Final Results

Energy Technique Plc

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

Preliminary Announcement 2010

21 July 2010

Chairman's statement

Headlines

·; Weak market conditions with new commercial property construction declining by over 50% compared with 2008

·; Resulting sales fell to £6.54 million (2009: £7.75 million)

·; Remained profitable through tight cost controls

·; Cash absorbed by operations of £352,000 due to acquiring SIAS FM in August 2009 (2009: cash generated of £457,000)

·; Cash position at 31 March 2010 of £0.89 million (2009: £1.44 million)

·; Strong net assets at 31 March 2010 of £2.50 million (2009: £2.47 million)

·; Net assets equivalent to 7.5 pence per share

Introduction

The year ended 31 March 2010 was a most difficult trading period, characterised by a more than 50% decline in the number of new commercial property construction projects, resulting in much reduced demand for the Group's products and services. Sales fell by 16% to £6.54m, but with tight cost control, I am pleased to report the Group achieved a small profit before tax of £15,000. The post acquisition integration of SIAS FM, the new maintenance business acquired in August 2009, is complete and the business made a contribution to Group operating profits.

Group trading performance

Group sales in the year ended 31 March 2010 fell to £6.54 million (2009: £7.75 million) with a corresponding reduction in operating profit to £5,000 (2009: £243,000). After net finance income of £10,000 (2009: £12,000) the Group profit before tax on Continuing Activities was £15,000 (2009: £255,000). The Board regards this as a very acceptable trading result given such a large decline in the markets the Group serves.

Diffusion Heating & Cooling ("Diffusion")

Diffusion is a market leader in the manufacture of premium quality fan coils and commercial heating products to offices, hotels, banks and retail outlets. Diffusion's unrivalled engineering and development expertise continues to innovate highly energy efficient products offering sustainability and lower capital costs. 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 has been particularly affected by the rapid decline in the number of new commercial construction projects, with sales declining by 32% to £5.25 million. Whilst operating profit fell to £113,000 (2009: £413,000) the impact of reduced sales was mitigated through a combination of tight cost control and stable margins. Management reacted swiftly to the deteriorating market conditions through a series of cost cutting measures, leading to a 19% reduction in overheads compared with the previous year. The £300,000 investment in the new laser cutting machine is producing excellent returns by maintaining stable selling margins in the face of raw material increases and selling price pressure.

The largest project win was the supply of air handling units into the prestigious One Hyde Park development in London. Diffusion now has the in house technical skills to exploit this much larger UK air handling market estimated at over £100m and it has secured follow on orders. Major fan coil projects completed include City Inn Westminster, BBC London, St Pancras Chambers, Bank of Tokyo, Queen Mary University, Ravensbourne College and Lockton Insurance. The fan coil range has been broadened by a highly energy efficient and sustainable 270i unit using EC/DC motor technology, together with a competitively priced Ambassador unit, offering sustainability for hotel applications.

Commercial heating products continued to be installed into sites operated by blue chip customers including Marks & Spencer, Aldi, Primark, Arcadia Group, Boots, Nike, Argos, Debenhams and Tesco. Diffusion was pleased to receive sole national specification for the supply of air curtains, fan convectors and ceiling ventilation units from Marks & Spencer and Aldi for projects in 2009/10.

SIAS FM

In August 2009, the Group purchased the nationwide building maintenance division of SIAS Building Services LLP (in administration), now trading as SIAS FM, as a supplier of heating and ventilation building maintenance services to hotels and commercial buildings, with regional offices in Stoke-on-Trent, Keighley and Basingstoke. SIAS FM provides both planned and reactive maintenance, together with resulting small contract works. There is very little overlap of customers with Diffusion and the Board believes this presents many cross selling opportunities.

Sales from August 2009 to March 2010 were £1.29 million and the Board is pleased the business produced an operating profit of £50,000. The Company has invested heavily into SIAS FM with additional management, new offices in Stoke-on-Trent and Keighley, replacing the vehicle fleet, together with engineer development and training. A new state of the art maintenance IT platform from TABS FM is currently being installed, so that SIAS FM has a strong infrastructure to facilitate future growth. SIAS FM has a very experienced and committed management team, who are eager to grow the SIAS FM brand.

Cash flow and capital expenditure

Cash outflow during the year amounted to £544,000, attributable to the costs of acquiring SIAS FM and its subsequent working capital requirement, together with the increased working capital needs of Diffusion. A planned increase in stocks occurred at Diffusion, so that it could offer an advantage over competitors of shorter delivery times. The Company retains healthy liquidity with net cash balances at 31 March 2010 of £0.89 million (2009: £1.44m) and a well funded balance sheet with net assets at 31 March 2010 of £2.50 million, equivalent to 7.5 pence per share.

Dividends

The Board does not recommend payment of a dividend (2009: £nil). For the present time, the Board believes it is in the Company's best interests to retain its strong liquidity for future growth and expansion purposes.

Business strategy

The Board's strategy is to progressively reduce the dependence on fan coils and commercial heating products by expanding the product range and having the more secure recurring income streams enjoyed by property facilities management companies. The addition of the air handling product range and the acquisition of SIAS FM were the first steps in this strategy.

Current trading and prospects

Sales in the first quarter of the current financial year were below management's expectations, but enquiry levels have started to improve. Notably, Diffusion has just won an order for over £500,000 to supply its new range of energy efficient fan coils into a leading edge "green" commercial building in Abu Dhabi. Prospects for 2011 and beyond are improving following the recent project releases from commercial property developers, but for the remainder of the current financial year the Board expects a continuation of very challenging trading conditions.

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/Rose Herbert, finnCap Limited (Nominated Advisor): 020 7600 1658

Consolidated statement of comprehensive income

for the year ended 31 March 2010

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 2010

Consolidated statement of changes in equity

for the year ended 31 March 2010

Consolidated cash flow statement

for the year ended 31 March 2010

Notes

1. Adoption of new and revised standards

Standards and Interpretations effective in the current period

The following Standards were adopted by the Group:

·; IAS 1 (Revised) 'Presentation of Financial Statements' effective 1 January 2009, is effective for the year ended 31 March 2010. The standard requires a change in the format and presentation of the Group's primary statements but has no impact on reported profits or equity.

·; IFRS 8 'Operating Segments' effective 1 January 2009, requires operating segments to be disclosed on the same basis as that used for internal reporting. It has been implemented by the Group for the year ended 31 March 2010 and has had no impact on the results or net assets of the Group but has resulted in revised disclosures.

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

·; IAS 32 and 'Financial Instruments: Presentation' effective 1 January 2009 IAS 1 (Amendment)

·; IAS 23 (Revised) 'Borrowing Costs' effective 1 January 2009

·; IFRS 2 (Amendment) 'Share Based Payment' effective 1 January 2009

·; IFRS 7 (Amendment) 'Financial Instruments: Disclosures' effective 1 January 2009

·; IFRIC 13 'Customer Loyalty Programmes' effective 1 July 2008

·; IFRIC 15 'Agreements for the Construction of Real Estate' effective 1 January 2009

·; IFRIC 16 'Hedges of a Net Investment in a Foreign Operation' effective 1 October 2008

The adoption of these Interpretations 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 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 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 2010 or 2009 but is derived from those financial statements. Statutory financial statements for the year ended 31 March 2009 have been delivered to the Registrar of Companies. Statutory financial statements for the year ended 31 March 2010 were approved by the Board of Directors on 20 July 2010, are audited and will be delivered to the Registrar of Companies following the Annual General Meeting on 15 September 2010.

The Company's auditors, Milsted Langdon LLP, have reported on the 2010 and 2009 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 237(2) or 237(3) of the Companies Act 1985 in respect of the financial statements for 2009, nor a statement under Section 498(2) and 498(3) of the Companies Act 2006 in respect of the financial statements for the year ended 31 March 2010.

4. Segmental analysis

4.1. Segment revenue and segment result

Revenue reported above represents revenue generated from external customers. Inter-segment sales in the year amounted to £2,000 (2009: £nil). The Group has one customer with revenue in excess of 10%. This customer, in the Diffusion business segment, had revenue of £690,000 (2009: £254,000).

The net interest of £10,000 (2009: 12,000) comprises interest received of £37,000 (2009: £29,000) from Central costs and interest paid of £27,000 (2009: £17,000) from Diffusion.

4.2. Segment assets and liabilities

4.3. Other segment information

4.4. Geographical segments

5. Earnings per share

6. Posting of Annual Report and Financial Statements

The 2010 Annual Report and Financial Statements will be posted to shareholders on 23 July 2010 and will be available to view at the Company's website www.diffusion-group.co.uk