Hydraulics business commits to salary payments but axes dividend
Flowtech Fluidpower has pledged to pay all its staff, at least until the end of April, but has suspended dividend payments.
In a trading update today, the Skelmersdale-based group said: “It is at times such as this we are all forced to reflect on what is most important to us.
“When family, friends and colleagues are faced with challenges that would have been inconceivable only a few weeks ago, we need to be there to support them.”
Therefore, the AIM-listed technical fluid power products specialist said it is guaranteeing that all its staff, whether currently working or furloughed, will continue to be paid in full, at least until the end of April when it will review the situation.
For those that are working but cannot work remotely, the group has implemented robust self-distancing procedures.
It said it also recognises that there are several of its smaller suppliers and customers already under stress, and it will be trying to assist them as much as it can.
“Ultimately, the best thing we can do for all our stakeholders is to ensure that when life does return to normal, the measures we take during this upheaval leave us stronger in every respect,” it said.
The group said that, during the first quarter the business has performed in line with expectations at the time of the February trading update.
The final few weeks of the first quarter suggest an altogether different position going into the second quarter.
While several of suppliers and customers have suspended operations, these currently only account for 10-15% of revenue, and there has been little slippage in customer receipts helped enormously by the timely Government action, the group said.
“Overall, revenues are currently trending down by around 30%, with expectations that volumes may dip further before recovering. Therefore, we do not believe it prudent to provide formal guidance for the current financial year.
“However, factoring in the cash savings from all elements of the Government support mechanisms, we would need a prolonged 35% drop in revenue run rates before the business becomes broadly break-even.
“This is based on furloughing 181 of our 590 UK and ROI employees, combined with similar support from the Dutch/Belgium Governments. Should the need arise, we have scope to make further cost savings.”
Net debt at March 31, 2020 was £15.6m, a £1m reduction from the position at December 31, 2019.
The group said it has recently extended its aggregate banking facilities of £25m out to the end of June 2021.
Discussions with its bank are constructive, it said, and they are looking to support the business in ensuring all covenants are complied with, and to secure extended facilities beyond the 15-months remaining with its existing arrangements.
The group said: “We continue to pursue our rationalisation and cost reduction programmes.
“These centre around the implementation of operational efficiencies in relation to our procurement and warehousing activities, as well as the centralisation of back office functions.
“Over time we hope to achieve further significant reductions in both working capital and operating costs. Despite the short-term trading disruption, the business should generate positive cashflow through 2020 and 2021, helping to further reduce net debt.”
However, it said that, although in its February update it indicated it would look to propose a final dividend, given current levels of uncertainty it is prudent that the group suspends all dividend payments and retains as much cash in the business as possible until the situation becomes clearer.
The statement said: “These circumstances are undoubtedly the biggest challenge most of us will face in our lifetimes, but Flowtech has a culture and a business model that we believe will prove resilient.
“If we continue to act calmly and responsibly, then all those that depend on us can be confident in the long-term success of the business.”
Flowtech will provide a further trading update on the release of its 2019 results, scheduled for April 21.