Flowtech Fluidpower (LSE:FLO) — Annual General Meeting

0:01 Good morning, ladies and gentlemen, and welcome to the FLOWTECH FLUIDPOWER PLC Annual General Meeting. Throughout this recorded meeting, attendees online will be in listen only mode. Questions are in coverage. They can be submitted at any time using the Q and A tab

0:18 I would now like to hand over to the Chairman of today's meeting, Roger McDowell. Good morning. Good morning. Thank you, Mark. Ladies and gentlemen, welcome to our twenty twenty four AGM. It's, it's now just gone 10:00, actually. We do have a quorum of members present, so I can declare the meeting up. I'm Roger McDowell, nonexecutive chair. Under article 45.1 of the company's articles association, the directors of the company have appointed me to chair this annual general meeting. Can I introduce you to my fellow directors? We have Aelsa Webb, non executive director Jamie Brook, non executive director Stuart Watson, non executive director, all of whom are attending via the IMC platform. And finally, we've got Mike England, Russell Cash, and myself sitting here in the in the meeting room.

1:09 Like last year, we understand that a number of the shareholders who are unable to attend physically, would like to attend the AGM. So as such, we're pleased to announce, that we are facilitating this online AGM experience, which you're all now enjoying. And we would also like to invite questions. And if you have any questions that are specific to the to the resolutions that we're about to talk through, then I'm very happy to take them now. In addition, we've got Lorraine Leahy from Link Group present. So I'll just pause for a second to see whether there are any specific questions that relate to the to the AGM resolutions.

1:57 And can I remind you that before you ask a question, it would be really helpful if you would give your name, state whether you are a shareholder or a proxy or corporate representative? If you are a proxy or corporate representative, then, again, please state your name. But nothing has popped through. I'll make an exception if somebody does think of something subsequent to the formal business, then we can we can take those questions then. So moving on to the formal business of the AGM. May I may I remind you that when it comes to voting on resolution, shareholders here in person, proxies here in person who have a duly appointed member are entitled to vote, and those who are here as corporate representatives are all able to vote on a show of hands on a poll. However, those attending through the IMC platform are not able to vote and should have appointed a proxy to vote on their behalf, such proxy being present at the meeting.

3:06 This year, you are asked to approve 12 resolutions. Resolutions one to resolution 11 will be proposed as ordinary resolutions. This means that for each of those resolutions to be passed, more than 50% of votes cast must be in favor. Resolution 12 is proposed as a special resolution. This means that for this resolution to be passed, at least 75% of votes cast must be in favor. May I also remind you that while you are free to abstain from voting, an extension is not a vote in law and will not be counted in the calculation of votes for and against any particular resolution. So resolution number one is to authorize the company's annual report and accounts, strategic report, and directors and auditors report for the year ending 12/31/2023.

3:56 I now let's put this resolution to the meeting. Please raise your hands to vote. Those in favor? Those against? Those abstaining? For the information of shareholders, advised proxies were received in respect 38,886,836 shares comprising 37,575,318 shares in favor of the resolution, 1,311,518 shares against the resolution, and no 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. Resolution number two. Second resolution approves the final dividend for the year at 12/31/2023 of 2.2p per ordinary share, usually a popular resolution, this one. Such dividend to be paid on 07/19/2024 to shareholders whose name appear on the register at close of business on the 06/21/2024 with an ex dividend date of the 06/20/2024.

5:09 Please raise your hand to vote. Those in favor, those against, those abstaining. For the information of shareholders, advise that proxies were received in respect of 38,886,836 shares comprising 38,886,836 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 three. The third resolution approves the appointment of Mike England as the director of the company. The company has made the decision to, in accordance with the principles of the QCA code for corporate governance, request that every every AGM, all directs of the company must retire and stand for reelection unless already doing so in accordance with the articles of association with the company. And therefore, myself, Stuart, Jamie, and Russell will also seek reelection team will

6:18 a able decision make decision to Those in favour? Those against? Those abstaining? For the information of shareholders, advise that proxies were received in respect of 38,886,836 shares comprising 38,869,256 shares in favor of the resolution, 17,580 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.

7:00 Moving on to resolution four. The fourth resolution approves the reappointment of Stuart Watson as the 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 52 to 53 of the annual report. I now put this resolution to the meeting. Please raise your hand to vote. Those in favor? Those against? Those abstaining. For the information of shareholders, advise that the proxies were received in respect of 38,886,836 shares, comprising 38,885,790 shares in favor of the resolution, 1,046 shares against the resolution, no shares in respect of which votes were withheld.

7:49 On the basis of the show of hands and the proxy voting received, I declare the resolution carried. We're approaching the halfway point now. Resolution five, the fifth resolution proves the reappointment of Russell Cash as director of the company in accordance with the principles of the QCA corporate governance code. Brief biographical details for Russell are set out on pages 52 to 53 of the annual report 2023. I now put this resolution to the meeting. Please raise your hand to vote. Those in favor, those against, those abstaining. For the information of shareholders, I advise that proxies were received in respect to 38,886,836 shares comprising 38,885,790 shares in favor of the resolution, 1,046 shares against the resolution and no shares in respect of which votes.

8:51 On the basis of a show of hands and the proxy vote, resolution carried. Resolution number six. Sixth resolution approves the reappointment of Aelsa Webb to the direction of the company in accordance with the principles of the QCA Corporate Governance Code. Brief biographical details for are set out on pages 52 to 53 of the annual report 2023. I now put this resolution to the meeting. Please raise your hands to vote. Those in favor? Those against? Those abstaining? For the information of shareholders, advise that proxies were received in respect of 38,886,836 shares, comprising 38,869,256 shares in favor of the resolution 17,580 shares against the resolution and no shares in respect of which votes were withheld.

9:48 On the basis of the show of hands of the proxy voting received, I declare the resolution carried.

9:55 Moving on to resolution seven. Seventh resolution approves the reappointment of Jamie Brook as the director of the company in accordance with the principles of the QCA corporate governance code. Brief biographical details for Jamie are set out pages 52 to 53 of the annual report 2023, and I'll put this resolution to the meeting. Please raise your hands to vote. Those in favor? Those against? Those abstaining? For the information of shareholders, I advised that proxies were received in respect of 38,886,836 shares comprising 32,633,897 shares in favor of the resolution, 1,496,732 shares against the resolution, and the 4,756,207 shares in respect to which grants were withheld.

10:56 On the basis of the show of hands, vote and the proxy voting received, I declare this resolution carried. Moving on to resolution eight, which confirms my own, otherwise, my own reappointment. I'm handing the chair over to Russell Cash, who will take the chair for this resolution. Yeah. Thank you, Roger. The the eighth resolution approves reappointment of Roger McDowell 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 52 to 53 of the annual report. I now put this resolution to the meeting. Please raise your hand to vote. Those in favor? Those against? Those abstaining?

11:44 For the information of shareholders, I advise that proxies were received in respect to 38,886,836 shares, comprising 37,550,104 in resolution and the balance of 1,336,732 shares against the resolution and no shares in respect to which votes were withheld. On the basis of the show of hands and the proxy voting received, I declare the resolution carried. Hand the chair back to me. I'm obviously now handing the chair back to Roger McDowell.

12:24 Thanks, Ross. Moving on to resolution nine, the ninth resolution approving the reappointment of Grant, Fulton UK LLP as auditors and now put this resolution to the meeting. Please raise your hands to vote. Those in favor?

12:43 Those abstaining. Those abstaining. For the information of shareholders, advised that proxies were received in respect of 38,886,836 shares, 38,859,290 shares voted in favor of the resolution, 27,546 shares against the resolution, no shares in respect of which votes were withheld. On the base of the show of hands on proxy voting received, I declare the resolution carried. Moving on to resolution 10. The tenth resolution authorizes the director to determine the remuneration of auditors and now put the resolution to the meeting.

13:29 Please raise your hands to vote. Those in favor? Those against?

13:34 Those abstaining?

13:36 For the information of shareholders, I advise that proxies were received in respect of 38,886,836 shares comprising 38,885,790 shares in favor of the resolution, 1,046 shares against the resolution, no shares in respect of which votes were withheld.

13:58 On the base of the show of hands and the proxy voting received, I declare the resolution carried. Moving on now to resolution 11. The eleventh resolution authorizes and directs us to allot shares up to an aggregate nominal amount of 10,248,778. In line with the current institutional shareholder guidelines, this represents approximately one third of the company's current issued share capital together with an additional one third being 10,248,778 to be used for rights issues only. The authority will expire at the next AGM of the company on the 09/12/2025, whichever is the earlier or, sorry, on the 09/12/2025, whichever is the earlier.

14:48 I now put this resolution to the meeting. Those in favor? Those against?

14:55 Those abstaining?

14:59 The information of shareholders, I advise, and proxies were received in respect of 38,886,836 shares comprising 23,638,332 shares in favor of the resolution, 15,248,504 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.

15:30 Moving on now to the final resolution, resolution 12. The twelfth resolution authorizes the company to make mark market purchases of its own shares should the directors consider this to be appropriate and in the best interests of shareholders generally. In line with current institutional shareholder guidelines, the maximum number of shares which may be purchased is 6,149,267 ordinary shares representing approximately 10% current issued share capital of the company.

15:59 The authority will expire at the next AGM or the company or on the 09/12/2025, whichever is the earlier. I now put this resolution to the meeting. Those in favor, those against, those abstaining. For the information of shareholders, I advise that proxies were received in respect to 38,886,836 shares comprising 36,963,612 shares in favor of the resolution with 1,923,224 shares against the resolution and no shares in respect of which votes were withheld.

16:45 On the basis of the show of hand vote and the proxy voting received, I declare this resolution carried. So with the voting over, that completes the formal business of the AGM.

16:59 So we are now moving to a brief presentation by Mike, our chief executive officer, and subsequently and we're happy to take questions that we consider appropriate and can answer, and we'll do our best. So thank you for your patience during that piece. Over to you, Mike. Thank you, Roger. Just a few comments from my side. Just over twelve months now in role. I would say that I'm continuing to be very encouraged both with the opportunity that we see in front of us here at FLOWTECH, but also with the progress we're making, in particular, around the performance improvement plans that we've put in place in q three twenty

17:48 twenty three. We've been very much focused as a as a team on getting some of the fundamental basics in place within the business. Some of those very much operational basics, but also some of those are getting us back to a growth focus within the organization and very much looking at the self help opportunities that are there in front of us whilst we build some stronger foundations to scale for the future. So it's been an encouraging first twelve months. We're we're pleased with the progress we're making both in terms of setting down very clearly the near term improvement opportunities, but also setting down our strategic direction for the company, which is laid out very clearly within our annual report.

18:34 If we just move forward, we are currently in the process of resetting FLOWTECH as a single brand in the marketplace. We have been operating in market under 17 different brands. We believe that the opportunity to consolidate under one FLOWTECH, a world of motion as laid out in our strategy, is a very powerful proposition. And our ability to be able to supply our customers with everything from a single product all the way up to a complex engineered solution is a differentiated capability that we're looking to unleash. Over the next three weeks, we'll have completed the rebranding of our physical assets across the group with the exception of Netherlands and Belgium, which we'll be following in the coming months. I'm very pleased with the progress we're making to align the whole organization behind a very clear singular value proposition of which we're currently in the process of launching to market.

19:31 Very clearly, we are the largest provider of FLUIDPOWER products and services, and we have three clear pillars to our proposition. We're a high service product provider, and we have a wide range of products. We have a very strong brand line card, and we also have a very, very very long standing own brand capability, all of which we believe we can exploit to market as we move forward. Secondly, we have a capability through acquisitions across 2014, 2018, which we're now unleashing, whereby we design, we manufacture, we repair and overhaul assets across all manner of industry segments. Those businesses today have been operating in very much isolated fashion, and we're bringing those capabilities to bear now across the markets by which we operate. And then thirdly, we do deliver some some very important major engineering projects and on-site solutions.

20:28 And again, this is about scaling up that capability to make sure that we can continue to deliver real value and innovate for the future for our customers. So we're excited about our new proposition, which we're launching to market. Laid out very clearly within the annual report is our go forward strategy. Within this, I just wanted to touch and direct you towards the margin engines, of which there's six engines that we have defined as a leadership team and as a board. We're laying out very clearly the engine components, we're setting down some very clear KPIs and key performance indicators by which we believe we can take the business forward very positively over the coming three to five and beyond. We are very focused on firing up these six margin engines, but doing it in a phased and sensible way, recognizing the level of change that's required within this organization and from where it is today to where where we want to take the business for the future, which is very much market leading and in a high growth mode.

21:26 So I just wanted to then conclude just to thank you for your continued support. You know, any business transformation, I would say, you know, is both exciting, but it's also challenging. You know, we've been stripping back the onion pretty hard, I think we've been making good progress at that. There's some surprises along the way, but those were overcoming. But equally, we're seeing some huge opportunities as we start to as we start to move forward with our new plan of becoming one FLOWTECH. And we've got a a reenergized leadership team who are very much onboarded now, and we're looking to the future with positivity and optimism. Roger? Thank you, Mike. So now we're we're moving on to questions. Have we have we had any questions sent to us? Yeah. The so the technology is such that I can see the questions, but Roger and Mike can't. So there are two questions that have come in. I think, Mike, you've addressed at least part of them.

22:24 So as a question, what are the two or three changes you and your team have implemented that are most significant? And what are the most significant challenge you have not yet overcome? Where in broad terms do you see the business in three to five years? Yeah. Great questions. So I guess just touch on it briefly in that very short presentation. But if I was to look at three areas, I would say right at the heart of this would be resetting the organization and the operating model for the organize for the business so that we can operate very much under one FLOWTECH, and we can start to release the potential of that value proposition across the geographies that we operate today and to build scale for the future. So underpinning that, I would say, number one is around capable leadership who have experience of scaling a business, but also within that, a real culture shift in the business, perhaps from where we have been in the past, bringing both the existing teams on that journey, but also welcoming many new people to the organization to bring some fresh ideas and some experiences, which can help us going forward.

23:32 Secondly, we've been working very hard to fix the operational basics. We did, I believe, allow some fundamental basics to slip. For example, our stock availability on fast moving products within our product distribution business, as I stated in the performance improvement plan, had dropped down to around 85% availability. We're now back up to 70 97%, and that's very much consistent now and has been for the last six months. So we're very encouraged with some of the operational basics that we're putting in place. The third is very much around resetting our growth engines across the group. So this is to do with reengaging our sales organization and our marketing capabilities, expressing some of the the known challenges we have within our digital offering that we have to market. Some of that is very much now implementing.

24:27 Some of that is work in progress as we replatform, you know, some of our digital estate. So those will be the three fundamental areas, leadership and organization, operational basics, and getting the growth engine fundamentals fired up. In terms of challenges, I think we've overcome many in the last twelve months. I I do think we've got some further consolidation of our technology platforms and some work going on there in order to make sure that we look at that in a in a careful and sensible way over the coming years as we bring the business together under the one FLOWTECH brand. And and as we look to the future, you know, what do we what do we believe this business will look like in the three to five years? Very much one FLOWTECH under one brand, the world of motion, and and we want to very much drive that market leading position. We have a strong reputation in the market. I do think there's been some confusion as to who FLOWTECH is, and we're we're resetting that with the external markets as we speak. So that clarity of our proposition and that clarity of who FLOWTECH are and where we're heading is important.

25:31 Secondly, it's very much around the the performance criteria for the business. We have underperformed over the coming period. Our goal is to move to mid teens operating profit margins, which we've we've stated, and that very much is in our sights. And have some very clear building blocks as laid out within the annual report in order to take the business on that journey. Again, I would say that there are some challenges to overcome on that journey, but we're very confident that this business presents a wealth of opportunities under those six margin engines in order for us to realize the true potential of this group. I think that answers the question very comprehensively. Thank you for that, Mike. Moving on, we have a question from James, which is what milestones should we look out for in the next six months?

26:20 Mike, do you want to talk to that? Yes, I can. If we're looking at the next six months, and again, I'll just say that in the annual reports presentation pack that's available, slide 23 in that pack, we lay out very clearly the milestones through '23, '24, '25 and '26. But if I look at at this year, the milestones are very much around the the bringing the business together under one FLOWTECH. And by the end of this year, we believe that we will also have replatformed our digital estate in The UK and in Ireland with a rollout in the early in the New Year in Benelux.

27:06 And the milestones this year is going to be about growth momentum as we're coming out of the second half of the year and certainly as we go into 2025. And we're we're very confident, as we've stated, in terms of the the focus we've had around gross margin improvement and managing our costs effectively. But the main focus for this year and milestones is about gaining momentum and as we bring the improvements through that we've been talking about. Thanks, Mike. Next question relates to share repurchases. And the question is, under what conditions would the Board consider instituting share repurchases rather than increasing the dividend? I'm afraid I'm gonna ask that question with a question. This is something that we would keep under constant review, and it's all about shareholder value. So in the event that the board felt we've got the capacity to be able to repurchase shares and the shares were at such price that it would be overall in overall terms shareholder value enhancing, we'd consider it.

28:11 But we wouldn't do that, I think, at the expense of the dividend. Hopefully, that answers your question. Moving on. The next one, this is a question that's that is there is seemingly increasing occurrences of flooding. Solutions depend obviously in appropriate finance being available, but the FLOWTECH have a strategy of promoting products towards flooding solutions. Mike, do we have a strategy of promoting products towards flooding solutions? I'm not sure I totally understand the question. If if we're talking about flooding as in rain and and that type of flooding, then I think this business is heavily involved in projects relating to waterways.

29:00 I wouldn't say specifically flooding solutions, but it's certainly something that, you know, I'll go and explore further. But I would say that in terms of water causeways, you know, when we're looking at engineering projects involving the retention of water structurally, we're we're we're very heavily involved in that, actually. Most structures that are holding back and retaining water, so for example, slouch gates and and civil engineering projects such as even swing bridges or locks, are powered by hydraulic systems. And we're actually very involved as an organization in in overhauling and refurbishing what are actually becoming very under maintained assets around The UK.

29:46 And also in The Netherlands, we're we're talking very openly there in terms of the waterways and the water systems there and what what that presents us with. So that's probably as much as I can answer, Roger, as well. Yeah. Just adding adding to that. We were very actively involved, and I think it it would you would describe it as a as a floating solution. We are very actively involved in providing in providing services and equipment and technology to the Thames Tideway project. So, hopefully, that answers your question. We now have a question, which is what where is the largest growth opportunity for the business? Mike, do you wanna comment on that? Yeah. Again, I think I've covered it. For me, it's recognizing that we've been operating today under many different brands. Those brands have been operating independently in many instances within a geographical area.

30:36 Under our new value proposition, we're defining very, very clearly those three pillars, which we're then going to be taking to market more broadly across our existing customer base. But we also believe that that will enhance the opportunity for us to drive greater customer acquisition, which is is an area where we haven't been particularly active, I I would say, in recent years. If we just think that a customer today might know us more for being a local company within a particular area with local capabilities, we're bringing the the complete capabilities of the organization, the value proposition to all of our customers. Already, we can start to see some very unique cross selling and upselling opportunities occurring as as we start to cross pollinate the offering across our existing customer base and then start to promote that offering and to attract more new customers to come.

31:26 Thanks, Mike. And now we have a question which I'd like to to put to Russell, our CFO. And the question is, could you please comment on the current leveragedebt situation? Yes. Well, I'll answer that by reminding the audience that 2023 saw the business deliver underlying EBITDA of just over 9,000,000 and a debt number, old fashioned debt. This is excluding lease debt, which is the definition that our bank uses of 15,000,000. So at the end of '23, it was roughly 1.6. And I'll remind the audience what the numbers in the marketplace are. In 2024, we've got EBITDA expectation of 11, debt expectation of 11, so a ratio of one by the end of the year. And the numbers in the marketplace for 2025 have 14,000,000 of EBITDA and 7,000,000 of debt, so a leverage of 0.5.

32:26 Yeah. So I I think the underlying question there is, you know, are we comfortable with that? And the answer is we are very comfortable with that. And if we move as and as Russ has indicated, in line with the expectations of the board and the market, then we would have additional debt headroom and capability for the right opportunity. Having said that, I'm a little bit old fashioned in in that I would not want to see as as a us to go to, can I say, private equity levels of debt that would that would keep me awake nights? Well, the only build up I'd make there is that we're obviously looking to use our capital wisely in terms of various CapEx projects or for the greater good. And there's obviously control that's needed to be taken on all aspects of working capital.

33:24 And those things combined obviously underpin the reduction of debt from 15 to 11 to seven. It looks as if we have we have no more questions. So what I would like to take the opportunity of thanking all all those of you who have attended today, particularly thanks to those who have asked some very interesting questions. Thanks to the team around the table, Mike and Russell, and I would wish you a very good remainder of the day. Thank you. That's great. Thank you to the board of FLOWTECH for your time this morning. Can I please ask attendees not to close this session as we'll now automatically redirect you for the opportunity to provide your feedback in order the board can better understand your views and expectations?

34:12 This might take a few moments complete, but I'm sure it'll be greatly valued by the company. On behalf of the board of FLOWTECH FLOWTECH FLOWTECH FLOWTECH FLOWTECH for attending today's annual general meeting, and wish you all a very pleasant rest of your day.