Flowgroup plc Update (2828W)
08 February 2017 - 6:00PM
UK Regulatory
TIDMFLOW
RNS Number : 2828W
Flowgroup plc
08 February 2017
Flowgroup plc
("Flow" or the "Company" or the "Group")
Update
Flowgroup plc (AIM: FLOW), which provides a range of innovative
energy technologies, energy supply and energy services, is pleased
to announce that it expects to announce its results for the year
ending 31 December 2016 during May 2017. The Company expects its
trading results to be in line with analysts' forecasts. The Group
had headline cash of GBP9.2m on 31 December 2016 of which GBP3.4m
in energy trading accounts.
Energy
Our Flow Energy business has progressed well and is delivering
growth, with customer fuel accounts either on supply or processing
through the switching cycle of over 270,000 at the end of January
2017. These customers are expected to generate annualised revenues
of over GBP135 million.
Wholesale prices have shown some volatility over the winter
period so far, which our hedging strategy has protected us against.
The additional actions and measures taken to insulate the Group
against potentially highly volatile gas prices because of abnormal
weather conditions have been effective in shielding us from
additional costs we may otherwise have incurred.
Recently, gross margins have come under pressure as we have
priced to compete with a range of new entrants offering reduced
tariffs to customers to gain market share. We are investigating
several new routes to market to reduce our reliance on the price
comparison sites and we regularly review our pricing strategy as
the market continues to move and evolve. However, if the trend of
new entrants offering reduced tariffs persists, we would expect our
growth outlook for 2017 to be more challenging.
Smart boiler business
We continue to make progress in developing our smart boiler
business with 364 Flow Eco RF boilers sold in 2016, from a standing
start launch in late September 2016. We will continue to refine and
strengthen our Flow Brand Ambassador network to deliver national
in-home sales during 2017. Additionally, we are in discussions with
several large housing associations for volume boiler sales, which
may also include home energy contracts.
MicroCHP and strategic review update
As previously announced, the ongoing review by the Department
for Business, Energy and Industrial Strategy (BEIS) into the
microCHP Feed-in-Tariff (FiT) has had a major impact on our
business due to the consequent uncertainty around continuing FiT
support. In addition, we have seen a significant increase in
manufacturing costs of circa 17% due to the fall in the value of
Sterling against the Euro and US Dollar. We initiated a strategic
review of our microCHP business in September 2016 and reported back
on its progress on 16 November 2016, laying out several possible
options.
Whilst the uncertainty of FiT support remains, and with
increased manufacturing costs, the Board has reconsidered the
business plan for microCHP as we believe that it is uneconomic in
the UK market in the near term. However, as noted in our November
2016 update, and consistent with our long-term strategy, we
continue to believe that the European market represents a
significant opportunity for our microCHP technology. The financial
support offered in mainland Europe potentially favours microCHP
through various installation incentives that are available. Given
our confidence in our technology and recognising the challenges
that remain in the UK domestic market, our strategy has been
refocused for a full entry into the European market as soon as
practicable.
The next step in achieving this is for a series of microCHP
boiler pilots to be rolled out in France, Germany, Italy and
Belgium, where we are working with our identified partners. Our
strategy for the potential of microCHP regarding market acceptance,
price and performance will continue to evolve and be evaluated in
these regions and, if these pilots progress as planned, volume
sales would be possible during 2018. We continue to work very
closely with Jabil and their manufacturing team at Livingston,
especially on the European opportunities. Over 1,000 working
boilers have been manufactured so far and these will be deployed in
Flow microCHP pilots in Europe and will also be used in a limited
way in the UK.
The Board conclude and reiterate that our microCHP technology
has the potential to be market-leading and that the work and
investment that has been made in it should be preserved within the
Group. However, the uncertainty around FiT means that it is not an
optimum time to consider selling that part of the business and, as
previously reported, there would be significant costs to be
incurred should the Company wish to exit the business at this
time.
While conducting the strategic review, the Board received a
number of approaches expressing interest in its Flow Energy
business, which has continued to perform well in a dynamic and
fast-changing market place. The Directors believe that, whilst
subject to further due diligence, the terms of the indicative
approaches for Flow Energy, which are being considered, could, if
completed, provide sufficient funding for the microCHP business
through to the point at which the technology is commercialised in
Europe. As a result, the Board has concluded that the disposal of
Flow Energy is something that it should actively pursue. Any
disposal of the Flow Energy business would be conditional on
shareholder approval.
If the disposal of Flow Energy does not take place in the coming
months, the Directors will consider a number of funding options for
the Group, including selling a strategic stake in either its Flow
Energy or microCHP businesses or through a placing. The Company
looks forward to providing a further update in due course.
This announcement contains inside information.
Flowgroup plc www.flowgroup.uk.com
Tony Stiff, Group Chief Executive Tel: +44 (0)20 3137
Officer 4525
Nigel Canham, Chief Financial
Officer
Cenkos Securities plc (NOMAD Tel: +44 (0)20 7397
and Broker) 8900
Stephen Keys (Corporate Finance)
Julian Morse (Sales)
Walbrook PR Ltd (Media Tel: +44 (0)20 7933 8780
Relations) or flowgroup@walbrookpr.com
Paul McManus Mob: +44 (0)7980 541
893
Nick Rome Mob: +44 (0)7748 325
236
This information is provided by RNS
The company news service from the London Stock Exchange
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