Flowgroup : DECC FiT consultation & Flow Energy growth update

Flowgroup plc

('Flowgroup' or the 'Company')

DECC consultation published for review of mCHP Feed-in-Tariffs scheme

& Update on Flow Energy's continued growth

Flowgroup plc (AIM: FLOW), which provides a range of innovative energy technologies, energy supply and energy services, notes the Department of Energy and Climate Change (DECC) consultation document published yesterday which includes a review of the support for Feed-in-Tariffs (FiT) for mCHP. In August 2015, DECC indicated their continuing support for mCHP, reaffirming the FiT rate and the 30,000 unit limit on eligible installations which may benefit from the FiT. However, whilst this new consultation does not propose to change the FiT rate, it does now propose the introduction of a cap of 1,560 units in 2017, 1,560 units in 2018 and 390 units in 2019.

Flowgroup is disappointed with this proposed change to the FiT as the Company expects to manufacture and sell mCHP boilers in volumes that would far exceed the proposed new annual caps. The Company will provide a strong argument to maintain the previously agreed levels throughout the consultation period that ends on 7 July 2016. The Company will continue to analyse the effect that the proposed change to annual caps could have on the mCHP element of Flowgroup's business in the United Kingdom and will review opportunities to mitigate any effect, one of which could be to accelerate expansion into international markets, where subsidies are more favourable. Flowgroup will provide an update to the market in due course. If the proposed changes are introduced, the effective date would be 1 January 2017.

Flowgroup continues to grow its home energy business, Flow Energy, and is planning the launch of the recently announced Flow smart boiler business, in partnership with Daikin. These businesses are unaffected by the proposed change and contributed £40.4m in revenues for the year ended December 2015. Flow Energy has currently over 200,000 customer fuel accounts registered or being processed through the switching cycle, up from 100,000 at the start of the year, illustrating the continuing potential for growth and generating annualised revenues of over £100m. The Flow Brand Ambassador network, the Company's national network of heating engineers who will act as both sales agents and installers, now stands at over 160 companies, representing a direct route to market for Flowgroup's growing range of heating products.

The recently announced exclusive relationship with Daikin has now progressed and Brand Ambassadors have installed several Daikin Hybrid and Combination boilers as part of a short trial before the launch phase.

The Company continues to believe that there is significant value to be realised from developing a large scale home energy and smart heating business and believes that it has the resources and agreements in place to deliver this.

Tony Stiff, CEO of Flowgroup, commented: 'This is a surprising and extremely disappointing announcement from DECC, and it's one that we will challenge vigorously. We believe that our shareholders can take comfort from the fact that we have a strong portfolio of products and services which are already successful or which show significant potential. We are no longer a one product company and considerable value has already been created in our Flow Energy business. Flow Energy continues to see rapid growth and our agreement with Daikin will give us the opportunity to leverage our Brand Ambassador network to sell a range of smart heating products. We aim to supplement the Daikin product range with additional products to accelerate growth and will make further announcements about this in due course.'