Flowtech Fluidpower plc (FLO) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Flowtech Fluidpower plc results investor presentation. [Operator Instructions] 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 hear that, your kind attention will 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.

Yes. 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 1 or 2 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 maybe hearing about Flowtech for the first time. So what I'm going to quickly try and do is, in the first 5 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 the appendix. And then, I'll proceed into the main bulk of our presentation. That bulk of the presentation will broadly cover sort of 3 areas. We'll talk briefly about the effects of COVID-19 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 though and into 2022. So in terms of the background to the organization, a little bit about our leadership group. Obviously, I've got myself. I've been with Flowtech for 10 years. I joined the organization in 2010. It was already a well-established, previously family-owned business that have 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 was the CFO at that time, working with Chief Executive, Sean Fennon. And we developed the business from 2010 to 2014, we've halted it on the A market. I stepped up to Chief Exec in 2018 when Sean retired. And I was joined by Russell Cash. So maybe you should give yourself an introduction?

Yes. And as far as up in a little bit a strange name for an accountant, when my parents, once upon a time, must have had a sense of humor. I've got a fairly, I suppose, with respect to a different type of background to most CFOs of quoted companies and that I spent over 1/4 of the century, I've seen the world of turnaround and restructuring. So joining Bryce at Flowtech 2.5 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 turnaround, it's not the right word, but you know where I'm coming from this steady head and stabilization type, but staying quite useful. So in my DNA, I guess, there is a lot of stuff around controlling cash and controlling costs. And I think 2.5 years on, if you follow the story, you'll begin to see some of that coming through quite strongly.

So it turns out the remainder of the Nonexecutive team were 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 Malcolm's retirement last year. Roger has extensive experience across a number of businesses. He's been the chair in all 3 of the organizations. And in terms of style, there's probably a shift in style from under Malcolm to under Roger, very process-driven, very proactive and active in our management style, which is something that certainly Russell and I welcome. Nigel Richens has been a continuity person right the way through from Flow, previously audit partner with PwC in charge of their technical department before retirement 6 or 7 years ago. So Nigel chairs our audit remuneration side of things. And then more laterally, we have the appointments of Paul Gedman. This is Paul's only plc appointment, but his heritage is firmly any business. He was one of the key protagonists in the developments of The Hut Group working with the Chief Executive there, Matt Moulding. He left The Hawk Group as part of its flotation last year and is establishing now his own portfolio of interest all with an e-business and data element to it. And hopefully, that will be one of the things that you see as we move forward. In terms of the overall 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 major global brands, and we employ around 620 people in the U.K., Ireland, and in the Netherlands and the Benelux. But the predominance of our business, the vast majority is based around the U.K. and Ireland. Currently, we trade out at about 19 sites. But as part of an M&A program, that's reduced significantly from 27 sites, 3 years ago, when we completed our last acquisition. So we are in a process of reducing our overall footprint and obviously, with improvements in operational efficiency that come from that. We have split from a reporting perspective and very much from a management perspective into 2 discrete divisions. There's been some developments on this that I'll talk about in the main book of the presentation. 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 elements of it that require in-depth technical insight to assist an OEM, for example, with 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, humidifiers, 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, in the U.K., the fluid power sector is assessed at broadly, pre-COVID levels at around GBP 1 billion. Obviously, with many sectors, its -- there are some challenges through 2020. But it remains that the market dynamics believe that there will be a return to normal levels in the period 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 U.K. and Irish markets. Overall, in Europe, circa GBP 13 billion. Globally, GBP 46 billion in most of the westernized economies. And in total, I've seen certain commentators talk about GBP 100 billion market. 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 slump towards construction as an electronic general engineering. And in our sense, we also deal as a massive distributor through other areas of distribution. So it'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 U.K. and Ireland at circa GBP 100 million in terms of our current volumes. But it serves only about 10% market share. In terms of what's addressable to a pure distribution business, that may be as low as 30 equal to size 50% depending on the precise criteria that you apply. So again, we are circa 20% maybe of that addressable market. So a big market, lots for us to go up from that perspective. Okay. That hopefully gives viewers a sense of the backdrop. So the overall sector a flattish curve in our 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, where we operate as the largest player in a fragmented marketplace, our footprint is sizable, both in pure geography and in the reach that we have with all the major global manufacturers. So the likes of Eaton, Danfoss, Parker, Bosch Rexroth still are multibillion global manufacturers who require a highly efficient technical competence, strong e-business digital-based distribution network. And very much our growth potential is housed in the organic growth that we can bring 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. COVID-19. 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 is going to lead in terms of the financial aspects of this.

Thanks, Bryce. And Bryce uses the word I referred to as a 5-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 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 4 quarters, Q1 is actually 11% reduction comparative to 2019. We were actually pretty pleased with how we were going, but of course, the first national lockdown, the 23rd of March, the last 8 days of that quarter rather dampened the numbers for the entire quarter. Q2 was the quarter horribilis where overall we were 33% down. Within that, the month of April, was then 41%, 4-1 percent down. Things got much better or less bad. It depends if you have -- call them half empty, we were 14%, 1-4 percent down in Q3, and Q4 only 5% down. So we've had, if you like, a nice gradient to our road to recovery, and pleasingly that's continued into Q1 of 2021. But -- and the type of the slide has been chosen carefully and delivered deliberately, in summary, recovering rather than fully recovered from COVID. It's important to reference that Q4, 5% down is against a weak comparative actually. And as said, Q1 this year has started well, but we are still sort of way behind Q1 in the normal year of 2019. Second point, before handing back to Bryce to cover the remaining 3. It's an obvious point, but we've done -- sought the opportunity to refresh our banking facilities with Barclays Bank. We did that last November. We've got a further 3 years of facilities with the same aggregate GBP 25 million deposit pound notes. And obviously, and clearly sensibly, we took the opportunity to revisit the key governance. In particular, we reset the leverage covenant, which would have stripped us up have we not done so, again, obviously, because of the lack of underlying profitability caused by the 5-letter word beginning with c. So one more thing before I hand to Bryce, just for those of you who has followed us, you'll see that at the end of 2020, broadly a small element rounding, but broadly, we're carrying 50% of the debt burden that we had 2 years previously.

In terms of the operational effects of the COVID crisis, keeping with many businesses, we've absorbed thousands of hours of management time dealing with what we have 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 2 major sites in Skelmersdale and Leicester, both of which you may recollect, we're in the center of COVID-19 outbreak, hotspots, back in the good old days of a tiered system. 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 his presentation. But probably one point of note in that we'll recover commercially from this particular aspect. At the moment, there's significant knock-on effects into global supply chain. Some of it for very good reasons, that demand is increasing quite significantly in terms of filling back up that stock hopper, so to speak. But we have a supply chain that is European-dependent and to some degree, as all supply chains do, more global aspect, particularly from the far East. So we're seeing certain drag effects on that in Q1 and into Q2 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 and therefore, the outlook for the remainder of this year, we believe, will still have certainly these sort of drag effects.

Okay. Feeble numbers. We've 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 U.K. 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 relative type. In fact, maybe there's some of our customers who are filling their own shelves or stock a little bit at the moment. But certainly, it's a early mover of 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 increased by, it's the quality of our gross margin. On the face of it, this one slide in isolation shows 146 basis points reduction in our GP. But don't be alarmed by that. And the point I'll make are that 2017, we were at 33.8%. And over a 2-year period, we felt we did a pretty good job of transition and already very strong margin of up to 35.7% that you see on the right-hand column. And the fact that it's ticked down a little bit is fully explained, 3 key reasons. This -- 2019 enjoyed the benefit in margin in 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. 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 elements of that 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 acquired stock provision means that, again, the lower volume caused by that 5-letter word, beginning with c, is no favors. But all in all, we're pretty proud of that margin and within -- and all of our DNA is not sacrificed margin whilst in the pursue of revenue. So in terms of costs, again, those who have followed us would have seen our ambition to take an old world inefficient costs out of our businesses. And then two, 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 GBP 20 million payroll bill. So 7% of GBP 3 million. And equally, we have sort of exited 5 properties, and that's typically where we bought the previously sort of relatively inefficient warehousing picking operations into our much more efficient locations in Skelmersdale and Leicester. So we've delivered on the significant majority of what we set out to do. We've still got bits of it to complete in the next 12, 18 months. And maybe there are certain things which we're beginning to identify that might add to that up pop in the fullness of time, stressing the fullness of time. So if we've taken, if you like, my expressing the old world, inefficient cost down, we're sensibly chosen to invest in some new world investment areas. Bryce will touch on these in a few slides' time, but I'll just headline the business and digital agenda, the e-business rather than the e-commerce. Bryce will explain our view on the difference there. And equally and importantly, we've invested in 4 or 5 senior people -- top quality people who sit immediately below the plc Board level and significantly strengthened our management team. In terms of the debt, on a like-for-like basis, it is reduced by GBP 5 million in 2020. And I can add up as my profession would suggest, it's GBP 5.9 million the difference between those first and last bars. The GBP 0.9 million is the element of support from revenue and customs. You'll be aware that they allowed U.K. go through just to do further payment of the Q1 2020 BFPA. So GBP 5 million on a like-for-like basis. I think the point that leaks out here, of course, I mean, equally lets out to the 2019 equivalent bridge is that over the 2 years, we've taken GBP 12 million, GBP 13 million 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 2 years ago. If we were to do a go-forward bridge, really important point and in some ways, a very obvious point, is that it's a working capital and lot has been digging green in the last 2 years. It's going to be quite bit with the red in 2021. And clearly, as volumes begin to return, hand-in-hand with that goes an increase in our receivables. And equally from a position of relative strength to our sort of fragmented U.K. competitor base, we do feel it's wise to put a little bit of stock back on to our shelves to take advantage of perhaps some pents of demand and make sure that we certainly limit those examples of where we haven't got enough -- quite enough stock on our own channel. So we think that's sensible investment of the headroom we've created within our banking facility. For 2021, those of you will look to either this usual finnCap analyst notes will have noted that we're not anticipating much in the way of debt reduction in 2021. In fact, it goes far to say the only green blob, hopefully, be a much bigger green blob is to be tax generated from operations, everything else will be red. And that green will equate to the aggregate of the reds really. So little debt reduction in 2021 is the red line.

In terms of my own check on input to investors who are new to our position as Russell's 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, multi-day GP, comparison to last year GP and comparison to current year -GP. It is the absolute DNA that we operate. And investors should take some degree of confidence that the 35 percentage points of GP is the consistent output that you get from this particular sector, and we view it as a significant strength. 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 operational cost and a key aspect of what we've worked through in the 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 per transaction elements. At the same time, we've chosen the benefits we attained 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. And hopefully, observation of annus horribilis over the past 2 years was, as Russell said, GBP 15 million, GBP 16 million taken out of our working capital investment, some of it through the natural reduction for COVID-19 is another discipline in which we're very strong. In terms of development in our overall group strategy, and as part of the new constitution of the plc Board, we put together an outline strategy paper at the back end that went through full analysis with Roger McDowell and the remainder of the NEDs. And the key aspects of which I'm going to take you through now. We believe this is building the platform for organic growth, cash-generative goal 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. However, for 2 reasons, the amortization of life and 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. We are clearly seeing that as the largest player in the marketplace. We operate with same customer across multiple businesses. We would have 4, 5 accounts still working in here. So we've decided to progress to 2 branding sales, Flowtech and Fluidpower Group. Flowtech will cover our high service offer, typically historically catalog bias, but increasing online bias operations. And it has a heritage in high-service wide stock availability and strong technical competence. However, it's very closely associated with that type of offer, whereas in the Fluidpower Group side, strong technical competency based largely with OEMs is what that has a heritage in, and we've chosen to use the fairly broad branding style of the Fluidpower Group. Obviously, Flowtech Fluidpower Group that's the name of our plc. This will all sit under a single e-business architecture. So we transitioned to 2 brands commercially over the next year and 2 years. Different speeds depending on the circumstances of each particular business. However, in terms of our reporting segments, we, in turn, report 3 segments. We split Fluidpower Group into 2. One, very much sharing the operational resources with their heritage in the Flowtech operation. And the other, our Services business. So the commercial market will see 2 brands. For our investor community, it will see 3 trading segments. 2 of them, Flowtech Fluidpower Group solutions are the historic components reporting and therefore, there should be a clear chain of reporting that people can keep track of. As we've talked about behind that, we've got a significant investment in e-business platforms. What's the difference between e-commerce and e-business? Well, Flowtech has always been seen as the leading player in the e-commerce world. It's an older portal, where we've got a wide ranging of stock available, and our 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 going to transition from that e-commerce environment to a fully fledged e-business environment. 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 improvement 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 we're dealing with 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 of our developments on that in due course. But it will be a much more flexible future-proofed results that we're investing in here. We have around 11,000 live accounts tradables in 2020. Over the last 3 to 4 years, we've put as much as 17,000 different accounts over that period who interact with the business. So an enormous amount of data coming into the organization. And when we couple that with the development in a new customer data platform, we believe that there's significant value that can be extracted from this. We'll create the golden record at a single view of a customer. Behind that, on the insight, we're going to get at a product set, a supplier set geographically. These are going to be of immense value tools, 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 supply and customer partners. So rather than being a link in a chain which distributors have historically taken, we'll be a key part of that particular jigsaw. The investment in this is relatively modest 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 GBP 1.25 million of 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 18-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 believe we'll be an enormous differentiator from our historic smaller, typically older managed competitor data in the U.K., both in resources and technical ability. In other areas, we know that our Services division that has now clearly defined both revolting 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 GBP 4 million. So our view is a minimal return on capital of about 20% is in immediate goal and we're confident that we will achieve that in the short to medium term. But we're doing a complete root and branch review of the organization. In this year alone, we've changed the leadership team, a leadership grouping. We've improved productivity measures. We've changed our pricing methods that's improved margins and stock, and we're very pleased about that, and 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 what you face and be fit for purpose financially, and that is something that we're going to 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 set. We've now established a Management Board with skills covering leading-edge operating development capabilities. Stephen Ashton is appointed to the new role there. He will cater for all our logistics, long-term supply chain planning. We split our operational leadership between Nick Fossey and Ian Simpson, both with long-term leadership roles with us. With those, we've now added to in product quality, engineering, compliance, systems in IT and in HR issues, which we'll talk a bit more in our ESG agenda. Target markets absolute clarity in U.K., Ireland and the Europe with our Netherlands operation. However, the commonality of supply with the 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 U.K., Ireland, and the Netherlands fall in the medium-term. Beyond that, we currently operate out of 4 legacy IT business process systems, all of them resilient and cloud-based infrastructures. However, there is a sense in order to improve in 2 particular areas: one, long-term resilience, our main IT environment is around about 20 years old is the purpose for today. Without question in the medium term, that will become a more stressed situation. But equally, there will be productivity improvements that can come from certain areas of a modern ERP package. We believe that our investment in IT resources, project management resources, and we've done 4 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 where is management capabilities, and in the case of commercial sales, all the process and purchase order processing environment. 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 geographies. ESG is a -- high on many investors' agendas, but for good reasons, it's high on our agenda, and we're looking completely at our environmental impacts and our employee impact. Russell?

Yes. And it's clearly increasingly important to 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 during the pandemic conditions that we'd like to -- proud to that as well. On the environment piece, we recognize that we did need some help. So we engaged with an organization called Carbon Responsible. They've spent some time, relatively deep dive into the activities in each of our 19 locations. And then I guess, sadly obviously begun to talk about setting targets around CO2 initiatives linked to the number of people we've got and the quantum of our revenue. We got a session in about 3 or 4 weeks' time where we'll build on the initial work they've done and develop and refine those targets and further report back to our investor basis on how we're doing. Part of that session, we'll begin to talk about the Scope 3 emission release. We understand what that relates to. But surprise 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 our employees, obviously, many businesses talk about the value of their employees. That's all you have, and we're no different from that perspective. And the COVID period tested that particular culture to the limit. And I'm pleased to say that we can do that, in our view, with flying colors. We're a multi-site operation. As I said, we trade from Cork to Belfast to Rotterdam, and all points in between. So with the inability for leadership group to travel doing various the lockdown periods, it was really down to our local management teams to manage their specifics, and they've done a fantastic job in that regard. In terms of mental health, again, high profile through the past year. And our industry is very traditional. It has 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 governing body to BFPA. We've grasped this particular situation, introduced mental health for stages. 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 takeup during the course of the year. We test or we score ourselves in terms of overall employee engagement introduced in 2019. And despite COVID-19, we had a big step forward in the response we've got from that perspective. Still more to do in terms of overall engagement, but we are 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. And a cautious expression for what we're doing about our notes. So I think in the course of the last half hour or so, we've demonstrated that we're not sure of in what we believe very sensible areas to invest in. Our discussions have ranged from a position of strength, putting some stock on our own shares to the potential sorts of the game changers at e-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 Skelmersdale and Leicester, they are already really impressive, in my view. But we recognize that let's not rest in our laurels. There's probably a bit more we can do to make them more efficient still. All design talks ultimately deliver that cost per pick metric of GBP 2.40. And we obviously remain mindful of the ongoing need to control our debt. You saw they are only as good as your last year type mantra, and so that will definitely remain within our mindsets. And thankfully, like I said, we've generated healthy headroom within the bank facilities and within the bank covenants, but we do respect that. And equally, we know that in certain investors the dividend remains either important or really important. But the key message there is that the dividend will not be formulaic pre-pandemic. It had reached the position of 6 point-something pence per share or another way, GBP 4 million. Or another way, a yield of 14% or 15% when the share price was 44p (sic) [ 4.04p ] one day last year. So it won't be formulaic, and you'll have noted that the analysts sorted notes, they penciled in sort of 2p per share as a final dividend in the start of the year we currently are in. And clearly, we don't think that's out of kill. But at that level, we would view ourselves as in with the crowd, in terms of the yield rather than an outline in other direction.

I mean, for those who've been and followed our story from 2014, we've always seen ourselves as a cash-generative business, and therefore, working to pay a dividend. It was one observation I can make on a period where we set ourselves with a 5p dividend rising towards 6p. The scale of investment opportunity, and 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, why you're not investing your cash in that particular growth. And I think we're using this -- this is obviously changing our approach, borne out of, yes, the COVID period for us to reassess that. And I think what we've outlined over the course of the last couple of days in our attitude, this partly will resonate with the majority of growth-based investors, but equally appeal to those who like the income elements of our potential sort of long term. So okay, in terms of summary, we believe we've dealt with COVID-19 well. Beneath that, we've continued to work on extraction efficiencies from our network, a mantra around the cost of transaction elements of things. We've, yes, invested overall in our systems and our people, our management skills and bandwidth. And we've ensured that we control our working capital invested there to control. However, as we transition into 2021, we'll develop our branding style, alter the commercial benefit, reinvesting significantly in B2E 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 talked about, we believe significantly that the developments of a long-term sustainability plan coming in 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. So reintroduced guidance to that in terms of our outlook from that perspective. You hope because I'm sure. 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 GBP 112 million, 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 GBP 102 million, and we're not uncomfortable with that as a starting point, but hopefully, we've got a more positive mindset beyond that particular line. That completes the presentation in terms of its overall content. And hopefully, we can now enter into a Q&A period.

That's pretty. And Bryce, Russell, thank you very, very much, indeed, for your presentation. [Operator Instructions] But just while the company take a few moments to review those investor questions submitted already, I'd like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A, can be accessed via your Investor Meet company dashboard, and we will send you an e-mail to notify you when that's ready for your review. [Operator Instructions] Bryce, Russell, I know I haven't given you an awful lot of time to look at the questions that are being submitted today, and I can see you're doing a very good job at opening the Q&A tab on 2 screens at the same time. But if I could just ask you to open up that Q&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 would be most grateful?

Okay. Well, great. Well, we've got a number of questions. So we'll try and canter through to use our time wisely, but thank you very much for -- the very much interest we've got here. So first question, how do you look to expand your reach beyond the U.K. given the potential size of the market opportunity? Will that be organic or through M&A? Well, there's 2 elements to this. Firstly, obviously, new 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, DHL, TNT, et cetera, in Europe. And just to reiterate, we have 2 trading businesses in the Netherlands with a view that we could certainly use the operational footprint there to expand an online platform. What we talked about absolute focus offline plus online in the short term is in the U.K. and Ireland. We believe the extents of opportunities 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 is 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's sort of GBP 1 billion market in the U.K. Valves and associated products is deeply measured in hundreds of millions. And we have one specialist business, hydrovalve, that's strong in that marketplace and a brand that makes 10% of what Flowtech does. So while it's the clarity of message we talk about fluid power, the potential to expand in other areas is considerable. And obviously, once you're on an online platform, expansion into other areas you can do. Major players in this marketplace, Irish components, for example, what's known by the Rubix, former brand of business ERIKS equally are multiproduct set areas. We ourselves has been special and big in our one particular niche. But obviously, online platforms implemented well, which we will do gives us some scope there, for sure. What do you see is the great risk of the business moving through 2021? Well, hopefully, you've seen -- we've shown resilience in a number of areas. 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 altered economics is that, that undercurrent of construction activity will act as a constant GDP post driver in the overall sector. The dynamics of the supply chain, probably there's heavy elements to China, both -- as I've alluded to an element of 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, and accounts of each one, we believe, are well under control. Largest operator? Who are the main competitors? The ones I've talked about at the top end, you've got the Irish Components, Rubix, ERIKS, to all GBP 1 billion, GBP 2 billion plus organizations across Europe. But in the U.K., much more modestly sized against ourselves. And all of them are actually top 20 customers, just gives you a sense of where we sit. Outside of that, very fragmented in small, older moneys businesses in the U.K. and Ireland. So nothing that is a very clear and obvious danger to our competitive position. What are the ROCE targets for each of the businesses? Rather than talking investors speak, I'll talk a bit more about how we approach this from a working capital and overall investment in a profit center basis. Our entire remuneration policy in the group is based around return on capital set at 20% of the specific working capital invested in that particular business. We historically have businesses that have operated at 40% to 50%. When you buy leverage to that, you 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&A activity, we've historically -- excuse me, acquired businesses at circa 5 and 6x multiples, and we have nothing to suggest that the current standard of that will change in the medium term. Could you describe how Flowtech and Fluidpower Group work together? Well, there's 2 key areas. One is sharing of operational resources. 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 elements. It's supported by certain of the key brands whereas Fluidpower Group specialized in hydraulic top-end global brands such as finnCap, as Danfoss, Eaton, Parker, et cetera. The 2 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 and therefore, create a complementary arrangement there.

Bryce, it's -- I'm just cutting in just on the basis, I think you've taken every question that's come in from investors. So thank you to both yourself and to Russell for being so generous with your time and perfect timing as we come up to the hour anyway. 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 beauty from my point of view, I've been a 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 believe, about the piece about investing in our own inventory. 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 currency clearly to the extent that we've got the benefit of having the supply in our shelves and our competitors haven't the significant demand. Well, yes, we should be able to improve the margin to the point Jerry there.

But all said, for those investors who followed our story and equally looking at -- so why is the share price relatively modest in terms of where it sits, we've flown to the time in 2014. I would look at it in 2 ways. One is the period in which we did significant expansion through M&A activity was driven by opportunity, a surprise at the state of the opportunity during those early days. And without question, that work in terms of building scale behind that, was obviously involved in every step of that particular way, I think without question, there were difficulties in integration, difficulties in ensuring that we built the platform. Hopefully, observers will say, over the last 3 years, our last acquisition of Beaumanor and Derek Lane under the blue banner in March 2018 has been a very successful investment for us, only with a GBP 10 million fund raise at that particular point in time. But we've now spent 3 years working tirelessly on the platform in terms of understanding the dynamics of our business and building IT resources and 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-19 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 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 saw from this perspective. 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 to us through the usual channels, our PR,Fiona Tooley and obviously through the usual soft connections by e-mail. So hopefully, you found that informative. Flowtech is a business very much to the point of -- a move on again, a relaunch, so to speak. And we think we've put the platform in place for us to move on from where we are today.

Bryce, Russell, thank you once again for updating investors today. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback. If you access this meeting from our website, then the feedback page will appear that you'll simply be asked to simply complete the feedback. And if you access this meeting via the link sent to you by e-mail, you'll simply be asked to log back in and submit your feedback, and we'd be very grateful. And I think it would 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.