16 June 2015 – reduction of boiler installations for 2015
The company has announced a substantial reduction in the expected number of boiler installations in 2015. It is also accelerating a cost reduction programme, which is clearly not what investors in the recent placing were looking for. The European Court of Justice ruled on 4 June that the UK’s reduced 5% rate of VAT on energy-saving products is in breach of EU laws. Flowgroup is accelerating its cost reduction programme for the Flow boiler to offset these costs, with VAT now expected to be applied on the boilers at the usual 20% rate.
The company was expected to be net cash flow generative by the fourth quarter of 2015 and profitable by the first quarter of 2016 and these targets will now take longer to achieve. It is little consolation that the Flow Energy business continues to perform well and is ahead of market expectations. The shares have been hit hard by the news but we downgrade to HOLD.