Reduction of boiler installations for 2015

16 June 2015

Flowgroup PLC

("Flowgroup" or the "Company")

Reduction of boiler installations for 2015

Acceleration of cost reduction programme

Flowgroup plc (AIM: FLOW), which develops and commercialises alternative and efficient energy products for the global market, announces a substantial reduction in the expected number of boiler installations in 2015. The European Court of Justice ruled on 4 June that the UK's reduced 5% rate of VAT on energy-saving products is in breach of EU laws. The Company is accelerating its cost reduction programme for the Flow boiler to offset these costs, with VAT now expected to be applied on these products at the usual 20% rate.

While the UK Government has yet to clarify the ongoing position, in the light of this ruling, the Company has decided to take the prudent step to focus the Flow Products business on its cost reduction programme, already initiated with Jabil, ensuring that customers remain unaffected by any potential increase in VAT and maintaining the long term viability of the 'Boiler that pays for itself' model. In the short term it is expected this will result in a substantial reduction in boiler installations for the remainder of 2015. The Company expects to accelerate its cost reduction programme and will make further refinements to product specifications as part of its continuing validation process, so as to re-launch the 'Boiler that pays for itself' campaign in Q4 2015.

The reduced VAT rate was a UK Government initiative to encourage energy efficiency and to meet energy reduction targets under the UK's Green Deal and applied to micro-generation products such as the Company's Flow boiler. The Company understands that the UK Government remains committed to providing incentives to encourage the adoption of products like the Flow boiler and has said that it will study the judgement carefully and consider the next steps.

The Company previously communicated that it was targeting to be net cash flow generative by Q4 2015 and profitable by Q1 2016, it is expected that these targets will take longer to achieve.

The Flow Energy business continues to perform well and is ahead of market expectations with slightly higher numbers than originally targeted.

Tony Stiff, CEO of Flowgroup, said: "Clearly this is a short term blow to Flowgroup and the UK's Green energy plan and we now have to wait to see how the Government will interpret this and how they will react. That said, we are confident that the Government will still seek to promote energy efficient products and we still expect that Flow customers will benefit from this.

"The long term expectation of a successful roll out of our technology remains unchanged, but it is clear that launching during a time when consumers might have to pay over £500 more for the Flow boiler and see installation costs rise by 15% would be inconsistent with our initial roll out plans.

"The EU ruling has no impact on our plans to develop and launch a combination version of the Flow boiler in-line with our timescale. We remain on track to deliver this additional product as an extension of our range."

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Cautionary statement

This announcement contains forward-looking statements that are based on current expectations or beliefs, as well as assumptions about future events. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as anticipate, target, expect, estimate, intend, plan, goal, believe, will, may, should, would, could, is confident, or other words of similar meaning. Undue reliance should not be placed on any such statements because they speak only as at the date of this document and, by their very nature, they are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results, and Flowgroup's plans and objectives, to differ materially from those expressed or implied in the forward-looking statements. There are a number of factors which could cause actual results to differ materially from those expressed or implied in forward-looking statements. Among the factors that could cause actual results to differ materially from those described in the forward-looking statements are: increased competition, the loss of or damage to one or more key customer relationships, the failure of one or more key suppliers, the outcome of business or industry restructuring, the outcome of any litigation, changes in economic conditions, currency fluctuations, changes in interest and tax rates, changes in raw material or energy market prices, changes in laws, regulations or regulatory policies, developments in legal or public policy doctrines, technological developments, or the failure to retain key management. Flowgroup undertakes no obligation to revise or update any forward-looking statement contained within this announcement, regardless of whether those statements are affected as a result of new information, future events or otherwise, save as required by law and regulations.