ENTU UK Regulatory News (ENTU)

THIS ANNOUNCEMENT CONTAINS PRICE SENSITIVE INFORMATION

ENTU (UK) PLC

("Entu" or the "Group")

Results for the Six Months Ended 30 April 2016

Entu (UK) plc, the home improvements group providing energy efficiency products and services to homeowners and businesses across the UK, announces its results for the six months ended 30 April 2016.

Key Points

· Home improvements business performed well overall with record order book at the end of H1 and full FCA authorisations secured.

· £2.0m of central overheads formerly charged to the discontinued Solar business have had to be absorbed by continuing operations as new commercial business streams have been slower to come through.

· Decisive actions taken in May to reduce cost base by £2.1m on an annualised basis, with an overall annualised target of £4.0m.

· Despite actions to reduce cost, approx. £3.5m of the overheads formerly charged to the Solar business will be carried in the current financial year. Full year outturn will be below market expectations.

· Refocussed strategy, new business structure and reorganised senior team to create a leaner group, focussed on improving earnings in the core business and carefully targeted growth opportunities.

· Interim dividend of 0.5 pence per share.

Chief Executive, Ian Blackhurst, commented:

"Our Home Improvements Division performed well overall in the first half. We made the right decision in exiting the Solar business last year after the Government reduced feed-in-tariffs, but managing the exit took more management time and cost than we had hoped. This affected results in the first quarter, but we recovered with our strongest ever sales performance in second quarter.

The exit from our Solar business left us with £2.0m of central overheads to absorb into our continuing operations in the first half of this year. We had planned for growth in new business streams and targeted acquisitions to cover these overheads. However, growth has been slower than we hoped and we have scaled back on acquisitions to focus on the core business. In May, we acted decisively to remove £2.1m of cost from the business on an annualised basis, with a targeted £4.0m overall through further efficiencies.

We have also refocussed our strategy, restructured our business and reorganised our senior team. There is still work to do, and the long term impact of Brexit is as yet unknown, but focus in the second half will be on improving returns in the core home improvements business and continuing to drive efficiencies to position the business for growth in 2017."

For further information, please contact:

Notes to Editors

Entu (UK) plc (AIM: ENTU) is a leading home improvement group providing energy efficiency products and services to homeowners and businesses in the UK.

Headquartered in Manchester, Entu has national presence through a network of strong regional brands such as Weatherseal, Penicuik and Zenith. The Group operates three business segments: home improvement products, energy generation and energy saving products and repairs and renewals services.

Entu operates in a growing marketplace with myriad opportunities. Entu's primary strategy is to focus on driving organic growth from its diversified, fully integrated product portfolio, and also, over time, through the development of new product and service offerings, in particular, energy efficiency products and services.

The Group was admitted to AIM in October 2014.

CHIEF EXECUTIVE'S STATEMENT

Business Review

Our Home Improvements Division performed well overall in the first half, but our exit from the Solar business in September 2015 had a greater impact on the Group than we had hoped. As well as incurring additional exit costs of £0.5m (shown under "discontinued operations"), the management time and effort required to stabilise the Group affected sales in the first quarter. However, we made up for this in the second quarter with new orders reaching record levels and, as we continue to build our installation capacity to fulfil our order book, we expect to make up lost ground in the second half.

Within our Energy Generation and Saving Division, Astley Façades continues to perform well, growing its order book to £24m (£2m when acquired on 27 March 2015), and our insulation business performed in line with plan despite lower ECO funding rates.

The exit from our Solar business left us with £2.0m of central overheads which were charged formerly to the discontinued Solar business, but have had to be covered by our continuing operations in the first half of 2015/16 (£1.4m allocated to the Home Improvements Division and £0.6m to the Energy Generation and Saving Division). We had planned for growth in our new commercial business streams, mainly within Energy Generation and Saving, and targeted acquisitions to cover these overheads; but growth has been slower than we hoped and we have scaled back acquisitions activity to focus on the core business.

We therefore acted in May to remove £2.1m of cost from the business on an annualised basis, and we are targeting annualised savings of £4.0m overall through further efficiencies. The benefits from these savings will start to flow through in the second half of the year.

Turnover in the half year was up 11.8% to £51.2m (2015: £45.8m) and underlying gross profit was up 5.4% to £15.7m (2015: £14.9m). This was partly due to improved margins in our Home Improvements Division and partly due to the inclusion of Astley for the full period. However, as Astley is a lower margin business, underlying gross margins were down from 32.5% to 30.7%. Reported gross profit fell slightly to £15.2m (2015: £15.5m) due to a number of non-recurring items in both years.

Underlying EBITDA was up slightly at £3.9m (2015: £3.8m) with the higher underlying gross profit being offset by increases in the cost base, particularly business development costs. Reported EBITDA before exceptional items, however, fell from £4.4m to £1.4m due to the non-recurring items referred to above and the £2.0m of central overheads which were charged formerly to the discontinued Solar business, but have had to be covered by continuing business in the first half of 2015/16. The overall profit for the period was £0.4m (2015: £2.7m) after the additional costs of existing the Solar business of £0.5m.

The weighting of new orders towards the second quarter, combined with the costs in exiting the Solar business meant that cash used in operating activities was £2.2m (2015: £1.2m), with an overall net decrease in cash of £2.3m (2015: £2.7m). Cash flow will improve as we work through the order book.

Finance Facilities

We have increased our facilities with Barclays Bank plc and have signed a five-year agreement with Shawbrook Bank plc ("Shawbrook") which will see us working in partnership to bring innovative consumer finance products to our customers. As part of this agreement, we will leverage our day-to-day trading balances with Shawbrook to create additional facilities, increasing the combined facilities available to the Group from £4.0m to £13.0m.

Strategic Update

We have conducted an in-depth review of our strategy and restructured our business to make it leaner, focussed and more efficient. Our senior team has been strengthened with a number of key appointments and we will make further appointments in the second half of the year.

Our overall strategy to become the UK's leading installer of energy efficient products for retail and commercial customers remains unchanged, but our immediate focus will be on improving returns in our Home Improvements Division, securing the benefits of the restructure and delivering our £4.0m savings target.

We will continue to explore growth opportunities, but we will focus on a small number of opportunities where we have the ability to influence sales directly and can leverage our existing delivery platform to enhance EPS.

Finally, we will continue to invest in a select number of corporate relationships where we can accelerate the development of our integrated installation services model and generate an attractive return on investment.

Board Changes

As a result of our focus on the home improvements market, improving EPS and a smaller number of growth opportunities, Andy Corless, who joined the Board as Chief Operating Officer in January 2016 in order to drive the development of new products and markets, has decided, after discussion with the Board, that it is an appropriate time to leave the Group to pursue new opportunities.

On 15 April 2016, Darren Cornwall, Corporate Development Director, stepped down from the Board to work on a flexible basis as we scale back acquisitions activity to focus on the core business.

Dividend

Recognising the profit for the period and the distributable reserves available, we have declared an interim dividend of 0.5 pence per share (2015: 2.67p), payable on 26 August 2016, with a record date of 29 July 2016.

Outlook

It's been a challenging year and, whilst we have taken decisive action to reduce the central overheads formerly charged to the discontinued Solar business (£4.0m annualised), the timing of our actions means we will carry approximately £3.5m of this cost in this financial year. As result of this, and despite the momentum we built in the core business in the second quarter, full year outturn will be below market expectations.

We have taken firm and decisive action to restructure the Group, develop a more focussed strategy and remove cost, with further efficiency savings to be realised. We believe that these actions will create a robust platform to support a return to growth in 2017.

Ian Blackhurst

Chief Executive

19 July 2015

SEGMENTAL REVIEW (CONTINUING OPERATIONS)

Home Improvements

The Home Improvements Division is a market leader in windows, doors, conservatories and other home improvement products. The Division sells to retail customers directly through its own brands or indirectly through partnerships with other home improvement businesses.

The exit from the Solar business in September 2015 did have an impact on sales orders in the last two months of 2015, but the Division recovered well and, in the first two months of 2016, enjoyed its highest ever rise in new orders, which reached record levels in the second quarter. At the end of April, the order book was 24% higher than at 31 October 2015, and 26% higher than at 30 April 2015. The weighting of new orders towards the second quarter means revenues are slightly behind, despite the overall level of orders. Actions have been taken to increase installation capacity and revenues will catch up as installation capacity increases.

During the period, the Division was successful in securing FCA authorisation as a credit broker for consumer finance products provided through our finance partners.

The increases in underlying gross profit and underlying margins were driven by a combination of improved average order values and tighter cost control, offset by lower finance commissions as consumer finance interest rates reduced in line with trends across the industry. Underlying EBITDA was maintained at £2.1m (2015: £2.1m) with the improvement in underlying gross profit being offset by an increase in central overheads, largely a result of strengthening senior management across the business.

Reported gross profit and reported EBITDA are both lower due to a number of non-recurring items and EBITDA is also impacted by £1.4m of central overheads charged formerly to the discontinued operations, but covered by our continuing operations in the first half of 2015/16. As noted in the Chief Executive's Statement, decisive actions have now been taken to remove cost from the business. A reconciliation between underlying and reported results is set out at Note 16.

Energy Generation and Saving

The increase in revenue reflects the inclusion of Astley Façades for the full half year period, although this was partly offset by lower revenues in the cavity wall insulation business following the reduction in ECO funding. Despite the lower ECO rates, the cavity wall insulation business has performed well against plan.

Underlying gross profit before exceptional items and other non-recurring items was £1.6m (2015: £1.1m) in the previous half year, again due to the inclusion of Astley Façades but underlying margins fell from 24.4% to 14.5% due to a combination of Astley being a lower margin business and the lower ECO funding rates.

Astley performed well in the first half of 2015/16 growing its order book to £24m (which stood at £2m when acquired on 27 March 2015), with 80% of the full year outturn now covered.

Underlying EBITDA in the first half was maintained at £0.8m (2015: £0.8m) with the increase in gross profit being offset by business development costs to support new ventures.

Reported gross profit has also increased due to the inclusion of Astley, but reported EBITDA is lower due to a number of non-recurring items and the impact of £0.6m of overheads charged formerly to the discontinued Solar business, but covered by our continuing operations in the first half of 2015/16. Again, decisive actions have now been taken to remove cost from the business. A reconciliation between underlying and reported results is set out at Note 16.

Repairs and Renewals Service Agreements ("RRSA")

The RRSA Division offers customers an annual cover plan on the majority of core products. Revenue was up from £1.2m to £1.3m, and EBITDA also increased from £0.9m to £1.0m.

CONDENSED CONSOLIDATED INCOME STATEMENT

Notes 1 to 16 are an integral part of these interim consolidated financial statements. There are no other items of comprehensive income for the period other than the profit attributable to the equity holders.

CONDENSED CONSOLIDATED BALANCE SHEET

Notes 1 to 16 are an integral part of these interim consolidated financial statements.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Notes 1 to 16 are an integral part of these interim consolidated financial statements.

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

Notes 1 to 16 are an integral part of these interim consolidated financial statements.

NOTES

1. Basis of Preparation

The Company is a public limited company incorporated and domiciled in England. It is admitted to trading on the AIM market of the London Stock Exchange.

These consolidated interim financial statements for the six months ended 30 April 2016, which have not been reviewed or audited, have been prepared in accordance with the Disclosure and Transparency Rules (DTR) of the Financial Conduct Authority and in accordance with IAS 34, 'Interim Financial Reporting' as adopted by the European Union (EU). They should be read in conjunction with the audited annual financial statements for the year ended 31 October 2015 which have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted for use in the EU, including International Accounting Standards (IAS) and interpretations issued by the International Financial Reporting Standard Interpretations Committee (IFRS - IC).

The interim financial statements for the period ended 30 April 2016 do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006.

The financial information set out in this statement relating to the year ended 31 October 2015 does not constitute statutory accounts for that year. Full audited accounts in respect of that year were approved by the Board of Directors on 28 January 2016 and have been delivered to the Registrar of Companies. The report of the auditors on these accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain a statement under section 498 of the Companies Act 2006.

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing these interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty continue to be reviewed and applied on a consistent basis. There have been no material changes since 31 October 2015 as set out in the Group's Annual Report and Accounts.

2. Going Concern Basis

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Chief Executive's Statement. The financial position of the Group and its liquidity position are also included in that Statement.

After making enquiries the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Interim Statement.

3. Accounting Policies

The accounting policies are consistent with those of the annual financial statements for the year ended 31 October 2015.

Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings.

A number of new accounting standards are effective for the period beginning on 1 November 2015, none of which have a material impact on the Group's reported result. A full list of effective new accounting standards can be found in the Company's 2015 Annual Report and Accounts.

4. Segmental Analysis

The Executive Board, the members of which have been identified as chief operating decision makers ("CODMs"), review and evaluate the Group's internal reports in order to assess performance, allocate resources and determine operating segments including an appropriate allocation of costs.

In particular, the Executive Board consider the business from an operating perspective with Home Improvements, Energy Generation and Saving and Repair and Renewal Service Agreement ("RRSA") being the identified operating segments.

The Executive Board assess performance based on operating profit before exceptional Items. Other information is provided to the Executive Board, and is measured in a manner consistent with that of the financial statements.

All revenue, profit and assets of the Group arise in the United Kingdom.

Finance income, finance costs and taxation are all disclosed on a Group and not a segmental basis.

Operating Segments

5. Exceptional Items

6. Goodwill and Other Intangible Assets and Property, Plant and Equipment

7. Taxation Charge

Taxation is recognised based on management's best estimate of the weighted average annual tax rate expected for the full financial year. The estimated average annual tax rate used for the period ending 30 April 2016 is 20.0% (30 April 2014: 20.4%, 31 October 2015: 20.4 %).

8. Discontinued Operations

The Group continued to incur costs in the six months from 31 October 2015 relating to the discontinued Solar operation. Revenue for the half year ended 30 April 2016 was £nil (2015: £7,108,493), and the operating loss was £509,369 (2015: £368,800 loss).

Also included in the results 30 April 2015 were the losses and impairment of Norwood Interiors following a decision to dispose of its Kitchen retail operation, Norwood interiors (UK) Ltd. The Norwood disposal was completed on 2 October 2015. Revenue for the half year ended 30 April 2015 was £1,867,000 (2014: £1,782,000), and the operating loss before impairment was £248,000 (2014: £94,000 loss). Net assets were written down by £156,000 to nil at the half year.

The comparative losses for all three periods covered are shown the table below.

9. Dividends

Dividends Paid

A final dividend of £1,750,000 (2.67 pence per share) that related to the year ended 31 October 2015 was paid in May 2016. The dividend has been reflected against the published results for the period 30 April 2016.

Proposed Interim Dividend

The directors are pleased to declare an interim dividend of 0.5 pence per share for the 30 April 2016, which will be paid in accordance with the following timetable:

Ex-dividend date 28 July 2016

Record date 29 July 2016

Payment date 26 August 2016

The interim dividend, amounting to £328,000, has not been recognised as a liability in these interim financial information but will be recognised as shareholders' equity in the year ending 31 October 2016.

10. Earnings per share ("EPS")

Basic EPS and diluted EPS are calculated by dividing profit for the period/year attributable to owners of the parent by the following weighted average number of shares in issue:

The difference between the basic and diluted weighted average number of shares represents the dilutive effect of the Company Share Option Plan, Save As You Earn Option Plan, Management Incentive Plan and the Long Term Incentive Plan. The basic and diluted weighted average number of shares are the same as none of the share option schemes are expected to vest.

The basic and diluted earnings per share are as follows:

The adjusted profit for the period/year is as follows:

11. Reconciliation of Profit Before Taxation to Cash Generated from Operations

The decrease in trade and other payables excludes £1,750,000 accrued dividend at 30 April 2016 (£nil at 30 April 2015).

12. Business Combinations 

Purchase Consideration and Provisional Fair Value of Net Assets Acquired

On 27 March 2015 the Group purchased the entire issued share capital of Astley Façades Limited including three subsidiary companies, Astley Façades (UK) Limited, Astley Façades (North East) Limited and Astley Façades (Midlands) Limited, that gave the Group complementary commercial cladding operations across the UK.

The fair value of the consideration and assets and liabilities acquired at the date of acquisition were as follows:

The fair value adjustments at the date of acquisition were:

· provisions against recoverability of retentions, potential bad debts and recognition of income £324,000;

· adoption of a prudent Group accounting policy for warranty claims £1,343,000; and

· the initial purchase consideration of £200,000 has been reduced as a result of an adjustment in the level of net assets at the date of acquisition. The initial cash consideration was repaid to the Group prior to the year ended 31 October 2015.

Revenue and Profit Contribution

Half year to 30 April 2015

The acquired business contributed revenues of £419,451 and operating profit of £Nil to the Group in the month from the acquisition date to 30 April 2015. The total revenues and operating loss for the 6 months ended 30 April 2015 were £4,552,000 and £490,100 respectively.

Year to 31 October 2015

The acquired business contributed revenues of £6,577,000 and operating profit of £592,000 to the Group in the seven months from the acquisition date to 31 October 2015. The total revenues and operating loss for the 12 months ended 31 October 2015 were £11,129,000 and £101,900 respectively.

13. Principal Risks and Uncertainties

These are summarised as follows:

· Sector Risk. The Group's activities are weighted currently towards the home improvements sector which is subject to cyclical trends. Furthermore, if the government were to introduce tighter regulation around the Group's direct sales activities, then this could increase significantly the competitive pressures on the Group and/or impose additional costs upon the business. The Group's strategy is to diversify its business by expanding its product range and broadening its customer base. The Group is building its product range complementary energy-efficient products and services to reduce its exposure to cyclical trends. In parallel to this, the Group is broadening the sales channels through which it reaches home improvement customers and is growing its commercial customer base in order to reduce the Group's expose to the risk of tighter regulation in its direct sales business.

· Regulatory Risk. The market in which the Group operates is highly regulated. The risk to the Group of not managing rules and laws associated with this risk can result in fines and penalties. The bodies that have jurisdiction in the sector include the FCA, Trading Standards, ICO, ASA and HSE. The Group has a comprehensive regular training and compliance program overseen by qualified managers for all staff and agents to ensure that relevant rules and regulations are understood and adhered to across the Group's operations. This is supported by Compliance Managers who make regular control and follow up visits at an operational level. In addition, the Group has employed a qualified solicitor to support its operations in the financial services market, and also seek regular professional guidance in this respect.

· Political Support. The Group operates in sectors that periodically receive Government support to promote energy efficiency savings where support is subject to short and medium term political change. Activities that rely on Government support now represent a small part of the Group's activities. The Group monitors the changing political climate in order to take pro-active and timely decisions that will minimize the adverse impact of a reduction in such support.

· Acquisitions. The identification and availability of the right acquisitions to enhance the Group's growth and the integration of such acquisitions to deliver the expected acquisition and synergy profits involved. The Group has historically demonstrated an ability to identify and integrate acquisition opportunities in a number of sector related areas. Successful integration and value for shareholders has been achieved by finding and empowering the right people for the acquisitions concerned.

· Retention and Recruitment of Staff. The Group relies on the retention of a relatively small number of senior executives/managers to run its operations. There is therefore a short term risk of disruption should any of the senior executives/managers leave. Whilst the Group has successfully attracted the right management to run new business streams or acquisitions, the market for experienced, senior managers is highly competitive. The Group has put in place various share save and option schemes designed to engage and add value for senior staff. These schemes are also attractive to prospective and new recruits. The Group's recent PLC status also assists the recruitment process.

· Self-Employed Individuals. The Group engages the services of self-employed individuals both in its sales, surveying and installation operations. This provides the Group with the flexibility to respond to short term fluctuations in demand. If the Government was to legislate to treat such self-employed individuals as employees, then this will reduce operational flexibility and increase the fixed cost base which will, most likely, increase costs overall. The Group undertakes regular reviews of the terms on which self-employed individuals are engaged with the support of its professional advisers to ensure that it is compliant with the relevant laws and regulations.

· Reliance on Key Suppliers. The Group relies on a number of key suppliers, particularly for the supply of its core home improvement products. Although alternative suppliers are readily available, a disruption to supply may have a significant impact on the Group's short-term performance. The Group works with well-established suppliers and maintains strong working relationships to ensure supplier performance is in line with agreed contractual terms. Alternative supply routes have been identified in the event of a material disruption.

· Contract Delivery. Through Astley, the Group manages a number of commercial contracts. Failure to perform on these contracts could lead to contracts losses and/or delayed payments. Astley's management team is highly experienced and the business has the controls and processes to manage contract risk and change control processes. Contract performance measures, including progress-to-date and forecast-to-complete metrics are reviewed for each contract.

· Health and Safety. The Group has a diverse range of activities. There is a need to continually assess and manage the health and safety risks across the Group to ensure a safe working environment for employees, self-employed individuals and customers. A failure to manage these risks properly could lead to significant potential liabilities. The Group maintains detailed health and safety procedures for each area of its operations which is overseen by a dedicated Health and Safety manager. Regular site checks are undertaken and toolbox talks are held to deliver practice updates and continuous learning. The Board monitors health and safety management regularly.

· Strength of the Group's Bankers. The Group's chosen financial institutions may experience difficulties, which could affect the recoverability of any cash lodged with them. The Group ensures funds are only lodged with UK based financial institutions with an "A" rating or better.

The interim financial statements do not include all the financial risk management information and disclosures required in the annual financial statements. This information and related disclosures are presented in the Group's annual report for the year ended 31 October 2015 on pages 14 and 15. There have been no changes in the risk management department or in any risk management policies since the year end.

14. Contingent Liabilities

As at the date of this report, the Group has reached an agreement in principle with a local authority in respect of breaches of internal policies and controls committed by a small number of sales representatives (all no longer with the business) in 2013 and early 2014. It is not possible to assess the financial impact of concluding the matter at this stage, but the Directors do not expect this to be material to the Group's result.

15. Related Party Transactions

Following the listing in October 2014 Brian Kennedy is no longer the controlling party, and as such there are no related party transactions or balances in the half year to 30 April 2016 in this respect.

16. Reconciliation of Underlying to Reported Results