Flowtech axes jobs in restructuring move after market downturn

Skelmersdale-based Flowtech Fluidpower is axing 32 jobs as part of a restructuring programme.

The AIM-listed technical fluid power products specialist said the cutbacks are due to a slowdown in some of its key markets as customers stockpiled ahead of Brexit fears.

In a trading update today for the year to December 31, 2019, it said in the past few weeks it instituted a major restructuring programme to move warehousing and picking operations to more efficient centres.

Overall in the UK it will be closing four warehousing facilities with the loss of 32 staff.

The annualised savings attached to this are estimated at £1.4m, with an £800,000 impact in 2020.

Combined with additional saving of around £200,000 from the closure of three of its smaller sites in late 2019, this produces aggregate annualised savings of £1.6m.

The cash cost of this restructuring is estimated at £1.8m, of which £500,000 was incurred in 2019, with £900,000 relating to capital investment in IT upgrades and additional Kardex racking systems.

The company believes there is further scope for significant cost savings, particularly in warehousing, its procurement activity – where it expects to take the number of suppliers down from more than 1,000 to around 500 – and the centralising of certain back office functions.

Referring to trading conditions, it said 2019 was “undoubtedly a disappointing year”, with volumes inflated as customers built up stock ahead of a Brexit hiatus that never occurred.

It said: “As the year progressed, we saw a significant slowdown in some of our key end markets, most particularly cyclical services associated to our OEM (original equipment manufacturer) business, which culminated in the profit downgrade of 14 January 2020.

“This trend is reflected in industry data from the British Fluid Power Association, with the latest report showing a decline in distribution revenue of 8% in December and in excess of 14% in November for manufacturers within the sector. Our Q4 revenue was consistent with this.”

The company said that, for 2019, it expects to report group revenue of £112.5m – 1.2% better than the previous year – and underlying profit before tax of £9m, consistent with the announcement made on January 14.

It also revealed that, despite the disappointing trading outcome, net debt reduced by £3.3m, after paying around £2.6m in earn out considerations relating to historic acquisition activity.

A combination of strong operational cash flow, the absence of any further payments of deferred consideration, and the continued focus on working capital, should see net debt reduce again in 2020 and 2021.

Looking ahead, it said the actions it is taking to reduce costs, and the investments made in the central platform will continue to strengthen and streamline the operating efficiency of the company.

“At this stage, we expect revenue for the full year 2020 to be down by low single digit percentage points, with a weak first half largely offset by a return to growth in the second, leaving underlying profit at a similar level to 2019.

“A return to revenue growth in 2021, coupled with further planned cost savings, should deliver significant leverage to both margins and profit.”

The final dividend is proposed to deliver growth of five per cent on the prior year.

The company said it will update shareholders further at the time of the 2019 preliminary results announcement, scheduled to be released in mid-April.