16th Jun 2015 07:00
LONDON (Alliance News) - Flowgroup PLC Tuesday reduced the number of boiler installations it had planned for 2015 and said it would instead focus on its cost reduction programme, after the company was hit by a ruling by the European Court of Justice that a UK sales tax reduction on energy saving products breached EU laws.
The company also warned that it will now taker longer than expected to become net cash flow generative and profitable. It had previously expected to generate net cash flow in the fourth quarter of 2015 and to become profitable in the first quarter of 2016.
The European Court of Justice ruled on June 4 that the UK's reduced 5% rate of Value Added Tax on energy-saving products is in breach of EU laws.
Flowgroup said it will now accelerate its cost reduction programme for its Flow boiler to offset the higher VAT rate. It expects VAT to be applied on the products at the usual 20% rate.
"While the UK Government has yet to clarify the ongoing position, in the light of this ruling, the company has decided to take the prudent step to focus the Flow Products business on its cost reduction programme, already initiated with Jabil, ensuring that customers remain unaffected by any potential increase in VAT and maintaining the long term viability of the 'Boiler that pays for itself' model," it said.
Jabil is manufacturing the boilers.
"In the short term it is expected this will result in a substantial reduction in boiler installations for the remainder of 2015. The company expects to accelerate its cost reduction programme and will make further refinements to product specifications as part of its continuing validation process, so as to re-launch the 'Boiler that pays for itself' campaign in the fourth quarter of 2015," it said.
Flowgroup is a new entrant to the UK energy market. It has designed a new boiler that produces both heat and electricity for homes, and started producing them in January. It also has an energy business that offers customers gas and electricity supply deals.
"Clearly this is a short term blow to Flowgroup and the UK's Green energy plan and we now have to wait to see how the Government will interpret this and how they will react. That said, we are confident that the Government will still seek to promote energy efficient products and we still expect that Flow customers will benefit from this," the company's Chief Executive Tony Stiff said.
"The long term expectation of a successful roll out of our technology remains unchanged, but it is clear that launching during a time when consumers might have to pay over GBP500 more for the Flow boiler and see installation costs rise by 15% would be inconsistent with our initial roll out plans," he added.
The company said the EU ruling would have no impact on its rollout plans for the Flow boiler.
"The company understands that the UK Government remains committed to providing incentives to encourage the adoption of products like the Flow boiler and has said that it will study the judgement carefully and consider the next steps, the company said.
By Steve McGrath; [email protected]; @stevemcgrath1
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