Flowtech confident on future cashflow levels
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Flowtech Fluidpower, the Skelmersdale-based hydraulics specialist, said trading for the three months to March 31, was in line with expectations, prior to the lockdown period due to coronavirus.
In an update to the market today, it revealed that total group revenue for the period dropped 10.3% to £26.9m. Net debt stood at £15.6m, compared with £20.5m the previous year.
It said prior to COVID-19 the lockdown first quarter performance was in line with expectations, down on the buoyant conditions seen in early 2019, but with a return to growth in customer order patterns and outlook.
However, the final few weeks of the period created an altogether different position going into the second quarter.
Many suppliers and customers suspended operations, although recent indications suggest that some have either already reopened or are planning to reopen in May, albeit with reduced capacity.
The most marked effect of the current situation has been in the components segment, which are those profit centres where most sales are directly into original equipment manufacturers.
The services segment had a good order book coming into the year, and while it was also affected by the downturn in late March, revenue for the quarter remained flat year-on-year.
The group said that, while there are no first quarter industry statistics currently available, the board believes that the group has generally traded in line with the sector during the period.
Net cash flow in April has been as expected, and while the group has not entered the end of month collection period, it expects receipts to be received in full, albeit with some slight delays in timing: “We believe this should not create any significant disruption to the overall cash flow cycle,” it said.
In February 2020 Flowtech announced a major restructuring programme to transition warehousing and picking operations to more efficient centres.
In the UK it is currently closing four warehousing facilities, the annualised savings from which are estimated to be £1.6m, with an £800,000 impact/benefit in 2020.
The cash cost of this restructuring is estimated at £1.8m, of which £500,000 was incurred in 2019. The group said it can confirm that this complex and tightly managed project is on time and within budget.
Since safe working guidance was introduced last month, costs have been reduced by a combination of internal actions and the utilisation of “furlough” or equivalent schemes introduced in the UK, Republic of Ireland, and the Netherlands.
“We estimate that our cost base has fallen by around 25%, with further savings still to come from our restructuring activities. We will continue to pursue our rationalisation and cost reduction programmes, creating operational efficiencies in our procurement, logistics, sales, and back office activities.”
Regarding the outlook, Flowtech said: “Whilst the full impact of the COVID-19 lockdown remains unclear it is not possible to make any accurate predictions for the remainder of the year.
“A significant part of our sales depends on the manufacturing and construction sectors, both of which have seen large scale shutdowns.
“It is possible that these sectors will begin to reopen during early May, and our current plan is to ensure that we continue to support/service our customers and react as quickly and effectively as possible if this were to happen.
“However, if there is a need to undertake further cost reductions should the lockdown extend further into the year, we must ensure that we are in a position to initiate change without detriment to our future business and our customers.
“This being said, the work undertaken as part of our restructuring activities over the past 12 months is helping our planning enormously in this regard.”
It added: “Overall, we remain confident that despite the disruption, our business should generate positive cashflow through 2020 and 2021, helping to further reduce net debt and create a solid platform for growth when things return to a more normal situation.”