Preliminary Announcement of 2013 Results

Energy Technique Plc

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

Preliminary Announcement of 2013 Results

Chairman's statement

Headlines

• Diffusion's sales 6% ahead of last year at £7.55 million;

• Diffusion's operating profit 19% ahead of last year at £406,000;

• Group profit before tax on Continuing Operations 16% ahead of last year at £200,000;

• Cash generated by operations 170% ahead of last year at £492,000;

• Strong balance sheet net assets at 31 March 2013 of £1.53 million with net cash of £590,000;

• Enquiry levels and order intakes at encouraging levels and the Board looks forward to another year of successful growth, despite the continuing challenges facing the UK construction industry.

Introduction

I am pleased to report another improvement in profitability in the year ended 31 March 2013, with Diffusion's sales 6 per cent ahead of last year at £7.55 million and Group profit before tax 16 per cent ahead of last year at £200,000. This profit improvement was in line with management's expectations and was achieved in a continuation of challenging trading conditions within the UK construction industry.

Diffusion's markets did not show any signs of growth during the year and selling price pressure remained a market feature. The Company produced this profit improvement through increased sales, by maintaining Diffusion's premium branding market position and pursuing quality jobs likely to return target selling margins, combined with focused business development activities.

Group trading performance

Sales in the year ended 31 March 2013 increased by 6 per cent to £7.55 million (2012: £7.09 million). Increased sales were achieved for both fan coils and commercial heating products. Fan coils had a particularly strong year and were installed into a number of large London based developments, including the Shard Building, the Cheesegrater and 375 Kensington High Street.

The sales and marketing function was strengthened during the year producing extra sales to more than counteract the market led marginal softening of selling margins. The increased sales and relatively fixed cost base resulted in Diffusion's operating profit increasing by 19 per cent to £406,000. This operating profit margin of 5.4 per cent represented a high return on Diffusion's capital employed of 29 per cent.

Central and plc costs were £164,000 (2012: £130,000) and interest costs amounted to £42,000 (2012: £40,000). Central and plc costs include a non-cash share option charge and other non-recurring costs. Included under interest costs are notional interest charges of £16,000 (2012: £14,000) relating to the unwinding of the provision set up at 31 March 2010.

The resulting Group profit before tax on Continuing Operations increased by 16 per cent to £200,000 (2012: £173,000). The taxation charge of £39,000 (2012: 25,000) represents a non-cash write off of the deferred tax asset.

About Diffusion

With over 50 years in the heating and ventilation industry ("HVAC"), the Company's operating subsidiary 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. Diffusion and Energy Technique are brand names recognised as highly engineered, quality products providing leading edge performance and energy efficiency.

Diffusion's products are installed into hotels, commercial offices, retail outlets, schools, hospitals, and more recently high-end residential. Diffusion has excellent relationships with many blue chip clients including Land Securities, Marks & Spencer, Boots, City Inn Hotels, and Stanhope Properties. All products are designed, developed and manufactured at Diffusion's 30,000 sq. ft. manufacturing facility in West Molesey, Surrey, offering premium quality products, designed specifically to meet customers' bespoke requirements.

Diffusion's operating performance

This is the third successive year of sales and profit growth for Diffusion. Sales growth was achieved for both fan coils and commercial heating products: fan coils by 8 per cent and commercial heating by 5 per cent. Sales growth resulted from a reorganisation of the sales and marketing functions.

Fan coils were installed into a number of landmark developments including the Shard Building, Cheesegrater, Google HQ Dublin, Abu Dhabi Investment Bank, John Lewis and Jaynes Harbour Barbados. After the year end, Diffusion also won the first phase to supply fan coils into the Walkie-Talkie building. This means that Diffusion has supplied fan coils into all three of the current London skyline developments.

Following on from the success of installing fan coils into the high-end residential development at No. 1 Hyde Park in London, Diffusion has now supplied fan coils into other high end residential developments including 375 Kensington High Street, DeVere Gardens and the Battersea redevelopment scheme. The Board expects further sales growth from this high end residential sector.

Commercial heating enjoys the same reputation for engineering quality as Diffusion's fan coils and customers like the short lead times, combined with a specialist bespoke service. The growth in commercial heating sales was a commendable effort achieved in weak retail market conditions. Diffusion's commercial heating products were installed into many prestigious projects including Broadgate Tower, 2 Waterhouse Square, Serpentine Gallery (London), Starbucks (Canary Wharf) and MTV Studios (London).

A number of new sales initiatives have recently been launched, including the appointment of a seasoned HVAC industry professional as Business Development Director. The new eco-friendly 270 range of fan coils was launched in April 2013 offering energy savings of up to 25% over existing fan coils and a new CRM database system for tracking order prospects goes live in July 2013. All of these initiatives are expected to contribute to Diffusion's future growth strategy.

Cash flow and net cash

Cash generated by operations increased by 170% to £492,000 (2012: £182,000) with the Group having net cash equivalents at 31 March 2013 of £590,000 (2012: £237,000). The Group is soundly financed with this level of liquidity and net assets at 31 March 2013 of £1.53 million, equivalent to 46 pence per share. Cash generated during the year benefited from the absence of hire purchase installments on the Trumpf laser cutter after May 2012, when the last payment was made.

Capital expenditure

Capital expenditure during the year was modest at £27,000, comprising further investment in the Group's IT infrastructure and CRM database systems. This is not a capital intensive business and the main items of future capital expenditure will largely comprise replacement expenditure only.

Dividends

The Board recommends payment of a final dividend of 0.75 pence per share, payable on 30 August 2013 to shareholders on the share register on 2 August 2013. The Company paid an interim dividend of 0.75 pence per share in December 2012, taking total dividends for the year ended 31 March 2013 to 1.5 pence per share. At a share price of 60 pence per share, this is equivalent to a dividend yield of 2.5 per cent.

General meeting on 16 May 2013

At the General Meeting of shareholders held on 16 May 2013, shareholders approved the resolution to buy back up to 940,000 shares at 42.5 pence from its then largest shareholder, Elsina Limited, on the terms set out in the Circular to shareholders dated 23 April 2013. In accordance with the terms of the Buy-Back agreement, 470,000 shares were bought back after the General Meeting, for a consideration of £200,000. The remaining 470,000 shares are subject to two call options.

Business strategy

The Board's strategy is to build on the success of the last two years and to continue to grow Diffusion's sales and profits organically. The Board does not consider shareholders' best interests will be served by evaluating merger and acquisition opportunities at the present time. Once the Board has achieved its strategic objective of growing Diffusion's sales and profits organically, then it will seek a strategic partnership so as to fully realise shareholder value.

At a share price of 60 pence per share, the Company's market capitalisation of £1.72 million represents a low multiple of 4.2 times Diffusion's operating profit for the year ended 31 March 2013. The Board believes this represents an opportunity to enhance shareholder value in line with its organic growth strategy for Diffusion.

Current trading and prospects

Trading in the current year ending 31 March 2014 has started very well, with sales in April and May 2013 in line with management's expectations. In addition, enquiry levels for quality projects are encouraging and the order book is at very acceptable levels, recently bolstered by winning the first phase of fan coils for the Walkie-Talkie development.

The Company has high expectations for its new eco-friendly 270 range of fan coils launched in April 2013. Whilst the Company's markets are not expected to change materially in the coming financial year, the Board looks forward to another year of successful growth.

Walter K Goldsmith

Chairman

Contacts:

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

Leigh Stimpson, Executive Director, Energy Technique Plc: 020 8783 0033

Ed Frisby/Ben Thompson, finnCap Limited (Nominated Advisor): 020 7220 0500

Consolidated statement of comprehensive income

for the year ended 31 March 2013

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 2013

Consolidated statement of changes in equity

for the year ended 31 March 2013

Consolidated cash flow statement

for the year ended 31 March 2013

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.

Standards and Interpretations in issue not early adopted

At the date of authorisation of these financial statements, there are no new Standards, Interpretations and Amendments that will have a 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 its subsidiary undertaking, 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 recognised 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 IFRSs, 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 recognised on a receipts basis.

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 by 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 comprehensive 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 comprehensive income statement on a paid basis.

Retirement benefit costs

A number of the Group's permanent employees are members of personal pension plans, which are defined contribution schemes (money purchase). Contributions to these schemes are recognised as an expense when employees have rendered services 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. Any changes in the deferred tax asset are recognised immediately in the comprehensive income statement.

Plant and equipment

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

Depreciation is provided on the cost of plant and equipment on a straight-line basis 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 are 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 goods, cost consists of direct materials, labour and appropriate works overheads.

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 instruments 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 as the proceeds received, net of direct issue costs.

Provisions

A provision has been made to cover the onerous liabilities of employers' national insurance and pension contributions on annual payments made under a permanent health insurance policy. The provision is measured at the present value of the expenditures expected to settle the obligation using pre-tax rates that reflects current market assessments of the time value of money and the risks specific to the obligations.

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 2013 or 2012 but is derived from those financial statements. Statutory financial statements for the year ended 31 March 2012 have been delivered to the Registrar of Companies. Statutory financial statements for the year ended 31 March 2013 were approved by the Board of Directors on 21 June 2013, are audited and will be delivered to the Registrar of Companies following the Annual General Meeting on 25 July 2013.

The Company's auditors, Milsted Langdon LLP, have reported on the 2013 and 2012 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 2006 in respect of the financial statements for the year ended 31 March 2013 and 31 March 2012.

4. Business segments

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, operating through ET Environmental Limited.

Central costs Costs associated with being a public company and maintaining the AIM quotation on the London Stock Exchange.

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 (2012: £nil). Diffusion had no customers (2012: One) with revenue in excess of 10%.

The net finance costs under Continuing Operations of £42,000 (2012: £40,000) comprises finance revenue of £nil (2012: £nil) and finance costs of £42,000 (2012: £40,000) incurred by Diffusion.

4.3. Segment assets and liabilities

4.4. Other segment information

4.5. Geographical segments

5. Earnings per share

The earnings and weighted average number of ordinary shares used in the calculation of basic and diluted earnings per share, with the comparatives adjusted for the 16 August 2012 share reorganisation, are as follows:

6. Posting of Annual Report and Financial Statements

The 2013 Annual Report and Financial Statements will be posted by 28 June 2013 to those shareholders who have elected to receive them and will be available to view at the Company's website www.diffusion-group.co.uk.

The 2013 Annual General Meeting of the members of Energy Technique Plc will be held at 35 Park Lane, London W1K 1RB on 25 July 2013 at 12.30 pm.