Preliminary Results 2008

23rd May 2008 07:00



Energy Technique Plc

Preliminary Announcement 2008

Chairman's statement

Headlines

Sales in the year to 31 March 2008 up 9.3% to £9.19 million (2007: £8.41 million)

Fan coil sales up 8% and commercial heating sales up 18%

Diffusion operating profit up 10.4% to £0.73 million (2007: £0.66 million)

Profit before tax up 34.8% to £0.53 million (2007: £0.39 million)

Profit after tax up 95.1% to £0.88 million (2007: £0.45 million)

Net Cash Generated from Operations of £0.17 million (2007: £0.45 million)

Net positive cash position at 31 March 2008 of £1.04 million (2007: £0.91 million)

Introduction

I am very pleased to report a profit before tax in the year to 31 March 2008 of £0.53 million (2007: profit of £0.39 million), representing an increase of 34.8% over the previous year. This very strong trading performance from the Company's operating business, Diffusion, has been achieved through a combination of increased sales and tight cost controls, combined with investment in new products and in the West Molesey facility and a targeted marketing programme. 

The Group remains lean and fit and maintains its focus on its core business of fan coils and commercial heating products. Over the last two years, Diffusion has re-established itself as the market leader in the manufacture and supply of premium quality fan coils and commercial heating products to offices, hotels, banks and retail outlets. Products are distributed under both the Diffusion and Energy Technique brand names and are recognised throughout the HVAC sector as highly engineered, quality products.

This is the first set of results announced under IFRS with comparisons against 2007 results. The adoption of IFRS represents an accounting change only and does not affect the operations or cash flows of the Group.

Group financial performance

Sales in the year showed very strong growth of 9.3% to £9.19 million (2007: £8.41 million). The combination of increased sales and tight cost controls generated a 10.4% increase in operating profit at Diffusion to £0.73 million (2007: £0.66 million). Central and Plc costs were £0.16 million (2007: £0.15 million), resulting in a 16.9% improvement in profit before tax on Continuing Operations to £0.57 million (2007: £0.49 million).

During the year the lease on the onerous property, formerly occupied by the discontinued packaged air conditioning business in Basingstoke was surrendered, with the cost having been provided for in the previous year. The tenant in the Group's remaining property in Basingstoke defaulted before expiry of the lease and the cost of exiting this lease has been reported under Discontinued Operations and amounted to £0.05 million (2007: £0.10 million).

After Discontinued Operations, the Group profit before tax for the year was £0.53 million (2007: £0.39 million).

Cash flow and net assets

The Group produced a strong Net Cash Generated from Operations for the year of £0.17 million (2007: inflow of £0.45 million). At 31 March 2008, the Group had a net positive in-hand bank position of £1.04 million (2007: £0.91 million), with no bank borrowings or similar debt. During the year, a non-operational cash outflow of £0.25 million was paid to surrender lease obligations in Basingstoke. Net assets at 31 March 2008 stood at £2.31 million (2007: £1.43 million).

Diffusion Heating & Cooling ("Diffusion")

Diffusion's much improved operating profit of £0.73 million (2007: £0.66 million) represented an operating profit margin of 8.0%. This highly commendable trading performance was achieved through a combination of a 9.3% increase in sales and a continuation of the tight cost control policies introduced during the significant cost cutting measures of the last two years. Both of Diffusion's product groups experienced high levels of sales growth. Fan coil sales grew by 8% and commercial heating sales by 18%.

Recent investments in the West Molesey facility, including the new "state of the art" test facility, combined with more effective sales and marketing, have all allowed Diffusion to capitalise on the strong market demand for fan coils and commercial heating products during the year and particularly in the first half year to 30 September 2007. Despite substantial increases in commodity prices affecting the purchase prices of components, selling margins were maintained through a continual process of supplier performance appraisals, combined with improved materials handling and logistics control.

Diffusion's products are to be found in prestigious office developments and in many of the leading banks, hotels, and retail chains in the UK and Ireland. During the year, Diffusion fan coils were installed into many landmark commercial developments including the Willis HQ, 3 Hardman Street, Deloitte Building, Bankside, Bow Bells House, Coleman Street and Caxton Hall. Diffusion's commercial heating products also enjoyed a particularly successful year with products installed into retail sites operated by customers including Marks and Spencer, Aldi Stores, Boots, Debenhams, Argos, TKMax and Primark. Diffusion was successful in achieving its first export order for a number of years outside of the EMU, through the sale of a £0.18 million bespoke heating order to a customer in Kazakhstan.

H & V News Product of the Year 2007 Award and product development

Diffusion continues its drive to offer highly energy efficient products. Working in conjunction with a leading building controls supplier, many of Diffusion's commercial heating products are now fitted with its new energy saving controller, which has just received the accolade of the H & V News Product of the Year Award for 2007. This represents a major achievement and is testament to the cutting edge research and development skills within Diffusion.

Other new product developments include energy efficient fan coils, using the latest Electronically Commutated Direct Current technology ("DC motors"), which were launched in December 2006 and are quickly receiving market acceptance and take up. Another new development is the air-purifier fan coil fitted with Ecoquest, which uses radiant ionisation to deliver purified air. Diffusion continues to work closely with its customers to develop energy efficient products in response to their objective of operating carbon neutral sites. As part of this enhanced research and development effort, Diffusion has received confirmation of grant funding from the South Bank University and is working closely with the University, allowing it access to an even greater pool of technical resource.

Dividends

The Board does not recommend payment of a dividend (2007: £nil). For the present time, the Board believes it is in the Company's best interests to maintain its strong liquidity for future growth and expansion purposes.

Business strategy

The Board recognises the specific challenges arising from current legislative and market trends towards lower building energy consumption. Consequently its aim is to expand, through acquisition, to become a much broader based provider of building energy management solutions to the HVAC sector.

Directors

I was pleased to announce in May 2007 the appointment of Walter Goldsmith to the Board as a non-executive director. Walter is a chartered accountant with substantial board level experience in a number of public and private companies including Black & Decker and Forte Plc, as well as the Institute of Directors.

Current trading and prospects

With both enquiry levels and the order book improving and with sales in April and May in line with expectations, the Board looks forward to another successful year.

James W Lugg

Chairman

 

 

Consolidated income statement

for the year ended 31 March 2008

		2008	2007
	Note	£000	£000
Continuing Operations
Revenue	4	9,189	8,405
Cost of sales		(6,578)	(6,185)
Gross profit		2,611	2,220
Distribution costs		(1,549)	(1,257)
Administration expenses		(495)	(453)
Operating profit		567	510
Investment revenue		37	22
Finance costs		(29)	(40)
Profit before tax		575	492
Income tax credit		353	60
Profit for the year from Continuing Operations		928	552
Discontinued Operations
Loss for the year attributable from Discontinued Operations		(48)	(101)
Profit for the year	4	880	451
Earnings per share:
Basic (pence per share)	5	2.64	1.45
Diluted (pence per share)	5	2.64	1.45

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

Consolidated balance sheet

at 31 March 2008

	2008	2007
	£000	£000
ASSETS
Non-current assets
Plant and equipment	142	155
Deferred tax asset	353	-
Total non-current assets	495	155
Current assets
Inventories	814	848
Trade and other receivables	1,357	1,649
Cash and cash equivalents	1,037	912
Total current assets	3,208	3,409
Total assets	3,703	3,564
LIABILITIES
Current liabilities
Trade and other payables	(1,229)	(1,789)
Current tax liabilities	(160)	(141)
Provisions	-	(200)
Total current liabilities	(1,389)	(2,130)
Total liabilities	(1,389)	(2,130)
Net assets	2,314	1,434
EQUITY
Equity attributable to equity holders
Issued capital	7,750	7,750
Reserves	7,449	7,449
Retained earnings	(12,885)	(13,765)
Total equity	2,314	1,434

Consolidated statement of changes in equity

for the year ended 31 March 2008

	Share capital	Share premium	Reserves	Retained earnings	Total
	£000	£000	£000	£000	£000
At 1 April 2006	3,026	3,490	7,449	(14,216)	(251)
Profit for the year	-	-	-	451	451
Total recognised income and expense	-	-	-	451	451
Issue of ordinary shares	1,325	-	-	-	1,325
Share issue costs	-	(91)	-	-	(91)
At 31 March 2007	4,351	3,399	7,449	(13,765)	1,434
Profit for the year	-	-	-	880	880
Total recognised income and expense	-	-	-	880	880
At 31 March 2008	4,351	3,399	7,449	(12,885)	2,314

Consolidated cash flow statement

for the year ended 31 March 2008

	2008 £000	2007 £000
Cash flows from operating activities
Profit before tax	527	391
Finance costs (net)	(8)	18
Depreciation	68	137
Operating income before changes in working capital	587	546
Decrease in inventories	34	204
Decrease in trade and other receivables	292	201
Decrease in trade and other payables	(741)	(504)
Cash generated from operations	172	447
Tax received	-	60
Finance costs	(29)	(40)
Net cash generated from operating activities	143	467
Cash flows from investing activities
Interest received	37	22
Purchase of plant and equipment	(55)	(33)
Net cash used in investing activities	(18)	(11)
Cash flows from financing activities
Issue of share capital	-	1,325
Share issue costs	-	(91)
Repayment of debt	-	(890)
Net cash generated from financing activities	-	344
Net increase in cash and cash equivalents	125	800
Cash and cash equivalents at beginning of year	912	112
Cash and cash equivalents at end of year	1,037	912

Cash absorbed by Discontinued Operations amounted to £0.25 million in the year ended 31 March 2008.

Notes

1. Adoption of new and revised standards

Standards and interpretations effective in the current period

In the current year, the Group has adopted IFRS 7 Financial Instruments: Disclosures, which is effective for annual reporting periods beginning on or after 1 January 2007, and the consequential amendments to IAS 1 Presentation of Financial Statements. The impact of the adoption of IFRS 7 and the changes to IAS 1 has been to expand the disclosures provided in these financial statements regarding the Group's financial instruments and management of capital.

Five Interpretations issued by the International Financial Reporting Interpretations Committee are effective for the current year. These are: IFRIC 7 Applying the Restatement Approach under IAS 29, Financial Reporting in Hyperinflationary Economies; IFRIC 8 Scope of IFRS 2; IFRIC 9 Reassessment of Embedded Derivatives; IFRIC 10 Interim Financial Reporting and Impairment; and IFRIC 11 Group and Treasury Share Transactions. The adoption of these Interpretations has not led to any changes in the Group's accounting policies.

Standards and Interpretations in issue not yet adopted

At the date of authorisation of these financial statements, the following Interpretations were in issue but not yet effective:

IFRIC 12 Service Concession Arrangements effective 1 January 2008

IFRIC 14 IAS 19 the Limit on a defined Benefit Asset, Minimum Funding Requirements and their Interaction effective 1 January 2008

The Directors anticipate that all of the above Interpretations will be adopted in the Group's financial statements for the year commencing 1 April 2008 and that the adoption of those Interpretations will have no material impact on the financial statements of the Group in the period of initial application.

This is the first set of results announced under IFRS with comparisons against 2007 results. The adoption of IFRS represents an accounting change only and does not affect the operations or cash flows of the Group.

2. Significant accounting policies

Statement of compliance

The financial statements have been prepared in accordance with International Financial Reporting Standards 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 arising on the acquisition of subsidiary undertakings, representing the excess of the fair value of the consideration given over the fair value of the identifiable net assets acquired, is written off against reserves on acquisition. 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. Any future acquisitions will follow the requirements of IFRS 3 (revised 2008).

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 is recognised when all of the following conditions are satisfied:

The Group has transferred to the buyer the significant risks and rewards of ownership of the goods;

The Group retains neither continuing management involvement to the degree usually associated with ownership nor effective control over the goods 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 Company'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 result 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. The provision for deferred tax is undiscounted.

Plant and equipment

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 for the year ended 31 March 2008 and 2007 set out above does not constitute statutory financial statements within the meaning of Section 240 of the Companies Act 1985. The information has been extracted from the statutory financial statements of Energy Technique Plc for the year ended 31 March 2008, which have not yet been filed with the Registrar of Companies. Statutory financial statements for the year ended 31 March 2007 have been delivered to the Registrar of Companies. Statutory financial statements for the year ended 31 March 2008 were approved by the Board of Directors on 22 May 2008, are audited and will be delivered to the Registrar of Companies following the Annual General Meeting on 2 July 2008.

The Company's auditors, Milsted Langdon LLP, have reported on the 2008 and 2007 financial statements under Section 235(1) of the Companies Act 1985. Those reports were not qualified within the meaning of Section 235(2) of the Companies Act 1985 and did not contain statements made under Section 237(2) and 237(3) of the Companies Act 1985.

4. Segmental analysis

4.1 Segment revenue and segment result

	Segment revenue		Segment result
	2008	2007	2008	2007
	£000	£000	£000	£000
Continuing Operations
Diffusion	9,189	8,405	732	663
Central costs	-	-	(165)	(153)
Revenue and operating profit	9,189	8,405	567	510
Interest (net)			8	(18)
Profit before tax			575	492
Income tax credit			353	60
Profit for the year Continuing Operations			928	552
Discontinued Operations
Packaged air conditioning and Lifebreath	-	9	(48)	(101)
Revenue and operating loss	-	9	(48)	(101)
Interest			-	-
Loss before tax			(48)	(101)
Income tax expense			-	-
Loss for the year Discontinued Operations			(48)	(101)
Consolidated revenue and profit for the year	9,189	8,414	880	451

Revenue reported above represents revenue generated from external customers. There were no inter-segment sales in the year (2007: £nil).

4.2 Segment assets and liabilities

	Assets		Liabilities
	2008	2007	2008	2007
	£000	£000	£000	£000
Diffusion	2,676	2,632	1,296	1,853
Central costs	1,027	932	62	77
Packaged air conditioning and Lifebreath	-	-	31	200
	3,703	3,564	1,389	2,130

4.3 Geographical segments

	Revenue		Segment assets		Acquisition of segment assets
	2008	2007	2008	2007	2008	2007
	£000	£000	£000	£000	£000	£000
United Kingdom	8,244	7,190	3,703	3,564	55	33
Rest of Europe	764	1,224	-	-	-	-
Rest of World	181	-	-	-	-	-
	9,189	8,414	3,703	3,564	55	33

5. Earnings per share

	2008	2007
	Pence	Pence
Basic and diluted earnings per share
Continuing Operations	2.79	1.78
Discontinued Operations	(0.15)	(0.33)
	2.64	1.45
The earnings and weighted average number of ordinary shares used in the calculation of basic earnings per share are as follows:
	£000	£000
Earnings used in the calculation of basic earnings per share	880	451
Loss from Discontinued Operations	48	101
Earnings from Continuing Operations	928	552
	No.	No.
Weighted average number of ordinary shares in issue	33,305,160	30,981,833
Weighted average number of ordinary shares on a diluted basis	33,305,160	30,981,833

Shares that could potentially be issued under the outstanding share options are not dilutive.

6. Posting of Annual Report and Financial Statements

The 2008 Annual Report and Financial Statements will be posted to shareholders on 23 May 2008.

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, Blomfield Corporate Finance Limited: 020 7512 0191

 

Seán Bellew, Atelier PR: 07973 234040

 

 

 

 

 

 

ENDFR ATMPTMMATBFP

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