Flowtech Fluidpower plc (FLO) Earnings Call Transcript & Summary

Hi everyone, and welcome to the Flowtech Fluidpower Half Year Results Presentation for 2025. In case you're new to the Flowtech story, let me introduce myself — I'm Mike England, Group Chief Executive Officer. I came into the business in April 2023, so that's just a little over 2 years now. The reason I joined is that I saw this as a really exciting transformation journey — a 40-year business with a great heritage that I've known in the industry for many years, and one I felt had the opportunity to be developed into a great growth engine. Before joining Flowtech, I was the Group Chief Operating Officer at RS Group plc. That was FTSE 100 then, now FTSE 250, which gave me great insight into digital B2B commerce as well as a global footprint and global trading within the industrial distribution space. Before that, I was with Brammer plc, now trading as Rubix owned by Advent. Back then, that was a FTSE 250 business and I worked for them across Europe in commercial roles. And prior to that, I was 9 years at Rexel in the electrical distribution space, former to which I did a degree in civil engineering and Masters in Business Management.

I'd say it's been just shy of 30 years for me in industrial distribution and services, working across European markets, with solid exposure to America and Asia Pac. Over that period, I've learned a great deal about the way we collaborate closely with our supply partners to generate value as a distributor or service provider, and also about operating across a wide range of vertical industry segments in the market. So I'm here today to tell you a bit more about the Flowtech story. With that, I'll hand things over to Russell so he can give an introduction as well.

Yes. Thank you, Mike, and greetings to everyone. So indeed, I'm Russell Cash, serving as group CFO. I came on board in November 2018. Before I arrived at Flowtech, my experience was honestly in a somewhat different sphere — the sphere of turnaround and restructuring. And I had little idea back then, since toward the close of 2018 the world seemed fairly stable and fairly predictable, yet certain of those capabilities proved valuable for guiding the company through the global pandemic and all that has followed since that moment. And more lately, a few of those capabilities were helpful when we acquired several businesses from distressed circumstances.

Okay, thanks, Russ. So today we'll just briefly walk through our strategy and share a bit more about Flowtech for anyone hearing our story for the first time. We'll provide a summary update, which more or less sets out the topics — the key topics and themes we'll be covering. But the real main event is the trading highlights, the financial update, and I'm sure everyone is very keen to hear about current trading and the outlook from there. So I'll begin by playing a short video, and I'll talk over the top of it. You'll see that on the screen now. Flowtech was founded roughly 40 years ago in the northwest of the U.K. Our facility sits in Skelmersdale, but we have operations throughout the U.K., across the Island of Ireland and across Benelux. We're very much centered on hydraulics, pneumatics, process equipment. We're specialists in creating engineering solutions. Our value proposition covers being a high service distributor that sells products, but we also repair, service and overhaul industrial equipment in our areas of specialism, with strong technical and engineering capability throughout the group.

We've also spent more than 40 years engaging in a number of rather substantial engineering projects, where we handle design, construction, installation, and commissioning of hydraulic, pneumatic, and process equipment. Technology sits firmly beneath everything we do. That said, this is equally a people business and a people industry. The market we work in is highly fragmented. And we're glad today to be sharing a little more about the journey we're on. So hopefully that was a very quick, brief update just to bring our business to life a bit more. Our strategy on a page. When I joined in April 2023, I was actually facing quite a decision, because at that point we were running 17 businesses that operated quite independently, all of which came about through acquisition, from when we IPO-ed the business in 2014 through until 2018. And I suppose the decision at that point was whether we operate under one brand, under a branded house, and begin looking at a federated operating model to bring together an integrated business with a far more consistent approach to market built on a single brand and a single value proposition? Or do we keep running the business as a house of brands with a holding company sitting over the top?

Strategically, I made the call that the business would be run as one Flowtech, and that we'd build an operating model that is lean and scalable, letting us bring a more singular value proposition to market across our 3 geographical markets — the GB, the Island of Ireland and the Benelux — with the idea that we'd then have a scalable model we could plug into and expand into Europe over time. Our strategy framework rests on 3 key pillars. The first one is the customer first pillar. This is very much about creating an omnichannel approach and experience for our customers. So we're moving away from having lots of quite traditional independent businesses toward having a business that's more seamless. We're on that journey. Right at the heart of that journey is building a digital capability that's much more progressive and forward-looking, which I'll come on to during the course of this presentation, because we're making extremely good progress there in bringing that customer-first approach to life. The second is the Power of One — not just rebranding under One Flowtech, but equally the operating model, that federated operating model in which we want to create a degree of flexibility within the respective markets by which we serve.

But at the same time, if there’s something we can do once across the whole group, and do it efficiently and effectively, then of course we could take that route. And beneath all of that sits a single value proposition for the market, which, again, I’ll get to, especially when we discuss the new web platform. And then last, a world of motion. So this is the right moment for us to move beyond only hydraulics, pneumatics and process equipment products and services, recognizing macro trends like sustainability, electrification, digitization; it’s bringing automation and control, it’s bringing additional products into the assortment, including electronics, actually, that we need to be thinking about. But we want to remain in our swimming lane as a specialist. Yet by moving into that world of motion, that opens up a GBP 30 billion European market. And over time, we do see an opportunity, organically and inorganically, to add more strength to our offering than we do today. So we see a GBP 30 billion market. We believe this business can move toward mid-teens EBITDA margins in the midterm. And we believe that certainly, as the market does recover, we can certainly be looking to outperform the market by 2x.

And all of this rests on digital and data enablement, and it's taken us a while to get the structure and frameworks right around that. Our strategy now executes through 6 engines of margin growth. So we've assigned margin — meaning EBITDA growth — to 6 areas. Customer growth is largely what I discussed: our go-to-market approach, one single value proposition for customers, and supporting it, the right digital platform, a web platform we can build from. Commercial excellence means purchasing well. It means selling with discipline. It means managing gross margin. But it also means managing working capital and generating cash — things such as inventory management and inventory optimization, where good progress is being made. We're strongly focused on number three, expanding products and services. So new brands into the portfolio, new products into the portfolio, growing our services, standardizing those services group-wide. And own brand matters to us. It's a little under GBP 20 million in revenue. It carries a very good margin. It's a known brand in the market now. We've rebranded under FT Pro. We've brought many own brands together.

And we view that as a genuinely significant growth engine for us. Operating for less means running a lean, efficient operating model, but it also means making sure we deliver great service to our customers, and that we get it right first time, along with some technology enablement, which we're working through as a business. And then finally, I suppose, at the heart of all of it is people, talent and capability. We've assembled a very, very strong, highly energized, capable leadership team — in fact, a team that is used to operating much bigger businesses and has experience doing so. So we do have an understanding of what good looks like, which matters, particularly given the ambition we have as a company. But within that, we're also building capability from within. We have a core engineering capability in our business. We're not just running a distribution business. We're running an engineering business. And I'll come on to that, because we're getting involved in some fairly sizable and very technically orientated major projects, and we need the right capability in order to deliver against those. And if you'd like to know more about our plan and our execution plan, there is a slide in the pack — which we won't cover in the appendix — that just talks to how we're breaking down the prioritization of that 1 to 6 in our execution plan from 2023 through to 2027.

Now, to summarize the first half of the year, I'll expand on this in greater detail. I won't go into the level of detail shown here on the right-hand side, certainly. But the key takeaway is that conditions in our markets have stayed very difficult. There's been no improvement. There are still considerable headwinds across industrial segments, without question. Our focus has been heavily on self-help initiatives — not just to generate solid growth momentum, but also to keep driving gross margin improvement and to manage our cost base effectively so we improve operational gearing. We're pleased to report that performance is in line with expectations. We always face tougher comparatives in the first half of 2024 against the first half of 2025. But the real point here is building momentum into the second half of the year. And we'll get to the self-help initiatives that are driving an improved sales pipeline, new contract wins and a much stronger order book as we look ahead to the second half of 2025 and into 2026. So let me now turn to the trading highlights for the first half of the year.

The image here is from an exhibition called LAMMA, which ranks among the largest agricultural shows in the U.K. and happened in quarter 1. With the new Flowtech branding and our single value proposition, it's fantastic to now unite our collective power and strength as a company at events like LAMMA and truly begin demonstrating everything we can do. We take real pride in that, and it wouldn't have been possible several years back when we operated multiple brands. Looking at the market, the self-help measures are definitely enabling us to beat the market. On the right-hand side, you can see the PMIs have stayed in contraction on a consistent basis, with only limited improvement as we moved through 2025. In fact, that decline during the second half of 2024, which did hit our revenue and EBITDA, has largely carried on, with a few upticks emerging from March into the half year, yet we're still in a contracted position, especially in the U.K. And as the U.K. manufacturing production data shows, although the year may have begun a touch more optimistically, it has kept falling away, with only June really beginning to show a modest improvement.

But I think it's fair to say the market is really lagging. On our end, we've been heavily focused on generating growth inside the customer base we already have, along with strong retention levels. If we look at just our top 100 customers, retention there has been extremely high. And in fact, the chart shows we've begun to see a much wider growth rate spread across many industry segments, which is the blue. And the yellow — the customers or segments that are declining — is actually getting considerably smaller, which is encouraging. And over on the far right-hand side, there's an industry sector known as crushing and screening. That's a group of OEMs in Northern Ireland that build large rock crushing machinery and screening equipment for the aggregates in construction and quarrying sector, and it has stayed under a lot of downward pressure. And as you can see, that's also creating something of a drag effect. We're still really seeing decline around some of the bigger OEMs and projects in those yellow sectors, or the orange sectors of the market. But the progress we're making in the blue has us encouraged.

There is a group of smaller customers whose order values have come down. Still, what gives us encouragement is that they're keeping a firm grip on their cash given how volatile the market is right now, and they're avoiding spending unless it's necessary — maybe using up inventory they already hold instead of adding surplus stock. Even so, order frequency remains steady. So when the market bounces back, we believe that will bounce back too. What encourages us, though, is that we've just rolled out the new website, which I'll get to shortly. That upgraded e-commerce platform will definitely let us grow our share of wallet over time with smaller customers we already have. On top of that, it will help us speed up acquiring new customers — an engine this business hasn't really got running until now. So that opportunity has us pretty excited. At our full year results presentation at the end of — in early Q2, we discussed the 4 self-help growth initiatives we're pursuing for 2025. And I figured it would be worthwhile to give a bit of an update on where we stand with those 4.

First, there's the new digital platform, something we've been putting a lot of effort into behind the scenes. Second, there's the progress we're seeing on expanding our products and services. Third, there's the headway we're making when it comes to landing new engineering projects and growing the pipeline, as we begin to harness the full strength of our engineering capabilities across the business to capture bigger and more exciting wins. And then last, a look at where things stand with the 3 acquisitions we completed over the past 12 months, 2 of which closed in the first half of 2025, plus a few brief remarks on the outlook there. Looking at the green bar here, one thing we've pursued very, very aggressively is shifting our sales efforts and attention toward the segments we see as high-growth. We do substantial business — and we're very proud of it — in the indirect channel. By that I mean we serve a wide range of smaller distributors and resellers, along with larger distributors and resellers, in a specialist role, and we offer both products and services through them. We play a critical role in the supply chain.

We think that remains a robust growth area for us. Beyond that, aerospace and defense infrastructure—especially things like bridges with mobile or moving assets—as well as wet infrastructure such as switch gates, flood defenses, and so on. That is a significant growth area, and a lot of inbound investment is flowing there. When it comes to data center investment, our product portfolio fits very well in the construction of new data centers and also throughout the transportation sector—whether rail, off-highway, truck, or marine—we still see solid growth opportunities there. So to break those down, a word on the new digital platform. We carried out an assessment at the end of 2023. We brought in an external partner to evaluate our digital and technology stack. And I think we concluded that the website we implemented—I believe it was in 2022, before coming on board—while we made a good investment and felt we had built a good website, it was really suboptimal and did not meet our customers' needs. We've spent the last 18 months working with an Austrian-based developer. I believe very strongly that e-commerce, B2B e-commerce—particularly in Germany and DACH and Europe—is actually further ahead than industrial B2B commerce here in the U.K.

So actually, drawing on that knowledge, that experience, and that progression felt really important to us, and we wanted to be sure we had a highly progressive web platform that we could build on and grow, and where we could also bring in AI and other tools to give us a really strong platform — not just for selling products but also for showcasing our engineering and service capability, and in time, actually bring in some greater tools as a specialist, such as configuration of systems within that digital space. So that vision of being the leading specialist in digitally enabled products and engineering solutions is very much a reality now. We went live with the new web platform in August. We cut over from the old website from July. So we did that in a staged way to mitigate any risk in the transition. So we ran the 2 websites in parallel until we were comfortable. The new platform is very stable and is running to our plans, which we're very pleased about. We're going to be rolling that platform out into the Benelux and also into Ireland in the second half of the year. And within that platform, we also provide today a white label solution for those said distributors and resellers where we provide them with a paper-based branded catalog.

So when orders come through on Flowtech, we offer a branded 3PL logistics solution that ships products straight to their customers. That makes it an essential piece of the supply chain. We've now built a digitized version of that, where distributors and resellers can pay a monthly subscription fee and get access to a web platform, access to a digital B2B commerce platform, and access to our products and services behind the scenes — Flowtech is the engine — and then we keep providing that 3PL logistics service, all connected into the digital platform. So that's something we'll be looking to roll out in the second half of the year. The new site has a materially improved site speed. We're down to a second. So that's best-in-class. The search capability, in terms of being able to find the right products, is materially improved. Still work to do. Still AI is in the background, making that better all the time. But the overall customer experience — from the search to the buy, to the checkout to the delivery experience — is materially better. And we've got some great tools in there for our online account users, where they can save baskets, they can have multiple baskets, they can have multiple delivery routes.

Ultimately, their experience with us can become far smoother. And we believe that all of this—including significantly better security for both us and our customers—will provide a strong foundation for future growth. So you’re able to visit the website, look around, and discover a little more about our company. In addition, today we launched a new investor hub inside the new web platform. And I’m happy to report that it contains excellent information you can access as either a prospective or an existing investor to understand more about the business as we move ahead. All of this is just a beginning. It’s about continuing to improve from here. The second point concerns expanding products and services. A central element of our growth strategy is to keep broadening what we offer in products and services. And that is entirely about raising customer penetration and reach. Following the acquisition we completed with Thorite, we’ve taken real pride in growing our relationship and in fact signing a new contract with SMC, one of the largest pneumatics OEMs globally, alongside names such as Festo, Parker, and IMI Norgren. And SMC has awarded Flowtech the first U.K.

A wholesale distributor agreement. And that matters a great deal, since it means we will likewise be assisting them in consolidating both their supply chain and their tail, and we will play a vital part in helping them consolidate that supply chain, which offers a genuinely exciting growth opportunity for us, plus it brings the SMC brand onto our web platform, which will automatically send traffic our way. And then there's HPC/Kaeser as well — a very, very large compressed air system, German-made and global. So it's high quality and highly sought after right across industry. That brand is now accessible to us. We're partnering to explore how we can expand it in terms of capital sales, and also ongoing service and maintenance contracts over the years ahead. So that's something we're excited about. We've kept strengthening the supplier relationships we already have, instead of handling them via multiple businesses. We now have a group product and procurement team. We're engaging far more at a group level to generate synergy and commercial benefit, and also to examine how we can coordinate items such as marketing activity and begin driving that marketing engine across the group as well, Flowtech.