Half yearly report

Energy Technique Plc

("Energy Technique" or the "Company")

Half-Yearly Report

For the 6 months to 30 September 2013

Headlines

· Sales increased by 20 per cent over the corresponding half year to £4.40 million;

· Diffusion trading business increased operating profit by 85 per cent over the corresponding half year to £326,000;

· Group profit before tax increased by 162 per cent over the corresponding half year to £202,000;

· Buy-back of 470,000 shares completed from the then major shareholder, Elsina Limited;

· Strong balance sheet net assets at 30 September 2013 of £1.47 million and net cash of £541,000;

· Diffusion's premium branded fan coils and commercial heating products continue to be fitted into many landmark and prestigious property developments;

· New ECO 270 fan coil range has class leading energy efficiency and is gaining increasing market traction;

· Enquiry levels and order intakes continue to improve and with M & E consultants currently experiencing high workloads, the Board believes this will translate into a successful second half year.

Chairman's statement

Introduction

I am very pleased to report a significant improvement in profit for the half year ended 30 September 2013. Sales increased by 20 per cent over the corresponding half year to £4.40 million, producing a substantially improved operating profit for the Diffusion trading business of £326,000 and a group profit before tax of £202,000. This represents a solid set of trading results ahead of management's expectations.

Financial performance

Sales in the half year ended 30 September 2013 increased by 20 per cent to £4.40 million (2012: £3.67 million). Fan coil sales were particularly strong with sales increasing by 32 per cent to £3.36 million (2012: £2.55 million), but commercial heating sales fell marginally to £0.85 million (2012: £0.95 million). High fan coil sales were attributed to a number of large commercial and high-end residential projects. The absence of growth in commercial heating sales was in line with a continuation of difficult trading conditions on the UK high street, but increased fan coil sales compensated for this reduction.

Diffusion's operating profit increased by 85 per cent to £326,000 (2012: £176,000), representing an improved operating profit margin of 7.4 per cent (2012: 4.8 per cent), equivalent to a return on capital employed of 21 per cent for the half-year. Despite market pressure, overall selling contribution margins remained stable due to continued lean manufacturing methods and practices. Diffusion's relatively high operational gearing means the sales increases flowed substantially through to bottom line operating profit.

Group profit before tax increased by 162 per cent to £202,000 (2012: £77,000) after charging Central and plc related costs of £96,000 (2012: £74,000) and interest of £28,000 (2012: £25,000). Central and plc costs include a non-cash share option charge of £6,000 and interest costs include notional interest charges of £10,000 (2012: £9,000) relating to the unwinding of a provision set up at 31 March 2010. The taxation charge of £42,000 (2012: £12,000) represents non-cash deferred tax.

Cash flow and net cash

Net cash generated by operations increased by 116 per cent to £207,000 (2012: £96,000). There was a net investment in working capital of £38,000 (2012: £21,000), caused primarily by the £1.20 million DeVere high-end residential project being delivered over a short time period. Working capital is expected to return to normal levels by December time, thereby reversing this short-term cash outflow. There was no requirement for any significant capital expenditure in the half-year.

Immediately after the general meeting on 16 May 2013, the Company completed the first phase of the share buy-back proposals approved by shareholders, with 470,000 shares bought back and cancelled from its then principal shareholder, Elsina Limited, at a cost of £200,000. This resulted in net cash reducing to £541,000 at 30 September 2013 (31 March 2013: £590,000). The Company remains soundly financed with strong net assets at 30 September 2013 of £1.47 million (2012: £1.46 million) and ample liquidity provided by net cash of £541,000, together with undrawn availability under its invoice discounting facility of £650,000.

Diffusion

Diffusion's sales and marketing team took advantage of an improving UK fan coil market and this resulted in a 32 per cent growth in fan coil sales. Diffusion is renowned for product innovation, engineering excellence and quality products with long service lives. The new ECO 270 fan coil range is an innovative new product offering up to 25% energy savings with no increase in capital cost. This product is gaining increasing market traction and the Board believes its sales will continue to grow.

High fan coil sales were achieved from a number of large developments. During the half-year, fan coils were delivered to over 150 projects including large commercial developments at 71 Queen Victoria Street, 3 Merchant Square, Tideway Riverlight, 20 Fenchurch, 3-10 Finsbury Square and Fitzroy Place, together with the high-end residential development at DeVere Gardens. The Board views Diffusion's successful entry into the high-end residential sector four years ago as a major growth driver for the future.

The commercial heating range enjoys the same reputation for engineering quality as Diffusion's fan coils and customers particularly like the short lead times, combined with a specialist bespoke service. Commercial heating sales fell marginally due to a continuation of difficult trading conditions on the UK high street, but enquiries and order intakes have recently started to improve. Diffusion's products were fitted into prestigious sites including The White Company, Fat Face, BMW Nottingham, Primark, Mayflower Theatre Southampton, Forever 21, Marks & Spencer, H&M and Sainsbury's.   

Dividends

Fractional entitlements to shareholders arising out of the capital reorganisation in 2012 were paid to shareholders on 16 August 2013.

The Board is now pleased to declare an interim dividend of 0.75 pence per share payable on 29 November 2013 to those shareholders on the register at the close of business on 1 November 2013.

Current trading and future prospects

M & E consultants are currently experiencing improved activity levels and this is expected to provide sales growth opportunities for Diffusion between nine and twelve months thereafter. The Company is well placed to benefit from this, particularly with its new ECO 270 range of energy efficient fan coils.

Diffusion has market leadership and a renowned reputation allowing for the successful pursuit of major commercial and high-end residential projects. We are experiencing high levels of fan coil enquiries and improving commercial heating enquires, together with an improved order book. Whilst it is too early to predict the outturn for the remainder of the current year ending 31 March 2014, the Board believes this will translate into a successful second half year.

Walter Goldsmith

Chairman

21 October 2013

Contacts:

Energy Technique Plc: 020 8783 0033

Walter Goldsmith, Chairman

Leigh Stimpson, Managing Director

finnCap (Nominated Adviser): 020 7220 0500

Ed Frisby/Ben Thompson

Consolidated statement of comprehensive income

For the six months ended 30 September 2013

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

Consolidated statement of financial position

At 30 September 2013

Consolidated statement of changes in equity

Consolidated cash flow statement

For the six months ended 30 September 2013

Consolidated segmental analysis

For the six months ended 30 September 2013

Notes to the consolidated interim report

For the six months ended 30 September 2013

1. GENERAL INFORMATION

Energy Technique Plc ("the Company") is a public limited company incorporated in the United Kingdom (registration number 13273). The Company is domiciled in the United Kingdom and its registered office address is 47 Central Avenue, West Molesey, Surrey KT8 2QZ. The Company's Ordinary Shares are traded on the AIM market of the London Stock Exchange.

2. BASIS OF PREPARATION

Energy Technique Plc has adopted International Financial Reporting Standards ("IFRS") as adopted by the European Union. The financial statements are presented in sterling and all values are rounded to the nearest thousand pounds (£000) except when otherwise indicated. The accounting policies and methods of computation used in the preparation and presentation of this half-yearly report are in a form consistent with that which will be adopted in the Company's annual accounts.

3. REPORTING UNDER INTERNATIONAL REPORTING STANDARDS

As permitted, the Company has chosen not to adopt IAS 34 "Interim Financial Statements" in preparing these half-yearly financial statements and therefore the half-yearly financial information is not in full compliance with IFRS.

4. EARNINGS PER SHARE

The earnings per share calculations have been arrived at by reference to the following earnings and weighted average number of shares in issue during the period.

5. OTHER INFORMATION

The half-yearly financial statements do not constitute statutory accounts as defined by Section 434 of the Companies Act 2006. It does not therefore include all the information and disclosures required in the annual financial statements. The financial information for the year ended 31 March 2013 has been extracted from the statutory financial statements for the Company for that period. These published financial statements prepared in a form consistent with International Financial Reporting Standards, as adopted by the European Union, were reported on by the auditors without qualification or an emphasis of matter reference and did not include a statement under Section 498(2) or (3) of the Companies Act 2006 and have been delivered to the Registrar of Companies.

6. POSTING TO SHAREHOLDERS

In an effort to further reduce costs and in accordance with the AIM Rules for Companies, this half-yearly report will be announced on a Regulatory Information Service and published on the Company's website, www.diffusion-group.co.uk, but it will not be posted to shareholders.

NOTES TO EDITORS

With over 50 years in the Heating & Ventilation ("HVAC") industry, Energy Technique's operating company Diffusion, is one of the oldest and most established manufacturers of HVAC products in the UK. Diffusion is a market leader in the manufacture of premium quality fan coils and commercial heating products. The Diffusion and Energy Technique brand names are renowned for highly engineered, quality products, providing leading edge performance and low energy efficiency, which have been fitted into projects including No 1 Hyde Park, the Walkie-Talkie, Heathrow T2, Abu Dhabi Investment Council, the Cheese Grater, the Shard and DeVere Gardens.

Diffusion has been involved with many challenging and prestigious projects across a spectrum of sectors including hotels, commercial offices, retail, schools, hospitals, and residential. Diffusion has established excellent working relationships with many blue chip clients including Land Securities, Grosvenor Estates, Stanhope Properties, Marks & Spencer, Boots, City Inn Hotels, Sainsbury's and Tesco. All products are designed, developed and manufactured at Diffusion's 30,000 sq. ft. manufacturing facility in West Molesey, Surrey, offering the best possible products, designed specifically to meet customers' bespoke requirements.