ENTU UK Regulatory News (ENTU)

Entu (UK) plc

Results for the six months ended 30 April 2015

Entu (UK) plc '(Entu'), the home improvement Group providing energy efficiency products and services to homeowners in the UK, announces its results for the six months ended 30 April 2015.

· Performance in line with management expectations against unusually high prior year comparators

· Improved margins in core Home Improvements business, and recently signed agreement with national DIY retailer

· Reorganisation and reinvigoration in Energy Generation & Saving to improve second half performance, and new solar PV supply and installation agreement won

· Acquisition of Astley Facades Limited

· Group orderbook increased from £10 million to £30 million

· Pursuing further acquisition opportunities

· Recruitment of Group Marketing Director

· Interim dividend declared of 2.67 pence per share, payable 28 August 2015

Chief Executive Ian Blackhurst commented:

"Entu continues to benefit from its market leading positions, strong brands and comprehensive product offering.

Our primary strategy is to focus on driving organic growth from our integrated product portfolio, supplemented by the agreement of corporate contracts both through the existing Group and through complementary acquisitions, with the aim of broadening the Group's ultimate customer base.

The total future orderbook across the Group has now grown to approximately £30 million from around £10 million at the same time last year. This will benefit both the current year and beyond as the Group steps up its operational activities.

We have seen and continue to see increased activity levels in the second half, and we remain on track to meet market expectations for the full year."

20 July 2015

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 in the UK.

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

With around 27 million residential homes in the UK, 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. Additionally the Group continues to pursue an acquisitive strategy in the highly fragmented existing, and complementary, product lines and market areas.

The Group was admitted to AIM in October 2014.

Business Review

Entu has performed in line with management expectations at the time of the IPO and is on track to meet market forecasts for the full year. The Group is benefitting from the enhanced profile it gained through its admission to AIM in October 2014, and from bringing all of its leading regional brands together under the Entu umbrella. This enables greater back office efficiency and represents a single platform from which to generate further marketing and cross selling opportunities.

As we expected, both revenue and operating profit were lower than the prior year reflecting the normal seasonality of the business. An improved core Home Improvements result was offset by a fall in Insulation performance resulting from a reduction in Energy Company Obligation ("ECO") funding (being the revenue we receive from utility companies & brokers in respect of carbon offset tonnage arising from the supply and installation of insulation products) across the sector post March 2014, and a slowdown in our solar PV activity.

The net cash balance at 30 April 2015 was £3 million, an 83% increase on prior year. This reflects the cash generative nature of the Group's operations and cash received as part of the Astley Facades Limited ("Astley") acquisition, offset by administrative expenses increasing as a result of the Company's admission to trading on AIM. The Group continues to be cash generative and is well placed to fund its acquisition strategy.

Segmental Review

Home Improvements, the Group's largest product segment accounting for approximately 76% of Group revenue, reported a 41% increase in operating profit and an increase in operating margin. These improvements reflect the benefit of the Group's efficient integrated Job Worth Doing platform, which undertakes product installation across the Group. A corporate contract with a national DIY retailer has now been agreed commencing with immediate effect. Anticipated revenues are expected to build to approximately £10 million per annum, with the opportunity to cross sell other services.

Energy Generation & Saving remains a key growth area, but has had a challenging six months: due firstly to lower solar photovoltaic product sales as the potential customer base becomes accustomed to lower tariff levels from the sale of surplus energy generation back into the grid, and secondly due to significant departures and disruption in the sales and marketing teams over the period. We have met the challenge head on by reinvigorating and strengthening the sales and marketing teams, and we expect activity to improve in the second half. Encouragingly we also have a healthy pipeline of commercial solar business following the agreement of a solar PV contract with a European procurement organisation for an initial 1000 homes with revenues of approximately £4.5 million beginning immediately, and the opportunity to cross sell other services.

The Repairs and Renewals Service Agreement ("RRSA") division offers an annual cover plan to all customers on most of our products. It continues to prove popular with revenues 10% up on the same period last year as a result of increased sales commissions driving revenue growth and operating profits from this division are expected to rise in subsequent periods.

The Insulation division experienced a very strong level of trading activity in the previous half year, driven by higher ECO funding levels across the sector. Whilst ECO funding levels have now reduced from £80 to £22.50 per carbon tonne, we are installing a greater volume of products this year and this has given us a strong market position from which we expect to benefit. The division is also benefitting from the acquisition of Astley, a market leader in energy efficient insulation and cladding products. The integration of Astley is proceeding well, and the forward orderbook has risen from £2 million to £14 million, which is in excess of one year's trading activity.

Strategic Update

As stated at the time of the AIM admission, acquisitive growth is a key part of our strategy and we are actively exploring opportunities that will enhance our geographic reach and / or product offering and that meet our strict earnings enhancement criteria.

The market opportunities available to the Group are summarised in the following table:

We are currently exploring a number of opportunities in a variety of complementary sectors that will allow the Group to fulfil its long term goal of creating major opportunities for the cross selling of multiple products to multiple customers. We also continue to pursue strong organic growth.

We are building up the Entu brand to increase customer attraction and retention, and facilitate cross selling across our regional brands and product segments. In the North West of England, an area where we see significant opportunity to attract new customers and increase market share, we are expanding our business.

Television remains a key medium for reaching our target demographic and, during the second half of the year, we are set to launch a new television campaign. We also continue to increase our online presence and the value of web sales.

We have negotiated and continue to negotiate supply and installation agreements with well known corporate brands that have large existing and potential customer bases, as well as targeting acquisitions that come with corporate contracts that give access to larger numbers of end users but at a much reduced cost.

We also continue to develop our proposition in home automation, a market that is expected to triple in size over the next three years.

People

During the period we were joined by Phil Anderson as Group Marketing Director, with responsibility for brand management and marketing initiatives across the Group.

Post period end we announced the appointment of Geoff Stevens as Chief Financial Officer, effective from 1 June 2015. Darren Cornwall, who played a pivotal role in our AIM admission, will remain on the Executive Board as Group Corporate Development Director, focussing on furthering the Group's acquisition strategy and integration of acquired businesses.

The Board would like to thank all of our people for their ongoing commitment as it is key to our success.

Dividend

At the time of Entu's AIM admission the Board committed to implementing a dividend policy, subject to discretion and the Company having sufficient distributable reserves which, based on expectations of current and future trading, would commence for the year ending 31 October 2015. Subsequently the Board approved a Special Dividend of 1.50 pence per share paid in March 2015.

Now, in light of our overall performance and reflecting our confidence in the future opportunities for Entu, we have declared an interim dividend of 2.67 pence per share payable on 28 August 2015 with a record date of 31 July 2015. Subject to the conditions noted above, the Board reconfirms its intention to recommend a final dividend of 5.33 pence per share bringing the total dividend for the year ending 31 October 2015 to 8 pence per share.

Outlook

The second half of the year is seasonally stronger than the first for Entu's core business, and this year is no different. We have a strong pipeline and recently concluded supply and installation agreements with a number of corporate partners with a large potential customer base from which we expect to generate growth in Energy Generation & Saving. The Group's business model is predicated on the use of self employed engineers, which allows it to promptly manage significant increases in activity.

Increased FCA regulation affecting our customer finance offering has resulted in our improving and diversifying our suite of financing products, which we expect will prove more attractive to customers and appeal to a wider demographic.

The European Court of Justice recently ruled that the UK's 5% rate of VAT on energy efficient products is in breach of EU law, raising the prospect of an increase in the VAT rate to 20%. The UK Government, which has a long standing commitment to the promotion of energy efficiency, has stated that it will study the judgements carefully, and therefore the ultimate outcome is unclear. The Group already applies a full 20% rate of VAT to the large majority of its home improvement products and the impact of a rate change is not expected to be material to the Group.

In summary, Entu continues to benefit from its market leading positions, strong brands, and comprehensive product offering. We have created a strong platform for further organic and complementary acquisitive growth, and have secured a number of corporate contracts that place the Group in a stronger position. Deliveries under these contracts have commenced and form an important element of our second half trading performance.

Notes 1 -14 are an integral part of these interim consolidated financial statements.

There are no other items of comprehensive income for the year other than the profit / (loss) attributable to the equity holders.

CONSOLIDATED BALANCE SHEET

Notes 1 to 14 are an integral part of these interim consolidated financial statements.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Notes 1 to 14 are an integral part of these interim consolidated financial statements.

CONSOLIDATED CASH FLOW STATEMENT

Notes 1 to 14 are an integral part of these interim consolidated financial statements.

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 2015, 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 2014 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 2015 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 2014 does not constitute statutory accounts for that year. Full audited accounts in respect of that year were approved by the Board of Directors on 10 February 2015 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 an ongoing basis.

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 Business Review. The financial position of the Group and its liquidity position are also included in that review.

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 2014.

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 ended 30 April 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 2014 annual report.

4. Segmental analysis

The Executive Board 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 & Saving, Repair and Renewal Service Agreement ("RRSA") and Insulation being the chosen 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.

Operating segments

The Group no longer manufactures products for the Home Improvements division, which it now sources from third parties. It has therefore taken the opportunity to update its methodology for the calculation and accrual of warranty provisions including those in respect of newly acquired businesses such as Astley Facades Ltd (Note 12).

The Group no longer considers its kitchen retail operation in Norwood Interiors (UK) Limited, as strategically important (Note 8).

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

5. Exceptional items

6. 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 2015 is 20.4% (30 April 2014: 21.8%, 31 October 2014: 21.8%).

8. Discontinued operations

During the period the Group commenced negotiations for the disposal of its kitchen retail operation in Norwood Interiors (UK) Ltd. This represents a separate line of business that does not fit into the wider operational strategy of the Group and, as a result, this activity is held for sale.

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 have been written down by £156,000 to nil at the half year.

9. Dividends

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 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

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 Facades Limited including three subsidiary companies, Astley Facades (UK) Limited, Astley Facades (North East) Limited and Astley Facades (Midlands) Limited, that gave the Group complementary commercial cladding operations across the UK.

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

The provisional fair value adjustments at the date of acquisition are:

· 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

· 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 post period end.

Revenue and profit contribution

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.

13. Principal risks and uncertainties

These are summarised as follows:

· Regulatory Risk. The market in which the Group operates is highly regulated, and the Group has comprehensive training, testing, compliance and health & safety procedures to mitigate this.

· Acquisitions. The availability of suitable complementary acquisitions and their integration into the Group necessitates the adoption of a variety of methods to identify suitable acquisitions, and the Group has demonstrated the ability to successfully integrate acquisitions in the past.

· Remuneration and Retention of Staff. High quality and committed staff are key to the Group's success, necessitating appropriate remuneration and incentivisation packages.

· Sector Risk. The company has a strong position in the home improvements sector which can by cyclical. As a result the Group is targeting acquisitions in complementary markets.

· Strength of the Groups bankers. The Group ensures that 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 2014 on page 7. There have been no changes in the risk management department or in any risk management policies since the year end.

14. 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 2015 in this respect.