TIDMFLOW
RNS Number : 0873R
Flowgroup plc
19 September 2017
Flowgroup plc
("Flowgroup" the "Company" or "the Group")
Half-year Report
Flowgroup plc (AIM: FLOW), which provides residential gas and
electricity supply and other energy services to over 250,000
customer fuel accounts, announces its unaudited Interim Results for
the six months ended 30 June 2017.
Financial Highlights
-- Revenues up 71.6% to GBP71.8m (H1 2016: GBP41.8m)
-- Operating loss before exceptional items of GBP10.8m (H1 2016: GBP8.0m loss)
-- Headline cash of GBP20.1m of which GBP3.9m in energy trading
account (31 December 2016: GBP9.2m of which GBP3.4m in trading
account)
-- Successful re-capitalisation of the Company via a fundraise of GBP25.3m (net)
Operational Highlights
-- Customer fuel accounts on supply as at 30 June 2017 of over 255,000
-- Positive strategic change to focus on building a profitable,
sustainable energy supply business
-- Successful launch of direct acquisition channels aimed at
enhancing Lifetime Value of each customer
-- Improved value of our energy portfolio on an annualised basis
as customers retained on new tariffs
-- Focus on cost reduction across the business to drive to breakeven targets
-- Churn higher in the first half of 2017, but has now returned to the expected range
-- New Board members have strengthened the management of the business
Post period end
-- Current customer base represents estimated GBP141m in annualised revenue
-- Company launched energy customer referral programme to
acquire new customers and enhance existing customer loyalty
-- Company launched a solar PV and boiler installation offering
-- Company is transitioning 100% of energy customers to 50%
renewable electricity at no cost to our customers. This is more
than twice the proportion in the national average energy mix
-- Company on track to launch new Flow Green tariff in October
2017 - a 100% renewable electricity tariff and green gas offset
available at a small premium
-- Implementing plan to reduce cost to serve, including
significant IT projects to drive operational efficiencies
-- Senior management team strengthened with appointment of Chief Information Officer
-- mCHP business significantly downsized, strategic review
continues with outcome expected in Q1 2018
Tony Stiff, Group Chief Executive Officer, commented: "We
believe that we have created a firm foundation from which to drive
growth and acquire customers moving into the winter period. Our
strategy is clear and we have the resources and people in place to
deliver it. Our market is large and valuable and undergoing
significant change as challengers like Flow Energy attract
customers by offering better value and better service. By balancing
growth with sustainable prices and a tight control of costs, we
believe we can build a profitable energy business and deliver
significant value to shareholders."
Enquiries:
Flowgroup plc www.flowgroup.uk.com
Tony Stiff, Group Chief Executive Tel: +44 (0)20 3137 4525
Officer
Nigel Canham, Chief Financial Officer
Cenkos Securities plc (NOMAD and Tel: +44 (0)20 7397 8900
Broker)
Stephen Keys/Mark Connelly/Callum
Davidson (Corporate Finance)
Julian Morse (Sales)
Walbrook PR Ltd (Media Relations) Tel: +44 (0)20 7933 8780 or flowgroup@walbrookpr.com
Paul McManus Mob: +44 (0)7980 541 893
Nick Rome Mob: +44 (0)7748 325 236
Chief Executive Officer's review
For the first six months of 2017, Flowgroup was engaged in the
continuation of a wide-ranging strategic review of its business.
The conclusion of this review resulted in an investment into the
Company of GBP25.3m, net of expenses, led by Palm Ventures and
Lombard Odier. The Company is now exclusively focused on building a
profitable energy supply business. The microCHP business has been
significantly downsized and no longer represents a material cost to
the Company.
The Company achieved high revenue and energy customer account
growth of over 150% in 2016, which has allowed us to achieve
greater scale. The focus of the business is to now achieve
profitability as soon as possible by increasing the number of
customer fuel accounts, lowering our Customer Acquisition Costs,
lowering our Cost to Serve each customer, and increasing the
Lifetime Value of each customer.
Macro Outlook
There are approximately 50 million customer accounts available
in the British domestic energy market and we believe that we will
continue to attract new customers. We have proven our ability to
transition from a start-up to an established supplier and we have
the trading, regulatory, technical, metering, service, marketing
and finance teams in place that a growing energy business needs.
Flow Energy has an outstanding reputation for customer service,
which we believe will be a key differentiator in the energy supply
business going forward. Furthermore, the Group has a wholesale
energy trading agreement in place with Shell that affords our
balance sheet significant protection from the movement in wholesale
energy prices and provides, in conjunction with the funds raised in
June, the working capital needed for the business to grow.
New Green Initiatives
The Company announces today that we are increasing our purchase
of renewable electricity and will shortly transition all our energy
customers to a 50% renewable electricity mix at no additional cost.
With this achievement, Flow Energy will offer one of the highest
proportions of renewable electricity for a standard electricity
product in the market. Customers will also be able to upgrade to a
new Flow Green 100% renewable electricity tariff and a carbon
offset gas tariff for a small additional premium. Flow Energy will
aim to be amongst the market leaders in renewable electricity
offers that provide excellent value to our customers and increase
the uptake of green tariffs.
Higher Value Growth
Our growth was slower in the first half of 2017 versus the first
half of 2016 due to constraints on our balance sheet which were
eliminated with the successful fundraise. Our first focus post the
refinancing was to retain and renew existing customers with
underlying margins of at least 10% based on current cost
projections. The Board is now focused on profitable growth and our
current energy customer base stands at circa 260,000 customer fuel
accounts.
Our new customer acquisition strategy is to develop and use a
range of direct sales channels that can deliver customers with a
higher Lifetime Value. Our goal is to diversify away from our past
reliance on the price comparison websites to acquire new customers,
instead using direct channels that we believe will result in better
margins and lower churn. We have successfully launched a direct
sales operation and have already driven acquisition costs to below
the commissions paid to price comparison websites while still
offering excellent value to our customers. We believe taking the
time to develop these new direct sales channels will result in a
slower but more sustainable and profitable sales ramp with lower
customer acquisition costs and enhanced retention. While we are
focused on attracting new customers with higher Lifetime Values, we
are also focused on renewing existing customers as their current
tariffs expire. Along with other energy suppliers, we recently
increased the price of our Standard Variable Tariff, which is still
competitive with other medium and large suppliers.
Overall, we believe our strategy will significantly increase the
Lifetime Value of each of our customers, improving our margins and
allowing us to accelerate the drive towards profitability.
Retention
A key variable increasing the Lifetime Value of each customer is
the length of time we retain them.
We grew energy customer fuel accounts by 120% in the first half
of 2016 using a range of very competitive offers which has allowed
the business to achieve increased scale. We continued to drive
customer acquisition in the first half of 2017. However, as we
annualised our promotional activity from 2016 and because wholesale
energy prices had increased, some of our customers experienced
significant price rises as their older, lower priced tariffs
expired. Therefore, our churn was higher in the first half of 2017
than it had been historically, which reduced our growth. However,
our retention rate has now returned to the expected range and we
continue to invest in the engagement and retention of our customers
through strong communications and outstanding service.
Reducing cost to serve
Reducing our cost to serve KPI is a key component of our drive
to profitability. We have made good progress with some key early
wins. Many of the costs of running an energy business cannot be
influenced - wholesale energy prices, transmission costs, and the
Government's environmental and consumer schemes. This means that
reducing the costs of servicing each customer, as the key element
of our cost base that we can influence, is vital. We have
outsourced some simple back office functions to reduce costs, have
launched a new online customer portal to further increase the
proportion of customers who self-serve, and are enhancing our IT
systems to automate more customer service processes. We employ a
continuous improvement approach to process development and every
member of our team is focused on finding efficiencies. We aim to
drive down our costs, also taking advantage of economies of scale
as we grow. We have strengthened our senior management team with
the recent appointment of a Chief Information Officer to drive data
and technology change.
Flow Home Services
Flow Home Services cross sells additional energy products and
services which we believe will further increase the Lifetime Value
of customers, enhance retention, and build our brand. Flow Home
Services currently offers boilers, solar panels and smart
thermostats by referring our customers to third party installers
and providers. We will continue to add further products and
services to assist our customers in achieving a modern, efficient,
connected home.
Flow Home Services employs a light-touch strategy with a small
internal team working with carefully-selected installation partners
to deliver energy products and services. This allows the Group to
generate revenue while adding only a limited amount to our cost
base.
We believe that offering more than energy to our customers has
two key benefits - enhancing revenue per customer and positively
impacting retention. We believe that customers enjoying the
benefits of additional products will be more likely to stay with
Flow Energy for their home energy, increasing their Lifetime
Value.
The marketplace
The energy supply market continues to be a very competitive
environment but also continues to offer significant opportunity.
New, smaller energy suppliers have entered the market and the Big
Six suppliers continue to lose customers - according to Cornwall
Insight, the Big Six share of the domestic energy supply market
fell from 98% in 2013 to 84% in 2016 and, by April 2017, to 82%. We
believe Flow Energy has a well-funded energy business plan and the
people, systems and infrastructure in place to continue to grow
sustainably, achieve profitability, and build significant value for
shareholders.
MicroCHP
The Group has significantly downsized our Products business in
line with our strategic focus on the energy supply business. The
microCHP business does not now represent a material cost to the
Group. A very small team is continuing to work on a limited basis
with our European partner, Engie, to potentially develop our
microCHP boiler for the European market. Concurrently, we are
finalising strategic options for our microCHP technology and will
report on the conclusion of this review in Q1 2018.
Board remuneration
As previously communicated, Tony Stiff, Chief Executive, David
Grundy and John Johnson, both Non-Executive directors, have agreed
to take a proportion of their salary or fee in the form of
Flowgroup ordinary shares.
Additionally, the non-executive directors have agreed a
reduction in fees, effective immediately. This represents an annual
aggregate saving of approximately 50%, totalling GBP110,000.
Combined the above represents a cash cost saving to the Group of
approximately GBP190,000 per year.
Outlook
We believe that we have created a firm foundation from which to
drive growth and acquire new customers moving into the winter
period. Our goal is to build a profitable energy supply business
and we believe we have the resources and people in place to deliver
that goal. Our market is large and valuable and undergoing
significant change as challengers like Flow Energy attract
customers by offering better value and better service. By balancing
growth with sustainable prices and a tight control of costs, we
believe we can build a profitable energy business and deliver
significant value to shareholders.
As we continue to deliver on our strategy through 2018, we will
engage regularly with investors, analysts and the market.
Unaudited Group Income Statement
Unaudited Audited Audited
Unaudited 6 months to Year to 31 Year to 31
6 months to 30 June December December Audited
30 June 2017 2017 Unaudited 2016 2016 Year to 31
Before Exceptional 6 months to Unaudited Before Exceptional December
exceptional items (Note 30 June 2017 6 months to exceptional items (Note 2016
items 4) Total 30 June 2016 items 4) Total
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------- ---- ------------ ----------- ------------ ------------ ------------ ------------ ------------
Revenue 3 71,816 - 71,816 41,841 98,796 - 98,796
Cost of sales (67,991) - (67,991) (36,732) (91,732) (3,277) (95,009)
--------------- ---- ------------ ----------- ------------ ------------ ------------ ------------ ------------
Gross profit 3,825 - 3,825 5,109 7,064 (3,277) 3,787
Administrative
expenses (14,614) (1,975) (16,589) (13,107) (30,612) (18,823) (49,435)
--------------- ---- ------------ ----------- ------------ ------------ ------------ ------------ ------------
Operating loss 3 (10,789) (1,975) (12,764) (7,998) (23,548) (22,100) (45,648)
Net finance
costs (864) (46) (119)
--------------- ---- ------------ ----------- ------------ ------------ ------------ ------------ ------------
Loss before
income tax (13,628) (8,044) (45,767)
Income tax - - 1,129
--------------- ---- ------------ ----------- ------------ ------------ ------------ ------------ ------------
Loss for the
financial
period / year (13,628) (8,044) (44,638)
--------------- ---- ------------ ----------- ------------ ------------ ------------ ------------ ------------
Attributable
to:
Equity holders
of the Company (13,628) (8,044) (44,638)
--------------- ---- ------------ ----------- ------------ ------------ ------------ ------------ ------------
Basic and
diluted loss
per share 5 (3.19p) (2.53p) (5.31p)
--------------- ---- ------------ ----------- ------------ ------------ ------------ ------------ ------------
The Group has no items of other comprehensive income in any
period above and consequently no statement of other comprehensive
income has been presented.
The notes are an integral part of these Unaudited Group Interim
Financial Statements
Unaudited Group Statement of Financial Position
Unaudited as at 30 June Unaudited as at 30 June Audited as at 31 December
2017 2016 2016
GBP'000 GBP'000 GBP'000
---------------------------- --------------------------- --------------------------- ---------------------------
Assets
Non-current assets
Intangible assets 1,812 19,738 1,973
Property, plant and equipment 619 581 658
----------------------------- --------------------------- --------------------------- ---------------------------
2,431 20,319 2,631
---------------------------- --------------------------- --------------------------- ---------------------------
Current assets
Inventories 398 1,268 495
Trade and other receivables 24,322 15,308 20,631
Current tax receivable 1,231 1,075 1,231
Cash and cash equivalents 16,155 11,389 5,850
----------------------------- --------------------------- --------------------------- ---------------------------
42,106 29,040 28,207
---------------------------- --------------------------- --------------------------- ---------------------------
44,537 49,359 30,838
---------------------------- --------------------------- --------------------------- ---------------------------
Liabilities
Non-current liabilities
Borrowings 16,644 2,004 2,182
Provisions 232 - -
----------------------------- --------------------------- --------------------------- ---------------------------
16,876 2,004 2,182
---------------------------- --------------------------- --------------------------- ---------------------------
Current liabilities
Trade and other payables 42,951 25,765 43,402
Borrowings - 200 -
Provisions 1,743 - -
----------------------------- --------------------------- --------------------------- ---------------------------
44,694 25,965 43,402
---------------------------- --------------------------- --------------------------- ---------------------------
Total liabilities 61,570 27,969 45,584
----------------------------- --------------------------- --------------------------- ---------------------------
Equity
Capital and reserves
attributable to equity
holders of the Company
Share capital 16,983 15,876 15,876
Share premium account 67,981 59,238 59,238
Accumulated losses (106,256) (56,034) (92,628)
Reverse acquisition reserve (821) (821) (821)
Other reserves 5,080 3,131 3,589
----------------------------- --------------------------- --------------------------- ---------------------------
Total shareholders' equity (17,033) 21,390 (14,746)
----------------------------- --------------------------- --------------------------- ---------------------------
Total equity and liabilities 44,537 49,359 30,838
----------------------------- --------------------------- --------------------------- ---------------------------
The notes are an integral part of these Unaudited Group Interim
Financial Statements.
Unaudited Group Statement of Changes in Equity
Reverse Total
Share Share Accumulated acquisition Other shareholders'
capital premium losses reserve reserves equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ --------- --------- ------------ ------------- ----------- ---------------
Balance at 1 January
2016 15,876 59,238 (47,990) (821) 2,686 28,989
Share based payments - - - - 445 445
------------------------ --------- ---------
Transactions with
owners - - - - 445 445
Loss for the financial
period - - (8,044) - - (8,044)
------------------------ --------- --------- ------------ ------------- ----------- ---------------
Balance at 30 June
2016 15,876 59,238 (56,034) (821) 3,131 21,390
Share based payments - - - - 458 458
------------------------ --------- --------- ------------ ------------- ----------- ---------------
Transactions with
owners - - - - 458 458
Loss for the financial
period - - (36,594) - - (36,594)
------------------------ --------- --------- ------------ ------------- ----------- ---------------
Balance at 31 December
2016 15,876 59,238 (92,628) (821) 3,589 (14,746)
Proceeds from shares
issued 1,107 9,954 - - - 11,061
Share issue costs - (1,211) - - - (1,211)
Issue of convertible
unsecured loan notes - - - - 1,038 1,038
Share based payments - - - - 453 453
------------------------ --------- --------- ------------ ------------- ----------- ---------------
Transactions with
owners 1,107 8,743 - - 1,491 11,341
Loss for the financial
period - - (13,628) - - (13,628)
------------------------ --------- --------- ------------ ------------- ----------- ---------------
Balance at 30 June
2017 16,983 67,981 (106,256) (821) 5,080 (17,033)
------------------------ --------- --------- ------------ ------------- ----------- ---------------
The notes are an integral part of these Unaudited Group Interim
Financial Statements.
Unaudited Group Statement of Cash Flows
Unaudited Audited
Unaudited 6 months to 6 months to Year to
30 June 2017 30 June 2016 31 December 2016
Note GBP'000 GBP'000 GBP'000
------------------------------------------------------- ---- --------------------- ------------- -----------------
Cash flows from operating activities
Cash consumed by operations 6 (13,363) (6,108) (6,839)
Cash flows from investing activities
Expenditure on intangible assets (1,509) (966) (5,524)
Purchase of property, plant and equipment (173) (388) (644)
Interest received - 7 13
------------------------------------------------------- ---- --------------------- ------------- -----------------
Net cash used in investing activities (1,682) (1,347) (6,155)
Cash flows from financing activities
Net proceeds from the issue of ordinary shares 9,850 - -
Issue of convertible unsecured loan notes 15,500 - -
------------------------------------------------------- ---- --------------------- ------------- -----------------
Net cash generated from financing activities 25,350 - -
Net (decrease) / increase in cash and cash equivalents 10,305 (7,455) (12,994)
Cash and cash equivalents at beginning of period 5,850 18,844 18,844
------------------------------------------------------- ---- --------------------- ------------- -----------------
Cash and cash equivalents at end of period 16,155 11,389 5,850
------------------------------------------------------- ---- --------------------- ------------- -----------------
The notes are an integral part of these Unaudited Group Interim
Financial Statements.
Notes to the Unaudited Group Interim Financial Statements
1 Nature of operations and general information
Flowgroup plc ("the Company") and its subsidiaries (together
"the Group") supply energy and provide a range of innovative energy
technologies and services. Our businesses are:
-- Flow Energy - energy supply and services
-- Flow Products - smart energy solutions and microCHP energy
generation
-- Flow Battery - compressed air back-up for the protection
of essential systems
Flowgroup plc is the Group's ultimate parent company and is
incorporated in England and Wales. The address of the registered
office is Castlefield House, Liverpool Road, Castlefield,
Manchester M3 4SB. The Group's principal place of business is North
Kiln, Felaw Maltings, 46 Felaw Street, Ipswich, IP2 8PN. Flowgroup
plc's shares are quoted on the AIM Market of the London Stock
Exchange.
Flowgroup plc's Unaudited Group Interim Financial Statements are
presented in pounds sterling (GBP).
2 Basis of preparation and accounting policies
These Unaudited Group Interim Financial Statements are for the
six months ended 30 June 2017. They have not been prepared in
accordance with IAS 34, Interim Financial Reporting. They do not
include all of the information required for full annual financial
statements, and should be read in conjunction with the Group
Financial Statements for the year ended 31 December 2016.
The financial information set out in these Unaudited Group
Interim Financial Statements does not constitute statutory accounts
as defined in Section 434 of the Companies Act 2006. The Group
Statement of Financial Position as at 31 December 2016 and the
Group Income Statement, Group Statement of Changes in Equity, Group
Statement of Cash Flows and associated notes for the year then
ended have been extracted from the Group's Financial Statements as
at 31 December 2016 which have been delivered to the Registrar of
Companies. The auditors' report on these Financial Statements was
unqualified, did not contain an emphasis of matter paragraph and
did not contain any statement under section 498(2) or section
498(3) of the Companies Act 2006.
The Unaudited Group Interim Financial Statements for the six
months ended 30 June 2017 have not been audited or reviewed in
accordance with International Standard on Review Engagement 2410
issued by the Auditing Practices Board.
The Unaudited Group Interim Financial Statements have been
prepared under the historical cost convention, except that they
have been modified to include the revaluation of certain
liabilities at fair value through profit and loss.
These Unaudited Group Interim Financial Statements have been
prepared in accordance with the accounting policies adopted in the
last annual financial statements for the year to 31 December 2016
which have been applied consistently throughout the Group.
The Unaudited Group Interim Financial Statements have been
approved by the Board of Directors on 18 September 2017.
Going concern
The directors have produced business forecasts which indicate
that the Group has sufficient resources to operate for at least
twelve months from the date of approving the Unaudited Group
Interim Financial Statements.
Accordingly, the Directors continue to adopt the going concern
basis in preparing the Unaudited Group Interim Financial
Statements.
3 Segmental results
The segment results are as follows:
Unaudited Audited
Unaudited 6 months Year to
6 months to to 31 December
30 June 2017 30 June 2016 2016
GBP'000 GBP'000 GBP'000
--------------------------------- --------------- -------------- -------------
Revenue
Flow Products 110 87 349
Flow Battery - 14 47
Flow Energy 71,706 41,740 98,400
71,816 41,841 98,796
-------------- -------------- -------------
Operating Loss
Flow Products 2,519 5,715 14,413
Flow Battery 1 8 (1)
Flow Energy 5,886 522 7,583
-------------- -------------- -------------
8,406 6,245 21,995
Unallocated costs 2,383 2,443 4,533
Exceptional items not allocated 1,975 - 18,823
Capitalisation of development
costs - (690) 297
-------------- -------------- -------------
12,764 7,998 45,648
---------------------------------- -------------- -------------- -------------
4 Exceptional items
Unaudited
6 months Unaudited Audited
to 6 months Year to 31
30 June to December
2017 30 June 2016 2016
GBP'000 GBP'000 GBP'000
---------------------------------- ---------- -------------- ------------
Writedown of inventories - - 3,277
Adjustments to recognised assets
and liabilities 165 - 648
Impairment of intangible assets - - 18,175
Reorganisation costs 1,810 - -
---------- -------------- ------------
1,975 - 22,100
---------------------------------- ---------- -------------- ------------
Exceptional items recognised during the year ended 31 December
2016 arise from the scaling back of the operations of the Flow
Products division and comprise reductions in the balance sheet
value of inventories and intangible assets together with
adjustments to the carrying values of directly related prepayments
and liabilities.
Further reorganisation costs comprising redundancy, empty
property and contract settlements have been recognised during the 6
months ended 30 June 2017.
5 Loss per ordinary share
The calculation of the loss per ordinary share is based on the
earnings attributable to ordinary shareholders divided by the
weighted average number of shares in issue during the period.
The calculation of diluted earnings per share is based on the
basic earnings per share, adjusted to allow for the issue of shares
and the post-tax effect of dividends and/or interest, on the
assumed conversion of all dilutive options and other dilutive
potential ordinary shares. As the diluted loss per share is less
than the basic loss per share the impact of the share option awards
has been ignored
Unaudited Unaudited Audited
6 months 6 months Year to 31
to to December
30 June 2017 30 June 2016 2016
------------------------------- -------------- -------------- --------------
Loss for the period (GBP'000) (13,628) (8,044) (44,638)
Weighted average number of
ordinary shares in issue 427,523,470 317,529,078 317,529,078
Basic and diluted loss per
share (pence) (3.19) (2.53) (14.06)
------------------------------- -------------- -------------- --------------
6 Cash consumed by operations
Unaudited Unaudited
6 months to 6 months to Audited
30 June 2017 30 June 2016 Year to 31 December 2016
GBP'000 GBP'000 GBP'000
------------------------------------------------------ ------------- ------------- -------------------------
Cash flows
Loss before income tax (13,628) (8,044) (45,767)
Adjustments for:
Exceptional items 1,975 - 22,100
Depreciation 212 188 367
Amortisation 1,670 455 4,603
Finance Income - (7) (13)
Finance costs - 22 -
Share based payments 453 445 903
Tax received - - 973
Movements in working capital
Decrease / (Increase) in inventories 97 (795) (3,299)
Increase in trade and other receivables (3,691) (7,939) (13,262)
(Decrease) / Increase in trade and other payables (451) 9,567 26,556
------------------------------------------------------ ------------- ------------- -------------------------
Total cash consumed by operations (13,363) (6,108) (6,839)
------------------------------------------------------ ------------- ------------- -------------------------
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR EAKNPFFNXEFF
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