28th Sep 2006 17:05
Energy Technique PLC28 September 2006 Energy Technique Plc Preliminary Announcement 2006 CHAIRMAN'S STATEMENT Introduction I am pleased to report the successful completion of a £1.25 million equityrefinancing after the year end in May 2006, combined with the Group's return toprofitability resulting from the strong recovery at Diffusion Heating andCooling, the elimination of losses on Discontinued Activities and a reduction insize of central and plc related costs. Since my appointment in October 2005, a comprehensive review of all of theGroup's activities has been conducted, with the aim of concentrating on higheradded value products and seeking ways of further reducing the Group's historichigh cost base. The current year's results report the significant costs incurredin implementing the conclusions of this strategic review, including the decisionto wind down the activities of Diffusion DX, Lifebreath and UVGI, the results ofwhich are reported under the heading "Discontinued Operations". The end resultis that the Group is now much fitter and leaner and is firmly focused back onits traditional core business of fan coils and commercial heating products,operating from the Diffusion Heating and Cooling business at West Molesey. Theresults of Diffusion Heating and Cooling are reported under the heading"Continuing Operations". Group financial performance Sales of fan coils and commercial heating products at Diffusion Heating andCooling amounted to £6.9 million (2005: £7.1 million). Group sales in the yearhowever fell to £9.3 million (2005: £10.7 million) due to the effects of windingdown Diffusion DX's business from December 2005. Diffusion Heating and Cooling produced a much improved financial performance,operating at close to break-even, with a significant reduction in the operatingloss to £0.1 million (2005: loss of £0.9 million). This recovery is attributableto significant cost cutting measures, which have now started to show through inimproved trading results. The Group loss before tax fell to £1.8 million (2005:£2.5 million). Most of the current year Group losses were caused by thediscontinued activities of Diffusion DX, Lifebreath and UVGI, which togetheraccounted for £1.0 million of the Group loss, combined with the previously highlevel of central and plc related costs amounting to £0.7 million. Central andplc costs have now been significantly reduced following the strategic review ofthe Group's activities referred to above. Continuing operations Diffusion Heating and Cooling Diffusion Heating and Cooling, based in West Molesey, Surrey is now the Group'score business. Diffusion was established over 45 years ago and has establisheditself as a market leader in the manufacture and supply of fan coils andcommercial heating products to offices, hotels, banks and retail outlets.Products are distributed under both the Diffusion and Energy Technique brandnames and are recognised as highly engineered, quality products throughout theindustry. Diffusion products are to be found in prestigious office developmentsand in many of the leading banks, hotels and retail chains in the UK andIreland. End users include Hilton Hotels, City Inn Hotels, Marks & Spencer, ALDIStores, HBOS, NatWest Bank and the Scottish Parliament. Diffusion experienced very difficult trading conditions between April 2003 andJuly 2005, but it is now enjoying a very strong sales led recovery. Whist thebusiness incurred a small loss of £0.1 million in the year, this was allincurred in the first four months of the year. Sales in the last eight monthsaveraged some 8% higher than in the first four months, resulting in a return toprofitability since August 2005. New product development of the high added valuecommercial heating products, combined with more focused marketing efforts totarget banks and retail outlets, is starting to produce excellent results. Salesin the second half of the year for commercial heating products were 20% higherthan in the corresponding period last year. Diffusion Heating and Cooling now has a much more streamlined and efficientoperational management structure and a much lower cost base. The number ofdirectors has been reduced from seven to three and Leigh Stimpson is now able toconcentrate on sales and marketing activities. Considerable attention is nowbeing given to exploring ways of further reducing costs with more efficientmanufacturing methods and more effective purchasing. Discontinued activities Diffusion DX This business previously distributed packaged air conditioning equipment. As setout in the Interim Statement, Diffusion DX's sales in the three months ended 31December 2005 were approximately only 40% of budget, a position compounded bythe resignation, early in December 2005, of the remaining Diffusion DX salesteam. Consequently, the Board decided to wind down Diffusion DX in its presentform. Fully paid stocks have now been disposed of and settlement agreements havebeen reached with all three of the former key suppliers. Diffusion Air Treatment Despite the successful testing of the Nightingale UVGI unit by the HealthProtection Agency, the Board was disappointed by the lack of demand for theproduct, particularly from hospitals, especially given the spread of MRSA andother hospital acquired infections. The Company could clearly no longer affordto devote further time and resources to this venture, and the Board decided toclose this activity in April 2006. The Group's 50% shareholding in UVGI SystemsLimited was sold in August 2006. Similarly, the fledgling Lifebreath operation was also disposed of in April2006. This decision was taken because of slow sales take up, low profitabilityand poor customer payment experience. Share issues The combination of the losses incurred in the first half year to 30 September2005, in addition to the £2.5 million of losses incurred in the year ended 31March 2005, necessitated a £1.5 million share placing, before issue expenses,which was approved by shareholders at an Extraordinary General Meeting held on26 October 2005 and completed in November 2005. In the Interim Statement, I commented on the extremely difficult tradingconditions encountered in the first half of the current year and the continuingproblems, which were substantially due to the poor performance at Diffusion DX.Inevitably, this impacted adversely on profitability and cash flow wassignificantly impaired due to the lower level of financing available to theGroup from the invoice discounting facility. It became clear to the Board that additional long-term working capital wasurgently required, both to enable the Group to continue to trade solvently inthe short-term and also to provide a sufficiently strong financial base fromwhich to rebuild the business and enable it to move forward successfully in thefuture. I am pleased to report that a Concert Party comprising Triandra Limited andJames Lugg agreed to subscribe for 530 million shares at the placing price of0.25p per share, to provide £1.25 million (net of expenses) of additionalpermanent working capital for the Group. This placing was approved byshareholders on 10 May 2006 together with the proposed Capital Reorganisation.Following this placing, the members of the Concert Party own 72% of theCompany's enlarged share capital. Pro-forma group balance sheet at 31 March 2006 The group balance sheet at 31 March 2006 does not reflect the Group's currentfinancial position and strength, because of the £1.25 million placing completedafter the year end in May 2006. The pro-forma group balance sheet shows theadjusted balance sheet position at 31 March 2006, on the assumption the £1.25million share placing had been completed on that date. Dividends The Board does not recommend the payment of a dividend (2005: £nil). Business strategy The Board believes the net proceeds of the £1.25 million placing will provide asound financial base from which to rebuild the Group's core business ofDiffusion Heating and Cooling, with the intention to develop the business intothe brand leader for air conditioning fan coils and, in particular, commercialheating products, through continued product innovation and development. TheBoard is also examining ways of improving the profitability of fan coil andcommercial heating products by sourcing low cost high quality products fromoverseas manufacturers, whilst still retaining existing high levels ofengineering expertise and performance capability. Directors I am pleased to welcome James Lugg, who joined the Board as an executivedirector on 31 January 2006. He has over twenty years experience in the airconditioning and heating sector as an owner-operator of his own businesses andhis experience should enable him to make an increasingly important contributionto the recovery and future development of the Group. James Lugg is now the onlyexecutive director and he has been instrumental in refocusing the Group on itstraditional core business. Leigh Stimpson and Robert Unsworth both resigned from the Board on 11 April 2006and I would like to thank each of them for their commitment over recent months,which has contributed to the turnaround of the Group. Gerard Thompson, the former chairman, resigned on 4 November 2005 and StephenMcNeice, who had been on long-term sick leave since March 2003, was removed fromthe Board on 14 February 2006 under the Company's Articles of Association. Management and employees I would like to thank all of the Group's remaining employees, who, in spite ofthe difficulties, have worked tirelessly during the last year in achieving therecovery in the Group's fortunes. Current trading and prospects The re-financing in May 2006 with an equity injection of £1.25m re-capitalisedthe balance sheet after the losses incurred on the winding down of the lossmaking businesses of Diffusion DX, Lifebreath and UVGI, and will provide thenecessary funding to grow the core Diffusion Heating and Cooling business. At 27September 2006, the Group had a net positive cash position of £0.5 million. Diffusion Heating and Cooling is continuing to enjoy the sales recovery startedover a year ago in August 2005. Sales in the first five months of the currentyear are 17% ahead of the corresponding period and in line with expectations.The order book is very strong at over £2 million and both enquiries and orderprospects are similarly very encouraging. As a result of this increased demand,a second shift system has been operating at West Molesey since July 2006. The Group has been profitable in the first five months of the current year,resulting from the recovery at Diffusion Heating and Cooling, the elimination oflosses on the Discontinued Activities and a reduction in size of central and plcrelated costs. The Board is confident the Group's fortunes have beensuccessfully turned around and it looks forward to a continuation of the currenthigh levels of sales. Tony CaplinNon-Executive Chairman GROUP PROFIT AND LOSS ACCOUNTFOR THE YEAR ENDED 31 MARCH 2006 Continuing Discontinued Operations Operations 2006 2005 Note £000 £000 £000 £000--------------------- --------- -------- --------- -------- --------Turnover 3 6,884 2,461 9,345 10,677Cost of sales (5,403) (2,247) (7,650) (8,845)--------------------- --------- -------- --------- -------- --------Gross profit 1,481 214 1,695 1,832Distribution costs (1,185) (880) (2,065) (3,233)Administrative expenses (995) (191) (1,186) (953)Operating loss--------------------- --------- -------- --------- -------- --------Before exceptional items 3 (628) (828) (1,456) (2,298)Exceptional items 4 (71) (29) (100) (56)--------------------- --------- -------- --------- -------- -------- (699) (857) (1,556) (2,354)Provision for onerousproperty lease - (115) (115) ---------------------- --------- -------- --------- -------- --------Loss before interest (699) (972) (1,671) (2,354)Interest payable (82) (32) (114) (117)--------------------- --------- -------- --------- -------- --------Loss on ordinaryactivities before taxation (781) (1,004) (1,785) (2,471)--------------------- --------- -------- --------- -------- --------Tax on loss on ordinaryactivities - 33 33 ---------------------- --------- -------- --------- -------- --------Loss for the financialyear (781) (971) (1,752) (2,471)Dividends on equityshares - - - ---------------------- --------- -------- --------- -------- --------Transfer from reserves (781) (971) (1,752) (2,471)--------------------- --------- -------- --------- -------- --------Loss per share:Basic 5 (0.37)p (0.46)p (0.82)p (1.70)pDiluted 5 (0.37)p (0.46)p (0.82)p (1.70)pBefore exceptional items 5 (0.33)p (0.40)p (0.73)p (1.66)p--------------------- --------- -------- --------- -------- -------- Both the turnover and operating results shown above for 2005 are entirely inrespect of continuing operations. There are no other recognised gains or losses other than as recorded in theprofit and loss account for the year. GROUP BALANCE SHEETAT 31 MARCH 2006 31 March 31 March 2006 2005 £000 £000------------------------------ ---------- ----------Fixed assetsIntangible assets - 17Tangible assets 259 329------------------------------ ---------- ---------- 259 346Current assetsStocks 1,052 1,580Debtors 1,850 2,308Cash at bank 112 ------------------------------- ---------- ---------- 3,014 3,888Creditors - amounts falling due within one year (3,324) (4,151)------------------------------ ---------- ----------Net current liabilities (310) (263)------------------------------ ---------- ----------Total assets less current liabilities (51) 83Provisions for liabilities and charges (200) ------------------------------- ---------- ---------- (251) 83------------------------------ ---------- ---------- Capital and reservesCalled up share capital 3,026 1,526Share premium account 3,490 3,572Other reserves 7,449 7,449Profit and loss account (14,216) (12,464)------------------------------ ---------- ----------Equity shareholders' funds (251) 83------------------------------ ---------- ---------- IMPORTANT NOTE: The Group was refinanced in May 2006 with a share placing of £1.25 million netof expenses. The pro-forma group balance sheet shows the adjusted balance sheetposition at 31 March 2006, on the assumption the £1.25 million share placinghad been completed on that date. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDSFOR THE YEAR ENDED 31 MARCH 2006 2006 2005 £000 £000------------------------------ ---------- ----------Loss for the year (1,752) (2,471)Issue of ordinary shares 1,500 780(Reduction)/increase in share premium account (82) 1,985------------------------------ ---------- ----------Movements in shareholders' funds (334) 294Shareholders' funds at beginning of year 83 (211)------------------------------ ---------- ----------Shareholders' funds at end of year (251) 83------------------------------ ---------- ---------- GROUP CASH FLOW STATEMENTFOR THE YEAR ENDED 31 MARCH 2006 2006 2005 £000 £000------------------------------ ---------- ----------Cash outflow from operating activities (765) (2,077)Returns on investment and servicing of finance (114) (117)Corporation tax receipt 33 -Capital expenditure and financial investment (31) (119)------------------------------ ---------- ----------Cash outflow before financing (877) (2,313)Financing:Issue of share capital 1,418 2,765Reduction in debt (429) (452)------------------------------ ---------- ----------Change in cash during year 112 ------------------------------- ---------- ---------- Reconciliation of net cash flow to movement in net debt 2006 2005 £000 £000------------------------------ ---------- ----------Change in cash in year 112 -Reduction in debt 429 452------------------------------ ---------- ----------Change in net debt resulting from cash flows 541 452New finance leases - ------------------------------- ---------- ----------Reduction in net debt 541 452Net debt at start of year (1,319) (1,771)------------------------------ ---------- ----------Net debt at end of year (778) (1,319)------------------------------ ---------- ---------- Reconciliation of operating loss tooperating cash flows 2006 2005 £000 £000------------------------------ ---------- ----------Operating loss before exceptional items (1,456) (2,298)Exceptional items (100) (56)------------------------------ ---------- ----------Operating loss after exceptional items (1,556) (2,354)Depreciation and amortisation 118 107Stocks 528 (257)Debtors 458 346Creditor (313) 81------------------------------ ---------- ---------- (765) (2,077)------------------------------ ---------- ---------- NOTES1. Accounting policies The financial information set out above has been prepared using accountingpolicies consistent with 2005. 2. Basis of preparation of financial statements The financial information for the year ended 31 March 2006 and 2005 set outabove does not constitute statutory financial statements within the meaning ofsection 240 of the Companies Act 1985. The information has been extracted fromthe statutory financial statements of Energy Technique Plc for the year ended 31March 2006, which have not yet been filed with the Registrar of Companies.Statutory financial statements for the year ended 31 March 2005 have beendelivered to the Registrar of Companies. Statutory financial statements for theyear ended 31 March 2006 were approved by the Board of Directors on 27 September2005, are audited and will be delivered to the Registrar of Companies followingthe Annual General Meeting on 26 October 2006. The Company's auditors, Milsted Langdon, have reported on the 2006 and 2005financial statements under section 235(1) of the Companies Act 1985. Thosereports were not qualified within the meaning of section 235(2) of the CompaniesAct 1985 and did not contain statements made under section 237(2) and 237(3) ofthe Companies Act 1985. 3. Segmental analysis Turnover Operating loss Operating net assets 2006 2005 2006 2005 2006 2005 £000 £000 £000 £000 £000 £000---------------- -------- -------- -------- -------- -------- --------Diffusion Heating and Cooling---------------- -------- -------- -------- -------- -------- --------Before exceptionalitems 6,884 7,052 (76) (837) 884 1,587Exceptional items - - (61) (56) - ----------------- -------- -------- -------- -------- -------- --------After exceptionalitems 6,884 7,052 (137) (893) 884 1,587 Diffusion DX---------------- -------- -------- -------- -------- -------- --------Before exceptionalitems 2,336 3,444 (403) (257) (26) (180)Exceptional items - - (29) - - ----------------- -------- -------- -------- -------- -------- --------After exceptionalitems 2,336 3,444 (432) (257) (26) (180) Diffusion Air Treatment 125 181 (425) (833) 77 150 Central and Plc costs---------------- -------- -------- -------- -------- -------- --------Before exceptionalitems - - (552) (371) (408) (155)Exceptional items - - (125) - - ----------------- -------- -------- -------- -------- -------- --------After exceptionalitems - - (677) (371) (408) (155)---------------- -------- -------- -------- -------- -------- -------- 9,345 10,677 (1,671) (2,354) 527 1,402---------------- -------- -------- -------- --------Borrowings (778) (1,319)Taxation - ----------------- -------- -------- -------- -------- -------- -------- (251) 83---------------- -------- -------- -------- -------- -------- -------- 4. Exceptional items 2006 2005 £000 £000--------------------------------------- ---------- ----------Operating items--------------------------------------- ---------- ----------Redundancies and employee termination costs 100 56--------------------------------------- ---------- ----------The exceptional items have been classified as follows:Cost of sales 12 56Distribution costs 52 -Administration expenses 36 ---------------------------------------- ---------- ---------- 100 56--------------------------------------- ---------- ---------- Non-operating items--------------------------------------- ---------- ----------Provision for onerous property lease 115 ---------------------------------------- ---------- ------------------------------------------------- ---------- ---------- 215 56--------------------------------------- ---------- ---------- The tax effect of exceptional items is to increase trading losses carriedforward. 5. Loss per share The loss per share calculations have been arrived at by reference to thefollowing earnings and weighted average number of shares in issue during theyear. Continuing Discontinued Operations Operations 2006 2005 £000 £000 £000 £000-------------------------- -------- --------- --------- ---------BasicLoss after tax (781) (971) (1,752) (2,471)-------------------------- -------- --------- --------- ---------Before exceptional itemsOperating loss (628) (828) (1,456) (2,298)Interest payable (82) (32) (114) (117)Tax payable - - - --------------------------- -------- --------- --------- ---------Loss after tax (710) (860) (1,570) (2,415)-------------------------- -------- --------- --------- --------- No. No.-------------------------- -------- --------- --------- ---------Weighted average number ofshares in issue 213,449,934 145,334,603-------------------------- -------- --------- --------- ---------Weighted average number ofshares on a diluted basis 213,449,934 153,303,282-------------------------- -------- --------- --------- --------- Supplementary basic loss per share calculations exclude the effect of redundancycosts and the provision set up in 2006 for liabilities and charges. Shares thatcould potentially be issued under outstanding share options are not dilutive. 6. Posting of Annual Report and Financial Statements The 2006 Annual Report and Financial Statements will be posted to shareholderson 28 September 2006. Contacts: James Lugg, Executive Director, Energy Technique Plc: 020 8783 0033 Rob Unsworth, Company Secretary, Energy Technique Plc: 020 8783 0033 PRO-FORMA GROUP BALANCE SHEETAT 31 MARCH 2006 Adjustment 31 March for 31 March 2006 Share placing 2006 Audited in May 2006 Pro-forma £000 £000 £000------------------------------ ---------- ---------- ----------Fixed assetsTangible assets 259 - 259------------------------------ ---------- ---------- ---------- 259 - 259Current assetsStocks 1,052 - 1,052Debtors 1,850 - 1,850Cash at bank and on deposit 112 360 472------------------------------ ---------- ---------- ---------- 3,014 360 3,374Creditors - amounts falling due withinone yearBorrowings (890) 890 -Other creditors (2,434) - (2,434)------------------------------ ---------- ---------- ---------- (3,324) 890 (2,434)------------------------------ ---------- ---------- ----------Net current (liabilities)/assets (310) 1,250 940------------------------------ ---------- ---------- ----------Total assets less current liabilities (51) 1,250 1,199------------------------------ ---------- ---------- ---------- Provisions for liabilities and charges (200) - (200)------------------------------ ---------- ---------- ---------- (251) 1,250 999------------------------------ ---------- ---------- ---------- Capital and reservesCalled up share capital 3,026 1,325 4,351Share premium account 3,490 (75) 3,415Other reserves 7,449 - 7,449Profit and loss account (14,216) - (14,216)------------------------------ ---------- ---------- ----------Equity shareholders' funds (251) 1,250 999------------------------------ ---------- ---------- ---------- The pro-forma balance sheet shown above has been extracted from the auditedbalance sheet at 31 March 2006, adjusted only for the impact of the £1.25million share placing, net of estimated expenses, on the assumption the proceedshad been received on 31 March 2006. No adjustments have been made for tradingsince 31 March 2006 or for any other adjustments. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
ETQ.L