TIDMSFE
RNS Number : 4132T
Safestyle UK PLC
25 March 2021
25 March 2021
The information contained within this announcement is deemed by
the Company to constitute inside information stipulated under the
Market Abuse Regulation (EU) No. 596/2014 as it forms part of UK
domestic law by virtue of the European Union (Withdrawal) Act 2018.
Upon the publication of this announcement via the Regulatory
Information Service, this inside information is now considered to
be in the public domain.
Safestyle UK plc
("Safestyle" or the "Group")
Final Results for Financial Year 2020
Strong recovery and return to profitability in H2
2021 financial performance expected to be significantly ahead of
market expectations
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 2020(1) .
Financial and operational highlights
FY 2020 FY 2019
GBPm GBPm % change
--------- -------- ---------
Revenue 113.2 126.2 (10.3)%
--------- -------- ---------
Gross profit 28.5 31.9 (10.8)%
--------- -------- ---------
Gross margin %(2) 25.1% 25.3% (13)bps
--------- -------- ---------
Underlying (loss) before taxation(3) (4.8) (1.5) (213.4)%
--------- -------- ---------
Non-underlying items(4) (1.4) (2.3) 39.5%
--------- -------- ---------
(Loss) before taxation (6.2) (3.8) (60.6)%
--------- -------- ---------
EPS - Basic (4.3p) (4.0p) (7.5)%
--------- -------- ---------
Net cash(5) 7.6 0.4
--------- -------- ---------
(1) The financial statements are presented for the year ended on
the closest Sunday to the end of December. This date was 3 January
2021 for the current reporting year and 29 December 2019 for the
prior year. All references made throughout these accounts for the
financial year 2020 are for the period 30 December 2019 to 3
January 2021 and references to the financial year 2019 are for the
period 31 December 2018 to 29 December 2019.
(2) Gross margin % is defined as gross profit divided by
revenue.
(3) Underlying (loss) before taxation is defined as reported
(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. See
Financial Review for more detail.
(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.
Operational
-- Staff, consumer and business protection was paramount through
2020 with COVID-safe practices in place across our sites and in
home.
-- Growth in order intake exceeded the 15% growth in revenue in
H2 and generated a strong order book at year end, 83% larger than
2019.
-- This large order book has supported sustained operations
during the January 2021 cessation of in home sales & door
canvass.
-- Post H1 lockdown, operations were resilient with no site
closures and continued manufacturing and installation activity
thoughout H2, into Q1 2021.
-- Capacity increases in H2 were enabled by increases in
headcount across survey, manufacturing, customer services and
installations.
-- Market share (as measured by FENSA) rose to 9.2% from 8.4% in 2019.
-- Good progress made on operational KPIs, with average price
per frame up 3.8% to GBP704 and average order value up by 4.1% to
GBP3,474, with the trend continuing in Q1 2021.
-- Continued progress on the Group's sustainability programme
with CO(2) emissions per frame installed reducing by 6.1%.
-- Tangible delivery on the Group's strategic priorities despite
the challenging backdrop, including modernising the Safestyle
brand, improving the national sales and depot network and
sustaining progress in compliance.
Financial
-- Progressive increase in revenue comparisons in H2 with Q3
being 9% ahead of prior year and Q4 being 20% ahead of prior
year.
-- The impact of cessation of operations in H1 resulted in a
GBP(6.0)m loss across the March to May period with underlying
profit before taxation achieved of GBP0.3m in H2 after material
investment in order book.
-- The Group received GBP1.8m from the Government's Coronavirus
Job Retention Scheme ('CJRS') which partly reduced the first half
loss.
-- The business undertook a Placing of New Shares in April which
raised GBP8.2m net of directly attributable costs of GBP0.3m to
strengthen the Group's balance sheet which allowed a strong restart
of operations in late May and a strong year end position, with
year-end net cash of GBP7.6m (2019: GBP0.4m).
Outlook
-- 2021 started with immediate disruption to sales as in-home
selling and canvass operations were halted.
-- Restrictions have now eased and the Group is seeing a good
recovery of sales momentum from 2020.
-- Despite the impact the lockdown has had on order intake thus
far in 2021, management actions and investment in the order book in
2020 have underpinned a good level of manufacturing and
installations activity in the first quarter of 2021. This has
minimised further disruption to our customers and many areas of the
business.
-- Revenue has grown by double digits in Q1 2021 and levels of
profitability have increased versus 2020 exit rate.
-- The order book continues to remain ahead of the prior year
although it has been run down in the first quarter and converted
into profit and cash.
-- In summary, the Group has had a good start to 2021 and will
achieve the highest level of profitability in Q1 for any quarter
since 2017 while also maintaining a healthy installation
pipeline.
-- The UK Government has set out its roadmap for cessation of
all restrictions by the end of June 2021 and based on this plan,
the Board expects there to be no further significant interruption
to our operations.
-- Despite the uncertain operating environment, the Board
expects to see good levels of demand for its products and is
recapturing the order intake momentum achieved in the second half
of 2020 now restrictions on sales activities have been lifted.
-- As a result of this encouraging start to the year, the Board
expects 2021 financial performance to be significantly ahead of
market expectations.
-- The Board also expects to revisit its dividend policy later
in 2021 assuming that the Group has returned to a consistent
delivery of profitability.
Commenting on the results, Mike Gallacher, CEO said:
"I am extremely proud of the way that our colleagues responded
to what was a year with unparalleled challenges, at all times
keeping a constant focus on health and safety while remaining
committed to delivering for our customers.
Having taken decisive action to support the business during the
period, we saw a strong recovery in the second half of the year
with good order intake growth and a step up in operational
capacity, as customer demand remained robust. By the end of 2020,
our order book was 83% larger than 2019's closing position, which
has given us a strong platform to maintain momentum at the
beginning of the current financial year in spite of the external
disruption.
Notwithstanding the uncertain operating environment, as a result
of the strategic and operational progress we have made along with
our strong order book, cash position and market leading brand, the
Board now expects the Group's 2021 financial performance to be
significantly ahead of market expectations.
Our intention remains as before the crisis; to build long term
value for shareholders by consolidating our position as the UK's
number 1 choice for replacement windows and doors."
A conference call for analysts and investors for the 2020 Final
Results will be held today at 9.30 am. If you would like to join,
please contact FTI Consulting at safestyle@fticonsulting.com or
using the details below 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 Capital Limited (Nominated Adviser Tel: 0203 829
& Joint Broker) 5000
Dan Bate / D aniel Harris / Dominic King
Liberum Capital Limited (Joint Broker) Tel: 0203 100
Neil Patel / Jamie Richards 2100
FTI Consulting (Financial PR) Tel: 0203 727
Alex Beagley / James Styles / Sam Macpherson 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
2020 has been an extraordinary trading year, with huge levels of
disruption and sustained uncertainty. Despite this, the business
has emerged strongly, building momentum in H2 and making progress
on our core strategic priorities. I am immensely proud of the
response of our staff who showed enormous flexibility and
resilience in responding to the sustained challenges the business
faced during 2020.
The business started the year with good growth sustained from Q4
2019 but our priorities shifted rapidly in Q1 to a focus on
protecting our staff, customers and the business through the
pandemic. Our results in H1 were impacted significantly by the
cessation of business operations between March and the end of May.
However, as a result of the support of shareholders and our lenders
in April, the business was able to recapture its strong momentum in
H2, delivering double-digit revenue growth of 15% while also
growing the order book by 83%. The strong order book has allowed us
to entirely mitigate the disruption caused by the interruption in
sales and canvass operations during Q1 2021.
COVID-19 response
The business began contingency planning in February and this
ensured a rapid cessation of operations on 23 March, in line with
government guidance. The hibernation of the business at that point
encompassed canvassing, in-home sales, survey, processing,
manufacturing and installations. We retained a small remote selling
team together with a skeleton customer service function. This
enabled us to minimise our cash outflow during this period of
uncertainty.
The support of shareholders and our lenders during April was
critical given the business was still recovering financially from
2018. The funds provided allowed the business to emerge strongly
from the first lockdown in May and navigate the further disruption
arising from the second lockdown in November.
Within the business we developed COVID-safe practices that
allowed our offices and factories to operate without interruption
from May, with key staff split into socially distanced bubbles and
extensive use of remote working. Staff operating in customers'
homes were subject to new working practices, with the mandatory use
of face masks and other personal hygiene measures. Again, this
approach enabled us to sustain our business operations through
H2.
The COVID-safe measures taken in 2020 carried cost and
inevitably drove a level of inefficiency but were successful in
allowing us to operate commercially throughout H2, while also
protecting our staff and maintaining the confidence of our
customers.
Generating momentum through the turbulence - H2 performance
Furnished with the support of shareholders, the phased restart
was rapid and we quickly found that consumer demand was strong. The
strength of the market reflected the multiple restrictions on other
forms of consumer spending and was seen across the wider Repair,
Maintenance and Improvement (RMI) sector.
In response to this growth we invested in expanding our capacity
across survey, processing, manufacturing and installations. The
resulting capacity increase lagged the growth in sales but
delivered revenue growth of 15% in H2. This meant our order book
grew by 83% versus 2019 as we exited the year, setting us up for a
strong start to 2021.
During H2 we also made significant progress in driving margin,
with reduced complexity, reduced finance subsidy costs and enhanced
management of discounting, all of which contributed to a 3.8% year
on year improvement in average frame price. This partially offset
the financial impact of building the order book in H2 and it is
contributing to the improved financial performance for Q1 2021.
Progress on strategic priorities
Despite the challenges of 2020, I am pleased that we were able
to make progress against our longer term strategic agenda with some
critical milestones achieved.
Improving our national sales and depot network : Q1 saw the
arrival of our new Commercial Director Gary Pickering and the
recruitment of a new regional sales leadership team during H1.
These appointments have enabled an acceleration in the
transformation of our sales and canvass functions, supported by
sophisticated and transparent management information.
In Q4 we were also able to launch our new training programme for
our self-employed branch managers, an initiative that will continue
in 2021 as all managers will be required to complete the programme.
This is the first structured national training programme of its
sort at Safestyle and it is supported by clarified responsibilities
and a new pay structure aligned to business results.
Concurrently our installations network embarked on a parallel
programme, again establishing a new leadership team and updating
our national depot network through a series of closures and
openings across the UK.
Sustaining momentum in compliance and customer service : While
COVID safety was our prime focus in 2020, we completed a number of
key actions that further developed our business compliance. These
included the development of our new canvass app, which now enables
tracing of all sales leads, and the recruitment of a new Data
Compliance Manager to embed and audit our practices.
The progress made on improving customer service was hampered
during 2020 as we sought to mitigate the impact of significant
supply disruption during Q3. This was caused by a combination of
restart challenges with two key suppliers, industry-wide raw
material constraints and global shipping disruption. These
challenges were not unique to Safestyle, but they demonstrated the
difficulty of recovering from this type of issue and the importance
of maintaining a smooth and robust supply chain.
Modernising our value brand : We progressed two elements during
2020; brand development and establishing a digital competitive
advantage. Our appointment of 'Journey Further' as our new digital
agency has proved successful as we have leveraged our scale to
bring best in class practices to our digital marketing work. Our
brand work, which seeks to build on the investment of the past,
will be used to shape our TV investment and brand experience in the
years ahead.
As we move into 2021 and embed the progress that has been made
through the turnaround programme we have updated and refreshed our
key strategic objectives for 2021 and beyond. These will be:
Delivering our financial roadmap : Reshaping our financial
performance to deliver sustained improvements in profitability
through a combination of revenue growth, margin improvement and
measured investment.
Levelling up / standardising depots & branches : Building on
and embedding the work done to date on improving the consistency of
local performance using Standard Operating Procedures ('SOPs'),
role descriptions, effective management reporting and performance
management for all our branches and depots.
Driving profitable growth : This encompasses our planned brand
investment, building a digital competitive advantage, developing
consumer insight and expanding our national sales footprint.
Transforming our customer experience : Our ratings and feedback
show that the majority of customers have a seamless experience.
However, we know that we can do better, using technology and
improved communications to address customer issues more rapidly. We
will support this by embedding the use of Net Promotor Score (NPS)
customer interviews, which we recently introduced to the
business.
Embedding compliance and sustainability : I am pleased that we
have made great progress in these areas, but we also want to drive
further improvements at Safestyle and throughout the wider
industry. We have embedded sustainability into our operations and
now recycle 95% of all materials removed from a customer's home as
part of their installation.
The Group's CO(2) emissions per frame installed in 2020 have
reduced by 6.1% versus 2019. The Group has achieved ongoing
reductions in energy consumption through its furnace energy usage
reduction programme. This has reduced energy consumption for what
is a significant component of our manufacturing process by over 25%
at like for like operating levels.
The Group is also now halfway through replacing its leased van
fleet, representing 333 vans in total. This will be fully completed
by the middle of 2021. Each new van produces 8% less CO(2)
emissions than the previous model which will make an important
contribution to our programme of reducing the impact on the
environment of our business.
Moreover, our existing impressive environmental initiatives will
be broadened and form part of our consumer offer.
These priorities will be supported by the key enabling
initiatives of developing our people, our culture and our
systems.
Together, these initiatives set an exciting direction for the
business, aimed at sustaining improved financial delivery, growth
and continued modernisation of the business.
Current trading & outlook
Our deliberate strategy of building a large order book has
enabled us to entirely mitigate the impact of the further
restrictions on sales and canvass that came with the third national
lockdown in January 2021. This has meant that despite geographic
and national interruptions we have been able to maintain our
survey, processing, manufacturing and installations operations. As
a result, we have now reduced our order book to a more normalised
level (which is still c.20% higher than the prior year) and further
strengthened our cash position.
During Q1 we have taken the opportunity to improve our customer
service levels, with further investments in call centre staffing
and in resolving the backlog of service issues that were caused by
the first lockdown and the significant supply-chain disruption in
Q3. Our intent is to enter Q2 having put the operational challenges
of 2020 fully behind us as we focus on accelerating the
transformation of the business and delivering improved financial
results.
Clearly the outlook remains uncertain, but I am optimistic that
the progress made by the business will allow us to maximise any
opportunity that comes as the economy reopens. Our intention
remains as before the crisis: to build long term value for
shareholders by consolidating our position as the UK's number 1
choice for replacement windows and doors.
As a result of this encouraging start to the year, the Board
expects 2021 financial performance to be significantly ahead of
market expectations.
Mike Gallacher
Chief Executive Officer
25 March 2021
Financial Review
Financials 2020 2019
----------------
Underlying Non-underlying Total Underlying Non-underlying Total Change
items(1) items(1) in
underlying
%
---------------- ------------
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------- ------------ --------------- --------- ------------ --------------- ----------------- ------------
Revenue 113,191 113,191 126,237 126,237 (10.3)%
------------ --------------- --------- ------------ --------------- ----------------- ------------
Cost of sales (84,732) (84,732) (94,337) (94,337) 10.2%
------------ --------------- --------- ------------ --------------- ----------------- ------------
Gross profit 28,459 28,459 31,900 31,900 (10.8)%
------------ --------------- --------- ------------ --------------- ----------------- ------------
Other operating
expenses(3) (32,057) (1,399) (33,456) (32,018) (2,314) (34,332) (0.0)%
------------ --------------- --------- ------------ --------------- ----------------- ------------
Operating
(loss) (3,598) (1,399) (4,997) (118) (2,314) (2,432) (2,949.2)%
------------ --------------- --------- ------------ --------------- ----------------- ------------
Finance income 1 1 2 2 (50.0)%
------------ --------------- --------- ------------ --------------- ----------------- ------------
(Finance costs (1,161) (1,161) (1,402) (1,402) 17.2%
------------ --------------- --------- ------------ --------------- ----------------- ------------
(Loss) before
taxation(4) (4,758) (1,399) (6,157) (1,518) (2,314) (3,832) (213.4)%
------------ --------------- --------- ------------ --------------- ----------------- ------------
Taxation 1,103 526
------------ --------------- --------- ------------ --------------- ----------------- ------------
(Loss) for the
year (5,054) (3,306)
------------ --------------- --------- ------------ --------------- ----------------- ------------
Basic EPS
(pence
per share) (4.3)p (4.0)p
------------ --------------- --------- ------------ --------------- ----------------- ------------
Diluted EPS
(pence
per share) (4.3)p (4.0)p
------------ --------------- --------- ------------ --------------- ----------------- ------------
Cash and cash
equivalents 11,705 4,435
------------ --------------- --------- ------------ --------------- ----------------- ------------
Borrowings (4,127) (3,991)
------------ --------------- --------- ------------ --------------- ----------------- ------------
Net cash(2) 7,578 444
------------ --------------- --------- ------------ --------------- ----------------- ------------
KPIs FY 2020 FY 2019 Change H2 2020 YOY Change H1 2020 YOY Change
% % %
Revenue GBP000 113.2 126.2 (10.3)% 71.1 15.0% 42.1 (34.7)%
-------- -------- -------- -------- ----------- -------- -----------
Gross margin %(5) 25.1% 25.3% (13)bps 26.3% 165bps 23.1% (271)bps
-------- -------- -------- -------- ----------- -------- -----------
Average Order
Value (GBP inc
VAT) 3,474 3,337 4.1% 3,494 3.6% 3,440 4.1%
-------- -------- -------- -------- ----------- -------- -----------
Average Frame
Price (GBP ex
VAT) 704 678 3.8% 714 3.6% 688 3.0%
-------- -------- -------- -------- ----------- -------- -----------
Frames installed
- units 163,617 190,252 (14.0)% 100,920 10.6% 62,697 (36.6)%
-------- -------- -------- -------- ----------- -------- -----------
Orders installed 39,789 46,412 (14.3)% 24,735 10.5% 15,054 (37.4)%
-------- -------- -------- -------- ----------- -------- -----------
Frames per order 4.11 4.10 0.0% 4.08 0.0% 4.16 1.1%
-------- -------- -------- -------- ----------- -------- -----------
The Group's financial performance measures and KPIs in 2020 were
adversely impacted by the cessation of installation activity for
nine weeks in H1 as a result of the COVID-19 pandemic and lockdown
period.
In the first half of the year, the Group made an underlying
profit before taxation of GBP0.9m for the first two months of the
year before the business entered a temporary lockdown in late March
to the end of May where it incurred losses totalling in excess of
GBP6m.
The second half of the year saw the Group return to
profitability, despite the ongoing disruption and cost of working
in a challenging context and material investment in the Group's
order book which closed the year 83% higher than 2019.
This Financial Review details the changes in the financial
measures of the business across the year within the above context
and draws particular attention to how the revenues and operating
costs changed between the first and second half of the year.
Financial and KPI headlines
-- Revenue declined by 10.3% to GBP113.2m for the full year, the
decrease entirely attributable to the cessation of operations in H1
with Q3 and Q4 revenues increasing versus the prior year by 9.3%
and 20.8% respectively.
-- Frames installed decreased by 14.0% to 163,617, the decline
again fully attributable to the first half disruption.
-- The Group continues to improve average frame price, achieving
a 3.8% increase in the year due to a focus on discount management
and a small annualisation effect of 2019 price increases. This
average price improvement was achieved despite a reduced mix of
higher average-priced composite guard doors which was 7.6% in 2020
compared to 9.2% in 2019.
-- The Group also made changes to its consumer finance portfolio
in the last part of the year which has maintained a strong
promotional finance offering, but which has resulted in a reduction
in finance subsidies of GBP0.8m. This benefit will increase in FY21
when the impact is annualised.
-- In H1, gross profit declined by 41.5% to GBP9.7m and gross
margin percentage reduced by 271bps to 23.1%, which is again
attributable to the volume decline described above although the
impact was partially offset by GBP0.7m of a total GBP1.8m reclaim
under the Government's Coronavirus Job Retention Scheme ('CJRS')
with the remainder included within operating expenses as described
below.
-- H2 gross profit improved versus the prior year by 22.7% to
GBP18.7m with the growth attributable to the increased installation
volumes. Gross margin percentage in the second half increased by
165bps versus H2 2019 to 26.3% due to the combination of a higher
average price per frame as described above and a year on year
reduction in the cost of lead generation (a reduced rate) in the
second half of the year. The second half gross profit and gross
margin percentage improvement would have increased further were it
not for the investment into the closing order book described
above.
-- Underlying other operating expenses(3) for the year were the
same as the prior year. There was a reduction in H1 operating
expenses as a result of no investment in TV advertising and a
GBP1.1m reclaim under the CJRS. H2 operating expenses increased
year on year due to costs associated with many of the Group's
COVID-safe measures - such as PPE and cleaning - coupled with
higher operational capacity costs to support the revenue growth and
to increase our customer-facing headcount.
-- Reported other operating expenses reduced by GBP0.9m (2.6%)
to GBP33.5m as a result of the items described above along with a
year on year reduction in non-recurring costs following completion
of the actions taken as part of the cost reduction initiatives in
2019.
-- Finance costs have decreased year on year as a result of
reduced borrowing costs due to lower utilisation (and thus lower
fees) in relation to the GBP3m revolving credit facility.
-- Underlying (loss) before taxation(4) was GBP(4.8)m for the
year (2019: loss of GBP(1.5)m). As described above, the loss was
generated in H1, totalling GBP(5.1)m, before the Group returned to
profitability in H2.
-- Non-underlying items were GBP1.4m for the period (2019:
GBP2.3m), full details of which are provided on the following pages
of this Financial Review and therefore reported (loss) before
taxation was GBP(6.2)m versus GBP(3.8)m in 2019.
-- Net cash(2) improved to GBP7.6m versus GBP0.4m at the end of
last year. The improved cash position is despite the losses
incurred in the first half of the year and is predominantly the
result of a successful Placing of New Shares in April 2020 which
raised net proceeds of GBP8.2m and the agreed deferral of GBP2.5m
of VAT payments originally payable during the lockdown period which
will be paid in 2021.
(1) See the non-underlying items section in this Financial
Review
(2) Net cash is cash and cash equivalents less borrowings
(3) 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
(4) Underlying (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
(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
which is described in detail below.
Consequently, adjusted measures of underlying other operating
expenses and underlying (loss) before taxation have been presented
as the primary 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. A full breakdown of
these items is shown below. Non-recurring costs are excluded
because they are not expected to repeat in future years. These
costs are therefore not included in the Group's primary 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 the primary performance measures as such
changes year to year would again potentially distort the evaluation
of the Group's performance year to year.
Finally, Commercial Agreement amortisation is also excluded from
the primary 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 the year was GBP113.2m compared to GBP126.2m last
year, representing a decrease of 10.3% for the year as a result of
the cessation of installation activity across late March, April and
the majority of May. The year on year revenue performance up to the
end of February represented year on year growth of 3.4% with Q3 and
Q4 growth of 9.3% and 20.8% respectively which depicts the
improving trajectory either side of the lockdown period.
Frames installed volume represented a similar decline of 14.0%
to 163,617 frames installed compared to 190,252 in the prior year.
The revenue decline reduction was less than this volume decline as
a result of improvements in the following areas:
-- The average frame price increased by 3.8% to GBP704 (2019:
GBP678). The impact of an annualisation benefit of modest list
price increases in 2019 alongside a larger benefit coming from
reduced discount levels were the major drivers of the
improvement.
-- The improvement in the average frame price was also despite a
reduced mix of higher average-priced composite guard doors which
reduced to 7.6% of installed volumes (2019: 9.2%).
-- The above favourable average price gains were further
augmented by a reduction in the finance subsidy costs linked to our
consumer finance offering. These reductions follow a successful set
of changes to our promotional finance portfolio late in 2020 which
generated a GBP0.8m benefit in the second half of the year. The
Group continues to sell over 43% of its products alongside a
consumer finance agreement which represents a flattening of a trend
that has been steadily rising over the last five years.
-- The metric of the average number of frames per order remained
consistent with 2019 which halts the declining trend of the last
two years and follows the rebalancing of mix out of higher-value
composite doors.
-- Finally, the average order value also improved by 4.1% to
GBP3,474. Progress in these operational KPIs remains a critical
area of ongoing focus for the Group as it continues to target an
improving quality of revenue into 2021.
Gross profit
Gross profit decreased by 10.8% to GBP28.5m while the gross
margin percentage declined by (13)bps to 25.1% (2019: 25.3%). In
the first half of the year, t he gross margin percentage reduced by
(271)bps versus the prior period to 23.1% before improving year on
year for the second half of the year by 165bps to 26.3% (H2 2019:
24.7%).
The reduction in installation volumes described above was the
main contributor to the year on year reduction in gross margin and
the dilution of gross margin percentage in H1. The additional
factors behind the trends of first half dilution and subsequent
improvement in gross margin percentage in the second half of the
year were as follows:
-- Prior to the lockdown, the Group was continuing to experience
increased costs per leads generated as a result of continued
competition driving up 'Pay Per Click' and other digital marketing
channel costs. Moving into the middle of the first half, despite
the cessation of installation activities, the Group continued,
albeit on a much-reduced scale, to respond via remote-selling
methods to customer enquiries during the lockdown period. These
enquiries were generated with minimal levels of investment as
compared to spend prior to the lockdown.
-- Following the restart of operations, the Group experienced a
strong consumer response as it stepped up its lead generation
activities across all lead sources and although the costs per lead
increased as volumes grew when compared to the very low levels
during lockdown, these were still lower than the first two months
of the year. The Group's cost to order intake ratio across the
second half was 10.2% lower than H2 2019.
-- This beneficial rate effect was more than offset by the Group
driving order intake levels that exceeded the level of installation
activity which resulted in an order book at the year end that was
83% ahead of the prior year. This investment diluted the gross
margin percentage across the year.
-- Aside from the above, gross margin in the first half was
impacted favourably by a GBP0.7m reclaim under the CJRS scheme from
the UK Government to contribute to the costs of the Group's
furloughed factory employees.
-- Despite this assistance, the Group continued to incur some
fixed costs in H1 that could not be fully mitigated during the
lockdown such as leased equipment costs. In addition, as the
business restarted its factory in late May, the initial few weeks
of operation were part of a staged return to work plan which
inevitably resulted in a lower level of productivity than normal
whilst COVID-secure ways of working were fully embedded. Both of
these factors diluted H1 gross margin.
-- In the second half of the year, the growth in installation
revenues, the reduction in finance subsidies and the continued
improvement in average price per frame increased the gross margin
percentage above that of 2019.
-- Gross margin in H2 would have recovered more strongly were it
not for the lead generation effect described previously alongside
the Group investing in recovering its warranty and service backlog
that built up during the lockdown period. This investment is
expected to carry on in the early part of 2021 before reducing to
pre-COVID levels in the latter stages of the year.
Underlying other operating expenses
Underlying other operating expenses were consistent versus 2019
across the full year.
-- There were reductions in the amount invested in TV
advertising of GBP0.7m which partially offset the increased
investment in digital media lead generation channels referred to
above.
-- In addition to the amount received and included within gross
margin, the Group also received GBP1.1m in the first half of the
year for its CJRS reclaim for furloughed staff costs that are
expensed within underlying other operating expenses. Half of the
amount reclaimed was for staff furloughed in April with the
remaining half spread across May and June. This reducing reclaim
profile after April reflects the gradual return to work of
furloughed staff through the second half of May with 60% of staff
returned to work by the end of May and 93% by the end of June.
-- Alongside the furlough support, the benefits of the 2019 cost
reduction activities reduced H1 operating expenses versus H1 2019
by a further GBP1.0m. However, as the Group moved into the second
half of the year, as described in the CEO's statement, the high
levels of demand resulted in the Group taking steps to increase its
operational capacity. This equated to an increased cost in the
second half of the year of GBP0.5m as the Group re-opened a
previously-closed depot in Crawley and a new installation depot in
Nottingham alongside growing headcount across surveying, order
processing, installations and customer services.
-- The Group also incurred bonus costs of GBP1.0m in relation to
the H2 bonus scheme that was introduced to incentivise a rapid
restart of the business, delivering profit alongside the building
of a strong order book.
-- IT licensing and infrastructure costs increased by GBP0.3m
versus the prior year as the rollout of technology across the Group
continued, most notably the implementation of Office 365 and
Microsoft Teams which proved crucial to underpin remote working
during the lockdown and to enable a phased return to office working
after restrictions were lifted.
-- Finally, costs associated with the Group's response to
implementing COVID-19 safeguards including enhanced cleaning
routines for offices, the provision of Personal Protective
Equipment ('PPE') to the workforce and providing safety screens
around workstations totalled GBP0.4m in the year.
Underlying (loss) before taxation
Underlying (loss) before taxation was GBP(4.8)m (2019: loss of
GBP(1.5)m), although profitability was achieved either side of the
lockdown period as described above. This loss is before the
non-underlying items described below.
Non-underlying items
A total of GBP1.4m has been separately treated as non-underlying
items for the year (2019: GBP2.3m). The prior period included
GBP1.8m of costs related to restructuring activities and asset
impairment as part of phase two of the Turnaround Plan.
The current year's costs consist of GBP0.5m of non-recurring
costs (2019: GBP1.9m), a GBP0.4m shared based payment charge (2019:
GBP0.0m) and GBP0.5m (2019: GBP0.5m) of Commercial Agreement
(Intangible Asset) amortisation. The table below shows the full
breakdown of these items:
Non-underlying Items 2020 2019
---------------------------------------------------
GBP000 GBP000
--------------------------------------------------- --------- ------------
Holiday pay accrual 470 -
--------- ------------
Litigation costs 74 -
--------- ------------
Restructuring and operational costs 266 1,058
--------- ------------
Impairment of right-of-use assets - 692
--------- ------------
Modification of right-of-use assets and
liabilities 5 -
--------- ------------
Reversal of prior year impairment of right-of-use
assets (292) -
--------- ------------
Commercial Agreement service fee - (13)
--------- ------------
IT project impairment - 113
--------- ------------
Total non-recurring costs (note 5) 523 1,850
--------- ------------
Equity-settled share based payment charge 424 12
--------- ------------
Commercial Agreement amortisation 452 452
--------- ------------
Total non-underlying items 1,399 2,314
--------- ------------
The holiday pay accrual of GBP0.5m has arisen as a result of the
impact of the shutdown of operations and resultant extension of
2020 leave entitlement to the end of 2021 which is in line with the
Government's recommendation. This has significantly increased the
level of deferred holiday entitlement at the year end which has
been recognised as an accrual and which will reverse in full in
2021. This item has been excluded from the underlying performance
measures to ensure performance of the business is not skewed by
both the expense in 2020 or its subsequent full release in
2021.
Litigation costs of GBP0.1m are expenses incurred as a result of
an ongoing legal dispute between the Group and an ex-agent. These
costs were predominantly legal advisor's fees.
In 2020 and 2019, the Group incurred restructuring and
non-recurring operational costs of GBP0.3m and GBP1.1m respectively
which reduced the Group's overheads in some areas. In addition, in
2019, the Group recognised an impairment of right-of-use assets of
GBP0.7m following closure of an installation branch and a sales
office in the period. The installation branch was re-opened in 2020
as the Group increased its capacity levels and consequently,
GBP0.3m of the prior year's impairment charge has been
reversed.
The receipts in relation to the CJRS described earlier in this
Financial Review have not been classified as a non-recurring item
on the basis that these partially offset the wage costs of
unproductive labour in the lockdown period.
In the prior year, the Commercial Agreement service fee costs
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.
Subject to satisfying the strict terms of the agreement, the
consideration took the form of an allotment by Safestyle to Mr
Misra of four million ordinary shares of 1 pence each in the
capital of the Group and a payment of cash consideration of between
GBPnil and GBP2.0 million.
The Commercial Agreement service fee was originally assessed in
2018 at a GBP1.0m fair value as the consideration payable under the
terms of the Commercial Agreement that was attributed to services
received in 2018. Following conclusion of the 2019 year, the value
of the services received was confirmed based on the actual
performance in 2019, and the provision for consideration to be paid
was reduced by GBP13k to GBP987k. This amount was paid and four
million ordinary shares of 1 pence each were issued in October 2020
in accordance with this agreement.
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 5 years which matches the term of the
non-compete arrangement.
Further detail of all non-recurring costs is contained in note
5.
The items classified as non-recurring costs on the Consolidated
Income Statement, the share based payment charge 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 (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 a loss of (4.3)p
compared to a loss of (4.0)p for the prior year. The basis for
these calculations is detailed in note 6.
Net cash and cashflow
A key aspect of the Group's response to the COVID-19 pandemic to
mitigate the impact on the Group's liquidity as a result of the
cessation of revenue-driving activity was to raise funds via a
share Placing.
The Placing was completed at the end of April with net proceeds
of GBP8.2m raised. Alongside this injection of additional
liquidity, the Group also secured a two year extension to its
existing borrowing facilities until October 2023. Covenant waivers
for the lockdown period and reductions in covenant targets for the
remainder of the facility were also secured.
At the end of the year, net cash was GBP7.6m (2019: GBP0.4m).
GBP4.5m of the Group's GBP7.5m facility, being that of the term
loan, remains fully 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 GBP3.4m (2019:
GBP4.5m). This inflow was despite the losses in the year as a
result of favourable working capital movements. The most
significant increase is attributable to the agreed deferral of
payments originally due in May 2020 to HRMC totalling GBP2.5m. This
deferral will be paid from March 2021 in line with HMRC's deferral
repayment scheme. Since the restart of operations, the Group has
not continued to defer any further tax payments owed to HMRC and,
with the exception of this deferred amount, continues to pay all
liabilities as they fall due.
The other working capital benefit within operating cashflows is
driven by an increase in payments on account for customer deposits
received in line with the growth in the order book of GBP2.6m. This
effect has been partially offset by outflows driven by increases in
buffer stock levels for PVCu profile which have been built as part
of mitigation against any potential supply chain disruption.
Capital expenditure of GBP0.6m increased from GBP0.4m in 2019.
Some capital expenditure was deferred as part of the Group's
response to the pandemic, but the Group continued with its
investment programme to replace and upgrade IT hardware.
After the GBP8.2m proceeds in relation to the share Placing and
the lease payments of GBP3.7m on leased assets (2019: GBP3.6m), net
cash inflow in the period was GBP7.3m (2019: GBP0.3m).
Dividends
The Board does not propose a final dividend for the year (2019:
GBPnil) which will underpin the maintenance of suitable liquidity
levels in the immediate future. The Board expects to revisit its
dividend policy later in 2021 assuming that the Group has returned
to a consistent delivery of profitability.
Rob Neale
Chief Financial Officer
25 March 2021
Consolidated income statement for the year ended 3 January
2021
2020 2019
Note GBP000 GBP000
Revenue 3 113,191 126,237
Cost of sales (84,732) (94,337)
Gross profit 28,459 31,900
Expected credit losses expensed (890) (477)
Other operating expenses (1) (32,566) (33,855)
Operating (loss) (4,997) (2,432)
Finance income 1 2
Finance costs(2) (1,161) (1,402)
Net finance costs (1,160) (1,400)
(Loss) before taxation (6,157) (3,832)
Underlying (loss) before taxation before non-recurring costs, Commercial Agreement
amortisation
and share based payments (4,758) (1,518)
Non-recurring costs 5 (523) (1,850)
Commercial Agreement amortisation (452) (452)
Share based payments (424) (12)
(Loss) before taxation (6,157) (3,832)
----------------------------------------------------------------------------------- ------ --------- ---------
Taxation 1,103 526
(Loss) for the year (5,054) (3,306)
========= =========
Basic EPS (pence per share) 6 (4.3p) (4.0p)
Diluted EPS (pence per share) 6 (4.3p) (4.0p)
(1) Other operating expenses includes GBP523k of non-recurring items, GBP452k of Commercial
Agreement amortisation and GBP424k of share based payments. Adjusting for these gives underlying
other operating expenses of GBP31,167k (2019: GBP31,541k). See Financial Review for details.
(2) Finance costs includes GBP487k of lease related interest costs (see right-of-use assets
and liabilities note).
There is no other comprehensive income for the period.
All operations were continuing throughout all periods.
2019 represents the year ended 29 December 2019.
Consolidated statement of financial position as at 3 January
2021
2020 2019
Note GBP000 GBP000
Assets
Intangible assets - Trademarks 504 504
Intangible assets - Goodwill 20,758 20,758
Intangible assets - Software 850 1,122
Intangible assets - Other 1,284 1,736
Property, plant and equipment 11,475 12,633
Right-of-use assets 10 8,004 6,012
Deferred taxation asset 1,980 886
Non-current assets 44,855 43,651
--------- ---------
Inventories 4,545 2,725
Trade and other receivables 7 5,663 3,999
Cash and cash equivalents 11,705 4,435
Current assets 21,913 11,159
--------- ---------
Total assets 66,768 54,810
========= =========
Equity
Called up share capital 9 1,368 828
Share premium account 89,495 81,845
Profit and loss account 5,347 10,009
Common control transaction reserve (66,527) (66,527)
Total equity 29,683 26,155
--------- ---------
Liabilities
Trade and other payables 8 21,929 15,384
Lease liabilities 10 2,524 2,482
Deferred taxation liability - 17
Provision for liabilities and charges 1,118 990
Current liabilities 25,571 18,873
--------- ---------
Provision for liabilities and charges 1,801 1,891
Lease liabilities 10 5,586 3,900
Borrowings 4,127 3,991
Non-current liabilities 11,514 9,782
--------- ---------
Total liabilities 37,085 28,655
========= =========
Total equity and liabilities 66,768 54,810
========= =========
2019 represents the financial position at 29 December 2019.
Consolidated statement of changes in equity for the year ended 3
January 2021
Share Share premium Profit and Common control Total equity
capital loss account transaction
reserve
GBP000 GBP000 GBP000 GBP000 GBP000
Balance at 31 December
2018 828 81,845 13,347 (66,527) 29,493
Total comprehensive (loss)
for the period (3,306) (3,306)
Transactions with owners
recorded directly in
equity:
Deferred taxation asset
taken to reserves - - (44) - (44)
Equity settled Commercial
Agreement - - 12 - 12
Balance at 29 December
2019 828 81,845 10,009 (66,527) 26,155
---------------- ---------------- ---------------- ---------------- ----------------
Total comprehensive (loss)
for the period - - (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
================ ================ ================ ================ ================
Consolidated statement of cash flows for the year ended 3
January 2021
2020 2019
Note GBP000 GBP000
Cash flows from operating activities
(Loss) for the year (5,054) (3,306)
Adjustments for:
Depreciation of plant, property and
equipment 1,559 1,666
Depreciation of right-of-use assets 10 3,745 4,322
Amortisation of intangible fixed
assets 880 904
Reversal of impairment loss 10 (292) -
Modification of right-of-use assets
and liabilities 10 5 -
Finance income (1) (2)
Finance expense 1,161 1,402
IT project impairment - 113
Equity settled share based payments
charge 424 12
Taxation (credit) (1,103) (526)
----- --------- --------
1,324 4,585
(Increase) in inventories (1,820) (309)
(Increase) / decrease in trade and
other receivables (1,664) 479
Increase in trade and other payables 6,545 98
Increase / (decrease) in provisions 38 (1,430)
IFRS 16 prepaid lease costs - (413)
IFRS 16 onerous leases - 67
----- --------- --------
3,099 (1,508)
Other interest (paid) (986) (1,079)
----- --------- --------
Taxation received - 2,540
Net cash inflow from operating activities 3,437 4,538
----- --------- --------
Cash flows from investing activities
Acquisition of property, plant and
equipment (401) (86)
Interest received 1 2
Acquisition of intangible fixed assets (156) (341)
Net cash (outflow) from investing
activities (556) (425)
Cash flows from financing activities
Proceeds from issue of share capital 8,500 -
Transaction costs relating to the (350) -
issue of share capital
Proceeds from loans and borrowings 2,000 2,500
Repayment of borrowings (2,000) (2,500)
Transaction costs relating to loans
and borrowings (39) (235)
Payment of lease liabilities 10 (3,722) (3,606)
Net cash inflow / (outflow) from
financing activities 4,389 (3,841)
Net inflow in cash and cash equivalents 7,270 272
Cash and cash equivalents at start
of year 4,435 4,163
Cash and cash equivalents at end
of year 11,705 4,435
===== ========= ========
2019 represents the year ended 29 December 2019.
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 2020 or 2019
but is derived from those accounts. Statutory accounts for 2019
have been delivered to the registrar of companies with the Jersey
Financial Statements Commission (JSFC), and those for 2020 will be
delivered in due course. Grant Thornton UK LLP has reported on
those accounts. Their report for 2020 was (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. KPMG LLP has reported on the 2019
accounts. Their report was (i) unqualified, (ii) contained a
material uncertainty in respect of going concern to which the
auditor drew attention by way of emphasis without modifying 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 Basis of preparation
The Group's financial statements for the financial year 2020
("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
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
4.
(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.
-- Definition of a Business (Amendments to IFRS 3)
-- Definition of Material (Amendments to IAS 1 and IAS 8)
-- Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7)
-- Amendments to References to the Conceptual Framework (Various Standards)
-- COVID-19 Rent Related Concessions (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):
-- 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)
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 3 January 2021
for the current reporting year and 29 December 2019 for the prior
year. All references made throughout these accounts for the
financial year 2020 are for the period 30 December 2019 to 3
January 2021 and references to the financial year 2019 are for the
period 31 December 2018 to 29 December 2019.
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 (loss) of GBP(5.1)m in the financial
year 2020 (2019: (loss) of GBP(3.3)m) and had net current
liabilities of GBP(3.7)m at the end of financial year 2020 (2019:
net current liabilities of GBP7.7m). As detailed in the Financial
Review, the Group incurred losses in the first half of the year due
to the temporary cessation of operations as a result of the
COVID-19 pandemic. The Group returned to profit in the second half
of the year whilst at the same time building a record level
installation pipeline.
The Group obtained additional shareholder funding in April 2020
through the raising of GBP8.2m via a share placing which
strengthened the Group's cash position during the lockdown period
and facilitated a return to profitability in H2 2020. The Group
also has banking facilities which consist of a GBP4.5m term loan
and a GBP3.0m revolving credit facility. This facility matures in
October 2023 having been extended by two years during 2020. The
finance agreement contains certain covenants, including a minimum
EBITDA to be tested on a cumulative monthly basis which was revised
during 2020 and included a covenant waiver for the loss-making
period in H1 2020. The subsequent minimum EBITDA for covenant
compliance was also reduced for the remainder of 2020 and for all
subsequent years. The covenant target for FY23 is lower than the
target originally agreed for FY21. By the end of financial year
2020, covenant headroom had increased significantly to GBP1.9m
which has further increased in the first 2 months of FY21. As at
the end of financial year 2020, the GBP4.5m term loan was fully
drawn on the facility, while the revolving credit facility was
unutilised. This remains the case at the date of signing the
accounts. In addition, the Group's net cash position was GBP7.4m at
the end of February 2021 (February 2020: net cash of GBP0.1m).
The Directors have prepared forecasts covering the period to
December 2022. The forecasts include a number of assumptions in
relation to sales volume, pricing, margin improvements and overhead
investment. The Directors believe they have taken a cautious
approach to the forecast for 2021 with the core assumptions for
order intake representing a decline of 7.4% versus the levels
achieved in H2 2020. However, revenues are forecast to grow,
facilitated by the strong order book the Group carried into the
start of FY21 which, along with a number of margin-improving
initiatives, forecasts considerable headroom above EBITDA covenant
targets alongside growth in net cash and liquidity.
Whilst the Group's trading and cash flow forecasts have been
prepared using these assumptions, the operating environment
presents a number of challenges which could negatively impact the
actual performance achieved. Excluding the potential impact of
COVID-19 which is considered separately below, these risks include,
but are not limited to, achieving forecast levels of order intake,
the impact on customer confidence as a result of general economic
conditions, achieving forecast margin improvements and the
director's ability to implement cost saving initiatives in areas of
discretionary spend where required. If future trading performance
significantly underperforms the Group's forecasts, this could
impact the ability of the Group to comply with its covenant tests
over the period of the forecasts.
The Group's cash flow forecasts and projections, taking account
of reasonably possible changes in trading performance excluding the
potential impact of COVID-19 (which is considered below), offset by
mitigating actions within the control of management including
reductions in areas of discretionary spend, show that the Group
will be able to operate within the level of its facilities and
associated covenants for the period to at least the end of 2022.
The Group has started the year well, with revenues and profits
significantly ahead of the pre-lockdown period in FY20 which the
directors believe further supports this basis of preparation.
The uncertainty as to the future impact on the Group of the
COVID-19 outbreak has been separately considered as part of the
directors' consideration of the going concern basis of preparation.
As described in the CEO's Statement and Financial Review, the
COVID-19 pandemic had a material impact on the Group's performance
in H1 2020 which required the directors to take swift actions to
protect the business and increase its cash and liquidity reserves.
These actions were successful and the Group restarted operations
quickly and successfully in May 2020 and since then has been
operating safely and profitably despite the impact of ongoing
restrictions that have affected normal ways of working.
The Directors have incorporated their considerations regarding
the continuing impact of potential COVID-19 restrictions on the
Group in their scenario modelling although also note that these
restrictions are reducing as the successful vaccination programme
gathers pace. In preparing this analysis, a number of scenarios
were modelled which included a 26% drop in written sales versus H2
20 performance levels. In this scenario, mitigating actions within
the control of management, including reductions in areas of
discretionary spend have been modelled with the result being that
despite this reduction in written sales, the Group would grow
covenant headroom in FY21 and increase its net cash balance.
In March 2020, the Directors highlighted it was difficult to
predict the overall outcome and impact of COVID-19 and the duration
of disruption to written and fitted sales activity. The Directors
now highlight the current and improving operating context which,
alongside the outcomes in the scenarios modelled, underpin the
Director's conclusion that the risk of the liquidity requirements
of the business exceeding the total quantum of facilities available
are now deemed remote.
Based on the above indications and work prepared, the Directors
believe that it is appropriate to prepare the financial statements
on a going concern basis.
3 Summary of significant accounting policies
Revenue recognition
The Group earns revenue from the design, manufacture, delivery
of, 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-glaze d 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 or 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.
Recycling Income
The Group recognises the income from the sale of materials for
recycling. The income is recognised when the materials are
collected by the recycling company which represents the completion
of the performance obligation.
Government grants
Grants under the Coronavirus Job Retention Scheme (CJRS) that
compensate the Group for expenses incurred are recognised in profit
or loss in staff costs on a systematic basis in the periods in
which the expenses are recognised.
4 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 GBP1,980k 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 10% 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 10%.
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.
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 guanratee 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.
Expected credit loss for trade receivables
The Group assesses, on a forward-looking basis, the expected
credit losses associated with its trade receivables. This is based
on historical experience, external indicators and forward - looking
information to calculate the expected credit losses.
5 Non-recurring costs
2020 2019
GBP000 GBP000 Note
Holiday pay accrual 470 - a
Litigation Costs 74 - b
Restructuring and operational costs 266 1,058 c
Impairment of right-of-use assets - 692 d
Modification of impairment of right-of-use assets 5 - e
Reversal of prior year impairment of right-of-use assets (292) - f
Commercial Agreement service fee - (13) g
IT project impairment - 113 h
Total non-recurring costs 523 1,850
============== ===================
a) The holiday pay accrual has arisen as a result of the impact
of the shutdown of operations and resultant extension of 2020 leave
entitlement to the end of 2021. This has significantly increased
the level of deferred holiday entitlement at the year end which has
recognised as an accrual and which will reverse in full in 2021.
This item has been excluded from the underlying performance
measures to ensure performance of the business is not skewed by
both the expense in 2020 or its subsequent full release in
2021.
b) Litigation costs are 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.
c) 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.
d) Impairment of right-of-use asset costs relate to vacating
properties recognised as assets under IFRS 16 where the lease
commitment extended beyond 2019.
e) Modification of right-of-use assets and liabilities relates
to the closure of properties identified as right-of-use assets and
liabilities during the period.
f) 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.
g) Commercial Agreement service fee was the assessed fair value
of the consideration payable under the terms of the Commercial
Agreement that was attributed to services received. The provision
was adjusted based on the actual performance in 2019 and a GBP13k
reduction to the original provision was made.
h) 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.
6 Earnings per share
2020 2019
Basic earnings per ordinary share (pence) (4.3) (4.0)
Diluted earnings per ordinary share (pence)* (4.3) (4.0)
a) Basic earnings per share
The calculation of basic earnings per share has been based on the following (loss) attributable
to ordinary shareholders and weighted-average number of shares outstanding.
i) (Loss) attributable to ordinary shareholders (basic)
2020 2019
GBP000 GBP000
(Loss) attributable to ordinary shareholders (5,054) (3,306)
============== ==============
ii) Weighted-average number of ordinary shares (basic)
No. of shares No. of shares
'000 '000
In issue during the year 117,749 82,809
============== ==============
b) Diluted earnings per share
*Due to net loss for the period, dilutive loss per share is the same as
basic.
7 Trade and other receivables
2020 2019
GBP000 GBP000
Trade receivables (net of ECL allowance) 2,111 1,702
Other receivables 492 16
Prepayments 3,060 2,281
5,663 3,999
-------- --------
Contractual payment terms with the Group's customers are
typically zero days. Payment is due upon installation. The above
receivables are shown net of the ECL allowance.
2020 2019
GBP000 GBP000
Opening provision against trade receivables 1,072 1,206
Provision utilised in year (245) (611)
Expensed in year 890 477
Closing provision for trade receivables 1,717 1,072
-------- --------
8 Trade and other payables
2020 2019
GBP000 GBP000
Trade payables 7,036 6,675
Other taxation and social security costs 5,563 2,167
Other creditors and deferred income 5,025 3,197
Accruals 4,305 3,345
21,929 15,384
-------- --------
9 Share capital Share
Capital
Allotted, issued and fully paid GBP000
Balance at 29 December 2019 828
---------
50,000,000 Ordinary Shares @ 1p each
on 28 April 2020 500
4,000,000 Ordinary Shares @ 1p each
on 23 October 2020 40
Balance at 3 January 2021 1,368
---------
10 Right-of-use assets and lease liabilities
Motor
Properties Vehicles Equipment Total
----------------- ------------------- ---------------------- -----------------
Assets
At 31 December 2018 6,088 3,360 293 9,741
Additions 219 374 - 593
Depreciation (1,140) (2,540) (155) (3,835)
Impairment (487) - - (487)
At 29 December 2019 4,680 1,194 138 6,012
Additions 1,265 4,376 251 5,892
Depreciation (1,104) (2,457) (184) (3,745)
Reversal of impairment 292 - - 292
Modification (363) (79) (5) (447)
At 3 January 2021 4,770 3,034 200 8,004
Liabilities
At 30 December 2019 5,046 1,193 143 6,382
Modification (367) (75) - (442)
Payment (1,371) (2,639) (199) (4,209)
Additions 1,265 4,376 251 5,892
Interest 326 141 20 487
At 3 January 2021 4,899 2,996 215 8,110
Reconciliations of movements of liabilities to cash
flows arising from financial activities
At 30 December 2019 5,046 1,193 143 6,382
Changes from financing
cash
flows
Payment of lease
liabilities (1,045) (2,498) (179) (3,722)
Total changes from
financing
cash flows (1,045) (2,498) (179) (3,722)
----------------------- ----------------- ------------------- ---------------------- -----------------
Other changes
New leases 1,265 4,376 251 5,892
Lease modification (367) (75) - (442)
Interest expense 326 141 20 487
Interest paid (326) (141) (20) (487)
Total
liability-related
other
changes 898 4,301 251 5,450
----------------------- ----------------- ------------------- ---------------------- -----------------
At 3 January 2021 4,899 2,996 215 8,110
----------------------- ----------------- ------------------- ---------------------- -----------------
Liabilities -
classification
Motor
Properties Vehicles Equipment Total
Current (<1 year) 1,263 1,145 116 2,524
Long term (>1 year) 3,636 1,851 99 5,586
----------------- ------------------- ---------------------- -----------------
4,899 2,996 215 8,110
----------------- ------------------- ---------------------- -----------------
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 GBP4,209k. This comprises the payment of lease
liabilities of GBP3,722k and the interest paid of 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.
11 Contingent liability
The Group uses the services of a large number of self-employed
individuals for marketing, sales, surveying and installation
purposes. As disclosed last year, the Group is currently involved
in a compliance review by HMRC in respect of the employment status
of these individuals. This review has been ongoing for over three
years although there has been no contact from HMRC in over a year
on this matter. The Group has operated this self-employed model
consistently for a number of years and there has been no material
change to the underlying business model during this time. The Group
continues to monitor developments in legislation and case law and
has sought professional advice to ensure the rules are being
applied correctly. The Group believes that its approach in this
area is comparable with many other companies operating in this
industry and wider sector where the use of selfemployed agents and
contractors is the primary source of specialised resource.
Furthermore, the Group is aware that HMRC has previously assessed
some of its self-employed agents and has recovered unpaid taxes
from these individuals on that basis. The Group will continue to
work with HMRC to respond to any further queries and believes that
it has followed professional advice and applied the requirements
diligently.
Although there has been no communication received on this matter
from HMRC in the last 12 months, the Group will continue to treat
this compliance review as an ongoing and open matter. Whilst this
remains open, the Group acknowledges that there is a potential risk
of employee status findings by HMRC in respect of one or more
groups of self-employed workers, however the Group continues to
believe that the chance of this is unlikely based on the facts and
circumstances set out above. It continues to be impracticable to
indicate any potential financial impacts of any status rulings at
this time.
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END
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(END) Dow Jones Newswires
March 25, 2021 03:00 ET (07:00 GMT)
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