TIDMSFE
RNS Number : 8204I
Safestyle UK PLC
21 April 2022
21 April 2022
Safestyle UK plc
("Safestyle" or the "Group")
Final Results for Financial Year 2021
Return to profitability alongside continued progress made
against our strategic priorities
Safestyle UK plc (AIM: SFE), the leading UK-focused retailer and
manufacturer of PVCu replacement windows and doors for the
homeowner market, today announces its final results for financial
year 2021(1) .
Commenting on the results, Mike Gallacher, CEO said:
"Despite the continued uncertainty caused by the pandemic as
well as the widely-documented supply chain and inflationary
pressures, I am delighted we have been able to deliver our best
financial performance since 2017 and make significant progress
against our stated strategic objectives.
The Group's underlying profit before tax for the year represents
a GBP16.4m turnaround from 2018's underlying losses as we continued
to improve margins and deliver growth. The strong performance of
the business in 2021 made the cyber attack in January 2022 even
more frustrating, however our previous investments in upgrading IT
systems proved invaluable in helping to mitigate the worst of its
impacts.
Looking ahead, the Group will continue to proactively manage
cost-inflation, however we expect consumer confidence to be
impacted by the ongoing cost-of-living crisis. Pleasingly, our
record-level order book will allow us to smooth the impact of any
short term slowing of demand. Notwithstanding the factors above,
the Board and I remain positive on the outlook for 2022 as the
business emerges transformed after four very challenging years and
continues its return to our historically strong financial
performance and growth."
Financial and operational highlights
FY 2021 FY 2020 FY 2019 FY21 v FY21 v
FY20 % FY19 %
change change
Revenue (GBPm) 143.3 113.2 126.2 26.6% 13.5%
-------- -------- -------- -------- --------
Gross profit (GBPm) 43.8 28.5 31.9 53.7% 37.2%
-------- -------- -------- -------- --------
Gross margin %(2) 30.54% 25.14% 25.27% 540bps 527bps
-------- -------- -------- -------- --------
Underlying profit / (loss)
before taxation(3) (GBPm) 7.6 (4.8) (1.5) n/a n/a
-------- -------- -------- -------- --------
Non-underlying items(4)
(GBPm) (1.6) (1.4) (2.3) (17.9%) 28.7%
-------- -------- -------- -------- --------
Profit / (Loss) before
taxation (GBPm) 6.0 (6.2) (3.8) n/a n/a
-------- -------- -------- -------- --------
EPS - Basic (pence) 3.5p (4.3p) (4.0p) n/a n/a
-------- -------- -------- -------- --------
Net cash(5) (GBPm) 12.1 7.6 0.4 n/a n/a
-------- -------- -------- -------- --------
For the purposes of this announcement, where appropriate we have
included comparisons of the Group's financial and operating
performance for 2020 and also 2019 with the latter, in many cases,
a more meaningful comparative being prior to the disruption of the
COVID-19 pandemic in 2020.
1) The financial statements are presented for the year ended
on the closest Sunday to the end of December. This date was
2 January 2022 for the current reporting year and 3 January
2021 for the prior year. All references made throughout these
accounts for the financial year 2021 are for the period 4
January 2021 to 2 January 2022 and references to the financial
year 2020 are for the period 30 December 2019 to 3 January
2021.
2) Gross margin % is gross profit divided by revenue.
3) Underlying profit / (loss) before taxation is defined as reported
profit / (loss) before taxation before non-underlying items
and is included as an alternative performance measure in order
to aid users in understanding the ongoing performance of the
Group.
4) Non-underlying items consist of non-recurring costs, share-based
payments and the Commercial Agreement amortisation.
5) Net cash is cash and cash equivalents less borrowings.
A reconciliation between the terms used in the above table and
those in the financial statements can be found in the Financial
Review.
Financial headlines
-- The Group's underlying profit before taxation of GBP7.6m
represents the first return to full year profitability since 2017
and a GBP16.4m turnaround versus 2018.
-- Revenue growth of 13.5% versus 2019 demonstrates the Group's improving revenue trajectory.
-- Early anticipation of cost inflation combined with the
positive impact of strategic initiatives delivered a 527bps
improvement in gross margin versus 2019.
-- Net cash position strengthened to GBP12.1m versus GBP7.6m at the end of 2020.
Operational headlines
-- The COVID pandemic continued to impact operations in 2021 and
our priority remained the safety of our staff and customers
throughout the period. Managers and staff have shown huge
flexibility and resilience as we have maintained our commercial
operations.
-- Despite the sustained disruption, continued progress was made
against our core strategic priorities, including brand development,
consumer finance costs, revenue management, compliance and
sustainability.
-- A 14(th) installation depot was opened in Milton Keynes
during the year. This investment improves operational coverage,
reduces travelling time and will help drive the productivity of our
fitting teams.
-- Order book at the end of the year was 8.4% lower than 2020's
record levels, but remains healthy at over a third higher than any
other year.
-- The Group has achieved a 19% reduction in its CO(2) per
frames installed metric versus 2020 which represents early
achievement of our 2024 target. Over 95% of the waste generated
from the Group's operations, which includes the removal of old
product from customers' homes, was recycled.
-- Customer service provision was extremely challenging due to
the broad range of disruption experienced, most notably labour
availability. Investment in resource resulted in the backlog being
cleared by the end of the year.
Post balance sheet event
-- Having achieved our objectives set out in the Turnaround Plan
and reporting a strong financial performance in 2021, the business
was hit by a cyber attack, originating from Russia, at the end of
January 2022.
-- Business continuity actions, as well as IT investments in the
last two years, mitigated the impact, although it caused a level of
operational disruption that took some weeks to fully recover
from.
-- We have now recovered our systems and processes and the Group
is trading in line with original plans.
Outlook
-- Despite strong progress being made by the Group in 2021 to
overcome well documented labour shortages, we anticipate resource
shortages in critical skilled labour pools will continue in the
short to medium term.
-- Cost pressures have escalated in the first quarter across raw
materials, fuel and labour. We will continue to address these
issues through pricing whilst also using our scale advantage to
mitigate the impact.
-- Demand has remained robust in the first quarter.
-- We successfully launched our new TV campaign in February 2022
which has underpinned our continued order book growth in the first
quarter.
-- Over the full year, we aim to maintain a balance between
order intake and installations capacity to continue to optimise
margins.
-- Despite the short-term impact of the cyber attack on the
financial performance of the business, the Group has a strong
balance sheet and the Board therefore intends to continue to invest
behind its strategic initiatives.
-- The Board expects performance for 2022 to be in line with
current expectations with annualised H2 financial performance
representing further growth on the good profit delivery of
2021.
A webinar for analysts and investors for the 2021 Full Year
Results will be held today at 10:00 am. If you would like to join,
please contact FTI Consulting at safestyle@fticonsulting.com in
order to access the registration details.
Enquiries:
Safestyle UK plc via FTI Consulting
Mike Gallacher, Chief Executive Officer
Rob Neale, Chief Financial Officer
Zeus (Nominated Adviser & Joint Broker) Tel: 0203
Dan Bate / Dan Harris (Investment Banking) 829 5000
Dominic King (Corporate Broking)
Liberum Capital Limited (Joint Broker) Tel: 0203
Neil Patel / Jamie Richards 100 2100
FTI Consulting (Financial PR) Tel: 0203
Alex Beagley / Sam Macpherson / Amy Goldup 727 1000
About Safestyle UK plc
The Group is the leading retailer and manufacturer of PVCu
replacement windows and doors to the UK homeowner market. For more
information please visit www.safestyleukplc.co.uk or
www.safestyle-windows.co.uk.
CEO's Statement
Faced with another year of turbulence, our core challenge
through 2021 was to deliver both a step change in our financial
performance and to accelerate the pace of our strategic
transformation. I am delighted to report that against these
objectives in 2021, we delivered our best financial performance
since 2017 and made significant progress across the breadth of our
strategic agenda.
Once again, I have been hugely impressed by the agility and
resilience of our staff and self-employed agents. The overwhelming
priority of maintaining a safe working environment for our people
and our customers posed day to day challenges through the year.
However, from our return to work from the first lockdown in May
2020, we were able to sustain manufacturing and installations
operations continually, despite the impact of labour and supply
interruptions.
Financial delivery despite turbulence
The Group's underlying profit before tax for the year represents
a GBP16.4m turnaround from 2018's underlying losses, a GBP22.2m
improvement versus 2018's reported loss before tax and a strong
step up from 2019 as we continued to improve margins and deliver
growth. Our financial delivery in H2 was impacted by an investment
in recovering customer service levels, which were disrupted by the
operational challenges associated with increased COVID isolations
in early summer, the post pandemic supply chain shortages and
latterly, the Omicron surge at the end of the year. Despite this,
the financial progress we have made demonstrates the underlying
potential and resilience of the business model as we emerge from
three years of turbulence. The performance also completes the
execution of the Group's Turnaround Plan.
Revenue growth of 26.6% vs 2020 and 13.5% versus 2019 showed a
sustained trajectory of performance and was underpinned by an early
and proactive response to emerging cost pressure and capacity
constraints. The number of frames installed improved by 12.1% year
on year and gross margin increased to 30.5%, an improvement of
540bps vs 2020 and 527bps vs 2019.
Our strong order intake in 2020 built a record order book for
the start of 2021 and allowed us to smooth the interruptions in
sales caused by the third national lockdown. Subsequently, the
excellent order intake continued through 2021 giving us a closing
order book 8.4% lower than 2020's record closing level, albeit more
than 30% higher than any other year in the Group's history.
The impact of operational disruption on our customers meant that
it was imperative that we invested in recovering our customer
service levels in H2. This required central resource and,
inevitably, utilisation of our installation capacity to complete
orders that were partially delayed or impacted by disruption. As a
result, we ended the year having returned to normal levels of
service.
The priority given to improving our customer experience is in
line with our strategic work to focus on the consumer experience,
building our brand through word of mouth recommendation in addition
to TV investment. However, the inefficiency associated with this
recovery underlined the need to accelerate the modernisation of our
core business IT systems which is underway.
Our net cash position improved during the year to GBP12.1m at
year end, an increase of GBP4.5m from 2020. This represents a
return to a healthy and stable financial position and is after the
Group repaid GBP2.4m of VAT that was deferred from 2020 as part of
our COVID support measures.
Accelerated strategic delivery
The work done during 2020 enabled us to accelerate the pace of
change within the business during 2021.
Levelling Up Depots and Sales Branches : The range of
performance across our sites represents a significant opportunity
and is being unlocked through embedding Standard Operating
Procedures ('SOPs'), effective IT systems and through establishing
training and performance management processes. During 2020, SOPs
were developed for both Operations and Sales and H2 saw us
establish, recruit and train almost 100 new PAYE sales branch
management roles.
Delivering Profitable Growth : Our brand development project
completed work on a modernised brand logo and refreshed brand
communications campaign, fronted by David Seaman MBE, the former
England goalkeeper. This work was underpinned by new research and
consumer insight which informs much of our business strategy during
2022. We continued to advance our digital marketing capability,
which now encompasses the use of artificial intelligence, to drive
volume and mitigate cost pressure in the digital channel. We
continued to move pricing promptly in response to emerging cost
pressure and capacity constraints and this delivered revenue growth
and margin improvement.
Transforming the Customer Experience: Our metrics show that the
vast majority of our customers have a seamless experience from
sales through to installations, but we know we have an opportunity
to improve this further. During 2021 we implemented Net Promoter
Score ('NPS') across our operations divisions, combined with
financial incentives for quality performance across our depot
network. While disrupted by supply and labour issues in H2, the
underlying progress is clear and these actions support our intent
of placing customer experience at the heart of the business.
Embedding Sustainability and Compliance: I have been delighted
that we were able to exceed our original target of 10% reduction in
our CO(2) per frame by 2024 well ahead of time, achieving a 19%
reduction this year. We now see an opportunity for a further 6%
improvement before 2025. This will be delivered by continued
incremental improvement ahead of the introduction, when technology
and infrastructure enables it, of a fully-electrified vehicle
fleet. We will continue to target the elimination of the remaining
5% of consumer waste going to landfill in conjunction with both
existing and new partners. In addition, we will conduct a Scope 3
audit of our ten largest suppliers in 2022 to ensure that progress
on reducing emissions is also being made downstream.
The year also saw us become the first major sales force in the
industry to join the Association of Professional Sales and be
awarded their ethical sales business accreditation.
Our progress in financial delivery and against our strategic
priorities has been supported by sustained investment in our people
and in modernising our systems. The latter has encompassed the
replacement of legacy systems, system resilience and most
importantly, the preparation for implementing a new CRM system in
2022.
We are particularly proud of the launch of the Safestyle
Academy, the largest professional development programme for
installers in the UK. This is a major long term investment and
illustrates our commitment to raising professional standards across
the industry.
Sustaining the strategic transformation in 2022
Despite the progress made in 2021, we have more work ahead to
complete and embed the strategic changes that are now underway in
the business.
Our key strategies will remain;
-- Delivering our Financial Roadmap
-- Levelling Up our Depots and Branches
-- Driving Profitable Growth
-- Transforming our Customer Experience
-- Embedding Sustainability and Compliance
All supported by our two enabling strategies; investing in the
development of our people and modernising our systems and
processes.
Current trading and outlook
Our first quarter has seen robust order intake supported by the
successful launch of our new TV Advertising campaign, our largest
investment in our brand since 2017. This saw the fruition of our
2021 brand development work. Our communication focuses on value
with a 'Safestyle Saves' message, fronted by David Seaman. Initial
results have been positive with the campaign still underway.
It was immensely frustrating that as we emerged from four years
of turbulence and following strong financial performance in 2021,
the business was hit on 25 January 2022 by a sophisticated cyber
attack, which originated from Russia. Safestyle was one of a number
of businesses impacted by what we understand to be a significant
increase in cyber attacks on mid-size UK businesses. The immediate
response from our staff was prompt and impressive and we were able
to sustain our core operations, sales, surveying, manufacturing and
installations throughout the business recovery period, which is now
complete.
It is clear that our programme of recent IT investments
contributed to significantly mitigating the impact of the
attack.
Despite our ability to sustain our core operations, the attack
did cause a level of disruption as we temporarily reverted to our
business continuity processes. The business now has all core
systems back up and running and concurrently has further enhanced
our cyber security measures. Based on the increased and likely
persistent threat to UK businesses, we plan to accelerate our
existing IT modernisation plan further during 2022 and 2023.
Looking forward, we expect the impact of inflation and consumer
confidence to be reflected in consumer demand for the year ahead,
albeit our order book, which is now at record levels, will allow us
to smooth the impact of any mid term slowing of demand.
Furthermore, our historic performance as a value brand has
demonstrated resilience through periods of reduced consumer demand.
Meanwhile, raw material, labour and material cost inflation are at
record levels and we intend to mitigate these impacts through
pricing whilst maintaining focus on both costs and productivity to
limit the impact as far as possible.
The business will continue to assess opportunities to accelerate
growth in line with our strategy, which encompasses acquisitions,
new business development and organic core business growth. This
will be the prime call on our cash, but we do intend, if our net
cash position grows from its current levels after these growth
opportunities, to return to the dividend list in the relatively
near future. The timing of this will depend on the scale and timing
of our investments.
Our strategic intent remains consistent into 2022; to build long
term value by consolidating our position as the clear UK market
leader. Despite the factors above, the Board remains positive on
the outlook for 2022 as the business emerges transformed after
three very challenging years and continues to deliver a return to
our historical strong financial performance and growth.
Mike Gallacher
Chief Executive Officer
20 April 2022
Financial Review
2021 2020 2021 2021
vs vs 2019
2020 % change
% change
Underlying Non-underlying Total Underlying Non-underlying Total
Financials items(1) items(1)
----------- --------------- ----------- --------------- ---------
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------- --------------- --------- ----------- --------------- ---------
Revenue 143,251 - 143,251 113,191 - 113,191 26.6% 13.5%
----------- --------------- --------- ----------- --------------- --------- --------- ----------
Cost of
sales (99,496) - (99,496) (84,732) - (84,732) (17.4%) (5.5%)
------------- ----------- --------------- --------- ----------- --------------- --------- --------- ----------
Gross Profit 43,755 - 43,755 28,459 - 28,459 53.7% 37.2%
----------- --------------- --------- ----------- --------------- --------- --------- ----------
Other
operating
expenses(2) (34,519) (1,650) (36,169) (32,057) (1,399) (33,456) (7.7%) (7.8%)
------------- ----------- --------------- --------- ----------- --------------- --------- --------- ----------
Operating
profit
/ (loss) 9,236 (1,650) 7,586 (3,598) (1,399) (4,997) n/a n/a
----------- --------------- --------- ----------- --------------- --------- --------- ----------
Finance
Income - - - 1 - 1 n/a n/a
----------- --------------- --------- ----------- --------------- --------- --------- ----------
Finance
Costs (1,623) - (1,623) (1,161) - (1,161) (39.8%) (15.8%)
------------- ----------- --------------- --------- ----------- --------------- --------- --------- ----------
Profit /
(loss)
before
taxation(3) 7,613 (1,650) 5,963 (4,758) (1,399) (6,157) n/a n/a
----------- --------------- --------- ----------- --------------- --------- --------- ----------
Taxation (1,188) 1,103 n/a n/a
------------- ----------- --------------- --------- ----------- --------------- --------- --------- ----------
Profit /
(loss)
for the y
ear 4,775 (5,054) n/a n/a
------------- ----------- --------------- --------- ----------- --------------- --------- --------- ----------
Basic EPS
(pence
per share) 3.5p (4.3p)
----------- --------------- --------- ----------- --------------- --------- --------- ----------
Diluted EPS
(pence
per share) 3.4p (4.3p)
----------- --------------- --------- ----------- --------------- --------- --------- ----------
Cash and
cash
equivalents 16,351 11,705
----------- --------------- --------- ----------- --------------- --------- --------- ----------
Borrowings (4,231) (4,127)
------------- ----------- --------------- --------- ----------- --------------- --------- --------- ----------
Net cash(4) 12,120 7,578
------------- ----------- --------------- --------- ----------- --------------- --------- --------- ----------
For the purposes of this announcement, where appropriate we have
included comparisons of the Group's financial and operating
performance for 2020 and also 2019 with the latter, in many cases,
a more meaningful comparative being prior to the disruption of the
COVID-19 pandemic in 2020.
2021 2021
vs 2020 vs 2019
KPIs 2021 2020 change 2019 change
Revenue GBP000 143,251 113,191 26.6% 126,237 13.5%
-------- -------- ------------ -------- -------------
Gross margin %(5) 30.54% 25.14% 540bps 25.27% 527bps
-------- -------- ------------ -------- -------------
Average Order Value (GBP inc
VAT) 4,032 3,474 16.1% 3,337 20.8%
-------- -------- ------------ -------- -------------
Average Frame Price (GBP ex
VAT) 791 704 12.4% 678 16.7%
-------- -------- ------------ -------- -------------
Frames installed (units) 183,374 163,617 12.1% 190,252 (3.6%)
-------- -------- ------------ -------- -------------
Orders installed 43,167 39,789 8.5% 46,412 (7.0%)
-------- -------- ------------ -------- -------------
Frames per order 4.25 4.11 3.4% 4.10 3.7%
-------- -------- ------------ -------- -------------
2021 represents a return to full year profitability and further
improvement to the Group's financial performance trajectory which
builds on the performance in H2 2020. The Group moved swiftly to
mitigate inflationary pressures and gross margins have improved
materially versus 2020 and 2019 as a result of a number of
margin-enhancing initiatives. 2021 also included further investment
in customer service resource and installation capacity as the Group
focused on recovery from the operational turbulence caused by the
pandemic in 2020 and early 2021.
The Group made an underlying profit before taxation(3) of
GBP7.6m for the year, representing a strong recovery from the
losses sustained in 2020. Net cash(4) also strengthened to GBP12.1m
at the end of the period, an increase of GBP4.5m versus the prior
year.
This Financial Review now provides further detail behind the
changes in the financial measures and KPIs of the business and will
draw attention to how the performance compares to both 2020 and
also 2019 which is, in many cases, a more meaningful comparative
being prior to the disruption of the COVID-19 pandemic in 2020.
Financial and KPI headlines
-- Revenue increased to GBP143.3m, growth of 26.6% compared to
the COVID-impacted 2020 and by 13.5% compared to 2019.
-- Frames installed increased by 12.1% versus 2020 to 183,374
with the prior year levels adversely impacted by the first half
COVID disruption in 2020. Compared to 2019, frames installed
reduced by 3.6% with the Group optimising the balance between
utilisation of its available installation capacity for new
customers alongside customer service recovery work.
-- The Group has continued to improve average frame price,
achieving a 12.4% increase over 2020 which is attributable to
necessary price increases to negate input cost inflation,
favourable market conditions and discount management. H
igher-priced composite guard doors were relatively consistent year
on year at 7.3% of frames installed compared to 7.6% for 2020.
-- Alongside the average price improvement, the majority of the
benefit arising from changes made to the Group's consumer finance
portfolio in the latter part of 2020 is now being realised. This
has resulted in a reduction in finance subsidy costs of GBP1.9m
versus 2020 and GBP3.3m versus 2019.
-- Gross profit increased by 53.7% and 37.2% over 2020 and 2019
respectively to GBP43.8m. Gross margin percentage(5) increased by
540bps versus 2020 and by 527bps versus 2019 to 30.5%. This is
predominantly attributable to the improvement in average frame
price, the reduction in finance subsidy costs and finally, lower
lead generation costs which are a result of both internally-driven
efficiencies and favourable market conditions. The latter effect
was most noticeable in the first half of the year. Lead generation
costs in the second half of the year normalised back towards
pre-pandemic levels of 2019.
-- Underlying other operating expenses(2) for the period
increased by GBP2.5m (7.7%) compared to 2020. 2020 was materially
reduced as a result of a GBP1.1m furlough reclaim benefit as part
of the Government's Coronavirus Job Retention Scheme ('CJRS') and
reduced levels of operating activity during the lockdown period in
the first half of the year. Excluding this impact, the year on year
increase represents ongoing investment in the Group's installation
capacity, customer service resource and IT.
-- Finance costs increased versus 2020 despite reduced borrowing
costs due to lower utilisation (and thus lower fees) in relation to
the GBP3m revolving credit facility. This effect was offset by
higher finance costs on lease liabilities following the renewal of
the Group's vehicle fleet and the consequential higher interest
expense charged at the beginning of the lease under IFRS 16.
-- Underlying profit / (loss) before taxation was a profit of
GBP7.6m for the period (2020: loss of GBP(4.8)m) with the recovery
in volume and improvements in gross margin described above driving
the GBP12.4m improvement.
-- Non-underlying items(1) were GBP1.7m for the period (2020:
GBP1.4m) and therefore reported profit / (loss) before taxation was
GBP6.0m versus a loss of GBP(6.2)m in 2020.
-- Net cash improved to GBP12.1m compared to GBP7.6m at the end
of the prior year. The improved cash position is directly related
to the profitability of the year with this positive cash generation
being partially offset by repayment of a GBP2.4m VAT liability
which was deferred from May 2020 as part of the Group's COVID
support measures.
(1) See the non-underlying items section in this Financial
Review
(2) Underlying other operating expenses are defined in the
'Underlying performance measures' section below and the
reconciliation between this measure and the GAAP measure is shown
in the 'Financials' table at the front of this Financial Review
(3) Underlying profit / (loss) before taxation is defined in the
'Underlying performance measures' section below and the
reconciliation between this measure and the GAAP measure is shown
in the 'Financials' table at the front of this Financial Review
(4) Net cash is cash and cash equivalents less borrowings
(5) Gross margin % is gross profit divided by revenue
Underlying performance measures
In the course of the last three years, the Group has encountered
a series of unprecedented and unusual challenges. These gave rise
to a number of significant non-underlying items in 2018 and
consequential items continued into 2019 as the Group addressed the
impact of these challenges, predominantly as part of its Turnaround
Plan. The impact of COVID-19 in 2020 has also given rise to a
material non-underlying item in the form of a holiday pay accrual.
In 2021, the Group has incurred some non-recurring restructuring
and operational costs. Further details are provided below in this
Financial Review.
Consequently, adjusted measures of underlying other operating
expenses and underlying profit / (loss) before taxation have been
presented as the measures of financial performance. Adoption of
these measures results in non-underlying items being excluded to
enable a meaningful evaluation of the performance of the Group
compared to prior periods.
These alternative measures are entirely consistent with how the
Board monitors the financial performance of the Group and the
underlying profit / (loss) before taxation is the basis of
performance targets for incentive plans for the Executive Directors
and senior management team.
Non-underlying items consist of non-recurring costs, share based
payments and Commercial Agreement amortisation. Non-recurring costs
are excluded because they are not expected to repeat in future
years. These costs are therefore not included in these alternative
performance measures as they would distort how the performance and
progress of the Group is assessed and evaluated.
Share based payments are subject to volatility and fluctuation
and are excluded from these alternative performance measures as
such changes would again potentially distort the evaluation of the
Group's performance year to year.
Finally, Commercial Agreement amortisation is also excluded from
these alternative performance measures because the Board believes
that exclusion of this enables a better evaluation of the Group's
underlying performance year to year.
Revenue
Revenue for 2021 was GBP143.3m compared to GBP113.2m for 2020,
representing an increase of 26.6% with the prior period comparative
adversely impacted by the cessation of installation activity
between late March and the end of May 2020. Revenue versus 2019
represents growth of 13.5% and this increase is more representative
of the Group's improving revenue trajectory.
Frames installed volume improved by 12.1% versus 2020 to 183,374
frames, which is 3.6% lower than 2019. The revenue improvement
exceeds the volume performance for both comparative periods as a
result of improvements in the following areas:
-- The average frame price increased by 12.4% year on year to
GBP791 (2020: GBP704, 2019: GBP678). The impact of necessary list
price increases alongside the continued drive to reduce discount
levels and optimise margins are the main components to this
improvement.
-- The growth in the average frame price was also despite a
marginal adverse average price effect due to a lower mix of
higher-priced composite guard doors of 7.3% versus 7.6% and 9.2%
for 2020 and 2019 respectively.
-- Alongside the favourable average frame price change, the
results of the Group's project to reduce finance subsidy costs
incurred as part of its consumer finance offering, which was
launched in H2 2020, are now being almost fully realised this year.
These reductions follow changes to our promotional finance
portfolio in late 2020 which have generated a GBP1.9m benefit
versus 2020 and a GBP3.3m benefit versus more comparable volumes
and full year cost of 2019.
Following a comprehensive re-tender process with both existing
and potential new partners at the start of 2021, we expect finance
subsidy costs to be a minimal net cost to the Group. At the same
time, we remain focussed on ensuring we have a market-leading set
of payment options available to our customers.
-- The average number of frames per order has also increased to
4.25 in the year, which represents an increase of 3.4% and 3.7%
over 2020 and 2019 respectively. The Group has driven a higher
order size which, alongside the average frame price growth
described above, has resulted in an increase in the average order
value versus 2020 of 16.1% to GBP4,032. Focus on improving metrics
such as these has underpinned the improvements in the Group's gross
margin.
Gross profit
Gross profit was GBP43.8m, growth of 53.7% over 2020 and 37.2%
over 2019. The Group's gross margin percentage improved
significantly by 540bps to 30.5% versus 2020's 25.1%. This also
represents a 527bps increase versus the 25.3% gross margin
percentage of 2019.
The combination of the installation volume increase alongside
the average price and finance subsidy reductions described above
were all contributors to the growth in gross profit and the
improvement in the Group's gross margin percentage. Further
components behind the improving trends were as follows:
-- The Group began the year with an order book that was 83%
ahead of the prior year which proved important in protecting the
Group from selling restrictions at the start of the year when a
third national lockdown was required in response to the COVID
pandemic. By the end of 2021, the order book had reduced by 8.4%
versus the record closing position of 2020. The order book remains
healthy with 2021's closing position still over a third higher than
any other year excluding 2020. The year on year reduction in the
record opening order book equates to a GBP0.4m gross margin benefit
in 2021.
-- The third national lockdown in the UK restricted the Group's
selling and marketing activities in January. Once the Group was
able to restart activities in February 2021, the Group experienced
a strong consumer response that was similar to that experienced in
the second half of 2020. Lead generation activities were increased
across all lead sources and costs per lead remained low compared to
pre-pandemic levels. As lockdown restrictions lifted in late April
and May, lead costs increased and have returned to levels similar
to those in 2019.
Alongside the lead generation cost context described above, the
Group has continued to make strong progress on lead management,
conversion optimisation and sales performance which has reduced
cancellation rates and mitigated some of the inflationary pressures
of lead generation.
As a result of all these factors, the cost to order intake ratio
for 2021 was 8.6% lower than in 2020.
-- The improvement in gross profit versus the prior period is
also despite a GBP0.7m reclaim in 2020 under the CJRS scheme to
contribute to the costs of the Group's furloughed factory employees
during the 2020 lockdown.
Although there has continued to be disruption caused by
COVID-required isolations and illness across 2021, the return to
higher / more normal levels of activity across the period has
driven an improved utilisation of fixed costs included within cost
of sales. This has also contributed to the improvement in the
Group's gross margin percentage.
Underlying other operating expenses
Underlying other operating expenses were GBP34.5m for the year,
which represents an increase of GBP2.5m compared to both 2020 and
2019. 2020 comparatives are reduced by the receipt of a GBP1.1m
furlough claim and thus 2019 is a more meaningful comparative to
understand the operating cost base of the business. The key factors
behind the increase versus 2019 are as follows:
-- The Group has invested in both its customer service resource
levels and its installations capacity in the last 18 months. Since
2019, the Group has re-opened its Crawley depot and also opened new
depots in Nottingham (prior to the end of 2020) and Milton Keynes
(August 2021). In conjunction with this increased depot footprint,
further resources have been added to manage operations.
-- The Group has increased investment in additional IT licensing
and infrastructure costs as it continues to rollout new technology.
This includes further upgrades to network security and resilience
alongside the implementation of Office 365 and Microsoft Teams. The
latter have facilitated the continuation of operations throughout
the last two years within the context of the COVID pandemic which
was necessitated by more people working remotely than prior to the
pandemic. This investment has also helped to mitigate the impact of
the cyber attack in January 2022.
-- Finally, marketing spend increased by GBP0.3m versus 2019
which includes costs of brand consultancy, consumer insight
research and other services incurred in advance of the Group's
return to TV advertising in February 2022.
Underlying profit / (loss) before taxation
Underlying profit before taxation was GBP7.6m versus a loss in
2020 of GBP(4.8)m and a loss of GBP(1.5)m for 2019. This loss is
before the non-underlying items described below.
Non-underlying items
A total of GBP1.7m has been separately treated as non-underlying
items for the year (2020: GBP1.4m, 2019: GBP2.3m). The current
year's total consists of GBP0.5m of non-recurring costs (2020:
GBP0.5m, 2019: GBP1.9m), a GBP0.7m share based payment charge
(2020: GBP0.4m, 2019: GBP0.0m) and GBP0.5m (2020 and 2019: GBP0.5m)
of Commercial Agreement (Intangible Asset) amortisation. The table
below shows the full breakdown of these items:
2021 2020 2019
GBP000 GBP000 GBP000
------- ------- -------
Holiday accrual (79) 470 -
------- ------- -------
RSA related costs 147 - -
------- ------- -------
Litigation Costs 90 74 -
------- ------- -------
Restructuring and operational
costs 300 266 1,058
------- ------- -------
Modification of right-of-use assets
and liabilities (83) 5 -
------- ------- -------
Impairment of right-of-use assets 122 - 692
------- ------- -------
Reversal of prior year impairment
of right-of-use assets - (292) -
------- ------- -------
IT project impairment 14 - 113
------- ------- -------
Commercial Agreement service fee - - (13)
------- ------- -------
Total non-recurring costs (note
6) 511 523 1,850
------- ------- -------
Commercial Agreement amortisation 452 452 452
------- ------- -------
Equity-settled share based payment
charges 687 424 12
------- ------- -------
Total non-underlying items 1,650 1,399 2,314
------- ------- -------
The holiday pay release represents a release for part of an
accrual made at the end of 2020 which arose as a result of the
impact of the shutdown of operations and resultant extension of
2020 leave entitlement into future holiday years in line with the
legislation. This increased the level of deferred holiday
entitlement of our people at the end of 2020 which was recognised
as an accrual in 2020 and will reverse in full by 2023. This item
was excluded from the Group's underlying performance measures to
ensure performance of the business is not skewed by both the
expense in 2020, or its subsequent use in 2021/22.
The Group incurred GBP0.3m (2020: GBP0.3m, 2019: GBP1.1m) of
restructuring and non-recurring operational costs which reduced the
Group's overheads in some areas. In addition, non-recurring costs
of GBP0.1m were incurred linked to the issuance of the Restricted
Share Award in June 2021.
As reported in the last three years, the Commercial Agreement
arose as a result of an agreement entered into in 2018 with Mr M.
Misra which encompassed a five year non-compete agreement and the
provision of services by Mr Misra in support of the continued
recovery of Safestyle. The Group agreed consideration with Mr Misra
subject to the satisfaction of both clear performance conditions by
him over five years and Safestyle's trading performance in
2019.
The non-compete element of the Commercial Agreement was
accounted for as an intangible asset on the basis that it is an
identi able, non-monetary item without physical substance, which is
within the control of the entity and is capable of generating
future economic bene ts for the entity. The intangible asset was
measured based on the fair value of the consideration that the
Group expects to issue under the terms of the agreement and is
being amortised over five years which matches the term of the
non-compete arrangement.
Share based payment charges predominantly increased versus 2020
due to charges in relation to the Restricted Share Award granted in
October 2020 that vested in June 2021.
The items classified as non-recurring costs in the Consolidated
Income Statement, the share based payment charges and the
amortisation of the intangible asset created as a result of the
Commercial Agreement reached in 2018 have all been excluded from
the underlying profit / (loss) before taxation performance measure
to enable a meaningful evaluation of the performance of the Group
from year to year.
Earnings per share
Basic earnings per share for the period were 3.5p for the year
compared to a loss of (4.3)p for 2020. Diluted earnings per share
were 3.4p (2020: loss of (4.3)p, 2019 loss of (4.0)p). The basis
for these calculations is detailed in note 7.
Net cash and cashflow
As reported previously, the actions taken last year to protect
liquidity and maintain the Group's borrowing facility ensured that
it could invest quickly to facilitate a strong restart to trading
following cessation of business activity for the first lockdown in
2020. The Group continued to increase its net cash last year,
closing at GBP12.1m versus GBP7.6m at the end of 2020. GBP4.5m of
the Group's GBP7.5m facility, being that of the term loan, remains
drawn with the remaining GBP3.0m revolving credit facility
undrawn.
Net cash inflow from operating activities, including the
cashflow impact of non-underlying items, was GBP9.6m (2020:
GBP3.4m). The inflow for the period reflects the strength of the
Group's operating model with trading results correlating positively
with cashflow generation.
Partially offsetting the impact of this positive profit to cash
conversion was further working capital investment of GBP0.7m in the
Group's raw material inventories last year to protect 'on time in
full' fulfilment from short-term supply chain disruption. This
builds on significant investment in profile stock in 2020 which was
also to underpin continuity of supply; this stock remains in
place.
Furthermore, the overall net cash inflow from operating
activities is also after the Group has repaid GBP2.4m of VAT that
was deferred in 2020 as part of the Group's COVID support measures.
The final payment of GBP0.1m was made in January 2022.
Capital expenditure increased to GBP1.2m versus GBP0.6m in 2020
with the prior year representing a reduced level of activity
similar to operating expenses. The majority of the capital
expenditure in the year was in relation to ongoing investment in
the Group's IT infrastructure and systems.
Dividends
The Board does not propose a final dividend (2020: GBPnil). As
reported in the CEO's statement, based on current performance
expectations, the Group will generate further net cash by the end
of 2022. The Board's capital allocation policy is to firstly
utilise surplus cash to fund forthcoming strategic initiatives. If
all current initiatives are funded as required and surplus cash
remains, the Board signals its intent to return to the dividend
list in the relatively near future.
Rob Neale
Chief Financial Officer
20 April 2022
Consolidated Income Statement for the year ended 2 January
2022
Note 2021 2020
GBP000 GBP000
Revenue 4 143,251 113,191
Cost of sales (99,496) (84,732)
Gross profit 43,755 28,459
Expected credit losses expensed (362) (890)
Other operating expenses(1) (35,807) (32,566)
Operating profit / (loss) 7,586 (4,997)
Finance income - 1
Finance costs(2) (1,623) (1,161)
Profit / (loss) before taxation 5,963 (6,157)
--------- ---------
Underlying profit / (loss)
before taxation before non-recurring
costs, Commercial Agreement
amortisation and share based
payment charges 7,613 (4,758)
Non-recurring costs 6 (511) (523)
Commercial Agreement amortisation (452) (452)
Equity settled share based
payment charges (687) (424)
Profit / (loss) before taxation 5,963 (6,157)
Taxation (1,188) 1,103
Profit / (loss) for the period 4,775 (5,054)
========= =========
Earnings per share
Basic (pence per share) 7 3.5p (4.3p)
Diluted (pence per share) 7 3.4p (4.3p)
(1) Other operating expenses includes GBP511k (2020: GBP523k) of
non-recurring costs, GBP452k (2020: GBP452k) of Commercial
Agreement amortisation and GBP687k (2020: GBP424k) of share based
payment charges. Adjusting for these gives underlying other
operating expenses of GBP34,157k (2020: GBP31,167k). See Financial
Review for details.
(2) Finance costs includes GBP761k (2020: GBP487k) of lease
related interest costs (see note 9) and GBP269k (2020: GBPnil) for
the unwind of the provision discount in the year.
There is no other comprehensive income for the year. 2020
represents the year ended 3 January 2021.
All operations were continuing throughout all years.
Consolidated Statement of Financial Position as at 2 January
2022
Note 2021 2020
GBP000 GBP000
Assets
Intangible assets - Trademarks 504 504
Intangible assets - Goodwill 20,758 20,758
Intangible assets - Software 870 850
Intangible assets - Other 832 1,284
Property, plant and equipment 10,811 11,475
Right-of-use assets 9 11,146 8,004
Deferred taxation asset 1,053 1,980
Non-current assets 45,974 44,855
Inventories 5,298 4,545
Trade and other receivables 4,880 5,663
Cash and cash equivalents 16,351 11,705
Current assets 26,529 21,913
Total assets 72,503 66,768
========= =========
Equity
Called up share capital 1,386 1,368
Share premium account 89,495 89,495
Profit and loss account 10,893 5,347
Common control transaction reserve (66,527) (66,527)
35,247 29,683
Liabilities
Trade and other payables 8 18,052 21,929
Lease liabilities 9 4,104 2,524
Corporation taxation liability 159 -
Provision for liabilities and
charges 1,274 1,118
Current liabilities 23,589 25,571
Provision for liabilities and
charges 2,109 1,801
Lease liabilities 9 7,327 5,586
Borrowings 4,231 4,127
Non-current liabilities 13,667 11,514
Total liabilities 37,256 37,085
Total equity and liabilities 72,503 66,768
========= =========
2020 represents the financial position at 3 January 2021.
Consolidated Statement of Changes in Equity for the year ended 2
January 2022
Share Share Profit Common Total
capital premium and loss control equity
account transaction
reserve
GBP000 GBP000 GBP000 GBP000 GBP000
Balance at 30 December
2019 828 81,845 10,009 (66,527) 26,155
Total comprehensive
(loss) for
the year - - (5,054) - (5,054)
Transactions with
owners recorded
directly in equity:
Issue of new shares 500 8,000 - - 8,500
Transaction costs
relating to
the issue of new
shares - (350) - - (350)
Deferred taxation asset
taken
to reserves - - 8 - 8
Issue of shares -
Commercial
Agreement 40 - (40) - -
Equity settled share
based payment
transactions - - 424 - 424
------------------- ------------------- ------------ ------------------- ---------------
Balance at 3 January
2021 1,368 89,495 5,347 (66,527) 29,683
------------------- ------------------- ------------ ------------------- ---------------
Total comprehensive
profit for
the year - - 4,775 - 4,775
Transactions with
owners recorded
directly in equity:
Issue of new shares 18 - (18) - -
Deferred taxation asset
taken
to reserves - - 4 - 4
Corporation taxation
taken to
reserves - - 98 - 98
Equity settled share
based payment
transactions - - 687 - 687
Balance at 2 January
2022 1,386 89,495 10,893 (66,527) 35,247
=================== =================== ============ =================== ===============
Consolidated Statement of Cash Flows for the year ended 2
January 2022
Note 2021 2020
GBP000 GBP000
Cash flows from operating activities
Profit / (loss) for the year 4,775 (5,054)
Adjustments for:
Depreciation of plant, property and equipment 1,473 1,559
Depreciation of right-of-use assets 9 3,882 3,745
Amortisation of intangible fixed assets 842 880
Reversal of impairment loss - (292)
Impairment of right-of-use assets 9 122 -
Modification of right-of-use assets and liabilities 9 (83) 5
Finance income - (1)
Finance expense 1,623 1,161
IT project impairment 14 -
Equity settled share based payment charges 687 424
Taxation charge / (credit) 1,188 (1,103)
-------- --------
14,523 1,324
(Increase) in inventories (753) (1,820)
Decrease / (increase) in trade and other receivables 783 (1,664)
(Decrease) / increase in trade and other payables 8 (3,877) 6,545
Increase in provisions 195 38
-------- --------
(3,652) 3,099
Other interest (paid) (1,250) (986)
-------- ------------
Net cash inflow from operating activities 9,621 3,437
-------- ------------
Cash flows from investing activities
Acquisition of property, plant and equipment (809) (401)
Interest received - 1
Acquisition of intangible fixed assets (424) (156)
Net cash (outflow) from investing activities (1,233) (556)
Cash flows from financing activities
Proceeds from issue of share capital - 8,500
Transaction costs relating to the issue of share capital - (350)
Proceeds from loans and borrowings - 2,000
Repayment of borrowings - (2,000)
Transaction costs relating to loans and borrowings - (39)
Payment of lease liabilities 9 (3,742) (3,722)
-------- ------------
Net cash (outflow) / inflow from financing activities (3,742) 4,389
Net inflow in cash and cash equivalents 4,646 7,270
Cash and cash equivalents at start of period 11,705 4,435
Cash and cash equivalents at end of period 16,351 11,705
======== ============
2020 represents the year ended 3 January 2021.
Notes to the year end financial information
1 Statement of compliance
Whilst the financial information included in this Preliminary
Announcement has been prepared on the basis of the requirements of
International Financial Reporting Standards (IFRSs) in issue, as
adopted by the European Union, this announcement does not itself
contain sufficient information to comply with IFRS.
The financial information set out above does not constitute the
company's statutory accounts for the financial years 2021 or 2020
but is derived from those accounts. Statutory accounts for 2020
have been delivered to the registrar of companies with the Jersey
Financial Statements Commission (JSFC), and those for 2021 will be
delivered in due course. Grant Thornton UK LLP has reported on
those accounts. Their reports for 2021 and 2020 were (i)
unqualified, (ii) did not include a reference of any matters to
which the auditor drew attention by way of emphasis without
qualifying their report and (iii) did not contain a statement under
section 113B (3) or (6) of the Companies (Jersey) Law 1991.
Safestyle UK plc is a public listed group incorporated in
Jersey. The Group's shares are traded on AIM. The Group is required
under AIM rule 19 to provide shareholders with audited consolidated
financial statements. The registered office address of the
Safestyle UK plc is 47 Esplanade, St Helier, Jersey JE1 0BD.
The Group is not required to present parent company
information.
2 General information and basis of preparation
The Group's financial statements for the financial year 2021,
which ended on 2 January 2022 ("financial statements"), have been
prepared on a going concern basis under the historical cost
convention and are in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the EU and the
International Financial Reporting Standards Interpretations
Committee interpretations issued by the International Accounting
Standards Board ("IASB") that are effective or issued and early
adopted as at the time of preparing these financial statements.
Safestyle UK plc was incorporated on 8 November 2013. On 3
December 2013 Safestyle UK plc acquired Style Group Holdings
Limited through a share for share exchange. This was accounted for
as a common control transaction. The result of this is that the
financial statements of Style Group Holdings have been included in
the Group consolidated financial statements of Safestyle UK plc at
their book value at the IFRS transition date of 1 January 2010 with
the assumption that the Group was in existence for all the periods
presented. The excess of the cost at the time of acquisition over
its book value has been recorded as a common control transaction
reserve.
The accounting policies set out below have unless otherwise
stated, been applied consistently to all periods presented in these
financial statements.
The preparation of financial statements requires Management to
exercise its judgement in the process of applying accounting
policies. The areas involving a higher degree of judgement or
complexity, or areas where assumptions and estimates are
significant to these financial statements are disclosed in note
5.
(a) New and amended standards adopted by the Group.
The Group has adopted the following new standards and amendments
for the first time. Unless otherwise stated, they have not had a
material impact on the financial statements.
-- Interest Rate Benchmark Reform 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)
-- Amendments to References to the Conceptual Framework (Various Standards)
-- COVID-19 Rent Related Concessions beyond 30 June 2021 (Amendments to IFRS 16)
(b) New standards, amendments and interpretations issued but not
effective and not early adopted.
At the date of approval of these financial statements, the
following standards, amendments and interpretations which have not
been applied in these financial statements were in issue but not
yet effective (and in some cases have not yet been adopted by the
EU):
-- IFRS 17 Insurance Contracts
-- Amendments to IFRS 17 Insurance Contracts (Amendments to IFRS 17 and IFRS 4)
-- References to the Conceptual Framework
-- Proceeds before Intended Use (Amendments to IAS 16)
-- Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37)
-- Annual Improvements to IFRS Standards 2018-2020 Cycle
(Amendments to IFRS 1, IFRS 9, IFRS 16, IAS 41)
-- Classification of Liabilities as Current or Non-Current (Amendments to IAS 1)
-- Deferred taxation related to Assets and Liabilities from a Single Transaction
Basis of consolidation
Subsidiaries are entities that the Company has power over,
exposure or rights to variable returns and an ability to use its
power to affect those returns. In assessing control, potential
voting rights that are currently exercisable or convertible are
taken into account.
The financial statements of subsidiaries are included in the
consolidated financial statements from the date that control
commences until the date control ceases.
Intragroup transactions and balances are eliminated on
consolidation.
Year end
The financial statements are presented for the year ended on the
closest Sunday to the end of December. This date was 2 January 2022
for the current reporting year and 3 January 2021 for the prior
year. All references made throughout these accounts for the
financial year 2021 are for the period 4 January 2021 to 2 January
2022 and references to the financial year 2020 are for the period
30 December 2019 to 3 January 2021.
3 Going concern
The financial statements are prepared on a going concern basis
which the Directors believe to be appropriate for the following
reasons.
The Group made a statutory profit of GBP4.8m in the financial
year 2021 (2020: (loss) of GBP(5.1)m) and had net current assets of
GBP2.9m at the end of the financial year 2021 (2020: net current
liabilities of GBP(3.7)m. As detailed in the Financial Review, the
profit reported represents a return to full year profitability for
the Group for the first time since 2017. Net cash improved further
to GBP12.1m at the end of the year, an increase of GBP4.5m versus
the prior year. Actions taken to protect cash during the pandemic
lockdown in 2020 have ceased and the deferral of a GBP2.5m VAT
liability has been settled; working capital is being managed as
normal.
The Group has banking facilities which consist of a GBP4.5m term
loan and a GBP3.0m revolving credit facility. This facility matures
in October 2023 and the finance agreement contains certain
covenants, including a minimum EBITDA to be tested on a cumulative
monthly basis. By the end of the financial year, the EBITDA
covenant headroom had increased significantly to GBP7.2m. The
GBP4.5m term loan was fully drawn at the end of the year, while the
revolving credit facility was unutilised. This has been the case
since May 2020 and remains the case at the date of signing the
accounts. The Group presently has sufficient liquidity to repay the
term loan prior to, or on the facility maturity date, if
required.
The Directors have prepared forecasts covering the period to the
end of the financial year 2023. The forecasts include a number of
assumptions in relation to sales volume, pricing, margin
improvements and overhead investment. The Directors believe the key
assumptions to be cautious and realistic with order intake for FY22
to be 10% below the levels achieved in H2 20. This target is deemed
to be highly achievable. The Group has a strong opening order book
and order intake at this level would match the current capacity of
the installation network. Installation volumes are forecast to grow
by 5.5% versus 2020, due to a combination of the full year effect
of the new Milton Keynes Depot, the recovery of the post-lockdown
customer service backlogs as well the expectation that the ongoing
workforce availability due to ongoing COVID restrictions
experienced throughout 2021 will subside. The Group is forecasting
significant increases in manufacturing costs as suppliers pass on
increasing energy and raw material prices that they are incurring
themselves. Increases in overhead costs have also been forecast as
the Group continues its strategic agenda to invest in IT, customer
services, field operations as well as annual pay increases in line
with rising inflation. These forecasts result in further increases
in EBITDA covenant headroom, net cash and liquidity.
Whilst the Directors believe the assumptions above to be
sensible, the operating environment is exposed to a number of risks
which could impact the actual performance achieved in 2022. These
risks include, but are not limited to, reducing consumer confidence
due to the general economic conditions, delivering the required
levels of order intake as the economy reopens and competition from
other sectors increases and the Group's ability to maintain margins
given the rising input costs.
The Directors have modelled various sensitised downside
scenarios for 2022 and 2023. For 2022, these included a scenario
which modelled a 9% reduction in order intake versus 2020 and
installation volumes at similar levels to the COVID-impacted year
of 2020. In this scenario, mitigating actions within the control of
management, including reductions in areas of discretionary spend
could be deployed. Even with the above significant reductions in
activity, the resultant cash flow forecasts and projections show
that the Group will be able to increase its net cash position and
operate within the financial covenants of the borrowing
facility.
A sensitised downside scenario has been modelled where
performance is significantly worse than the scenario described
above. In this scenario, whilst a breach of the covenant tests on
the borrowing facilities would occur, the Group would still have
sufficient cash to repay the borrowing facility.
On 25 January 2022, the Group was subject to a sophisticated
cyber attack. The impact of the attack on the business was partly
mitigated by recent investments to modernise the Group's IT
infrastructure. Business continuity plans enabled the business to
continue to sell, survey, manufacture, and install, albeit
installations levels were reduced for several weeks. The Group's
customer service operations were also disrupted. However, with
sales remaining strong, the order book has continued to grow and
net cash and liquidity has been maintained. The impact of the
incident on installation activity levels is now fully overcome and
by the end of March, installation levels were fully back to
original plans levels. The Group has maintained its hugely
important self-employed installation capacity which has underpinned
the swift recovery from the disruption. Elements of the
pre-existing IT strategy have been accelerated following the attack
to further increase the Group's cyber security defences.
The Directors have compared the financial impact of the cyber
attack to its sensitivity scenarios and notes that the sales order
intake has remained well ahead of these scenarios and is largely in
line with original plans. Whilst weekly installation revenue
dropped briefly below the sensitised scenario for a few weeks, the
Group's weekly revenue by the end of March had recovered to 20%
higher than the downside scenario. The Group has returned to
trading profitably following the recovery from the incident.
The Directors have considered the cyber attack as a post balance
sheet event and have determined that this is a non-adjusting event
as the event occurred after the reporting period. Aside from the
short-term impact on trading described above, the Directors do not
expect there to be any consequential cash outflows as a result of
the cyber attack and therefore no such items have been included in
any of the sensitivity scenarios.
In forming their view on preparing the financial statements on a
going concern basis, the Directors have reviewed the impact of the
cyber attack on the business and highlight the continued strong
order intake performance, record order book, maintained liquidity
levels and the swift return to expected operational levels
following the incident.
Based on the above the above indications and work prepared, the
Directors believe that it is appropriate to prepare the financial
statements on a going concern basis.
4 Significant accounting policies
Revenue recognition
The Group earns revenue from the design, manufacture, delivery
and installation of domestic double-glazed replacement windows and
doors.
There are five main steps followed for revenue recognition:
-- Identifying the contract with a customer
-- Identifying the performance obligations
-- Determining the transaction price
-- Allocating the transaction price to the performance obligations; and
-- Recognising revenue when or as an entity satisfied performance obligations.
The various stages of the performance obligations are the
design, manufacture, delivery of and installation of domestic
double-glazed replacement windows and doors.
In applying the principal of recognising revenue related to
satisfaction of performance obligations under IFRS 15, the Group
considers that the final end product is dependent upon a number of
services in the process that may be capable of distinct
identifiable performance obligations. However, where obligations
are not separately identifiable, in terms of a customer being
unable to enjoy the benefit in isolation, the standard allows for
these to be combined. The Group considers that in the context of
the contracts held these are not distinct. As such the performance
obligations are treated as one combined performance obligation and
revenue is recognised in full, at a point in time, being on
completion of the installation. Revenue is shown net of discounts,
sales returns, charges for the provision of consumer credit and VAT
and other sales related taxes. Revenue is measured based on the
consideration specified in a contract with a customer.
There is no identifiable amount included in the final price for
a warranty, as the Group provides a guarantee on all
installations.
Payments received in advance are held within other creditors, as
a contract liability. The final payment is due on installation.
A survey fee is paid at the point of agreeing the contract and
the customer has up to 14 days, defined in the contract, to change
their minds. If the customer changes their mind after this cooling
off period, the Group has the right to retain this survey fee and
as such revenue for this is recognised at the point in time that
this becomes non-refundable.
The Group offers consumer finance products from a range of
providers whilst acting as a credit broker and not the lender. The
Group earns commission and pays subsidies for its role as a credit
broker. As the Group is acting as the agent and not the principal,
commission is not disclosed as a separate income stream.
In addition to the above, the Group recognises revenue from the
sale of materials for recycling. The revenue is recognised when the
materials are collected by the recycling company which represents
the completion of the performance obligation. The Group have
determined that this revenue is derived from its ordinary
activities and as such this balance is recognised within
revenue.
Non-recurring items
Non-underlying items consist of non-recurring costs, share based
payments and Commercial Agreement amortisation. Non-recurring costs
are excluded because they are not expected to repeat in future
years.
5 Accounting estimates and judgements
When preparing the Group's consolidated financial statements,
management makes a number of judgements, estimates and assumptions
about the recognition and measurement of assets, liabilities,
revenue and expenses. Actual results can differ from these
estimates. Estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to estimates are recognised
prospectively.
Significant management judgements
The following are the judgements made by management in applying
the accounting policies of the Group that have the most significant
effect on these consolidated financial statements.
Recognition of deferred taxation assets
The extent to which deferred taxation assets can be recognised
is based on an assessment of the probability that future taxable
income will be available against which the deductible temporary
differences and taxation loss carry-forwards can be utilised. The
deferred taxation asset of GBP1,053k (2020: GBP1,980k) has been
recognised on the basis that the Group is forecasting to make
sufficient levels of profits in future periods.
Estimation uncertainty
Impairment of goodwill
In assessing impairment, management estimates the recoverable
amount of each asset or cash generating unit based on expected
future cash flows and uses an appropriate rate to discount them.
Estimation uncertainty relates to assumptions about future
operating results and the determination of a suitable discount
rate. A discount rate of 11% has been applied to the impairment
assessment calculation. This was calculated and compared to the
discount rates disclosed by a range of comparable quoted companies.
Management used judgement in the decision to use a discount factor
of 11%.
Dilapidations provision
The Group has a portfolio of leased properties that sales
branches and installation depots operate from. A dilapidations
provision is provided for leased properties where the lease
agreement contains a contractual obligation to undertake remedial
works at the end of the lease term and where wear-and-tear or
damage on the property has occurred. The calculation of the
estimate is based on historical experience of cost to rectify upon
exiting similar properties. The estimated costs are subject to
estimation uncertainty as the final payment agreed may differ to
the estimated cost given the process whereby dilapidations are
negotiated. If the effect of discounting is material, the
dilapidations provision is determined by calculating the expected
future cash flows at a pre-taxation rate that reflects current
market assessments of the time value of money, and when
appropriate, the risks specific to the liability.
Product guarantee provision
The Group guarantees all of its products, which in the majority
of cases covers a period of 10 years. The provision is calculated
to cover the cost of fulfilling any guarantee work to its customers
and is based on the expected future costs of rectifying faults and
the future rate of product failure arising within the guarantee
period. The level of provision required to cover this cost is
subject to estimation uncertainty. If the effect of discounting is
material, the guarantee provision is determined by calculating the
expected future cash flows at a pre-taxation rate that reflects
current market assessments of the time value of money, and when
appropriate, the risks specific to the liability.
Expected credit loss for trade receivables
The Group assesses, on a forward-looking basis, the expected
credit losses ('ECL') associated with its trade receivables. This
is based on historical experience, external indicators and
forward-looking information to calculate the expected credit
losses.
6 Non-recurring costs
2021 2020
GBP000 GBP000
Holiday pay accrual (79) 470
RSA related costs 147 -
Litigation costs 90 74
Restructuring and operational
costs 300 266
Modification of right-of-use
assets and liabilities (83) 5
Impairment of right-of-use assets 122 -
Reversal of prior year impairment
of right-of-use assets - (292)
IT project impairment 14 -
T otal non-recuring costs 511 523
------- --------
The holiday pay accrual arose as a result of the impact of the
shutdown of operations and resultant extension of 2020 leave
entitlement which, for some employees, is up to March 2023. The
release in the current reporting period represents a
partial-unwinding of the original accrual booked in 2020 due to the
deferred holiday subsequently taken in the year.
RSA related costs are the employer related taxes associated with
the issue of Restricted Share Award Scheme during the year.
Litigation costs are mainly expenses incurred as a result of an
ongoing legal dispute between the Group and an ex-agent. These
costs are predominantly legal advisor's fees.
Restructuring and operational costs are expenses incurred,
including redundancy payments, as a result of changes being made to
reduce the cost structure of the business.
Modification of right-of-use assets and liabilities relates to
the closure of properties identified as right-of-use assets during
the period.
Impairment of right-of-use assets relates to the closure of
properties identified as assets under IFRS 16 where the lease
commitment extended beyond 2021.
Reversal of prior year impairment of right-of-use assets is the
reversal of an impairment charge made in 2019 following closure of
the Crawley installation depot which was subsequently reopened in
2020.
IT project impairment charge represented the impairment of a
capital investment made in a new electronic survey system that was
stopped following results of field trials.
For further detail on the 2020 non-recurring costs, please refer
to the Group's Annual Report & Accounts 2020.
7 Earnings per share
2021 2020
Basic earnings per ordinary
share (pence) (3.5) (4.3)
Diluted earnings per ordinary
share (pence) (3.4) (4.3)
a) Basic earnings per share
The calculation of basic earnings per share has been based on the
following profit attributable to ordinary shareholders and weighted-average
number of shares outstanding.
2021 2020
GBP000 GBP000
Profit / (loss) attributable
to ordinary shareholders 4,775 (5,054)
================== ==================
Weighted-average number
of ordinary shares (basic)
No of shares No of shares
'000 '000
In issue during the period 137,753 117,749
================== ==================
b) Diluted earnings per share
The calculation of diluted earnings per share has been based on
the following profit attributable to ordinary shareholders and
weighted-average number of ordinary shares outstanding after
adjustment for the effects of all dilutive potential ordinary
shares.
2021 2020
GBP000 GBP000
Profit / (loss) attributable
to ordinary shareholders
(diluted) 4,775 (5,054)
======= ========
Weighted-average number
of ordinary shares (diluted) No. of shares No. of shares
Weighted-average number
of ordinary shares (basic) 137,753 117,749
Effect of conversion of
share options 3,589 -
-------------- --------------
141,342 117,749
============== ==============
The average market value of the Group's shares for the purpose
of calculating the dilutive effect of share options was based on
quoted market prices for the period during which the options were
outstanding.
Diluted earnings per share is calculated by adjusting the
earnings and number of shares for the effects of dilutive options.
In the event that a loss is recorded for the period, share options
are not considered to have a dilutive effect.
8 Trade and other payables
2021 2020
GBP000 GBP000
Trade payables 7,118 7,036
Other taxation and social
security costs 3,169 5,563
Other c reditors and deferred
income 4,747 5,025
Accruals 3,018 4,305
18,052 21,929
--------- ---------
9 Right-of-use assets and liabilities
Motor
Properties Vehicles Equipment Total
GBP000 GBP000 GBP000 GBP000
------------- ------------- ---------------- -------------
Assets
At 3 January 2021 4,770 3,034 200 8,004
Additions 2,080 5,123 256 7,459
Impairment (122) - - (122)
Modification (253) (60) - (313)
Depreciation (1,298) (2,411) (173) (3,882)
------------- ------------- ---------------- -------------
At 2 January 2022 5,177 5,686 283 11,146
Liabilities
At 3 January 2021 4,899 2,996 215 8,110
Payment (1,653) (2,657) (193) (4,503)
Additions 2,080 5,123 256 7,459
Interest 388 357 16 761
Modification (342) (54) - (396)
------------- ------------- ---------------- -------------
At 2 January 2022 5,372 5,765 294 11,431
------------- ------------- ---------------- -------------
Reconciliation of movements of liabilities to cashflows arising
from financing activities
At 3 January 2021 4,899 2,996 215 8,110
Changes from financing cash
flows
Payment of lease liabilities (1,265) (2,300) (177) (3,742)
------------- ------------- ---------------- -------------
Total changes from financing
cash flows (1,265) (2,300) (177) (3,742)
------------- ------------- ---------------- -------------
Other changes
New leases 2,080 5,123 256 7,459
Modification (342) (54) - (396)
Interest expense 388 357 16 761
Interest paid (388) (357) (16) (761)
------------- ------------- ---------------- -------------
Total liability-related
other changes 1,738 5,069 256 7,063
At 2 January 2022 5,372 5,765 294 11,431
------------- ------------- ---------------- -------------
Liabilities classification
Current (<1 year) 1,570 2,419 115 4,104
Long term (>1 year) 3,802 3,346 179 7,327
------------- ------------- ---------------- -------------
5,372 5,765 294 11,431
------------- ------------- ---------------- -------------
The interest expense recognised in the profit and loss statement
is in the table above. No expenses relating to short-term leases
and low value leases has been recognised. The total cash outflow
for leases is GBP4,503k (2020: GBP4,209k). This comprises the
payment of lease liabilities of GBP3,742k (2020: GBP3,722k) and the
interest paid of GBP761k (2020: GBP487k).
The Group has a number of leases within the business including
properties for installation depots and sales branches, vehicles and
plant & equipment. With the exception of short-term leases and
leases of low-value underlying assets, each lease is reflected in
the consolidated statement of financial position as a right-of-use
asset and a lease liability. Leases are either non-cancellable or
may only be cancelled by incurring a substantive termination fee.
For leases relating to properties, the Group must keep those
properties in a good state of repair and return the properties to
their original condition at the end of the lease.
10 Post-balance sheet events
The Group was hit by a cyber attack, emanating from Russia, at
the end of January 2022. Immediately following the incident, there
was a short term impact on the Group's operations as it implemented
business continuity workarounds as it recovered its systems. The
Group now has all its core systems back up and running.
Aside from the impact above, no consequential cash outflows as a
result of the attack are expected and this is treated as a
non-adjusting event as it occurred after the balance sheet
date.
Full details of the incident, as well as the response by the
Group, are included within the 'Current trading and outlook'
section of the CEO's Statement.
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END
FR EANLEADNAEFA
(END) Dow Jones Newswires
April 21, 2022 02:01 ET (06:01 GMT)
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