Flowtech Fluidpower (LSE:FLO) — Interim Results

0:01 Good afternoon, ladies and gentlemen. 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. They can be submitted at any time via the Q and A tab that's just situated on the right hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and will publish those responses where it's appropriate to do so. And before

0:31 we begin, as usual, we would just like to submit the following poll and if you could give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to the executive management team from FLOWTECH FLUIDPOWER PLC. Mike, good afternoon, sir. Good morning and good afternoon, depending on where you're coming from in the world. Firstly, I just wanted to say thank you sincerely for taking the time to join us today. It's important that we're able to spend some time to talk through the progress that we're making in what has been quite an exciting turnaround journey for FLOWTECH. I'm joined today by Russell Cash, our CFO. I'm Mike England, Group Chief Executive Officer. In terms of FLOWTECH, so we've been working hard to bring the business together and do the rebranding work and the integration work that was necessary to simplify the business and drive some really important scalability gains, but also efficiency gains. I just wanted to play a short video just to set the tone in terms of where we're going as FLOWTECH and how the new FLOWTECH is being positioned in the marketplace.

1:38 Thank you, Jake.

3:19 So just a quick video there to demonstrate the coming together of multiple brands under one. And we're going to talk more about that as we go through our presentation today. So as I said, I'm Mike England, the Group Chief Executive Officer. I've been in the business now for one year and five months, and it's been quite a journey so far, and a journey very much of change in which we've now got real clarity on our direction of travel moving forward. And we're just going to spend some time in the summary reminding you of that plan.

3:50 Russ? Yeah, good afternoon everybody. Yeah, Russell Cash, I'm closing in on being in the business for six years. So 75% of that was in the pre Mike England era, but 25% is working closely alongside Mike and a number of other members of the new leadership team. That new leadership team is now really well established. Everybody's been around, enrolled for circa twelve months, in some cases a bit more, in other cases a bit less, but about twelve months mature now. Thanks, Russ. So for today, we're going to provide a brief summary. We're going to give an update on the first half financial performance. Want to spend a little bit of time giving some examples of the progress we're making within the performance improvement plan.

4:38 Going to give some important updates around the journey to the future and some of the biggest strategic pillars that we're bringing to life. And then we'll just spend a little bit of time at the end just giving some thoughts towards current trading and our outlook as we look towards '25 and beyond. In terms of the plan and a reminder of the plan, which we spoke about at our last update, we've defined six very, very clear margin engines which we believe are going to drive this business to mid teens operating profit. I'm not going to go through all six because I think we communicated that clearly last time around, But very happy to spend some time outside of this talking to any investors who would like to spend or get some more information around the plan.

5:23 Under each growth engine, there's a set of engine components. We've defined very, very clearly whether they're contributing towards margin growth or our debt reduction objectives, which we'll talk more about. And we've also set out very clearly a set of key performance indicators, financial and non financial. For 2024, recognising that the market, we believe, was going to be a little bit more bumpy, we put our focus very, very firmly on commercial excellence, which is really around gross margin improvements and working capital improvements, and also operating for less, which is making sure that we're driving efficiency gains in the business through stringent cost management, but also looking at opportunities to drive greater productivity in the organisation.

6:10 As part of the phased delivery of that plan, we communicated that 2023 was about initiation of our performance plan, was in Q4 last year. With that was implementing a new leadership team. It was embedding, beginning to embed a new operating model, a simplified operating model, and ultimately launching our strategy, all of which we'll cover off again here in terms of progress updates. The one to six you'll see on here are our growth engines. We weren't intending to fire up every engine straight away. We're doing that in a phased way, which we think was sensible, as is with any business transformation. 2024 was very much about one FLOWTECH, bringing the business together under one brand, making sure that we were putting greater emphasis on our customer and driving improved selling effectiveness and putting some fundamental basics in place around our operational excellence to support that. The work to look at our digital replatforming and some work to do on data integration so that we can make sure that the businesses we are bringing together can have visibility of customers and of inventory, for example, and making sure that throughout our operational elements of our business, that we're increasing throughput and making sure we're driving greater efficiency.

7:25 So two and five were very much at the forefront, with us looking to develop areas around growth, around product expansion, and also around clearly our talent and capability, which is number six. We did say that we felt that the market was going to be more challenging in the first half of the year, but we felt, I think as many did in the marketplace, that the market was going to start to show some positive signs of recovery into the half year. I would say that that stayed very great through the first half of the year, and we don't see, certainly from current trading through the third quarter, we don't see that changing. And we'll come on to that and some of our thoughts on that as we go forward. We have implemented what we believe to be some very positive areas of self help.

8:14 So as we say, control the controllables, and we think we've done that well, which we'll demonstrate. And we've started to make some very good progress around the CapEx investment in a number of key areas, which we'll talk to, particularly around the digital replatform, but also the efficiency gains within our operational parts of the business, at our fulfilment centre, and ultimately our goals around margin improvement. Whilst we believe that there is very much the upside, we haven't quite delivered, we don't believe we've quite delivered the margin improvement that we would have expected. And that's very much our focus as we go forward, certainly from '24 into '25, which we'll come on to. If we just give a status report, just to put into context, because I'm mindful that we are now through a Q3 period almost, I think it's important that we just give some status updates at the beginning to contextualize what we're going to talk about through the presentation.

9:15 As I said before, the external market hasn't been our friend, it's been slower than expected in terms of the recovery, and that is very much impacting and delaying certainly some of our OEM customers and the projects that they have, some of the larger projects, but also just that underlying MRO basket size that we're seeing through the product distribution parts of our business,

9:36 as organizations are right sizing inventory or holding back on expenditure. We believe those market headwinds will continue into at least the first half of next year, and that's something that we're just mindful of as we put our focus into the remainder of 2024. In terms of the headlines for the first half, earnings were in line with expectation. We expected there to be more of a step up in the second half of the year as the market recovered. Revenue decline, which for us, we can put down to some very clear areas with some specific customers. Improved gross margin has been something that's been a real focus for us, and there's been some real consistency in the progress we've made through 2023 into 2024.

10:24 That isn't all about passing price improvements onto customers. It's very much around some of the operational improvements around how we price and how we manage that, and putting right some operational elements that we've needed to do in order to get better engagement there. Cost management has been a real focus for us, we'll come on to that. Inventory reduction, we believe we've made some very good progress, as we have with our performance improvement plan. And a fairly sizable piece of work has been the rebranding to One FLOWTECH, moving to a new operating model, and launching a new value proposition to market. So we believe in the first half of the year, we've had further performance and service improvement gains, despite what has been persistent market headwinds. We believe those headwinds to continue. Hence, we've downgraded earnings for the duration of this year.

11:15 On top of that, the FLOWTECH return to profit plan, which we believe is a very, very positive acquisition out of administration of the FLOWTECH business. But clearly, that business has been loss making, and we need to make sure that we put the focus in through the remainder of this year to look at that recovery. We're seeing real positives in building the sales pipeline and order book. We believe that momentum to be building very positively. Some of that, albeit delayed, because of the market. And that means that some projects will be pushed back into 2025. But we're very encouraged by the building of the pipeline and the order book as we are around the website development and the continued management of working capital and debt, which we believe we will continue to make progress on in the second half of the year. So very much management focused on FLOWTECH recovery and continued growth focus in FLOWTECH to drive that momentum into 2025.

12:12 And As we look ahead to 2025, our goal here is improved earnings. We'll be launching a new website to market during the first half of the year. We expect market volume recovery to come with the market improving. We believe we can generate positive Thorite contribution, with the work that we're undertaking currently. And we have some exciting major projects, which will be coming on stream next year. And we believe we can sustain our gross margins and efficiency gain work that we've been driving. So many revenue growth levers to deliver improved earnings as we go through into 2025 and as we look ahead into 2026. The overview for the first half of this year. Russ is going to go into this in detail, so I'm not going to go through each of these six boxes right now.

13:03 But ultimately, revenue is lower than anticipated for the reasons I've explained, and good improvements made around gross margins, cost controls, the service level improvements, and operational excellence, which we'll talk to as we go through the updates on both the financial update, and also the performance improvement plan.

13:21 So with that, I'm going to hand over to Russ, who's going to give an update around the financial performance for the first half of the year. Russ? Yeah, thanks Mike. So just a limited number of really fundamental points, I guess, on this slide. The first two of the three charts point towards the control and the controllable agenda. Firstly, as regards to gross margin, we entered 2024 with a lot of hard work done in this area and a gross margin that was roughly 300 basis points better than at any point in the previous five years, 3% better than at any point in the previous five years. And we're pleased to say that that has been maintained in the first half of the year that we're currently in.

14:09 In fact, had it not been for about 500,000 of revenue associated with our new catalogue launch that was, as an aside, very well received, which was breakeven in margin turns. We'd actually be showing a 50 basis points underlying improvement in the first half actually. So continued strong progress with our gross margin work. We're obviously sort of very mindful that it's more about pound notes gross margin than it is either revenue or GP percentage, and I'll come back to that a little bit later. The middle graph there points towards a couple of my favourite topics costs and cash. First is regarding costs. Bear in mind that approximately two thirds of our cost base is people costs, and people costs has increased.

15:01 But that points towards the cost of the new leadership team and people immediately beneath that level. And that I think sets us up incredibly well for the growth which we will achieve in the mid term, even though it's not come through in the year we're currently in. So yeah, the people costs have gone up, but we've helped ourselves by overall achieving a circa 6% reduction in overall headcount in a twelve month period. So there's clearly been some self help in that regard. And I think the investment in people, a good example of why that works, we'll come onto it is what we've been able to achieve in a really short space of time following the acquisition of the FLOWREIT business.

15:46 Come back to that. The risk of being color blind, I think that's an orange line there, which points towards well listen that's an inventory reduction of £4,000,000 in the period. And you know but suffice to say management of working capital and in fact all things impact upon our debt position remains very much certainly within my DNA. You may remember my background. I'll come back to that in a few slides time. So yeah, controlling the control, but we believe the first two charts point to.

16:23 The final chart there is a revenue chart and what I would say there is whilst the revenue is disappointed, we have reduced H1 this year versus H1 last year. Obviously, market headwinds explain that. The lead indicator is more around the quality of enquiries and pipeline and order book. That is really, really strong actually. There's a big positive there. Some of what we'd expected to achieve in the second half of this year has slipped, but in some cases one that slipped. So there's actually a good news story with the lead indicator of inquiries pipeline and order book.

17:11 Moving on, I'll just perhaps pick on a couple of incremental points from this slide. Firstly, around gross profit, and we've actually achieved a higher pound notes gross profit H1 this year versus H1 last year, notwithstanding the 5.7% reduction in revenue. And obviously what I've just said there is the aggregation of revenue shortfall, but materially mitigated 100% or more actually, based on what I'm saying mitigated by the improvement in the gross margin. Another point I'll pull out from this slide, and I'll come on to a debt bridge very shortly: our bank debt position has reduced by 1,900,000 over a twelve month period.

18:03 And for those of you interested in the position inclusive of lease debt, the reduction is just in excess of £3,000,000

18:13 In terms of the segment performance, the headlines here are that we're clearly well into double digit return on revenues in each of our three geographies. Our ambition is to get those percentages up to 20% and beyond. By the way, we've been at that level previously. There's no reason why we can't get back to that level. And obviously this is presented before the allocation of central costs. So we do need to get up to those sort of levels to deliver our mid term ambition of mid teens EBITDA margins. So to remind you, the midterm ambition, mid teens EBITDA margin.

19:00 The debt bridge, the debt has gone down. That's a six month debt bridge. There's just about more green than red. Think I've touched on some of the points underpinning this, but just to very briefly, the issue of share capital, 1,400,000 of cash generation. That primarily relates to the exercise of the warrant by Zeus Capital, who were the advisers at the time of the admission to AIM in 2014. They had the ability to exercise that option when the share price was in excess of the of the pound at the point of exercise. So that's what underpins the 90% of that green bar there in case anybody was questioning that. But you know management of cash absolutely critical.

19:54 The second half of the year is typically stronger than the first half of the year in terms of cash generation. And that's very clearly our focus, or certainly my focus and other people within the business to deliver that position over the as we enter Q4.

20:13 Thanks, Russ. So just on to the performance improvement plan. We felt it was important to give just a bit of context. So as I said, we put this in place Q3, Q4 last year. We broke this into three key focus areas. One, which was to introduce a simple operating model, which we believed would help the business to release the full potential of the people and capabilities across the group. And that was very much moving towards a country functional structure, so that we could also drive more efficiency gains as one FLOWTECH. Secondly, on the customer centricity, bringing the customer to the heart of everything that we're doing, moving more decision making and activities around the customer, and really putting more focus around embedding the growth engines needed to scale this business for the future. Not just from a UK point of view, but also internationally. Some of that we'll talk to shortly.

21:07 And scalability, which was around getting back to doing some of the fundamental basics brilliantly, particularly operationally in this regard. But also with an eye on our technology infrastructure and making sure that we build scale to power future growth as we go forward. So we're just going to give an example in each area, just to bring to life some of the progress that we've been making over the course of the first half of the year, and arguably the first three quarters of the year. I think the first to say is around embedding a new diverse leadership team, and importantly moving to that more simplified operating model.

21:43 That's been an important area of change, of bringing in a team with great experience from either outside the organisation, but people who understand the industry and understand scale coming from potentially larger organisations, but also identifying high potential individuals from within the business, and giving them an opportunity to step up to deliver more. With that, we've had the new leadership in place, as Ross mentioned, since Q4 twenty twenty three. So we've been running hard now at becoming a high performing team together, within that new structure. We've also driven around 60% of the change of leaders across the top 60 leaders, so quite a lot of change. And in some instances, building capability that we didn't have in the organisation. We hadn't built an in house digital capability. We hadn't built a procurement function across the group. And there's many examples like that, where it was clear that there were gaps in our core capabilities, in order for us to scale.

22:43 We've now completed 90% of that restructuring. You know, that has meant us saying goodbye to some people, but it's also meant that we've given others opportunity to move around the group, or to explore new opportunities. And we've restructured areas such as our sales organisation, so we believe we can drive greater productivity and efficiency, with the cost base that we have. And in some instances, as we've said before, looking to see how we can reduce the cost base in some areas. Alongside that, we've been rebranding to one FLOWTECH. We've rebranded 17 brands into that one FLOWTECH brand, and that's now complete across The UK and Ireland for all of our physical assets and all of our digital assets. And I'm going to talk a little bit around that shortly.

23:29 But also, we're going to be looking to complete that work within the Benelux during Q4 this year. At that point, every part of the business will be rebranded as one FLOWTECH. In parallel to that, and again I'll come onto this under the strategy updates, we've launched a new single value proposition to market, and we're now increasing our marketing and brand awareness activities, having needing to build a more comprehensive marketing capability to support all three geographical regions. Something that we're gaining some good momentum around as we're coming into the second half of the year.

24:02 And then finally, aligning with that, the objectives, the KPIs and the reward structure across the group. We're very focused around our culture, defining very clearly our purpose, where we're heading, our vision, what that means for our customers. And then very clearly for our people within the business, making sure that there's clarity around our key projects and objectives in order to drive change. And so we now have embedded performance management, a culture which is underpinned by common KPIs. And whilst it takes time to drive that level of change, I think we're making very, very good progress. And it's very much more of a pull from the people than a push. Because from the go get, it was very clear that I think there was a real pull that we needed to become on FLOWTECH.

24:48 And actually that has really driven out that simplicity and that ability to be able to take our complete offering to our customers. So in summary, highly capable people operating within a new model, with a very refreshed culture. And we think that sets us up for the future very, very well. In terms of being customer centric, I guess some key areas to call out here. Improved customer experience. As I said at the end of last year, we've started to put in place some customer satisfaction measurements, which we're going to be regathering again during Q4, just to benchmark ourselves. But certainly, we can continue to see a reduction in customer complaints, which is the orange line. Whilst, and that's right across the enterprise, whilst we see the improved service and responsiveness staying consistent or improving over time. And we're delighted with that, because that frees up time for our frontline teams to be spending more opportunity to be proactive and to add value to our customers, as opposed to being reactive and on the back foot.

25:51 Alongside that, as I said before, we've restructured the sales organization, and we've been taking the sales team through quite a strong development programme. Moving away from being tactical to being more value orientated in what we're doing. And with that, we've been measuring very hard the improvement in sales force productivity. We're now fully implementing a CRM programme across the business, so we've got good visibility of activity. But importantly, that's a cultural shift in the way that we work as a sales organization, which we're pleased with the progress around. And then finally, as Russ alluded to, we didn't have a group wide order book, we didn't have a group wide sales pipeline, it was very much held within the individual component businesses that we had. Under one FLOWTECH, we've now got a single sales pipeline across the group, a single order book across the group, We're measuring conversion of that. And we've got positive momentum building in the order book. I'd say in some instances, we'd like it to be moving faster, because of the market dynamic.

26:53 But we now have over 50,000,000 of priority sales pipeline opportunity, and we've tracked 50,000,000 of opportunities won. That doesn't mean they're all going to suddenly land tomorrow, but they are won, and they will be moving into the revenue stream as we go forward. Some of that also, some larger projects, which we believe will give us some really good size and scale as we go forward. But also, the order book is building now at 14,000,000. So good progress on the customer centricity objective, and just some examples there of what we're doing. Then Russell, would you like to just talk to scalable objective? Yeah, thank you, Mike. Yeah, so again, three charts on this slide. The first chart there, the orange line, if it's orange, forgive me if it's not, points to availability of product, and the bar there is the value of inventory.

27:49 So one of my favorite charts actually because from a low point of q one twenty twenty three, we actually got the availability of core product up by 10%. I think it was at 88%. We got it up to 96% and it's sustained at that level. It would be even higher actually if it wasn't for one supplier who needs to play catch up a little bit. But at the same time, we materially improved availability. The inventory and that's Skelmersdale inventory actually, that chart, reduced by 15%. So a 10% improvement in availability, and in that case, 15 reduction equates to about 2,000,000 pounds of inventory reduction. The middle graph there, the line is the number of complaints.

28:41 The bar is the volume of dispatches. So, the complaints per dispatch is materially reducing. For complaints, you could say picking errors or packing errors. So, you know, we've got a much more content customer base than we had certainly going back eighteen months. So obviously, you know, a really, really positive lead indicator. On the final chart there, I suppose a segue from the previous chart, I mean, the bars there is the headcount within the National Distribution Centre in Skelmersdale and the green line, if it's green, is the number of dispatches. So almost that scale doesn't do it justice actually, but we've achieved somewhere in the region of the 25, 30% reduction in headcount and got a materially better pick per person ratio now, and to the previous graph with materially fewer picking or packing errors.

29:41 So you know we introduced these charts based on feedback from investors actually, we think to the three components of the performance improvement plan, it's quite neat to present them in, you

29:52 know, the three charts each time, you know, welcome feedback in that regard, we think that's a neat way of doing it. Yeah, thanks Russ. So that takes us through the performance improvement progress. Clearly there's a lot more happening across the business, but there's just some good examples. For us, internally, having the measures are critical for us to be able to benchmark the progress that we are making. But also what that does mean is that as the market recovers, we're going to have greater operational gearing. And we do believe that that's going to set us up to be a much more

30:24 healthy business as we grow moving forward. So the journey to the future, our strategy framework, we laid out again very clearly. Just as a reminder, three component parts to that. Putting the customer at the heart of everything we do. Very much around our diverse customer base, and building an omni channel approach, which we believe is relevant to that customer base. The power of one is about building out the one brand identity of FLOWTECH, but actually underpinning that, it's having a differentiated value proposition, that brings all of our offering together in a clear and simple way for our customers. And the third element is a world of motion, which is the intention to expand our product services and geographical reach over time, to access what we believe to be a 30,000,000,000 European wide market.

31:12 And as we've said here, we've set some mid term objectives around the market growth rate, the EBITDA margins, and ultimately, we want to get a bigger slice of a very, very big and fragmented market that we believe is consolidating.

31:27 Underpinning all of that, becoming a much more digital and data enabled business, in what is a very traditional marketplace today. And we believe that that gives us an opportunity to create competitive advantage. If we just give an update on each of those, the first around the customer first. I think the important message here is around the new web platform. As I said before in my last two updates, the work that we did in the past to improve our digital experience for our customers, it hasn't delivered. Our customers find the existing web platform difficult to use, and we don't believe that we're able to really weaponise that as a growth engine for the enterprise. So we've been working pretty tirelessly in the background to, one, build in house capability, so that we have people in this business that we can scale around, to be able to develop what we believe to be a leading web experience for customers, not only to be able to promote our product offering, but also our extensive engineering and technical offering that we have across the enterprise.

32:33 Notwithstanding, we work with a lot of our important distributor partners, some of those regional distributors who very much would welcome, over time, a transition from a paper based catalogue also to a digital experience as well. And we believe we can provide a great service there for them. We have an objective to implement this through half one next year. This isn't to switch the button on and off you go. There is an important transition to take our customers through. And we need to make sure that we test that thoroughly, and we don't have any disruption for our customers as we migrate. But we will deliver an enhanced user experience. It'll give us improved scalability and flexibility. As I said, international expansion for us is also important. We have businesses in the island Of Ireland and in the Benelux.

33:20 And more broadly, we get involved quite a lot around export. So having multi language, multi currency capability is going to be very important for us. And those new features, ultimately, we want to be able to bring to our customers faster, we and want to make that a very immersive experience, where they can come to us and get access to technical information across what is a supply base of 2,900 suppliers, which we believe is a very powerful proposition. So we're confident with the progress we're making here. There's work to do, but we believe we're very much on track. The second area, which I think hopefully comes across through all of what we've just discussed, is the rebranding to one FLOWTECH. But at the heart of that is having a very, very clear value proposition. Clear on what we offer to which customers.

34:06 And you know, we've done work now to launch this to market. We held an event at the, in June, where we invited 150 of our customers, over 50 of our supply partners, and a number of our leaders together, to do the relaunch of the one FLOWTECH. And we're excited to say that that's landed very well in the marketplace. That understanding that we are a high service product provider, but we also have capabilities through our engineering solution centres, to design, manufacture, repair and overhaul assets. And we have teams that work across our geographies to deliver major engineering projects, and on-site solutions. We package that up, we think very neatly, and now that's about education, because typically because we've been so many different brands, our customers have ultimately known us for the brand that they work with, they haven't understood the strength and the offering that we have across the group. So this Think FLOWTECH, Think Differently campaign that we've been running is actually very important to change the mindset of who FLOWTECH is within the marketplace.

35:08 I just wanted to also just say that the Feet Pro branding is now being launched to market, and is gaining good momentum. So this is where we brought together 11 own brand lines. So these are products that we have manufactured under license, or where we manufacture those products ourselves. This today is around about a 20,000,000 channel. It's outgrowing the underlying performance of the business in revenue terms through the first half of the year.

35:35 And we have a real ambition. It's actually point number four in our margin engines to continue to grow Feet Pro. So this for us is getting momentum, we're providing a lot more marketing support around that, Aligned to making sure we're working in partnership with our key supplier brands, because that good, better, best to market approach is something that we believe very strongly in. Now, whatever we do within Feet Pro, it's working with our engineering customers, to make sure that we're designing and producing products that we know that they need. That's something that FLOWTECH has been renowned for, for the last thirty plus years. And so this isn't something that's happened by accident. We have a lot of credibility in this area. And then finally, the acquisition of FLOWTECH at the end of August.

36:22 We believe that this, whilst opportunistic, because it was a business bought out of acquisition as a pre pack, we believe that this has an incredibly strong synergistic fit. They were known to us, and we believe that this has been a real advantage, and to bring FLOWTECH into the fold. And the first five weeks,

36:41 far, we believe are going very, very well. Very much focusing on stabilization, and making sure we have continued consistency of service to the customers through that change process. Looking at focusing on gross margin, and looking to address the cost base, so that we can accelerate the recovery of revenue and profit into 2025. And I thought it would just be useful here to hand over to Russ, just to talk a bit more around the mechanics of the deal, and ultimately what we see from an outlook point of view. Yeah, thanks Mike. I am going to spend a couple of minutes talking to this slide, not least because a number of the questions that me and Mike can see coming through, do relate to the FLOWright acquisition. So I'm going to give my age away first and foremost because I said earlier on I've been in this business for six years.

37:31 Prior to that I spent thirty three zero years in professional services and twenty five of those thirty years were in turnaround and restructuring led insolvency practices in the North Of England within two organisations. So I've actually sold businesses out of administration probably hundreds of times, certainly many many dozens of times. So when this opportunity arose it felt too good to be true. I was certainly well placed in terms of putting myself in the shoes of the administrator in waiting to understand what was important to, as it turned out, him for his creditor base. And, you know, the deal's been announced, but just to remind the audience, we've paid £350,000 for the business and assets of a long standing business, 174 years old.

38:30 As an aside, a thousand years of experience came with the workforce that we inherited. Some really good people. And we also usually you'd leave the debtor book behind actually for the administrator to collect for the benefit of his creditors. But we chose to buy that debtor book actually because we could see some upside. So we paid £1,700,000 to acquire the debtor book. So all in all, paid £2,000,000 just a tad more for the entirety of the business and assets. The debtor book to us alone will be worth over £2,000,000 because we've delivered the continuity of business to mean that the customers of ours going forward, the debtors of the old company simply have no reason not to pay in full for what they owed.

39:21 And equally, we acquired close to 3,000,000 of inventory. Now I'm not gonna pretend every pound of inventory is perfect inventory, but the significant majority of it is really good, actually. So, in a nutshell, without getting too technical about it, we paid roughly £2,000,000, and we've got assets worth significantly more than £2,000,000. You know, it's significantly in excess of 3,000,000, I would say. What that leads to is the creation of goodwill but not goodwill as most of us know it, negative goodwill because the deal is so strong that the goodwill is negative. And when we release our full year results, the audience will see a significant credit as a separately disclosed item. It has to be separately disclosed. It cannot be treated as part of our underlying trading performance.

40:22 So I think we're probably on day 25, if memory serves, of managing this business. We did inherit a loss making position. Again, it was announced in the RNS, estimated £1,200,000 of losses in the year to March 24. And fairly obviously, the month of September We've already seeing significant signs in terms of improving its gross margin, and actions have already been taken to address the inherited cost base.

41:14 All of that said, we've had a disrupted month of September. We'll have a short month of December. So notwithstanding the huge positivity attached to this, and I've not even touched on yet the positives it can bring to the existing FLOWTECH business. There will be some losses from that business in the final four months of the year we're currently in. But, you know, really, really good news story. You know, as I said, it brings with it some really good people with loads of experience. It brings with it relationships with new suppliers, pneumatics focused suppliers to complement beautifully what we've got in terms of hydraulic bias suppliers already. So I'm in danger as an old school bean counter, being quite excited about this actually, but I'll hand over to Mike at that point. Yeah, so just in summary, we think about a world of motion, we're looking to expand our products and service offering out, firstly in the area that we're already an expert, but need to go deeper as a specialist.

42:16 Secondly, to look at that geographically. So this does both to some degree. It is a UK only footprint, but it does give us some geographical coverage that we don't have within the group today. We've just gone back one, there we go. But also, as it relates to this business, it does have a very strong product offering, product distribution offering. But also it comes with a wide range of very specialist solutions. One of which is on the screen here, which is around energy saving solutions in that world of air. And so this business is a deeper expert in the world of pneumatics, and come for us there than FLOWTECH, and therefore allows us to expand out in that world of motion much more into these areas, of which we know that our customers will benefit from. So early days, we're pleased with the progress so far.

43:09 And I think the teams that we have on board and the leaders we have on board have good experience in order to move to integrate businesses over time in the right way and extract the value from those. And then just a final point in strategy around our ESG progress. A real focus area for us, something which I'm really driving hard in the business across our leadership team. At the heart of that's around the health and safety and well-being of our people, we've seen some extremely positive progress. High risk incidents reducing sixty nine percent in the twelve months, and a further thirty three percent in the past three months. So I'm delighted that all of our leaders have really embraced the focus around health and safety, and taking accountability for that across the enterprise.

43:55 But notwithstanding that, making sure also that we're increasing the support we're giving around mental health and well-being. And we're now starting to see much greater activity there across the group. And we've signed to work with a new charity. I'm going around the slides, is a bit trigger happy. Just in terms of our focus, we've agreed to support CALM, which is a national charity focusing on mental health and suicide prevention. And our objective is to raise over £100,000 in the next two years, and for that charity, which we believe is a good indicator. Now in terms of diversity of our leaders, as you saw earlier, we have a much more diverse leadership team, from a top level leadership point of view.

44:42 But actually across all of our leadership cohort, we have a 40% increase in leadership diversity. And as I said before, we've made a lot of change across the leadership team in its entirety. And so work to do, but very pleased with the progress here. Because with a diverse team comes high performance, and comes great ideas and innovation, which is important. And then with that, we've actually isolated for this year, for the first time, a group wide pot of money for training and development for our people. We believe this is a really critical area, as a specialist in what we do, we have to make sure we continue to train and educate our people. And we're pleased to report 176% increase in core people skills and capability investment. We have this year put a real emphasis on commercial and technical training, because that's where we felt that that's needed. And we know that's going to be building really great foundations for the future, as we go forward into 2025, with a highly capable workforce.

45:40 So we're pleased with the progress around our ESG agenda. So it brings us on to current trading and outlook. As we said at the beginning, we remain extremely confident in our performance improvement plan, and our strategy for growth, and in our ability to deliver mid term earning ambitions. Hopefully you can see through the examples we've given for the performance improvement plan, and also through the examples within our strategy deployment, that there's some real tangibles there, and as I said before, around that control, the controllables, I think we're making some good progress. The reality is that the revenue line is impacted because of the market. We don't believe that we're losing market share. We believe that this is very much around overall market suppression.

46:25 So we can see through Q3 that we were experiencing a market that wasn't ticking up and slower than expected market recovery to what we'd thought. And that means that some of the core product volumes are down. So as I said earlier, the actual order frequencies, the amount of times customers are coming to us is very consistent. They're just putting less in the basket. And equally, some of the project revenues that we would normally be receiving, we're still getting the inquiries, we're still quoting on those, but the timelines are being pushed back. And then secondly, we have the short term profit impact of FLOWTECH, and that certainly is going to create some near term margin dilution. And for those two reasons, we took a prudent decision to revise the guidance down for 2024 and into 2025.

47:14 And if I just sort of come full circle to what I said at the beginning around the outlook summary, we do believe the market will improve. We're optimistic that the market will improve. One of the questions I saw pop up was to do with the budget. You know, there's certainly some feeling that the market is going to remain, or the industrial markets are going to remain suppressed. I think people are waiting, in some degree, for the budget. And that has different implications, which I think was what the question was referring to around AIM. But we do believe that the markets will recover. We just don't know when. If we talk to some of our larger down trading customers in the OEM space, we're really talking more into the second half of next year, as opposed to the first quarter next year, in terms of when we might see that recovery. But we remain optimistic.

48:00 And it's a big market, and we need to make our own success. And that's something that I'll always say to the team. We've talked about the focus now for the last quarter of this year. It's very much around getting FLOWTECH right sized and recovered, so that we can really hit 2025 in a positive place there, to Russ's point. But also making sure that we can continue to drive that growth focus in FLOWTECH. And then we did say we have a strong order book. Some of that has been converted, and we want to see how we can push that hard through this year, but certainly into 2025. And we've got many revenue growth levers, some of those new coming on stream for next year, which we believe will help us to deliver improved earnings in terms of our outlook. So in summary from us, the performance improvement plan is very much on track and delivering.

48:48 FLOWTECH brings some exciting market share growth and profits, once we've gone through the process of making sure that we drive the recovery into that business. And we're very pleased with the progress we're making around the pipeline, and the order book strengthening, albeit, you know, some of that is delayed, because, as we well know, the market is difficult around us. So that brings us to the end of our presentation. And I'll hand back to Jake, because we're going to move now into questions. Perfect, Mike, Russell, that's great, and thank you very much indeed for your presentation this afternoon. 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 company take a few moments to review those questions that were submitted already, I'd just like to remind you that a recording of this presentation along with a copy of the slides and the published q and a can all be accessed via your investor dashboard.

49:42 Guys, as you can see there, we have received a number of questions throughout your presentation this afternoon, and thank you to all of those on the call for taking the time to submit their questions. But Mike Russell, at this point, if I may just hand back to you just to read out those questions and give your responses where it's appropriate to do so, if and I pick up from you at the end, that would be great. Thank you. Yeah, I'll start, Jake. Thank you. First, to apologise for Mike, for I was trying to scroll through the questions rather than scroll through his slides a few minutes ago. Please forgive me. So yeah, there's a couple, I think I've addressed a number of the FLOWREITLOW related questions, but two points to add based on the questions. Firstly, five weeks in, roughly 70%, seven zero, 70% of the debtor book was collected, which which is obviously pretty good in a five week period.

50:29 And a question around the tenure of the properties. There seven locations within the FLOWREGG BRID business. By the way, we like the locations. They complement what we've already got very nicely, but they're all leasehold sites. That was a question. Are any of them freehold or are they all leasehold? We're occupying them under license to occupy agreements, which the administrator granted to us whilst we secure our thinking as to what we wish to do with each of those sites. As we said, we like all seven locations. Thanks Russ. And then there was a point around what gives us the confidence in successfully turning around Thorite. Thorite's a good business. It's well respected in the marketplace.

51:14 It's been in existence for one hundred and seventy four years and has a very, very strong brand and reputation in supporting industry in the area of pneumatics, air management and compressed air, more broadly. It has a very, very strong customer base, a very loyal customer base. It's also over time built out more than just a product distribution offering, it has good service offering as well. The business certainly has struggled. Some of that being the backdrop of the market. Some larger customers that have down traded. Those customers aren't lost, they're all right, but they're down trading because of the impact of the market. So you could say that that's just a bit of a perfect storm. But equally, the business made a level of investment in new facility, and also in making that difficult migration on an ERP platform.

52:10 Which perhaps created some disruption. The business is very stable. The first five weeks we've worked very, very strongly with the commercial front line teams of the business, and the functional teams of the business. We've worked very, very closely with our suppliers. Many suppliers to FLOWTECH, which has ups and downs in these situations. But we believe everybody has acted incredibly professionally. Nobody wants to see a company like FLOWTECH not succeed. And we certainly believe that it's a very, very good company. And so, two things really to that question. Number one, now we've got our hands around the business, and we've understood the business. There's no major surprises in there. And actually, we've started to see good, steady recovery already, where perhaps there's been some supply chain disruption in there. So that's positive.

53:03 And we can see very clearly how we can right size the business, and we've already started actions, to Russ's point on that, to recover the business from a profitability point of view. And we're moving on that very, very quickly. In terms of the wider market, we see a lot of synergies for the FLOWTECH offering to be sold into the FLOWTECH customers and vice versa. So with all of that said, and I don't think we need to say anymore because we've covered it off in a lot of detail, We feel very encouraged. But we're just working through it step by step. And the most important thing in these scenarios is bringing the people on the journey with us. In both businesses actually, and respecting that FLOWTECH is a different company to FLOWTECH, and we need to make sure that we nurture that, and we take the strengths of both businesses, and we unlock the true potential that's there.

53:51 Certainly the synergy opportunities that exist are very, very strong. And for that reason, it means that we can move probably quicker than most in order to make Thorite a winning proposition in the marketplace again. There was a question here around customer retention and how it's tracked in a more challenging market backdrop. We track this very, very carefully. We look at average order value, look at average order frequency, we look at down trading customers on a daily and weekly basis. Coming from a sales and commercial background, this is something that's very close to my heart. I do believe that we are retaining our customers. I think our customers have less spend. We have it firsthand from our top spending customers and our top down trading customers. Many of those are more original equipment manufacturers actually.

54:38 And that their markets are down, that they're having to burn off inventory, and that they're not spending so much. And that their recovery time to when they thought they would be able to start to ramp up, hasn't happened as quickly as they thought. And I actually had a conversation only last week with a big customer that said, look, thought we would be second half this year, you know, starting to really ramp up. But actually that's now going to likely be more into the middle of next year. And that's kind of what we're dealing with here. The underlying velocity of what I would call more MRO business, either from a customer's direct or mainly distributor partners, resellers, it's just suppressed. When we talk to those companies, they're not spending so much because they don't have as much requirement coming from market.

55:26 And you could say, well MRO should be more resilient. It is, but what happens is that the projects get curtailed and it's basically run to fail. So you tend to find you know, same or increased velocity of purchase, but less in the basket. I've also benchmarked that across our competitor base, being in the market for twenty seven years, and I think it's pretty consistent, the patterns that we're seeing. So projects being pushed out, OEMs that potentially aren't coming on stream so quickly, because of the market, and the underlying sort of MRO business, just being a little bit more suppressed. But we think that with exceptions, because every business either chooses not to have customers or we lose business to the competition. It has happened, but it's a very, very small percentage. There was also a question from the same person around how we measure, what benchmarks we use to measure the market.

56:17 Typically we'd be looking at GDP, we'd be looking at manufacturing production index, and we'd be looking from a macro point of view at PMIs. You know, I think it's been a bit bumpy. I mean the PMIs have strengthened in The UK. They've got worse in Bunnellux. Arguably, sort of similar situation in the Irish market. But it tends to be, from my experience, a six to nine month lag that sits behind the PMIs, before you really start to see that recovery coming through. We also work very closely with institutions within the market, such as the British FLUIDPOWER Association, just to get market benchmarks. And also we work very closely to benchmark against our competitor performance, but also we work a lot with our distributor partners to understand how they're getting on.

57:05 And I think generally, we're in some instances slightly ahead of the market, in some instances we're there or thereabouts with the market. Not surprisingly, we're in a transformation and we know we've not got everything running like a well oiled machine just yet. And we still have a lot of work to do. So whilst we're making improvements, we're not perfect and we've got to continue to drive the business forward. Rustom, just a point as well we're talking about the growth I guess and revenue. A question around the positivity of the pipeline and the order book. Just what's the timeline for that coming through. The reality is I think it's slightly different, depending on whether it's more distribution led or MRO led. Because whilst we can win business, that tends to be transferred across over a period of time, and that could be over a twelve month period. For some of the larger projects that we're winning, some of that will fall into next year. Some of it could be straddled across a multi year period.

58:00 So I would say that we'd be very encouraged to see some of that growth coming through next year, both with market recovery and also starting to see those projects starting to kick in next year. But I would say that we're likely to see the market being more suppressed through the first half, with the view that we would like to see that recovery happening in the second half of the year. So that would just be really what I would guide to around that. Do want to pick up a question? Have you picked up? Yeah, think can pick up the next question. It's a question around Benelux specifically, actually. The question was suggesting there'd been a decline in revenues, so I don't think that's correct. I think there was a marginal increase H1 '24 versus sorry, that was suggesting there was an increase in revenues. I think the revenues dipped a little bit, But that combined with, you know, investment in the cost base and the Benelux. And by that, I mean, we brought in a new leader.

58:56 He's called Francisco Terrell. He comes from with a certain pedigree of successful involvement in some actually much bigger businesses. And, Francisco has brought in a couple of new people and, setting himself up, setting himself up to success in the balance of this year and beyond, as Mike briefly alluded to. If the market's not our friend in The UK, Francisco can equally say the market is not his friend in the Benelux. You might reference the PMI data, for example, in that regard. So, yeah, I just stick with what I said twenty minutes ago that, whilst there's half decent EBIT margins in each of our geographical segments, we certainly want each of those to materially increase to deliver our aggregate ambition of the mid teens EBITDA margin in the not too distant future.

59:49 Thanks Russ. We're at the hour mark whereby we need to draw the call to a conclusion. We will circle back on any questions that we've not got to. Some of those, I think, the themes of which we've covered off in the updates that we've given. But I would just like to thank everybody for the time to join the call, but also to put some questions towards us. It's really helpful. We're continuously wanting to evolve, you know, how we can improve the way in which we communicate with our investment community. Jake, I'll just bring it back to you, and then I'll just do a close. Perfect, that's great. Mike, Russell, thank you very much indeed for addressing all of those questions that you can from investors, and of course, we will be able to give you back all of the questions that were submitted today, and we'll give you those back immediately after the presentation has ended just for you to review and to then add any additional responses, of course, where it's appropriate to do so.

1:00:43 And we'll publish all those responses out on the platform. But Mike, perhaps before really just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and the company, if I could please just ask you for a few closing comments just to wrap up with and then as I say, I'll redirect those on the call for their feedback. Thank you. Okay, Jake. Again, thank you for joining us. The performance improvement plan that we laid out very clearly, we believe, is on track, and we're making good progress against that. And hopefully, there's confidence that's been built in us demonstrating that. Many investors have also visited us and come and actually seen that in action. And hopefully, you know, there is real confidence in that transformation that we're driving, albeit, you know, we do believe that the revenue side of where we are, you know, whilst it's not performing to where we want. We know that, that is certainly going to come through for the future.

1:01:35 Thorough recovery, in terms of the ability to drive incremental growth and incremental profitability, for us, is very encouraging. There's some heavy lifting to do near term, but we're really pleased with the progress we're making there. And as I said before, great that we've now got visibility of the pipeline and order book, and we're seeing that building. And we're encouraged actually with the new value proposition and how that started to drive new inquiries and new interest in FLOWTECH, ordinarily which we wouldn't have seen in the past under multiple different brands. And so that rebranding to FLOWTECH, and that launch of the new value proposition, we think, sets us up very well for the future. So thank you for listening to the updates, and we look forward to meeting with many of you over the coming number of days.

1:02:23 Perfect. Mike, that's great. And thank you once again for updating investors this afternoon. 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 that the management team can really better understand your views and expectations? This will only take a few moments to complete, but I'm sure will 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 afternoon to you all.