Replacement for Announcement 2217 made at 0700 30 September 2005
Energy Technique Plc
Preliminary Announcement 2005
Overview
The year ended 31 March 2005 has been a most difficult and problematic period in
the Groups development. The year started on a good note following the
successful completion of the �3.0 million Share Placing in April 2004, but then
ended on a low after the unexpected and prolonged losses incurred by its core
Diffusion Heating and Cooling operation.
The Company raised �3.0 million before expenses, by way of a Share Placing,
primarily to finance growth of its new Air Treatment Division and Diffusion DX
Air Conditioning, and to a lesser extent its core Diffusion Heating and Cooling
operation. At the time of the Share Placing, the Directors were optimistic
about the trading prospects of Diffusion Heating and Cooling. However, trading
conditions at this operation unexpectedly deteriorated, resulting in substantial
trading losses, which then had to be funded out of the �3.0 million Share
Placing, thereby inhibiting the planned growth of the new businesses.
Group financial performance
Whilst Group sales fell marginally to �10.7 million (2004: �10.8 million) the
operating loss increased to �2.4 million (2004: �1.0 million) and the loss both
before and after tax increased to �2.5 million (2004: �1.5 million). The root
causes of the additional losses emanated from Diffusion Heating and Cooling,
where the losses deepened to �0.9 million (2004: �0.3 million), and the newly
formed Diffusion Air Treatment Division, where the losses deepened to �0.8
million (�0.3 million).
Group cash flow
The Group was refinanced in April 2004 with a �3.0 million Share Placing to
predominantly provide working capital to develop the newly formed Air Treatment
Division, Diffusion DX and to a lesser extent the core Diffusion Heating and
Cooling operation. However, the unexpected losses incurred by Diffusion Heating
and Cooling absorbed a similar cash amount resulting in a net debt position at
31 March 2005 of �1.3 million (2004: �1.8 million).
Dividends
The Board does not recommend the payment of a dividend (2004: �nil).
Operations
Diffusion Heating and Cooling
Diffusion Heating and Cooling, based in West Molesey, Surrey is an established
assembler and distributor of fan coils and commercial heating products into
commercial offices, hotels and retail outlets.
Sales fell by 11% to �7.1 million (2004: �8.0 million) but the operating loss
deepened to �0.9 million (2004: �0.3 million). Diffusion HC experienced a
sudden and unexpected reduction in demand for its core fan coil market in the
second quarter of the financial year, which continued for the remainder of the
financial year. Sales in the first quarter were �2.3 million, but for the
remainder of the year average quarterly sales ran at only �1.6 million, 30% down
on the first quarter.
Key senior management changes have now been effected and Diffusion Heating and
Coolings cost base has been substantially reduced in line with the reduced
demand for fan coils. The current headcount compliment is 64, down by 30% on
the position at 30 June 2004. The cost reduction impact of certain of the
resulting redundancies, particularly those relating to management, will not be
fully felt until December 2005, when notice periods will have been worked out.
Diffusion DX Air Conditioning
Diffusion DX Air Conditioning, based in Basingstoke and Birmingham, was formed
in August 2002 to distribute branded Panasonic, LG Electronics and latterly the
Fujitsu range of packaged air conditioning equipment for use in offices, shops,
and hotels.
Sales increased by 30% to �3.4 million (2004: �2.6 million) but the operating
loss increased to �0.3 million (2004: �0.1 million), due to a combination of
weak selling margins and higher bad debts. Following negotiations with key
suppliers, selling margins are now improving. Diffusion DX Air Conditioning has
gained acceptance in the packaged air conditioning market place and the future
strategy is to reduce the current seasonality of the business by focusing on non-
seasonal consultant led project work. Pursuing this strategy is also expected
to impact future bad debts through a much wider customer base profile.
Diffusion Air Treatment
Diffusion Air Treatment, based in Basingstoke, distributes on an exclusive EU
basis the Lifebreath range of patented domestic heating and ventilation
products, together with distribution of the in-house Nightingale UVGI air
treatment unit and the NQ range of similar UVGI air treatment units.
Sales remained at �0.2 million for both years but the operating loss increased
to �0.8 million (2004: �0.3 million) due to initial investment costs in
developing the division immediately after the 2004 Share Placing. However, the
planned growth and development of this new business activity had to be curtailed
due to the unexpected losses incurred by Diffusion Heating and Cooling and the
need to conserve cash resources.
Sales of Lifebreath products were disappointing and senior management changes
have been effected. Since these changes we now are pleased to have secured the
first phase of a major contract to supply Lifebreath units into a leading UK
house builder and enquiry levels are encouraging.
We are particularly disappointed in the absence of demand from the NHS for the
Nightingale UVGI unit and the NQ product range, due to its apparent lack of
funding, given these products offer an integral part of a total solution package
to combat the so called hospital MRSA super bug and other dangerous airborne
pathogens such as anthrax and tuberculosis. The Nightingale UVGI air filtration
unit, which uses a combination of traditional filters combined with ultra violet
technology, has been successfully tested at the Health Protection Agency and is
an award winning rapid response mobile unit. The NQ product range also uses
ultra violet technology and has been extensively sold into hospitals in North
America. Trials with the Nightingale UVGI unit are progressing at an NHS
hospital.
We hope that a recent legal case where damages were awarded by an NHS Trust to a
patient who contracted MRSA will improve awareness of our products. Our new
duct mounted unit, using Nightingale technology, will be available by early 2006
and we believe this variant will have more widespread use in hotels and
commercial offices, especially where buildings have acquired sick-building
syndrome or legionnaires type diseases due to airborne pathogens.
Installation into a commercial application has been identified for this duct
mounted product.
Business strategy
The Group will seek to exploit the current and future opportunities in the
Heating Ventilation and Air Conditioning market by focusing its strategy on the
following:
- Further developing Diffusion Heating and Cooling into the brand leader for
air conditioning fan coils and commercial heating products in particular,
through continued product innovation and development.
- Build on the strong organic growth already achieved by Diffusion DX Air
Conditioning in the packaged air conditioning market since its formation, by
concentrating on securing consultant led project work, which will reduce the
current seasonality of the business.
- Fully exploit the sales growth opportunities created for Lifebreath
products by Part L of the Building (Amendment) Regulations 2001 (and subsequent
Building (Amendment) (No.2) Regulations 2002), through the aggressive marketing
of Lifebreath products by Diffusion Air Treatment in the UK and EU.
- Capitalise early on the sales growth opportunities created by the
developing air treatment and sanitisation markets, by Diffusion Air Treatment
offering a complete range of ultra violet products, ranging from the premium
priced high specification Nightingale UVGI unit to the lower and medium
specified products manufactured by NQ Environmental Inc.
- Develop and exploit a duct-mounted UVGI air treatment unit using the same
patent applied for technology as used by the mobile Nightingale UVGI unit, which
is believed will have more widespread application in hotels, offices and other
commercial applications.
- Explore with Chinese companies opportunities for manufacturing certain of
the Groups products and components in China, thereby providing the Group with
increased overall price competitiveness.
Directors
I would like to welcome Kevin Fallon who joined the Board on 20 October 2004.
Kevin brings 28 years of international business development experience to the
Board and has been instrumental in securing the �1.5 million Loan Note referred
to below.
Management and employees
On behalf of the Board, I should like to thank all employees for their continued
hard work, loyalty and commitment during the particularly difficult trading
conditions of last year. I would also like to thank the Board for their
exemplary dedication to the Group and in particular the non-executive directors
renewed financial support and belief in the long term viability of the Groups
products and services.
Current trading and prospects
Since 31 March 2005 the Group continues to experience very difficult trading
conditions and working capital constraints. The Board has taken steps to
improve sales and reduce the Groups operating costs and, although it is
expected that the benefit of the cost reductions will begin to flow through in
the coming months, these benefits have not impacted in the six months to 30
September 2005.
As a consequence, it is now essential to provide the necessary additional
working capital for the Group to continue to trade solvently and the Board
agreed on 6 September 2005 with an investor group comprising London & Boston
Investments Plc (of which Stephen Komlosy, a director of the Company is also a
director) and Triandra Limited, who are existing shareholders of the Company to
advance up to �1.5 million by way of an issue of a like amount of Loan Notes.
The investor group has conditionally agreed to convert the Loan Notes into new
ordinary shares at a price of 1p per share, subject to (1) the approval of those
shareholders of the Company who are independent of the investor group (which is
deemed to be a Concert Party for the purposes of Rule 9 of the City Code on
Takeovers and Mergers), and (2) the granting by the Panel on Takeovers and
Mergers of a waiver of the requirement for the investor group to make a general
offer to shareholders, which would normally arise on conversion of the Loan
Notes, and (3) the Admission to trading on AIM of the new shares.
A Shareholders Circular has been sent at the same time as the Report and
Accounts, convening an Extraordinary General Meeting, immediately before the
2005 Annual General Meeting, to seek shareholders approval in relation to the
conversion of the Loan Notes and a proposed equity issue to shareholders of
152,628,016 new ordinary shares at a price of 1p per share which is available to
shareholders on the basis of one new share for every existing share held. Money
raised by that equity issue will be used to redeem the relevant number of Loan
Notes.
Your Group has been through very trying times in the year ended 31 March 2005,
but we have emerged leaner and more poised to tackle the future. I hope
shareholders will approve at the Extraordinary General Meeting the conversion of
the Loan Notes and proposed equity issue to shareholders, so as to allow the
Group to capitalise on the significant growth opportunities in the Heating
Ventilation and Air Conditioning market.
Gerard M Thompson
Executive Chairman
2005 2004
Note �000 �000
Turnover 3 10,677 10,819
Cost of sales (8,845) (8,508)
Gross profit 1,832 2,311
Distribution costs (3,233) (2,466)
Administrative expenses (953) (889)
Operating loss
Before exceptional items 3 (2,298) (969)
Exceptional items 4 (56) (75)
Loss before interest (2,354) (1,044)
Loss on disposal of fixed asset investment (311)
Interest payable (117) (117)
Loss on ordinary activities before taxation (2,471) (1,472)
Tax on loss on ordinary activities
Loss for the financial year (2,471) (1,472)
Dividends on equity shares
Transfer from reserves (2,471) (1,472)
Loss per share:
Basic 5 (1.70) (2.01)p
Diluted 5 (1.70) (2.01)p
Before exceptional items 5 (1.66) (1.48)p
Both the turnover and operating results shown above are entirely in respect of
continuing operations.
There are no other recognised gains or losses other than as recorded in the
profit and loss account for the year.
31 March 31 March
2005 2004
�000 �000
Fixed assets
Intangible assets 17 17
Tangible assets 329 317
346 334
Current assets
Stocks 1,580 1,323
Debtors 2,308 2,654
3,888 3,977
Creditors amounts falling due within one year (4,151) (4,515)
Net current liabilities (263) (538)
Total assets less current liabilities 83 (204)
Creditors amounts falling due after more than one (7)
year
83 (211)
Capital and reserves
Called up share capital 1,526 746
Share premium account 3,572 1,587
Other reserves 7,449 7,449
Profit and loss account (12,464) (9,993)
Equity shareholders funds 83 (211)
Note:
The group is to be re-financed with a �1.5 million Equity
Funding. A pro-forma balance sheet showing the impact of
this Share Placing at 31 March 2005 is set out on page 11.
2005 2004
�000 �000
Loss for the year (2,471) (1,472)
Issue of ordinary shares 780 15
Increase in share premium account 1,985 30
Movements in shareholders funds 294 (1,427)
Shareholders funds at beginning of year (211) 1,216
Shareholders funds at end of year 83 (211)
2005 2004
�000 �000
Cash outflow from operating activities (2,077) (905)
Returns on investment and servicing of (117) (117)
finance
Capital expenditure and financial (119) (33)
investment
Expenditure on intangible assets (17)
Disposal of shares in London & Boston
Investments Plc 203
Cash outflow before financing (2,313) (869)
Financing:
Issue of share capital 2,765 45
(Reduction)/increase in debt (452) 638
Nil change/(reduction) in cash during (186)
year
Reconciliation of net cash flow to movement in net
debt
2005 2004
�000 �000
Nil change/(reduction) in cash in year (186)
Reduction/(increase) in debt 452 (638)
Change in net debt resulting from cash 452 (824)
flows
New finance leases
Reduction/(increase) in net debt 452 (824)
Net debt at start of year (1,771) (947)
Net debt at end of year (1,319) (1,771)
Reconciliation of operating loss to operating cash
flows
2005 2004
�000 �000
Operating loss before exceptional items (2,298) (969)
Exceptional items (56) (75)
Operating loss after exceptional items (2,354) (1,044)
Depreciation and amortisation 107 117
Stocks (257) (283)
Debtors 346 (501)
Creditors 81 806
(2,077) (905)
1. Accounting policies
The financial information set out above has been prepared using accounting
policies consistent with 2004.
2. Basis of preparation of financial statements
On 6 September 2005 the Board announced proposals to refinance the Group by way
of a �1.5 million Loan Note provided by an investor group comprising London &
Boston Investments Plc (of which Stephen Komlosy, a director of the Company is
also a director) and Triandra Limited who are existing shareholders of the
Company. The Loan Notes were essential to provide the necessary additional
working capital for the Group to continue to trade solvently.
The investor group conditionally agreed to convert the Loan Notes into new
ordinary shares at a price of 1p per share, subject to;
(i) the approval of those shareholders of the Company who are independent of
the investor group (which is deemed to be a Concert Party for the purposes of
Rule 9 of the City Code on Takeovers and Mergers) and
(ii) the granting by the Panel on Takeovers and Mergers of a waiver of the
requirement for the investor group to make a general offer to shareholders,
which would normally arise on conversion of the Loan Notes, and
(iii) the Admission to trading on AIM or the new shares.
On 30 September 2005 a circular was sent to shareholders setting out details of
an issue to shareholders of 152,628,016 new ordinary shares at a price of 1p per
share which is available to shareholders on the basis of one new share for every
existing share held. Money raised by this equity issue will be used to redeem
the relevant number of Loan Notes.
The Loan Note instrument is conditional on approval by shareholders in general
meeting. Failure to obtain approval will render the company in default of the
Loan Note instrument and may lead to the Loan Note holders withdrawing the
availability of future funds and/or the withdrawal of existing funds provided
prior to the Extraordinary General Meeting.
The financial statements have been prepared on the going concern basis which
assumes that the company and its subsidiaries will continue in operational
existence for the foreseeable future.
The validity of this assumption depends on the passing of the resolution
approving the Loan Note instrument. The financial statements do not include any
adjustments that would result if the resolution is not passed.
Whilst the directors are presently uncertain as to the outcome of the matter
mentioned above, they believe that it is appropriate for the financial
statements to be prepared on the going concern basis.
The financial information for the year ended 31 March 2005 and 2004 set out
above does not constitute statutory accounts within the meaning of section 240
of the Companies Act 1985. The information has been extracted from the
statutory accounts of Energy Technique Plc for the year ended 31 March 2005,
which have not yet been filed with the Registrar of Companies. Statutory
accounts for the year ended 31 March 2004 have been delivered to the Registrar
of Companies. Statutory accounts for the year ended 31 March 2005 were approved
by the Board of Directors on 30 September 2005, are audited and will be
delivered to the Registrar of Companies following the Annual General Meeting on
26 October 2005.
The Companys auditors, Milsted Langdon, have reported on the 2005 and 2004
accounts 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.
The report on the 2005 accounts contained the following paragraph headed going
concern referring to the accounting policies;
In forming our opinion, we have considered the adequacy of the disclosures made
in note 1 of the financial statements concerning the requirement for the
shareholders to pass at the Extraordinary General Meeting, to be held on 26
October 2005, the resolution proposed, to adopt the Loan Note instrument. The
approval by shareholders is required by the Loan Note instrument and, if not
passed, the company will be in default. This may result in the Loan Note
holders curtailing future advances and demand repayment of amounts already
advanced. The financial statements have been prepared on a going concern basis,
the validity of which depends on this funding continuing to be available. The
financial statements do not contain any adjustments that would result from
failure to retain this funding. In view of the significance of this uncertainty
we consider that it should be drawn to your attention but our opinion is not
qualified in this respect.
3. Segmental analysis
Turnover Operating loss Operating net
assets
2005 2004 2005 2004 2005 2004
�000 �000 �000 �000 �000 �000
Diffusion Heating and
Cooling
Before exceptional 7,052 7,994 (837) (196)
items
Exceptional items (56) (75)
After exceptional 7,052 7,994 (893) (271) 1,587 1,130
items
Diffusion DX Air 3,444 2,643 (257) (124) (180) 476
Conditioning
Diffusion Air Treatment 181 182 (833) (338) 150 37
Central and Plc costs
Before exceptional (371) (311)
items
Exceptional items (311)
After exceptional (371) (622) (155) (83)
items
10,677 10,819 (2,354) (1,355) 1,402 1,560
Borrowings (1,319) (1,771)
Taxation
83 (211)
4. Exceptional items
2005 2004
�000 �000
Operating items
Redundancies and employee termination costs 56 75
Loss on disposal of shares in London and Boston Investments Plc 311
56 386
The exceptional items have been classified as follows:
Cost of sales 56 75
Loss on disposal of fixed asset investment 311
56 386
The tax effect of exceptional items is to increase trading losses
carried forward.
5. Loss per share
The loss per share calculations have been arrived at by reference to the
following earnings and weighted average number of shares in issue during the
year.
2005 2004
�000 �000
Basic
Loss after tax (2,471) (1,472)
Before exceptional items
Operating loss (2,298) (969)
Interest payable (117) (117)
Tax payable
(2,415) (1,086)
Loss after tax
No. No.
Weighted average number of shares in issue 145,334,603 73,337,751
Weighted average number of shares on a diluted basis 153,303,282 83,612,779
Supplementary basic losses per share have been calculated to exclude the effect
of redundancy costs and the loss in 2004 on the disposal of the Companys
investment in the shares of London and Boston Investments Plc.
6. Posting of Report and Accounts
The 2005 Report and Accounts will be posted to shareholders on 30 September
2005.
Contacts:
Leigh Stimpson, Managing Director, Energy Technique Plc: 07919 214882
Rob Unsworth, Director, Energy Technique Plc: 020 8783 0033
31 March Adjustment 31 March
for
2005 Equity 2005
Audited Issue Pro-forma
�000 �000 �000
Fixed assets
Intangible assets 17 17
Tangible assets 329 329
346 346
Current assets
Stocks 1,580 1,580
Debtors 2,308 2,308
3,888 3,888
Creditors amounts falling due within one year
Borrowings (1,319) 1,400 81
Other creditors (2,832) (2,832)
(4,151) 1,400 (2,751)
Net current (liabilities)/assets (263) 1,400 1,137
Total assets less current liabilities 83 1,400 1,483
Creditors amounts falling due after more than one
year
Borrowings
83 1,400 1,483
Capital and reserves
Called up share capital 1,526 1,500 3,026
Share premium account 3,572 (100) 3,472
Other reserves 7,449 7,449
Profit and loss account (12,464) (12,464)
Equity shareholders funds 83 1,400 1,483
The pro-forma balance sheet shown above has been extracted from the audited
balance sheet at 31 March 2005, adjusted only for the impact of the �1.5 million
Equity Funding, net of estimated costs of �100,000, on the assumption
shareholders approve the refinancing proposals at the extraordinary general
meeting to be held on 26 October 2005. No adjustments have been made for
trading since 31 March 2005 or for any other adjustments.
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