TIDMFA.

RNS Number : 7194A

FireAngel Safety Technology Group

27 September 2022

27 September 2022

FireAngel Safety Technology Group plc

('FireAngel', the 'Group' or the 'Company')

Interim results

FireAngel (AIM: FA.), one of Europe's leading developers and suppliers of home safety products, announces its unaudited interim results for the six months ended 30 June 2022 ('H1 2022' or the 'period').

Financial highlights

 
      --   Revenue up 15% to GBP25.6 million (H1 2021: GBP22.2 million) 
            ahead of the Board's expectations as disclosed in the 
            Company's H1 trading update released on 27 July 2022. 
            This is against a backdrop of macro supply issues which 
            restricted a much-improved performance. 
      --   Gross profit up 8% to GBP5.6 million (H1 2021: GBP5.2 
            million) 
      --   Gross margin at 21.9% (H1 2021: 23.5%) including GBP1.6m 
            of exceptionally high purchase price variance costs ("PPV") 
            to secure components 
      --   Adjusted gross margin(1) before the exceptionally high 
            PPV costs for securing components of GBP1.6m would have 
            been 28.2% (H1 2021: 24.3%) 
      --   Underlying operating loss(2) increased by 22% to GBP1.8 
            million (H1 2021: GBP1.4 million) which was particularly 
            impacted by the additional GBP1.4 million PPV 
      --   Underlying LBITDA(3) of GBP0.1 million (H1 2021: underlying 
            EBITDA(3) GBP0.2 million) 
      --   Underlying loss before tax of GBP1.7 million (H1 2021: 
            loss before tax GBP1.5 million) 
      --   Capitalised product development and production set up 
            costs of GBP0.8 million (H1 2021: GBP1.3 million) 
      --   Inventory at 30 June 2022 of GBP4.7 million (30 June 2021: 
            GBP4.9 million) 
      --   Net debt (before lease obligations) at 30 June 2022 materially 
            better than expectations at GBP3.8 million (30 June 2021: 
            GBP2.2 million net cash; 31 December 2021: GBP0.1 million 
            net cash) which comprised cash of GBP0.7 million, debt 
            of GBP3.1 million and drawings under the Company's invoice 
            finance facility of GBP1.4 million (with a further GBP4.1 
            million available to be drawn down) 
      --   Net debt (before lease obligations) at 23 September 2022 
            of GBP3.9 million which comprises cash of GBP0.1million, 
            debt of GBP3.0 million and drawings under the Company's 
            invoice finance facility of GBP1.8 million (with a further 
            GBP3.0 million available to be drawn down on) 
 

(1) Adjusted gross margin before the exceptionally high PPV costs for securing components of 28.2% is the gross margin before PPV of GBP1.6 million; prior to 2021, PPV had minimal impact on the Company (H1 2021: gross margin before the PPV costs for securing components is the gross margin before PPV of GBP0.2 million)

(2) Underlying operating loss of GBP1.8 million in H1 2022 is before unaudited share-based payments charge of GBP0.1 million (H1 2021: GBP1.4 million before a share-based payments charge of GBP0.1 million)

(3) Underlying LBITDA of GBP0.1 million in H1 2022 stated before unaudited share-based payments charge of GBP0.1 million (H1 2021: underlying EBITDA of GBP0.2 million stated before unaudited share-based payments charge of GBP0.1 million)

Business and operational highlights

 
      --   Both half year revenue and underlying gross profit were 
            the highest since H1 2017 
      --   Adjusted EBITDA(4) o f GBP1.5 million ( excluding the 
            exceptionally high PPV) (H1 2021: GBP0.3 million) - the 
            highest since H1 2017 
      --   Q2 2022 sales of 1.4 million units as supply constraints 
            eased, up 40% from 1 million units in Q1 2022, was the 
            highest volume per quarter since Q4 2019 
      --   International sales, up 55% to GBP8.4 million (H1 2021: 
            GBP5.4 million), the highest for a first half year since 
            2017, benefitted from legislation in Benelux. In the period, 
            Benelux achieved the highest sales in that region in its 
            history 
      --   Techem's selection of FireAngel's CO sensor, which will 
            now be incorporated in the new generation smoke alarm 
            , materially enhances the future value of this partnership 
 

(4) Adjusted EBITDA of GBP1.5m is underlying LBITDA of GBP0.1 million stated before the exceptionally high PPV costs for securing components of GBP1.6 million; prior to 2021, PPV had minimal impact on the Company (H1 2021: adjusted EBITDA of GBP0.3m is underlying EBITDA of GBP0.1 million stated before the PPV costs for securing components of GBP0.2 million)

Outlook

 
      --   The Company is EBITDA positive in the year to date (with 
            its historically strongest trading quarter to come) and 
            expected to be cash generative in H2 2022 and expects 
            further positive cash generation in 2023 
      --   The Company expects to deliver its best full year performance 
            since 2017 when the Company's results were partially fuelled 
            by demand driven by the impact of German legislation 
      --   Revenue for the full year expected to be towards the top 
            end of market expectations 
      --   However, the impact of foreign exchange and inflation 
            means the Company will not overcome those headwinds at 
            the margin level, which will result in EBITDA for the 
            full year being materially below market expectations and 
            to be between break even and GBP1.5m 
      --   H2 is traditionally the Company's strongest half and further 
            supports the expansion of revenue and profit (before any 
            unusual exchange rates movements) 
      --   The Board's actions combined with continued market demand 
            means FireAngel continues to expect further financial 
            improvement in 2023, including enhanced cash generation 
 

John Conoley, Executive Chairman of FireAngel, commented :

"I am delighted by the revenue performance and the continuing success of our margin improvement activities. Our execution so far this year has largely conformed to our plans which delivered the expected underlying margin improvement before the combined impact of adverse currency movement and inflation. While the circumstances outside our control have been particularly frustrating, the Board expects 2022 to demonstrate the first proof that we have turned the Company around with more still to come."

For further information, please contact:

FireAngel Safety Technology Group plc 0247 771 7700

John Conoley, Executive Chairman

Zoe Fox, Chief Finance Officer

Shore Capital (Nominated Adviser & Joint Broker) 0207 408 4050

Tom Griffiths/David Coaten

Singer Capital Markets (Joint Broker) 0207 496 3000

Rick Thompson/Alex Bond

Houston (Financial PR) 0204 529 0549

Kate Hoare/Joe Burgess

Executive Chairman's Statement

Overview

I am pleased with the resilience shown by the Company in the first half of the year. As expected, the Company's underlying financial performance in H1 2022 showed a material improvement, resulting in it being the best half year revenue performance since 2017 and ahead of Board expectations. While we expect our performance in H2 2022 should lead to revenue for the year ending 31 December 2022 ("FY2022") being at the top end of market expectations, the impact of foreign exchange and inflation on our input costs mean that we will not overcome all those headwinds at the margin level which will result in profit for FY2022 being materially below market expectations. FY2022 EBITDA is expected to be between break even and GBP1.5 million.

H1 2022 was another period marred by external macroeconomic factors, including the war in Ukraine, ongoing lockdowns in China, global supply chain issues, widespread cost inflation, and the availability of skilled labour, which have all been, and remain, a challenge.

Whilst the Company is not immune from the impact of these factors on its day-to-day operations, the Board's continued focus on careful and prudent improvement to our operations and supply chains has helped mitigate these challenges somewhat. This has left the Group better positioned with its supply chain as we began to see an easing in related disruption that has been a constant issue facing the Company over the last couple of years. This is demonstrated in the 1.4 million products that the Company sold in Q2 2022, being 40% more than it sold in Q1 2022. The Company executed price rises to mitigate inflation which began to ease this issue from late Q2 2022. A further round of price rises will take effect during Q4 2022 and Q1 2023 offering further mitigation against inflation and currency fluctuations.

The Company also continued to make progress with its strategically important project alongside its partner Techem Gmbh ("Techem") , a leading service provider for green and smart buildings and a major supplier of technical solutions to the European rental market. As part of the agreement, FireAngel is working to develop a new generation smoke alarm primarily for the German market. Techem has also selected the FireAngel CO sensor to be incorporated exclusively into the new alarm, which is expected to significantly increase the medium-term financial opportunity for the Company.

I am proud of the Company and of its staff for their achievements so far this year. Our resilience in the face of immense external challenges provides the Board with confidence in our ability to deliver an improved second half performance, which we are on track to achieve.

Financial performance

Revenue split between the Group's business units was as follows:

 
                                                Unaudited                        Unaudited 
                                         Six months ended    Six months ended 30 June 2021        Change 
                                             30 June 2022 
 Revenue                                           GBP000                           GBP000    GBP000       % 
-------------------------------------  ------------------  -------------------------------  --------  ------ 
  UK Trade                                          4,047                            5,187   (1,140)   (22%) 
  UK Retail                                         7,157                            8,382   (1,225)   (15%) 
  UK Fire & Rescue Services ("F&RS")                1,575                            1,488        87      6% 
  UK Utilities                                      1,620                              757       863    114% 
 ------------------------------------  ------------------  -------------------------------  --------  ------ 
  Total sales in the UK                            14,399                           15,814   (1,415)    (9%) 
  International                                     8,404                            5,434     2,970     55% 
  Techem                                            1,698                              174     1,524    876% 
  Pace Sensors                                      1,055                              799       256     32% 
 ------------------------------------  ------------------  -------------------------------  --------  ------ 
 Total revenue                                     25,556                           22,221     3,335     15% 
-------------------------------------  ------------------  -------------------------------  --------  ------ 
 

From 1 January 2022, certain customers previously reported within the UK Trade business unit are now reported through UK Retail & UK Utilities. The 2021 comparatives have been adjusted accordingly.

The Company achieved revenues of GBP25.6m in H1 2022, up 15% on the same period last year. Gross profit increased by 8% to GBP5.6m. The Company continued to make progress against its strategy to improve gross margins, albeit this was held back by external factors, including adverse Purchase Price Variance ("PPV") costs and foreign exchange fluctuations. Gross margin was 21.9% (H1 2021 23.5%) and underlying gross margin (excluding the exceptionally high PPV) was 28.2% (H1 2021: 24.3%). As a result of the loss reported for the period, the Directors do not propose the payment of an interim dividend (2021: nil).

Business Unit performance has been strong across most territories with demand outweighing supply. International revenue was 55% up on the same period last year predominantly due to sales driven through the introduction of legislation in Benelux, where sales were the highest in the Company's history. Sales also grew in the online channels and retail areas of International. Both UK Trade and Retail sales were lower in H1 2022 than in the comparative period last year due to the supply constraints, particularly in relation to connected products. However, again there was demand which would have exceeded the comparative period last year if sufficient inventory had been available. Both F&RS and Utilities sales have increased compared to the same period last year and have benefitted from no longer being restricted by the property access issues we saw in early 2021 caused by COVID-19. The Company's partnership with Techem continued to progress well, and all milestone deliverables were met, further details of which are set out below. The total revenue associated with this contract amalgamates the background IP, minimum royalty amounts and the charges for the product development phases. Pace Sensors also saw an increase in revenue in the period of 32% compared to the comparable period last year, as we launched our new range of CO products.

In March 2021, the Group refinanced its existing CLBILS . As the Group's revenue dropped below GBP45.0 million, the CLBILS (which had reduced to GBP2.0 million at the end of March 2021) was refinanced under the CBILS with HSBC UK. The new loan of, in aggregate, GBP3.7 million ("New Loan") comprises a CBILS loan of GBP3.2 million and an additional Receivables Finance CBILS of GBP0.5 million. The New Loan, which was used partially to pay off the balance of the CLBILS, had a term of 6 years with the first year being free of interest and capital repayments and an interest rate thereafter of 3.99 per cent. over the Bank of England's base rate. While the full GBP3.2 million CBILS loan was drawn down in March 2021, the GBP0.5 million additional Receivables Finance CBILS as at the date of this announcement has not been drawn down. The Group maintains its existing Invoice Discounting Facility of GBP7.5 million, which is GBP1.8 million drawn on as at 23 September 2022. Interest and capital repayment of the CBILs commenced in May 2022.

The Group's balance sheet was further strengthened following the Company reaching an agreement for a standby letter of credit facility with its bank, HSBC UK Bank plc and UK Export Finance, up to a combined sum of GBP3.5m. This facility is for an initial term of 12 months. The continued support of our bank in providing this facility has provided greater certainty in our supply chain. It has offered additional reassurance for suppliers who are procuring longer-term inventory needed for the Company's growth over the next few years. The proactive actions initiated by the Board, along with the net proceeds of the fundraising undertaken in Q2 2021, have meant that the Company was much better placed to tackle external headwinds than would otherwise have been the case. Creditor days as at 30 June 2022 were 19 days (30 June 2021: 21 days).

The Company's journey towards positive cash generation has continued. Notably, cash consumed by the historic battery issues in H1 2022 more than halved to GBP300,000 from GBP700,000 in H2 2021. This is now rapidly becoming a legacy issue and is expected to be of lower materiality during 2023. The Company's net debt position at 30 June 2022 was materially better than we planned and the Company will be cash generative in H2 2022.

The Company's FY2022 budget was prepared in Q4 2021, using a forecast exchange rate of 1.36 USD to GBP. At 30 June 2022, the Board considered a number of exchange rate scenarios ranging from 1.17 to 1.26. Given the continued devaluation of GBP, the Board has now decided to gain certainty by hedging the majority of the remaining exposure for the balance of the year at blended rate of 1.15 USD to GBP, which removes a volatility, but locks in a lower margin outturn than previously forecast for the remainder of the year. The Company is reviewing its hedging strategy for 2023 and the impact on gross margins for 2023 and 2024.

Strategic progress

The core target for the business is to continue improving gross margin year-on-year, by continuing to focus on three key strands:

-- Migrating to higher value activities while cutting out lower value, lower impact activities;

   --      Commercialising our investment in Connected technology; and 
   --      Streamlining our value chain of end-to-end administrative and production activities. 

Moving to Higher Value Activities

The Group's project to source entry level products, which are uneconomic to design and produce in Europe, from an existing Chinese partner, was delivered at the end of Q1 2022. The project has added 3% to the Company's gross margin, as planned, with over 500k units shipped to customers to date since the launch, replacing previous models sold by the Company.

The Company has also made significant further progress with its project to develop a new generation smoke alarm alongside its partner, Techem. Two development milestones were achieved in Q2 2022, and the development phase of the project is now 32% complete. A further financial milestone was achieved in June 2022 when a contracted payment of GBP279k was made by Techem to the Company for use of its pre-existing IP within the project. The Company continues to work closely with Techem to select a manufacturing partner, details of which will be announced in due course. Techem also selected the FireAngel CO sensor, which will be manufactured at the Company's own factory in Mississauga, Canada, to be incorporated exclusively into the alarm. This is expected to significantly increase the medium-term financial opportunity for the Company.

The Techem partnership remains a transformational opportunity for the Company and one from which the Board expects that the Company and its shareholders will derive significant value. We will continue to update investors on further progress as we cross key milestones.

The world of Internet of Things (IoT) is expected to offer more opportunities for different types and scales of partnership, and the Company expects to explore such opportunities to maximise the impact of its significant understanding and investment in the connected and IoT worlds.

Commercialising connected technology

Basic supply of product has of course been the Company's primary focus due to the many constraints, and it has not advanced on all of the fronts it had hoped to at the more strategic application level. However, the Company is about to launch a key new technology, SYNC-IT(TM) , that will enable customers who operate social or private rental properties to check environmental data at the time of annual checks or any event driven intervention in social or rented properties. This will operate through a new mobile phone App, seamlessly extracting data from non-connected Carbon Monoxide alarms, and automatically synchronizing to the Company's cloud server, providing further support for environmental data in H2 2023. This is expected to present a material demonstration of the potential of connectivity and data in the safety and care environments and will be a companion app to the Company's Predict(TM) product.

Supply of connected products was particularly challenging and has been restricted by component supply constraints which began in Q3 2021 and continued throughout H1 2022. Even so, 290,000 connected products were shipped in H1 2022 and in H2 2022 the Company expects to ship around 500,000 . Our new generation cellular gateway product will now see initial production beginning early in the new year which was previously anticipated in Q3 2022 and moving into volume production during Q3 2023. This product will widen the scope of the Company's IoT opportunity in H2 2023.

Value Chain Improvements

The key focus in 2022 has been around improving both the predictability and visibility in the Company's supply chain. This has meant establishing longer term supply agreements with partners than has historically been the case, the Company now provides forecasts and commitments up to the end of 2023 and beyond for specific components. At the start of the year, the Company booked nearly all shipping slots from Asia for the whole year to take one variable away from its list of challenges, rather than waiting to potentially obtain the best price. Sales forecasts and customer plans are already under consideration by the Company out to the end of 2023.

The previously announced move to cardboard packaging for all of the Company's products, not only removed 10 tons of plastics waste from the supply chain in 2021 but has also added about 1% to the Company's gross margin since 2021. Additionally, a large project to further improve efficiencies in packaging through 2023 is now underway. This is also in line with the Company's ESG strategy.

The Company will continue working with its suppliers to find efficiencies and support improvements across 2023 and beyond that should help mitigate currency and inflationary impacts on performance.

Environmental, Social & Governance ("ESG")

An ESG Committee was established in early 2022 and is chaired by me. Its initial focus has been on measurement, education and planning. However, a solid commitment has been made to implement the environmental standard ISO 140001, which specifies the requirements for an environmental management system that can be used by the Company to enhance environmental performance, and the Company will be ready for certification in 2023. Other recent data points to help us plan have included carbon measurement, and results from an employee survey for ESG attitudes, and customer and supplier surveys. The previously mentioned packaging initiative will be a direct result of ESG discussions.

As part of its efforts to be a responsible employer, the Company was also pleased to provide staff an interim cost of living pay rise in July 2022, given that nobody is immune to the unprecedented cost of living crisis we are currently experiencing. The Company aims to be sensitive to the wider societal factors in being a responsible and attractive employer.

Finally, the Company has appointed consultants to help it conduct a review and implementation plan for the Group's ESG strategy currently under development. We will continue to update on progress in this area as part of future results announcements.

Outlook

The Board believes a significantly improved financial performance remains achievable, following the resilience and agility displayed by the Company in the year to date in meeting so many stated challenges. Revenue for FY2022 is expected to be towards the top end of market expectations, yet the impact of currency and inflation has reduced the outlook for profitability such that the Board expects EBITDA to be between break even to GBP1.5 million, being materially below market expectations.

The underlying improvements made by the Board have protected FireAngel's position to a significant extent, which, in particular, has enabled the Company to be cash generative in H2 2022.

The Company has for some time been noting the energy and cost of living situation as it pertains to society. This winter across Europe is the type of crisis point which may accelerate a whole range of societal and legislative change. The Company's strategy and its current and planned products mean that it can help society's response in a broader way than just fire safety, yet broadly within the Company's existing plans and investments. The ability to access and act on environmental data from the Company's devices in the home is expected to offer much wider opportunities for the Company. Caring for people's welfare in their own homes will be a major issue over the next few winters, and the Board believes the Company can play a major role and be part of the solution.

Whilst the Board does not underestimate the current challenges and uncertainties facing the Company, it believes that the Company's business model, the strong demand for our products, our ability to adapt to changing circumstances and the increasing regulation around safety standards, leave the Company in a good position to continue to grow and prosper.

Underpinning the Company's excellent progress is its proposition to protect and save lives with innovative, cutting-edge home safety technology. The Board is excited about the potential in the business pipeline and believes that the Company is well placed to deliver attractive growth and shareholder returns in the long term.

D elivering our plan means the full year revenue is expected to be the Company's best performance since 2017 and our further mitigating actions will not only positively impact Q4 2022 but also FY 2023. While the macro headwinds have been and continue to be particularly frustrating, we look forward to Q4 2022 and FY 2023 with justified optimism.

John Conoley

Executive Chairman

27 September 2022

Consolidated income statement

For the six months ended 30 June 2022

 
                                                        (Unaudited)                (Unaudited)                              (Audited) 
                                      Six months ended 30 June 2022       Six months ended 30 June 2021             Year ended 31 December 2021 
                                   Before  Non-underlying                Before  Non-underlying                    Before  Non-underlying 
                           non-underlying           items     Total        non-           items        Total         non-           items     Total 
                                    items        (note 5)            underlying        (note 5)                underlying        (note 5) 
                    Note                                                  items                                     items 
                                   GBP000          GBP000    GBP000      GBP000          GBP000       GBP000       GBP000          GBP000    GBP000 
----------------  ------  ---------------  --------------  --------  ----------  --------------  -----------   ----------  --------------  -------- 
Revenue              3             25,556               -    25,556      22,221               -    22,221          43,472               -    43,472 
Cost of sales                    (19,952)               -  (19,952)    (17,009)               -   (17,009)       (33,393)              22  (33,371) 
----------------  ------  ---------------  --------------  --------  ----------  --------------  -----------   ----------  --------------  -------- 
Gross profit                        5,604               -     5,604       5,212               -        5,212       10,079              22    10,101 
Operating 
 expenses                         (7,359)            (76)   (7,435)     (6,778)           (112)      (6,890)     (13,580)           (280)  (13,860) 
Other operating 
 income                6                -               -         -         122               -          122           82               -        82 
----------------  ------  ---------------  --------------  --------  ----------  --------------  -----------   ----------  --------------  -------- 
Loss from 
 operations                       (1,755)            (76)   (1,831)     (1,444)           (112)      (1,556)      (3,419)           (258)   (3,677) 
Finance costs                        (44)               -      (44)       (104)               -        (104)        (124)               -     (124) 
Finance income                        148               -       148           -               -            -           91               -        91 
----------------  ------  ---------------  --------------  --------  ----------  --------------  -----------   ----------  --------------  -------- 
Loss before tax                   (1,651)            (76)   (1,727)     (1,548)           (112)      (1,660)      (3,452)           (258)   (3,710) 
Income tax 
 credit               7               194               -       194         282               -          282          430               -       430 
----------------  ------  ---------------  --------------  --------  ----------  --------------  -----------   ----------  --------------  -------- 
Loss 
 attributable to 
 equity owners 
 of the Parent                    (1,457)            (76)   (1,533)     (1,266)           (112)      (1,378)      (3,022)           (258)   (3,280) 
----------------  ------  ---------------  --------------  --------  ----------  --------------  -----------   ----------  --------------  -------- 
 
Basic earnings 
 per share             9                                      (0.8)                                    (1.0)                                  (2.0) 
Diluted earnings 
 per share             9                                      (0.8)                                    (1.0)                                  (2.0) 
----------------  ------  ---------------  --------------  --------  ----------  --------------  -----------   ----------  --------------  -------- 
 
 

All amounts stated relate to continuing activities.

Consolidated statement of comprehensive income

For the six months ended 30 June 2022

 
                                                (Unaudited)                 (Unaudited)                      (Audited) 
                                                 Six months    Six months ended 30 June    Year ended 31 December 2021 
                                              ended 30 June                        2021 
                                                       2022 
                                                     GBP000                      GBP000                         GBP000 
------------------------------------------  ---------------  --------------------------  ----------------------------- 
 Loss for the period                                (1,533)                     (1,378)                        (3,280) 
 Items that may be reclassified 
 subsequently to profit and loss: 
 Exchange differences on translation of 
  foreign operations (net of tax)                       196                          38                             32 
------------------------------------------  ---------------  --------------------------  ----------------------------- 
 Total comprehensive loss for the period            (1,337)                     (1,340)                        (3,248) 
------------------------------------------  ---------------  --------------------------  ----------------------------- 
 

Consolidated statement of financial position

As at 30 June 2022

 
                                            (Unaudited)    (Unaudited)     (Audited) 
                                           30 June 2022   30 June 2021   31 Dec 2021 
                                   Note          GBP000         GBP000        GBP000 
---------------------------------  ----  --------------  -------------  ------------ 
Non-current assets 
Goodwill                                            169            169           169 
Other intangible assets                          11,702         12,045        11,825 
Purchased software costs                          1,409          1,842         1,625 
Property, plant and equipment                     2,684          3,860         3,242 
                                                 15,964         17,916        16,861 
---------------------------------  ----  --------------  -------------  ------------ 
Current assets 
Inventories                                       4,706          4,894         3,737 
Trade and other receivables                      13,599          9,442         9,430 
Current tax asset                                   621          1,012           464 
Derivative financial assets                         971              -           291 
Cash and cash equivalents            11             656          5,839         3,294 
---------------------------------  ----  --------------  -------------  ------------ 
                                                 20,553         21,187        17,216 
---------------------------------  ----  --------------  -------------  ------------ 
  Total assets                                   36,517         39,103        34,077 
---------------------------------  ----  --------------  -------------  ------------ 
Current liabilities 
Trade and other payables                       (11,128)       (10,060)       (8,135) 
Lease liabilities                                 (463)          (444)         (456) 
Provisions                           12           (658)        (1,304)       (1,012) 
Invoice discounting facilities       10         (1,361)          (409)             - 
Loans and borrowings                 10           (693)          (160)         (480) 
Derivative financial liabilities                      -          (117)             - 
---------------------------------  ----  --------------  -------------  ------------ 
                                               (14,303)       (12,494)      (10,083) 
---------------------------------  ----  --------------  -------------  ------------ 
Net current assets                                6,250          8,693         7,133 
---------------------------------  ----  --------------  -------------  ------------ 
 
Non-current liabilities 
Loans and borrowings                 10         (2,426)        (3,063)       (2,743) 
Lease liabilities                                 (263)          (722)         (492) 
Provisions                           12           (568)          (870)         (541) 
                                                (3,257)        (4,655)       (3,776) 
---------------------------------  ----  --------------  -------------  ------------ 
Total liabilities                              (17,560)       (17,149)      (13,859) 
---------------------------------  ----  --------------  -------------  ------------ 
Net assets                                       18,957         21,954        20,218 
---------------------------------  ----  --------------  -------------  ------------ 
 
 
Equity 
Called up share capital                   3,621      3,621       3,621 
Share premium account                    30,009     30,008      30,009 
Currency translation reserve                349        159         153 
Retained earnings                      (15,022)   (11,834)    (13,565) 
------------------------------------  ---------  ---------  ---------- 
Total equity attributable 
 to equity holders of the 
 Parent Company                          18,957     21,954      20,218 
------------------------------------  ---------  ---------  ---------- 
 
 

Consolidated statement of changes in equity

For the six months ended 30 June 2022

 
                                               Share      Currency 
                           Called up share   premium   translation   Retained 
                                   capital   account       reserve   earnings    Total 
                                    GBP000    GBP000        GBP000     GBP000   GBP000 
----------------------------------  ------  --------  ------------  ---------  ------- 
Balance at 1 January 2021            2,531    22,104           121   (10,568)   14,188 
----------------------------------  ------  --------  ------------  ---------  ------- 
 
  Loss for the six months                -         -             -    (1,378)  (1,378) 
Foreign exchange gains from 
 overseas subsidiaries                   -         -            38          -       38 
----------------------------------  ------  --------  ------------  ---------  ------- 
Total comprehensive income/(loss) 
 for the six months                      -         -            38    (1,378)  (1,340) 
----------------------------------  ------  --------  ------------  ---------  ------- 
Transactions with owners 
 in their capacity as owners: 
Issue of equity shares               1,090         -             -          -    1,090 
Premium arising on issue of 
 shares                                  -     8,711             -          -    8,711 
Share issue expenses                     -     (807)             -          -    (807) 
----------------------------------  ------  --------  ------------  ---------  ------- 
Total transactions with owners 
 in their capacity as owners         1,090     7,904             -          -    8,994 
----------------------------------  ------  --------  ------------  ---------  ------- 
Credit in relation to share-based 
 payments                                -         -             -        112      112 
----------------------------------  ------  --------  ------------  ---------  ------- 
Balance at 30 June 2021              3,621    30,008           159   (11,834)   21,954 
----------------------------------  ------  --------  ------------  ---------  ------- 
 
 
Balance at 1 January 2022           3,621  30,009  153  (13,565)   20,218 
----------------------------------  -----  ------  ---  --------  ------- 
 
  Loss for the six months               -       -    -   (1,533)  (1,533) 
Foreign exchange gains from 
 overseas subsidiaries                  -       -  196         -      196 
----------------------------------  -----  ------  ---  --------  ------- 
Total comprehensive income/(loss) 
 for the six months                     -       -  196   (1,533)  (1,337) 
----------------------------------  -----  ------  ---  --------  ------- 
Transactions with owners 
 in their capacity as owners: 
Issue of equity shares                  -       -    -         -        - 
Premium arising on issue of 
 shares                                 -       -    -         -        - 
Share issue expenses                    -       -    -         -        - 
----------------------------------  -----  ------  ---  --------  ------- 
Total transactions with owners 
 in their capacity as owners            -       -    -         -        - 
----------------------------------  -----  ------  ---  --------  ------- 
Credit in relation to share-based 
 payments                               -       -    -        76       76 
Balance at 30 June 2022             3,621  30,009  349  (15,022)   18,957 
----------------------------------  -----  ------  ---  --------  ------- 
 

Consolidated cash flow statement

For the six months ended 30 June 2022

 
                                               (Unaudited)                   (Unaudited)   (Audited) Year ended 31 Dec 
                                  Six months ended 30 June      Six months ended 30 June                          2021 
                                                      2022                          2021 
                                                    GBP000                        GBP000                        GBP000 
----------------------------  ----------------------------  ----------------------------  ---------------------------- 
Loss before tax                                    (1,727)                       (1,660)                       (3,710) 
Finance expense                                      (104)                           104                            33 
----------------------------  ----------------------------  ----------------------------  ---------------------------- 
Operating loss for the 
 period                                            (1,831)                       (1,556)                       (3,677) 
Adjustments for: 
Depreciation of property, 
 plant and equipment, and 
 right-of-use assets                                   720                           697                         1,420 
Amortisation of intangible 
 assets                                                963                           909                         1,876 
Loss on disposal of 
 non-current assets                                      9                            23                            47 
Non-underlying items                                    76                           112                           258 
Cash flow relating to 
 non-underlying items                                (330)                         (610)                       (1,242) 
Increase in fair value of 
 derivatives                                         (680)                         (576)                         (984) 
Operating cash flow before 
 movements in working 
 capital                                           (1,073)                       (1,001)                       (2,302) 
Movement in inventories                              (968)                         1,664                         2,909 
Movement in receivables                            (4,021)                           629                           732 
Movement in provisions                                   -                             -                             - 
Movement in payables                                 2,995                       (2,734)                       (4,714) 
Cash used by operations                            (3,067)                       (1,442)                       (3,375) 
Income taxes received 
 /(paid)                                                38                          (50)                           645 
Net cash used by operating 
 activities                                        (3,029)                       (1,492)                       (2,730) 
----------------------------  ----------------------------  ----------------------------  ---------------------------- 
Investing activities 
Capitalised development 
 costs                                               (623)                         (998)                       (1,529) 
Purchase of property, plant 
 and equipment                                       (154)                         (315)                         (434) 
Net cash used in investing 
 activities                                          (777)                       (1,313)                       (1,963) 
----------------------------  ----------------------------  ----------------------------  ---------------------------- 
Financing activities 
Proceeds from issue of 
 ordinary shares (net of 
 expenses)                                               -                         8,993                         8,995 
Drawdown/(Repayment) of 
 invoice finance                                     1,361                       (2,131)                       (2,539) 
Drawdown of loan                                         -                         3,200                         3,200 
Repayment of loan                                    (104)                       (2,600)                       (2,600) 
Repayment of lease 
 obligations                                         (222)                         (215)                         (441) 
Interest paid                                         (44)                         (104)                         (124) 
----------------------------  ----------------------------  ----------------------------  ---------------------------- 
Net cash generated by 
 financing activities                                  991                         7,143                         6,491 
----------------------------  ----------------------------  ----------------------------  ---------------------------- 
Net (decrease)/ increase in 
 cash and cash equivalents                         (2,815)                         4,338                         1,798 
Cash and cash equivalents at 
 beginning of period                                 3,294                         1,466                         1,466 
Non-cash movements                                     177                            35                            30 
----------------------------  ----------------------------  ----------------------------  ---------------------------- 
Cash and cash equivalents at 
 end of period                                         656                         5,839                         3,294 
----------------------------  ----------------------------  ----------------------------  ---------------------------- 
 

Notes to the financial information

   1.    General information 

These unaudited consolidated interim financial statements were approved by the Board of Directors on 26 September 2022.

   2.    Basis of preparation 

These unaudited consolidated interim financial statements of the Group are for the six months ended 30 June 2022.

The condensed consolidated interim financial statements for the six months to 30 June 2022 do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's annual financial statements for the year ended 31 December 2021 which are available at www.fireangeltech.com/investors.

The condensed consolidated interim financial statements for the six months to 30 June 2022 have not been audited or reviewed by an auditor pursuant to the Auditing Practices Board guidance on Review of Interim Financial Information.

The condensed consolidated interim financial statements for the six months to 30 June 2022 have been prepared on the basis of the accounting policies expected to be adopted for the year ending 31 December 2022. These are anticipated to be consistent with those set out in the Group's latest annual financial statements for the year ended 31 December 2021. These consolidated financial statements are prepared in accordance with UK-adopted international accounting standards in conformity with the Companies Act 2006 ('IFRS'). The financial statements are presented in thousands (GBP'000) unless otherwise indicated.

In determining whether the Group and parent Company's financial statements can be prepared on a going concern basis, the Directors considered the Group's business activities, together with the factors likely to affect its future development, performance and position. The Directors prepared cash flow forecasts for the period ending 31 December 2023 which considered the financial position of the Group, its cash flows, borrowing facilities and financial covenants thereon.

The Group has been loss making in recent years and absorbed cash at an operational level. The Group has raised fresh equity and support from its bank through the Government backed loan schemes. The impact of COVID-19 has been material to the Group due to the knock-on effect on global supply chains. The Group has navigated these well, but shortage of inventory and components has prevented the growth originally planned. The Group saw demand for their products outweighing the supply in H1 2022 due to global supply chain constraints, with this easing towards the end of H1 2022 and the supply of products improving. In 2021, the Group started to deliver on the gross margin improvement plan improving adjusted margins from 19.8% in 2020 to 23.2% in 2021 which, along with new pricing strategies has provided a strong platform to protect and improve margins as we moved into 2022 and help mitigate the additional inflationary costs the Group has seen in H1 2022.

The Group has absorbed cash in H1 2022 but below budgeted rates through inventory and cost controls and the Group will start to generate cash from H2 2022 and continue in the year ending 31 December 2023. The Group's forecasts show that it has sufficient cash to deliver the strategy and return to profitability and cash generative activity levels.

The Directors have reviewed the Group's forecasts, including the sales growth, budgets and cash projections for the period to 31 December 2023 and including sensitivity analysis on the key assumptions such as the potential impact of reduced sales and weakening British Pound for the next twelve months and beyond. The forecasts showed sufficient cash headroom throughout the outlook period. The base case was also reverse stress tested and the level of deterioration required for the Group to exceed the banking headroom was deemed to be unlikely.

The Directors have assessed both the discretionary and the non-discretionary cash requirements of the Group during this period. In determining whether the Group's Interim financial statements can be prepared on a going concern basis, the Directors considered the Group's business activities, together with the factors likely to affect its future development, performance and position. The Group has continued to benefit from a supportive relationship with its bank, HSBC, and reviewed its financial position, its cash flows, borrowing facilities and

banking covenants.   The key factors considered by the Directors were: 

-- the implications of the current economic environment and future uncertainties around the Group's revenues and profits by undertaking forecasts and projections on a regular basis;

   --     the impact of a weakening British pound against the US Dollar; 
   --     the impact of the competitive environment within which the Group operates; 
   --     the impact of COVID-19 and related global supply chain issues; and 

-- the potential actions that could be taken in the event that revenues or gross profits are worse than expected, to ensure that operating profit and cash flows are protected.

The Directors have reasonable expectations that the Group has adequate resources to continue operations for the period of at least one year from the date of approval of these Interim results. The Directors have not identified any material uncertainties that may cast doubt over the ability of the Group to continue as a going concern and the Directors continue to adopt the going concern basis in preparing these financial statements.

AIM-quoted companies are not required to comply with IAS 34 Interim Financial Reporting and accordingly the Company has taken advantage of this exemption.

   3.    Operating segments 

An analysis of the Group's revenue by business unit is as follows:

 
                                         (Unaudited)                    (Unaudited)    (Audited) Year ended 31 Dec 
                                    Six months ended       Six months ended 30 June                    2021 GBP000 
                                        30 June 2022                    2021 GBP000 
                                              GBP000 
 ------------------------------   ------------------  -----------------------------  ----------------------------- 
  Revenue from continuing 
  operations: 
  UK Trade                                     4,047                          5,187                          9,822 
  UK Retail                                    7,157                          8,382                         15,842 
  UK Fire & Rescue Services                    1,575                          1,488                          2,367 
  UK Utilities                                 1,620                            757                          1,830 
 -------------------------------  ------------------  -----------------------------  ----------------------------- 
  Total sales in the UK                       14,399                         15,814                         29,861 
  International                                8,404                          5,434                         10,891 
  Techem                                       1,698                            174                          1,043 
  Pace Sensors                                 1,055                            799                          1,677 
 -------------------------------  ------------------  -----------------------------  ----------------------------- 
  Total revenue                               25,556                         22,221                         43,472 
 -------------------------------  ------------------  -----------------------------  ----------------------------- 
 

From 1 January 2022, certain customers previously reported within the UK Trade business unit are now reported through UK Retail & UK Utilities. The 2021 comparatives have been adjusted accordingly.

   4.    Revenue recognition - European Partner 

In April 2021 the Group signed a long-term partnership agreement with Techem to provide a research and development programme for a new generation smoke alarm. The Group has looked at the individual elements of the contract and has concluded that there are not separate performance obligations and as such the contract forms one central non-distinct performance obligation.

Full details of the revenue recognition methodology and assumptions surrounding this can be found in the Group's annual financial statements for the year ended 31 December 2021 which are available at www.fireangeltech.com/investors.

 
                                           (Unaudited) 
                                      Six months ended 
                                          30 June 2022 
                                                GBP000 
----------------------------------  ------------------ 
 Revenue recognised in period                    1,698 
 Costs recognised                                (785) 
----------------------------------  ------------------ 
 Gross profit attributable to 
  contract                                         913 
 
 Total contact revenue recognised                2,741 
 Interest income recognised                        239 
----------------------------------  ------------------ 
 Total consideration                             2,980 
 Billing to date                               (2,075) 
----------------------------------  ------------------ 
 Accrued income                                    905 
----------------------------------  ------------------ 
 
 
   5.    Non-underlying items 
 
                                               (Unaudited)                 (Unaudited)     (Audited) Year ended 31 
                                  Six months ended 30 June                  Six months             Dec 2021 GBP000 
                                               2022 GBP000               ended 30 June 
                                                                                  2021 
                                                                                GBP000 
 ---------------------------   ---------------------------  --------------------------  -------------------------- 
  Within cost of sales 
  Commercial distributer 
   settlements (a)                                       -                           -                          66 
  Provision against stock and 
   disposal costs (b)                                    -                           -                        (88) 
                                                         -                           -                        (22) 
  Within operating expenses 
 ----------------------------  ---------------------------  --------------------------  -------------------------- 
  Impairment of tangible 
   assets                                                -                           -                         (3) 
  Share-based payments charge                           76                         112                         283 
                                                        76                         112                         280 
  ---------------------------  ---------------------------  --------------------------  -------------------------- 
  Total non-underlying items                            76                         112                         258 
 ----------------------------  ---------------------------  --------------------------  -------------------------- 
 
 

a. Customer settlements relating to the battery impedance totalled nil in the period (H1 2021: GBP0.1 million). There was no cash impact in H1 2022 relating to these settlements.

b. During 2021, the Group was able to sell stock lines that had previously been impaired which resulted in a non-underlying credit of GBP0.1 million. No such sales have been registered in H1 2022 with nil cash impact in the period.

No change to the value of the warranty provision has been made since 2020. The balance continues to unwind and during H1 2022 the cash outflow was GBP0.3m.

   6.    Other Operating Income 

Furlough payments of GBPnil were received under the Canadian Emergency Wage Subsidy during the period (2021: GBP0.1 million). The scheme enabled employers to retain staff despite the economic impact of COVID-19 through government grants relating to wage subsidies. As per the accounting policies adopted, the grant received was recognised in the profit and loss in 'other income' as the related salaries for the furloughed employees were recognised.

An error has been identified in the presentation of the Group's accounts ended 31 December 2021 whereby furlough income of GBP83,000 was not adjusted out of operating expenses and cost of sales and reclassified into other operating income. There is no impact to profit. Due to the size and nature of this misstatement, it has been deemed non-material and as such has not been adjusted.

   7.    Income tax 

The income tax credit for the period is based on the estimated rate of corporation tax that is likely to be effective for the year to 31 December 2022.

   8.    Dividends 

As a result of the loss reported for the period, the Directors do not propose the payment of an interim dividend (2021: nil).

   9.    Earnings per share 

Earnings per share are as follows:

 
                                      (Unaudited)      (Unaudited)     (Audited) 
                                       Six months       Six months    Year ended 
                                    ended 30 June    ended 30 June        31 Dec 
                                             2022             2021          2021 
 Earnings from continuing 
  operations                               GBP000           GBP000        GBP000 
--------------------------------  ---------------  ---------------  ------------ 
 Earnings for the purposes 
  of basic and diluted earnings 
  per share (loss for the 
  period attributable to owners 
  of the parent)                          (1,533)          (1,378)       (3,280) 
--------------------------------  ---------------  ---------------  ------------ 
 
 Number of shares                            '000             '000          '000 
--------------------------------  ---------------  ---------------  ------------ 
 Weighted average number 
  of ordinary shares - basic 
  earnings calculation                    181,067          139,204       160,308 
 Dilutive potential ordinary 
  shares from share options                     -                -             - 
--------------------------------  ---------------  ---------------  ------------ 
 Weighted average number 
  of ordinary shares - diluted 
  calculation                             181,067          139,204       160,308 
--------------------------------  ---------------  ---------------  ------------ 
 
 
                                 2022    2021    2020 
                                pence   pence   pence 
----------------------------   ------  ------  ------ 
 Basic earnings per share       (0.8)   (1.0)   (2.0) 
 Diluted earnings per share     (0.8)   (1.0)   (2.0) 
-----------------------------  ------  ------  ------ 
 

Basic EPS is calculated by dividing the earnings attributable to ordinary owners of the parent by the weighted average number of shares outstanding during the period.

Diluted EPS is calculated on the same basis as basic EPS but with a further adjustment to the number of weighted average shares in issue to reflect the effect of all potentially dilutive share options. The number of potentially dilutive share options is derived from the number of share options and awards granted to employees and Directors where the exercise price is less than the average market price of the Company's ordinary shares during the period. Under IFRS, no allowance is made for the dilutive impact of share options which reduce a loss per share. The basic and diluted EPS measures are therefore the same for the period ended 30 June 2022.

10. Loans and borrowings

 
                                         (Unaudited)   (Unaudited)   (Audited) 
                                                           30 June      31 Dec 
                                        30 June 2022          2021        2021 
                                              GBP000        GBP000      GBP000 
-----------------  ----------------  ---------------  ------------  ---------- 
 Canadian government COVID-19 
  loan                                            23            23          23 
 Bank Term Loan                                3,096         3,200       3,200 
 Invoice discounting facilities                1,361           409           - 
-----------------------------------  ---------------  ------------  ---------- 
                                               4,480         3,632       3,223 
-----------------------------------  ---------------  ------------  ---------- 
 

11. Cash and cash equivalents

 
                                   (Unaudited)   (Unaudited)   (Audited) 
                                                     30 June      31 Dec 
                                  30 June 2022          2021        2021 
                                        GBP000        GBP000      GBP000 
--------------  -------------  ---------------  ------------  ---------- 
 Cash at bank and in hand                  656         5,839       3,294 
-----------------------------  ---------------  ------------  ---------- 
 

12. Provisions

 
 
 
 
                                                              (Unaudited) 
                                                                  30 June 
                                                                     2022 
                                                                   GBP000 
---------------  ------  ------------  -------------------  ------------- 
 At 1 January 2021 
 Charge in period                                                   2,745 
 Utilisation                                                        (571) 
-------------------------------------  -------------------  ------------- 
 At 30 June 2021                                                    2,174 
-------------------------------------  -------------------  ------------- 
 
 At 1 January 2022                                                  1,553 
 Utilisation                                                        (327) 
-------------------------------------  -------------------  ------------- 
 
 At 30 June 2022                                                    1,226 
-------------------------------------  -------------------  ------------- 
 
 

The total warranty provision is classified between less than one year and greater than one year as follows:

 
                                   (Unaudited)   (Unaudited)   (Audited) 
                                                     30 June      31 Dec 
                                  30 June 2022          2021        2021 
                                        GBP000        GBP000      GBP000 
--------------  -------------  ---------------  ------------  ---------- 
 Current provision                         658         1,304       1,012 
 Non-current provision                     568           870         541 
-----------------------------  ---------------  ------------  ---------- 
 Total warranty provision                1,226         2,174       1,553 
-----------------------------  ---------------  ------------  ---------- 
 

13. Changes in liabilities arising from financing activities

 
 
                                               Invoice 
                                   Bank    discounting          Lease 
                                  Loans       facility    liabilities    Total 
                                 GBP000         GBP000         GBP000   GBP000 
Balance at 1 January 2021         2,623          2,539          1,381    6,543 
------------------------------  -------  -------------  -------------  ------- 
Net cash generated/ (used in) 
 financing activities               600        (2,130)          (215)  (1,745) 
Acquisition of leases 
Balance at 30 June 2021           3,223            409          1,166    4,798 
------------------------------  -------  -------------  -------------  ------- 
 
Balance at 1 January 2022         3,223              -            948    4,171 
------------------------------  -------  -------------  -------------  ------- 
Net cash generated/ (used in) 
 financing activities             (104)          1,361          (222)    1,035 
Balance at 30 June 2022           3,119          1,361            726    5,206 
------------------------------  -------  -------------  -------------  ------- 
 

14. Availability

Further copies of this interim announcement are available on the FireAngel Safety Technology Group plc investor relations website, www.fireangeltech.com .

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