TIDMETQ
RNS Number : 7572H
Energy Technique PLC
22 May 2014
Energy Technique Plc
("Energy Technique", "ETQ" or the "Company" or the "Group")
Preliminary Announcement of 2014 Results
Headlines
-- Sales increased by 27% over the previous year to GBP9.56 million;
-- Operating profit of Diffusion increased by 123% over the previous year to GBP906,000;
-- Group profit before tax increased by 225% over the previous year to GBP649,000;
-- Final dividend increased by 167% to 2.0 pence per share;
-- Buy-back of 28% of share capital completed from the then largest shareholder, Elsina Limited;
-- Strong net cash equivalents at 31 March 2014 of GBP873,000 and net assets of GBP1.60 million;
-- Enquiries and order intakes are at high levels and with
M&E consultants currently experiencing high workloads, the
Board believes this will translate into a successful year ending 31
March 2015.
Chairman's Statement
Introduction
I am very pleased to report a significant improvement in profit
for the year ended 31 March 2014. Sales increased by 27% over the
previous year to GBP9.56 million, producing a substantial
improvement in both operating profit for Diffusion to GBP906,000
and for group profit before tax to GBP649,000. This represents a
solid set of trading results ahead of management's
expectations.
Fan coils generated much of the increased sales and this was
attributed to a combination of improving fan coil market conditions
and Diffusion's premium branded product offering. For the first
time in a number of years, the fan coil market started to show
growth, arising from the increasing number of commercial and
high-end residential developments and refurbishments being
undertaken by the leading property owning companies.
Group trading performance
Sales in the year ended 31 March 2014 increased by 27% to
GBP9.56 million (2013: GBP7.55 million). Fan coil sales were
particularly strong with sales increasing by 42% to GBP7.45 million
(2013: GBP5.26 million), but sales of the smaller commercial
heating range fell marginally to GBP1.65 million (2013: GBP1.95
million). High fan coil sales were attributed to a number of large
commercial and high-end residential projects. The absence of growth
in commercial heating sales was consistent with a continuation of
difficult trading conditions on the UK high street.
Diffusion's operating profit increased by 123% to GBP906,000
(2013: GBP406,000), representing an improved operating profit
margin of 9.5% (2013: 5.4%), equivalent to a return on capital
employed of 58% for the year. Despite market pressures, overall
selling contribution margins remained stable due to continued lean
manufacturing methods. Diffusion's relatively high operational
gearing meant that sales increases flowed substantially through to
bottom line operating profit.
Group profit before tax increased by 225% to GBP649,000 (2013:
GBP200,000) after charging Central costs of GBP210,000 (2013:
GBP164,000) and interest of GBP47,000 (2013: GBP42,000). Central
costs include non-cash share option charges and interest costs
include notional charges of GBP20,000 (2013: GBP16,000) relating to
the unwinding of a provision set up at 31 March 2010. The taxation
charge of GBP143,000 (2013: GBP39,000) represents non-cash deferred
tax.
About Diffusion
The Company's trading subsidiary, Diffusion, has supplied fan
coils and commercial heating products to the UK heating and
ventilation industry ("HVAC") for over 50 years. Diffusion is one
of the oldest and most established suppliers to the HVAC industry
and it is a market leader in the manufacture of premium quality fan
coils and commercial heating products. The Diffusion and Energy
Technique brand names are recognised as highly engineered, quality
products providing leading edge performance and energy
efficiency.
Diffusion's products are installed into commercial offices,
hotels, airports, retail outlets, schools, and more recently
high-end residential developments. Fan coils are supplied into
developments of the major property owning companies, including Land
Securities, Stanhope Properties, Grosvenor Estates and British
Land. Commercial heating end users include Marks & Spencer,
Sainsbury's, Tesco, New Look, Boots, ASDA, John Lewis, Fat Face,
Lloyds Bank and TK Maxx. All products are designed, developed and
manufactured to customers' bespoke requirements from Diffusion's
30,000 sq. ft. manufacturing facility in West Molesey, Surrey.
Diffusion's operating performance
This is the third successive year of sales and profit growth for
Diffusion, with fan coils providing the main growth driver for the
year ended 31 March 2014. With Diffusion's leading edge product
offering, the sales and marketing team took advantage of improving
UK fan coil market conditions, resulting in a 42% growth in fan
coil sales. The recently launched ECO 270 fan coil range offering
25% energy savings for no additional capital cost, has gained
increasing market traction and the Board believes its sales will
continue to grow in the future.
Diffusion's fan coils were supplied into all three of the
current London skyline developments of the Shard, Cheesegrater and
Walkie-Talkie. In total, fan coils were supplied into over 200
different projects during the year, including other large
developments at London Bridge Place, Fitzroy Place, 71 Queen
Victoria Street, Tideway Riverlight and 3 Merchant Square.
Following on from its success at No. 1 Hyde Park in London,
Diffusion supplied fan coils into other high-end residential
developments in the year ended 31 March 2014, including De Vere
Gardens, 375 Kensington High Street and the Battersea redevelopment
scheme. The Board views Diffusion's successful entry into the
high-end residential sector as a major growth driver for the
future.
Commercial heating sales fell marginally in the year ended 31
March 2014, due to a continuation of difficult trading conditions
on the UK high street, but order intakes are now improving.
Diffusion's commercial heating range enjoys the same reputation for
quality as its fan coils, with customers liking the bespoke service
and short lead times. Commercial heating products were fitted into
many prestigious sites during the year, including The White
Company, Fat Face, BMW Nottingham, Primark, Forever 21, Marks &
Spencer, H&M and Sainsbury's.
The new CRM database is proving to be a valuable management tool
for improving enquiry conversion rates. A number of other
initiatives are also being launched to further enhance sales
growth. The Board is exploring the grant of franchises in overseas
territories in return for licence fees, where franchisees can
capitalise on Diffusion's strong brand name, product innovation and
engineering excellence. An experienced consultant has been
appointed to develop this franchise model in Asia and the Middle
East. In addition, a factored range of high quality trench heaters,
manufactured in a low cost European country and badged Diffusion is
being launched to complement the existing fan coil product
offering.
Share buy-back
A share buy-back programme for 28% of the Company's share
capital was completed during the year at a cost of GBP400,000. At
the General Meeting held on 16 May 2013, shareholders approved the
terms of a share buy-back programme at 42.5 pence per share from
Elsina Limited, its then largest shareholder. 470,000 shares were
bought back in May 2013 at a cost of GBP200,000, the first call
option over 235,000 shares was completed on 18 December 2013 at a
cost of GBP100,000 and the second call option over 235,000 shares
was completed on 7 February 2014 at a cost of GBP100,000. All
shares bought back have been cancelled and Elsina Limited is no
longer a shareholder.
Cash flow and net cash
Cash generated by operations increased by 69% to GBP831,000
(2013: GBP492,000), which was substantially applied in funding the
share buy-back programme. After funding this GBP400,000 buy-back
programme, the Group remains soundly financed with net cash
equivalents at 31 March 2014 of GBP873,000 (2013: GBP590,000) and
net assets at 31 March 2014 of GBP1.60 million.
Capital expenditure
Capital expenditure during the year was modest at GBP35,000,
comprising further investment in the Group's IT infrastructure and
CRM database systems. This is not a capital intensive business and
the main items of future capital expenditure will largely comprise
replacement expenditure only.
Dividends
The Board recommends payment of a final dividend of 2.0 pence
per share, representing an increase of 167% on the previous year's
final dividend, payable on 15 August 2014 to shareholders on the
share register on 25 July 2014. The Company paid an interim
dividend of 0.75 pence per share on 29 November 2013, taking total
dividends for the year ended 31 March 2014 to 2.75 pence per share,
representing an increase of 83% over the previous year.
Business strategy
The Board's previously stated strategy was to build shareholder
value by growing Diffusion's sales and profits organically. A good
measure of this objective was achieved in the year ended 31 March
2014, resulting in the share price increasing over four fold
between 31 March 2013 and 31 March 2014.
The Board's current strategy is to further grow Diffusion's
sales and profitability, where franchising and trench heaters have
been identified as growth drivers. At a share price of 197.5 pence
per share, the Company's market capitalisation of GBP4.72 million
represents a low multiple of 5.2 times Diffusion's operating profit
for the year ended 31 March 2014, providing further opportunities
for enhancing shareholder value. Once the Board has fully achieved
its strategic objective, then it will seek a strategic partnership
so as to fully realise shareholder value. In the meantime, the
Board will not be distracted from this organic growth strategy by
considering acquisitions.
Current trading and prospects
Trading in the current year ending 31 March 2015 has started
well, with sales in April in line with management's expectations.
M&E consultants are currently experiencing improved activity
levels and this is expected to provide sales growth opportunities.
Diffusion is well placed to benefit from this, with its new ECO 270
range of energy efficient fan coils, which are gaining increasing
market traction.
Two additional sales growth drivers are being pursued, namely
the granting of franchises in overseas territories, where
franchisees can capitalise on Diffusion's strong brand name,
product innovation and engineering excellence, together with a
range of factored trench heaters to complement the fan coil range.
It is too early to predict the outcomes of these initiatives, but
it is important to emphasise they both involve negligible downside
risks.
We are experiencing high levels of fan coil enquiries and
improving commercial heating enquiries, together with an improved
order book. Whilst it is too early to predict the outturn for the
remainder of the current year ending 31 March 2015, the Board looks
forward to another successful year.
Walter K Goldsmith
Chairman
21 May 2014
Contacts:
Walter Goldsmith, Chairman, Energy Technique Plc: 020 8783
0033
Leigh Stimpson, Managing Director, Energy Technique Plc: 020
8783 0033
Ed Frisby/Ben Thompson, finnCap Limited (Nominated Advisor): 020
7220 0500
Nicola Krafft, New Century Media (Financial PR) 020 7930
8033
Consolidated statement of comprehensive income
for the year ended 31 March 2014
2014 2013
Notes GBP000 GBP000
Revenue 9,565 7,550
Cost of sales (6,617) (5,506)
Gross profit 2,948 2,044
Distribution costs (1,710) (1,381)
Administration expenses (542) (421)
Operating profit 696 242
Finance costs (47) (42)
Profit before tax 649 200
Income tax charge (143) (39)
Total comprehensive income for the year 506 161
------------------------------------------ ----- ------- -------
Earnings per share
Basic 5 18.0p 4.8p
Fully diluted 5 16.8p 4.8p
------------------------------------------ ----- ------- -------
There are no other recognised gains or losses other than as
recorded in the Consolidated Statement of Comprehensive Income for
the year.
Consolidated statement of financial position
at 31 March 2014
2014 2013
GBP000 GBP000
ASSETS
Non-current assets
Intangible assets 25 25
Plant and equipment 240 284
Deferred tax asset 98 241
Total non-current
assets 363 550
Current assets
Inventories 771 788
Trade and other receivables 1,752 1,526
Cash 873 590
------------------------------------------- ------- -------
Total current assets 3,396 2,904
Total assets 3,759 3,454
LIABILITIES
Current liabilities
Trade and other payables (1,826) (1,578)
Current tax liabilities (213) (212)
Obligations under hire purchase agreements (10) (12)
Total current liabilities (2,049) (1,802)
Non-current liabilities
Obligations under hire purchase agreements - (10)
Provisions (115) (111)
Total liabilities (2,164) (1,923)
Net assets 1,595 1,531
EQUITY
Equity attributable to equity holders
Issued capital 239 333
Reserves 94 -
Retained earnings 1,262 1,198
Total equity 1,595 1,531
------------------------------------------- ------- -------
Consolidated statement of changes in equity
for the year ended 31 March 2014
Share Share Retained
capital premium Reserves earnings Total
GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------- ------- ------- -------- -------- ------
At 31 March 2012 4,351 3,422 7,449 (13,813) 1,409
Capital reorganisation and
reduction (4,018) (3,422) (2,336) 9,776 -
Reclassifications - - (5,113) 5,113 -
Sale of treasury shares - - - 11 11
Share options - - - 4 4
Dividends paid - - - (25) (25)
Comprehensive income - - - 161 161
Share reorganisation costs - - - (29) (29)
Total comprehensive income (4,018) (3,422) (7,449) 15,011 122
At 31 March 2013 333 - - 1,198 1,531
--------------------------- ------- ------- -------- -------- ------
Share options - - - 12 12
Dividends paid - - - (43) (43)
Comprehensive income - - - 506 506
Share reorganisation costs - - - (11) (11)
Share buy-backs (94) - 94 (400) (400)
Total comprehensive income (94) - 94 64 64
At 31 March 2014 239 - 94 1,262 1,595
--------------------------- ------- ------- -------- -------- ------
Consolidated cash flow statement
for the year ended 31 March 2014
2014 2013
GBP000 GBP000
Cash flows from operating activities
Profit before tax 649 200
Finance costs 47 42
Depreciation 79 79
Share option charge 12 4
Operating income before changes in working
capital 787 325
Reduction/(increase) in inventories 17 (115)
Increase in trade and other receivables (226) (144)
Increase in trade and other payables 253 426
Cash generated by operations 831 492
Finance costs (47) (42)
Net cash generated by operating activities 784 450
Cash flows from investing activities
Purchase of plant and equipment (35) (27)
Net cash used in investing activities (35) (27)
Financing activities
Repayments under hire purchase agreements (12) (27)
Dividends (43) (25)
Sale of treasury shares - 11
Share reorganisation costs (11) (29)
Share buy-backs (400) -
Net cash used in financing activities (466) (70)
Net increase in cash and cash equivalents 283 353
Cash and cash equivalents at beginning
of year 590 237
Cash and cash equivalents at end of year 873 590
------------------------------------------- ------ ------
Notes
1. Adoption of new and revised standards
Standards and Interpretations effective in the current
period
There were no new Standards adopted by the Group that have a
material impact on the Group in the current period.
Standards and Interpretations in issue not early adopted
At the date of authorisation of these financial statements,
there are no new Standards, Interpretations and Amendments that
will have a material impact on the financial statements of the
Group.
2. Significant accounting policies
Statement of compliance
The financial statements have been prepared in accordance with
International Financial Reporting Standards as adopted by the
European Union.
Basis of preparation
The financial statements have been prepared on the historic cost
basis.
Basis of consolidation
The Group financial statements consolidate the accounts of the
Company and its subsidiary undertaking, which are all made up to 31
March each year.
Goodwill
Goodwill represents the excess of the cost of acquisitions over
the fair value of the identifiable assets acquired (including
intangible assets of the acquired business) at the date of
acquisition. Goodwill is recognised as an asset and assessed for
impairment at least annually. Any impairment is recognised
immediately in the Statement of Comprehensive Income. The Directors
consider that goodwill has an infinite useful life.
In accordance with the transitional rules of IFRSs, goodwill
that has been written off to reserves cannot be restated or
recycled, either on transition or at any later date. On the
subsequent disposal or termination of a previously acquired
business, the profit or loss on disposal or termination is
calculated after charging goodwill previously taken to
reserves.
Revenue recognition
Revenue is measured at the fair value of the consideration
received or receivable. Revenue is reduced for estimated customer
returns, rebates and similar allowances.
Revenue from the sale of goods and services is recognised when
all of the following conditions are satisfied:
-- the Group has transferred to the buyer the significant risks and rewards of ownership;
-- the Group retains neither continuing management involvement
to the degree usually associated with ownership, nor effective
control over the goods and services sold;
-- the amount of revenue can be measured reliably;
-- it is probable that the economic benefits associated with the
transaction will flow to the entity; and
-- the costs incurred or to be incurred in respect of the transaction can be measured reliably.
Interest revenue
Interest revenue is recognised on a receipts basis.
Operating leases
Payments under operating leases are charged to the Statement of
Comprehensive Income on a straight-line basis over the life of the
lease.
Research and development expenditure
Research expenditure is written off as incurred. Development
expenditure is generally written off as incurred unless it meets
the recognition criteria of an intangible asset, as defined by
International Accounting Standard 38 (Intangible Assets), in which
case it would be recognised as an asset of the Group.
Foreign currencies
Monetary assets and liabilities denominated in foreign
currencies are translated into sterling at the closing rate of
exchange and differences taken to the Statement of Comprehensive
Income. 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 Statement of Comprehensive
Income on a paid basis.
Retirement benefit costs
A number of the Group's permanent employees are members of
personal pension plans, which are defined contribution schemes
(money purchase). Contributions to these schemes are recognised as
an expense when employees have rendered services entitling them to
the contributions.
Taxation
No corporation tax arises on the results for the year because of
the availability of losses brought forward.
Full provision is made for deferred taxation, using the
liability method without discounting, to take account of the
temporary differences between the incidence of income and
expenditure for taxation and accounting purposes. Deferred tax
assets are recognised to the extent that they are considered
recoverable in the foreseeable future. Any changes in the deferred
tax asset are recognised immediately in the Statement of
Comprehensive Income.
Plant and equipment
Plant and equipment is stated at cost less accumulated
depreciation and impairment charges.
Depreciation is provided on the cost of plant and equipment on a
straight-line basis to write them down to estimated realisable
value over their estimated useful lives as follows:
Rate
Plant and equipment between 10% and 33% per annum
Inventories
Inventories are valued at the lower of cost and net realisable
value, using the First In First Out (FIFO) cost basis, with due
allowance made for obsolete and slow moving items. For work in
progress and finished goods, cost consists of direct materials,
labour and appropriate works overheads.
Financial assets
Trade receivables and other receivables that have fixed or
determinable payments that are not quoted in an active market are
classified as receivables, which are measured at amortised cost
using the effective interest method, less any impairment. Interest
income is recognised by applying the effective interest rate,
except for short-term receivables when the recognition of interest
would be immaterial.
Financial liabilities and equity instruments issued by the
Group
Debt and equity instruments are classified as either financial
liabilities or as equity instruments in accordance with the
substance of the contractual arrangement.
An equity instrument is any contract that evidences a residual
interest in the assets of an entity after deducting all of its
liabilities. Equity instruments issued by the Group are recorded as
the proceeds received, net of direct issue costs.
Provisions
A provision has been made to cover the onerous liabilities of
employers' national insurance and pension contributions on annual
payments made under a permanent health insurance policy. The
provision is measured at the present value of the expenditures
expected to settle the obligation using pre-tax rates that reflects
current market assessments of the time value of money and the risks
specific to the obligations.
3. Basis of preparation of financial statements
The financial information set out above does not constitute
statutory financial statements for the year ended 31 March 2014 or
2013 but is derived from those financial statements. Statutory
financial statements for the year ended 31 March 2013 have been
delivered to the Registrar of Companies. Statutory financial
statements for the year ended 31 March 2014 were approved by the
Board of Directors on 21 May 2014, are audited and will be
delivered to the Registrar of Companies following the Annual
General Meeting on 24 July 2014.
The Company's auditors, Milsted Langdon LLP, have reported on
the 2014 and 2013 financial statements and those reports were:
(i) Not qualified;
(ii) Did not include a reference to any matters to which the
auditors drew attention to by way of emphasis without qualifying
their report; and
(iii) Did not contain a statement under Section 498(2) and
498(3) of the Companies Act 2006 in respect of the financial
statements for the year ended 31 March 2014 and 31 March 2013.
4. Business segments
4.1. Products and services within each business segment
For management purposes, the Group is organised into two
operating activities: the Diffusion business and Central costs. The
principal products and services of these activities are as
follows:
Diffusion ET Environmental Limited trading as Diffusion:
manufacture and distribution of fan coils and commercial heating
products, together with after sales spares and service from its
facility in West Molesey, Surrey.
Central costs Costs associated with being a public company and
maintaining the AIM quotation on the London Stock Exchange.
4.2. Segment revenue and segment result
Segment revenue Segment result
2014 2013 2014 2013
GBP000 GBP000 GBP000 GBP000
Diffusion 9,565 7,550 906 406
Central costs - - (210) (164)
Revenue and operating profit 9,565 7,550 696 242
Finance costs - - (47) (42)
Profit before tax - - 649 200
Income tax charge - - (143) (39)
Consolidated revenue and result
for the year 9,565 7,550 506 161
Revenue reported above represents revenue generated from
external customers. Inter-segment sales in the year amounted to
GBPnil (2013: GBPnil). Diffusion had one customers (2013: nil) with
revenue in excess of 10%.
The finance costs of GBP47,000 (2013: GBP42,000) were incurred
by Diffusion.
4.3. Segment assets and liabilities
Assets Liabilities
2014 2013 2014 2013
GBP000 GBP000 GBP000 GBP000
Diffusion 3,735 3,446 2,107 1,878
Central costs 24 8 57 45
3,759 3,454 2,164 1,923
-------------- ------ ------ -------- -------
4.4. Other segment information
Additions to
Depreciation non-current assets
2014 2013 2014 2013
GBP000 GBP000 GBP000 GBP000
Diffusion 78 79 35 27
Central costs 1 - - -
79 79 35 27
--------------------------------- ------ ---------- ----------- -----------
4.5. Geographical segments
Acquisition of
Revenue Segment assets segment assets
2014 2013 2014 2013 2014 2013
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
United Kingdom 8,997 7,056 3,759 3,454 35 27
Europe 555 371 - - - -
Middle East 13 123 - - - -
9,565 7,550 3,759 3,454 35 27
--------------- ------ ------ ------- ------- --------- ---------
5. Earnings per share
2014 2013
Pence Pence
Basic 18.0 4.8
Fully diluted 16.8 4.8
-------------- ------- -----
The earnings and weighted average number of ordinary shares used
in the calculation of basic and diluted earnings per share are as
follows:
2014 2013
GBP000 GBP000
Total comprehensive income for the year 506 161
2014 2013
No. No.
Weighted average number of ordinary shares
in issue 2,817,379 3,323,572
Weighted average number of ordinary shares
on a diluted basis 3,013,951 3,328,103
Potential dilutive share options under the Group's share option
scheme was 196,572 (2013: 4,531).
6. Posting of Directors' Report, Strategic Report and Financial Statements
The 2014 Directors' Report, Strategic Report and Financial
Statements will be posted by 6 June 2014 to those shareholders who
have elected to receive them and will be available to view at the
Company's website www.diffusion-group.co.uk.
The 2014 Annual General Meeting of the members of Energy
Technique Plc will be held at the offices of finnCap Limited, 60
New Broad Street, London EC2M 1JJ on 24 July 2014 at 12.00
Noon.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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