Flowtech Fluidpower (LSE:FLO) — Interim Results

0:00 Good morning, and welcome to the FLOWTECH FLUIDPOWER PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time by the Q and A tab situated in the right corner of your screen. 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 will review your questions submitted today and publish responses to it as appropriate to do so. Before we begin, I'd like to submit the following poll. And I'd now like to hand you over to Mike England, CEO. Good morning to you, sir.

0:30 Good morning. Thank you for joining us today from wherever you are around the world. It's a pleasure for me to be here. I'm on day 101 as the chief exec for FLOWTECH, And we're going to talk to you today about our twenty twenty three half year financial results, but we're also going to talk about our plans for the future. By way of introduction, I just wanted to say a few words coming into the organization. This is a good company. This company is number one in The UK and Ireland as it relates to FLOWTECH FLOWTECH products and technologies. It's grown by acquisition over the last number of years.

1:18 The organization is operated quite traditionally. And as such, we haven't delivered the value, that I think that, the market or our stakeholders would have expected, and we haven't fully released the true potential of the group that we have. So I'm really excited, to talk to you today about how we release that full potential and how we go on our journey to the future. And our aim very simply is to provide our customers with power, motion, and control solutions from a single component right the way through to fully integrated engineering systems. And we're doing that by harnessing the best global brands, products, and services and engineers in the marketplace. We're gonna talk more about that statement as we go through the presentation today.

2:06 As an overview, we're going to spend, I would say, about a third of our time talking about the performance of the business in the first half of this year. Some modest revenue growth, a a decline within our operating profit, some sustainable gross margins, and some good work done to continue to reduce our debt position. We're also then going to spend some time talking about the performance improvement plan, which I've moved very quickly to implement, but also with that, changes to our leadership team and bringing some energy and some dynamism and some experience for this business to help it to scale for the future. And, also, we're we're very, very pleased to talk to our strategy, in very in a very simple way and to help you to understand, the components of that, and how that's going to deliver mid midterm value creation, for for this business and for our stakeholders.

3:05 So just a couple of words by way of introduction. I'm Mike England. I joined the business in April. I've had twenty seven years in industrial distribution. I did a master of engineering, and I'm very passionate about engineering and helping industry to thrive. And as the world is changing with digitization, with big macro topics such as sustainability, the opportunity for organizations that have the combination of of of industrial products, services, and technologies to help industry is actually a very exciting one. I've spent nine years with Rec seven Electrical Distribution Company.

3:44 I've spent similar time around nine years with with PLC now trading as Rubix, which is now private equity backed. And I was on the team that drove that business from 2005 from a £1.50 share price up to around £5. And that was a great journey helping me to understand the industrial market, the customers, the suppliers, and actually was my introduction to FLOWTECH both as a as a as a partner, but also somebody a a company in the industry known as a real specialist. And then for the last seven years, I've had the pleasure of being part of RS Group PLC from 2015, and we've seen that business successfully move from an 800,000,000 market cap to over 4,000,000,000 market cap. And my last role there was was as as the the group chief operating officer where I was responsible for the p and l's across America, EMEA, and Asia, but also responsible for some key activities such as digital procurement own brand, and that's given me some great experience.

4:48 But, look, for me, it's really exciting to come into a business where I think we've got that blend of of having good product distribution. We can make it better, but also having the engineering services and solutions capabilities, which we can see and I can see more and more than our customers and industrial customers are looking for, particularly as there's less skilled engineering happening within industry. We have a key role to play to support that agenda. So that's my my background. I was looking for an opportunity to transform a business. I I'm really, really excited to work with the board here at FLOWTECH and feel very supported by our shareholders. So we're gonna talk about our financial results. We're going to talk about our performance improvement plan. We're gonna talk about our journey to the future, and we're going to then just give some indications around current trading and our outlook. So with that, I'll pass over to to Russ, who's going to talk through the financial results for the first half of this year.

5:47 Yeah. Thank you, Mike, and morning, everybody. Yeah. As Mike alluded to, the focus of this presentation is sensibly gonna be forward looking. So you're probably gonna get about ten minutes from me primarily on the next three slides, and I'll come back a little bit later in between the core of what Mike's saying. But I I quickly worked out that I'm I'm not on day 101. I think I'm on day 1,188, roughly. Put another way, I've been in the business just shy of five years. And just briefly, by way of reminder of my CV, five years within FLOWTECH, but the previous thirty years, give or take a month, was in professional services. And the vast majority of that time was in restructuring and turnaround, actually.

6:36 So, you know, some people say cash by name within my DNA is managing cash by nature. When I signed up at the back end of 2018, it was it was obviously pre global pandemic.

6:51 And, you know, if there I can rarely do a presentation without referring to a sporting analogy, actually. So here's my sporting analogy this morning. I feel a little bit like I'm in the dressing room with a championship football team that's played pretty well over the last few years. And within that headline of playing pretty well, I would pick out, you know, a bit of a soft point in some ways, but navigating our way through the challenges of the global pandemic, and in particular, the people agenda attached to that. I think we looked at with, you know, a degree of pride as to how that was managed. But, equally, some of the stuff we've done to declutter and simplify, you know, what was perhaps, you know, and born through the acquisition activity was unpicked and certainly in some areas very successfully, notably, you know, pick out the Island Of Ireland restructuring.

7:44 Back to the football analogy. We we played okay, but I think there's been a couple of own goals along the way, which I think Mike will allude to when he comes back. But I do very much like the look of the dressing room. We've made some new signings, and it just feels good. Sort of a lovely blend of past experience and, you know, new blood and new energy and new ideas within that dressing room. So, you know, really looking forward to the future, you know, infused by what the future holds. So, in terms of the numbers, I guess if there's an overall strap line, for me, it would be under the heading of, you know, perhaps a step back in terms of profitability. But the first half of the year or the second part of the first half has seen, you know, lots of activity. As I said, the beginnings of lots of new faces being introduced to the business. And if there's one step backwards in the immediate term, I think it's for the greater good and hopefully look forward to many, many steps forward.

8:42 Hopefully, in the remainder of 2023, but certainly into 2024 and beyond. So so beyond that strap strap line, you know, fairly obviously if they just tackle the the headline components of the p and l and then touch on debt. In terms of revenue, what I would say there is it was definitely within the first half a story of two quarters, and we saw trading conditions getting quite a bit tougher, actually, in the second quarter of the year. And we expect, you know, h two to be tougher than h one, actually. So, you know, and more difficult trading conditions set to continue into the second half is the headline within revenue. Very much a story of the three segments, and I'll come back to that in a couple of slides time, really. But in terms of revenue, you can probably see some, pretty decent growth within what we call solutions and services, but, you know, a disappointing performance within, the FLOWTECH business for sure.

9:41 But like I said, the good news is I think we've identified the issues, and the new team is determined to tackle them. In terms of the gross margin, I think this is the tenth set of presentations that I've done. Obviously, typically, two per year, half year, and full year. And I always say the same thing, really, so I'm I'm gonna stick to that. But the the gross profit margin is varied between thirty three point eight percent and thirty six point three. That was the the record in h one last year, actually. So 35.5 is fine. We're not gonna pat ourselves on the back too much for that. Neither would we beat ourselves up too badly if it was at, say, 34. It fairly obviously depends upon the mix of business with the the product distribution segment typically being higher margins than solutions and services.

10:32 And in fact, you know, beneath that headline, we can see a very strong performance performance from the services segment where we sort of sorted out the gross margin and worked out what to charge our customers there. And that's offset, you know, the the mix, which is less biased than it typically is between product distribution solutions and services. So, you know, gross margin, we're perfectly happy with. Underlying operating overheads. On a like for like basis and underlying basis, the increase is four and a half percent. 1,100,000 is 6%, but underlying, trust me, is 4.5%. And, you know, obviously, a period with significant, some would say, once in a generation inflationary pressures, you know, we've had to look after our people. We're keen to look after our people, in fact. So there's been, you know, pay rises of typically seven or 8%.

11:28 But we have elements of self help there. The average headcount in the first half of the year this year is approximately 6% lower than it was in the comparative period. So we're determined to continue that trend of doing all we can to control the overhead base. Know, all of that adds up to under the under my heading a one step back, you know, naught 800,000 reduction in the all important underlying EBITDA. In terms of debt, if you're a traditionalist, which is what I am, you'd refer to a 4,300,000 reduction in a twelve month period. If you're a current world purist, that actually increases to 5,100,000 once you take account of the lease debt.

12:13 So, again, we're pretty comfortable with what we've done in terms of managing that debt position. You can see some reasonably attractive green bars on that reconciliation chart there. Probably the one I would draw your attention to isn't the cash profit, which is the first green bar. It's the working capital one.

12:36 I think that says 2,600,000, albeit I'm testing my eyesight, small print. But inventory went down in that twelve month period by 3,900,000, currently sits in our balance sheet at circa 30,000,000. So, you know, we've clearly had to react to factors outside of our control, but we'd like to think we've given that due care and attention. But equally, I think there's quite a lot more that we can achieve moving forward under that heading, in particular with some of the new faces that are now in that dressing room. And so I think in in a nutshell, we're quite pleased with our circa 5,000,000 debt reduction in a twelve month period. We believe the second half of this year will deliver further debt reduction, and we strongly believe that that trend should continue into 2024.

13:26 As I said, you know, from my own personal point of view, I feel those skills generated over a quarter of a century personally put me in a good space in making sure that trend continues.

13:41 And just before handing back to Mike, just in terms of those segments, let me start with the positives. In terms of solutions, those that read the report and accounts will have noted, probably a couple of years ago, I think, at the time, Bryce and myself set out the target of a 10% return on revenue for solutions. And I think from memory, we said in time, 2022 actually saw us immediately achieving that return on revenue. And it's really nice to see that was continued into the first half of twenty twenty three with, as it says there, about 11.2%. We say contribution percent. That is return on revenue calculation. As I said, we don't expect life to get any easier in the second half of this year, but, you know, particularly pleased to see that step being achieved and maintained.

14:34 And within services, some might say I'm about to compare an apple with a with a pair, but I don't really care because I think it's a powerful comment. But in in 2020, admittedly, you know, the anosorbibulus with reference to the pandemic, that segment delivered a fairly nasty 1,200,000 full year loss. So the fact that in the first half of this year, we can point towards a 1,200,000 profit with, as I briefly alluded to before, sorting out our pricing, beginning to charge our customers what they deserve to be charged, you know, is a really incredible performance in my opinion and has materially outperformed the targets that we've set for that business. Relatively capital light, by the way, that side of our business for those who look at return on capital metrics.

15:24 Within product distribution, that is, you know, in the dressing room, we are looking around thinking, you know, the the the there's some good stuff being achieved there. Of course, there has. But there are some end goals there. So, you know, overall, as I said, a story of the first half being a story of two quarters and very differing performances between the three segments, happy with solutions, very happy with services, but much to do within product distribution. So I'm just gonna hand back to Mike who may or may not want to comment on much of what I've just said, but we might just wanna touch on the own goal piece that I referenced. But I'll come back in a few minutes' time later on in the presentation. But anything you wish to emphasize, Mike, or anything which you think I've missed?

16:14 As I said before, this is a this is a good business. You know, I think I think well intended was the consolidation of five businesses into one. You know, we we we decided not to consolidate the whole business at at that point in time, and I think well intended and has brought some efficiency and scale. But parts of that execution has created some customer dissatisfaction as that relates to some aspects of our our service. So that, for example, bringing bringing a lot of inventory from from businesses together into one location. That could be to do with getting our website or a new website up and running effectively and and bringing together product files and pricing files, some work to do to make sure that we complete the execution, the successful execution of that integration work. So those will be elements and some examples.

17:07 But all of that being part of the performance improvement plan, which we'll we'll move on to now. Certainly, from from my side, it was very apparent very quickly where we needed to go to as a company. I would say that the business has lacked clarity of direction and hasn't been clear on its north star, which is very important for our people. But it's also very important for our customers and our suppliers who are a key component of our success. And so being able to provide more clarity of of of how we're going to be moving forward as a company is really important. And secondly, I would say that we've also lost sight through a lot of change in the organization and through that execution that I've talked about. We've lost sight to some of the basics and doing the basics brilliantly.

17:54 And in industrial distribution and services, this is about doing the basics brilliantly. You know, it's a relatively straightforward combination, and it takes the right people to drive that and the right focus. So the performance improvement plan is pretty straightforward. We want to very quickly deliver a much more customer centric organization. We want to drive a lean and scalable platform for future growth, and I'll come on to market size and opportunity a little bit later on. But we've effectively outlined three components of the of the performance improvement plan. The first is about simplicity. We have implemented a new simple operating model, so moving from a quite siloed divisional operating model to one which is flatter. It's very functional, and that allows us to release the full potential of our people, but also the combined capabilities that we have across the group. The second is around customer centricity.

18:52 So moving more of the decision making and activities around the customer, making sure that everybody in the organization is focusing on excellence and customer experience, and every interaction is is is is brilliant. And that very much is bringing growth back onto the agenda in this organization culturally. And then scalability is about doing the the operational basics brilliantly, and that's an area for real improvement for this organization. But, equally, it's about building the operational and technology infrastructure that's going to help us to power up our future growth, which we have a good footprint. There's work to do to to to expand that. So if I just open up on those three points, I'm not going to labor too much in these areas, but we have moved very quickly to a new operating model.

19:41 We've organized ourselves around three team outcomes. We have teams that are focused on growth. We have teams that are focused on excellence in delivery, and we have teams that are focused on supporting the above. We have implemented a new high caliber leadership team in a flatter functional country structure. It's a good mix of existing talent. We've looked at where we've got high potential individuals who can do more. But, equally, we've brought a number of individuals into the organization, handpicked, who have good industry knowledge, known to us, who we believe can bring the right skill sets into this organization and the right industry knowledge and understanding to take this business to the next level. We have seven of those roles now in place. We've got the final three onboarding in October, and it's worth noting that five leaders from the previous team have now exited the the business. So that gives us the ability to to reset the organization both in terms of the operating model and in terms of the the people and the leadership.

20:49 And what we're looking to to drive here is is more consistency in our culture, in our ways of working, looking to see how we can simplify processes by operating in a more consistent way, and we can start to look at at giving greater accountabilities all centered around the customer. We're making very good progress in this area, and I'm very confident that come October with the the full team in place, we'll be able to then start to accelerate execution. I will just put a note here that I'm very passionate about the ESG agenda, something where I've had good experience in the past sitting on the ESG board within RS group, for example. We'll come back in future trading updates with more color around our framework and plans for our ESG agenda. But I will just point out that as part of the new leadership team, I'm really excited around the diversity that we've already built into the new team as well, so a big step forward for us there.

21:44 In terms of customer centricity, this is very much around pairing up our growth capabilities near term, and that's about increasing the quality and frequency of customer interactions and making sure that we improve our customer service for our customers. And we've defined very clearly a plan around building out our sales capability. You know? So we're in the process of of restructuring our sales teams. We're looking at our sales processes. We're looking at our sales tools and enablers and, ultimately, our productivity so that we're seeing more customers more often and able to bring our full value proposition to them across the enterprise. In marketing, an area that I believe that we haven't really powered up fully, and we have some work to do here, particularly around our branding, but most importantly, around our channel optimization, improving our digital experience, and making sure that we have a much clearer customer segmentation approach to drive productivity.

22:40 And then in terms of customer care, this is about doing the basics brilliantly. We don't have Net Promoter Score metrics and measures in the business today, which is a a gap, and needs to be put in place very quickly. We've got to build out greater levels of technical support for our customers. And as we move forward, particularly with the digital agenda, building proactive communications and and and areas such as live chat are gonna be key component parts for us to move quite quickly around. So some real focus there in the near term. And then in terms of scalability, right at the heart of this right now is doing the basics brilliantly. It's making sure that we're measuring very, very hard our availability and our service and our delivery to promise to our customers, and these are areas for improvement today.

23:26 But more broadly, focusing in the area of digital, looking at how we can continue to improve our the website experience for our customers and and listening to their feedback, looking to see how we have greater exploitation of insight and building more digital tools and enablers for our customers. On IT and data, we've got work to do here to look at process improvement. We have still different ERP platforms given the acquisition trail that we were on, and we have made some progress to consolidate our ERP platforms, but there's an opportunity there to continue to make improvements. And as with our data infrastructure, to make sure that we can drive that insight effectively. And then I I would say more operationally, looking at how we can introduce more automation to improve our efficiencies within our distribution landscape, but also manufacturing excellence. So what we do in services and solutions is we manufacture, and we we have production capability for our customers to provide them with engineering services and solutions.

24:29 And we have an opportunity to be more efficient and effective at how we deliver that as we scale. And finally, we have some decisions and some options around facilities upgrades and where we can further consolidate our business over time. So those are the three component parts of our performance improvement plan. I can tell you that the team are incredibly focused around these, and we're looking at those near term interventions drive those performance improvements. And you won't be surprised that those are very much pointed right now towards the product distribution side of the business where we can see that we want to gain better momentum than we've had over the first half of this year. And, arguably, we saw that trend coming through 2022, and that trend has continued. And so we need to arrest that trend. Our journey to the future is about setting the north star. It's about deploying a refresh strategy that we're confident is going to deliver midterm above market growth and value creation.

25:27 We'll just quickly talk about customer focus. We have quite a diverse customer base today. We we currently operate across The UK, across the island of Ireland, and across Benelux, and we do have some business which is very much around our export capability. But the opportunity for us to expand outside of our existing markets as well as to drive greater market share within our existing markets is very sizable. We operate across multiple industry sectors. Around 40% of our business today is selling to the indirect channel, so selling to distributors and resellers with 60% whereby we're providing support to OEMs and end users direct to market. And you can see the splits in terms of the customer type on the right hand side.

26:14 What is important for this business is its unique proposition and being able to provide both the products that our customers need, but over time, being able to cross sell and upsell our engineering capabilities for our customers that creates a greater EBITDA opportunity for us over over as we bring our value proposition together. But we do recognize that we have some core competence today within our customer base, but our customer base is relatively narrow, and we believe that there's a big expansion opportunity to to add add more customers through selling more to existing customers and adding new customers and powering up our digital capabilities for the future. With that, we're very much wrapping our game plan around a world of motion.

27:00 We operate today, within FLUIDPOWER. It's a large market, but it's changing. And we can evolve to meet our customer needs. And in fact, our customers are frequently asking us, to do more with them, and gonna help us to accelerate our commercial advantage. And why are those needs changing? Well, there are macro trends happening across industry. There's digitization. There's industrial Internet of things, which which combines electronics with industrial and mechatronics. There's electrification that's taking place. There's new emerging technologies which we're working with our key global suppliers around such as hydrogen power. And there's also a a big push for sustainability and how can we help our customers to to reduce their footprint, but also their energy consumption within their within their plants. And then finally, market consolidation continues.

27:52 We have to recognize that the market continues to consolidate. So as an organization, we know that the the the typical industrial application, you know, consists of more than just flow control, and there's a continuum. We're very, very proficient today and experts around the movement of air gases and fluids to transfer power. And but we're already starting to provide electrical products and solutions for our customers. And, arguably, we're already starting to provide mechanical products and solutions for our customers. But we want to do this in a measured and considered way, and we're going to be building on that as part a key part of our strategy. By doing that, we will take our addressable market in Europe, and, obviously, the market is much bigger than just Europe. But for now, let's let's look at Europe from around 10,000,000,000 to more than 30,000,000,000. So that gives us a three x opportunity as as we we go go forward and expand our product, and services capabilities across the world of motion.

28:50 And then with that, the power of one, you know, bringing together the full capabilities and potential of the group under one brand having one simple operated model and one value proposition. And under the performance improvement plan, we've already made some strong progress in getting this off the ground. Strategically, we're moving from a fragmented approach where we still have multiple brands to market. We're We're operating quite independently today with with individual profit centers, which does create more of a siloed way of working. And we're going to move to one approach, one brand, a simple operating model, a very consistent value proposition, and we're making sure that that is very much focused around our customers and growth. And so you can see we will be moving to FLOWTECH, a world of motion.

29:36 And, really, what I look at quite simply and having good understanding in this in this market space is is we're not yet combining the full power of our product offering with the full power of our engineering offering for our customers. And I truly believe that by doing that really effectively and executing that brilliantly, one plus one equals five. And with that, we want to create a powerful customer proposition. We want to create create greater speed and agility for this business because, as I said, we've been operating quite traditionally. And I would say that pace and urgency isn't something that's in our DNA as a company today, and we want to make sure that as we as we go on this journey, we drive a greater level of efficiency within this enterprise. And I believe that there's opportunities to do that and to achieve that.

30:22 And then finally, wrapping that together into a value creation plan where we've put together a midterm value creation plan consisting of six engines to power our EBITDA growth, which we will continue to come back and give updates around. And perhaps on that, Russ, I'll I'll let you just continue to talk to this slide and then move on to the current trading and the and the the outlook. Yeah. Thanks, Mike. So, yeah, just before I do that, if somebody was to say to me, look, Russ, you've been in the business over a thousand days. Mike's only been in the business a hundred days, hundred and one days. What's really different? For me, I think there are three key things. Firstly, coming back to my football analogy, the team, I think the team has made some new signings and hopefully on the cusp of the promotion season is the first point. Second and third point, so really just, to a degree repeating, but certainly supporting what Mike talked about in terms of expanding from, if you like, the restricted world of hydraulics and pneumatics into the much broader world of motion and both in terms of stretching to, you know, different areas, or not that's electrical, mechanical, hydrogen, or whether or not it's more making more of the breadth and depth of what the business has recently been doing, in particular, those value added engineering services.

31:47 We're we're way beyond just the value added product distribution business. And and finally, again, Mike's reference to, you know, everybody thinking about the group, delivering the group, whether or that's a salesperson or an operational person rather than focus on individual profit center mindset, which has worked well in the past, but I think now is the time for a reset button in in many different areas. So in terms of that value creation plan, sorry, if you know, let's go about one. You know, six different, what we call, engines to EBITDA growth. And, you know, arguably, number six there is the most important of all. But being a numbers person, I'm not gonna focus too much on that on that one. But those first five there, you know, we've got focus in what we call the immediate three months, the medium six months, and the long term beyond six months in each of those five areas.

32:40 And without dwelling on them too too much, I would say that each one of those five in isolation has big opportunity, and certainly all five of them in aggregate have really big opportunities attached to them. You know, some some of it is, as Mike says, doing the basics brilliantly. I would probably capture number one customer growth within that category. And I think there's an opportunity to recognize that we have lost some business in the past, but the view is that we can we can get the vast majority of that back and actually beyond that build on it. We can turn, you know, yesterday's lost business into tomorrow's opportunity, we strongly believe. In terms of commercial excellence, you know, with one or two new signings, I believe that we can refresh our approach to that 75,000,000 procure annual procurement spend.

33:32 Over time, hopefully, improve the quality of an already strong gross profit margin, and importantly, begin to do some of the basics around packing and picking, you know, better than we have in the past. I've already talked about products and service expansion. That's to the world of motion point. Within own brand, big, big opportunity there. At the moment, we're about 15%, one five, 15% of what we do is own brand. Fairly, obviously, a really nice healthy gross profit margins, But we believe we can increase the proportion of business we do through own brand. And importantly, at the same time, keeping our suppliers happy by over time growing our procurement spend with them as we broaden the range of offerings.

34:22 But we can build on that already strong GP percentage to an even stronger GP percentage. So a bigger proportion owned brand and, you know, building on an already strong GP, that that's an exciting opportunity. Number five, I guess, comes back to, you know, me in particular. Russ, at the end of the day, you're somebody who's got a quarter of a century track record of looking after costs and cash. So to a degree, I'll be back to basics in a in a comfort area of my own there. So, you know, as I said, all five of those in isolation, big opportunity, and in aggregate, you know, huge opportunity. In terms of where we are right here right now, I already touched on the fact that within the first half, life got tougher in that second quarter.

35:07 And I've already touched on the fact that we expect the second half of the year to certainly be no easier than the first half. But we've got our new team in place with, you know, refreshed energy all over the pitch, and we're doing all we absolutely possibly can under that immediate three month banner to deliver a stronger possible result for the remainder of 2023. We recognize there's only a third of that period now in play. But but if nothing else, you know, to set up those engines for a really strong start to 2024 to get, hopefully, a full or fullish year impact of lots of those activities under which underpin those engines. And with all of those new people in place, as Mike said, some of the new signings are already on the pitch, and now and all of the new signings will be on the pitch within seven or eight weeks.

36:02 So Mike's gonna sort of provide some concluding comments to me. But if we get those engines started and roaring and we focus upon cash management and we do a half decent job of communication, hopefully, we're set for good things. To you now? Okay. So just to wrap up all of this in terms of opportunity, opportunity for us and opportunity for for value creation. We are a differentiated specialist in what we do. We're building out a a much more powerful proposition, which we believe would give us the opportunity to to drive greater growth in in what is a very large and unconsolidated industrial marketplace.

36:48 And as I said before, more than 30,000,000,000 of market opportunity in Europe alone, and, arguably, that market is much bigger. We have a very diverse customer base today, and we're seen as an expert in what we do, which is a key differentiator. But it's the multichannel approach. It's the ability to be able to provide a single component through a web experience through to supporting distributors and resellers through a unique value proposition through to the ability to to bring complicated services and solutions to bear, which gives us really sticky and embedded long term sustainable relationships and quite often service multiyear service agreements with with our customers. And so that creates us an opportunity, we believe, to be confident to be targeting more than two times market growth rate.

37:39 And then finally, the the lean and scalable platform which we're building and making sure that we're thinking about this business in the future rather than this business now, and so making sure that we're building out the platform so that we can expand our product offering and our service offering. We can future proof this business, and we want to expand our geographical reach over time. If we do that brilliantly, which we're confident we can do, then in the midterm, we should be guiding towards a mid teens adjusted operating profit margin target, and that's certainly what we've got our sights set up. So with that, we'll move to questions and answers. And, we'd like to thank you, sincerely for your interest in FLOWTECH, and, hopefully, the presentation today has been useful.

38:26 Yeah. So, I think Mike's just beginning to read the questions that have come through. So, perhaps if I can just pick up on a couple that have come through. Can you comment on the length of debt, interest rates, and refinancing timelines? So I mean, yes. Obviously, I can. We refreshed our position with Barclays Bank in February of this year, February 2023, and that saw similar facilities being put in place for a three year period with an extension on our side to extend to four. So that's obviously to February 2026 and quite probably beyond. That's 20,000,000 of term debt and a 5,000,000 overdraft facility.

39:12 So I perhaps should have said earlier on, you know, plenty of headroom within those facilities given that we're at circa 15,000,000 and declining. Interest rates are, I can assure you, at a competitive rate. I'm not gonna give you a precise answer to that that question, but very competitive. We benchmark that before we refinanced. So we feel we're in a good position, fairly obviously covenant compliant all over the place with a very healthy relationship with really, really good bank, in my opinion, in Barclays. K. Russ, I'll just take this question

39:50 regarding gross margin. It says here it's always been impressive, but this, to my knowledge, has never been reflected in the operating margin. How can the latter be improved? For me, this is really simple. We we haven't driven the growth agenda well enough, and there's an opportunity to drive further growth. I do believe that combining our product and engineering capabilities together for our customers, the opportunity is actually to drive improved gross profit. But, ultimately, this is about driving greater efficiency in our operating model. It's about being able to operate for less as we scale and making sure that we put the right investments in around technology enablers and automation over time to allow us to be able to to drop the growth and the improved gross margin position to the bottom line, and that's a key objective for us for sure.

40:46 Okay. A bit of a tag team, but I'll pick up on the question. With the volume of change that's being planned, will the capital allocation priorities shift? Could this, for example, impact future dividends? Well, broadly speaking, no. Don't think so. I mean, the pandemic did enable us to do is to reset the dividend piece. It got to a position where over £4,000,000 of cash was going out of our business. We were paying, crikey, I've slept a few times, but I think north of 6p per share in terms of, a dividend. We reset that to 2p per share, which has modestly increased in the last twelve months. So we'd like to think, that that's proportionate.

41:33 We do fully recognize that that is important to some investors. But equally, you know, over time, and it's probably to a a following question, which I suspect Mike will tackle in terms of appetite for acquisitions, We think we're in the right sort of ballpark with that dividend piece. So maybe that is a decent segue, Mike, because there is a question about appetite for acquisitions. Yeah. Are acquisitions off the table for now with a renewed focus on both integrating and growing existing business? No would be the answer to that. Clearly, our focus right now is on integrating and growing the business, and we want to make sure that we set the operating model up to give us that scalability for growth.

42:18 What we're trying to do here is to create an operating model, which if we were to look at acquisitions, we have a very, very clear plan of why we would be making those acquisitions and how they're going to be synergistic to clip into the operating model that we have as opposed to running everything separately, which I I think has been more the the the the plan in the past. There's three key areas why we would look at acquisitions. The first would be to help us to accelerate our product expansion. The second is helping us to accelerate our service expansion and build more capabilities within the organization. And the third will be geographical expansion both within the markets that we already operate, but also into new markets where we believe that there is an opportunity So we will continue to look at opportunities as they may occur.

43:05 These things do have a gestation period, and so it's important that we're well networked into that. But we do want to be very clear on that North Star and and that that vision for the future. And so any acquisitions need to be accretive to that and support and underpin our strategy. And there's a question above that around, could you give more detail on customer concentration, please? I mean, I I've given a a quick flash up there in terms of some statistics around our customer base today. But in reality, our customer base is very broad as it relates to virtually every industry sector that one could think of. But because we're into hydraulics as well, you know, we we do operate within the mobile environment quite significantly as well. In fact, you know, there's there's not a day I don't go out of my house and think about opportunities to sell motion control products. They're everywhere. They're all around us.

43:57 And so, you know, the ability to help the world to move and to help industry to move is something that's really exciting for us right the way through to to airports, you know, to ports, to transportation systems, as well as industry utilities and renewables. But today, I would say that our business is concentrated a third, a third, and a third. A third is into original equipment manufacturers, a third is into end users, and a third is into resellers and and distributors. And we're working very hard at how we make sure that we continue to work within that ecosystem, importantly, playing a critical role to support distributors and resellers with our expertise, but equally to support end users and OEMs as we as we need to working in in that partnership and ecosystem.

44:43 We have an opportunity, though, to significantly grow our customer base from where we are today. I would say that the numbers of customers that we have today is relatively small, I think the opportunity to make that number bigger is huge for us. Ross, any other questions that you can see here? Yeah. There are several, actually, aren't there? What came with bit next? Just wondering how soon do you expect to reach mid teens EBIT margin, and what level of revenues do you associate with this this with? I mean, that is obviously a key key question.

45:29 We're confident it will be achieved. The debate is when. I guess on it's a bit wishy washy, isn't it? But on a series of sunny days, each of those EBITDA growth engines is gonna get up and roaring really rather quickly, and we'd like to think it can be achieved, you know, sooner rather than later. You know, you the the numbers, the expectations are in the market for 2024, which don't do that. So I would my answer would probably might wanna build might may want to build on that, you know, as soon as possible beyond next year, which might be the the headline answer to that. Yeah. Look, I mean, I I think if you if you look at the trajectory of the business, you know, we're resetting and rebasing the business this year, and we're looking to gather some good momentum through 2024.

46:15 And we'll be looking for those sunny uplands to appear '25, '26, and that's our goal. So that will be what I would class as being midterm. Near term, and I think a lot of the questions in here, you know, represent the near term. You know, we we are very much focused on that performance improvement plan and making sure that we drive the the performance of the business today. There was a question in here around, you know, what why we're taking on new managers, and does that mean that, you know, previous integration of the business was poorly managed? Look. I mean, hindsight is a wonderful thing. You know? As you as coming in as the the new chief exec, you know, ultimately, for me, I have to assess the business as it is today. I have to look at that through the lens of the customer, and I've spent plenty of time out with customers, and I've spent plenty of time out with suppliers. And I've got a very good fix on what I think we're doing well, but also what I don't think we're doing very well or where, to Russ's point, you know, we perhaps scored a few own goals.

47:14 Not not not anything to do with bad intentions, but but I would just say that we could have executed certain things better than we have. You know, we now can build on that. You know, I I have good experience, and I think we're bringing a team on board that have some great experience to be able to take this business forward, and most importantly, experience of what it looks like to operate at scale. You know, how do we want to build this business into a much larger business, and having the experience to be able to scale the organization is really, really important. I'm just conscious of of the time. Let's just take a few more questions, Russ. There's a question around here in terms of what percentage of revenue could come from own brand product over the medium term. I think Russ Russ was quite articulate actually with this. I mean, it's a it's a balance. You know, we're we're not the only distributor in the market that that has an own brand capability.

48:15 I've I've been really quite impressed with our own brand capability as a business, you know, which is very broad across the pneumatics, across the hydraulics, and actually, you know, moving more into process than in in industrial. We work in partnership with a number of our global suppliers as well as part of bringing our own brand offering to market. But we have built a core competency over the last thirty years of of own brand. It's a little hidden bit hidden today because it it it operates under multiple different brands within the business, and so there's an opportunity to bring it more to the forefront and to simplify the the brand recognition of own brand. But, look, you know, for me, a near term target will be to get it to 20%. But this isn't as a substitute for growing with our mainstream global brands and key strategic supply partners.

49:04 What I've seen in the past done well is that that by having own brand, it fully complements the growth strategy for our for the leading brands. And, actually, we can accelerate growth both with with our leading brands, but also with with our own brand. And And to Russ' point, you know, there is an opportunity there to improve our margin mix over time. You know? And and we'll we'll continue to monitor that as we go. Do you want to take one more question, Russ? Was there any others that came through? Yeah. I mean, probably not got time for all of them. It's good to see lots of questions, but maybe what to expect the cost of rebranding will be. Yeah. Not as much as one might think, be my answer. As somebody who wants to work for the merged Pricewaterhouse and Coopers and Librand organization and spent quite a lot of money coming up with what to call the merge firm, came with PricewaterhouseCoopers with life's a lot, lot simpler here. So, you know, coming up with FLOWTECH and using sort of certain symbols and colors that are already in play is, you know, relatively straightforward.

50:08 That's not to dismiss the fact that there's certain things that will need it to be done in terms of, you know, the way our paperwork looks and, you know, potentially even legal structures and all that sort of stuff. But it's not gonna cost a fortune in pound notes. It might take, you know, several hundreds of hours of people's time in aggregate, but it certainly won't distract us from those poor immediate three month, medium six month, get your engines roaring. So modest, I think, is my answer to that. I would just I would just build on what Russ has said. For me, this is opportunity cost, you know, the opportunity cost of not doing it. You know, today, we've got 15 websites, multiple pages on different link on different social media sites. You know, our customers often look look at us locally as being a small company and don't really understand that we're part of a larger group. You know, there is a huge opportunity here by aggregating under one brand to to drive drive a a much stronger single value proposition to market and make it far easier for our for any customer who can who comes into our world to understand the full capabilities, the depth and breadth of what our product and and engineering offering is.

51:17 And And I I think think that's a a really exciting prospect. But we're certainly not going to be overengineering it. It's not complicated. You know, the business fully supports it. I think we've had fantastic feedback from our people. We've had fantastic feedback from the market. You know, it's it's very much, you know, let's just get on with it, and let's focus on growth and focus on taking this business to the next level. Okay. Okay. I think that probably is the last question that we'll take. Perfect. Mike Russell, thank you very much for that. I think you've addressed those questions you can from investors. And, of course, the company will review all the questions submitted today, and we'll publish those responses on the Investor Meet company platform. But just before redirecting investors to provide you with their feedback, which I know is particularly important to you both, Mike, could I just ask you for a few closing comments?

52:05 Yeah. Look. Well, thank you for taking the time to listen to us today, and and, hopefully, you know, you have a better understanding of our performance improvement plan and our our very clear strategy to the future. I'm a very action orientated person probably because I'm an engineer by background, so, you know, we need to have structure. I think we have structure. We need to have clarity. I think we now have clarity, and we need to have the right people that can deliver and execute. And I think we've now got the right people to deliver and execute. So from our side now, we're just gonna be getting on and doing. And and I I I very much believe that the results will follow, and we'll be looking to those bright brighter, sunnier uplands over the coming years. So thank you very much. Thank you. Mike, Russell, thank you once again for updating investors today.

52:51 Could I please ask investors not to close the session as you now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations? 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'd like to thank you for attending today's presentation, and good morning to you all.