Annual Report & Financial Statements 2015

Transcription

1 Annual Report & Financial Statements 2015

2 Fan Coils for One Hyde Park Fan Coils for Heathrow Terminal 2 Fan Coils for Google EMEA HQ Heating for Odeon Cinema Fan Coils for Abu Dhabi Islamic Bank HQ Fan Coils for De Vere Gardens Contents 1 Chairman s statement 4 Directors 4 Advisers 5 Strategic report 6 Directors report 9 Corporate governance 10 Remuneration report 11 Independent auditors report 12 Consolidated statement of comprehensive income 13 Consolidated statement of financial position 14 Consolidated statement of changes in equity 15 Consolidated statement of cash flows 16 Notes to the consolidated financial statements 33 Accounts of the parent company Energy Technique Plc 40 Notice of 2015 Annual General Meeting 44 Financial calendar and corporate information

3 1 Chairman s statement Headlines Sales increased by 12.6% over the previous year to million; Operating profit of Diffusion increased by 23.6% over the previous year to 1.12 million; Group profit before tax increased by 19.6% over the previous year to 776,000; 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 1.38 million at 31 March 2015 and net assets to 2.22 million; High enquiry levels and order intakes produced strong start for the year ending 31 March Introduction I am very pleased to report a continuation of profit improvement for the year ended 31 March Sales increased by 12.6% over the previous year to million, generating improved operating profit for the Company s trading business, Diffusion, to 1.12 million and of group profit before tax to 776,000. 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 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. millions millions pence SALES DIFFUSION OPERATING PROFIT EARNINGS PER SHARE (EPS) Group trading performance Sales in the year ended 31 March 2015 increased by 12.6% to million (2014: 9.56 million). Fan coil sales of 8.74 million (2014: 7.45 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 1.52 million (2014: 1.65 million), consistent with continued difficult trading conditions on the UK high street. Diffusion s operating profit increased by 23.6% to 1.12 million (2014: 906,000), 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 776,000 (2014: 649,000), after charging Central costs of 320,000 (2014: 210,000) and interest of 24,000 (2014: 47,000). Central costs increased in the year due to one-off costs of 90,000 incurred in pursuing a global franchising strategy. The taxation charge of 81,000 (2014: 143,000) represents non-cash deferred tax. EPS growth showed a very healthy increase of 61.7% to 29.1 pence per share.

4 2 Chairman s statement 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&E 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 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. West Molesey site R & D centre of excellence R Trumpf & D centre laser cutter of excellence 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 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 1.52 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.

5 3 Chairman s statement Franchising Diffusion brand Central costs include one-off costs of 90,000 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 863,000 (2014: 784,000). This was partially applied in funding capital expenditure of 264,000 and dividends paid of 84,000. Net cash growth during the year was 507,000 (2014: 283,000), resulting in an improved cash position at 31 March 2015 of 1.38 million (2014: 873,000). The Group remains soundly financed with this level of cash and net assets at 31 March 2015 of 2.22 million (2014: 1.60 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 96,000. New brake press 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 264,000, with the largest projects comprising 118,000 on refurbishing and extending the office suites and 65,000 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 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 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

6 4 Directors Walter K Goldsmith Non-executive Chairman Walter Goldsmith joined the Board in May 2007 and was appointed Chairman in March He is a chartered accountant with substantial board level experience in public and private companies. A considerable part of his career was spent at Black & Decker, the global manufacturer and marketer of power tools, where he was latterly Corporate Vice President and responsible for launching Black & Decker into 22 countries. He was subsequently Group Planning and Marketing Director at Forte Plc, the hotel group and Director General of the Institute of Directors for five years. Walter is currently chairman or director of a number of other private companies. He has a letter of appointment dated 29 January 2015, whereby he is entitled to receive 12 months notice of termination, plus a further 12 months notice on a change in control of either the Company or Diffusion. Leigh A Stimpson CEO Leigh Stimpson joined the Board on 23 February He has been an executive with Diffusion since Leigh is a seasoned HVAC industry professional, with extensive marketing skills and product knowledge of the sector. Leigh re-joined Diffusion s executive management on a full time basis in 2006 and was responsible for the day-to-day turnaround since then. He has a service agreement dated 29 January 2015, whereby he is entitled to receive 12 months notice of termination, plus a further 12 months notice on a change in control of either the Company or Diffusion. Martin M Reid Executive Director and Diffusion s Operations Director Martin Reid joined the Board on 15 September 2010 and he has been with Diffusion for over 25 years, where he is currently responsible for all day-to-day operations including procurement, manufacturing excellence and stock control. He has in-depth knowledge of the heating and ventilation sector and is also heavily involved with new product innovation and development. He has a service agreement dated 29 January 2015, whereby he is entitled to receive 12 months notice of termination, plus a further 12 months notice on a change in control of either the Company or Diffusion. Advisers Auditors Milsted Langdon LLP Winchester House Deane Gate Avenue Taunton Somerset TA1 2UH Bankers Registrars Capita Asset Services The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Solicitors Lloyds Bank Plc Sherrards Solicitors LLP 39 Threadneedle Street 7 Swallow Place London EC2R 8AU London W1B 2AG Stockbrokers Nominated Adviser finncap Ltd finncap Ltd 60 New Broad Street 60 New Broad Street London EC2M 1JJ London EC2M 1JJ

7 5 Strategic report This Strategic Report covers only those reporting requirements not already set out in the Chairman s Statement. Principal activity The principal activity of the Group during the year was the manufacture and distribution of premium quality fan coils and commercial heating products for commercial offices, airports, hotels, retail outlets, schools and high-end residential developments, together with related spares and maintenance services. Review of business The Group s operations comprise Energy Technique Plc, a non-trading holding company for its wholly owned subsidiary ET Environmental Limited, trading as Diffusion. A review of the Group s financial performance for the year ended 31 March 2015 is set out in the Chairman s Statement. Key performance indicators (KPIs) Diffusion s business progress is monitored and controlled using weekly reported KPIs, prepared using a traffic light dashboard system. These KPIs report all of the key metrics affecting both current trading and future prospects, including: Enquiry levels; Order intakes; Sales levels; Manufacturing output; Stock levels; Overdue debtors and cash positions. A review of annual KPIs comprising of sales, operating profit, cash flow and net cash in-hand positions, is set out in the Chairman s Statement. Principal risks and uncertainties The principal risks and uncertainties affecting the development of Diffusion are: Low activity levels in the UK property and construction sector; As a small company, loss of executive Directors and other key executives. Business strategy The Board s strategy is set out in the Chairman s Statement. Current trading and prospects The Board s strategy is set out in the Chairman s Statement. By order of the Board R M Unsworth Company Secretary 20 May 2015

8 6 Directors report The Directors present their report and the Group financial statements for the year ended 31 March Dividends An interim dividend of 1.50 pence per share was paid on 12 December 2014 and the Directors recommend a final dividend of 2.25 pence per share for approval by shareholders at the 2015 Annual General Meeting. Research and development Operating profit is stated after charging 239,000 (2014: 222,000) on research and development. Directors and their interests A current list of Directors is shown on page 4. Details of Directors interests in the Company s shares and options are set out in the Remuneration Report. Directors responsibilities for the financial statements The Directors are responsible for preparing the Strategic Report, Directors Report and the financial statements in accordance with applicable law and regulations. The Directors are required under company legislation to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union, which are required by law to give a true and fair view of the state of affairs of the Group and of its profit or loss for that period. The financial statements for the Parent Company have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and the Group and of the profit or loss of the Group for that period. In preparing those financial statements, the Directors are required to: select suitable accounting policies and apply them consistently; make judgments and estimates that are reasonable and prudent; state whether applicable United Kingdom Accounting Standards have been followed by the Parent Company and applicable IFRSs as adopted by the European Union have been followed by the Group, subject to any material departures disclosed and explained in the financial statements; and prepare the financial statements on the going concern basis, unless it is inappropriate to presume that the Group will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company s transactions and disclose with reasonable accuracy at any time the financial position of the Company and Group and enable them to ensure that the financial statements comply with the Companies Act They are also responsible for safeguarding the assets of the Company and Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors have reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the financial statements. The maintenance and integrity of the corporate and financial information included on the Company s website is the responsibility of the Directors. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

9 7 Directors report Substantial shareholdings At 18 May 2015, the Company was aware of the following interests of 3% or more of the issued share capital: Ordinary shares of 10p each No. % Interest Peter Gyllenhammar 605, Folio (UK) Limited Pension Plan 260, John Cawthorne 224, Leigh A Stimpson (Director) 175, Martin M Reid (Director) 121, Walter K Goldsmith (Director) 109, Barclayshare Nominees Limited 94, Daniel Francis 82, Environment In an attempt to address the environmental and energy issues surrounding HVAC products, particular emphasis is placed in the product development programme on energy efficiency and air quality. Communication Investors The Company considers that communication with shareholders is very important. In addition to the interim and annual reports, the Company keeps its website up to date with news affecting the business. All shareholders are encouraged to attend the Annual General Meeting. Employees Employee consultation, participation and involvement in matters affecting their interests continue to be developed. The Group gives equal consideration to applications for employment from people regardless of their sex, ethnic origin, age or disability. It is Group policy, wherever practicable, to continue to employ, train and promote the career development of existing employees with equal consideration. Financial risk management The Group s operations expose it to a variety of financial risks including the effects of changes in market prices and credit risk. Liquidity and cash flow risk The Group monitors cash flow as a part of its normal activities. Cash positions are monitored daily and forecasts are discussed by the Board on a monthly basis to ensure sufficient liquid resources are available. Price risk The Group is exposed to commodity price risk as a result of its operations. However, given the size of the Company s operations, the cost of managing this exposure exceeds any potential benefits. The Directors regularly revisit the appropriateness of this policy. The Company has no exposure to equity securities price risk.

10 8 Directors report Credit risk The Group has implemented policies requiring appropriate credit checks on significant customers before sales are made and it seeks to obtain credit insurance on all major trade receivables. Market risk The Group s performance is impacted by the economic environment and in particular the UK commercial property market. To mitigate this risk, the Company strives to deliver quality products and services at competitive prices. The Company invests heavily in research and development to produce high energy efficient products. Future developments A review of the Group s future developments is included in the Chairman s Statement. Auditors A resolution is to be proposed at the 2015 Annual General Meeting for the reappointment of Milsted Langdon LLP as auditors of the Company. There is no relevant audit information (that is, information needed by the Company s auditors in connection with preparing their report) of which the Company s auditors are not aware. The Directors have taken all the steps that they ought to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information. Annual General Meeting Notice of the 2015 Annual General Meeting is set out on pages 40 to 44. By order of the Board R M Unsworth Company Secretary 20 May 2015

11 9 Corporate governance So far as is possible, given the Company s size and the constitution of the Board, the Directors comply with the principles of best practice as set out in the UK Corporate Governance Code on Corporate Governance. The Audit Committee The Board has appointed an Audit Committee consisting of Walter Goldsmith (Committee Chairman) and Robert Unsworth (Company Secretary). This Committee meets at least twice annually and is responsible for ensuring the financial performance of the Company is properly reported and monitored and for meeting the auditors and reviewing their reports in relation to the financial statements and internal control systems. The Audit Committee reviews the services provided by the external auditors on an annual basis. This review includes consideration of the confirmation on an annual basis of their independence to the Company and of the services they provide, in order to ensure their independence is not compromised. The Remuneration Committee The Board has appointed a Remuneration Committee consisting of Walter Goldsmith (Committee Chairman) and Robert Unsworth (Company Secretary). The Remuneration Committee is responsible for reviewing the performance of the Executive Directors and for setting the scale and structure of their remuneration and the basis of their service contracts. The Executive Directors set the scale and structure of the remuneration of the Chairman and Company Secretary. Given the small size of the Company, the Remuneration Committee will also act as the Nomination Committee responsible for considering and recommending to the Board any changes in the Board s composition and membership. Going concern After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements. Internal audit Due to the Company s small size and the active involvement of the Executive Directors in its day-to-day activities, the Board does not consider there is a need for an internal audit function. This decision is reviewed annually. Health and safety Diffusion has its own Health and Safety Officer who advises as to its compliance and responsibility. The Board ensures that all recommendations are implemented in a reasonable time period and full supervision and guidance is given. Diffusion provides training for relevant staff on statutory health and safety requirements and written guidance is given in the Company s health and safety manual. By order of the Board R M Unsworth Company Secretary 20 May 2015

12 10 Remuneration report Remuneration policy and Directors service agreements Walter K Goldsmith, Chairman, has a letter of appointment dated 29 January 2015, whereby he receives remuneration by way of fees, currently of 40,000 per annum. He participates in profit performance related bonuses at a rate of 50% payable to the Executive Directors but he does not receive any other benefits in kind or participate in the EMI share option scheme. Leigh A Stimpson, CEO, has a service agreement dated 29 January 2015, whereby he receives a salary, currently of 136,590 per annum plus annual car allowance of 12,000, 10% personal pension contributions and profit performance related bonuses. Martin M Reid, Executive Director, has a service agreement dated 29 January 2015, whereby he receives a salary, currently of 103,437 per annum plus annual car allowance of 12,000, 10% personal pension contributions and profit performance related bonuses. Directors remuneration The remuneration of the Directors was as follows: Salary 2015 Salary 2014 & fees Bonus Total Pension & fees Bonus Total Pension Walter K Goldsmith (1) Leigh A Stimpson Martin M Reid (1) Walter K Goldsmith s remuneration comprised fees paid to The Walter Goldsmith Consultancy, a partnership where he has a 50% share. Directors interests in shares of 10 pence each 31 March March 2014 Shares Options Shares Options No. No. No. No. Walter K Goldsmith 109, ,980 Leigh A Stimpson 175,654 83, ,511 83,262 Martin M Reid 121,606 83, ,000 83,262 Share options were issued on 4 December 2012 under an EMI scheme at a price of 43.5 pence per share not normally exercisable until the expiry of two years after grant. There were no changes to the Directors share interests between 31 March 2015 and 20 May The charges relating to the issue of the Directors share options was 3,000 each for Leigh A Stimpson and Martin M Reid. By order of the Board R M Unsworth Company Secretary 20 May 2015

13 11 Independent auditors report to the members of Energy Technique Plc We have audited the Group financial statements of Energy Technique Plc for the year ended 31 March 2015 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. This report is made solely to the Company s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act Our audit work has been undertaken so that we might state to the Company s members those matters we are required to state to them in an auditors report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company s members as a body for our audit work, for this report or for the opinions we have formed. Respective responsibilities of Directors and auditors As explained more fully in the Directors responsibilities statement set out on page 6, the Directors are responsible for the preparation of the Group financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the Group financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board s Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Strategic Report and the Directors Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the financial statements: give a true and fair view of the state of the Group s affairs as at 31 March 2015 and of the Group s profit and the Group s cash flows for the year then ended; have been properly prepared in accordance with IFRSs as adopted by the European Union; and have been prepared in accordance with the requirements of the Companies Act Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Strategic Report and the Directors Report for the financial year for which the Group financial statements are prepared is consistent with the Group financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following: Under the Companies Act 2006 we are required to report to you if, in our opinion: certain disclosures of Directors remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit. Other matter We have reported separately on the Parent Company financial statements of Energy Technique Plc for the year ended 31 March Nigel Fry (Senior Statutory Auditor) For and on behalf of Milsted Langdon LLP Chartered Accountants and Statutory Auditors Taunton 20 May 2015

14 12 Consolidated statement of comprehensive income for the year ended 31 March 2015 Note Revenue 5 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 6 & Analysed as: Diffusion 1, Central costs (320) (210) Finance costs 10 (24) (47) Profit before tax Income tax charge 11 (81) (143) Total comprehensive income for the year 6 & Earnings per share Basic p 18.0p Fully diluted p 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 334,000 (2014: 366,000) 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.

15 13 Consolidated statement of financial position at 31 March 2015 Company number Note ASSETS Non-current assets Intangible assets Plant and equipment Deferred tax asset Total non-current assets Current assets Inventories Trade and other receivables 17 1,749 1,752 Cash and cash equivalents 25 1, Total current assets 4,013 3,396 Total assets 4,498 3,759 LIABILITIES Current liabilities Trade and other payables 18 (1,900) (1,826) Current tax liabilities (243) (213) Obligations under hire purchase agreements 26 (10) Total current liabilities (2,143) (2,049) Non-current liabilities Provisions 19 (114) (115) Deferred tax liability 11 (23) Total non-current liabilities (137) (115) Total liabilities (2,280) (2,164) Net assets 2,218 1,595 EQUITY Equity attributable to equity holders Issued capital Reserves Retained earnings 23 1,885 1,262 Total equity 2,218 1,595 Approved and authorised by the Board on 20 May 2015 and signed on its behalf by: W K Goldsmith L A Stimpson

16 14 Consolidated statement of changes in equity for the year ended 31 March 2015 Share Retained capital Reserves earnings Total At 1 April ,198 1,531 Share options Dividends paid (43) (43) Comprehensive income Share reorganisation costs (11) (11) Share buy-backs (94) 94 (400) (400) Total comprehensive income (94) At 31 March ,262 1,595 Share options Dividends paid (84) (84) Comprehensive income Total comprehensive income At 31 March ,885 2,218

17 15 Consolidated statement of cash flows for the year ended 31 March 2015 Note Cash flows from operating activities Profit before tax Finance costs Depreciation 7 & Share option charge Profit on disposal of plant and equipment (2) Operating cash flows before changes in working capital (Increase)/reduction in inventories (113) 17 Reduction/(increase) in trade and other receivables 3 (226) Increase in trade and other payables Cash generated by operations Finance costs 10 (24) (47) Net cash generated by operating activities Cash flows from investing activities Purchase of plant and equipment 14 (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 Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 1,

18 16 Notes to the consolidated financial statements 1. General information Energy Technique Plc (the Company ) is a public limited company incorporated in England and Wales. The Company is domiciled in the United Kingdom and its registered office and principal place of business is 47 Central Avenue, West Molesey, Surrey KT8 2QZ. The principal activities of the Company and its subsidiary (the Group ) are described in note 6. The financial statements are presented in sterling and all values are rounded to the nearest thousand pounds ( 000) except when otherwise indicated. 2. 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. 3. 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.

19 17 Notes to the consolidated financial statements 3. Significant accounting policies 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: Plant and equipment Rate between 10% and 33% per annum

20 18 Notes to the consolidated financial statements 3. Significant accounting policies 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. 4. Critical accounting judgments and key sources of estimation uncertainty In the application of the Group s accounting policies, which are described in note 3, the Directors are required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. The Directors do not consider there are any critical judgments or key sources of estimation uncertainty made in the process of applying the Group s accounting policies and the amounts recognised in the financial statements. 5. Revenue Continuing operations Sale of goods 10,267 9,101 Rendering of services ,775 9,565

21 19 Notes to the consolidated financial statements 6. Business segments 6.1. 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 Central costs 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. Costs associated with being a public company and maintaining the AIM quotation on the London Stock Exchange Segment revenue and segment result Segment revenue Segment result Diffusion 10,775 9,565 1, Central costs (320) (210) Revenue and operating profit 10,775 9, Finance costs Diffusion (24) (47) Profit before tax Income tax credit/(charge) Company 40 Income tax charg e Diffusion (121) (143) I (81) (143) Consolidated revenue and result for the year 10,775 9, Revenue represents sales to external customers. Inter-segment sales in the year amounted to 538,000 (2014: 352,000), which is eliminated on consolidation. Diffusion had one customer (2014: one) with revenue in excess of 10%, which amounted to 1,099,000 (2014: 1,582,000) Segment assets and liabilities Assets Liabilities Diffusion 4,381 3,735 2,231 2,107 Central costs ,498 3,759 2,280 2,164

22 20 Notes to the consolidated financial statements 6. Business segments 6.4. Other segment information Depreciation Additions to non-current assets Diffusion Central costs Geographical segments Acquisition of Revenue Segment assets segment assets United Kingdom 10,033 8,997 4,498 3, Europe Rest of World ,775 9,565 4,498 3, Operating profit for the year Profit for the year has been arrived at after charging: Impairment loss on trade receivables Depreciation of plant and equipment Research and development costs expensed immediately Hire of plant and equipment 12 7 Auditors remuneration Operating lease land and buildings Operating lease plant and machinery Remuneration paid to the auditors for non-audit services amounted to 4,000 (2014: 6,000) for taxation services.

23 21 Notes to the consolidated financial statements 8. Employees No. No. The average number of people, including Directors, employed by the Group was: Operations Sales and service Administration Employee costs: Wages and salaries 2,608 2,345 Social security charges Pension costs ,956 2,654 The Directors remuneration is disclosed within the Remuneration Report on page Retirement benefit plans The Group contributes to defined contribution retirement benefit plans for certain qualifying employees. The assets of the plans are held separately from those of the Group in funds under the control of trustees. The total expense recognised in the Statement of Comprehensive Income of 56,000 (2014: 47,000) represents contributions payable to these plans by the Group at rates specified in the rules of the plans. Outstanding contributions at 31 March 2015 of 6,000 (2014: 3,000) were paid over subsequent to the year end. 10. Finance costs Invoice discounting 9 26 Obligations under hire purchase agreements 1 Notional interest on provisions The weighted average capitalisation rate, excluding service charges, on funds borrowed was approximately 0.8% per annum (2014: 8.1%).

24 22 Notes to the consolidated financial statements 11. Taxation Taxation charge Current tax UK corporation tax on profit for the year Deferred tax (Note 11.2) Charge in relation to utilisation of tax losses Total income tax charge for the year The tax assessed for the year is lower than the standard rate of corporation tax in the UK of 21% (2014: 23%). The differences are explained below: Profit from operations UK corporation tax at 21% (2014: 23%) Adjusted for: Income not taxable Research and development uplift (29) (6) Tax losses utilised (51) (29) Capital allowances (more)/less than depreciation (42) 3 Movement in other short-term timing differences 1 1 Total income tax charge for the year

25 23 Notes to the consolidated financial statements 11. Taxation Deferred tax asset Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 20% (2014: 21%). The movement on the deferred tax account is as shown below: Opening Closing balance Movement balance 000 Accelerated capital allowances (27) 3 (24) Short-term timing differences (3) 4 1 Losses 1,416 (179) 1, March ,413 (175) 1,238 Accelerated capital allowances (24) (38) (62) Short-term timing differences 25 (1) 24 1 (39) (38) Losses 1,237 (183) 1, March ,238 (222) 1,016 Deferred tax asset split: Energy Technique Diffusion Plc Total 000 Accelerated capital allowances (24) (24) Short-term timing differences Losses 97 1,140 1, March ,140 1,238 Accelerated capital allowances (62) (62) Short-term timing differences Losses 15 1,039 1, March 2015 (23) 1,039 1,016 A deferred tax liability has been recognised for Diffusion, the Company s trading subsidiary, to take account of the temporary differences between the incidence of income and expenditure for taxation and accounting purposes. A deferred tax asset of 40,000 has been recognised as the recovery of a proportion of the losses in Energy Technique Plc is now considered to be reasonably certain.

26 24 Notes to the consolidated financial statements 11. Taxation Deferred tax asset Deferred tax asset recognised: Deferred tax asset to be recovered within 12 months In addition to the trading losses shown above, the Group has capital losses of 3.8 million (2014: 3.8 million) not recognised as a deferred tax asset because recovery is not considered reasonably certain. 12. Earnings per share Pence Pence Basic Diluted The earnings and weighted average number of ordinary shares used in the calculation of basic and diluted earnings per share, are as follows: Total comprehensive income for the year 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). 13. Intangible assets Cost: At beginning and end of year Goodwill is not amortised, but tested annually for impairment with the recoverable amount being determined from value in use calculations. These have been prepared using discounted cash flow forecasts for the forthcoming year and a pre-tax discount rate of 15%.