Flowtech Fluidpower plc (FLO) Earnings Call Transcript & Summary

Good morning, ladies gentlemen. Welcome to the Flowtech Fluidpower plc Annual General Meeting. [Operator Instructions] I'd now like to hand over to Chair, Roger McDowell. Good morning.

Ladies and gentlemen, welcome to our 2025 AGM. It's now 10:00. A quorum of members is present, and I can declare the meeting open. And as an aside, special welcome to David Raywood, who is a shareholder and is present at the meeting today. So welcome, David. I'm Roger McDowell, Non-Executive Chair. Under Article 45.1 of the company's Articles of Association, the directors of the company have appointed myself as the Chair of the Annual General Meeting. I'll now introduce you to my fellow directors who are either physically present or online. We have Alisa Webb, Jamie Brooke and Stuart Watson, all of whom are nonexecutives. And physically in the room, we have Mike England, Chief Executive Officer; and Russell Cash, Chief Financial Officer and Company Secretary. So they're here in-person with me today. As last year, we understand that a number of shareholders are unable to physically attend the AGM. And as such, we're pleased to announce that like last year, we're facilitating an online AGM experience through the IMC platform. The IMC platform allows shareholders to listen to the proceedings of the AGM and ask questions through the live chat. So please can I ask one of the shareholders to confirm that they're able to see and hear the proceedings at the meeting. We have a pregnant pause whilst one of our shareholders sends us a live chat.

[Operator Instructions]

Nobody is stepping forward.

I can confirm you have a significant number of attendees on the call.

All right. That is excellent. Thank you for that. And in addition, we have present Emily Woodhead, who is from our company's registrar. She is also present in-person. So Q&A, we will be happy to deal with questions that have either been presubmitted or submitted during the course of the meeting, but we'll take them after the formal resolutions. So if there are any now questions that relate to the formal resolutions themselves, please put them forward. So I'll wait a second or 2. And if nothing pops into the live chat, I'll proceed with the formal business. So on the assumption that there are no questions relating to the specific formal business of the meeting, I'll press on with the formal business. If you are asking a question, you should give your name and state whether you're a shareholder, proxy or corporate representative. If you are a proxy or corporate representative, please state your name and the name of the shareholder. For those shareholders attending through the IMC platform, please can we ask you to submit your questions through the live chat. Sorry, there's a bit of repetition there, but at least I think I've covered off all the pros and cons. Moving to the formal business of the AGM. Firstly, may I remind you that when it comes to voting on resolutions, shareholders here in-person, proxies here in-person who have been duly appointed by a member entitled to vote and those who are here as corporate representatives are all entitled to vote on a show of hands or on a poll. Those attending through the IMC platform will not be able to vote and should have appointed a proxy to vote on their behalf of such proxy being present at the meeting. This year, you are asked to approve 12 resolutions. Resolution 1 to Resolution 10 will be proposed as ordinary resolutions. This means that for each of these resolutions to be passed, more than 50% of the votes cast must be in favor of the resolution. Resolutions 11 and 12 will be proposed as a special resolution. This means that for each of these resolutions to be passed, at least 75% of votes cast must be in favor of the resolution. May I also remind you that while you are free to abstain from voting and abstention is not a vote in law and will not be counted in the calculation of the votes for or against any particular resolution. Moving on to Resolution 1. The first resolution is to authorize the company's annual report and accounts, strategic report and directors' and auditor's reports for the year ending 31st of December 2024. I now put this resolution to the meeting. Please raise your hand to vote. Those in favor? Those against? Those abstaining? [Voting]

For the information of shareholders, I advise that proxies were received in respect of 36,759,510 shares comprising 36,759,510 shares in favor of the resolution, no shares against the resolution and no shares in respect of which votes were withheld. On the basis of the show of hands and the proxy voting received, I declare the resolution carried. Moving on to Resolution 2. Second resolution approves the appointment of Mike England as a Director of the company. The company has made the decision to, in accordance with the principles of the QCA Corporate Governance Code request that every AGM, all directors of the company must retire and stand for reelection unless already doing so in accordance with the Articles of Association of the company. And therefore, myself, Mike, Stuart, Alisa, Jamie and Russell will also seek reelection at this AGM. Brief biographical details for Mike are set out on Pages 39 to 40 of the annual report 2024. I now put this resolution to the meeting. Please raise your hand to vote. Those in favor? Those against? Those abstaining? [Voting]

The information of shareholders, I advise that proxies were received in respect of 36,759,510 shares comprising 36,758,426 shares in favor of the resolution 1,084 shares against the resolution and 0 shares in respect of which votes were withheld. On the basis of the show of hands the proxy voting received, I declare the resolution carried. Moving on to Resolution 3. The third resolution concerns the reappointment of Stuart Watson as a Director of the company in accordance with the principles of the QCA Corporate Governance Code. Brief biographical details for Stuart are set out in Pages 39 to 40 of the Annual General Report 2024. I now put this resolution to the meeting. Those in favor? Those against? Those abstaining? [Voting]

For the information of shareholders, I advise that proxies were received in respect of 36,759,510 shares comprising 36,758,426 shares in favor, 1,084 shares against the resolution and 0 shares in respect of which votes were withheld. On the basis of the show of hands vote and proxy voting received, I declare the resolution carried. Resolution 4, fourth resolution approves the reappointment of Russell Cash as a Director of the company in accordance with the principles of the QCA Corporate Governance Code. Brief biographical details for Russell are set out in Pages 39 to 40 of the annual report, and I now put this resolution to the meeting. Please raise your hand to vote. Those in favor? Those against? Those abstaining? [Voting]

For the information of shareholders, I advise that proxies were received in respect of 36,759,510 shares comprising 36,758,464 shares in favor of the resolution, 1,046 shares against the resolution and no shares in respect of which votes were withheld. On the basis of the show of hands and proxy vote received, I declare the resolution carried. Moving on to Resolution 5. The fifth resolution approves the reappointment of Alisa Webb as a Director of the company in accordance with the principles of the QCA Corporate Governance Code. Brief biographical details for Alisa are set out on Pages 39 to 40 of the Annual General report 2024. I now put this resolution to the meeting. Please raise your hand to vote. Those in favor? Those against? Those abstaining? [Voting]

For the information of shareholders, I advise that proxies were received in respect of 36,759,510 shares comprising 36,753,702 shares in favor of the resolution, 5,808 shares against the resolution and no shares in respect of which votes were withheld. On the basis of the show of hands vote and proxy voting received, I declare the resolution carried. Resolution 6. The sixth resolution approves the reappointment of Jamie Brooke as a Director of the company in accordance with the principles of the QCA Corporate Governance Code. Brief biographical details for Jamie are set out on Pages 39 to 40 of the Annual Report 2024. I now put this resolution to the meeting. Please raise your hand to vote. Those in favor? Those against? Those abstaining? [Voting]

For the information of shareholders, I advise that proxies were received in respect of 36,759,510 shares comprising 30,738,643 shares in favor of the resolution, 1,251,921 shares against the resolution and 4,768,946 shares in respect of which votes were withheld. On the basis of the show of hands and proxy voting received, I declare the resolution carried. It is my opportunity to take a sip of water. I'm going to pass this chair temporarily over to my colleague, Mike here in respect of the Resolution 7, which concerns my reappointment. So Mike, if you wouldn't mind.

The seventh resolution approves the reappointment of Roger as a Director of the company in accordance with the principles of the QCA Corporate Governance Code. Roger's brief biographical details are set out on Pages 39 to 40 of the Annual Report 2024. I now put this resolution to the meeting. Raise your hand to vote. Those in favor? Those against? Those abstaining? [Voting]

For the information of shareholders, I advise that proxies were received in respect of 36,759,510 shares comprising 35,502,865 shares in favor of the resolution l,256,645 shares against the resolution and 0 shares in respect of which votes were withheld. On the basis of the show of hands vote and proxy voting received, I declare the resolution carried.

Thank you, Mike. Moving on swiftly to Resolution 8. Resolution 8 is approving the reappointment of Grant Thornton UK LLP as auditors, I now put this resolution to the meeting. Please raise your hands to vote. Those in favor? Those against? Those abstaining? [Voting]

For the information of shareholders, I advise that proxies were received in respect of 36,759,510 shares, a familiar number, 36,696,132 shares were in favor of the resolution, 30,845 shares against the resolution and 32,533 shares in respect of which votes were withheld. On the basis of show hands and the proxy voting received, I declare the resolution carried. Moving on to Resolution 9. The ninth resolution authorizes the directors to determine the remuneration of the auditors. I now put this resolution to the meeting. Those in favor? Those against? Those abstaining? [Voting]

For the information of shareholders, I advise that proxies were received in respect of 36,759,510 shares comprising 36,758,165 shares in favor of the resolution, 1,345 shares against the resolution and no shares in respect of which votes were withheld. On the basis of the show of hands and the proxy voting received, I declare the resolution carried. Resolution 10, tenth resolution authorizes the directors to allot shares up to an aggregate nominal amount of [ GBP 10,545,862.16 ]. In line with current institutional shareholder guidelines, this represents approximately 1/3 of the company's current issued share capital, together with an additional 1/3 being GBP 10,545,862.16 to be used for rights issues only. The authority will expire at the next AGM of the company or on the 17th of September 2026, whichever is the earlier. I now put this resolution to the meeting. Please raise your hands to vote. Those in favor? Those against? Those abstaining? [Voting]

For the information of shareholders, I advise that proxies were received in respect of 36,759,510 shares comprising 23,588,089 shares in favor of the resolution, 13,171,421 shares against the resolution and no shares in respect of which votes were withheld. On the basis of the show of hands and the proxy voting received, I declare the resolution carried. Resolution 11, the 11th resolution authorizes the company to make market purchases of its own shares should the directors consider this to be appropriate and in the best interest of shareholders generally. In line with current institutional shareholder guidelines, the maximum number of shares that may be purchased is 6,327,517 ordinary shares, representing approximately 10% of the current issued share capital of the company. The authority will expire at the next AGM of the company or on the 17th of September 2026, whichever is the earlier. I now put this resolution to the meeting. Please raise your hands to vote. Those in favor? Those against? Those abstaining? [Voting]

The information of shareholders I advise that proxies were received in respect of 36,759,510 shares, comprising 34,830,902 shares in favor of the resolution, 1,928,608 shares against the resolution and no shares in respect of which votes were withheld. On the basis of the show of hands to vote and proxy voting received; I declare the resolution carried. 12th and final resolution authorizes the company to reduce its share premium account by the amount equal to 61,661,613 with such amount being credited as distributable reserves of the company. Please raise your hands to vote. Those in favor? Those against? Those abstaining? [Voting]

The information of shareholders, I advise that proxies were received in respect of 36,759,510 shares, comprising 36,741,497 shares in favor of the resolution and 1,084 shares against the resolution and 16,929 shares in respect of which votes were withheld. On the basis of the show of hands to vote and proxy voting received; I declare the resolution carried. Conclusion, with voting over, that completes the formal business of the AGM. We're now moving on to non-AGM-related questions-and-answers. And Mike, I think you're going to give us a little brief presentation. So Mike, if you would indulge us, has got a few words to say in a few slides, and then we'll move on to the questions, those that have been pre-submitted and those that we've received during the course of the meeting. So Mike, over to you.

Thank you, Roger. Welcome, everybody, and thank you for joining us this morning. Just a few words from my side. And I will try, as I'm just walking through some updates, just to pick off some of the questions that have already been submitted through. In the last 2 years, there's been a lot of work, a lot of hard work put in place in order to reestablish the business so that we've got a great platform to scale and to grow. The heart of that has been harnessing the power of the One Flowtech brand and a lot of efforts last year and to bring what was 17 different brands under the One Flowtech brand and actually a complete reset of what we stand for in the marketplace. So very much positioning ourselves as a specialist in the world of fluid power and very much a business that can sell a single component or product all the way up to designing, building and installing a complex engineered project. And we're very proud of that. And that actually gives us a real competitive advantage in a marketplace where engineering skills right across industry are at an all-time low. And therefore, there's a lot more pull on the supply chain and organizations like Flowtech to provide a greater level of upstream value-added activity. Just as a snapshot, as a reminder, and again, a lot more information is covered off in the annual report. But we've very much positioned ourselves in the marketplace over the last 40 years as a leader in fluid power product and service provision and as a real specialist. With the acquisitions that we've made more recently, we're proud to be GBP 120 million business. We are sitting today with 21 locations. There has been some good consolidation work, which we did last year. But we do believe that having localized presence is actually a key part of our proposition, particularly around the service and repair element of what we do. We have over 600 highly skilled people and within that, a strong engineering capability in the business. And we're very proud to work with some of the world's largest brands associated with the fluid power industry. And of course, that's important because a lot of specified brands are sitting there within industry, and our job is to give access to those brands, whether that be somebody needing that in the aftermarket for repair purpose or whether that be designing and installing into a project or with an original equipment manufacturer. We've built a capable manufacturing operation within the business, but also that service and repair capability. And a lot of the work during 2024 was to really unlock that potential of what was spread across multiple different businesses and bringing that really under one singular value proposition. And I'll come on to that in terms of the progress that we made last year. We work also within a very large and fragmented market. And we are the largest at what we do within the markets by which we operate. And as I just said on the last slide, that's a GBP 30 billion market across Europe and that presents us with longevity in which fluid power is associated with virtually every industrial application that there is, fluid power being hydraulics, pneumatics. And also, we extend that into process valves, pumps and also broader industrial equipment as well. If I just quickly summarize on 4 key points, if I may. 2024 was a very important year for Flowtech. It was a year of transition. It was a year where we were making significant change in order to bring those businesses together under One Flowtech. That included a change of leadership, a restructuring of our operating model and organization to strengthen and build capability for future growth, and a lot of work around putting in place stronger commercial practices across the enterprise from what was quite fragmented to being something more consistent across the group and a huge amount of work on operational gearing and efficiency and making sure that our service was returned to good order. And I'm pleased to report that with the exception of some work still on technology integration, we believe that we've completed a good 80% to 85% of the transition, and that gives us the opportunity at the start of 2025 to be in a strong position to springboard the business forward. The focus for our leadership team has been very, very much around our strategy, which is under 3 simple pillars. It's all about putting the customer first and building that omnichannel singular experience. That includes, and I'll come on to it, the building of a new digital platform, which is something that was certainly needed within this enterprise and we're delighted that we're on track there. I'll talk more about that. But notwithstanding, that's also about connecting our business together more so that we can unlock the full offering to our customers across the piece as opposed to customers only really dealing with Flowtech on a localized level. The power of One has been about bringing the enterprise together under a single operating model and very much moving the business under the Flowtech brand. And A Word of Motion, which is very much our brand message, that's about having a clear purpose in the market, helping industry to keep moving, but also to help industry keep moving more sustainably. And we want to, over time, expand our product and service proposition broader in that world of motion, which unlocks further growth opportunities for the future. And actually, the acquisition of Thorite in 2024 is a good example of how we strengthened our product and service proposition. 2024, in particular, given the market backdrop being -- continuing to be very challenging, was about controlling the controllables as well as the transition. And we're very pleased with the self-help initiatives that we've been driving around gross margin improvement, working capital reduction and also driving greater operational efficiency into the enterprise. And I think we sit here today in 2025 confident of the ability to gain traction. And despite ongoing market headwinds, which are well documented, we are driving some important self-help initiatives, which we believe are going to put us in good stead as we go through 2025 and certainly springboard into 2026. And [ Ross ], if you could just move the slide down one. Let's just talk about some of those opportunities, which we're very much doubling down on as a team. We are in the process, as we speak, of launching our new web platform. This is important because this produces for our customers both a white label capability for our customers that today take a branded catalog. There's been a lot of pull towards wanting us to support them with creating a branded web platform, including an integrated 3PL logistics service -- white label service behind that. But importantly, our Flowtech website has not been up to scratch, and we're delighted to be in the process of launching a new digital platform for Flowtech first in the U.K. and then during quarter 3, rolling that out into the Benelux and also into the Island of Ireland, where we don't have strong web platforms today. Another key area of focus has been product and service expansion. And just a good example of this has been the recent announcement of a fantastic new partnership with SMC, one of the largest pneumatic providers on the planet. And this is very much supporting them consolidate their tail of distributors through our business model. And we believe that, that relationship and that model is going to be very, very important for the future, and we're proud to be associated with all of our global brands. We are making good progress on engineering projects, and I'm going to talk about 2 specific projects, which are very large. But equally, we're making good progress across our engineering solutions centers in developing our pipeline and executing on our pipeline and providing some very important service and new build projects into our OEM customer base and into the end markets. Some OEMs have certainly found it more difficult and challenging over recent times. I'm pleased to say that we continue to support them, and we're looking forward to some market recovery. But we are making our own success. We've secured 2 exciting new projects. These are large turnkey infrastructure projects, one of which I was in Ireland on Friday and to sign, which is the Edmund Rice Bridge project. It's a rehabilitation project on an existing piece of infrastructure that connects Waterford together across the important river you see there. And that project is around EUR 4.5 million over a 15-month period. And that is a complete refit of the hydraulics and mechanical and electrical components within that bridge, which is carrying over 1,000 vehicles a day and is a critical part of infrastructure. So we're excited about that project. And also the Narrow Water Bridge, which connects Northern Ireland and Southern Ireland together, which was the picture that you saw on the agenda slide. Again, this is a brand-new infrastructure project, and we're going to be providing the hydraulic content in design, build, install and commissioning of that over the course of the next 2 years of a similar value in contract size. So we're excited about those projects. And I think one of the questions was about infrastructure investment. And it's fair to say that Flowtech is incredibly well positioned with the investment that's gone into the environmental agency here in the U.K. and British Waterways, but also the infrastructure projects that are happening across the Island of Ireland. I've just mentioned 2 of those. And also in the Benelux, in Netherlands, there's some major infrastructure investment. And a lot of the bridge infrastructure, flood defense, wet infrastructure, as we call it. It's got a lot of hydraulic content, and we do believe that there's going to be ongoing opportunity there for us to capitalize on, along with other industry sectors that we're focusing on as well. And then finally, on inorganic opportunities, we're very proud to have welcomed Thorite, Allswage and Thomas into the Flowtech Group over the course of the last 10 months, a combined revenue potential there of north of GBP 20 million. And clearly, we're in the process of making sure those businesses return to profit and generate good profit. And we're delighted by the progress with Thorite and with Allswage, and we're in the process only having just acquired Thomas of doing the same there. And we're excited as well by future opportunities both in terms of similar situations where we know the businesses are struggling, that presents opportunity, but also going concerns where this market, which is fragmented, and consolidating is going to present more opportunities for acquisition. But they do need to be a strategic fit and they need to be value creative for our shareholders. More importantly, we look at that in 3 areas. One is, does it help us to expand our product offering? Two is, does it help us to improve our service offering; and three, does it help us to improve our geographical reach over time. So those are the key areas that I just wanted to call out. And I think with that, Russ, we'll move into the questions.

And I'll just pick off a couple, if I may. I've covered off the question on acquisitions. I've talked a little bit around the infrastructure opportunity. Infrastructure investment is not just around the big projects that we've just discussed around refurb or rebuild of bridge infrastructure. But also as we start to see that infrastructure investment, we'd like to see the construction industry starting to tick up. There's a huge amount of hydraulic content in off-highway, all of the mobile equipment that's supporting construction in terms of quarrying, but also the crushing and screening industry in Northern Ireland has been impacted over time. And so it's a welcome relief to start to feel the investment coming through in infrastructure. And that is an important growth driver for us. And then there was a question around AI and the use of AI within the business? It's something actually that we're building into our new digital platforms. And I'd just call out 3 examples. We've built a new customer data platform, and we're building AI tools into that so that we can be far more effective with making sure that we're relevant to our customers. And over time, that AI will help us to build a much greater picture of the customers that are working with Flowtech, so that we can target more of our offering towards them. The new web platform has AI built into it. And so over time, we'll build a history of what customers are looking for, what products are brought with other products. And so we can start to build up a greater experience for our customers within that search environment. And finally, in a business that's got over 100,000 products on the website and access to over 0.5 million products through the supply chain, master data management in product is critical. We're also bringing together around 1.16 million records of product data across the different businesses that we've been integrating. And AI is an absolutely key part of making sure that we can reduce the manpower needed to manage the data effectively and make sure that we then are allowing ourselves to invest in value-added activity because there's a lot of data cleansing that goes on there. So those are just some good examples, but it's very much part of our strategy going forward. Final one for me, Russ, in the questions was around the Thorite branch in Brierley Hill, a question around whether this branch is closed and therefore, our other branches closed within the Thorite acquisition? I can say to you absolutely that we're very proud of the 7 Thorite branches, and we see that as being a key part of the offering and a key part of the strength of the Thorite business. As it is in Brierley Hill, it wasn't a great facility. It was a very small facility. We also took the opportunity to close our [indiscernible] facility, which was around 15 minutes down the road from there, where we had a sales office, a sales and service office. We've moved to a new location recently on the Pensnett Trading Estate just outside of Dudley. It's actually one of the biggest trading estates in Europe. It's an exciting location. And we're not only moving the Thorite branch in there, which was at Brierley Hill, but we're also reestablishing our process valve and industrial business, which we had many years ago and putting some local stockholding because that West Midlands environment is industry heavy, and we see a great opportunity to reset ourselves around the process industries that we serve, and that's an important growth area for us for the future. So I think we've made some smart decisions. The team are very happy, and they've got spangling new offices, and we've got some more space for stock. So that's good. So Russ, those are the questions that I was covering off. Was there anymore that you wanted to?

Yes. Just on Brierley Hill, given the acquisition of 4 that was out of an administration process, it costs us nothing to exit the Brierley Hill site. And in fact, staying there would have required quite a lot of spend to maintain the facility. So that was a really good thing to do. Other questions, Mike, there's a question about the Chancellor changes to national insurance. That's cost us about GBP 0.5 million fully annualized, but there's nothing we can do about that. So it plays back to -- we can only control what we can control. So we'll control those operating costs that we can't do something about. We can't simply can't do anything about that. And I think the final question I saw, Mike, was as regards director shareholdings. Currently, about 2.5% of the shares are owned by the directors. Each director has a shareholding.

I think, Roger, that's the main questions.

Okay. Have we got some now that are popping through on the live chat that we need to respond to.

Do you have a target for medium-term, say, 5-year organic revenue growth rate? I guess I'll answer that, hopefully answer it with reference to our ambition on, I guess, the more important line of the P&L, the profit line. So we've got a stated ambition of achieving a mid-teens EBITDA margin. So let's say, mid-teens is 15%. And to get to that sort of level, we believe we need to get our top line to GBP 160 million, GBP 170 million of revenue. With the opportunity from the recent acquisitions, we can see a clear short-term route to north of GBP 120 million. We do expect the markets to become in the short to medium term less ugly. And at some point, they should obviously become helpful. So can we see a route to mid-teens EBITDA margin? Absolutely, we can. I think we strongly say with reference to our EBITDA growth engines as referenced in our annual report that we've not just got a vision, we've got a plan. And to the extent we've been able to control that plan, we've done a decent job in the last couple of years. So we feel we're nicely poised to capitalize on, as I say, less ugly market conditions, at some point, friendly market conditions. We've controlled the controllable and the line to that EBITDA margin and hand-in-hand with that, the top line growth is one which we're confident of achieving.

Thanks for that, Russ. So absent any more questions through the live chat.

Nothing has come through.

We haven't had any further questions. So I'd like to thank everybody for joining the meeting today. And for those of you who have participated or ask questions in advance, hopefully, you found the answers to those questions to be satisfactory. If there are any further questions that come through, you can potentially take them and deal with them in an offline manner. But absent any further questions, I'd just like to thank you all again for coming and participating and close the meeting at this point.

That's great. Thank you to the Board of Flowtech Fluidpower. Thank you for the attendees joining today. We will now redirect you to provide the company with your feedback.