Shares in Flowgroup (FLOW) took a pummelling on Tuesday after the group announced a substantial reduction in expected installations of its energy efficient boilers this year. The decision - which knocked almost 40 per cent off the share price - followed a European Court of Justice ruling on 4 June that the UK's reduced value added tax (VAT) rate on the supply and installation of energy-saving products falls foul of EU law.
The 5 per cent VAT rate was introduced in the previous coalition government's 'green deal' in 2012 and allowed Flowgroup to make the claim that its boilers pay for themselves. The group now expects the normal 20 per cent VAT rate to be applied, which it says will add more than £500 to the cost of the boiler. Flowgroup has accelerated a cost-reduction programme to offset this increase, and has pushed back the full launch of the product by six months.
The ruling appears to have caught both Flowgroup and the UK government offguard. There was no mention of the matter in the group's recent set of financial results, and the new government - which has committed to legislate against any VAT increases - is considering its response.
Equity Development analyst Paul Hill believes the impact of the decision may be softened by a Conservative government which "does not want to be seen politically to kowtow to perceived excessive meddling from Brussels", while Flowgroup expects the government to offer continued incentives to its products.
Mr Hill is also forecasting an adjusted loss per share of 7p this year and pre-tax losses of £20.2m this calendar year.
Flowgroup wasn't the only business burnt by the announcement. Shares in entu (ENTU), which sells and installs loft insulation and solar panels, and has a contract to fit Flowgroup's boilers, fell 6 per cent. Entu declined to comment on the wider impact of the EU ruling on its business.
