Final Results

Energy Technique Plc

("Energy Technique", "ETQ" or the "Company")

Preliminary Announcement 2011

27 May 2011

Chairman's statement

Headlines

·; Diffusion's fan coils and commercial heating markets continued to be very challenging as a result of the prolonged downturn in the wider commercial property markets;

·; Within this difficult operating environment, Diffusion's sales grew by 10% but it incurred a small operating loss of £88,000 before an exceptional bad debt charge of £63,000;

·; Diffusion's operating loss before exceptional items was all incurred in the first quarter of the financial year;

·; SIAS FM, the building maintenance subsidiary, became non-core and significantly cash absorbing during the financial year and was sold on 24 March 2011 to prevent further cash outflows;

·; The Board has been restructured to include two of Diffusion's key executives;

·; Diffusion has continued to invest in new product development and is well placed to win work from a number of landmark South East based commercial office projects currently under development.

Introduction

In the year ended 31 March 2011 the markets for Diffusion's fan coils and commercial heating products continued to be very challenging and the focus has been to stabilise the Company within this operating environment. Diffusion experienced difficult trading in the first quarter of the financial year, but its trading performance improved for the remainder of the financial year. SIAS FM, the building maintenance subsidiary purchased in the previous financial year became non-core and was sold in March 2011 so as to prevent further cash outflows. The Board has been re-structured to include two of the key executives responsible for managing the Diffusion subsidiary.

Trading performance on Continuing Operations

Sales in the year ended 31 March 2011 rose by 10% to £5.79 million (2010: £5.25 million) with Diffusion incurring a small loss of £88,000 (2010: profit £113,000), before an exceptional bad debt charge of £63,000, relating to the insolvency of its long standing Irish distributor, where credit insurance had been withdrawn.

Diffusion's operating loss was all incurred in the first quarter of the financial year. Sales improved throughout the remainder of the financial year and Diffusion generated small operating profits in each subsequent quarter, apart from the seasonally low December quarter. Cumulatively, Diffusion broke even in the last three quarters of the financial year, notwithstanding the seasonal losses incurred in the short trading month of December.

Central costs amounted to £173,000, before an exceptional charge of £45,000 for the settlement and costs associated with the resignation of the former CEO. Central costs in the current financial year ending 31 March 2012 will be lower than in the previous year as a result of cost savings by not replacing the former CEO role.

After interest costs of £27,000 the loss on Continuing Operations was £288,000 before exceptional items and £396,000 after total exceptional costs of £108,000.

Discontinued Operations

The trading results of SIAS FM are included under Discontinued Operations as the company was sold on 24 March 2011 for a consideration of £23,000. SIAS FM was acquired out of administration in August 2009, but it subsequently experienced an unacceptably high level of customer churn and with its low selling margins the Board resolved to sell the company to prevent further cash outflows.

SIAS FM produced sales of £1.71 million in the year ended 31 March 2011 (2010: £1.29 million for seven months) but it incurred an operating loss before tax of £318,000 (2010: profit of £50,000 for seven months) and a further loss on disposal of £416,000. Most of the disposal loss related to the £359,000 non-cash writing off of previous acquisition goodwill.

Diffusion Heating & Cooling ("Diffusion")

In December 2010 Diffusion celebrated its 50th anniversary as a market leader in the manufacture of premium quality fan coils and commercial heating products to offices, hotels, banks, and retail outlets. Products are distributed under both the Diffusion and Energy Technique brand names and are recognised as highly engineered, quality products providing leading edge performance and ultimate energy efficiency.

Diffusion invested in sales and marketing resources and as a consequence won a number of prestigious fan coil projects in the UK and Abu Dhabi. In the UK, Diffusion supplied fan coils into projects for Bank of Tokyo, St Pancras Chambers, City Inn Hotel, UBS Bank, Yell, and the BBC Headquarters. The new energy efficient EC fan coil unit was supplied into the Abu Dhabi Investment Council buildings and further opportunities in Abu Dhabi are being pursued on the back of the success of this first project there. A new "Active" fan coil has been launched, which takes the EC fan coil technology further and offers self-commissioning and even greater energy savings.

The One Hyde Park project in London was substantially completed during the year and the specially developed air handling units supplied are being actively marketed as high end residential fan coil units. Diffusion now offers an ancillary service refurbishing air handling units. Whilst still in its infancy, the first sales have already been made into this lucrative market, estimated to be worth five times the size of the UK fan coil market.

Diffusion's commercial heating division also experienced challenging trading conditions, although the impact was not as severe as experienced by the UK fan coil market. During the financial year, Diffusion's commercial heating products were supplied into buildings occupied by blue chip customers including Marks & Spencer, New Look, Next, GAP, Banana Republic, Hugo Boss, and the fast growing Super-Group clothing retailer. More recently, Diffusion won a contract to supply units into the Corn Wallis Academy School.

Cash flow

Cash resources were depleted during the year by £663,000, caused substantially by the trading losses incurred by SIAS FM before its sale and the cash injected into the company on completion of the disposal to allow creditor payment terms to be normalised. Despite the cash depletion, the Company retains adequate liquidity with a cash and cash equivalents balance at 31 March 2011 of £228,000 (2010: £891,000) and a strong balance sheet at 31 March 2011, with net assets £1.36 million (2010: £2.50 million).

Dividends

The Board does not recommend payment of a dividend (2010: £nil). For the present time, the Board believes it is in the Company's best interests to retain its liquidity.

Board changes

James Lugg resigned as the CEO and from the Board on 28 September 2010. Martin Kirkham, the managing director of SIAS FM, was appointed to the Board on 15 September 2010 and resigned on 6 April 2011 following the sale of SIAS FM.

I was also delighted to welcome Martin Reid, who also joined the Board on 15 September 2010. Martin Reid is a director of Diffusion and together with Leigh Stimpson, the managing director of Diffusion, the Board now comprises two of the key directors responsible for managing the Company's core subsidiary.

Business strategy

Following the resignation of the former CEO and the subsequent disposal of SIAS FM, the Board is focused on re-building the Company's core Diffusion subsidiary.

Current trading and prospects

Looking forward we are now focused on our core Diffusion business, which has market leadership and a high quality reputation allowing us to successfully pursue major commercial projects. With a number of landmark South East based projects under development, we are currently experiencing a healthy increase in enquiries at the premium end of the market and the order book is strengthening. We have lower Central costs overheads following the rationalisation of the management team and all costs associated with the disposal of the non-core SIAS FM business and subsequent reorganisation are behind us. There is therefore cause for more optimism in the coming financial year.

Walter K Goldsmith

Chairman

Contacts:

Walter Goldsmith, Chairman, Energy Technique Plc: 020 8783 0033

Rob Unsworth, Company Secretary, Energy Technique Plc: 020 8783 0033

Geoff Nash/Ed Frisby, finnCap Limited (Nominated Advisor): 020 7600 1658

Consolidated statement of comprehensive income

for the year ended 31 March 2011

There are no other recognised gains or losses other than as recorded in the consolidated statement of comprehensive income for the year.

Consolidated statement of financial position

at 31 March 2011

Consolidated statement of changes in equity

for the year ended 31 March 2011

Consolidated cash flow statement

for the year ended 31 March 2011

Notes

1. Adoption of new and revised standards

Standards and Interpretations effective in the current period

There were no new Standards adopted by the Group during the current period.

The following Interpretations and Amendments to existing standards are effective for the current period:

·; IFRS 3 (Revised) 'Business Combinations' effective 1 July 2009

·; IAS 27 (Revised) 'Consolidated and Separate Financial Statements' effective 1 July 2009

·; IAS 32 (Amendment) 'Financial Instruments: Presentation' effective 1 February 2010

·; IFRIC 17 'Distributions of Non-cash Assets to Owners' effective 1 July 2009

·; IFRIC 18 'Transfers of Assets from Customers' effective 1 July 2009

The adoption of these Interpretations and Amendments to existing standards has not led to any changes in the Group's accounting policies.

Standards and Interpretations in issue not early adopted

At the date of authorisation of these financial statements, the following Standards, Interpretations and Amendments to existing standards were in issue but not yet effective for the reporting period of the Group:

·; IFRS 9 'Financial Instruments' effective 1 January 2013

·; IAS 24 (Amendment) 'Related Party Disclosures' effective 1 January 2011

·; IFRIC 14 (Amendment) 'Prepayments of a minimum Funding Requirement' effective 1 January 2011

·; IFRIC 19 'Extinguishing Financial Liabilities with Equity Instruments' effective 1 July 2010

The Directors anticipate that the adoption of these Standards, Interpretations and Amendments to existing standards in future periods will have no material impact on the financial statements of the Group.

2. Significant accounting policies

Statement of compliance

The financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union.

Basis of preparation

The financial statements have been prepared on the historic cost basis.

Basis of consolidation

The Group financial statements consolidate the accounts of the Company and all its subsidiary undertakings, which are all made up to 31 March each year.

Goodwill

Goodwill represents the excess of the cost of acquisitions over the fair value of the identifiable assets acquired (including intangible assets) of the acquired business at the date of acquisition. Goodwill is recognized as an asset and assessed for impairment at least annually. Any impairment is recognised immediately in the statement of comprehensive income. The directors consider that goodwill has an infinite useful life.

In accordance with the transitional rules of IFRS, goodwill that has been written off to reserves cannot be restated or recycled, either on transition or at any later date. On the subsequent disposal or termination of a previously acquired business, the profit or loss on disposal or termination is calculated after charging goodwill previously taken to reserves.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and similar allowances.

Revenue from the sale of goods and services is recognised when all of the following conditions are satisfied:

·; the Group has transferred to the buyer the significant risks and rewards of ownership;

·; the Group retains neither continuing management involvement to the degree usually associated with ownership, nor effective control over the goods and services sold;

·; the amount of revenue can be measured reliably;

·; it is probable that the economic benefits associated with the transaction will flow to the entity; and

·; the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Interest revenue

Interest revenue is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable.

Operating leases

Payments under operating leases are charged to profits on a straight-line basis over the life of the lease.

Research and development expenditure

Research expenditure is written off as incurred. Development expenditure is generally written off as incurred unless it meets the recognition criteria of an intangible asset, as defined in International Accounting Standard 38 (Intangible Assets), in which case it would be recognised as an asset of the Group.

Foreign currencies

Monetary assets and liabilities denominated in foreign currencies are translated into sterling at the closing rate of exchange and differences taken to the income statement. Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the transaction.

Borrowing costs

Borrowing costs are recognised in the income statement in the period in which they are incurred.

Retirement benefit costs

A number of the Group's permanent employees are members of Energy Technique's Group Personal Pension Scheme, which is a defined contribution scheme (money purchase). Contributions to this scheme are recognised as an expense when employees have rendered service entitling them to the contributions.

Taxation

No corporation tax arises on the results for the year because of the availability of losses brought forward.

Full provision is made for deferred taxation, using the liability method without discounting, to take account of the temporary differences between the incidence of income and expenditure for taxation and accounting purposes. Deferred tax assets are recognised to the extent that they are considered recoverable in the foreseeable future.

Plant and equipment

Plant and equipment is stated at cost less accumulated depreciation and impairment charges.

Depreciation is provided on the cost of fixed assets on a straight-line basis in order to write them down to estimated realisable value over their estimated useful lives as follows:

Rate

Plant and equipment between 10% and 33% per annum

Inventories

Inventories have been valued at the lower of cost and net realisable value, using the First In First Out (FIFO) cost basis, with due allowance made for obsolete and slow moving items. For work in progress and finished stocks, cost consists of direct materials, labour and appropriate works overheads.

Provisions

Obligations arising under onerous contracts are recognised and measured as provisions. An onerous contract is considered to exist where the Group has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it.

Financial assets

Trade receivables and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as receivables, which are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short term receivables when the recognition of interest would be immaterial.

Financial liabilities and equity instruments issued by the Group

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.

3. Basis of preparation of financial statements

The financial information set out above does not constitute statutory financial statements for the year ended 31 March 2011 or 2010 but is derived from those financial statements. Statutory financial statements for the year ended 31 March 2010 have been delivered to the Registrar of Companies. Statutory financial statements for the year ended 31 March 2011 were approved by the Board of Directors on 26 May 2011, are audited and will be delivered to the Registrar of Companies following the Annual General Meeting on 8 September 2011.

The Company's auditors, Milsted Langdon LLP, have reported on the 2011 and 2010 financial statements and those reports were:

(i) Not qualified,

(ii) Did not include a reference to any matters to which the auditors drew attention to by way of emphasis without qualifying their report, and

(iii) Did not contain a statement under Section 498(2) and 498(3) of the Companies Act 2006in respect of the financial statements for the year ended 31 March 2011 and 31 March 2010.

4. Segmental analysis

4.1. Products and services within each business segment

For management purposes, the Group is organised into two operating activities: the Diffusion business and Central costs. The principal products and services of these activities are as follows:

Diffusion Manufacture and distribution of fan coils and commercial heating products, together with after sales spares and service from its facility in West Molesey, Surrey.

Central costs Costs associated with the Board of Directors and maintaining the AIM quotation on the London Stock Exchange.

Discontinued SIAS FM, the Company's former building maintenance subsidiary, became non-core during the financial year and was sold on 24 March 2011. As a consequence, its results have been included under Discontinued Operations.

4.2. Segment revenue and segment result

Revenue reported above represents revenue generated from external customers. Inter-segment sales in the year amounted to £nil (2010: £2,000). Diffusion had no customers (2010: one customer) with revenue in excess of 10%. In the previous year this customer had revenue of £690,000.

The net interest paid under Continuing Operations of £27,000 (2010: received £10,000) comprises interest received of £1,000 (2010: £37,000) from Central costs and interest paid of £28,000 (2010: £27,000) by Diffusion.

4.3. Segment assets and liabilities

4.4. Other segment information

4.5. Geographical segments

5. (Loss)/earnings per share

6. Posting of Annual Report and Financial Statements

The 2011 Annual Report and Financial Statements will be posted to shareholders on 17 June 2011 and will be available to view at the Company's website www.diffusion-group.co.uk.

The 2011 Annual General Meeting of the members of Energy Technique Plc will be held at 35 Park Lane, London W1K 1RB on 8 September 2011 at 12.00 Noon.