth focused, all of whom are now long term players in terms of their position with FLOWTECH over the last three to four years.

5:32 So in terms of moving through to some of the financials, I'll hand over to Russell to provide the headline financial and trading review. Yeah. Thank you, Bryce, and good morning, everybody. So this is my slide up here in there. First slide. So in terms of the the headlines, from the top down, first of all, on revenue, that increase of 2,200,000 is 4.8% on a like for like basis. And across our segments, and Bryce will touch more on this in a subsequent slide, that's 1% up in FLOWTECH, 6% up in solutions, and 12% up in services. We'll talk a little bit about the price volume mix a little bit later.

6:19 And, equally, equally, we'll talk about how those respective increases compare with what our industry stats show. You know, without stealing prices from the performance of FLOWTECH at only 1% is actually not bad at all, but we'll come back to that. In terms of the gross margin, this is, I think, the eighth time I presented either full year or half year results as Bryce briefly alluded to. Arrived at the very back end of 2018. And one stat that does stick in my head because it's part of our DNA is the quality of our GP percentage, which is up until now varied between 33.835.7%. So it's pleasing to see 36.3% being presented, but we're not patting ourselves on the back too much on that because, of course, you'd expect us to be, you know, knocking out the park on the GP percentage when there's the the inflationary pressures that, you know, the broadcasters seem to remind us about every evening of every week now a day nowadays.

7:24 But, you know, that is part of our DNA, and it is nice to see that trending in the correct direction. In terms of our underlying operating overheads, again, there's a slide a little bit later, but we are pleased that we contained the headline increase to 2% when people are now talking about 22% inflation last night. I caught a glance at the news. And the reason that we've achieved that is because with what we've done and what we're about to do, our headcount will be down by circa 8%. And if we look back over an eighteen month two year period, we've de footed and simplified our property estate. There's eight properties that have left the p and l account. So it's for those reasons, essentially, that we contain the increase to a very modest naught 200,000.

8:12 So when we add add that altogether, of course, we get a not insignificant close to £1,000,000 improvement in our underlying operating profit. So, again, trending back to sort of number where we wanted to ultimately get to. Debt, I'll say a little bit more about in the next slide, but suffice to say, whilst it's gone up, it's very definitely under control, and it will very definitely come down in the second half of the current financial year. So I seem to be lucky enough to always have pretty simple debt bridge graphs, to be honest. So there's only two bars that are really worth talking about. But but but perhaps, you know, that's a six month debt bridge. But if I just reflect on a twelve month period, which in some ways is obviously more meaningful in particular when you think about the receivables elements of the debt bridge. And the debt's gone up by 6,000,000, but our inventory has gone up by 11,000,000.

9:12 So, obviously, in simple terms, we're doing something right, which is reflected by the biggish green bar there. So we're generating nice cash profits, but we chose to invest a chunk of that into our inventory book, an 11,000,035 million, I think, versus 24,000,000 twelve months previously. Again, pretty significant, but very deliberate, and it will begin to unwind in the second half of the year. And that is the single biggest reason why I'm confident that that, obviously, combined with a continued green cash profit bar, will deliver debt reduction certainly in h two of this year and probably into 2023 as well. So well within the banking facilities and fairly obviously government covenant compliant. Just before I hand back to Bryce for the the meat and the heart, I guess, of the presentation and what we do next piece, really, just on the capital allocation policy, we did reintroduce our dividend at a materially more modest level, 2p in respect to 2021 performance. I think pre pandemic, it was at over 6p per share. We felt 2 p was a more sensible balance level. So we do respect the desire of some investors to receive dividend income, but that's not our focus. Our focus is on managing our debt position.

10:34 And whilst we're right here right now at perhaps the the upper end of that one to two times EBITDA metric, you know, that's fine. And as I said, it will come down. You know, underlying EBITDA is about 10 and a half, 11,000,000. So the fact that we're at 19 is fine. So that's our focus. And in terms of inorganic growth, it's a term there. We're certainly not hunting out acquisition opportunities, but equally wrong with us not to have a look at stuff if it does hit our desk. You know, that's not what it's been all about in the last four and a half years. It was four years of acquisition activity. It's been four and a half years now of simplification, decluttering, clarifying the positions.

11:21 So all in all, I guess, if the the head teacher has given a a recall, we think we've done pretty well, an encouraging performance, if you like, albeit still, unfortunately, a degree of disruption in the classroom.

11:36 Okay. In terms of the sort of segment analysis, in some respects, the performance of FLOWTECH against our original aspirations at the start of the year could be seen as slightly disappointing, but we have to put that in the context of the overall market, illustrated by the industry stats that have come through from our industry body, the BF PDA. FLOWTECH is a sort of 30% hydraulic, 70% pneumatics and industrial organization focused on MRO. So it's clear that it's comparative in 2021 when we had pretty strong rebound from the COVID conditions of 2020, was maybe slightly ahead of maybe where the underlying market sat, and that's been reflected in some of the settling back in those pneumatic segments, particularly in sort of Q2.

12:28 In parallel to that, hydraulics has equally performed very well during the course of this year, and that's where our solutions organization sits almost exclusively at 100% of its activity. And you can see the numbers yourselves. Now these are not volume. These are purely sales value underneath that in order to reflect the inflationary trends at product set level, which we estimate is between sort of 56% full year impact. You can work out the balance, therefore, in terms of sort of overall volume metrics. So pneumatics is down at sales and more heavily down at volume. Hydraulics is up in terms of overall volumes, but the majority is through price impacts. But across our organization, we think we've handled both of those things fairly well.

13:17 Margins in all our areas are up significantly. And the highlighted performance is clearly in solutions where it's achieved 13.9% contribution in the first half, well beyond the sort of target of 10% we saw as a sort of long term minimum expectation. FLOWTECH's dipped below the sort of 15% benchmark. But but as we'll talk about in the second half, it's announced the closure of its Leicester warehousing operation. The commercial function there will relocate into a a local office environment. Once that's enacted through our accounting position, then we're pretty confident that that will bounce back to above the 15% benchmark. And with a strong performance expected now from services with a deliverable order book in build, we expect that again to achieve its own minimum benchmark of around 10% certain in the second half.

14:12 So whilst aspects of this are slightly disappointing in terms of the overall performance, underneath that, we are actually very pleased when it's compared with the comparatives. And we believe, again, we've achieved above market share gains overall. In terms of moving forward in terms of our overall strategy developments, the sort of key planks of what we've been trying to achieve over the last three to four years. Just to remind everybody, we took a disparate 26 site, 16 trading brands, a group of independent trading profit centers that was fit for purpose exactly for its market. But our view was that with the increasing online presence, the Amazonization of life, use of digital information to connect together the 11,000 customer set that we had we had to change our strategy.

15:05 And we've been focusing very clearly on on creating two very clear offline brands in flow of FLOWTECH and the FLUIDPOWER PERCURE by a single online presence of of FLOWTECH, all revolving around a single product set. So in terms of the major developments during the course of this year, we told all that on the fourth of January this year, we created a single FLOWTECH organization by the the aggregation of the legacy brands they had and creating a one stop shop for all that particular customer set, over 50,000,000 of sales, operating through one e commerce site through three logistics centers at the time, now through two following the closure of the Leicester site.

15:52 In July of this year, that was enhanced with the integration of the team from the former primary fluid power components group. This is a hydraulics offer and therefore creates a much broader base to that segment of the FLOWTECH operation. Again, now all are on one system operating through effectively one site. And we've been able to introduce their 20 new hydraulic ranges to the previous extensive offer that the FLOWTECH organization had. So again, another big step forward in our strategy on the fourth of first of July this year.

16:46 To create a single brand, but focused around two particular segments of the marketplace, endemic across how the hydraulic sector is viewed with mobile and industrial applications. And again, all of which are enhanced with productivity gains that can be garnered from driving small accounts through the online presence, floatech.co.uk. So all the businesses within this sector currently have no online presence at all other than information only websites. So we see we're gonna get a natural marriage between the capabilities that we've got across the group.

17:23 That is now all enhanced with our new website, which went live on the May 17 and has gone through subsequent revisions of new extra bells and whistles, so to speak, coming online. And we expect by the end of September, nine sprints will have been introduced to further enhance its capabilities. We've it was slower in terms of introduction. We spent a lot of time making sure its integrity was strong. We've now gone through three months post integration dealing with various minor teething problems. We were very pleased overall with the resilience that is now being shown. Yet improvements can continue to be made. But overall, that is in play.

18:08 And it's now for the first time allowing us to enhance some of the search engine optimization techniques that previously we weren't able to use. We started to put these live in the early part of August, and we're certainly encouraged by the initial reaction that we've had. So our average search rankings are starting to improve from a pretty low base, it has to be said. And since inception in early August, again, we're quite pleased. As ever, this has to be a relentless part of what we do. It will not be a one stop fix. It's gonna take us months and years to properly get to the positioning that we believe can be achieved, but we're now on that particular journey.

18:48 In other areas of activity, as Russell's touched on, the work that we began in early twenty twenty, obviously, that point, we didn't appreciate just what was gonna come in the difficulties that the COVID-nineteen period fought for this. This was all about warehouses, predominantly warehouse pickers in terms of headcount. Our commercial colleagues are incredibly valuable, you know, as a solid resource.

19:16 But the work that we've done is now starting to bear fruit. So we're now down at about six zero five headcount. We've got a further 17 headcount reduction in Leicester that's been announced and is now in process. So we think we'll be down at sort of five ninety into Q3. And thereafter, there's a sense that natural wastage will allow us to improve productivity over a period of time. But by the centralization of a lot of our activities around the Skelmersdale's campus, We believe we're able to further improve that. As we've talked about here, the eight sites in total have been removed. It has to be said it's now dealing with considerable additional stockholding burden that's been a necessity out of the supply chain disruption we've seen post pandemic.

20:06 That's meant we've got considerable overflow stockholding, particularly in the Northwest Of England. But all areas that we believe we can deal with, We've shown resilience both in our commercial activities and in terms of the capabilities of our management team over the past three years, and that will be further reflected in our 2022 late half year performance and into 2023. So overall, the key planks of what we're looking to achieve have continued to be put in place as we strive to ensure that this platform is in place, say, two offline branding styles, FLOWTECH, Power Group and FLOWTECH, and a single online trading platform, floatech.co.uk, that has the capabilities to go further afield into Europe under that same infrastructure.

20:57 In terms of our key achievements, yes, we've grown operating profits with solutions achieving record highs. We've improved our gross margin. Yes, there's an element there of selling old stock at new prices. But what's very pleasing, if we look at August as a snapshot month to date, our margins are above where they were a year ago. Our e business trading platform is now built and in live and will be relentlessly improved as we sort of move forward. We've integrated our FLOWTECH organization in under the five to one project. And in terms of overall productivity improvements, picking efficiencies, buildings and infrastructure, a lot of that work is now complete.

21:42 And we look forward to the second half of the year and ensuring that we complete that particular program to leave us, I would say, with a fresh platform for the start of 2023. In terms of outlook, obviously, we're all aware of the current widespread uncertainty. Our focus remains on ensuring the key pillars of our long term strategy are in place and will ensure that we maximize all the opportunities to protect our profitability and ensure that the risk environment that we currently face, we can deal with. I think we've shown that since the start of the pandemic period. As I say, we came through that without recourse to external finance. We've operated within our means. We've used our capital wisely.

22:27 We've got the most extensive stockholding position the group has ever had and certainly our sector has ever had, and we'll ensure we continue to use that as a position of strength moving forward. Okay. Overall, that completes the the basis of our presentation. Jake, if I could pass back to you to see whether we've got any q and a coming through. Absolutely, Bryce. Russell, thank you very much indeed for your presentation this morning. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab that's situated on the top right hand corner of your screen. But just while the team takes a few moments to review those questions that were submitted already, would I like to remind you that a recording of this presentation along with

23:12 a copy of the slides and the published q and a can be accessed via your investor dashboard. Bryce, Russell, as you can see, we have received a number of questions throughout today's presentation. So thank you to all of those on the call for taking the time to submit their questions. If I could just hand back to you to run through that q and a tab. And where appropriate to do so, if you could please just read out the questions and give your response, and then I'll pick up from you at the end. Thank you. Okay. Well, Mark's asking the question about supply chain.

23:40 In terms of improvements in supply chain, there are two elements to this. There's the there's the length of lead time, and there's the volatility. In other words, you place an order for six months' time, and in six months time, the supplier says, sorry. We can't send it. It's gonna be another three months, and you're only gonna get half. So I deal with the the first element of that in terms of lead times. No. We're not seeing any improvement, but overall, at least they are consistent so you can work within them. That means you have to, yes, keep more buffer, but at least our major supply partners are acting consistently from that perspective. If I then deal with the volatility aspect,

24:22 for those elements that come from China, which is about 25%, again, I would say that is pretty consistent now. So again, we can operate within certain defined parameters. In terms of our European partners, say 75% of our supply, again, that is that has some consistency. But to some degree, there is still a rationing almost aspect. So if you place orders for a 100%, we're getting fairly early warnings that, yes, we might get 70 of it. Now that has a knock on effect straight through into our particular OEM partners in solutions. So has it improved? Yes. Is it improving

25:02 in terms of allowing us to significantly reduce our stock holding position? I would say no. There's still quite a lot of work to do in that particular area. Russ, you deal a lot with the sort of stock side of things. Is there anything in particular to add to that? No. There's a second element to Mark's question about what can the company do to ensure it meets demand. I think the only thing I'd add to your answer, Bryce, is that, you know, we do have a lot of people with layers layers of of technical expertise within our organization. So there have been examples of where a customer has traditionally required, you know, component a, b, c, but our guys have been able to say, well, I know you've used that for the last ten years, but why don't you try component PQR? It'll sort of do the same job. So we sort of had some creative thinking and worked effectively with our partners, our customers.

25:51 And if anything, by doing that, of course, it strengthens strengthens the relationship. So as I alluded to earlier on, you know, notwithstanding what Bryce says about it's still a challenge, but at least it's a consistent challenge. We do have different layers of planning in place to achieve an inventory reduction obviously assist with the debt reduction in the second half year, notwithstanding what Bryce has alluded to. We signposted a few years ago pre pandemic an ambition to achieve, we call it, a turn and earn index of a 130, was the the multiple of gross margin and stock turn. So therefore, the ambition on stock turn was 3.5 or thereabouts. And that remains the case, to be honest. The fact that we're, you know, somewhere between two and two and a half at the moment doesn't doesn't mean mean we can't get there if or when the world ever becomes normal again.

26:45 Okay. In terms of the timing and passing of input price increases, again, there there are different aspects. One thing that it's it's probably fairly easy for people who aren't familiar with us to think is that we have a, you know, narrow group of products. You know, our price goes up. We we pass that through because we're the only source of supply. Well, in reality, you know, we're not. It's a huge range of products from a very widespread number of suppliers. And in many respects, key customers, particularly in FLOWTECH on the MRO side, have direct supply relationships with many of those major manufacturers themselves. So we can sort of fill in for the embarrassment stock, you know, type type of item.

27:31 So you've got where you've got wide breadth of stocks. You're turning your stocks twice a year. If your price comes through

27:41 with an increase from, say, Danfoss, and you're sat on three to to six months of stock of that particular product, you may choose not to to move that through if the market isn't quite going as as quickly with it. However, you may have a situation where you're the sole source supplies supply to an OEM and the product is scarce. And if the supplier puts the price up, you put it straight through, you know, to the manufacturer on the other side. So just to remind everybody, we have no contractual committed pricing positions with any of our customers. All is by commercial negotiation depending on all the sources of supply. But if you wanted a very broad sense of how quickly we can pass things through, it would be between, say, one and, say, maximum six months, depending on the depth and the breadth of the stock that we've got.

28:34 So if you look, since strong price pressure started to kick through probably back end of Q3, certainly Q4 last year, we've been progressively moving prices through. Even in Q2, there were several supplies increased prices again. They were all passed through on the April 1 in in parts of the sort of FLOWTECH range. Again, Russ, anything else? No. I think the key point is the fact that we're not bound into any prices. We you know, the the price setting is something which the guys consider on a daily basis, really. Again, in terms of visibility, FLOWTECH has very little visibility. Probably 90% of its sales are tomorrow.

29:19 It's a next day offer. It does have elements of its order book with some pneumatic customers that that back to back with OEMs themselves, you get a little bit of foresight there. Solutions, a lot of that is supplying into OEMs. So it may have one week to three months of production schedules that we have to provide kits through. But again, it's not a committed order. It's a sense of what they want us to stock, and they can remove that advice at pretty short notice. But there is some sense of visibility there, so solutions moving forward. And then in services, yes, there's an element of repair in some of the work that the on-site teams do, but probably about half its sales, it has decent visibility of what's required with deliverables. We use the term scheduled deliverables in the second half of this year. It gives us quite a lot of confidence about the financial performance there.

30:20 But ultimately, you can make a 20,000 pound hydraulic power unit with a scheduled delivery of the fourth of November. And if the customer says, absolutely no, can you now deliver it and make and deliver it in in December? You've gotta try and work within that. So, yes, we do have a decent degree of visibility there, but none of it is particularly, I'd say, a contractual committed position. It's what we're used to working with, and that's within the nature of being a wholesale distributor. In terms of the features and functionality of the ecommerce website, the old website, if we could use that terminology, was pretty much an order portal through to our long term customers. They were used to it. They would knew their particular products.

31:14 They could input fairly quickly and efficiently. So a huge change that is now an all routes to market sort of website is the ability to search for products That in itself isn't transformational. It'll take a longer period of time. So as the SEO work kicks in, we get an improvement in our ranking positions. We'd like to pick up more of the sort of floating search driven sales. So many aspects of its capabilities are focused in around those particular areas. There are particular changes that will help with our current customer base, so the scheduling of call off orders. So we do have certain customers who like to place bulky orders that they can pull down from on a monthly basis. There's much more much more functionality that's been added from that particular aspect.

32:06 But probably the bigger change, the sea change is actually in the engineering underneath this. The capabilities of attaching this website to multiple ERP systems is now much more fluid for us, if you excuse the pun there. The ability to connect that to the databasing aspects, the marketing campaigns, the personalization software, fresh relevances of products that we're working with and on, That's probably the key bit. So it's the lead generation work both in offline sales, email marketing campaigns. And the exciting element for me is in our offline world. I never lose focus of the fact that we're a 120,000,000 turnover business that's earned its bread and butter over decades dealing face to face.

32:59 So it's the offline lead generation I'm actually quite excited about, making that a much more efficient proposition. And that's where the CDP, the customer data platform, and everything that comes with it, we're excited, is now starting to come on stream and will give us some very positive, let's call it, information in q three and q four as it starts to come on stream. And therefore, we take the online offline the online touchpoint, sorry, that come through the new web architecture and all the capabilities with the offline data points we've got through a streamlined organization. So we've got a lower number of systems now. The FLOWTECH now with primary has 60,000,000 of sales circa 4,000 customers live, something like 10,000 customers over the last three to four years.

33:54 And I was quite staggered with some of the initial feedback from the CDP, which has gathered ten years worth of data. And there's something like 47,000 customer records that we've got we've had touch points with across the organization. That's the bit that's actually equally exciting, you know, on top of the let's call it the transactional capabilities of the new website. What are the targets around percentage of online sales? Well well, I'll reiterate. As an organization in FLOWTECH, it's always taken about, in total now, about 56 of sales through online means, but it was a pure order portal with established customers.

34:41 We believe that will increase, obviously, from 56, and overall target may be around sort of 70. But probably more pertinent is just in The UK and Ireland, we believe there are about 60,000,000, so circa 6% of the total market that is a pure search driven transactional sale that previously we did not have access and exposure to. So we've got a we're going from effectively nil market share there. So hopefully something that's considerably, you know, north of that. However, if you also throw in that in European markets, our online presence is effectively nil at this current point in time. So by building an infrastructure around a single PIM, product information management system, that is populated with the digital media of all our major supply partners.

35:39 Again, it's quite exciting in terms of the organic growth that that could play when we expand across all the geographies. Clearly, behind that, you've got to have the operational infrastructure to support that. But our view is let's start by getting very strong and tight in The UK and Irish markets. Let's get our own online platform working efficiently, and that gives us plenty of scope for organic growth in the future. Energy bills, Rust. Maybe you wanna Yeah. The headline answer is relatively stress the word relatively relatively modest. It's not like we we make a load of stuff about. As complicated as gets, it's, you know, assembly of power pack units, but not seeking to underplay it. And so it's relatively modest, you know, measured in hundreds of thousands rather than multimillions.

36:36 But clearly, when we look forward, if that's the right expression, to 2023, we feel we've done a pretty good job of managing the 2022 inflationary pressures. We're probably gonna have to do an even better job of managing the 2023 inflationary pressures. We have been working for years, actually, with a specialist organization to ensure we get the best deals from utility providers. But clearly, the best deal you can get in the back end of twenty twenty two looks awful to what we could have got a couple of years ago. So we're alert to it. We're managing it relatively modest, measured in, you know, a few hundreds of thousands rather than multimillions. Mark has asked about FIFO accounting flatter flattering profit growth. This is my comment about selling old stock at new prices.

37:26 You know, undoubtedly, there has to be an element of that feeding in. I've been in wholesale distribution for sort over twenty five years. You love inflation, you know, from that aspect. But the bit that gives me, like I say, some sense of confidence is we're very particular about tracking gross profit margins percentages year on year. In other words, comparing exactly. So we're at day 21 of a twenty two day trading month. Russell and I know exactly where our GP percentage sits against exactly the same working day a year ago. And we've we've disclosed in our r and s that we're at or above that particular rate. So given as our stock turn is, you know, just over two, a lot of our stock is relatively new in the last, six months plus.

38:21 Given us we're now in August, we're not selling old stock at sort of new prices to some degree. We're selling what has been acquired post the inflationary period into current marketplaces. There's always a sense of have we been overly aggressive in matching that through? Could we maybe slightly depress our price and margin expectations to pull some of the the strong stock position that we've got through. But that's in the nature of being a distributor. You have to balance those particular things off. That's a business as usual activity. I would say, a set of circumstances that aren't particularly business as usual, but we're we're getting pretty much used to that, you know, over the last sort of two to three years with everything that's been thrown at us.

39:10 Russ, you wanna give maybe an answer sort of it. It's within their DNA to manage pricing margins and all the time. It's not like they're reluctant salesmen who get nervous about putting up the prices once a year. It's the art of setting the prices and protecting the margin, which is price elusive. It's very much within the the fabric of our DNA and the organization's DNA. What are our our ambitions in Europe? Well, before we re strategy, there was plenty of m and a options for us in sort of near Europe. But we're all aware of when we do m and a, we have to be very concise in our plan, use of capital integration. That's probably a bit of a sea change in our attitude towards the way we go about that.

40:01 But I touched on the fact that whilst our new website in itself, the transactional capabilities are an improvement, Ultimately, it's the bigger picture for us. It's the ability to bolt our infrastructure onto both other ERP systems, but equally amend it to be pertinent to other geographies. And the fact that that same infrastructure, that same product set is global, universal. So clearly, Near Europe in particular has to be a target in the medium to longer term. And what's interesting, we touch on the fact that in The Republic Of Ireland, we've had some sales struggles there. The sort of friction of paper processing, In particular, the major carriers have struggled to deal with that.

40:55 I think FLOWTECH as an organization, if there was one area of fan site, we probably could have dealt with that better. We're always self critical. But it's what's actually impacted is the fact that European distributors have offered a three day service into the republic with an online trading platform that's starting to show post pandemic how this is receptive to the typical user. Three to five years ago, the market would have said, no, it's not an online play. Well, you know, our strategy was that it's not an online play now, but it will be. And, again, reinforces why we we believe we're on the right track here. So that says to me that can be done in reverse, you know, once the situation is is cleaner.

41:41 We're better at processing the paper, so to speak, which we can do. You know, that's a solvable sort of problem. So it's very much our ambitions in Europe are based around online trading capabilities, possibly using third party logistics contracts you know, to prove up the model until we we've got some cleaning numbers out of that. How insulated are you to a tough recession? Well, I would say two areas here. In my time in in FLOWTECH, I came in just after the credit crunch. We've obviously seen the pandemic. I'd like to think that our sector has shown its resilience through that particular piece. Yes, if we sell less, operational gearing dictates that profitability can go down.

42:32 But equally, we throw off cash, again, highlighted to almost an extreme measure through in 2020 when we created a considerable amount of sort of cash. Our sectors are broadly spread. Yes, hydraulics has the sort of 40% construction sort of bias. So if you believe that the recession will deeply impact construction projects, that may sort of feed through. But across the piece, it has a finger in many, many different pies. Our largest customer is about 2% overall of our sales register. So again, we've got resilience there. We've shown through the credit crunch and through the pandemic strong cash collections.

43:20 You know, we always touch wood at this particular point in time. And I always take comfort from the fact my colleague is a former esteemed insolvency practitioner in terms of dealing with cash flow from from errant customers, you know, from that perspective. So we have defensive characteristics that we've already displayed. Insulated, I don't think anybody is insulated from a tough recession, but we can manage, you know, certain elements of our cost base accordingly, and we will do so. Anything you want to add? No. That particular aspect? No. You said that your larger customers often buy direct to manufacturers. Does your 20% market share include this, or does it refer to those distributors? It's just distribution.

44:10 It's always been the sort of received wisdom that circa 50% of a a total sector is through distribution. We're almost like the necessary evil. All distributors would absolutely love to transact directly with their end user, you know, cut out the middleman. But since the dawn of time, they equally like to manufacture in huge quantities in low cost environments, and particularly in MRO applications and in sort of c and d parts supplying to OEMs, they need distributors. That's why we exist. Our objective has always, always been to be the best of that. The lowest cost provider of a quality service is the mantra that I've always sort of worked under, and nothing particularly changes from that perspective.

44:58 Just the only thing I'd add to that is certainly the manufacturers have gone on public record and said that it's a stated intention to transition more of their product through the district distribution channel. And, hopefully, from our point of view, that's sort of their brand in the hands of what they would view as reputable, sizable organizations in different geographies that have, you know, state of the art web capabilities. So we'd like to think we tick most of the boxes that those huge organizations are looking for. So it is 20 of half of the overall billion pound market, but that could switch to, I don't know, 45, 55 in our favor over time as some of that sort of begins to be seen.

45:45 In terms of a bit more color on the Irish market. I've sort of touched on this. In essence, for a number of years, the FLOWTECH division, x warehouses in Skelmersdale and Leicester, could easily deliver sort of 04:00 cut off delivery next day, Dublin, Belfast, maybe pick up Cork. And we did, you know, 3,000,000 plus of sort of sales, you know, through sort of small parts. Obviously, coming to the pandemic, pop out the other side with the new Brexit conditions. At the same time, we switched all our delivery activities to FedEx. We did all our English distribution.

46:30 We went with their service offer into The Republic Of Ireland. And you've got sort of two impacts, really. The paper processing drag, I think we could have dealt with maybe more efficiently ourselves, but that's the reality of what took took place. Add to the fact that FedEx themselves have had difficulties that I think there's placed them behind maybe what the competitive product has done with their own integration of, for example, a TNT acquisition they did. Those the juxtaposition of those two facets has meant that we are down, you know, quite considerably, probably as high as sort of 25, you know, percent plus in terms of the Irish sort of marketplace. So both of which, you know, the paper processing and the delivery offer, you think was solvable and we're on with actions in those particular areas.

47:23 But again, if anything, it's it's awakened the European headquarter distributor to the fact that they can offer into the Irish market where previously they probably wouldn't have touched it because they couldn't match a next day service offer. I'm even being quoted ex Poland three day service, simple processing invoiced in euros, has become an attractive proposition to previously somebody who wouldn't have bothered with that particular sort of offer. So just one of the challenges that we, you know, have had to face over the past sort of eighteen months as it is now. Diploma's acquisition of RNG. Well, let's talk about RNG first. You know, they call RG fluid power, but actually there, a FLOWTECH's seed business was in pneumatic component distribution.

48:18 RG's seed business is actually in industrial hose and fittings through the sort of century and millennium brands. They've acquired an awful lot of smaller distributors, one or two may heavier transactions, just one in pneumatics and one in hydraulics. Pearson Hydraulics is a down post distributor that they own. So, yes, there is a competitive environment, but to some degree, almost like more complementary. Their as far as I can see, their stated ambition is around the one that we highlighted about a fragmented marketplace, a sense of aggregation. Diploma's historical methods are around buy and build, careful execution of sort of acquisition transactions.

49:09 I think that's the stated position with diploma. So, yes, there are competitive elements to that, but they don't, at the core, have an online capability like a FLOWTECH. They do have online capabilities, and they can develop them, no doubt. So they are, yes, a competitor, but not one that's that's right smack in the middle of what, you know, what we do. Possibly of interest is is the sort of multiples they're buying at, but fairly stated multiples are sort of four to five times that they buy at. And whilst not stated, the inferred transaction valuation that was applied is sort of 10 plus EBITDA that they paid for the RNG business so investors can draw their own conclusions about that particular transaction.

50:05 Okay. I think we're sort of fifty minutes in. That seems to have reached the end of the sort of q and a. So, Jake, I think if you're hopefully still on the line, give me a hand back to yourself. Absolutely. Bryce, Russell, thank you very much indeed for taking the time to address all of those questions that came in from investors today. And, of course, if there are any further questions that are submitted today, we'll make these available to you immediately after the presentation has ended for you to review, and then we'll publish those responses where it's appropriate to do so on the investor meet company platform. Bryce, perhaps before redirecting those on the call to provide you those provide you their feedback, which I know is particularly important to the company, if I could please just ask you for a few closing comments to wrap up with, that'd be great. Well, as we say in our sort of headline quotes, you know, we think it's a pretty solid performance in the first half.

50:55 We've continued to develop the sort of key pillars of our sort of long term strategy. We're fully aware and cognizant of the uncertainty in many sort of market sectors at the moment, the macroeconomic sort of position, and we'll continue to react as required to those particular sort of challenges. But we think we've displayed the resilience of organization, our sector, our management capabilities over the past three to four years, and we believe we'll continue to push forward, you know, over the medium and the sort of long term. Bryce, that's great. And Russell as well, thank you once again for taking the time to update investors today. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order the management team can better understand your views and expectations?

51:46 This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of FLOWTECH FLUIDPOWER PLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good morning to you all.