TIDMETQ
RNS Number : 8264N
Energy Technique PLC
21 May 2015
Energy Technique Plc
("Energy Technique", "ETQ" or the "Company" or the "Group")
2015 Final Results
Headlines
-- Sales increased by 12.6% over the previous year to GBP10.77 million;
-- Operating profit of Diffusion increased by 23.6% over the previous year to GBP1.12 million;
-- Group profit before tax increased by 19.6% over the previous year to GBP776,000;
-- EPS growth of 61.7% over the previous year to 29.1 pence per share;
-- Final dividend increased by 12.5% to 2.25 pence per share;
-- Total dividends for the year increased by 36.4% to 3.75 pence per share;
-- Further improvement in net cash to GBP1.38 million at 31
March 2015 and net assets to GBP2.22 million;
-- High enquiry levels and order intakes produced strong start
for the year ending 31 March 2016.
Chairman's statement
Introduction
I am very pleased to report a continuation of profit improvement
for the year ended 31 March 2015. Sales increased by 12.6% over the
previous year to GBP10.77 million, generating improved operating
profit for the Company's trading business, Diffusion, to GBP1.12
million and of group profit before tax to GBP776,000. This is the
fourth consecutive year of both sales and profit growth,
representing another solid set of trading results ahead of
management's expectations.
Fan coils provided the growth driver, attributed to a
continuation of stronger UK fan coil market demand and to
Diffusion's premium branded product offering. UK fan coil market
demand started to improve two years ago and this continued for the
year ended 31 March 2015. The number and size of commercial and
high-end residential developments and refurbishments currently
being carried out and planned by the leading property owning
companies are providing ideal trading conditions for Diffusion.
Group trading performance
Sales in the year ended 31 March 2015 increased by 12.6% to
GBP10.77 million (2014: GBP9.56 million). Fan coil sales of GBP8.74
million (2014: GBP7.45 million) achieved particularly strong sales
growth of 17.3%, arising from a good balance of commercial and
high-end residential projects. Sales of the smaller commercial
heating range fell marginally to GBP1.52 million (2014: GBP1.65
million), consistent with continued difficult trading conditions on
the UK high street.
Diffusion's operating profit increased by 23.6% to GBP1.12
million (2014: GBP906,000), representing an improved operating
profit margin of 10.4% (2014: 9.5%), equivalent to a return on
capital employed of 68.8% for the year. Notwithstanding downward
market price pressures, gross profit margins remained stable at
34.2% (2014: 34.6%), due to lean manufacturing methods and a
well-balanced sales mix.
Group profit before tax increased by 19.6% to GBP776,000 (2014:
GBP649,000), after charging Central costs of GBP320,000 (2014:
GBP210,000) and interest of GBP24,000 (2014: GBP47,000). Central
costs increased in the year due to one-off costs of GBP90,000
incurred in pursuing a global franchising strategy. The taxation
charge of GBP81,000 (2014: GBP143,000) represents non-cash deferred
tax. EPS growth showed a very healthy increase of 61.7% to 29.1
pence per share.
Diffusion's business model
The Company's trading subsidiary, Diffusion, enjoys a leading
market position as a manufacturer of premium quality fan coils and
commercial heating products to the UK commercial and high-end
residential sectors, combined with a blue-chip client base,
renowned brand and over 50 years trading experience. Diffusion and
Energy Technique brands are recognised by the UK heating
ventilation and air conditioning sector ("HVAC") as highly
engineered, quality products providing leading edge performance and
energy efficiency.
Diffusion's products are supplied into commercial offices,
hotels, airports, retail outlets, schools, and high-end residential
developments. Business risk is reduced by third-party M&A
contractors installing Diffusion's products. Fan coils are supplied
to 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.
Diffusion's management team has a demonstrable track record of
success, working closely with designers, technicians, support staff
and clients across all UK geographical locations to deliver bespoke
HVAC solutions of the highest standard. Diffusion operates from a
30,000 sq. ft. facility in West Molesey, Surrey, ideally placed to
serve its principal London and South East market by providing a
highly valued just-in-time service.
Diffusion's operating performance
This is the fourth consecutive year of sales and profit growth,
with fan coils providing the growth driver for the year ended 31
March 2015. Diffusion's experienced sales and marketing team
exploited the continuation of improved UK fan coil market demand by
achieving a 17.3% growth in fan coil sales. The recently launched
ECO 270 fan coil range offering 25% energy savings for no
additional capital cost gained further market traction. Agreement
has been reached with the motor supplier to further protect the
competitive advantage of this product with a five year extension to
the existing exclusivity agreement, including wider geographical
coverage.
Following successful entry into the high-end residential sector,
Diffusion had a well-balanced sales mix between its commercial and
high-end residential sectors. Fan coils were supplied into a number
of landmark developments and to over 350 different projects in
total. Serving this high number of projects spread business risk
and contributed to maintaining overall target selling margins.
Fan coils were supplied into the three current London skyline
developments of the Shard, Cheesegrater and Walkie-Talkie, together
with the high-end residential Riverlight development. Other major
commercial developments included American Express, London Bridge
Place, Nations House, Hyde Park Hayes and 207-211 Old Street. Other
major high-end residential developments included the Shard (mixed
commercial/residential), Holland Green and 1 Tower Bridge.
Commercial heating sales fell marginally on the previous year to
GBP1.52 million. Sales of commercial heating products are suffering
from weak demand from the UK high street. Despite this, Diffusion
continued to serve its long list of blue-chip clients/end users,
including Waitrose, Marks & Spencer, Boots, H&M, Superdry
and Next.
Franchising Diffusion brand
Central costs include one-off costs of GBP90,000 incurred in
pursuing franchises for overseas territories, where franchisees can
capitalise on Diffusion's strong brand name, product innovation and
engineering excellence. Heads of terms were reached with Unico Inc.
of St Louis, Missouri to manufacture and distribute Diffusion fan
coils in the USA, Canadian and Caribbean markets. In a
complementary manner, Diffusion is to be appointed Unico's main
sales representative in the UK for its small duct high velocity
heating and cooling systems. Route to market plans and legal
agreements are currently being drawn up.
Cash flow and net cash
Net cash generated by operating activities increased by 10.1% to
GBP863,000 (2014: GBP784,000). This was partially applied in
funding capital expenditure of GBP264,000 and dividends paid of
GBP84,000. Net cash growth during the year was GBP507,000 (2014:
GBP283,000), resulting in an improved cash position at 31 March
2015 of GBP1.38 million (2014: GBP873,000). The Group remains
soundly financed with this level of cash and net assets at 31 March
2015 of GBP2.22 million (2014: GBP1.60 million). Cash flow for the
current year ending 31 March 2016 will benefit from a six month's
rent free period on the West Molesey lease worth GBP96,000.
Capital expenditure
Further investment in the West Molesey manufacturing facility
was incurred during the year to maintain Diffusion's competitive
market position. Capital expenditure amounted to GBP264,000, with
the largest projects comprising GBP118,000 on refurbishing and
extending the office suites and GBP65,000 on a new brake press to
upgrade metal punching and folding capability. Most of this capital
expenditure was of a discretionary nature and the Board does not
consider there is a requirement for any significant capital
expenditure in the year ending 31 March 2016.
Dividends
The Board recommends payment of a final dividend of 2.25 pence
per share, payable on 7 August 2015 to shareholders on the share
register on 17 July 2015. The Company paid an interim dividend of
1.50 pence per share on 12 December 2014, taking total dividends
for the year ended 31 March 2015 to 3.75 pence per share, an
increase of 36.4% over the previous year.
Business strategy
On 26 February 2015, the Board announced it had resolved to
offer the Company for sale by means of a formal sale process in
accordance with Note 2 on Rule 2.6 of the City Code on Takeovers
and Mergers. Whilst the Board believes the Company has a secure
future as an independent business, the Board took this decision to
seek to unlock and crystallise value for shareholders. The Company
appointed Cavendish Corporate Finance LLP as financial adviser to
conduct the sale process. Further announcements about the progress
of this formal sale process will be made in due course.
Current trading and prospects
Whilst this formal sale process proceeds, the Board is managing
the Company for further growth. Trading in the current year ending
31 March 2016 has started well, with sales in April and May in line
with management's expectations. Enquiry levels are high and the
order book is strong. Improved UK fan coil market demand that
started two years ago is expected to continue for the year ending
31 March 2016 and beyond.
Walter K Goldsmith
Chairman
20 May 2015
Contacts:
Walter Goldsmith, Chairman, Energy Technique Plc: 020 8783
0033
Leigh Stimpson, CEO, Energy Technique Plc: 020 8783 0033
Ed Frisby/Scott Mathieson, finnCap Limited (Nominated Advisor):
020 7220 0500
Consolidated statement of comprehensive income
for the year ended 31 March 2015
2015 2014
Note GBP000 GBP000
Revenue 4 10,775 9,565
Cost of sales (7,088) (6,251)
Gross profit 3,687 3,314
Distribution costs (1,877) (1,710)
Administration expenses (1,010) (908)
Operating profit 4 800 696
Analysed as:
Diffusion 1,120 906
Central costs (320) (210)
----------------------------------- ---- ------- -------
Finance costs 4 (24) (47)
Profit before tax 776 649
Income tax charge 4 (81) (143)
Total comprehensive income for the
year 695 506
----------------------------------- ---- ------- -------
Earnings per share
Basic 5 29.1p 18.0p
Fully diluted 5 26.0p 16.8p
----------------------------------- ---- ------- -------
There are no other recognised gains or losses other than as
recorded in the Consolidated Statement of Comprehensive Income for
the year.
Property costs of GBP334,000 (2014: GBP366,000) have been
reclassified from cost of sales to administration expenses so as to
report underlying gross profit margins. There is no impact on
reported operating profit.
Consolidated statement of financial position
at 31 March 2015
2015 2014
Note GBP000 GBP000
ASSETS
Non-current assets
Intangible assets 25 25
Plant and equipment 420 240
Deferred tax asset 40 98
Total non-current
assets 485 363
-------------------------------------------- ---- ------- -------
Current assets
Inventories 884 771
Trade and other receivables 1,749 1,752
Cash and cash equivalents 1,380 873
Total current assets 4,013 3,396
Total assets 4 4,498 3,759
LIABILITIES
Current liabilities
Trade and other payables (1,900) (1,826)
Current tax liabilities (243) (213)
Obligations under hire purchase agreements - (10)
Total current liabilities (2,143) (2,049)
Non-current liabilities
Provisions (114) (115)
Deferred tax liability (23) -
-------------------------------------------- ---- ------- -------
Total non-current liabilities (137) (115)
-------------------------------------------- ---- ------- -------
Total liabilities 4 (2,280) (2,164)
Net assets 2,218 1,595
-------------------------------------------- ---- ------- -------
EQUITY
Equity attributable to equity holders
Issued capital 239 239
Reserves 94 94
Retained earnings 1,885 1,262
Total equity 2,218 1,595
-------------------------------------------- ---- ------- -------
Consolidated statement of changes in equity
for the year ended 31 March 2015
Share Retained
capital Reserves earnings Total
GBP000 GBP000 GBP000 GBP000
At 1 April 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
Share options - - 12 12
Dividends paid - - (84) (84)
Comprehensive income - - 695 695
Total comprehensive income - - 623 623
At 31 March 2015 239 94 1,885 2,218
--------------------------- ------- -------- -------- ------
Consolidated cash flow statement
for the year ended 31 March 2015
2015 2014
GBP000 GBP000
Cash flows from operating activities
Profit before tax 776 649
Finance costs 24 47
Depreciation 84 79
Share option charge 12 12
Profit on disposal of plant and equipment (2) -
Operating cash flows before changes in
working capital 894 787
(Increase)/reduction in inventories (113) 17
Reduction/(increase) in trade and other
receivables 3 (226)
Increase in trade and other payables 103 253
Cash generated by operations 887 831
Finance costs (24) (47)
Net cash generated by operating activities 863 784
Cash flows from investing activities
Purchase of plant and equipment (264) (35)
Proceeds from sale of plant and equipment 2 -
Net cash used in investing activities (262) (35)
Financing activities
Repayments under hire purchase agreements (10) (12)
Dividends (84) (43)
Share reorganisation costs - (11)
Share buy-backs - (400)
Net cash used in financing activities (94) (466)
Net increase in cash and cash equivalents 507 283
Cash and cash equivalents at beginning
of year 873 590
Cash and cash equivalents at end of year 1,380 873
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.
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.
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.
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.
Share based payments
The Company operates an EMI share option scheme for Executive
Directors and certain other executives. The options can normally be
exercised based on time periods ranging from between 2 years and 10
years from the date of grant. Options are forfeited if an employee
leaves the Group. The fair values of the options are calculated
using a Black-Scholes option pricing model.
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 2015 or
2014 but is derived from those financial statements. Statutory
financial statements for the year ended 31 March 2014 have been
delivered to the Registrar of Companies. Statutory financial
statements for the year ended 31 March 2015 were approved by the
Board of Directors on 20 May 2015, are audited and will be
delivered to the Registrar of Companies following the Annual
General Meeting on 9 July 2015.
The Company's auditors, Milsted Langdon LLP, have reported on
the 2015 and 2014 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 2015 and 31 March 2014.
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
2015 2014 2015 2014
GBP000 GBP000 GBP000 GBP000
Diffusion 10,775 9,565 1,120 906
Central costs - - (320) (210)
Revenue and operating profit 10,775 9,565 800 696
Finance costs - Diffusion - - (24) (47)
Profit before
tax - - 776 649
--------------------------------- -------- ------- ------- -------
Income tax
charge -Company - - 40 -
-Diffusion - - (121) (143)
------------------ ------------- -------- ------- ------- ---------
- - (81) (143)
Consolidated revenue and
result for the year 10,775 9,565 695 506
--------------------------------- -------- ------- ------- -------
Revenue represents sales to external customers. Inter-segment
sales in the year amounted to GBP538,000 (2014: GBP352,000), which
is eliminated on consolidation. Diffusion had one customer (2014:
one) with revenue in excess of 10%, which amounted to GBP1,099,000
(2014: GBP1,582,000).
4.3. Segment assets and liabilities
Assets Liabilities
2015 2014 2015 2014
GBP000 GBP000 GBP000 GBP000
Diffusion 4,381 3,735 2,231 2,107
Central costs 117 24 49 57
-------------- ------ ------ ------ ------
4,498 3,759 2,280 2,164
-------------- ------ ------ ------ ------
4.4. Other segment information
Additions to
Depreciation non-current assets
2015 2014 2015 2014
GBP000 GBP000 GBP000 GBP000
Diffusion 84 78 264 35
Central costs - 1 - -
-------------- ------------ ------ ----------- ----------
84 79 264 35
-------------- ------------ ------ ----------- ----------
4.5. Geographical segments
Acquisition of
Revenue Segment assets segment assets
2015 2014 2015 2014 2015 2014
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
United Kingdom 10,033 8,997 4,498 3,759 264 35
Europe 741 555 - - - -
Rest of World 1 13 - - - -
10,775 9,565 4,498 3,759 264 35
5. Earnings per share
2015 2014
Pence Pence
Basic 29.1 18.0
Diluted 26.0 16.8
The earnings and weighted average number of ordinary shares used
in the calculation of basic and diluted earnings per share, are as
follows:
2015 2014
GBP000 GBP000
Total comprehensive income for the year 695 506
2015 2014
No. No.
Weighted average number of ordinary shares in issue 2,390,516 2,817,379
Weighted average number of ordinary shares on a
diluted basis 2,673,622 3,013,951
Potential dilutive share options under the Group's share option
scheme was 283,106 (2014: 196,572).
6. Posting of Directors' Report, Strategic Report and Financial Statements
The 2015 Directors' Report, Strategic Report and Financial
Statements and Notice of Annual General Meeting, will be posted by
12 June 2015 to those shareholders who have elected to receive them
and will be available to view on the Company's website
www.diffusion-group.co.uk.
The 2015 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 9 July 2015 at 12.00 Noon.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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