It has been a topsy-turvy seven months for AIM –listed energy provider Flowgroup plc. During this period its share price fell from a 52-week high of 9.7 pence to 0.82p last Friday evening. However, it could now be in a recovery mode.
In February 2017 with the shares at the 9.7p level, Flowgroup was still basking in the glow of the belief that it had a ground-breaking and potentially lucrative product on its hands. The product is the patented microchip combined heat and power Flow Boiler (microCHP), which uniquely it claimed, could generate electricity while heating the home.
Some alternative energy experts feel the microchip flow boiler could well prove to be transformational for energy provision over the long term; others have some doubts on the grounds that if it only produces energy while it is also heating the home then what happens in the summer months. In any event, for Flowgroup’s Flow Boiler there was an imminent possible obstacle on the road to development of the product. As fears grew that the obstacle could be difficult to overcome, the share price began to haemorrhage.
The problem became intractable, in fact. After months of deliberation and discussion the Department of Energy and Climate Change (DECC) (as it was called before it became the Department of Business Energy and Industrial Strategy (BEIS)) decided around April/May time this year it would sharply reduce the level of the Feed-in Tariff (FiT) or the effective subsidy, for the microCHP. This, combined with increasing manufacturing costs resulting from the post Brexit devaluation of Sterling, would make the Flow boiler uneconomic in the UK.
What was the company to do? The group had (and still has) another string to its bow. Besides the Flow Products division there is the Flow Energy side. Flowgroup is one of the more than 20 small energy companies which has taken advantage of the opportunity laid out by the Competitive and Mergers authorities (CMA). The CMA, in a report found that the so called ‘Big Six’ utilities (SSE,E.ON EDF, npower, Scottish Power and British Gas) that dominate the UK power supply market were overcharging for their energy provision. Consumers, the CMA said should switch to cheaper suppliers.
The company threw its hat into the ring. By the end of 2015 Flowgroup had 100,000 customers on cheaper rates than anything the ‘Big Six’ could propose and the numbers continued to grow throughout 2016. The group’s interim results for the six months ending June 30 2016 released in November 2016 exceeded the Board’s expectations. Revenues for the six months were up 104 per cent to £41million (H1 2015: £20.5m). The energy division accounted for most of the rise.
To get out of its problems, as part of this year’s strategic review the Board decided, that even though the company’s creative CEO Tony Stiff had his reservations apparently, the group would put the energy division up for sale. The company stated that it received a number of expressions of interest in buying the company. The group said it had selected a preferred bidder and had entered into an exclusivity agreement with that party.
While these discussions were going on the company was approached by Palm Ventures, a leading US investment company which expressed an interest in making a significant investment, along with other funds, in the existing group. With this alternative financing on offer on May 24 Flowgroup announced it was terminating the sales agreement and raising £29m in new funds through a Placing, an Open Offer, a Primary Bid Offer and a Loan Note Subscription comprising the issue of £15.5m in convertible unsecured loan notes.
At the same time the company announced that as the company’s microCHP boiler is currently uneconomic in the UK, the company directors have concluded that Flow Products should limit its focus to ongoing pilots of the microCHP boiler in select European markets where financial support offered potentially favours microCHP through various installation and other incentives. The company also stated that it would, as well, settle with Jabil (the microCHP boiler’s manufacturer) any outstanding financial obligations.
Fast forward to July 20 2017 and the Results of the AGM. The release says the fund raise was completed on June 2017, raising £25m after expenses. Although the newly issued shares in the placing were dilutive of the share price, Tony Stiff said: “The £25m raised has recapitalised the group’s balance sheet and positions the Flow Energy business for growth”
Flow Energy grew rapidly in 2016, increasing customer fuel account numbers from approximately 100,000 fuel accounts to over 250,000 fuel accounts and increased revenues 145 per cent from £40.4 million in 2015 to £98.8 million in 2016
Tony Stiff added: “Our medium-term target is to grow to 1m customer fuel accounts and make the business a viable challenger to the ‘Big Six’ energy suppliers in the UK market”.