Flowtech Fluidpower (LSE:FLO) — Preliminary results for the full year ended 31 December 2020

0:02 Good morning, ladies and gentlemen, and welcome to the FLOWTECH FLUIDPOWER PLC Results Investor Presentation. Throughout this presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time via the Q and A tab situated on the right hand corner of your screen. Please simply just type in your question 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 all questions submitted today and publish responses where it is appropriate to do so. These will be available via your investment company dashboard, and we

0:34 will send you an email to notify you when they're ready for your review. I'd also like to remind you that this presentation is being recorded. Before we begin, we would like to submit to the following poll. And if you give that your kind attention, we'd be most grateful. And I'd now like to hand over to Bryce Brooks, CEO and Russell Cash, CFO from FLOWTECH FLUIDPOWER. Good morning to you both. Good morning. Good morning. Well, good morning to everybody who's joining us today. This is the first time we've used the investor meet company portal and looking at the people who've subscribed for this presentation. It appears that we've got a mix of of one or two who've known us for quite some time, and therefore will be well aware of the story. But equally, we've got a number of people who may be hearing about FLOWTECH for the first time.

1:22 So what I'm gonna quickly try and do is in the first five minutes or so, try and bring everybody up to speed a little bit as to who we are. So, hence, we're starting with the slide deck in in an appendix, and then I'll proceed into the main bulk of our presentation. That bulk of the presentation will broadly cover sort of three areas. We'll talk briefly about, the effects of COVID nineteen on the organization. We'll then talk to some degree about the financial, outputs from that, obviously quite, different than our normal financial performance. And then I'll major on some of the key strategic decisions that we've taken and how we're developing our strategy, as we hopefully evolve from the COVID, year and move forward into 2021 now and into 2022. So in terms of the background to the organization, a little bit about our leadership group.

2:12 Obviously, I've got myself. I've been with FLOWTECH for ten years. I joined the organization in 2010. It was already a well established, previously family owned business that had moved into a private equity world. The private equity, investments spanned the initial financial crash, so it had, challenges in its balance sheet, in 2010, but fundamentally, it was a very strong business. So I I was the CFO at the time, working with chief executive Sean Pennon, and we developed the business from 2010 to 2014. We faulted it on the AIM market. I stepped up to chief exec in 2018 when Sean retired, and I was joined by Russell Cash. Russell, it may be useful if you give yourself an introduction.

2:59 Yeah. As well as having a little bit of a strange name for an accountant. My parents, once upon a time, must have had a sense of humor. I've got a a fairly so I suspect a different type of background to most CFOs of quoted companies. And that's how I spent over a quarter of the century. I've seen the world of turnaround and restructuring. So joining Bryce at FLOWTECH two and a half years ago was actually my first venture into industry. But I didn't know it at the time, but obviously, some of the challenges that our friend, COVID, threw at us, I was able to dust off some of the, you know, the terminal is not the right word, but you know where I'm coming from. This, you know, steady head and stabilization type piece came quite useful.

3:49 So within my DNA, I guess, is a lot of stuff around controlling cash and controlling costs. And I think two and a half years on, if you follow the story, you'll begin to see some of that coming through quite strongly. So in terms of the remainder of the nonexecutive team, we're led by Roger McDowell as chairman. From 2014 to the change in 2020, We have Malcolm Diamond as chairman, who's got widespread experience, former chairman of the year, chairman of TRIFAST in terms of his main legacy business. But Roger stepped up on on Malcolm's retirement last year.

4:26 Roger has extensive experience across a number of businesses. He's currently the chair of three other organizations. In terms of style, there's probably a shift in style from under Malcolm to under Roger. Very process driven, very proactive, and and active in our management style, which is something that certainly Russell and I welcomed. Nigel Richens has been a a continuity person right the way through from FLOWTECH, very experienced audit partner with PLC in charge of their technical department before retirement, six or seven years ago. So Nigel chairs up our audit remuneration side of things. And then more laterally, we have the appointment of Paul Gedman. This is Paul's only PLC appointment, but his heritage is firmly in e business.

5:14 He was, one of the key, protagonists in the development of the HOT Group working with, the chief executive there, Matt Moulding. He left the HOT Group as part of its, flotation last year and is establishing now his own portfolio of interest, but all with an e business and data, elements to it. And, hopefully, that'll be one of the things that you see as we move forward. In terms of the overall back, backdrop to the group, well, we are a specialist niche industrial distribution business focused around the fluid power market, that's hydraulics and pneumatics. We distribute for the vast majority of the

5:51 major global brands, and we employ around six twenty people, in The UK, Ireland and in, The Netherlands and The Benelux. But the predominance of our business, the vast majority, is based around The UK and Ireland. Currently, we trade out of about 19 sites. But as part of an M and A program, that's reduced significantly from 27 sites, three years ago when we completed our last acquisition. So we are in a process of reducing our overall footprint and obviously with the improvements in operational efficiency that come from that. We are split from a reporting perspective and very much from a management perspective into two discrete divisions. There's been some developments in this that I'll talk about in the main book of the presentation.

6:37 But the core of our activity is in component distribution with a lot of technical added value requirements that come from that. So, yes, there are elements of it that are fast paced, high service driven, but equally, there are evident elements of it that require in-depth technical insight to assist an OEM, for example, with the the developments of a new hydraulic circuit on a piece of construction equipment. Complementary to that is a services division largely involved around the production of power packs, purifiers, on-site, activities, specifically around hydraulics. And therefore, we have a services division that sits in a complementary manner to our core components activities. In terms of the overall market size,

7:24 in The UK, the, the fluid power sector is assessed at broadly pre COVID levels, at around a billion. Obviously, in keeping with many sectors, it's had some challenges through 2020, but it remains that the market dynamics, believe that there will be a return to normal levels, you know, in the period of 2022, 2023. And, therefore, it's a sizable market, and we are the largest player as a result of significant development post our float in 2014 in The UK and Irish markets. Overall in Europe, circa 13,000,000,000. Globally, 46,000,000,000 in most of the westernized economies. And and in total, I've seen certain commentators talk about a 100,000,000,000 market.

8:10 You can see on the right hand side of this slide, it's very broadly set in terms of its key, areas of focus. There is a heavier slant towards, construction, as the nature of it, general engineering. And in our sense, we also deal as a massive distributor through other areas of distribution. So there's a heavy resale market. So the key takeaways from this are FLOWTECH is sizable. It's the largest player in the home geographies of The UK, an island of circa 100,000,000 in terms of our current volumes, but it's circa only about 10% market share. In terms of what's addressable to a pure distribution business, that may be as low as 30, but a size 50% depending on the precise criteria that you apply. So, again, we are circa 20% maybe of that addressable market.

8:59 So a big market, a lot for us to go at from that perspective. Okay. That hopefully gives viewers a sense of the, backdrop to the overall sector. So at its core, we are a distribution business focused business with lots of added value elements to it, services, technical, high service offer from that perspective. In terms of the key aspects of our proposition from an investment perspective, well, we operate as the largest player in a fragmented marketplace. Our footprint footprint is sizable, both in pure geography and in the reach that we have with all the major global manufacturers. So the likes of Eton, Danfoss, Parker, Bosch Rexroth, Festo are multibillion global manufacturers who require a highly efficient, technically competent, strong e business digital based distribution network.

9:55 And very much our growth potential is housed in the organic growth that we can generate from that position, but in time, and as we've done historically, can be added to with complementary acquisitions. And suffice to say, our leadership team, we believe, is quite well experienced, is ambitious, and is now enhanced by some developments we've done this year, adding to the bandwidth and skill set that we possess.

10:21 COVID nineteen. Clearly, we all know about this and the effects of it, and we want to just enshrine in one slide maybe the key effects, and Russell's gonna lead in terms of the financial aspects of this. Thanks, Bryce. Bryce uses a word I refer to as a five letter word beginning with c. So the graph on the bottom of this slide, the dark bar is the normal year of 2019. The lighter colored bar is the the annus horribilis, and I'll use the queen's expression there. And just to get some numbers in your head in terms of the story of the four quarters, q one is actually an 11% reduction comparative to 2019. We were act actually pretty pleased with how we were going, but but, of course, the first national lockdown, the March 23, the last eight days of that quarter rather dampen the numbers for the entire quarter.

11:19 Q two was the quarter for Ribilis, where overall, we were 33% down. Within that, the month of April was 41, 41% down. Things got much better or less bad. It depends on your half full, half empty. We were 14% down in q three, and q four, only 5% down. So we've had, if you like, you know, a nice gradient to our road to recovery, and pleasingly, that's continued into q one of twenty twenty one. But the type of the slide has been chosen carefully and deliver deliberately. In summary, recovering rather than fully recovered from COVID.

12:06 It's important to reference to that q four 5% down is against the weak comparative actually. As I said, q one this year has started well, but we are still sort of way behind q one in the normal year of 2019. And second point, before handing back to Bryce to cover the remaining three, it's an obvious point, but we've, sort of the opportunity to refresh our banking facilities with Barclays Bank. We did that last November. We've got a further three years of facilities with the same aggregate 25,000,000 positive pound notes. And, obviously, and clearly sensibly, took the opportunity to revisit the key covenants. In particular, we reset the leverage covenant, which would have stripped us up had we not done so.

12:57 Again, obviously, because of the lack of underlying profitability caused by the five letter word beginning with c. So one more thing before I hand to Bryce. Just for those of you who's followed us, you'll see that at the end of twenty twenty, broadly, a small element around in, but broadly, we're carrying 50% of the debt burden that we had two years previously. In terms of the operational effects of the COVID crisis, I've I've been keeping with many businesses. We've absorbed thousands of hours of management time dealing with what we had to deal with. One of the things aspects of our business, we operate from Cork to Belfast to Rotterdam and several points in between, but we have two major sites in Skelmersdale and Leicester, both of which you may recollect were in the center of, COVID nineteen outbreaks, hot spots back in the good old days of a tiered system.

13:52 And we're very pleased with the fact that both those sites remained open throughout. There were no operational days lost. All our sites were able to achieve full safety compliance with all the protocols that were necessary from a modern business such as ourselves, and we're pleased with the way that's worked. And we'll talk about our employee engagement scores later in this in this presentation. But probably one point of note is as we all recover commercially from this particular aspect, at the moment, there's significant knock on effects into global supply chain. Some of it, they're for very good reasons, that demand is increasing quite significantly in terms of filling back up that stock hopper, so to speak.

14:32 But we have a supply chain that is European dependent and to some degree, as all supplying supply chains do, a more global aspect, particularly from the Far East. So we're seeing certain drag effects on that in q one and into q two now with availability of stock in certain areas. Not hugely material at the moment. We're dealing with it, very positively, but there is an element of drag in there for the outlook for the remainder of this year, we believe, will still have sort of these sort of drag effects.

15:07 Okay. Few more numbers. We probably said sufficient on revenue. I think, as I said, we are encouraged by the start to 2021. There is a school of thought that there's an element of confidence being created in The UK through the relative success of the vaccine rollout and equally perhaps combined with an element of concern from certain customers in terms of supply chain and Brexit type impact. Maybe there's some of our customers who are filling their own shelves, pull the stock a little bit at the moment, but we're certainly it's a honeymoon or a bubble type period, we're certainly encouraged by what we're seeing. And that's to the gross margin point, it's not only revenue which we're encouraged by, it's the quality of our gross margin.

15:55 And on the face of it, this one slide in isolation, you know, shows a 146 basis points reduction in our GP. But don't be alarmed by that. And the points I'll make are that 2017,

16:09 we were at 33.8. And over a two year period, we felt we did a pretty good job of transitioning an already very strong margin up to 35.7 that you see in the right hand column. And the fact that it's dipped down a little bit is fully explained. Three key reasons. There's some 2019 enjoyed the benefit in margin terms of some income from the sale of our hard copy catalogs to a number of our customers. Bryce will come back to perhaps that's a little bit old fashioned going forward.

16:42 And secondly, the detail around the cost that we put above the gross profit line, it does include some direct labor costs. And I guess the audience will appreciate that direct might be a little bit of a misnomer in the fixed nature of an element of that in a in a year in which your volumes suffer. And thirdly, the mechanics, I really won't bore you with this one, but the mechanics of our consistently applied stock provision means that, you know, again, the lower volume caused by that five letter word beginning with c there's no favors. But all in all, we're pretty proud of that margin. And within all of our DNA is, you know, not to sacrifice margin why Iota in the pursuit of revenue.

17:31 So in terms of costs, again, those who have followed us would have seen our ambition to take old world inefficient cost out of our businesses. And then to fairly obviously, that was centered around people and properties. So in terms of the people, our headcount reduced by 7%, 45 heads in 2020, and that's against the circa 20,000,000 payroll bill, 7% of 2,000,000.

18:02 And equally, we have sort of exited five properties, and that's typically where we bought the previously sort of relatively inefficient warehousing picking operations into our much more efficient locations in Selmersdale and Leicester. So we've delivered on the significant majority of what we set out to do. We still got bits of it to complete in the next twelve, eighteen months. And maybe there are certain things which we're beginning to identify that might add to that pop in the fullness of time stress in the fullness of time. So if we take in, if you like, my expression in the old world inefficient cost down, We sensibly chosen to invest in some new world investment areas.

18:49 Bryce will touch on these in a few slides time, but that just headline the business and digital agenda and it's on the business rather than the ecommerce. Bryce will explain our view on the difference there. And equally and importantly, we've invested in four or five senior people, top quality people who sit immediately below the PLC board level and significantly strengthen the management team. In terms of the debt, on a like for like basis, it's reduced by £5,000,000 in 2020. And I can add up, as my profession would suggest. It's 5.9, the difference between those first and last bars there. The naught point nine is the element of support from revenue and custom. You will be aware that they allowed UK corporates to defer the payment of the q one twenty twenty VAT.

19:47 So £5,000,000 on a like for like basis. I think the point that leaks out here, of course, and then equally let out for the 2019 equivalent bridge is that over the two years, we've taken $1,213,000,000 out of our working capital, and that is one of the key reasons we operate in a debt of roughly 50% of what we had two years ago.

20:11 If we were to do a go forward bridge, really important important point and in some ways a very obvious point is that if the working capital the law has been big and green in the last two years, it's gonna be quite big with the red in 2021. And clearly, volumes begin to return hand in hand with that goes an increase in our receivables book. And equally, a position of relative strength to our sort of fragmented UK competitor base, we do feel it's wise to put a

20:42 little bit of stock back onto our shelves to take advantage of perhaps some pent up demand and make sure that we certainly limit those examples of where we ain't got enough quite enough stock on our own shelves. So we think that sensible investment, the headroom we've created within our banking facility. For 2021, those of you who will look to either the ZEUS or FinCap analyst notes will have noted that we're not anticipating much in the way of debt reduction in 2021. In fact, it goes far as to say

21:13 the only green blob, hopefully, it'll be a much bigger green blob instead of cash generated from operations. Everything else will be red, and that green will equate to the aggregate of the reds, really. So little little debt reduction in 2021 is the headline. In terms of my own take on input to investors who are new to our our position as as what was outlined there, if there's disciplines within how we operate, it's an absolute focus on gross profit percentage. So we get reports every day from all our businesses on day GP, month to date GP, comparison to last year GP, and comparison to budget GP. It is the absolute day and of how we operate, and investors should take some degree of confidence that the 35 percentage points of GP is the consistent outputs that you get from this particular sector, and we view as a as a as a significant strength.

22:09 Beneath that, we're very disciplined around the cost per transaction. So cost per drop, cost per pick, cost per order, the fundamental flow of of operational cost, and a key aspect of what we've worked through in the last past couple of years, both in our KPIs, our reporting, our actions, our management, is all based around ensuring that we tighten as much as possible the cost of dealing with our our our per transaction elements. At the same time, we've chosen chosen the benefits we take from that to build additional resources and specialisms that are building the platform for us to significantly move the business forward from an organic perspective. And at the same time, one thing in the earlier days of our time in the market, certain commentators criticized us for was the management of our working capital.

22:57 And hopefully, observation of our numbers over the past two years was, as Russell said, you know, $1,516,000,000 taken out of our working capital investment, some of it, you through the natural reduction from COVID nineteen, is another discipline in which we're very strong. In terms of development in our overall group strategy, as part of the new constitution of the PLC board, we put together an outline strategy paper for the back end that went through full analysis with Roger McDowell and the remainder of of the NEDs and the key aspects of which I'm gonna take you through now. We believe this is building the platform for organic growth, cash generative growth over long term. In terms of branding styles, we've historically operated under independent traded profit centers with local brands that actually have long term heritage.

23:50 However, for two reasons, the Amazonization of life in the progressive move to online platforms means that multiple separate trading branding styles does not resonate in an online world. And secondly, the demands of our customer base. You know, we are clearly seeing now as the largest player in our marketplace. We operate with same customer across across multiple businesses. So you would have four, five accounts since I'm working in here. So we've decided to progress, to two branding styles, FLOWTECH and FLUIDPOWER Group. FLOWTECH will cover our high service offer, typically, historically catalog buyers, but increasingly online buyers operations, and it has a heritage in high service, wide stock availability, and strong technical competence.

24:54 And we've chosen to use the fairly broad branding style of the fluid power group. Obviously, FLOWTECH, Fluid Power Group, that's all equal to the name of our Fluid Power PLC. This will all sit under a single e business architecture. So a transition to two brands commercially over the next year and two years, different speeds depending on the circumstances of each particular business. However, in terms of our reporting segments, we in turn report three segments. We split FLUIDPOWER PLC into two, one very much sharing the operational resources with their heritage in in the FLOWTECH operation, and the other, our services business. So, the commercial market will see two brands, but our investor, community will see three trading segments.

25:43 Two of them, FLOWTECH plus FLUIDPOWER PLC solutions, What's the difference between e commerce and e business? Well, FLOWTECH has always been seen, excuse me, as the leading player in the e commerce world. It's an order portal, where we've got a wide range in the stock available, customers' input. They can search on that. But it's not what you would call a leading edge product in the modern world. We're gonna transition, from that ecommerce environment to a fully fledged e business environment.

26:29 This will include a hugely expanded product set, both available in stock and integrated with our own supply systems and search capabilities that are, again, commensurate with the modern world and a significant, improvements on what's available now. Behind that, yes, there'll be my dashboard capabilities, modern aesthetics in terms of the look of the site to appeal to the progressively younger buying fraternity who are dealing with this in this particular sphere. And then there is an element of future proofing. At the moment, our websites are hard, coded into our legacy ERP systems, and we'll talk more about about our developments on that in due course. But it'll be a much more flexible future proofed resource that we're investing in here. We have around, 11,000 live accounts tradables in in 2020.

27:20 Over the last three to four years, we've got as much as 17,000 different accounts over that period who interact with the business. So an enormous amount of data coming into the to to the organization. And when we when we couple that with the development in a new customer data platform, we believe that the significant value that can be extracted from this will create the golden record of a single view of a customer. Behind that, the insight we're gonna get at a product set and supplier set geographically is gonna be of immense value to us, and we believe that will have commercial use for us in developing organic sales with our current customer set into new customers, equally sharing the benefits of that with our major supplier and customer partners. So rather than being a link in a chain, which distributors have historically taken, will be a key part of that particular jigsaw.

28:13 The investment in this is relatively modest in in overall online terms, but for our organization, it's quite significant. So we've started this process in 2020, invested there. But in 2021, it will be around about $1,250,000 a mixture of OpEx and CapEx. We start to get go live later on in the year, hopefully into Q4, and we're on track at the end of an eighteen month implementation period, and we get, significant traction in 2022 and beyond. So the whole e business and data agenda becoming a data driven organization is a key part of our strategy, and we will believe we'll be an enormous differentiator from our historic smaller, typically owned and managed competitor based in The UK, both in resources and technical ability.

29:04 In other areas, we know that our services division, there's now clearly defined both reporting and operationally as part of the work we've done, is clearly underperforming from a financial perspective. And our immediate aim is a return to profitability. Budget for 2021 is a profit, and we are on budget. The investment in this particular section of our business is around about 4,000,000. So our view is a minimum return on capital of about 20% is an immediate goal, and we're confident that we will achieve that in the short to medium term. We're doing a complete root and branch review of the organization. In this year alone, we've changed the leadership team, the leadership grouping. We've improved productivity measures. We've changed our pricing, methods.

29:51 It's improved margins and other stock, and we're very pleased about that. Every aspect of its governance from health and safety, technical capabilities, minimum educational recommendations are all being implemented. It's a key part of what we do, but clearly, it's got to wash its face and be fit for purpose financially, and that is something that we're gonna have a strong and careful eye on as we move forward. In other, major areas, we talked a bit about our investment in our, extra skill sets. We've now established a management board with skills covering, leading edge operation development capabilities. Steven Ashton is appointed to the new role there. He'll cater for all our logistics, long terms, supply chain planning. We've split our operational leadership between Nick Fossett and Ian Simpson both with long term leadership roles with us. We've now added to it in product quality, engineering compliance, systems and IT, and in HR issues, which we'll talk a bit more in our ESG agenda.

30:53 Target markets, absolute clarity in The UK, Ireland, and The Europe with our Netherlands operation. However, the commonality of supply with these very large global manufacturers means that near Europe and further afield will always be a potential fertile market to us potentially, but absolute focus in The UK, Ireland and The Netherlands for the medium term. Beyond that, we currently operate out of, four legacy IT business process systems, all of them resilient and in cloud based infrastructures. However, there is a sense that in order to improve in two particular areas, one, long term resilience. Our main, IT environment is around about twenty years old. If it's a purpose for today, without question in the medium term, that will become a a more stressed situation. But equally, there will be productivity improvements that can come from certain areas of a modern ERP package.

31:49 We believe that our investment in IT resources, project management resources, and we've done four system changes in the last year alone, our overall resilience means that we are set to be able to take on that type of challenge, and I'm confident that we will be able to achieve that by at least 2024. So we're starting that process today. Just to reiterate, though, our investment in the business platform is very much capable of being hooked into any ERP provider that we look into, so there will not be any material costs associated with that particular transition. This is very much around various management capabilities and in the key sort of commercial sales order processing, purchase order processing environments. So overall, those are the key strategic initiatives that we're working on currently, and all of this is about building a platform for organic sales growth, growth in market share in those home countries.

32:46 ESG is high on many investors' agendas, but for good reasons, it's high on our agenda, and we're we're looking completely at our environmental impact and our employee impact. Marshall? Yeah. And it's clearly increasingly important to the investors. As Bryce says, it's clearly important to ourselves. Bryce will touch on some of the stuff which we're actually quite proud of in terms of the way we've treated our people. So during the pandemic conditions, we'd like to think that, you know, proud to that as well. And on the environment base, we recognize that we did need some help, so we engaged with an organization called Carbon Responsible. They spent some time relatively deep dive into their activities in each of our 19 locations.

33:35 And, I guess, Fadi, obviously, begun to talk about setting targets around c o two emissions linked to the number of our number of people we've got and the quantum of our revenue. We got a session in about three or four weeks time where we'll build on the initial work they've done and develop and refine those targets and put a report back to our investor base as to how we're doing. And part of that session, we'll begin to talk about the scope three emission base. We understand what that relates to, but suffice to say, we've always been keen and we remain keen to have partners who take these things equally as seriously as we do. In terms of employ employees, obviously, many business talk about the value of their employees. That's all you have, and we're no different from that perspective.

34:27 And the COVID period tested that particular culture to the limit, and and I'm pleased to say that we came through that in our view with with Flying Colors. We're a multi site operation. As I said, we trade from Cork to Belfast to Rotterdam, all points in between. So So with the inability for leadership group to travel during the various lockdown periods, it was really down to our local management teams to manage their specifics, and they've done a fantastic job, you know, with that regard. In terms of mental health, again, high profile through the past year, and our industry is very traditional. It's it's previously not been a leading light in this area. I'm very pleased to say we were the first, business in our sector, in our in our governing body, the BFPA, who grasped this particular situation, introduced mental health first aiders.

35:15 We have mental well-being support through an enterprise employee assistance program, not just for employees, but for their close family members that had a great take up during the course of the year. We, test, or we we score ourselves in terms of overall employee engagement introduced in 2019. And despite COVID nineteen, we we had a big step forward in the response we've got from that perspective. Still more to do in terms of overall engagement scores, but we're very pleased in how we develop, both in how we deal with people and how we nurture and develop talent as we sort of move forward. Capital allocation. Okay. A posh expression for what we're doing with our pound notes. So I think, in the course of the last half hour or so, we've demonstrated that we were not sure of what we believe very sensible areas to invest in.

36:09 You know, our discussions have ranged from from the position of strength, putting some stock on our own shelves to the, you know, potential sorts of game changes of the business and ERP systems. We've not touched too much. I'll just mention it now in terms of our key warehousing and logistics centers in Selmersdale and Leicester. They're already really impressive in my view, but we recognize that that's not less than our laurels. There's probably a bit more we can do to make them more efficient still. All design tools ultimately deliver that cost per hit metric of £2.40. And we obviously remain mindful of the ongoing need to control our debt. You have sort of the only as good as your last year type mantra.

37:01 So that will definitely remain within our mindset. And, thankfully, like I said, we've generated healthy headroom within the bank facilities and within the banking currents, but we do respect that. And equally, we know that certain investors, the dividend remains either important or really important. But the key message there is that, you know, the dividend will not be formulaic, you know, pre pandemic. It had reached the position of 6 point something pence per share or, put another way, £4,000,000. Put another way, a yield of 14 or 15% when the share price was 44 p one day last year. And so it won't be formulaic, and you'll have noted that the the analysts sort of notes have penciled in sort of 2p per share as a final dividend in in respect of the year currently in.

37:58 And clearly, we don't think that's out of kiln. But at that level, we would we would view ourselves as in with the crowd in terms of the yield rather than an outlier in either direction. I mean, for those for those who've been and followed our story from 2014, we've always seen ourselves as a cash generative business and therefore looking to pay a dividend. It was one observation I can make on a period where we set ourselves with a five p dividend rising towards 6p. The scale of investment opportunity the potential for organic growth is one that we underestimated in those early days. So this, I think, is an absolutely sensible reflection of the fact that shareholders have typically many times said to us, you know, why you're not investing your cash in that particular growth.

38:50 And I think we're using this this obviously change in our approach. Born out of, yes, the COVID period, was to reassess that. And I think what we've outlined over the course of the last couple of days and our attitude to this, hopefully, will resonate with the majority of growth based investors, but equally appeal to those who who like the income elements of of of our potential over sort of long term. So okay. In terms of summary, we believe we've dealt with COVID nineteen well. Well, beneath that, we've continued to work on extract efficiencies from our network, our mantra around the cost per transaction elements of things. We've, yes, invested overall in our systems and our people, our our management skills and bandwidth, and we've ensured that we control our working capital with the aspect there, control.

39:38 However, as we transition into 2021, we'll develop our branding style, also for commercial benefit. We're investing significantly in b to b e business and data, becoming a much more data driven organization. We will ensure that our services division, reaches as quickly as possible a sensible financial return, for its overall position in our group. And as we've talked about, we believe significantly that the development of a long term sustainability plan covering environmental and people related issues is a key part of what we should have as an offer. Our outlook overall in terms of trading in the first quarter of the year, we are above slightly above our expectations.

40:24 We're cautious of silver. We reintroduced guidance there in terms of our outlook from that perspective. You'll you'll hopefully guess I am silver from from there. But, generally, we feel quite positive. Both revenue and margins are, going in the right direction. And in terms of outlook for the medium term, if 2019 is a benchmark at a 112,000,000, we think at the moment, the outlook looks reasonable that we could exit this year at around those levels as a run rate. The analysts have set ourselves, I believe, a consensus, as I said, about a 102,000,000, and we're not uncomfortable with that as a starting point. But hopefully, we've got a more positive mindset beyond that particular point. That completes the presentation in terms of its overall content, and hopefully, we can now enter into a q and a period. That's brilliant. Bryce, Russell, thank you very, very much indeed for your presentation.

41:19 Ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated on the right hand corner of your screen. But just while the company take a few moments to review those investor questions submitted already, I'd like to remind you that recording of this presentation, along with a copy of the slides and the published Q and A, can be accessed via your Investor Meet company dashboard, and we will send you an email to notify you when that's ready for your review. I'd also like to remind you that your feedback is important to the company. And immediately after the presentation has ended, you'll be redirected for the opportunity to provide feedback in order that the company can better understand your views and expectations. Bryce Russell, I know I haven't given you an awful lot of time to look at the questions that have been submitted today. I can see you're doing a very good job at opening the Q and A tab on two screens at the same time. But if I could just ask you to open up that Q and A tab, Bryce, on the right hand side. If I could ask you to read out the questions and perhaps give a response where it's appropriate to do so, and then I'll pick up from you at the end. As I say, if you could read out the question, that'd be most grateful.

42:20 Okay. Well, great. Well, we've got a number of questions. We'll try and counter through to use our time wisely, which thank you very much for very much interest we've got here. So first question, how do you look to expand your reach beyond The UK given the potential size of the market opportunity? Will that be organic or through m and a? Well, there's two elements to this. Firstly, obviously, e business platforms are across geographies. There is a sense that the operational footprint required to support an online capability could either be our own or we could outsource that into one of the major logistics specialists, a DHL, a GMT, etcetera, in Europe. And, just to reiterate, we have two training businesses in The Netherlands, with a view that we could certainly use the operational footprint there to expand an online platform.

43:09 But as we talked about, absolute focus off line plus online in the short term is in The UK and Ireland. We believe the extent of opportunity there for us to grow organically and inorganically in due course is overwhelmingly positive for us. However, as I said, the product set is universal and global. So that question that we have the potential to grow, further in Europe, something we've looked at extensively in the past, and will definitely be on our agenda again, but more in the medium to longer term. Are there any new products or areas where you could move into that are complementary? Well, yes. We have adjacent markets, particularly in industrial valves, actuated valves, electrohydraulic systems for sure in those particular areas. And whilst we talk specifically about fluid power, that sort of 1,000,000,000 markets in the in The UK, valves and associated products is equally measured in hundreds of millions.

44:06 And we have one specialist business, Hydrovalve, that's strong in that marketplace and at around about 10% of what FLOWTECH does. So whilst for clarity of message, talk about fluid power, the the potential to expand in other other areas is considerable. And, obviously, once you're on an an online platform expansion into other areas, you can do. Major players in this marketplace, RS components, for example, what's known about the Rubix former brand of brand of business, Erics, equally our multi product set areas. We ourselves as being special and big in our own particular niche, but, obviously, online platforms implement implemented well, which we will do, gives us some scope there for sure. What do you see as the great risk of the business moving through 2021?

44:56 Well, hopefully, you've seen you know, we've shown resilience in a number of areas. You know, our our we don't have any specific exposure to particular sectors. Construction, yes, is historically the largest element of what we do, but I think, generally, there's a sense of positivity about, the construction sector. And the long term view, when we do give market information in our report and accounts from, Oxford Economics, is that that undercurrent of construction activity will act as a as a constant GDP plus driver in the overall sector. The dynamics of the supply chain, probably, there's heavy elements towards China, both, as as alluded to an element to what we do, but overall in global supply chain. So you've got the political type situation longer term, but hopefully relatively low risk. But beyond that, we have a full review of the risk areas in our report on accounts of each of them, we believe, are well under control.

45:54 Largest operator with the main competitors, the ones I've talked about at the top end, you've got the Irish components, Rubix, Erics, James, you know, all a 2,000,000,000 plus organizations across Europe. But in The UK, much more modestly sized against ourselves, and all of them are actually top 20 customers. Just gives you a sense of of where we sit. Outside of that, very fragmented, installed, over managed businesses in The UK and Ireland. So nothing that is a very clear and obvious danger to our our competitive position. What are the ROCE targets for each of the businesses? Rather than talk in investor speak, I'll talk a bit more about how we approach this from a working capital and overall investment in a profit center basis.

46:44 Our entire remuneration policy in the group is based around return on capital set at 20% at a specific working capital invested in that particular business. We historically have businesses that have operated at 40% to 50%. You apply leverage to that. You can do the mathematics yourself. So we believe that the innate, returns that can be created from our already established businesses is strong. If you look at multiples in our marketplace from, say, m and a activity, we've historically, excuse me, acquired businesses at circa five and six times multiples, and we we need nothing to suggest that the current side of that, will change in the medium term. Could you describe how FLOWTECH and FLUIDPOWER group work together? Well, there's two key areas. One is sharing of operational resources.

47:34 They can work from the same logistics platform. And secondly, you've got the sharing of the key brands historically. FLOWTECH had a heavy Far East own brand element set supported by certain of the key brands, whereas FLUIDPOWER PLC specialized in hydraulic, top end global brands such as FNCAP sorry, Danfoss, Eton, Parker, etcetera. The two branding styles currently in separate IT environments will come under one single new business platform. So FLOWTECH can sell previously specialized hydraulic brands, and at the same time, FLUIDPOWER Group can get access to their logistics capabilities progress of And And the perfect timing as we come up to the hour anyway.

48:35 Unless there's anything further to add, perhaps I could just ask you for a few closing comments. And then what I'll do is I know investor feedback is important. I will end the session and redirect investors to provide you feedback. I'll just the the beauty from my point of view other than the CEO who used to be a CFO is that he's all over the numbers, so I can just listen intently. But just there was one subsidiary point to Jerry's question, I think, around the piece about investing in our own inventory. And so just to pick up on that, I mean, for clarity, we're not looking to go mad. We were looking to sort of sensibly reinvest in with our more popular, faster moving ads. And it's included to the extent that we've got the benefit of having the supply in our shelves and our competitors haven't and a significant demand.

49:23 Well, yes, we should be able to improve the margin to your point, Jerry, there. So For those say for those investors who who followed our story and equally are looking at, you know, so why is the share price, you know, relatively modest in terms of where it sits? We voted a pound in 2014. I'll looking in two ways. You know, one is the period in which we did significant expansion through m and a activity was driven by opportunity, a surprise at the scale of the opportunity during those early days. And without question, that worked in terms of building scale. Behind that, I was obviously involved in every step of that particular way. I think without question, you know, there were difficulties, in integration, difficulties in ensuring that we we built the platform.

50:09 Hopefully, observers will say the last three years, our last acquisition of Gold Manor, and Derek Lane under the blue banner in March 2018 has been a very successful investment for us, funded with a 10,000,000 fundraiser at that particular point in time. But we've now spent three years working tirelessly on the platform, in terms of understanding the dynamics of our business and building IT resources, management resources, and a clear understanding of our position in the marketplace. We're now ready to continue organic growth as we all recover from the COVID nineteen period. But effectively, the levers of growth as we move forward remain organic and inorganic in terms of our sort of potential. And I think with the the reset, shall we say, of our dividend policy, that should give us the resources internally in terms of our cash generation to ensure we create the snowball that we've always sought from this perspective.

51:04 Hopefully, we're reasonably open in our sort of style and approach to shareholders. So anybody on this call would like any further information about the organization, you know you can connect us, you know, through the usual channels, our PR, Fiona Thule, and obviously through the usual sort of connections on by email. So hope you found that informative. FLOWTECH is is a business very much at a point of a move on again, a a relaunch, so to speak. And we think we've put the platform in place for us to move on from where we are to provide your feedback. If you access this meeting from our website, then the feedback page will appear. You'll simply be asked to simply complete the feedback.

51:55 And if you access this meeting via the link sent to you by email, you'll simply be asked to log back in and submit your feedback. And we'd be very grateful, and I think it'd be a great benefit to the company to understand your views and expectations. On behalf of the management team of FLOWTECH FLUIDPOWER, I'd like to thank you very much for attending today's presentation. That now concludes today's session, and good morning to you all. Thank you once again.