Preliminary Results

23rd Mar 2009 07:00



Press Release

23 March 2009

Energetix Group plc

('Energetix' or 'the Group')

Preliminary Results

For the year ended 31 December 2008

Energetix Group plc (AIM: EGX), a company with three cost effective products to meet the growing demand for alternative energy products, today announces its preliminary results for the year ended 31 December 2008.

2008 highlights

	Subsidiaries have all substantially completed the development road map for their first products and are on the point of revenue generation;
	January – the Group and E.ON UK agree to collaborate on the development of Genlec microgeneration units;
	February – Daalderop BV display ‘CombiVolt’, the Genlec enabled micro-CHP boiler at a premier trade fair;
	May – VPhase plc ('VPhase’) raises £3.5 million gross through a placing at 5p per share;
	June – Genlec signs memorandum of understanding for a fourth collaboration agreement;
	September – VPhase teams with Scottish and Southern Energy plc to commercialise the company’s products and in particular to establish funding for an Ofgem trial for CERT approval;
	October – Chinese patent granted for Pnu Power technology;
	October – VPhase signs memorandum of understanding with British Gas Services to distribute the VPhase energy saving product – subject to successful trials;
	October – Genlec signs memorandum of understanding with Stiebel Eltron for a fifth collaboration agreement;
	November – Energy Minister, Mike O’Brien MP, Minister of State at the new Department for Energy and Climate Change, launches Genlec’s micro-CHP unit;
	December – Pnu Power receives first major order from North America for $380,000, partly funded by the US Department of Energy, as part of a system to reduce peak power demand at a major industrial facility; and
	December – Genlec announces a further collaboration with E.ON UK and a major European appliance manufacturer.

Post year end

	January 2009 – CombiVolt product agreement with Daalderop BV which targets sales of at least 30,000 Genlec micro-CHP units over the next 3 years;
	January 2009 – Ofgem approves Scottish and Southern Energy (‘SSE’) trials of VPhase VX1 with funding provided by SSE to a cost of up to £240,000;
	February 2009 – Pnu Power achieves CE marking on its TC1 and TC2 products;
	February 2009 – Pnu Power secures order from Telecom Italia; and
	The Group has sufficient cash reserves requiring no further funding for current strategic plans.

Alan Aubrey, Chairman of Energetix, said: "2008 has been a significant year for Energetix as each of its subsidiaries has substantially completed the development road map for their first products and is on the point of revenue generation, and all within the timescales we had originally outlined. The Board is delighted that agreements have been signed with well-established partners, which illustrates their confidence in Energetix's technology.

"The Board's focus for 2009 will be on generating revenues and conserving cash.

"Our strong IP position, robust engineering principles and agreements with highly regarded partners position the Group well to capitalise on the opportunities that are apparent in the current environment as government investment and stimulus increases and the focus on efficiency is heightened."

For further information please contact:

Energetix Group plc
Adrian Hutchings, Chief Executive Officer	Tel: +44 (0) 151 348 2111
Richard Smith, Chief Financial Officer	Tel: +44 (0) 151 348 2116
	www.energetixgroup.com

Zeus Capital	Tel: +44 (0) 161 831 1512
Alex Clarkson
Bobby Fletcher	www.zeuscapital.co.uk

Novum Securities Limited	Tel: +44 (0)20 7562 4700
Henry Turcan	www.novumsecurities.com

Media enquiries:

Abchurch Communications	Tel: +44 (0) 20 7398 7712
Justin Heath / Joanne Shears / Monique Tsang
[email protected]	www.abchurch-group.com

Chairman's Statement

I am delighted by the substantial progress the Group has made against the targets we had set for each of our subsidiaries for the year.  Our careful cash management during 2008 leaves us with strong cash reserves of £11 million at the year end. This position is an excellent base from which to deliver our 2009 goals of cash conservation and revenue generation.

During 2008, the Group focussed on building the business platform and launching its products in preparation for revenue generation. The Group has continued to make significant progress against these targets. Whilst the economic uncertainty that characterised the end of 2008 looks set to continue, I believe that Energetix Group is well placed to withstand these effects with sufficient cash for all three businesses to reach profitability and cash generation.

Each of the Group's businesses has launched its products and is at the point of revenue generation. Genlec has established commercial terms with Daalderop, Pnu Power has received orders from Africa, Europe and America, and VPhase is working closely with Scottish and Southern Energy and has a memorandum of understanding with British Gas Services Limited.  We have increased our understanding of the routes to market and the timescales involved in new product adoption and are confident in the Group's ability to grow revenues during 2009.

Revenues of £32,000 were achieved during the year (2007: £55,000) arising from the sale of trial units and the business has continued to invest in its infrastructure and intellectual property. The Group's cash position remains strong with £11 million in hand providing a solid financial base for future operations.

In response to the external poor economic conditions that occurred during 2008, at the beginning of 2009 the business restructured its operations under Neil Bright who was appointed to the Group Board as Operations Director on 22 January 2009. This has resulted in the merger of management roles between Genlec and Pnu Power and the consolidation of some activities into the central services function, enabling the Group to make operational savings of c. £45,000 per month. Also in January 2009, Anton Elsborg resigned from the Board following six years involvement with the Group. I would like to thank Anton for his contribution over that time.

A J Aubrey Chairman 23 March 2009

 

 

Chief Executive's Review

Business Overview 

I am very pleased with the progress made in establishing our three businesses during 2008 and believe that the restructuring carried out at the beginning of 2009 has left the Group well placed for achieving our goals of cash conservation and revenue generation in 2009.

Genlec

Energetix Genlec Limited (`Genlec`) has surpassed its targets in developing further relationships with both boiler manufacturers and power utilities.  The Company now has six such relationships in place giving Genlec the potential to access all the major European boiler markets including the UK, Germany, Italy and the Netherlands.

In particular, a formal product supply agreement with Daalderop has been established targeting the sale of at least 30,000 Genlec micro-CHP units for the Dutch and Belgium heating markets over the next three years. This agreement with Daalderop is a key component of Genlec's strategy of targeting the Netherlands for product introduction, a country with an enviable record of new energy efficient product adoption, with the Dutch Government having pledged to subsidise 10,000 micro-CHP units into Dutch households.

In addition to the agreement with Daalderop, a tri-partite heads of terms has been signed with E.ON and a major European appliance manufacturer with the aim of investigating the potential to produce mass-market Genlec modules, and complete Genlec enabled micro-CHP appliances for E.ON's UK and European domestic heating markets.

These agreements, along with the other collaborations with Stiebel Eltron, a leading German heating equipment manufacturer, and two further companies demonstrate substantial and broad industry support for the Genlec unit. 

The number of relationships fostered by Genlec with major players in the heating and power markets is, I believe, evidence of the benefits that a robust engineered product, which readily fits the existing distribution and installation routes to market, has over more complex products.

  Pnu Power

Energetix (Pnu) Power Limited (`Pnu Power`) has successfully completed development of its TC1 and TC2 products, both having achieved the important and rigorous CE certification in February 2009, following independent testing on both safety compliance and electromagnetic contamination.

With CE marking complete, the company is building a sales pipeline that has already received orders from the major South African utility Eskom, a multiple order worth US$380,000 from P&E Automation in San Diego, and an initial order from Telecom Italia through our Italian distribution partner, O.S.A.T. Elettronica s.r.l. 

One of the key benefits of the Pnu Power products is their high reliability and long operational life when compared to the incumbent technology of lead acid batteries.  TC1 and TC2 have both been tested to in excess of 30,000 stop starts and 24 years of accelerated life cycle running.  This compares to a typical life expectancy of 7 to 10 years for a well maintained, air conditioned VRLA lead acid battery.  In addition, the Pnu Power products have also been tested in some of the most extreme conditions for a back-up power system, in Pnu Power's dedicated environmental test chamber.  This test chamber has successfully demonstrated the operation of TC1 and TC2 units at extremes of +40oC and 95% humidity to -20oC, conditions in which lead acid battery life is considerably reduced.

VPhase

VPhase plc ('VPhase') raised £3.5 million (before costs) in May 2008 by the placing of 70,000,000 new ordinary shares of 0.25 pence each at a price of 5 pence per share.

The company launched its VPhase VX1 unit in October 2008 at the Intelec trade show and it is anticipated that the VPhase VX1 unit will be available for sale from the second quarter of 2009, following CE marking.

During the year, VPhase signed a letter of intent to work with Scottish and Southern Energy ('SSE') to support the commercialisation of VPhase's energy saving product. This has further progressed in January 2009 with Ofgem approval for trialling of the VPhase VX1 product under the UK Government's Carbon Emissions Reduction Target ('CERT') scheme with SSE funding up to £240,000. The trial will be undertaken as a formal CERT Demonstration Action and involves installing a number of VX1 products in the homes of a range of SSE's customers to measure the reduction in electricity used as a result of VPhase's innovative and patented voltage reduction technology.

Also in 2008, the company signed a memorandum of understanding with British Gas Services Ltd (part of Centrica plc) for British Gas Services to independently test several devices. These trials are scheduled to commence following CE approval and a supply and distribution agreement will be negotiated with British Gas to supply VX1 units through its electrical and heating installation and maintenance operations in the UK.

VPhase and Centrica plc ('Centrica') also plan to collaborate on how the products may be introduced to the North American domestic and business services market through Direct Energy, one of America's leading integrated energy companies and another Centrica-owned business. British Gas is the UK's largest installer of domestic energy efficiency measures under the Government's CERT scheme and expects to spend up to £1 billion on such work over the next three years. In 2007, British Gas stated that it installed 17.3 million energy efficient products helping more than 6.4 million households save money.

Outlook

Despite the recent shock to the global economy caused by the banking crisis and the slow down in consumer demand, the need to reduce energy costs and reduce environmental emissions, as well as having access to reliable quality power, is as strong as ever. This global need continues to enhance the already favourable market conditions for the Group's products. Governments across the world are looking to stimulate their economies, with one of the key drivers being their policies and investment in clean and alternative energy products.  Barack Obama has just announced a plan to help create five million new jobs by strategically investing US$150 billion over the next ten years to act as a catalyst for private efforts to build a clean energy future.

Energetix is now in a position where we have substantial financial reserves, reduced cash expenditure, and products that individuals, industry, and governments will want to use to reduce costs and CO2 emissions, and stimulate economic growth. 

For example, our Genlec product is targeted at the domestic home market and it is clear that the construction of new properties has been, and is likely to remain substantially reduced from previous levels.  However, in the UK the number of new build boiler installations is only around 12% of the 1.5 million boilers installed every year, with the bulk of installations being driven by the need to replace failed boilers.  I believe that the new £910 million increase in the Government's Home Energy Saving Programme announced by the UK Government on 11 September 2008, will partially if not wholly offset the reduction in the market from reduced new build installations, and can lead to significant savings both in terms of fuel costs to home owners and reduced CO2 emission levels stimulating increased levels of demand. 

One of the areas targeted by environmentalists and governments alike is that energy efficiency is the principal way to reduce emissions and to reduce costs.  There has been significant interest and investment into smart metering as a way of helping home owners to understand their energy footprint and costs, and to enable them to modify their behaviour to reduce these.  A significant number of such meters are being installed world wide; Florida Power & Light alone have already installed 50,000 units across their network and plan to increase this to 100,000 units. In the UK, 33.8% of electricity is consumed in the domestic sector (Source: BERR Update of UK Final Energy Consumption July 2008).  

Our VPhase product is very well suited to fit into this growing market and, unlike smart meters, does not require a change in home owner behaviour.  VPhase will save energy automatically and hence has far more quantifiable energy and CO2 savings.  We have identified synergies for the joint installation of smart meters and VPhase products, and we are proactively pursuing these opportunities, in addition to the relationships we already have in place with Scottish and Southern Energy and British Gas Services.

Whilst there is emphasis on reducing energy costs and the environmental impact of energy generation, there is also a need to ensure that the world's networks, that are predominantly reliant on computer based systems, are supported by highly reliable quality power systems.  Lawrence Berkeley Labs reported on behalf of the US Department of Energy, that the estimated annual cost of power interruptions to US consumers is US$79 billion.  

Pnu Power has already successfully demonstrated a stand by power system with Eskom, the leading South African power utility, and having tested our product in the high temperature and humidity that can be expected in this environment, we have had discussions with the providers of the mobile network for the 2010 World Cup in South Africa.  Very high levels of power and telecoms reliability are critical in the exacting demands of a major world tournament.  It is anticipated that the mobile network will see high levels of transmissions through the network during each match and, as such, highly reliable back-up power as can be provided by Pnu Power is essential.  Pnu Power is developing a pipeline of global sales opportunities, having already achieved trial sales in South Africa, the USA and Italy, and we anticipate this sales pipeline will deliver further orders in the coming year.

2008 was the year we said we would work to establish the foundations for each business to create growing revenue and contribution in 2009; I am pleased to say we have achieved this goal with healthy cash resources of £11 million and no bank borrowings. I am confident of further substantial progress as we commercialise our three businesses during 2009.

A C Hutchings Chief Executive Officer 23 March 2009

 

Finance Review

Revenues of £32,000 (2007: £55,000) were achieved from the sale of development products. With the recent orders from P&E Automation and Telecom Italia for Pnu Power product, the signing of a commercial agreement with Daalderop for Genlec product, and the commencement of Ofgem trials following the CE marking of VPhase's VX1, 2009 is expected to be a significant year for the Group. 

Overheads in the year were £4.20 million (2007: £3.05 million).  This is an improvement on internal budgets and is consistent with the Group's strategy of controlling expenditure and ensuring maximum value for the Group. 

Our operating loss of £4.2 million (2007: £3.01 million) reflects the positive progress that the Group has made over the past year in establishing a sound foundation from which to generate sales across all three trading subsidiaries in 2009.

The loss before income tax of £1.66 million (2007: £1.84 million) is significantly better than internal forecasts and reflects the Group's tight expenditure controls. 

Cash utilised before the proceeds from placing of shares and before interest receipts of £0.62 million (2007: £0.41 million) in 2008 was £5.67 million (2007: £3.37 million).  The cash was utilised on operating activities £2.93 million (2007: £2.44 million) and on investing activities £1.98 million (2007: £0.17 million).  Investing activities include the purchase of property, plant and equipment £0.34 million (2007: £0.19 million) and investment in intangible development assets of £2.26 million (2007: £1.02 million) in accordance with IAS38, less interest received; further details are contained in note 5 to the preliminary results. The Group has a strong focus on cash management and is confident that all three businesses are fully funded. The cash balance at the end of the year was £11.03 million (2007: £12.78 million).

During the year £3.31 million, net of costs, was received by VPhase plc ('VPHA'), a subsidiary of the Group, through the placing of 70,000,000 new ordinary shares of 0.25 pence at 5 pence per share.  The Group currently owns 49.1% (2007: 55.1%) of VPhase and during the year this shareholding has increased in market value by £8.6 million to £22.35 million. As the Group consolidates the results of VPhase, no credit for this has been taken to the income statement or balance sheet except where IFRS requires recognition of such gains.  The issuing of new equity under IFRS requires the Group to recognise a value for the dilution in its interest and, in addition to the placing, VPhase has issued 4,992,960 new ordinary shares to the Company's broker in settlement of fees.  The impact of these transactions has resulted in a recognised gain of £1.63 million in other gains.

Cash has been managed to optimise the value from surplus cash balances giving priority to security then to liquidity and then to yield and to preserve the principal value of the investment by investing surplus funds only with institutions of a high credit standing.  This strategy has resulted in interest earnings during the year of £0.62 million (2007: £0.41 million). 

During the year, the fees of the Company's brokers have been settled by the issue of 77,504 new ordinary shares of 5 pence each and the Company has a commitment to issue a further 32,050 shares for services provided up to the 22 March 2009.  Accordingly, the fair value of these share based payments has been recorded in the Income Statement.

R H Smith Chief Financial Officer 23 March 2009

Group Income Statement

For the year ended 31 December 2008

		Year ended 31 December
	Note	2008		2007
		£'000		£'000
Revenue		32		55
Cost of sales		(32)		(24)
Gross profit		-		31
Administrative expenses		(4,202)		(3,045)
Operating loss		(4,202)		(3,014)
Finance income		911		488
Other gains	6	1,629		685
Loss before income tax		(1,662)		(1,841)
Income tax	3	-		(6)
Loss for the year		(1,662)		(1,847)
Attributable to:
Equity holders of the Company		(1,272)		(1,842)
Minority interest		(390)		(5)
		(1,662)		(1,847)
Loss per share attributable to the equity holders of the Company during the year:
Total and continuing - Basic and diluted	4	(2.31)p		(3.74)p

All revenue and costs originate from continuing activities.

  

Group Statement of Changes in Equity

For the year ended 31 December 2008

	Attributable to equity holders of the Company
	Share  capital	Share premium	Retained earnings	Reverse acquisition reserve	Warrant  reserve	Other  reserves	Total shareholders' equity	Minority interest	Total  equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 January 2007	2,250	4,591	1,687	(821)	256	44	8,007	-	8,007
Total recognised loss for the year	-	-	(1,842)	-	-	-	(1,842)	(5)	(1,847)
Partial disposal of Energetix Voltage Control Limited	-	-	-	-	-	-	-	256	256
Share based payments	-	-	-	-	-	68	68	-	68
Other share based payments	-	-	-	-	-	32	32	-	32
Proceeds from placing  - 1 August 2007	500	11,500	-	-	-	-	12,000	-	12,000
Shares issued: - 21 August 2007	1	11	-	-	-	-	12	-	12
- 8 October 2007	1	11	-	-	-	-	12	-	12
Share issue expenses	-	(737)	-	-	-	-	(737)	-	(737)
Balance at 31 December 2007	2,752	15,376	(155)	(821)	256	144	17,552	251	17,803
Loss for the year and total recognised loss for the year	-	-	(1,272)	-	-	-	(1,272)	(390)	(1,662)
Share based payments	-	-	6	-	-	22	28	-	28
Other share based payments -2007	-	-	20	-	-	(20)	-	-	-
Other share based payments -2008	-	-	-	-	-	16	16	-	16
Issue of warrants in VPhase plc	-	-	-	-	105	-	105	-	105
Issue of warrants	-	(230)	-	-	230	-	-	-
Deemed disposal in Vphase plc (note 6)	-	-	-	-	-	-	-	1,651	1,651
Shares issued:
- 13 February 2008	1	11	-	-	-	(12)	-	-	-
- 12 June 2008	1	11	-	-	-	-	12	-	12
- 14 August 2008	1	15	-	-	-	-	16	-	16
- 8 October 2008	1	15	-	-	-	-	16	-	16
Balance at 31 December 2008	2,756	15,198	(1,401)	(821)	591	150	16,473	1,512	17,985

Total recognised income and expense recognised directly to equity amounts to £Nil (2007: £Nil).

  Reverse acquisition reserve

The reverse acquisition reserve relates to the reverse acquisition between Energetix (Europe) Limited and Energetix Group plc on 8 August 2006.

Warrant reserve

On 15 August 2006 Energetix Group plc (the "Company") granted 1,350,000 warrants to its Broker and Nominated Advisor in relation to the prior year flotation.  On 1 August 2007, as part of the agreed placing costs of the Company with its broker, the Company granted 500,000 warrants to its broker. The fair value of warrants is calculated using the Black-Scholes model at the time of grant and is charged to the share premium account. In 2008 warrants were issued by VPhase plc in part settlement of its costs for placing shares in May 2008.

Other reserves

Other reserves comprise of share based payments for the cost of options granted £22,000 (2007: £68,000).  In addition, it includes £16,000 (2007: £32,000) for other share based payments issued to the joint brokers.

Minority interest

As at 31 December 2008, a minority interest existed due to the Group owning less than 100% of VPhase plc.  The Group's shareholding has been further diluted during the year by the issue of shares to its broker Novum Securities Limited in settlement of outstanding fees as set out in note 6.

  

Group Balance Sheet

At 31 December 2008

		As at 31 December
	Note	2008		2007
		£'000		£'000
ASSETS
Non-current assets
Goodwill		311		311
Other intangible assets	5	9,063		7,144
Property, plant and equipment		415		205
		9,789		7,660
Current assets
Inventories		-		58
Trade and other receivables		415		360
Cash and cash equivalents		11,025		12,778
		11,440		13,196
Total Assets		21,229		20,856
LIABILITIES
Non-current liabilities
Financial liability - borrowings	7	1,625		2,245
		1,625		2,245
Current liabilities
Financial liability - borrowings	7	264		89
Trade and other payables		1,355		719
		1,619		808
Total liabilities		3,244		3,053
EQUITY
Capital and reserves attributable to equity holders of the Company
Share capital		2,756		2,752
Share premium		15,198		15,376
Retained earnings		(1,401)		(155)
Reverse acquisition reserve		(821)		(821)
Warrant reserve		591		256
Other reserves		150		144
Total shareholders' equity		16,473		17,552
Minority interest		1,512		251
Total equity		17,985		17,803
Total equity and liabilities		21,229		20,856

  

Group Cash Flow Statement

For the year ended 31 December 2008		Year ended 31 December
	Note	2008		2007
		£'000		£'000
Cash flows from operating activities
Cash consumed by operations	8	(2,933)		(2,437)
Cash flows from investing activities
Expenditure on intangible assets	5	(2,255)		(1,020)
Purchases of property, plant and equipment		(335)		(190)
Proceeds from part disposal of business		-		600
Net cash acquired with subsidiaries		-		30
Interest received		615		413
		(1,975)		(167)
Cash flows from financing activities
Net proceeds from the issue of ordinary shares		3,305		11,287
Repayment of financial liabilities		(150)		(350)
		3,155		10,937
Net (decrease)/increase in cash and cash equivalents		(1,753)		8,333
Cash and cash equivalents at the beginning of the year		12,778		4,445
Cash and cash equivalents at the end of the year		11,025		12,778

Notes

1. Basis of preparation

The preliminary results for the year ended 31 December 2008 have been extracted from the audited financial statements which have not yet been delivered to the Registrar of Companies.  The financial information set out in this announcement does not constitute statutory financial statements for the year ended 31 December 2008 or 31 December 2007. The financial information for the year ended 31 December 2008 was unqualified and did not contain a statement under section 237 of the Companies Act 1985.  The statutory financial statements for the year ended 31 December 2007 have been delivered to the Registrar and were prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union, while the statutory financial statements for the year ended 31 December 2008 will be delivered to the Registrar following the Company's Annual General Meeting.  The preliminary results have been prepared in accordance with IFRS as adopted by the European Union. The Group accounting policies used in the preliminary results are consistent with those applied in its most recent annual financial statements.

Going concern

The Group has considerable financial resources and together with contractual arrangements with certain economic partners in different geographical areas and industries, this provides a sound platform for launching the Group's products and generating future sales. As a consequence, the directors believe that the Group is well placed to manage its business risks successfully despite the current uncertain economic outlook.

The Group's forecasts and projections, which have been prepared for the period to 31 March 2011 and taking account of reasonably possible changes in performance, show that the Group should be able to operate within the level of its current cash resources.

After making enquiries, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the financial statements.

Critical accounting estimates and judgments

The preparation of financial statements in conformity with IFRS as adopted by the European Union requires the use of certain critical accounting estimates.  It also requires management to exercise its judgment in the process of applying the Group's accounting policies. 

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the present circumstances. 

The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the Group financial statements are disclosed below.

Critical accounting estimates

Research and development activities

Management have reviewed the Group's research and development activities and have made estimates and judgments on the amount of development expenditure it is appropriate to capitalise. 

Discount rate on future deferred receivables and liabilities

Management have exercised judgment in selecting the appropriate discount rate for application against future deferred receivables and liabilities and have selected 12.50% (2007: 7.50%) to represent the best estimate of the current cost of capital to the Group.

Impairment of intangible assets

Management have conducted an impairment review of intangible assets and have to make judgments as to the likelihood of them generating future cash flow, the period over which those cash flows will be received and what costs are attributable against them. The recoverable amount is determined using the value in use calculation.  The use of this method requires the estimation of future cash flows and the selection of a suitable discount rate in order to calculate the present value of these cash flows.  In support of their assumptions, management uses a variety of sources including third party published reports and knowledge from discussions with partners and potential partners in both the supply and distribution channels.

Share based incentive arrangements and warrants

Share based incentive arrangements are provided to management and certain employees.  These are valued at the date of grant using the Black-Scholes option pricing model and management have to exercise judgment over the likely exercise period, interest rate and share price volatility.  Management uses various sources of information including its own share price performance, or where there is insufficient history the performance of comparable listed entities, experience from the historical exercise of options and published data on bank base rates.

During the year, the Group has issued shares to its joint broker for annual services rendered up to March 2009 and has entered into a commitment to pay fees to its joint broker for services provided to VPhase plc, a subsidiary undertaking, up to September 2009. These share based payments have been valued at their fair value as they are received and are charged to the income statement with a corresponding credit to equity.

In addition, during the year the Group has issued warrants to its broker, as part of agreed placing costs. These warrants have been valued at their fair value as they are received based upon the Black-Scholes option pricing model and are charged against the Share premium account.

Taxation

Management have not provided for deferred tax in relation to unrelieved tax losses as the recoverability is currently uncertain.

Critical accounting judgments

Part Disposal of VPhase plc 

Management consider the "parent company concept" to be the most appropriate basis of consolidation. Under this method where a disposal of a subsidiary occurs and the relevant entity remains a subsidiary, the minority interest will increase by the carrying amount of the net identifiable assets that are now attributable to the minority interest due to the decrease in the Group's interest.  Accordingly, any gain or loss is recognised as the difference between the proceeds of the disposal and the portion of the carrying amount of the net assets that have been disposed of, including goodwill. This accounting policy differs from the "entity concept", whereby any gain or loss recognised on the sale of the subsidiary would be reported within equity.  In addition, minority interest would not be deducted in arriving at the profit or loss for the financial year and would be shown as equity in accordance with IAS 1. See note 6 for further details.

Control over VPhase plc

Following the deemed disposals in VPhase plc, the Group holds 49.4% of the ordinary share capital of VPhase plc. The Group continues to consolidate the results of the subsidiary on the basis that it controls the financial and operating polices of VPhase plc through Board members.  In addition, the Group has control over 53.7% (2007: 60.1%) of the voting rights of the ordinary shares in VPhase plc as a result of retaining the voting rights over shares held by an employee benefit trust.Financial liabilities Management have considered the terms of agreement with Battelle Memorial Institute and consider the obligation for future repayments based on a percentage of mainstream sales to be a non-financial item. Accordingly, the instrument is considered an embedded derivative and the Group has designated the entire instrument as fair value through profit and loss (FVTPL). See note 7 for further details.Amortisation of development assetsDevelopment costs capitalised, which form part of the Group's intangible assets, are amortised on a straight line basis over a period not exceeding 15 years starting from the point that those products resulting from the development activity commence mainstream sales. Sales of prototype products are deemed to still be in the development phase and accordingly no amortisation have been charged to the income statement.

 

2. Segmental information

At 31 December 2008, the Group is organised into three main segments:

products for distributed generation and load shifting, these are the micro CHP products from Genlec;

products for power quality and reliability, these comprise the compressed air battery products of Pnu Power; and

products for energy efficiency, these comprise the voltage control devices of VPhase plc.

The segment results for the year ended 31 December 2008 are as follows:

	Distributed generation and load shifting	Power quality and reliability	Energy efficiency	Unallocated	Group
	£'000	£'000	£'000	£'000	£'000
Segment revenue	32	-	-	-	32
Operating (loss)/profit	(2,784)	(1,631)	(853)	1,066	(4,202)
Finance income	296	-	84	531	911
Other income	-	-	-	1,629	1,629
(Loss)/profit before income tax	(2,488)	(1,631)	(769)	3,226	(1,662)
Income tax expense	-	-	-	-	-
(Loss)/profit for the year	(2,488)	(1,631)	(769)	3,226	(1,662)
Depreciation and amortisation expense	(353)	(64)	(5)	(39)	(461)
Other non cash movements	296	-	(105)	48	239

 

 

The segment results for the year ended 31 December 2007 are as follows:

 

	Distributed generation and load shifting	Power quality and reliability	Energy efficiency	Unallocated	Group
	£'000	£'000	£'000	£'000	£'000
Segment revenue	47	8	-	-	55
Operating loss	(1,160)	(757)	(191)	(906)	(3,014)
Finance income	25	-	3	460	488
Other gains	-	-	685	-	685
(Loss)/profit before income tax	(1,135)	(757)	497	(446)	(1,841)
Income tax expense	-	-	-	(6)	(6)
(Loss)/profit for the year	(1,135)	(757)	497	(452)	(1,847)
Depreciation and amortisation expense	(338)	(35)	-	(22)	(395)
Other non cash movements	(174)	26	(6)	(123)	(277)

 

The segment assets and liabilities at 31 December 2008 and capital expenditure for the year then ended are as follows: 

	Distributed generation and load shifting	Power quality and reliability	Energy efficiency	Unallocated	Group
	£'000	£'000	£'000	£'000	£'000
Assets	7,330	2,350	3,641	7,908	21,229
Liabilities	(9,878)	(4,094)	(334)	11,062	(3,244)
Capital expenditure
- Tangible	17	64	72	182	335
- Intangible	1,298	735	222	-	2,225

The segment assets and liabilities at 31 December 2007 and capital expenditure for the year then ended are as follows:

	Distributed generation and load shifting	Power quality and reliability	Energy efficiency	Unallocated	Group
	£'000	£'000	£'000	£'000	£'000
Assets	6,306	1,273	953	12,324	20,856
Liabilities	(2,164)	(99)	(87)	(703)	(3,053)
Capital expenditure
- Tangible	38	73	7	72	190
- Intangible	535	485	-	-	1,020

Revenue and loss before income tax are attributable to the principal activity of the Group.  All revenue and costs originate from continuing operations.  Revenue can be summarised as follows:

	2008		2007
	£'000		£'000
Sale of distributed generation and load shifting products	32		47
Sale of power quality and reliability products	-		8
	32		55

Geographic analysis of revenue:

	2008		2007
	£'000		£'000
UK	-		39
Europe	32		8
Rest of world	-		8
	32		55

All assets are based in the UK.

 

3. Income tax

Unrelieved tax losses of approximately £10,324,000 (2007: £6,111,000) remain available to offset against future taxable trading profits. No deferred tax asset has been recognised in respect of the losses as recoverability is uncertain.

The Group has received confirmation from HM Revenue and Customs on 11 March 2008 that they are no longer challenging a subsidiary company's claim for substantial shareholder exemption and that the subsidiary had correctly applied substantial shareholder exemption to the disposal of a business in 2004.

 

4. Loss per ordinary share

The loss per ordinary share is based on the loss of £1,272,000 (2007: loss of £1,842,000) and 55,087,756 (2007: 49,177,833) ordinary shares of 5p each, being the weighted average number of shares in issue during the year. All shares have been included in the computation based on the weighted average number of days since issuance. 

	2008		2007
Loss attributable to equity holders of the Company (£'000)	(1,272)		(1,842)
Weighted average number of ordinary shares in issue	55,087,756		49,177,833
Basic and diluted loss per share (pence)	(2.31)		(3.74)

The share options and warrants in issue are anti-dilutive in respect of the basic loss per share calculation and have therefore not been included.

 

 

5. Intangible Assets

	Micro CHP			Compressed air battery	Smart voltage management
	Intellectual property	Research and development asset	Total	Research and development asset	Research and development asset	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Year ended 31 December 2007
Cost	5,787	273	6,060	602	-	6,662
Additions	-	535	535	485	-	1,020
Amortisation	(538)	-	(538)	-	-	(538)
Closing net book value	5,249	808	6,057	1,087	-	7,144
Year ended 31 December 2008
Opening net book value	5,249	808	6,057	1,087	-	7,144
Additions	-	1,298	1,298	735	222	2,255
Amortisation	(336)	-	(336)	-	-	(336)
Closing net book value	4,913	2,106	7,019	1,822	222	9,063
At 31 December 2008
Cost	5,787	2,106	7,893	1,822	222	9,937
Accumulated amortisation	(874)	-	(874)	-	-	(874)
Closing net book value	4,913	2,106	7,019	1,822	222	9,063
At 31 December 2007
Cost	5,787	808	6,595	1,087	-	7,682
Accumulated amortisation	(538)	-	(538)	-	-	(538)
Closing net book value	5,249	808	6,057	1,087	-	7,144

Intangibles include internally generated product development costs capitalised in accordance with IAS 38 and purchased Intellectual Property held at cost less amortisation following the disposal of Energetix Micropower Ltd as detailed below.

Intellectual Property

On 16 April 2004, the Group disposed of its 60 per cent investment in Energetix Micropower Limited to a third party for an initial consideration of £1,031,400 on completion of the transaction, deferred consideration of £4,200,000, of which £900,000 was due as at 16 April 2006, and contingent consideration of £600,000 (based upon the sale of 60,000 units by the acquirer). The deferred consideration was discounted at 6.75 per cent from the date of disposal to the anticipated settlement date. Initially the discount was recorded as financing costs of £846,000. 

On 16 April 2006, the third party indicated that they would not be paying the Group the deferred consideration for Energetix Micropower Limited that was originally sold in April 2004. The terms of the original Sale and Purchase Agreement contained clauses that anticipated this eventuality and accordingly resulted in the return of the intellectual property into a new subsidiary of the Group (Energyboost Limited (now Energetix Genlec Limited)) formed for the purpose.

The agreement also made provision for the original partner to Energetix Micropower Limited to participate in the new subsidiary with their original 40% equity holding. 

The Group agreed that its original partner in this venture received a £3,000,000 preference debt in the new subsidiary in lieu of any entitlement to equity. The preference debt has been discounted at 6.75% from the date of assuming the preference debt until the anticipated settlement date. This preference debt will be paid out of the future earnings of the new subsidiary.

In accordance with IAS 38 the intellectual property has been capitalised at the discounted value of the deferred consideration foregone plus the value of debt assumed by the Company.

		£'000
Current receivable foregone as at 16 April 2006		900
Discounted value of deferred consideration foregone		2,378
Discounted value of preference debt given for 40% of the equity		2,509
Value of intellectual property included in intangible assets		5,787

The remaining amortisation period of the intellectual property is 15 years. 

Research and development asset

The Group currently has internally generated intangible assets from development of its micro-CHP module, compressed air battery and smart voltage management unit.  All other development work has been written off as incurred where the criteria for recognition as an asset are not met. 

Prior to VPhase's placing of shares on 14 May 2008, £26,000 of research and development expenditure incurred by VPhase plc (or its subsidiaries) has not been capitalised as an intangible asset as it did not meet the requirements of IAS 38.  Subsequent to the placing, research and development expenditure incurred by VPhase plc does meet the requirements of IAS 38 and, consequently, has been capitalised.

 

6. Part disposal of a business

During the year, the Group made deemed disposals in its AIM listed subsidiary, VPhase plc. The chronology of the transactions is outlined below:

On 13 February 2008, VPhase plc issued 1,248,240 shares to Novum Securities Limited, its broker, in settlement of broker services received. 

On 19 May 2008, VPhase plc issued 70,000,000 ordinary shares via a placing. The placing raised £3.5 million before issue costs of £195,000 and warrants of £105,000. 

On 12 June 2008, VPhase plc issued 1,248,240 shares to Novum Securities Limited, its broker, in settlement of broker services received.

On 14 August 2008, VPhase plc issued 1,248,240 shares to Novum Securities Limited, its broker, in settlement of broker services received.

On 8 October 2008, VPhase plc issued 1,248,240 shares to Novum Securities Limited, its broker, in settlement of broker services received.

The Group's interest in VPhase plc reduced from 55.1% to 49.1% following these transactions. The reduction in the Group's interest in VPhase plc constituted a deemed disposal at Group level and resulted in a gain to the Group as calculated below.

Deemed disposal 1

	2008
	Group		Minority Interest		Total
	£		£		£
Fair value of consideration	20,000		-		20,000
Share of net assets disposed of	(9,695)		9,695		-
Gain on deemed disposal	10,305		9,695		20,000

Deemed disposal 2

	2008
	Group		Minority Interest		Total
	£		£		£
Proceeds from placing	3,500,000		-		3,500,000
Share issue expenses	(300,000)		-		(300,000)
Share of net assets disposed of	(1,607,452)		1,607,452		-
Gain on deemed disposal	1,592,548		1,607,452		3,200,000

Deemed disposal 3

	2008
	Group		Minority Interest		Total
	£		£		£
Fair value of consideration	20,000		-		20,000
Share of net assets disposed of	(10,353)		10,353		-
Gain on deemed disposal	9,647		10,353		20,000

Deemed disposal 4

	2008
	Group		Minority Interest		Total
	£		£		£
Fair value of consideration	20,000		-		20,000
Share of net assets disposed of	(11,753)		11,753		-
Gain on deemed disposal	8,247		11,753		20,000

Deemed disposal 5

	2008
		Group		Minority Interest		Total
		£		£		£
Fair value of consideration		20,000		-		20,000
Share of net assets disposed of		(11,677)		11,677		-
Gain on deemed disposal		8,323		11,677		20,000

The total deemed gain resulting from the deemed disposals is £1,629,000.

The minority interest arising from all transactions was £1,651,000

Following the deemed disposals in VPhase plc, the Group held 49.1% of the ordinary share capital of VPhase plc. The Group continues to consolidate the results of the subsidiary on the basis that it controls the financial and operating polices of VPhase plc through Board members.

The Group has control over 53.7% (2007: 60.1%) of the voting rights of the ordinary shares in VPhase plc as a result of retaining the voting rights over shares held by an employee benefit trust, Energetix (Nominees) Limited, a subsidiary wholly owned by Energetix Group plc.

 

7. Financial liabilities - Borrowings

In July 2006, Energetix (Europe) Limited and Energetix Genlec Limited entered into an arrangement with Battelle Memorial Institute (Battelle) under which Battelle agreed to waive all rights to subscribe for 40% of the share capital of Energetix Genlec Limited in exchange for a £3,000,000 preference debt in Energetix Genlec Limited. The preference debt has been discounted at 12.50% (2007: 7.50%) from this date until anticipated settlement date giving rise to a non current liability of £1,625,000 (2007: £1,995,000) and a current liability of £14,000 (2007: £89,000). The terms are that it is not interest bearing, that £500,000 would be repaid over the two years ending August 2008 and that the balance will be repaid by (i) an amount equal to 10% of any licence fees paid to Energetix Genlec Limited by any third party and (ii) 2% of amounts received by Energetix Genlec Limited in respect of all mainstream sales. The obligation for future repayments based on a percentage of mainstream sales is considered an embedded derivative. Accordingly the Group has designated the entire instrument as fair value through profit and loss (FVTPL).  During the year, £150,000 (2007: £350,000) was repaid and the discounting of future repayments at 12.50% has resulted in an adjustment of £295,000 to the carrying value of the liability. The amount contractually repayable at 31 December 2008 was £2,500,000 (2007:  £2,650,000).

8. Cash consumed by operations

		2008		2007
		£'000		£'000
Loss before income tax		(1,662)		(1,847)
Adjustments for:
- Depreciation		125		62
- Amortisation		336		333
- Finance income		(615)		(413)
- Other income		(296)		(75)
- Other gains on part disposal of VPhase plc (note 6)/Energetix Voltage Control Limited		(1,629)		(685)
- Share based payments		28		68
- Other share based payments		136		32
- Issue of warrants in subsidiary		105		-
- Income tax charge		-		6
Changes in working capital:
- Decrease/(increase) in inventories		58		(58)
- Increase in trade and other receivables		(55)		(232)
- Increase in trade and other payables		536		372
Cash consumed by operations		(2,933)		(2,437)

 

9. Availability of financial statements

Copies of the full statutory financial statements will be available from the registered office at Steam Packet House, 76 Cross Street, Manchester, M2 4JU from 21 May 2009 and will also be available from the Group's website at www.energtixgroup.com.

 

10. Annual General Meeting

The Annual General Meeting will be held at 10am on 20 May 2009 at the Company's registered office, Steam Packet House, 76 Cross Street, Manchester, M2 4JU.

ENDFR PUUBWWUPBGRU

---

Related Shares:

Flowgroup