We operate in a growing fluid power market, worth £1 billion in the UK, €12.6 billion across Europe and $42.3 billion globally (British Fluid Power Association, (BFPA), 2017).

It is broadly estimated that 'distribution' accounts for between 30% and 50% of this market, with the balance covered by direct supply from product manufacturers to eventual end user.

Our market

Fluid power technology is widely utilised in all industrial sectors. It is split into two distinct sectors: hydraulics and pneumatics. Of the total UK fluid power market, hydraulics represents approximately 70%, pneumatics 20% and the remaining 10% in industrial products which act as conduits for gases and liquids.

The hydraulic market is highly fragmented comprising a large number of manufacturers, supplying direct to manufacturers of specialised equipment (OEMs) or resellers who sell onto OEMs. This market is further split between mobile hydraulics (56%) and industrial hydraulics (44%). Core products include: pumps, motors, valves, cylinders, filters, hose, fittings and tubing. Key industry drivers include: construction, agriculture, defence, aerospace, oil and gas, heavy machinery for lifting and moving equipment.

The pneumatic market comprises a smaller number of key players, who supply direct to end users or to resellers who then sell onto the end user. Core products include: compressors, filtration, valves, cylinders and vacuum products. Key industry drivers include; food processing, electronics, medical, automotive and packaging.

Our divisions

Flowtech Fluidpower is a full-service provider of fluid power. In 2018 we operated across three divisions, in 2019, Flowtech Fluidpower moved to a two-division structure to more clearly define its business under the broad categories as detailed below.

Components

Supply of both hydraulic and pneumatic consumables, predominantly through distribution for maintenance and repair operations across all industry markets, but supported by supply agreements direct to a broad range of OEMs.

Consistent operational high margin revenue.

87% Group Revenue
89% GP

Services

Bespoke design, manufacturing, commissioning, installation and servicing of systems to manufacturers of specialised industrial and mobile hydraulic original equipment manufacturers (OEMs) and additionally a wide range of industrial end users.

Capital project-based revenue.

13% Revenue
11% GP

Global landscape

In the UK and Ireland, we estimate Flowtech Fluidpower currently holds around 11% market share in fluid power. Across the Benelux, we hold around 2% market share (Benelux is €657 million – BFPA, 2016).

We partner with over 250 supplier brands, giving us potential access to a large share of the €12.6 billion fluid power market. As global manufacturers lean towards supply chain consolidation, through closer partnerships and purchasing synergies the Group aims to further support supplier supply chain consolidation and grow its market share. Below are some of the leading brands we sell and partner with.

CETOP – hydraulic products (estimated market): €8.8 billion

Pumps 13%

Actuators 21%

Valves 19%

Other hydraulic 35%

Assemblies 12%

CETOP – pneumatic products (estimated market): €3.8 billion

Filtration 8%

Actuators 28%

Valves 31%

Other hydraulic 30%

Assemblies 3%

Estimated €12.6 billion European fluid power market by country

Germany 35%

Italy 18%

France 10%

UK 9%

Nordic 10%

Eastern Europe 7%

Benelux 5%

Spain 4%

Switzerland 2%

Source: CETOP: European Fluid Power Directory 2017/18.

Estimated €12.6 billion European fluid power market by product

Filtration 2%

Actuators 23%

Valves 23%

Other product 33%

Assemblies 9%

Pumps 2%

Market trends in the UK

The BFPA provisional fluid power UK sales forecast for 2018 indicated that overall growth in sales for the sector was 5.1% (7.2% for hydraulic sales and 0.2% for pneumatic sales). This is largely attributed to an upturn in industrial activity, particularly across Europe, combined with renewed strength in oil prices, leading to investment. As a Group we experienced organic sales growth of 4.0% (unaudited) in the first quarter of 2019, and overall, we would expect to generally grow marginally ahead of the market forecast by the BFPA due to the strong market position that the Group has created. (At the date of this report market data on a similar basis is not available for the Republic of Ireland and the Netherlands, being the other countries in which the Group has operating centres, although the Board believes that the trend in these markets is broadly similar to that in the UK).

Hydraulic

The hydraulics market has shown significant expansion over the last two years, and the BFPA expects a more modest increase in 2019, with a further growth trend beyond that (average 3.9% between 2020 and 2022). Investment should regain momentum over the coming years as plans around Brexit become clearer, subject to a positive outcome.

While electric solutions are at the forefront of energy efficiency innovation, the power density delivered by hydraulic solutions is largely unmatched by electric technologies. Moreover, high purchase costs combined with limitations around battery charging for remote applications such as off-highway vehicles ensure hydraulics remains the preferred technology for such applications and limits any threat posed by electric only alternatives. As industry shifts towards more energy efficient solutions that still fulfil the required power density, a combined approach involving electro-hydraulic solutions is evident and expected to increase. As a Group we have been involved in a number of such projects for example railway shunters and train cooling systems.

Despite the short-term uncertainty around Brexit and the deficit apparent in the oil and gas and automotive sectors, long-term growth trends are expected across transportation, engineering and metal goods and construction (BFPA, 2018). For example in June the UK government approved a third runway at Heathrow, to support heightened passenger demand and the shipbuilding sector is likely to suffer least from Brexit, partly due to UK and US defence and rail budgets.

Pneumatic

The BFPA expect previous sales growth to remain low during 2019, before picking up again in 2020 (average 3.6% growth between 2020 and 2022). Stability in food production, along with increased demand in the production of electronics will likely bolster any deficit from a continued decline in automotive activity. Rising import prices has generated a trend in food substitution and estimated a 5.9% increase in sector investment in 2018. Electronic production, the second most important driver for pneumatics, was expected to grow by 10.5% in 2018; an upward trend is likely to continue. With a strengthened emphasis on environmental and energy efficiency, we are experiencing increased demand for pneumatics in health and safety technologies, such as misting technology used for dust control.

Around £800 million will be invested in offshore wind power over the next 11 years, which is expected to provide one-third of the UK's electricity by 2030.* This will benefit both pneumatic and hydraulic markets.

* Source: The Guardian (08.03.2019).

How we are positioned to respond

The Flowtech Fluidpower Group services an extensive range of industry sectors, thus spreading the risk of adverse market conditions and creating many opportunities for the Group. Despite the uncertainty around Brexit, there are a number of positive trends and initiatives that we are ideally positioned to capitalise on:

  • Securing new business in growing sectors such as transport and renewable energy.
  • Driving down cost in our business by maximising purchasing synergies and operational efficiencies.
  • Consolidation of stock, allowing us to maintain margins despite increased pressure on import costs.
  • Market penetration as one Group, ensuring we cross-sell to keep business within the Group.
  • Expansion into European markets through acquisition and e-commerce.

How we're preparing for Brexit

At the date of this report, the UK's exact trading relationship with the European Union remains unknown. While the potential impact of Brexit is difficult to assess, we have reviewed our business and consider our Group to be relatively stable. We have taken the following measures to safeguard our business as much as possible.

RiskResponse
Product complianceWe have reviewed product standards e.g. CE marking
Logistics – potential threat to supply chainWe have mapped out our supply chain, identifying any potential threat to our business.
For 90% of our business, we hold 4–6 months stock as standard and the majority of any potential disruption relates to supply by global brands from their manufacturing sites in the EU. We therefore believe we have some "buffer" against short-term disruption, with medium and long-term issues to be negotiated in due course. We also have no significant EU supply lines where the product is unique to the Group.
We also have a supplier base in Ireland and Europe, so have the option to ship to these countries if significant delays are apparent.
Tariffs and customsWe have reviewed trade tariffs, rules of origin and associated additional costs.
Employees right to work in the UKWe have audited all permanent employees and established their right to work in the UK.
Intellectual PropertyReviewed IP and international contracts. We were advised by our Patent Lawyers that a transition grace period will be in place until 31 December 2020.

The BFPA has been heavily involved with the European ISO/CETOP standards agencies to gain alignment with British standards. An agreement was reached that regardless of the outcome of Brexit, alignment would be maintained and they would continue working together.