A clear focus on managing our cost base and all components of working capital

Russell Cash

Russell Cash, Chief Financial Officer

Operational review

20182017Change %
Group revenue*£111.1m£78.3m+41.9%
Gross profit*£38.6m£26.5m+45.3%
Gross profit %34.8%33.9%+0.9%
Group operating profit*£7.68m£6.61m+16.1%
Underlying operating profit£11.38m£9.08m+25.3%

Reconciliation of underlying operating profit to operating profit

Underlying operating profit11,3819,081
Add impact of fair value adjustment to inventory (note 24)(382)
Less separately disclosed items (note 4)(3,321)(2,467)
Operating profit7,6786,614

* All results relate to continuing operations.

Underlying operating profit is continuing operations' operating profit before separately disclosed items (note 4) and the impact of fair value adjustment to inventory (note 24).

Once again, we are delighted to report a period of solid growth, both in terms of revenue but, more importantly, underlying and actual operating profit.


Revenue increased by 42% (2017: 46%). While the impact of acquisitions accounts for the majority of the growth, there was underlying organic growth of 5.7%.

Gross profit margins

Our overall gross margin improved by 0.9%. Gross margin remains a key indicator for each of our businesses; this, combined with increasing focus on businesses within the Group working together to generate improved terms, sees us well placed to retain and improve on these strong margins in the future.

Underlying Operating Profit

Underlying operating profit increased by £2.3 million (25%); after taking account of separately disclosed items, actual operating profit rose by £1.1 million (16%). These figures compare favourably to 2017 growth of £1.6 million (22%) and £0.5 million (8%) respectively.

Separately disclosed items

Share option costs191272
Amortisation intangibles1,040768
Additional deferred consideration264229
Restructuring costs1,002117
Acquisition costs8241,081

Results by division

During 2018 we assessed performance within our three-segment structure. This is consistent with prior years.

The table immediately below summarises revenue, gross profit and underlying operating profit by segment.

Power Motion Control£57,533£34,806
Gross Profit2018
Power Motion Control£17,77530.9£10,12229.1
Underlying Operating Profit/ Operating Margin2018
Power Motion Control£3,6946.4£2,7888.0
Less allocation of central costs(3,188)(2,336)


Overall revenues grew by £32.8 million, split:

  • Flowtechnology – £8.0 million (£6.5m through acquisition activity and £1.5 million (4.0%) organic)
  • Power Motion Control – £22.7 million (£20.4 million through acquisition activity and £2.3 million (6.7%) organic)
  • Process – £2.1 million (£1.6 million through acquisition activity and £0.5 million (8.3% organic)
An example of our commitment to our people is the tailored programme we have designed with valuable input from third party training providers to develop the skills of our current, and future, business leaders at profit centres and within central functions.

Gross profit margins

We have seen an improvement in gross margin in the Flowtechnology and PMC divisions.

Margins in the Process division remained healthy; the small erosion is not unexpected given the nature of the work which our businesses within this division perform with margins more variable than other businesses within the Group.

Underlying operating profit

We have seen material growth in each of our three divisions. 2019 will see focus on extracting cost savings from businesses acquired in recent years; we believe this, combined with modest levels of organic growth, will lead to increased underlying operating profit in each of our divisions.

Central costs

Central costs comprise executive management, finance and IT departments, divisional sales and the cost of running the plc.

We have made significant investment in these areas during 2018, both in terms of the recruitment of senior individuals into key roles and systems. An example of our commitment to our people is the tailored programme we have designed with valuable input from third party training providers to develop the skills of our current, and future, business leaders at profit centres and within central functions. In terms of systems we are focusing on investment in technology to provide us with ever improving platforms of information to gain commercial leverage and also a transition to common IT systems on a sensibly phased basis across all parts of our business. This provides a robust platform to deliver material cost and working capital savings. The Board believes we are well placed to capitalise on future growth opportunities, both organic and when the time is right through acquisition activity.


We are delighted with the performance of the Balu businesses which were acquired in March 2018. In the nine-month period following acquisition the businesses contributed £1.1million of operating profit, very much in line with the expectation of annual operating profit of £1.5 million which supported the price paid. We are beginning to see the benefits of the expanded Flowtechnology business in terms of enhanced procurement opportunities.

Statement of financial position and cash flow


Net Debt Bridge

Statement of financial position and cash flow

The business generated £11.9 million of positive operating cash flow. Over the year the net Bank debt increased by £4.9 million to £19.9 million (2017: £15.0 million). If account is taken of £3.5 million paid out in respect of deferred/earn out consideration, the underlying increase in net debt was £1.5 million. Other major cash outflows included:

  • Dividends – £3.6 million.
  • Capital expenditure – £1.3 million.
  • Taxation paid – £1.1 million.
  • Interest – £0.7 million.

Overall, working capital increased by £5.2 million; the impact of the 5.7% organic growth accounts for approximately £2.0 million of this.

There has been a very clear focus on managing working capital towards the end of 2018 and into 2019. We are expecting the 2018 adverse trend to reverse and progress made in 2019 to date has been very encouraging. Our efforts are spread across each of the three working capital categories and across all areas of our business. In particular we anticipate significant cash savings through underlying stock reduction and extension of certain supplier payment terms.


Subject to Shareholder approval at the Annual General Meeting, the Directors are proposing a final dividend of 4.04p per share. This, together with the interim dividend of 2.03p per share (paid on 26 October 2018), brings the total for the year to 6.07p per share. The total per annum dividend has therefore increased from 5.0p per share in respect of 2014 to 6.07p per share in respect of 2018. This, combined with the increased number of shares has seen the cash impact increasing from £2.2 million in 2015 to £3.6 million in 2018. The outlook for further enhancement to dividend flow remains good and the Board would like to reiterate its view that the retention of a strong dividend policy is a foundation for the investment case in the Group.


The tax charge for the year was £1.99 million (2017: £1.21 million), with an effective tax rate of 27.6% (2017: 17.0%). The 27.6% effective rate results in part from an underprovision in 2017 of £202,000 (note 7)and in part from a prudent estimate as to what 2018 expenses may prove disallowable for tax purposes.

2019 segmentation

As outlined in the Chief Executive's review, 2019 will see the Group start monitoring and reporting our business performance based on two segments, Components and Services. Had this policy been in place in 2018 the Revenue results by segment would have been approximately as follows: