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The benefits of our acquisition strategy are apparent in the financial performance of the Group, with six new companies acquired throughout the year. This acquisition activity has strengthened our position with important pan-European and global branded suppliers, enhanced our technical strength, and reinforced our position in our current core geographies of UK, Ireland, and Benelux."

Malcolm Diamond MBE

Chairman

Dear Shareholder Signature

Welcome to your 2017 year end Flowtech Fluidpower Report and Accounts.

When we floated our Company in May 2014, it was with a commitment from the Board to instigate a medium to long-term consolidation of the highly fragmented hydraulic and pneumatic industry, firstly in the UK, and then to extend this strategy into Europe over the next foreseeable few years.

Our 2017 result reaffirms the Board's confidence in our strategy as we continue to expand and develop our capabilities both within the UK and internationally.

Despite a challenging outlook for the UK economy, in 2017 the fluid power market experienced a significant turnaround following two years of soft trading, presenting a period of opportunity strengthened by European demand.

The Group achieved 46% growth in total revenue to £78.3 million, 8% of which came from organic growth, 38% from acquisitions. Profit before tax for 2017 totalled £6 million versus £5.5 million in 2016. Earnings per share reached 9.69p in 2017 versus 9.96p in 2016.

This year a major refurbishment and redesign at the Skelmersdale site expanded capacity and streamlined the logistics operation which will provide considerable scope for the profitable integration of future acquisitions. Moreover, it created modern office and meeting facilities for Flowtechnology UK, Indequip and Group employees. Pleasingly, this transition was completed with no disruption to customer service for the businesses which utilise this facility.

The benefits of our acquisition strategy are apparent in the financial performance of the Group, with six new companies acquired throughout the year, supported by the successful capital raising in March 2017.

This acquisition activity has strengthened our position with important pan-European and global branded suppliers, enhanced our technical strength, and reinforced our position in our current core geographies of UK, Ireland, and Benelux. In addition to expanding our Process division, we have significantly expanded our Power Motion Control operations, offering additional design, build and component supply into new market sectors including: mobile, rail, and aerospace. I am confident these acquisitions will provide a solid foundation for future profitable growth. From the outset, the Flowtech Fluidpower strategy has remained the same: to build a fluid power Group to serve all customer needs within the fluid power market. The addition of a fourth, Onsite Services division will in time enable the Group to provide total fluid power solutions in technical component supply, niche product supply and installation, bespoke designed solutions and finally planned onsite maintenance and repair.

By focusing on selected customers, utilising the Group status and investing in machinery, many of our businesses have been successful in winning new and ongoing sizeable supply contracts with billion-pound companies. Two such investments include the automatic hose-cutting machine at Nelson Hydraulics and the Parker pipework machinery at Group HES.

To summarise, it is clear that the Group is now entering an exciting stage of development as its ambitions for growth increasingly improve its market share within the UK and the Republic of Ireland, while being vigilant for opportunities to spread further into Europe, having managed the Benelux business into a healthy level of consistent performance.

Brexit consequences remain a relative unknown at this time, while forex movements and UK import prices have been well managed to date by our highly experienced and focused commercial management teams.

I continue to be impressed by the commitment and energy of not only our senior management, but also of our growing workforce and our business team leaders, and their ability to adapt to new and dynamic market opportunities that are arising constantly within our industry.

Finally, it was very pleasing to be given such valuable and widespread support for both the Board and the Executive Management team during the recent successful process to raise £11 million (before costs) in new capital for the Group in March and April of this current 2018 financial year. This has enabled us to complete the acquisition of our largest UK catalogue based competitor Beaumanor, along with its subsidiary Derek Lane & Co.

The management will now focus its attention throughout the remainder of 2018 in leveraging the operational benefits that will accrue from not only this acquisition, but also the additions that were brought to the Group throughout 2017 reporting period.

The Board looks forward to updating you on our progress on a regular basis going forward this year.

Yours sincerely

Malcolm Diamond Signature

Malcolm Diamond MBE
Chairman
16 April 2018