TIDMSFE
RNS Number : 9897T
Safestyle UK PLC
23 March 2023
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.
23 March 2023
Safestyle UK plc
("Safestyle" or the "Group")
Final Results
Balance sheet remains healthy and strategic investment programme
initiated to position group for long-term growth .
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 results for financial year
2022(1) .
Financial highlights
FY22 v
FY21 %
2022 2021 change
Revenue (GBPm) 154.3 143.3 7.7%
------- ------- ---------
Gross Profit (GBPm) 37.9 43.8 (13.4%)
------- ------- ---------
Gross margin % 24.54% 30.54% (600)bps
------- ------- ---------
Underlying (loss) / profit before
taxation(2) (GBPm) (4.4) 7.6 n/a
------- ------- ---------
Non-underlying items(3) (GBPm) (4.1) (1.6) (149.6%)
------- ------- ---------
(Loss) / profit before taxation
(GBPm) (8.5) 6.0 n/a
------- ------- ---------
EPS - Basic (pence) (4.7)p 3.5p n/a
------- ------- ---------
Net cash(4) (GBPm) 8.0 12.1 n/a
------- ------- ---------
Interim dividend per share (pence) 0.4p - n/a
------- ------- ---------
Final dividend per share (pence) 0.1p - n/a
------- ------- ---------
1) The financial statements are presented for the year ended
on the closest Sunday to the end of December. This date was
1 January 2023 for the current reporting year and 2 January
2022 for the prior year. All references made throughout to
2) the financial year 2022 are for the period 3 January 2022
to 1 January 2023 and references to the financial year 2021
are for the period 4 January 2021 to 2 January 2022.
Underlying (loss) / profit before taxation is defined as reported
(loss) / profit 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.
3) Non-underlying items consist of non-recurring costs, share-based
payments and the Commercial Agreement amortisation.
4) 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.
-- Revenue growth of 7.7% and order book (value) over 60% ahead of pre-pandemic levels.
-- Return to dividend payments, with an interim dividend paid of
0.4p per share and a final dividend proposed of 0.1p per share.
-- Net cash of GBP8.0m with lower cost facility extended to December 2026.
-- Underlying profit reduction due to the estimated c.GBP4m
impact of a cyber-attack in Q1 and a GBP5m strategic investment
programme (versus 2021).
Operational headlines
-- Implemented GBP5m strategic investment programme.
-- As part of investment programme, returned to TV advertising
across 2022 driving 6ppts (46%) increase in unprompted brand
awareness over 2021.
-- Market share (as measured by Fensa) increased by 0.2ppts to 8.0% versus FY21.
-- Launched the Safestyle Academy, 27 trainees have progressed
through the adult fast track installer training programme with new
cohorts targeted to join later in the year.
-- Launched 'Role Model Depot' training programme for our installation depot management.
-- Continued progress on our ESG agenda with a further 7.7%
reduction in CO(2) emissions per frame installed and waste to
landfill 5% across the year which leaves us well positioned to
achieve our 2025 sustainability targets.
Transition to new PVCu profile supplier completed at the end of
the year, on time and on budget; the Group is now manufacturing
products using the Liniar system.
Outlook
-- The trading context of the UK economy and consumer confidence remains challenging.
-- Within this context, order intake for the year to date has
been variable. January was in line with management's expectations
but, February and March to date have been slower than
anticipated.
-- Such variability is expected in the short-term and
indications are that we have increased market share (as measured by
FENSA) in February versus our FY2021 level.
-- Our order book has increased since the start of the year, but
remains at the same levels as at the end of January.
-- We have continued to invest in our brand through a TV and
radio campaign across February and March which is designed to
amplify our value proposition and emphasise the relevance of our
product at a time of high household energy costs.
-- We are very focused on continuing to increase our market
share and the Board plans to continue with the strategic investment
agenda described at our Capital Markets Day, albeit prudently, to
ensure that the year still represents a return to
profitability.
-- Therefore, as a result of the challenging market conditions
and continued strategic investment, the Board does now expect
revenue to be below current expectations and full year underlying
profitability to be at least GBP2.0m, as a balance is struck
between driving sales and the levels of investment made into the
business. The medium-term strategic objectives remain
unchanged.
-- Notwithstanding the above, we remain confident that as the
national value player operating in a historically-proven resilient
sector, we are well-placed to attract consumers in these tougher
economic times, increase market share and also make progress
towards our medium-term financial and strategic objectives.
Commenting on the results, Rob Neale, CEO said:
"2022 was a challenging year for our business. We were forced to
deal with a number unforeseeable issues which impacted our
financial results and slowed the momentum we had built up through
2021. The most pleasing aspect of 2022 was the resilience our
business showed to meet these challenges head on and simultaneously
embark upon a significant strategic investment agenda which will
set the foundations in place for our business to grow over the
medium term.
During the first quarter of this financial year, we have seen
variable trading patterns which reflect the difficult consumer
environment across the wider economy. Whilst mindful of these
conditions, the Board remains focused on increasing our market
share by continuing to invest behind our strategic agenda. However,
it is important to note that much of this investment is variable
and the Board will use the levers available to it should market
conditions dictate more prudence. Consequently, we now expect full
year underlying profit to be at least GBP2.0m.
Notwithstanding this, we remain excited about the future of
Safestyle and believe that appropriate investments made now will
set us up well for growth when consumer confidence returns."
Enquiries:
Safestyle UK plc via FTI Consulting
Alan Lovell, Non-Executive Chairman
Rob Neale, Chief Executive Officer
Zeus (Nominated Adviser & Joint Broker) Tel: 0203 829 5000
Dan Bate / James Edis (Investment Banking)
Dominic King (Corporate Broking)
Liberum Capital Limited (Joint Broker) Tel: 0203 100 2100
Jamie Richards / Kate Bannatyne
FTI Consulting (Financial PR) Tel: 0203 727 1000
Alex Beagley / Sam Macpherson / Amy Goldup
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 .
Chairman's Statement
After a stable and profitable 2021, I regret that Safestyle was
again hit by untoward events in 2022 - a serious cyber-attack, a
hot summer affecting equipment in the factory and the political
volatility of the autumn - which meant that pre-investment profit
reduced to around break-even. Despite these headwinds, the Board
decided to persevere with its investment plans in the interests of
building sustainable profits in the medium-term; these included
getting the brand back on TV, a training programme for installation
colleagues, IT development and an online trading brand. The Board
expects these investments to start to make a difference in 2023 but
to be more obvious in later years.
Trading and financial performance
The Group delivered revenue growth of 7.7% to GBP154.3m over
2021, driven by pricing responses to the inflationary environment.
This revenue growth would have been higher were a planned January
price increase, designed to keep pace with rapidly-rising input
costs, not delayed until April whilst we recovered from the
cyber-attack. Consequently, these inflationary pressures across
materials, energy, labour and lead generation resulted in cost of
sales increasing faster than our top line revenue; gross profit
reduced by 13.4% to GBP37.9m and gross margin percentage by 600bps
to 24.5%.
The Group entered 2022 with a strong balance sheet, which the
Board has used to continue to drive the investment agenda in
people, training, customer service, brand development and our IT
roadmap, all of which are critical to deliver on the Group's
strategic priorities that were shared at the Capital Markets Day in
November 2022. This investment, equating to c.GBP5m over 2022, is
expected to underpin delivery of our medium-term performance
targets, but did contribute to reduced profitability in 2022. We
expect to continue with our investment agenda in 2023, albeit
prudently utilising the levers at our disposal should market
factors dictate more conservative investment.
Following the 2022 investment, the Group produced an underlying
(loss) before taxation for the full year of GBP(4.4)m compared to
an underlying profit in 2021 of GBP7.6m. After non-underlying
items, reported (loss) before taxation was GBP(8.5)m compared to a
profit of GBP6.0m in the prior year. Basic EPS was a loss of (4.7)p
versus 3.5p last year.
Balance sheet and dividend
The net cash position at the end of the year reduced to GBP8.0m
(2021: GBP12.1m) as a result of the financial performance described
above.
Pleasingly - and a representation of our lender's confidence in
the Group's future - the GBP7.5m finance facility was renewed in
January 2023. This new facility runs until December 2026 in the
form of a lower cost revolving credit facility. Covenants have also
been renegotiated and are either untested or scale in proportion to
the drawn facility.
An interim dividend of 0.4p per share (2021: GBPnil) was
declared and paid in the year. The Board has proposed a final
dividend of 0.1p per share (2021: GBPnil). The return to the
dividend list this year represents the Board's confidence in the
future of the Group and the strength of the balance sheet. A
progressive dividend is part of our wider capital allocation
policy. This policy includes utilising operating cashflows to
reinvest behind the strategic priorities of the Group as well as
assessing opportunities to accelerate growth through acquisitions
and new business development.
Sustainability
I can report that our focus on sustainability in all the Group's
operations has yielded further progress during 2022. The Group
maintained its performance in recycling 95% of all waste generated
from all processes, including materials removed from a customer's
home during an installation. We continue to believe this is the
highest level in the industry.
We are also continuing to make strong progress towards our
targets for CO(2) emissions per frame installed. Last year, I
reported that we had exceeded our original targeted reduction in
this measure three years earlier than planned. Consequently, we
reset our target for a further reduction of 6% before 2025. I am
pleased to report that we are well on track to achieving this
target having achieved, before carbon offsetting credits, a 2.0%
reduction in CO(2) emissions per frame installed versus 2021. This
year's reductions have been achieved through further moves to
renewable energy, ongoing energy usage reduction programmes across
the Group and increased collaboration with suppliers.
Vehicle emissions now account for well over 80% of the Group's
total emissions and therefore the key remaining breakthrough
required is to electrify the Group's vehicle fleet to which we
added a further six electric vehicles in 2022. However, the largest
segment of our fleet are our commercial vans and we require
improved vehicle range as well as an improved charging
infrastructure before we can fully transition to electric-powered
vehicles.
As we target reductions in our emissions, we are also working
with partners on various sustainability programmes including carbon
offset programmes. I am pleased to report that we offset 247 tonnes
of carbon emissions at the end of last year. Taking this into
account, our CO(2) emissions per frame installed reduced by 7.7%
versus 2021.
The Group's pre and post carbon offset credits emissions per
frame performance will continue to be reported to show progress as
we work to reduce emissions as much as possible with current
technology and renewable energy and then additionally show any
benefit achieved through offsetting residual emissions with Gold
Standard carbon offsets.
Board changes
At the end of the year, our previous CEO Mike Gallacher retired
having led Safestyle through the Safeglaze saga in 2018,
successfully navigated the global pandemic as well as overcoming
the challenges described above in 2022. I once again thank Mike for
his commitment to our people and our business during these
turbulent times and we wish him and his family well for the
future.
Consistent with our plans for succession, the Board appointed
Rob Neale, who has been our CFO for four and a half years, to the
role of CEO following Mike's retirement. The Board and I are
confident in Rob's leadership ability and we look to the future
positively as the business continues to target delivery against its
strategic objectives.
On 1 March 2023, the Board appointed Michelle Williams, who has
been Safestyle's HR Director since 2017, to the Board as Chief
People Officer. Safestyle's people represent a core enabler of our
strategic priorities and Michelle's appointment reflects that.
Michelle has built a deep understanding of our people, our business
and our industry and we look forward to her ongoing contribution to
the Group as a Board director.
Finally, the search process for a new CFO is well advanced and
we will provide an update on this in due course.
Safestyle's people
Once again I conclude by recognising the hard work of all our
people at Safestyle. 2022 had some unexpected events that tested
our people who responded with passion, skill and resilience.
Alongside overcoming numerous challenges, they also contributed to
progress made with the foundations that I am confident will deliver
future success.
I believe that Safestyle's team continue to make the difference
and I look to the future with confidence.
Alan C Lovell
Chairman
22 March 2023
CEO's Statement
We began 2022 with the clear intention of building on the
progress made over the last few years as we emerged from a period
of sustained turbulence whilst also initiating a multi-year
strategic investment programme. I am pleased to report that we
achieved the latter, making significant steps forward in a
programme to achieve our medium-term objectives. Despite clear
progress in this regard, it has been frustrating that our financial
performance was hindered by unforeseen events that represented a
series of new challenges to overcome in the year. Whilst
disappointing, it highlights the progress that we have made as a
business over the past few years that we were able to continue with
our strategic investment programme despite the headwinds we faced
in 2022.
Before I expand on the year, it is most important to recognise
that Safestyle's people have once again demonstrated that they
possess all the qualities needed to ensure that the business ended
the year ready to press ahead in 2023. Their loyalty, resilience,
teamwork and determination have all once again come to the
forefront throughout the year as they stared into the challenges
presented to the business. I am proud to lead a strong team and
look forward to continuing working with them and all stakeholders
as we drive Safestyle towards our shared goals.
2022 headlines
2022 had barely begun before our promising momentum from 2021
was interrupted when, on 25 January 2022, the business was the
subject of a highly-sophisticated cyber-attack which originated
from Russia; at this point we became one of many businesses
impacted by such an incident. Our people's immediate response was
impressive and we were able to maintain our core operations, sales,
surveying, manufacturing and installations although they were all
hampered during the recovery period which took us into Q2 before
operations were back to business as usual.
Inevitably, the disruption impacted our ability to service our
customers at the high levels we set ourselves. As we moved into
early summer, our typically reliable factory encountered issues
attributable to the extraordinary heatwave in July. This caused
operational, fulfilment and service issues for the next two months.
Enhanced measures are now in place to ensure that if we experience
similar temperature levels in the future, the same impact will not
arise.
The economic and consumer outlook worsened as we moved into H2.
Consumer confidence levels were reportedly at a 40-year low and
inflation at a corresponding record high. We brought forward our
next wave of TV advertising and looked to leverage our clear value
proposition, the relevance of our product at a time of high
household energy costs, market-leading finance options and a
credible 10-year warranty.
However, despite our actions, order intake across the period
from late September to the end of October was volatile. We
attributed this to the political and economic news cycle of the
period, which we believe had a direct, adverse impact on consumer
confidence. Order intake (value) across this period was 2.7% lower
than the prior year whilst, at the same time, the Group experienced
higher costs of acquisition than prior years due to the challenging
market context. Demand improved in early November which resulted in
order intake (value) returning to expected levels and growing by
over 30% year on year across the first three weeks of November with
lead generation costs also returning to normalised levels.
This trading volatility had an adverse impact on the financial
performance for the year, resulting in lower installation volume
levels in Q4 as well as margin being diluted due to higher costs of
lead generation. On a more positive note, the improved order intake
later in the year resulted in an order book that closed the year
significantly ahead of our original expectations, being only
slightly lower than the record levels of the last two years and
over 60% higher than pre-pandemic closing order book levels.
A final significant event of 2022 followed an extensive
selection process and careful deliberation by the Board which led
to notice being served on our existing PVCu profile supplier and a
transition plan to a new supplier, Liniar, being enacted. I am
pleased to report that this complex project was well-managed within
a demanding timescale and the transition was successfully completed
on time and on budget over the Christmas period. This represents
one of many examples where we have made progress on strengthening
the fundamentals of the business despite the challenging events of
the year described above.
Financial performance
O ur financial performance, especially in the first half of the
year, was materially impacted by the cyber-attack at the end of
January. The Group's revenue delivery of GBP154.3m represented 7.7%
growth over 2021. This revenue was achieved despite a delay to a
planned pricing change designed to keep pace with inflationary cost
push having to be delayed by three months due to the
cyber-attack.
Installation volumes declined over 2021 by 2.6% to 178,652 with
the cyber-attack and trading volatility later in the year both
impacting our performance. Despite this volume decline, latest
figures from FENSA suggest that our 2022 market share marginally
increased versus 2021; this is encouraging given some of the volume
challenges were unique to us and provides confidence that ongoing
market share gains are achievable as we deliver on our strategic
priorities.
Moving beyond topline performance, input costs in the year
represent the highest levels of inflation in many years, increasing
year on year by over 30% in some areas. The main drivers were
rising energy costs being passed on by our suppliers as well as
higher raw material, staffing and fuel costs. Our buying power and
longer-term contracts with fixed pricing mitigated some of these
effects for part of the year. We continue to move proactively to
mitigate the impact of these costs on our margins through price
changes, while remaining conscious of our value proposition in the
market alongside careful cost management.
2022 also represented a step-change in our investment programme
as part of our medium-term plans to modernise the business, drive
growth, provide a great customer service, reduce adverse quality
costs and drive financial performance over the medium-term. This
investment represented an increase in operating expenses in the
year versus 2021 of c.GBP5m which includes GBP2.5m of TV spend,
alongside further growth in people costs, IT, training and customer
service investment. Our strong cash position has supported this
activity.
The Group's underlying (loss) before taxation for the full year
was GBP(4.4)m compared to an underlying profit in 2021 of GBP7.6m.
The majority of the year on year difference can be attributed to
the adverse impact on profits of the cyber attack which is
estimated at c.GBP4m (largely due to the pricing delay described
above) and the year on year investments in our strategic priorities
of c.GBP5m.
Dividend
We were pleased to report a return to dividend payments in our
interim results, confirming an interim dividend of 0.4p per share
(2021: GBPnil). Despite the challenges faced, we remain confident
about the future and it remains our intention to adopt a
progressive dividend policy going forward. We have declared a final
dividend of 0.1p per share (2021: GBPnil) which brings the total
dividend for the year to 0.5p per share. Further details of the
dividend, including a dividend timetable, are included in the
Financial Review further below.
Strategic priorities
The Group shared its strategic priorities and objectives at its
Capital Markets Day in November 2022. At this event, the management
team provided details of its programme that it will focus on in
order to deliver its strategy and medium-term financial
targets.
For 2022, the strategic investment programme delivered the
following specific activities:
Accelerating growth : In a highly-fragmented market, the
opportunity to grow the business is clear. Driving brand awareness
is a key element of our accelerating growth strategy. From 2018
until the start of 2022, brand investment had been significantly
curtailed, driving up digital marketing costs and causing erosion
of our national brand awareness. We returned to TV advertising in
February 2022 with a second wave beginning in August 2022 with a
campaign that communicated a new, modernised 'Safestyle Saves'
brand proposition fronted by David Seaman MBE, the former England
goalkeeper.
Alongside the above the line investment described above, which
totalled GBP2.5m in 2022, we have continued to make significant
progress leveraging our scale in digital marketing excellence,
supported by our class-leading agency that we appointed in 2020.
Increasing the use of Artificial Intelligence ('AI') and other
search and conversion optimisation strategies will continue to be
essential to help offset what are rising levels of digital
marketing rate inflation.
We aim to combine the above key pillars with rigorous customer
insights and targeted expansion of our geographical presence to
drive our accelerating growth strategy in the coming years.
Transforming the customer experience: Our mission is to deliver
a great customer experience every time for our thousands of
customers. Our approach is based on designing and implementing
robust business processes, supported by modern IT systems and
effective training to provide speed, ease, certainty and empathy in
everything we do. This is a phased multi-year initiative, which
supports growth and reduces cost. Our focus in 2022 was on
investing in customer service levels as we modernise our call
centre, drive improvements in our complaints handling procedures as
well as implementing Net Promoter Score ('NPS') across the
installations network.
Driving performance: This strategic priority targets delivering
consistency and improved results through standardisation, training,
best practice alignment and innovation across our three initiatives
of 'getting it right', 'levelling up' and 'capacity and
productivity.'
We need to ensure that as our business grows, we have developed
and implemented Standard Operating Procedures ('SOP's) that reduce
the range of operational performance that exists across our
network. In 2022, we launched our new SOPs across our installations
network and also developed and began the roll out of our first
'Role Model Depot' training programme for depot management. This
training will be deployed across our installations management
population into 2023.
A key element of this strategy has been the launch of the
Safestyle Academy. In 2022, 27 trainees have progressed through the
adult fast-track installer training programme which is a
structured, practical training programme with over 90% delivered
on-the-job. This programme is now starting to deliver 'graduates'
of well-trained window fitters to the business, addressing the
current skill shortages across the UK and embedding the Safestyle
approach to customer service. We target further new cohorts to join
later in the year alongside deploying the Academy to other areas of
the business.
Leveraging sustainability and embedding compliance: I am
delighted that we have sustained progress in our environmental
agenda. Our waste to landfill performance remains at 5%.
Furthermore, having increased targets following early achievement
last year, w e remain well on track to achieve our 2025 targets
following a further 2.0% reduction in CO(2) emissions per frame
installed versus 2021. This performance is before taking into
account our new carbon offset partnership programme.
We have engaged with our largest suppliers with regards to their
sustainability agenda and have started several working parties
sharing best practices and learnings as we continue to focus on
reducing the impact of our business on the environment. Included
within these initiatives is a new offset programme that started at
the end of the year which totalled 247 tonnes of carbon credits.
Taking this into account, our CO(2) emissions per frame installed
reduced by 7.7% versus 2021. As reported in the Chairman's
statement, we will continue to report pre and post-carbon offset
performance to clearly capture progress on reducing our own
emissions as well as the impact of offset initiatives.
We have greatly-improved our compliance record over the last
five years. Our health and safety performance remains excellent and
our membership to the Association of Professional Sales has been
renewed. Regular inspections and audits throughout the year have
maintained our focus on our compliance responsibilities.
We also have two enablers to delivery of our strategic
priorities:
IT : Our IT strategy is designed to drive productivity, improve
the customer experience, support growth and reduce cost.
Modernisation of our systems helped to mitigate the impact of the
cyber-attack we experienced in Q1. Alongside a successful recovery
from this, good progress has been made on our medium-term IT
Roadmap delivering new capabilities through enhancements to core
systems alongside more foundational work that is part of our
longer-term journey.
People: 2022 represents a year where we have made good progress
on many aspects of our People agenda. We have made steps to build a
working environment that welcomes and encourages diversity. We have
continued to successfully recruit, train and retain talent in our
business. Achievements include our Training Academy scheme, SOP
deployment, compliance and cyber security training and over 96% of
our installers achieving the 'Minimum Technical Competency.' The
latter is something that FENSA reported as industry-leading in
their 2022 annual report.
As we aim to continue to develop these established programmes in
2023, we will also add further innovative components. Finally, we
were delighted to welcome Michelle Williams to the Board as Chief
People Officer on 1 March and I look forward to continuing to work
with her as we continue to develop our Safestyle People Brand.
New business development
During the year, we launched our new concept brand - Beam - as a
digital channel-only brand. The proposition currently focusses
purely on a composite door range offering. During 2022 and into
early 2023, we have been running numerous test and learn programmes
to understand more about how this business model operates. We aim
to comprehend how we can provide, through a digital platform, what
consumers require despite the infrequent, bespoke nature and
technical complexity that most consumers naturally find daunting.
New businesses such as this represent opportunities to access
additional consumers and can complement our existing core Safestyle
value brand.
Business outlook
The trading context of the UK economy and consumer confidence
remains challenging. Inflation currently remains at over 10% which
combines with the impact of higher interest rates to put pressure
on consumers' disposable income. The CPA Construction Industry
Forecasts (Autumn 2022) predicts that the private housing repair,
maintenance and improvement market ('RMI') will fall by 9% in 2023
before returning to 1% growth in 2024.
Within this context, order intake for the year to date has been
variable. January was in line with management's expectations, but
February and March to date have been slower than anticipated. Such
variability is expected in the short-term and indications are that
we have increased market share (as measured by FENSA) in February
versus our FY2021 level. Our order book has increased since the
start of the year, but remains at the same levels as at the end of
January.
We have continued to invest in our brand through a TV and radio
campaign across February and March which is designed to amplify our
value proposition and emphasise the relevance of our product at a
time of high household energy costs. This proposition is supported
by market-leading finance options and a credible 10-year warranty
that has recently been extended to 15 years for the double-glazing
unit.
We expect largely to mitigate the impact of weaker trading on
our revenues through management of our cost base. In what appears
to be a tougher market expected this year, we are very focused on
continuing to increase our market share and the Board plans to
continue with the strategic investment agenda described at our
Capital Markets Day, albeit prudently, to ensure that the year
still represents a return to profitability. This continued
investment, much of which is variable, is a key part of the Group's
growth agenda. Therefore, as a result of the challenging market
conditions and continued strategic investment, the Board does now
expect revenue to be below current expectations and full year
underlying profitability to be at least GBP2.0m as a balance is
struck between driving sales and the levels of investment made into
the business. The medium-term strategic objectives remain
unchanged.
Alongside our financial targets for the year, we have set a
number of targets across all our strategic priorities and enablers
to be able to measure and share the progress this year towards
achieving all our medium-term plans.
-- Against our accelerating growth plans, we aim for a further
increase in unprompted brand awareness, opening new sales branches
and to also grow our market share versus FY22.
-- To progress on transforming the customer experience , we
target an installation 'On Time In Full' ('OTIF') improvement, a
reduction in open complaints and improvement in our contact centre
call answer rate.
-- As we drive operational performance , our goals are that all
installation depot management have completed role model depot
training, factory output per hour worked increases and that our
exit rate cost of quality has reduced over 2022.
-- Our sustainability targets for FY23 on the journey to our
2025 goals are to achieve waste to landfill of 3.5%, a mileage per
frame installed reduction and a further 1.5% CO(2) per frame
reductions.
-- For our two enablers, starting with our People initiatives,
we target an increase in our gender balance of women / men as well
as reducing our employee turnover. Within IT our objectives are to
deliver further Safestyle and Beam website developments, a new HR
system and to be progressing with our multiyear CRM programme.
In summary, and notwithstanding the current uncertainties
regarding consumer confidence, we remain confident that as the
national value player operating in a historically-proven resilient
sector, we are well-placed to attract consumers in these tougher
economic times, increase market share and also make progress
towards our medium-term financial and strategic objectives. I look
forward to providing an update on our progress towards these
objectives throughout the year.
Rob Neale
Chief Executive Officer
22 March 2023
Financial Review
2022 2021
Underlying Non-underlying Total Underlying Non-underlying Total Change
items(1) items(1) in underlying
%
------------ --------------- ---------- ------------ --------------- --------- ---------------
Financials GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------ --------------- ---------- ------------ --------------- --------- ---------------
Revenue 154,315 154,315 143,251 143,251 7.7%
------------ --------------- ---------- ------------ --------------- --------- ---------------
Cost of sales (116,441) (116,441) (99,496) (99,496) (17.0%)
------------ --------------- ---------- ------------ --------------- --------- ---------------
Gross profit 37,874 37,874 43,755 43,755 (13.4%)
------------ --------------- ---------- ------------ --------------- --------- ---------------
Other operating
expenses(2) (40,546) (4,118) (44,664) (34,519) (1,650) (36,169) (17.5%)
------------ --------------- ---------- ------------ --------------- --------- ---------------
Operating
(loss)
/ profit (2,672) (4,118) (6,790) 9,236 (1,650) 7,586 n/a
------------ --------------- ---------- ------------ --------------- --------- ---------------
Finance costs (1,756) (1,756) (1,623) (1,623) (8.2%)
------------ --------------- ---------- ------------ --------------- --------- ---------------
(Loss) / profit
before
taxation(3) (4,428) (4,118) (8,546) 7,613 (1,650) 5,963 n/a
------------ --------------- ---------- ------------ --------------- --------- ---------------
Taxation 2,035 (1,188)
------------ --------------- ---------- ------------ --------------- --------- ---------------
(Loss) / profit
for the year (6,511) 4,775
------------ --------------- ---------- ------------ --------------- --------- ---------------
Basic EPS
(pence
per share) (4.7)p 3.5p
------------ --------------- ---------- ------------ --------------- --------- ---------------
Diluted EPS
(pence
per share) (4.7)p 3.4p
------------ --------------- ---------- ------------ --------------- --------- ---------------
Cash and cash
equivalents 12,369 16,351
------------ --------------- ---------- ------------ --------------- --------- ---------------
Borrowings (4,372) (4,231)
------------ --------------- ---------- ------------ --------------- --------- ---------------
Net Cash(4) 7,997 12,120
------------ --------------- ---------- ------------ --------------- --------- ---------------
Change
KPIs 2022 2021 %
Gross margin %(5) 24.5% 30.5% (600)bps
-------- -------- ---------
Average Order Value (GBP
inc VAT) 4,337 4,032 7.6%
-------- -------- ---------
Average Frame Price (GBP
ex VAT) 871 791 10.1%
-------- -------- ---------
Frames installed - units 178,652 183,374 (2.6%)
-------- -------- ---------
Orders installed 43,050 43,167 (0.3%)
-------- -------- ---------
Frames per order 4.15 4.25 (2.4%)
-------- -------- ---------
As reported in the CEO's statement, the Group experienced
several unforeseen challenges with a cyber-attack, record high
summer temperatures causing disruption to customer fulfilment and
political instability in the UK causing trading turbulence in the
latter part of the year all adversely impacting the financial
results for the year. More pleasingly, demand improved into
November which resulted in a stronger closing order book than
expected which will support revenues in 2023. In addition, the
Group invested c.GBP5m over 2021 in its strategic priorities as it
focuses on its medium-term objectives.
As a result of the above, the Group made an underlying loss
before taxation of GBP(4.4)m for the year. Net cash ended the year
at GBP8.0m (2021: GBP12.1m), with the reduction in line with the
trading performance for the year. As part of its capital allocation
policy, the Group paid an interim dividend of 0.4p per share (2021:
GBPnil) and has declared a final dividend of 0.1p per share (2021:
GBPnil).
This Financial Review details the changes in the financial
measures and KPIs of the business across the year within the above
context and draws particular attention to the comparison with
2021.
Financial and KPI headlines
-- Revenue increased to GBP154.3m, growth of 7.7% over 2021.
-- Frames installed decreased by 2.6% to 178,652, with the
decline attributable to the cyber-attack, manufacturing disruption
caused by record summer temperatures and lower consumer enquiries
during the period of political instability in late Q3 / early
Q4.
-- The Group continues to improve average frame price, achieving
a 10.1% increase in the year due to necessary price increases to
negate input cost inflation. This average price improvement was
achieved despite a slightly reduced mix of higher average-priced
composite guard doors which was 6.8% in 2022 compared to 7.3% in
2021.
-- The Group also made changes to its consumer finance portfolio
which has both maintained a strong promotional finance offering and
also resulted in a reduction in finance subsidies of GBP0.5m.
-- Gross profit reduced by 13.4% to GBP37.9m which is largely
attributable to lower volume, inflationary cost push and the cost
of growing the order book at increased rates. Gross margin
percentage(5) decreased by 600bps vs 2021 to 24.5% with the largest
single contributor being the delay of a planned price increase, to
recover input cost inflation, due to the cyber-attack.
-- Underlying other operating expenses(2) for the year increased
by GBP6.0m (17.5%) over 2021. The GBP2.5m investment in TV, the
full year cost of the Safestyle Technical Training Academy which
opened in November 2021, salary inflation and the ongoing
investment in IT and customer service are the key components of the
increase.
-- Finance costs have increased year on year as a result of the
movement in LIBOR rate increasing the borrowing facility costs.
This was offset somewhat by reduced interest rate costs on leased
liabilities.
-- Underlying (loss) / profit before taxation(3) was GBP(4.4)m
for the year (2021: profit of GBP7.6m) with lower installation
volume, inflationary costs and the continuation of our strategic
investment agenda all contributing to the loss and reduction versus
2021.
-- Non-underlying items were GBP4.1m for the period (2021:
GBP1.7m), full details of which are provided on the following pages
of this Financial Review and therefore reported (loss) / profit
before taxation was GBP(8.5)m versus a profit of GBP6.0m in
2021.
-- Net cash(4) reduced to GBP8.0m versus GBP12.1m at the end of
last year which reflects the trading performance described above
and after an interim dividend payment of GBP0.6m.
(1) See the non-underlying items section in this Financial
Review
(2) Underlying other operating expenses are defined in the
'Underlying performance measures' section below and the reconciliation
between this measure and the GAAP measure is shown in the 'Financials'
table at the front of this Financial Review
(3) Underlying (loss) / profit before taxation is defined in
the 'Underlying performance measures' section below and the
reconciliation between this measure and the GAAP measure is
shown in the 'Financials' table at the front of this Financial
Review
(4) Net cash is cash and cash equivalents less borrowings
(5) Gross margin % is gross profit divided by revenue
Underlying performance measures
In the course of the last five years, the Group has encountered
a series of unprecedented and unusual challenges. Consequently,
adjusted measures of underlying other operating expenses and
underlying (loss) / profit 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 (loss) / profit 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 2022 was GBP154.3m compared to GBP143.3m for 2021,
representing an increase of 7.7%. This was driven by price rises
implemented to cover the significant inflationary cost increases
that the Group experienced during the year.
Frames installed volume reduced by 4,722 (2.6%) versus 2021 to
178,652 frames. The revenue improvement exceeds the volume
performance as a result of improvements in the following areas:
-- The average frame price increased by 10.1% to GBP871 (2021:
GBP791). This was the result of several price rises during 2022
that were necessary as the Group sought to pass on the significant
material and other cost inflation. As referenced in the CEO's
statement, planned price increases this year were delayed until Q2
as a result of the cyber-attack; the result being that despite the
year on year increase, our average frame price exit rate is
markedly higher than the average for the year.
-- The growth in the average frame price was also despite a
reduced mix of higher average-priced composite guard doors which
reduced to 6.8% of installed volumes (2021: 7.3%).
-- The above favourable average price gains were augmented by a
further year on year reduction in the finance subsidy costs linked
to our consumer finance offering. These reductions follow changes
to our promotional finance portfolio which generated a GBP0.5m
benefit in the year. The Group remains focused on ensuring we have
a market-leading set of payment options available to customers.
-- The average number of frames per order reduced by 2.4% to
4.15. The reduction in this metric was largely in H2 which we
attribute to reduced consumer confidence as a result of the
well-reported economic uncertainty and cost of living increases in
the UK.
-- Finally, as a result of price gains being partially offset by
lower average frames per order, the average order value improved by
7.6% to GBP4,337.
Gross profit
Gross profit was GBP37.9m, a reduction of 13.4% over 2021, while
the gross margin percentage declined by (600)bps to 24.5% (2021:
30.5%). Gross margin percentage was significantly reduced as a
result of the delayed price rise described above, significant
inflationary material cost increases, higher costs of lead
generation and a comparatively (to last year) smaller reduction
over the year in the order book. Further detail on these factors is
as follows:
-- The closing order book reduced marginally by 2.7% year on
year; it still remains high compared to pre-pandemic levels. By
comparison, the order book reduced by 8.4% in 2021 which combined
with unusually low lead costs in the first half of 2021 to boost
gross margin percentage that year.
-- Alongside the order book changes described above, the cost of
lead generation increased versus 2021 which was buoyed by a strong
consumer response following the restart of all selling activities
when the third national COVID lockdown was ended in early 2021. The
consequential rate impact over the full year equates to a GBP5.1m
year on year increase.
-- Finally, the inflationary cost increases linked to PVCu
profile, glass, installation materials, scaffolding, labour and
contractor costs represent a year on year rate increase of GBP10.2m
which was recovered through sales price rises implemented during
the year.
Underlying other operating expenses
Underlying other operating expenses were GBP40.5m which includes
TV investment of GBP2.5m and is an increase of GBP6.0m (17.5%) over
2021. Excluding the TV spend, which is a key element of rebuilding
our brand to support the strategic initiative of accelerating
growth, the increase of other operating expenses was GBP3.5m
(10.2%). The key factors behind this increase are as follows:
-- Wage inflation including the increase in employers' national
insurance rates represents a key driver of the year on year cost
increase. The costs of a 3% annual payrise for most staff have been
incurred alongside higher percentage increases for a number of
colleagues to underpin attraction and retention of people at all
levels of the organisation. In the second-half of the year,
additional payments were made to staff on fixed earnings in the
form of an energy supplement to support the rapidly-increasing cost
of living.
-- In line with the Group's strategic priorities, we have
continued to grow our customer service resource levels and invest
in installations capacity in the last 18 months through the opening
of a new depot in Milton Keynes (August 2021). The opening of the
Safestyle Training Academy in November 2021 represents an
investment to develop a pipeline of professionally trained
installers, surveyors and service engineers. Increased operational
headcount alongside the factors above are the other main drivers of
the year on year increase in operating expenses.
-- Finally, the Group continues its ongoing investment in IT and
customer service as key enablers of the Group's strategic
priorities. The ongoing investment in upgrading and implementing
new IT systems is a critical enabler of our priorities. These
investments have already delivered benefits that proved essential
in helping to mitigate the full potential impact of the
cyber--attack in January 2022.
Underlying (loss) / profit before taxation
Underlying (loss) before taxation was GBP(4.4)m (2021: profit of
GBP7.6m). This loss is before the non-underlying items described
below.
Non-underlying items
A total of GBP4.1m has been separately treated as non-underlying
items for the year (2021: GBP1.7m).
The current year consists of GBP3.6m of non-recurring costs
(2021: GBP0.5m), a GBP0.0m share based payment charge (2021:
GBP0.7m) and GBP0.5m (2021: GBP0.5m) of Commercial Agreement
(intangible asset) amortisation. The table below shows the full
breakdown of these items:
2022 2021
GBP'000 GBP'000
--------------------- -------------------------
Holiday pay accrual (46) (79)
--------------------- -------------------------
RSA related costs - 147
--------------------- -------------------------
Litigation costs 131 90
--------------------- -------------------------
Restructuring and operational costs 473 300
--------------------- -------------------------
Modification of right-of-use assets
and liabilities (113) (83)
--------------------- -------------------------
Impairment of right-of-use assets 27 122
--------------------- -------------------------
IT project impairment - 14
--------------------- -------------------------
Cyber incident related costs 953 -
--------------------- -------------------------
Operational project costs 1,663 -
--------------------- -------------------------
Previous CEO retirement costs 556 -
--------------------- -------------------------
Total non-recurring costs ( note 6) 3,644 511
--------------------- -------------------------
Equity settled share based payment charge 22 687
--------------------- -------------------------
Commercial Agreement amortisation 452 452
--------------------- -------------------------
Total non-underlying items 4,118 1,650
--------------------- -------------------------
The holiday pay accrual release represents a release for part of
an accrual made at the end of 2020 which arose as a result of the
impact of the shutdown of operations and resultant extension of
2020 leave entitlement until March 2023 for some employees. This
increased the level of deferred holiday entitlement of our people
at the end of 2020 which was recognised as an accrual in 2020 and
will reverse fully in 2023. This item was excluded from the Group's
underlying performance measures to ensure performance of the
business is not skewed both the expense in 2020 or its subsequent
use.
GBP1.0m of separately identifiable cyber incident-related costs
are included in non-recurring costs in relation to the incremental
costs incurred as part of the recovery from the cyber-attack.
At the end of 2022 the Group transitioned to a new provider of
PVCu profile, Liniar. The Group incurred a one-off cost of GBP1.7m
due to the incremental costs of transitioning to the new profile
and the impairment of the remaining stock held that was specific to
the old profile which will no longer be sold to customers.
The Group incurred GBP0.5m (2021: GBP0.3m) of restructuring and
non-recurring operational costs.
The charge of GBP0.6m represents the costs of treatment of Mike
Gallacher's remuneration arrangements following his retirement from
the Board on 14 December 2022. More details can be found in the
Directors' Remuneration Report in the Annual Report.
As reported in the last four years, the Commercial Agreement is
an agreement entered into with Mr M Misra which encompassed a five
year non-compete agreement and the provision of services by Mr
Misra in support of the continued recovery of Safestyle. The Group
agreed consideration with Mr Misra subject to the satisfaction of
both clear performance conditions by him over five years and
Safestyle's trading performance in 2019.
The non-compete element of the Commercial Agreement was
accounted for as an intangible asset on the basis that it is an
identi able, non-monetary item without physical substance, which is
within the control of the entity and is capable of generating
future economic bene ts for the entity. The intangible asset was
measured based on the fair value of the consideration that the
Group expects to issue under the terms of the agreement and is
being amortised over 5 years which matches the term of the
non-compete arrangement.
Share based payment charges reduced significantly versus 2021
predominantly due to the charges incurred when the Restricted Share
Award granted in October 2020 that vested in June 2021.
The items classified as non-recurring costs in the Consolidated
Income Statement, the share based payment charges and the
amortisation of the intangible asset created as a result of the
Commercial Agreement reached in 2018 have all been excluded from
the underlying (loss) / profit 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 were a loss of (4.7)p for the year
compared to a profit of 3.5p for 2021. The basis for these
calculations is detailed in note 7.
Net cash and cashflow
The Group's net cash reduced by GBP4.1m during the year, closing
at GBP8.0m compared to GBP12.1m at the end of 2021. GBP4.5m of the
Group's GBP7.5m borrowing facility, being that of the term loan,
remained drawn at the year end with the GBP3.0m revolving credit
facility undrawn.
The facility, which was due to expire in October 2023 was
replaced in January 2023 with a GBP7.5m revolving credit facility
that can be utilised as required to support working capital needs.
This facility is in place until 31 December 2026. As a result, the
GBP4.5m term loan was repaid in January 2023.
Net cash inflow from operating activities, including the
cashflow impact of non-underlying items, was a GBP1.6m inflow
(2021: GBP9.6m inflow). The inflow for the period, although reduced
versus the prior year due to the losses as described above,
reflects the strong operating cashflow model of the Group and
benefits from favourable working capital movements in the year.
Capital expenditure of GBP1.4m increased from GBP1.2m in 2021
with the Group continuing to invest in its IT systems to support
the strategic roadmap.
During the year the Group returned to the Dividend list and paid
an interim dividend of 0.4p per share resulting in a GBP0.6m
outflow (2021: nil).
Dividends
The Board has approved a final dividend of 0.1p per share (2021:
GBPnil) following an interim dividend of 0.4p (2021: GBPnil). As
reported previously, the Group's capital allocation policy is to
firstly utilise surplus cash to fund forthcoming strategic
initiatives. Subsequent to that, the policy is to return surplus
cash to shareholders through the restoration of a progressive
dividend followed by buyback programmes and latterly, special
dividends in order to maximise returns to our shareholders.
The return to payment of dividends this year signals the Board
drawing a line under the turbulence of the past few years and the
Board reaffirms its commitment to adopt a progressive dividend
policy from here. The final dividend will be paid on 1 June 2023 to
shareholders on the register on 5 May 2023 and will have an
ex-dividend date of 4 May 2023.
Rob Neale
Chief Executive Officer
22 March 2023
Consolidated Income Statement for the year ended 1 January
2023
2022 2021
Note GBP000 GBP000
Revenue 4 154,315 143,251
Cost of sales (116,441) (99,496)
Gross profit 37,874 43,755
Expected credit losses expensed (293) (362)
Other operating expenses(1) (44,371) (35,807)
Operating (loss) / profit (6,790) 7,586
Finance costs (1,756) (1,623)
(Loss) / profit before taxation (8,546) 5,963
---------- ---------
Underlying (loss) / profit before taxation
before non-recurring costs, Commercial
Agreement amortisation and share based
payment charges (4,428) 7,613
Non-recurring costs 6 (3,644) (511)
Equity settled share based payments
charges (22) (687)
Commercial Agreement amortisation (452) (452)
(Loss) / profit before taxation (8,546) 5,963
---------------------------------------------- ----- ----------
Taxation 2,035 (1,188)
(Loss) / profit after taxation (6,511) 4,775
========== =========
Earnings Per Share
Basic (pence per share) 7 (4.7)p 3.5p
Diluted (pence per share) 7 (4.7)p 3.4p
(1) Other operating expenses includes GBP3,644k (2021: GBP511k)
of non-recurring costs, GBP452k (GBP2021: GBP452k) of Commercial
Agreement amortisation and GBP22k (2021: 687k) of share based
payments charges. Adjusting for these gives underlying other
operating expenses of GBP40,253k (2021: GBP34,157k). See Financial
Review for details.
There is no other comprehensive income for the year. 2021
represents the year ended 2 January 2022.
All operations were continuing throughout all years.
Consolidated Statement of Financial Position at 1 January
2023
2022 2021
Note GBP000 GBP000
Assets
Intangible assets - Trademarks 504 504
Intangible assets - Goodwill 20,758 20,758
Intangible assets - Software 1,305 870
Intangible assets - Other 380 832
Property, plant and equipment 10,024 10,811
Right-of-use assets 10 9,416 11,146
Deferred taxation asset 2,984 1,053
Non-current assets 45,371 45,974
Inventories 8 3,939 5,298
Current taxation 114 -
Trade and other receivables 5,106 4,880
Cash and cash equivalents 12,369 16,351
Current assets 21,528 26,529
Total assets 66,899 72,503
============== =========
Equity
Called up share capital 1,389 1,386
Share premium account 89,495 89,495
Profit and loss account 3,856 10,893
Common control transaction
reserve (66,527) (66,527)
Total equity 28,213 35,247
Liabilities
Trade and other payables 9 21,069 18,052
Lease liabilities 10 4,154 4,104
Corporation taxation liability - 159
Provision for liabilities
and charges 1,338 1,274
Borrowings 4,372 -
Current liabilities 30,933 23,589
Provision for liabilities
and charges 2,160 2,109
Lease liabilities 10 5,593 7,327
Borrowings - 4,231
Non-current liabilities 7,753 13,667
Total liabilities 38,686 37,256
Total equity and liabilities 66,899 72,503
============== =========
Consolidated Statement of Changes in Equity for the year ended 1
January 2023
Share Share Profit Common Total
capital premium and loss control equity
account transaction
reserve
GBP000 GBP000 GBP000 GBP000 GBP000
Balance at 4 January
2021 1,368 89,495 5,347 (66,527) 29,683
Total comprehensive
profit for
the year - - 4,775 - 4,775
Transactions with owners
reported
directly in Equity:
Issue of new shares 18 - (18) - -
Deferred taxation asset
taken
to reserves - - 4 - 4
Current taxation asset
taken
to reserves - - 98 - 98
Equity settled share
based payment
transactions - - 687 - 687
----------------- ----------------- ---------- -------------------- -----------------
Balance at 2 January
2022 1,386 89,495 10,893 (66,527) 35,247
Total comprehensive
(loss) for
the year - - (6,511) - (6,511)
Transactions with owners
reported
directly in Equity:
Issue of new shares 3 - (3) - -
Deferred taxation asset
taken
to reserves - - 10 - 10
Dividends - - (555) - (555)
Equity settled share
based payment
transactions - - 22 - 22
Balance at 1 January
2023 1,389 89,495 3,856 (66,527) 28,213
================= ================= ========== ==================== =================
Consolidated Statements of Cash Flows for the year ended 1
January 2023
Note 2022 2021
GBP000 GBP000
Cash flows from operating activities
(Loss) / profit for the year (6,511) 4,775
Adjustments for:
Depreciation of property, plant and
equipment 1,368 1,473
Depreciation of right-of-use assets 10 3,729 3,882
Amortisation of intangible fixed assets 875 842
Modification of right-of-use assets
and liabilities 10 (113) (83)
Impairment of right-of-use assets 10 27 122
Finance expense 1,756 1,623
IT project impairment - 14
Equity settled share based payments
charge 22 687
Taxation (credit) / charge (2,035) 1,188
-------------------------- -----------------------
(882) 14,523
Decrease / (increase) in inventories 1,359 (753)
(Increase) / decrease in trade and other
receivables (226) 783
Increase / (decrease) in trade and other
payables 3,017 (3,877)
(Decrease) / increase in provisions (226) 195
-------------------------- -----------------------
3,924 (3,652)
Other interest (paid) (1,274) (1,250)
Taxation (paid) (159) -
-------------------------- -----------------------
Net cash inflow from operating activities 1,609 9,621
Cash flows from investing activities
Acquisition of property, plant and equipment (730) (809)
Acquisition of intangible fixed assets (709) (424)
Net cash (outflow) from investing activities (1,439) (1,233)
Cash flows from financing activities
Dividends paid (555) -
Payment of lease liabilities 10 (3,597) (3,742)
Net cash (outflow) from financing activities (4,152) (3,742)
Net (outflow) / inflow in cash and cash
equivalents (3,982) 4,646
Cash and cash equivalents at start of
year 16,351 11,705
Cash and cash equivalents at end of
year 12,369 16,351
========================== =======================
2021 represents the year ended 2 January 2022.
Notes to the year end financial information
1 Statement of Compliance
Whilst the financial information included in this Preliminary
Announcement has been prepared on the basis of the requirements of
International Financial Reporting Standards (IFRSs) in issue, as
adopted by the European Union, this announcement does not itself
contain sufficient information to comply with IFRS.
The financial information set out above does not constitute the
company's statutory accounts for the financial years 2022 or 2021
but is derived from those accounts. Statutory accounts for 2021
have been delivered to the registrar of companies with the Jersey
Financial Statements Commission (JSFC), and those for 2022 will be
delivered in due course. Grant Thornton UK LLP has reported on
those accounts. Their reports for 2022 and 2021 were (i)
unqualified, (ii) did not include a reference of any matters to
which the auditor drew attention by way of emphasis without
qualifying their report and (iii) did not contain a statement under
section 113B (3) or (6) of the Companies (Jersey) Law 1991.
Safestyle UK plc is a public listed group incorporated in
Jersey. The Group's shares are traded on AIM. The Group is required
under AIM rule 19 to provide shareholders with audited consolidated
financial statements. The registered office address of the
Safestyle UK plc is 47 Esplanade, St Helier, Jersey JE1 0BD.
The Group is not required to present parent company
information.
2 General information and basis of preparation
The Group's financial statements for the financial year 2022
which ended on 1 January 2023 ("financial statements"), have been
prepared on a going concern basis under the historical cost
convention and are in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the EU and the
International Financial Reporting Standards Interpretations
Committee interpretations issued by the International Accounting
Standards Board ("IASB") that are effective or issued and early
adopted as at the time of preparing these financial statements.
Safestyle UK plc was incorporated on 8 November 2013. On 3
December 2013 Safestyle UK plc acquired Style Group Holdings
Limited through a share for share exchange. This was accounted for
as a common control transaction. The result of this is that the
financial statements of Style Group Holdings have been included in
the Group consolidated financial statements of Safestyle UK plc at
their book value at the IFRS transition date of 1 January 2010 with
the assumption that the Group was in existence for all the periods
presented. The excess of the cost at the time of acquisition over
its book value has been recorded as a common control transaction
reserve.
The accounting policies set out below have, unless otherwise
stated, been applied consistently to all periods presented in these
financial statements.
The preparation of financial statements requires Management to
exercise its judgement in the process of applying accounting
policies. The areas involving a higher degree of judgement or
complexity, or areas where assumptions and estimates are
significant to these financial statements are disclosed in note
5.
(a) New and amended standards adopted by the Group.
The Group has adopted the following new standards and amendments
for the first time. Unless otherwise stated, they have not had a
material impact on the financial statements.
-- Reference to the Conceptual Framework (Amendments to IFRS 3)
-- Property, Plant and Equipment: Proceeds Before Intended Use (Amendments to IAS 16)
-- Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37)
-- Annual Improvements (2018-2020 Cycle):
- Subsidiary as a First-time Adopter (Amendments to IFRS 1)
- Fees in the '10 per cent' Test for Derecognition of
Liabilities (Amendments to IFRS 9)
- Lease Incentives (Amendments to IFRS 16)
- Taxation in Fair Value Measurements (Amendments to IAS 41)
(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):
-- Reference to the Conceptual Framework (Amendments to IFRS 3)
-- COVID-19 - Related Rent Concessions beyond 30 June 2021 (Amendments to IFRS 16)
-- Property, Plant and Equipment: Proceeds Before Intended Use (Amendments to IAS 16)
-- Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37)
-- Annual Improvements (2018-2020 Cycle):
- Subsidiary as a First-time Adopter (Amendments to IFRS 1)
- Fees in the '10 per cent' Test for Derecognition of
Liabilities (Amendments to IFRS 9)
- Lease Incentives (Amendments to IFRS 16)
- Taxation in Fair Value Measurements (Amendments to IAS 41)
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 1 January 2023
for the current reporting year and 2 January 2022 for the prior
year. All references made throughout these accounts for the
financial year 2022 are for the period 3 January 2022 to 1 January
2023 and references to the financial year 2021 are for the period 4
January 2021 to 2 January 2022.
3 Going concern
The financial statements are prepared on a going concern basis
which the Directors believe to be appropriate for the following
reasons.
The Group made a statutory loss of GBP(6.5)m in the financial
year 2022 (2021: profit of GBP4.8m) and had net current liabilities
of GBP(9.4)m at the end of the financial year 2022 (2021: net
current assets of GBP2.9m). As detailed in the Financial Review,
the loss reported of GBP(6.5)m was a result of the Group
experiencing several unforeseen challenges with a cyber-attack,
record high summer temperatures causing disruption to customer
fulfilment, and political instability in the UK causing trading
turbulence in the latter part of the year. Demand improved into
November which resulted in a stronger closing order book than
expected which will support revenues in 2023. However, the
investment of growing the order book was incurred in 2022 and will
be realised in 2023 when the orders are installed. In addition, the
Group invested c.GBP5m over 2022 in its strategic priorities as it
focusses on its medium-term objectives. Net cash ended the year at
GBP8.0m (2021: GBP12.1m), with the reduction in line with the
trading performance for the year.
At the year end, the Group had banking facilities which consist
of a GBP4.5m term loan and a GBP3.0m revolving credit facility
("RCF"). The RCF remained undrawn throughout 2022, which has been
the case since May 2020, and following a revision to the banking
covenants in place there were no covenant tests applicable at year
end as the RCF was undrawn. The Group replaced its existing
borrowing facility in January 2023 with a new RCF of GBP7.5m
extending out to December 2026. The agreement is covenant-lite,
whereby there are no covenant tests in place whilst the facility is
undrawn.
In addition, the Group's net cash position was GBP4.4m at 26
February 2023 (February 2022: net cash of GBP14.5m).
The Directors have prepared forecasts covering the period to the
end of 2024, to cover an assessment period until June 2024. The
forecasts include a number of assumptions in relation to sales
volume, pricing, margin improvements and overhead investment. The
Directors believe the key assumptions to be a cautious reflection
of the economy and realistic with installation volume 4.6% below
FY22 levels which was impacted by the cyber attack. This target is
deemed to be realistic. The Group has a strong opening order book
following increased demand in November 2022 and order intake at
this level would match the current capacity of the installation
network. The Group is forecasting the continuation of significant
increases in manufacturing costs as suppliers pass on increasing
energy and raw material prices that they are incurring themselves.
Increases in overhead costs have also been forecast as the Group
continues its strategic agenda to invest in IT, customer services,
as well as annual pay increases in line with rising inflation.
These forecasts result in further increases in net cash and
liquidity, with no covenant tests in place in line with the new
facility, as the RCF is forecast to remain undrawn throughout the
year.
Whilst the Directors believe the assumptions above to be
sensible, the operating environment is exposed to a number of risks
which could impact the actual performance achieved in 2023. These
risks include, but are not limited to, reducing consumer confidence
due to the general economic conditions, (delivering the required
levels of order intake in the current economic environment),
competition from other sectors increases, and the Group's ability
to maintain margins given the rising input costs.
The Directors have modelled various sensitised downside
scenarios for 2023 and 2024. For 2023, these included a scenario
which modelled an 8% reduction in installation volumes versus 2022
and installation volumes at similar levels to the COVID impacted
year of 2020. In this scenario, mitigating actions within the
control of management, including reductions in areas of
discretionary spend could be deployed. Even with the above
significant reductions in activity, the resultant cash flow
forecasts, after mitigation that are entirely within management's
control. Projections show that the Group will be able to increase
its net cash position and operate within the financial covenants of
the borrowing facility.
In forming their view on preparing the financial statements on a
going concern basis, the Board notes that considerable headroom
exists between sales required in its forecast scenario and those
required to maintain positive net cash and available liquidity. The
Board considers that the reverse stress test scenario which would
result in a covenant breach represents a highly unlikely downside
trading performance scenario.
The Board of Directors therefore conclude that, in its opinion,
the Group has sufficient working capital for its present
requirements until the end of the going concern period, with
downside scenarios consistent with levels achieved in the year
where the business shutdown operations for 2 months in the height
of the COVID pandemic.
Based on the above indications and work prepared, the Board of
Directors believes that it is appropriate to prepare the financial
statements on a going concern basis.
4 Significant accounting policies
Revenue recognition
The Group earns revenue from the design, manufacture, delivery
and installation of domestic double-glazed replacement windows and
doors.
There are five main steps followed for revenue recognition:
-- Identifying the contract with a customer
-- Identifying the performance obligations
-- Determining the transaction price
-- Allocating the transaction price to the performance obligations; and
-- Recognising revenue when or as an entity satisfied performance obligations.
The various stages of the performance obligations are the
design, manufacture, delivery and installation of domestic
double-glazed replacement windows and doors.
In applying the principal of recognising revenue related to
satisfaction of performance obligations under IFRS 15, the Group
considers that the final end product is dependent upon a number of
services in the process that may be capable of distinct
identifiable performance obligations. However, where obligations
are not separately identifiable, in terms of a customer being
unable to enjoy the benefit in isolation, the standard allows for
these to be combined. The Group considers that in the context of
the contracts held these are not distinct. As such, the performance
obligations are treated as one combined performance obligation and
revenue is recognised in full, at a point in time, being on
completion of the installation. Revenue is shown net of discounts,
sales returns, charges for the provision of consumer credit, VAT
and other sales related taxes. Revenue is measured based on the
consideration specified in a contract with a customer.
There is no identifiable amount included in the final price for
a warranty, as the Group provides a guarantee on all
installations.
Payments received in advance are held within other creditors, as
a contract liability. The final payment is due on installation.
A survey fee is paid at the point of agreeing the contract and
the customer has up to 14 days, defined in the contract, to change
their minds. If the customer changes their mind after this cooling
off period, the Group has the right to retain this survey fee and
as such revenue for this is recognised at the point in time that
this becomes non-refundable.
The Group offers consumer finance products from a range of
providers whilst acting as a credit broker and not the lender. The
Group earns commission and pays subsidies for its role as a credit
broker. As the Group is acting as the agent and not the principal,
commission is not disclosed as a separate income stream.
In addition to the above, the Group recognises revenue from the
sale of materials for recycling. The revenue is recognised when the
materials are collected by the recycling company which represents
the completion of the performance obligation. The Group has
determined that this revenue is derived from its ordinary
activities and as such this balance is recognised within
revenue.
Non-underlying items
Non-underlying items consist of non-recurring costs, share based
payments and Commercial Agreement amortisation. Non-recurring costs
are excluded because they are not expected to repeat in future
years.
5 Accounting estimates and judgements
When preparing the Group's consolidated financial statements,
management makes a number of judgements, estimates and assumptions
about the recognition and measurement of assets, liabilities,
revenue and expenses. Actual results can differ from these
estimates. Estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to estimates are recognised
prospectively.
Significant management judgements
The following are the judgements made by management in applying
the accounting policies of the Group that have the most significant
effect on these consolidated financial statements.
Recognition of deferred taxation assets
The extent to which deferred taxation assets can be recognised
is based on an assessment of the probability that future taxable
income will be available against which the deductible temporary
differences and taxation loss carry-forwards can be utilised. The
deferred taxation asset of GBP2,984k (2021: GBP1,053k) 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 pre-taxation discount rate of 16% has been applied to the
impairment assessment calculation. This was calculated using
publicly available third party data sources. Management used
judgement in the decision to use a discount factor of 16%.
Dilapidations provision
The Group has a portfolio of leased properties that sales
branches and installation depots operate from. A dilapidations
provision is provided for leased properties where the lease
agreement contains a contractual obligation to undertake remedial
works at the end of the lease term and where wear-and-tear, or
damage on the property, has occurred. The calculation of the
estimate is based on historical experience of cost to rectify upon
exiting similar properties. The estimated costs are subject to
estimation uncertainty as the final payment agreed may differ to
the estimated cost given the process whereby dilapidations are
negotiated. If the effect of discounting is material, the
dilapidations provision is determined by calculating the expected
future cash flows at a pre-taxation rate that reflects current
market assessments of the time value of money, and when
appropriate, the risks specific to the liability.
Product guarantee provision
The Group guarantees all of its products, which in the majority
of cases covers a period of 10 years. The provision is calculated
to cover the cost of fulfilling any guarantee work to its
customers, and is based on the expected future costs of rectifying
faults and the future rate of product failure arising within the
guarantee period. The level of provision required to cover this
cost is subject to estimation uncertainty. If the effect of
discounting is material, the guarantee provision is determined by
calculating the expected future cash flows at a pre-taxation rate
that reflects current market assessments of the time value of
money, and, when appropriate, the risks specific to the
liability.
Expected credit loss for trade receivables
The Group assesses, on a forward-looking basis, the expected
credit losses ('ECLs') associated with its trade receivables. This
is based on historical experience, external indicators and
forward-looking information to calculate the expected credit
losses.
6 Non-recurring costs
2022 2021
GBP000 GBP000
Holiday pay accrual a (46) (79)
RSA related costs b - 147
Litigation Costs c 131 90
Restructuring and operational costs d 473 300
Modification of right-of-use assets and liabilities e (113) (83)
Impairment of right-of-use assets f 27 122
IT project impairment g - 14
Cyber incident related costs h 953 -
Operational project costs i 1,663 -
Previous CEO retirement costs j 556 -
Total non-recurring costs 3,644 511
================= ====================
a) The holiday pay accrual arose as a result of the impact of the
shutdown of operations and resultant extension of 2020 leave entitlement
which, for some employees, is up to March 2023. The release of the
current reporting period represents a partial-unwinding of the original
accrual booked in 2020 due to the deferred holiday subsequently
taken in the year.
b) RSA related costs are the employer related taxes associated with
the issue of Restricted Share Award Scheme during the year.
c) Litigation costs are mainly expenses incurred as a result of
a legal dispute between the Group and an ex--agent. These costs
are predominantly legal advisor's fees.
d) 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.
e) Modification of right--of--use assets relates to the closure
of properties identified as right--of--use assets during the period.
f) Impairment of right-of-use asset costs relates to the closure
of properties identified as assets under IFRS 16 where the lease
commitment extended beyond 2022.
g) 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.
h) Cyber incident related costs directly incurred and associated
with the cyber-attack that took place in January 2022. Immediately
following the attack, there was a short-term impact on the Group's
operations as it implemented business continuity workarounds as
it recovered its systems.
i) Operational project costs are the incremental costs of transitioning
to the Group's new profile supplier and the costs of impairing the
remaining stock held of that was specific to the old profile and
that will no longer be sold to customers.
j) Previous CEO retirement costs represent the costs of treatment
of Mike Gallacher's remuneration arrangements following his retirement.
7 Earnings per Share
2022 2021
Basic earnings per ordinary share (pence) (4.7) 3.5
Diluted earnings per ordinary share
(pence)* (4.7) 3.4
a) Basic earnings per share
The calculation of basic earnings per share has been based on the
following (loss) / profit attributable to ordinary shareholders and
weighted-average number of shares outstanding.
i) (Loss) / profit attributable to
ordinary shareholders (basic)
2022 2021
GBP000 GBP000
(Loss) / profit attributable to ordinary
shareholders (6,511) 4,775
============== =============
ii) Weighted-average number of ordinary
shares (basic)
No of shares No of shares
'000 '000
In issue during the year 138,748 137,753
============== =============
b) Diluted earnings per share
*Due to a net loss for the year, diluted earnings per share is the
same as basic for 2022.
The calculation of diluted earnings per share has been based on the
following (loss) / profit attributable to ordinary shareholders and
weighted-average number of ordinary shares outstanding after adjustment
for the effects of all dilutive potential ordinary shares.
2022 2021
GBP000 GBP000
i) (Loss) / profit attributable to
ordinary shareholders (diluted) (6,511) 4,775
============== =============
ii) Weighted-average number of ordinary
shares (diluted)
No of shares No of shares
'000 '000
Weighted-average number of ordinary
shares (basic) 138,748 137,753
Effect of conversion of share options - 3,589
138,748 141,342
============== =============
The average market value of the Group's shares for the purpose of
calculating the dilutive effect of share options was based on quoted
market prices for the period during which the options were outstanding.
Diluted earnings per share is calculated by adjusting the earnings
and number of shares for the effects of dilutive options. In the event
that a loss is recorded for the year, share options are not considered
to have a dilutive effect.
8 Inventory
2022 2021
GBP000 GBP000
Raw materials and consumables 3,017 4,329
Work in progress 79 80
Finished goods 843 889
3,939 5,298
-------- --------
9 Trade and other payables
2022 2021
GBP000 GBP000
Trade payables 8,512 7,118
Other taxation and social security
costs 3,649 3,169
Other creditors and deferred
income 4,298 4,747
Accruals 4,610 3,018
21,069 18,052
-------- --------
10 Right of use assets and liabilities
Motor
Properties Vehicles Equipment Total
------------ ------------ ---------- ------------
GBP000 GBP000 GBP000 GBP000
Assets
At 2 January 2022 5,177 5,686 283 11,146
Additions 1,591 814 22 2,427
Impairment (27) - - (27)
Modification (355) (46) - (401)
Depreciation (1,310) (2,329) (90) (3,729)
------------ ------------ ---------- ------------
At 1 January 2023 5,076 4,125 215 9,416
------------ ------------ ---------- ------------
Liabilities
At 2 January 2022 5,372 5,765 294 11,431
Payment (1,585) (2,596) (104) (4,285)
Additions 1,591 814 22 2,427
Interest 353 326 9 688
Modification (469) (45) - (514)
------------ ------------ ---------- ------------
At 1 January 2023 5,262 4,264 221 9,747
------------ ------------ ---------- ------------
Reconciliation of movements of liabilities to
cash flows arising from financial activities
Balance at 2 January 2022 5,372 5,765 294 11,431
Payment of lease liabilities (1,232) (2,270) (95) (3,597)
------------ ------------ ---------- ------------
Total changes from financing
cash flows (1,232) (2,270) (95) (3,597)
------------ ------------ ---------- ------------
Other changes
New leases 1,591 814 22 2,427
Impairment (469) (45) - (514)
Interest expense 353 326 9 688
Interest paid (353) (326) (9) (688)
------------ ------------ ---------- ------------
Total liability-related
other changes 1,122 769 22 1,913
------------ ------------ ---------- ------------
At 1 January 2023 5,262 4,264 221 9,747
------------ ------------ ---------- ------------
Liabilities classification
Current (<1 year) 1,586 2,489 79 4,154
Long term (>1 year) 3,676 1,775 142 5,593
------------ ------------ ---------- ------------
5,262 4,264 221 9,747
------------ ------------ ---------- ------------
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END
FR EAKDDALNDEEA
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