11th Jul 2007 07:00
Energy Technique PLC11 July 2007 Energy Technique Plc Preliminary Announcement 2007 CHAIRMAN'S STATEMENT Introduction In my first Chairman's Statement I am delighted to announce an excellent set oftrading results for the year ended 31 March 2007, with a reported profit aftertax of £0.45 million and a 22% improvement in sales on Continuing Operationsto £8.40 million. This is the first profit declared for four years and represents an impressive turnaround and revival in the Group's trading performance. This turnaround has been achieved through a strong sales led recovery at Diffusion Heating and Cooling ("Diffusion"), combined with the elimination of ongoing losses on Discontinued Operations and a reduction in the previously high level of Central costs. Since my appointment to the Board in January 2006, I have initiated furtherrationalisation and cost cutting measures and, as a consequence, the Group isnow much leaner and fitter and is firmly focused back on its traditional corebusiness of Diffusion, based in West Molesey, Surrey. For over 45 yearsDiffusion has been supplying fan coils, commercial heating products and airconditioning systems to optimise the quality of the working and livingenvironments. Group financial performance Diffusion fan coils and commercial heating products experienced a very strong22% increase in sales during the year to £8.40 million. Group sales in thecorresponding year of £9.34 million included £2.46 million relating to theDiscontinued Operations of the former packaged air conditioning business,Lifebreath and UVGI, which did not continue into the current year. Diffusion produced a complete turnaround in its financial performance,generating an operating profit of £0.66 million in the year (2006: loss of £0.14million). After significant cut backs in Central and Plc costs to £0.15 million(2006: £0.68 million) and final run off costs on Discontinued Operations of£0.10 million, the Group profit before interest is £0.41 million (2006: loss of£1.67 million). After reduced interest costs of £0.02 million (2006: £0.11 million) followingthe May 2006 share placing, the resulting profit before tax is £0.39 million(2006: loss of £1.78 million). After receipt of Research and Developmenttaxation credits of £0.06 million (2006: £0.03) the profit after tax is £0.45million (2006: loss of £1.75 million). Cash flow and gearing The Group generated a similarly strong cash flow, with a reported cash inflowfrom operating activities of £0.45 million for the year. At the year end, theGroup had cash balances with Barclays Bank of £0.91 million and no draw downunder its invoice financing facility. Group net assets at the year end amountedto £1.43 million. In addition to the £0.91 million cash balances, the Group hadadditional headroom at the year end on its committed invoice financing facilityof £0.70 million. Dividends The Board does not recommend payment of a dividend (2006: £nil), because of theBoard's policy of retaining the Group's strong liquidity for future growth andexpansion. Diffusion Heating and Cooling The Group's core business, Diffusion, has firmly re-established itself as amarket leader in the manufacture and supply of premium quality fan coils andcommercial heating products to offices, hotels, banks and retail outlets.Diffusion's products are distributed under both the Diffusion and EnergyTechnique brand names, which are recognised throughout the HVAC sector as highlyengineered, quality products. Diffusion enjoyed very strong sales growth in the year with sales of fan coilsup 32% and commercial heating products up 26% on the previous year. Grossmargins improved with a stronger sales mix and overheads were much reduced,following the cost cutting measures introduced at the end of the previous year.The combination of improved sales, better margins and reduced costs produced anoperating profit for the first time in four years of £0.66 million (2006: lossof £0.14 million), representing an operating profit margin of 7.9%. Diffusion products are to be found in prestigious office developments and inmany of the leading banks, hotels and retail chains in the UK and Ireland.During the year, Diffusion fan coils were also installed into many prestigiouscommercial developments including Heathrow Terminal 5, Bankside, Hardman Square,50 Queen Anne's Gate, Ascot Race Course, Dunlop in Ireland, Paddington Central,85 Fleet Street, Willis Building, 1 Coleman Street, Millennium Gloucester Hoteland many more. Diffusion's commercial heating products also enjoyed aparticularly successful year with products installed into sites operated bycustomers including Aldi Stores, Lloyds TSB, HBOS, Marks and Spencer, Argos,Waitrose, Primark and TKMax. Diffusion now has a much more streamlined operational management structure and amuch lower cost base, with the number of operational directors reduced fromseven to four. Following the cessation of the Discontinued Activities, LeighStimpson has been able to focus on the day to day issues in turning Diffusion'sperformance around and he has been a key driver in achieving the increasedsales. Operational management has also been improved through a number of newsales and production management appointments, combined with enhanced managementreporting. A new state of the art acoustic test suite was completed at West Molesey inearly 2007 for product validation testing including, where appropriate,installed witness testing using customers' own ductwork and grilles. Productionoutput from the West Molesey facility has been expanded with additional workstations and improved efficiency from materials handling and logistics control.Due to the increased sales demand, a second shift system has been in operationsince July 2006. Diffusion devotes substantial research and development effort into responding tomarket demands for increased building energy efficiency. New energy efficientproducts are therefore being continually developed and launched. For example, anew energy efficient fan coil, using the latest ECDC technology, was launched inDecember 2006, which has already been installed in the Plot1 W1 Regent Streetdevelopment. Working in conjunction with a leading building controls suppliermany of Diffusion's commercial heating products are now fitted with its newenergy saving controllers. Another new development is the air-purifier fan coilfitted with Ecoquest, which uses radiant ionisation to deliver purified air.Diffusion will continue to work closely with all of its customers to developenergy efficient products in response to their need for operating carbon neutralsites. As part of this enhanced research and development effort, Diffusion is pleasedto have started working closely with the South Bank University, which will allowaccess to an even greater pool of technical resource to ensure Diffusionproducts continue to be at the forefront of energy efficiency technology. Thiscollaboration with South Bank University is an important step towards achievingDiffusion's goal for fan coils and fan convectors to become eligible under theGovernment's Enhanced Capital Allowances scheme. Discontinued activities The Company's former packaged air conditioning business, Lifebreath and UVGIwere all closed at the end of the previous year. Some final run off costs wereincurred in the year, but no further costs are expected to be incurred.Importantly, the Company's lease at the former Basingstoke premises wassurrendered after the year end, with full provision for the termination costsincluded in the accounts for the year ended 31 March 2007. Directors I was pleased to announce in May 2007 the appointment of Walter Goldsmith to theBoard as a non-executive director. Walter is a qualified chartered accountantwith substantial board level experience in a number of public and privatecompanies including Black & Decker, Forte Plc and the Institute of Directors. Leigh Stimpson and Robert Unsworth both resigned from the Board on 11 April 2006and I would like to thank them both for their continued commitment andcontribution to the successful turnaround of the Group. Tony Caplin resigned asboth Chairman and as a director on 21 February 2007 and the Board would like tothank him for his contribution during his short time on the Board. Share placing on 10 May 2006 On 10 May 2006, shareholders approved the subscription of 530 million shares toa Concert Party comprising Triandra Limited and myself, at the placing price of0.25p per share, to provide £1.325 million (before expenses) of additionalpermanent working capital for the Group. This share placing was conditional uponthe Panel on Takeovers and Mergers granting a waiver from the requirement underRule 9 of the City Code to make a general offer to Shareholders, which wouldnormally arise, and to a proposed Capital Reorganisation. Following thisplacing, the Concert Party owns 72% of the Company's enlarged share capital. Business strategy The Board believes the net proceeds of the 10 May 2006 share placing provided asound financial base from which to rebuild the Group's core Diffusion business,with the intention of developing Diffusion into the brand leader for airconditioning fan coils and, in particular, commercial heating products, throughcontinued product innovation and development. The Board continues to examineways of improving the profitability of fan coils and commercial heating productsthrough alternative supply sources, taking care to retain the high qualityengineering and performance capabilities for which Diffusion products arerenowned. The Board recognises the wider challenges arising from current market trendstowards lower building energy consumption and its aim is therefore to expand,through acquisition, to become a much broader based provider of building energymanagement solutions to the HVAC sector. Capital reorganisation The Company presently has in excess of 3,600 shareholders, approximately 38% ofwhom have holdings with a nominal value of £3.75 or less. This adds aconsiderable cost to the overheads of the Company caused by the need to produceinterim and annual accounts and registrars' costs. Accordingly, it is proposed,subject to the approval of Shareholders at the Extraordinary General Meeting tobe held on 6 September 2007, to consolidate the shareholdings in the Company onthe terms set out below: • every 1,500 existing Ordinary Shares will be consolidated into one new Ordinary Share with a nominal value of £3.75 each in the capital of the Company; • each new Ordinary Share with a nominal value of £3.75 each will be subdivided into 60 new Ordinary Shares with a nominal value of 6.25 pence each in the capital of the Company; • each of the authorised and unissued Ordinary Shares will be re-designated into one new Ordinary Share with a nominal value of 6.25 pence each. Any fractions of new Ordinary shares arising from the Capital Reorganisationwill be aggregated, issued and sold for the benefit of the Company. The Record Date for the Capital Reorganisation is 6 September 2007 and dealingsin the resultant Ordinary Shares of 6.25p nominal value will commence on 7September 2007. The rights attaching to the New Ordinary Shares will, apart forthe change in nominal value and the entitlement of Shareholders in respect of areturn of capital or other distributions arising from them, be identical in allrespects to those of the existing ordinary shares. Existing share certificateswill cease to be valid following the Capital Reorganisation and new sharecertificates will be issued on 14 September 2007. Employees The three years before the current year were particularly difficult for all ofthe Group's management and employees, due to the constant negative pressuresassociated with difficult trading and the resulting losses incurred. I wouldtherefore like to thank all of Diffusion's management and employees for workingclosely with and supporting the Board since my appointment and for theircommitment and tenacity in implementing the many changes required tosuccessfully turn around the Group's trading performance in the current year. Current trading and prospects Trading in the first quarter was ahead of Management's expectations. The orderbook remains strong at over £2.25 million and both enquiries and order prospectsare similarly encouraging. The Group was profitable in the year to 31 March 2007from the strong sales led recovery at Diffusion, the elimination of ongoinglosses on Discontinued Operations and a reduction in Central and Plc relatedcosts. The Board is confident the Group's fortunes have been successfully turnedaround and it looks forward to a continuation of the current high level of salesactivity. James LuggChairman and CEO GROUP PROFIT AND LOSS ACCOUNTFOR THE YEAR ENDED 31 MARCH 2007 Continuing Discontinued Operations Operations 2007 2006 Note £000 £000 £000 £000---------------------- --------- -------- --------- -------- --------Turnover 3 8,405 9 8,414 9,345Cost of sales (6,185) (67) (6,252) (7,650)---------------------- --------- -------- --------- -------- --------Gross profit/(loss) 2,220 (58) 2,162 1,695Distribution costs (1,257) (27) (1,284) (2,065)Administrative expenses (453) (16) (469) (1,186)Operating profit/(loss)---------------------- --------- -------- --------- -------- --------Before exceptional items 3 510 (101) 409 (1,456)Exceptional items 4 - - - (100)---------------------- --------- -------- --------- -------- -------- 510 (101) 409 (1,556)Provision for onerousproperty lease - - - (115)---------------------- --------- -------- --------- -------- --------Profit/(loss) beforeinterest 510 (101) 409 (1,671)Interest payable (18) - (18) (114)---------------------- --------- -------- --------- -------- --------Profit/(loss) on ordinaryactivities before taxation 492 (101) 391 (1,785)---------------------- --------- -------- --------- -------- --------Tax on profit/(loss) onordinary activities 60 - 60 33---------------------- --------- -------- --------- -------- --------Profit/(loss) for thefinancial year 552 (101) 451 (1,752)Dividends on equityshares - - - ----------------------- --------- -------- --------- -------- --------Transfer to/(from)reserves 552 (101) 451 (1,752)---------------------- --------- -------- --------- -------- -------- Earnings/(loss) per share:Basic 5 0.07p (0.01)p 0.06p (0.82)pDiluted 5 0.07p (0.01)p 0.06p (0.82)pBefore exceptional items 5 0.07p (0.01)p 0.06p (0.73)p---------------------- --------- -------- --------- -------- -------- 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 2007 31 March 31 March 2007 2006 £000 £000------------------------------ ---------- ----------Fixed assetsTangible assets 155 259------------------------------ ---------- ---------- 155 259Current assetsStocks 848 1,052Debtors 1,649 1,850Cash at bank 912 112------------------------------ ---------- ---------- 3,409 3,014Creditors - amounts falling due within one year (1,930) (3,324)------------------------------ ---------- ----------Net current assets/(liabilities) 1,479 (310)------------------------------ ---------- ----------Total assets less current liabilities 1,634 (51)Provisions for liabilities and charges (200) (200)------------------------------ ---------- ---------- 1,434 (251)------------------------------ ---------- ---------- Capital and reservesCalled up share capital 4,351 3,026Share premium account 3,399 3,490Other reserves 7,449 7,449Profit and loss account (13,765) (14,216)------------------------------ ---------- ----------Equity shareholders' funds 1,434 (251)------------------------------ ---------- ---------- RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDSFOR THE YEAR ENDED 31 MARCH 2007 2007 2006 £000 £000------------------------------ ---------- ----------Profit/(loss) for the year 451 (1,752)Issue of ordinary shares 1,325 1,500Reduction in share premium account (91) (82)------------------------------ ---------- ----------Movements in shareholders' funds 1,685 (334)Shareholders' funds at beginning of year (251) 83------------------------------ ---------- ----------Shareholders' funds at end of year 1,434 (251)------------------------------ ---------- ---------- GROUP CASH FLOW STATEMENTFOR THE YEAR ENDED 31 MARCH 2007 2007 2006 £000 £000------------------------------ ---------- ----------Cash inflow/(outflow) from operating activities 447 (765)Returns on investment and servicing of finance (18) (114)Corporation tax receipt 60 33Capital expenditure and financial investment (33) (31)------------------------------ ---------- ----------Cash inflow/(outflow) before financing 456 (877)Financing:Issue of share capital 1,234 1,418Reduction in debt (890) (429)------------------------------ ---------- ----------Increase in cash during year 800 112------------------------------ ---------- ---------- Reconciliation of net cash flow to movement in net cash 2007 2006 £000 £000------------------------------ ---------- ----------Change in cash in year 800 112Reduction in debt 890 429------------------------------ ---------- ----------Change in net debt resulting from cash flows 1,690 541New finance leases - ------------------------------- ---------- ----------Reduction in net debt 1,690 541Net debt at start of year (778) (1,319)------------------------------ ---------- ----------Net cash/(debt) at end of year 912 (778)------------------------------ ---------- ---------- Reconciliation of operating profit to operating cash flows 2007 2006 £000 £000------------------------------ ---------- ----------Operating profit/(loss) before exceptional items 409 (1,456)Exceptional items - (100)------------------------------ ---------- ----------Operating profit/(loss) after exceptional items 409 (1,556)Depreciation and amortisation 137 118Stocks 204 528Debtors 201 458Creditors (504) (313)------------------------------ ---------- ---------- 447 (765)------------------------------ ---------- ---------- NOTES 1. Accounting policies The financial information set out above has been prepared using accountingpolicies consistent with 2006. 2. Basis of preparation of financial statements The financial information for the year ended 31 March 2007 and 2006 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 2007, which have not yet been filed with the Registrar of Companies.Statutory financial statements for the year ended 31 March 2006 have beendelivered to the Registrar of Companies. Statutory financial statements for theyear ended 31 March 2007 were approved by the Board of Directors on 10 July2007, are audited and will be delivered to the Registrar of Companies followingthe Annual General Meeting on 6 September 2007. The Company's auditors, Milsted Langdon, have reported on the 2007 and 2006financial 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 profit Operating net /(loss) assets 2007 2006 2007 2006 2007 2006 £000 £000 £000 £000 £000 £000------------------ -------- -------- -------- -------- -------- --------Diffusion Heating and Cooling------------------ -------- -------- -------- -------- -------- --------Before exceptional items 8,405 6,884 663 (76) 768 884Exceptional items - - - (61) - ------------------- -------- -------- -------- -------- -------- --------After exceptional items 8,405 6,884 663 (137) 768 884 Discontinued Operations------------------ -------- -------- -------- -------- -------- --------Before exceptional items 9 2,461 (101) (828) - 51Exceptional items - - - (29) - ------------------- -------- -------- -------- -------- -------- --------After exceptional items 9 2,461 (101) (857) - 51 Central and Plc costs------------------ -------- -------- -------- -------- -------- --------Before exceptional items - - (153) (552) (246) (408)Exceptional items - - - (125) - ------------------- -------- -------- -------- -------- -------- --------After exceptional items - - (153) (677) (246) (408)------------------ -------- -------- -------- -------- -------- -------- 8,414 9,345 409 (1,671) 522 527------------------ -------- -------- -------- --------Cash/(borrowings) 912 (778)Taxation - ------------------- ------- -------- ------- --------- ------- -------- 1,434 (251)------------------ ------- -------- ------- --------- ------- -------- 4. Exceptional items 2007 2006 £000 £000------------------------------ ---------- ----------Operating items------------------------------ ---------- ----------Redundancies and employee termination costs - 100------------------------------ ---------- ----------The exceptional items have been classified as follows:Cost of sales - 12Distribution costs - 52Administration expenses - 36------------------------------ ---------- ---------- - 100------------------------------ ---------- ---------- Non-operating items------------------------------ ---------- ----------Provision for onerous property lease - 115------------------------------ ---------- ---------------------------------------- ---------- ---------- - 215------------------------------ ---------- ---------- The tax effect of exceptional items is to increase trading losses carriedforward. 5. Earnings/(loss) per share The earnings/(loss) per share calculations have been arrived at by reference tothe following earnings and weighted average number of shares in issue during theyear. Continuing Discontinued Operations Operations 2007 2006 £000 £000 £000 £000--------------------------- --------- --------- --------- ---------BasicProfit(loss) after tax 552 (101) 451 (1,752)--------------------------- --------- --------- --------- ---------Before exceptional itemsOperating profit/(loss) 510 (101) 409 (1,456)Interest payable (18) - (18) (114)Tax recoverable 60 - 60 33--------------------------- --------- --------- --------- ---------Profit/(loss) after tax 552 (101) 451 (1,537)--------------------------- --------- --------- --------- --------- No. No.--------------------------- --------- --------- --------- ---------Weighted average number ofOrdinary shares in issue 774,545,824 213,449,934--------------------------- --------- --------- --------- --------- Weighted average number ofOrdinary shares on a diluted basis 774,545,824 213,449,934--------------------------- --------- --------- --------- --------- Supplementary basic earnings and losses per share have been calculated toexclude the effect of redundancy costs and the provision set up in 2006 forliabilities and charges. Shares that could potentially be issued under theoutstanding share options are not dilutive. 6. Posting of Annual Report and Financial Statements The 2007 Annual Report and Financial Statements will be posted to shareholderson 20 July 2007. Contacts: James Lugg, Chairman and CEO, Energy Technique Plc: 020 8783 0033 Rob Unsworth, Company Secretary, Energy Technique Plc: 020 8783 0033 Ian Fenn, Nominated Adviser, ARM Corporate Finance Limited: 020 7512 0191 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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