Flowgroup focused on costs to resurrect 'boiler that pays for itself'

Flowgroup has installed the first of its electricity-generating Flow boilers in select customer households and confirmed it has signed up roughly 77,000 customers to its gas and electricity supply service.

In a statement on the day of its annual general meeting, the AIM-listed company said it would install a further limited number over the summer in pilot schemes and in new customer homes.

But, after the recent European Court of Justice ruling that will potentially raise the VAT on the Flow boiler and its installation from 5% to 20%, chief executive Tony Stiff said a central focus of management was now on accelerating a cost reduction programme in order to limit the effect of the potential tax hike, with the start of a volume installation campaign delayed until towards the end of the year.

The potential VAT hike threw a major spanner in the company's previous model of selling customers a “boiler that pays for itself".

But Stiff said the plan was, alongside manufacturing partner Jabil, to be able to re-launch a new lower-cost boiler offering in the fourth quarter to try and ensure customers remain unaffected by any potential rise in VAT.

"The delay in no way impacts on the validity of our ground-breaking technology nor does it impact our long-term business model. We still aim to capture a significant part of the UK heating market over the coming years, the development of our combination boiler remains on schedule for the fourth quarter of 2016, and we continue to work with major partners to explore the potential of launching our technology in the US and mainland Europe."

Analysts at Investec said the execution of the cost reduction programme over coming months was the key to achieving volume sales and that "the increasing involvement of Jabil is encouraging".

"We believe that, even if the UK Government quickly introduces a direct subsidy to offset the anticipated VAT increase, the supply chain ramp-up cannot be altered from the current 4Q15 re-launch."