TIDMFLOW
RNS Number : 9690G
Flowgroup plc
10 March 2015
Flowgroup plc
(the "Company" or the "Group")
Pre-close statement
Flowgroup plc (AIM: FLOW), which develops and commercialises
alternative and efficient energy products, reports a pre-close
update ahead of its results for the financial year ended 31
December 2014, which are expected to be announced on Tuesday 26 May
2015.
-- Significant operational and financial progress during 2014
-- Flow boiler launched in UK in January 2015
-- Flow boiler in testing with potential international partners
-- Flow Energy generated c. GBP33m in revenues and attracted 66,000 customer accounts
-- Results expected to be in line with current analyst forecasts
A global technology
The year to 31 December 2014 saw Flowgroup initiate production
of its electricity-generating Flow boiler and make progress in
executing its strategy. With Flow boilers currently being
manufactured in Livingston, Scotland for sale into the UK market,
and several units being tested in the research facilities of two
major international energy companies for potential
commercialisation in Europe and the US, the Group believes that it
is making significant progress towards its vision of installing,
globally, in excess of 1m units per annum. In addition, the Group
has seen growth in both its energy business, Flow Energy, and its
backup power division, Flow Battery.
Flow Boiler
Production of the Flow boiler began at Jabil Circuit Inc's
("Jabil") manufacturing facility in Livingston, Scotland as planned
on 17 November 2014. Jabil has installed a complete assembly line
with an annual capacity of 50,000 units on a five day, three shift
system, and has the infrastructure in place to increase capacity to
100,000 units per year. Production is gradually being ramped up
through the launch phase. The Flow boiler received CE certification
in March 2014. It is intended that the production line will be
verified by the BSI (British Standards Institution) in April of
this year.
The Group has expanded its manufacturing deal with Jabil to
increase the number of Flow boilers to be manufactured under the
agreement from 390,000 to 500,000. The Group and Jabil also agreed
to collaborate on the Company's future Flow mCHP product
developments for the UK and international markets, both in terms of
introducing new versions of the Flow boiler more quickly and to
accelerate the manufacturing cost reduction programme. In addition,
the amended agreement also included an extension of the drawdown
period of the previously announced loan facility (currently
undrawn), which now expires on 31 December 2015, and improvements
to the credit terms for a period of time to support the initial
launch of the Flow boiler in the UK. All key component suppliers
have allocated the necessary capacity and personnel required to
support the planned growth in volume and will support, alongside
Jabil, the Group's product cost reduction and product line
extension programmes.
The sales and marketing campaign for the Flow boiler is now live
following the launch of the boiler in January 2015. The campaign is
progressing to plan.
The Group has put in place testing agreements for its mCHP
technology platform with a major European utility and with NRG
Energy Inc in the US. The purpose of these trials is to assess the
potential for commercialisation in the European and North American
markets respectively. Once the testing has been completed the Group
hopes to enter into further commercial agreements. As well as these
previously announced potential partners, the Group is also in
discussion with a range of other organisations about similar
agreements. These international markets will be developed,
potentially with these incumbent participants, who can provide
local market knowledge and access to large customer bases. The
European market is particularly attractive, with a projected 9m
boiler sales in 2015.
The Group's research and development activities are focused on
product line extension, for the UK and to take advantage of the
potential of international markets, and product cost reduction, as
well as continuing work on further increasing the efficiency and
power generation capability of its patented mCHP technology. The
Group's product roadmap defines the development timescales of
several different versions of the Flow boiler. It prioritises new
product variants in specific markets based on their potential
profitability and the ease and speed of adapting Flow's product
platform, as well as the existing agreements the Group has in place
with key participants in those markets. Working to accelerate the
implementation of the product roadmap will allow the Group to take
advantage of the potential of its key target markets more
quickly.
Sales and installation partnerships
During the year, the Group initiated an installer liaison
programme to recruit independent boiler installers nationally. This
programme has attracted in excess of 2,000 Gas Safe registered
installers who will become accredited Flow boiler installers.
Accreditation training takes place at the Group's new training
facility in Preston Brook, near Runcorn, which opened in July 2014.
This dedicated 9,000 square foot facility has the capacity to train
over 3,000 installers a year. As well as being allocated
installation work from the Group's direct sales programme, it is
expected that these installers will also generate sales as they
visit customers' homes in the course of their normal activity and
recommend the Flow boiler.
To supplement this installer sales channel, the Group signed an
MOU with entu Plc, to deliver additional high volume third party
sales. entu has a significant existing customer base to whom to
market the Flow boiler and conducts extensive marketing campaigns
to reach new customers, supporting this activity through 71 sales
and marketing offices and 14 repair and installation service
centres across England and Scotland. It is expected that entu will
be able to provide an end-to-end sales process with regard to the
Flow boiler and will additionally provide referrals through to Flow
for new home energy contracts.
Flow Energy
The Group's energy business grew steadily through the year as
planned. Re-entering the energy market again in April 2014 with a
competitive tariff, the Group took the decision not to pay
commissions to price comparison sites and instead to attract
customers organically, in order to apply its financial resources to
the mCHP Flow boiler business. This resulted in measured growth
with lower customer acquisition costs. At year end, Flow Energy had
generated revenue of approximately GBP33m revenue and had attracted
66,000 customer accounts since its launch. The energy campaign
provided continuing exposure for the Flow brand and allowed Flow
Energy to establish a strong reputation for customer service,
consistently delivering a top 3 position in the UK energy industry
for the quality of its customer service.
The energy market appears to be changing more rapidly than in
previous years. The Group believes this presents the kind of
conditions in which smaller suppliers such as Flow Energy may be
able to grow rapidly and significantly, adding value to the Group.
The Group therefore continues to analyse the energy market for
growth opportunities.
Flow Battery
Flow Battery, the Group's award-winning compressed air backup
power business, completed its first installations under the three
year framework agreement it won in 2013 with National Grid UK. It
has replaced conventional lead-acid backup power units in 29
National Grid substations, working to National Grid's timelines on
the project.
In addition, Flow Battery received an initial order from Trane
Canada for one DC100 (100kW) and one DC50 (50kW) compressed air
battery unit, which were shipped in July. The units were procured
by Trane for a major Canadian telecommunications company. The Group
believes the deal with Trane, in the key North American market, has
the potential to open up many more opportunities.
Financing
The Board continually keeps under review its financing position.
As at 31 December 2014 the Group had net cash of GBP8.4
million.
Group Strategy and Outlook
The Group believes that international markets for its mCHP
technology present significant opportunities for expansion as the
need for effective and affordable local generation technologies
continues to increase. It intends on working collaboratively with
utilities around the world, who can provide access to large
existing customer bases, and also with other heating product
manufacturers, taking a 'Flow inside' approach, ensuring that as
many heating products as possible globally incorporate the Group's
patented mCHP technology.
In addition, the Group continues to believe that its mCHP
technology can play a central role in a 'connected home' offer. The
Group is planning to develop the 'smart' capability of its boiler,
allowing remote control and service together with integration of a
new generation of smart, efficient home energy devices.
Tony Stiff, CEO of Flowgroup, said:
"Flowgroup represents an extremely important part of the future
of energy, not just in the UK but around the world. Our robust
progress in the UK has therefore been matched by significant effort
in expanding our business internationally, to take advantage of
what we believe is a global market opportunity. Flow boilers are
being manufactured, now, in the UK, and we have a clear strategy
and initial agreements in place for international expansion based
on the Group's patented technology platform. We also believe that
the UK market may present opportunities for significant growth for
Flow Energy with regard to home energy supply alone. This makes
2015 another important year for Flowgroup and its investors."
Flowgroup plc www.flowgroup.uk.com
Tony Stiff, Group Chief Executive Officer Tel: +44 (0)151 348
2100
Nigel Canham, Chief Financial Officer
Investec Bank plc (NOMAD, joint Financial Tel: +44 (0)20 7597
Adviser and joint Broker) 4000
Christopher Baird / Daniel Adams / Ben Williams
Cenkos Securities plc (joint Financial Adviser Tel: +44 (0)20 7397
and joint Broker) 8900
Stephen Keys / Christopher Golden (Corporate
Finance)
Julian Morse (Sales)
Walbrook PR Ltd Tel: +44 (0)20 7933 8780 or flowgroup@walbrookpr.com
Paul McManus Mob: 07980 541 893
This information is provided by RNS
The company news service from the London Stock Exchange
END
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