REG - Safestyle UK PLC - Final Results
23/03/2023 07:15
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RNS Number : 9897T Safestyle UK PLC 23 March 2023
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(EU) No. 596/2014 as it forms part of UK domestic law by virtue of the
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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
2022 2021 FY22 v FY21 % change
Revenue (£m) 154.3 143.3 7.7%
Gross Profit (£m) 37.9 43.8 (13.4%)
Gross margin % 24.54% 30.54% (600)bps
Underlying (loss) / profit before taxation(2) (£m) (4.4) 7.6 n/a
Non-underlying items(3) (£m) (4.1) (1.6) (149.6%)
(Loss) / profit before taxation (£m) (8.5) 6.0 n/a
EPS - Basic (pence) (4.7)p 3.5p n/a
Net cash(4) (£m) 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 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) /
2) 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 £8.0m with lower cost facility extended to December
2026.
· Underlying profit reduction due to the estimated c.£4m impact of
a cyber-attack in Q1 and a £5m strategic investment programme (versus
2021).
Operational headlines
· Implemented £5m 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
£2.0m, 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 £2.0m.
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 (http://www.safestyleukplc.co.uk) or
www.safestyle-windows.co.uk (http://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 £154.3m 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
£37.9m 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.£5m 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 £(4.4)m compared to an underlying profit in
2021 of £7.6m. After non-underlying items, reported (loss) before taxation
was £(8.5)m compared to a profit of £6.0m 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 £8.0m (2021: £12.1m)
as a result of the financial performance described above.
Pleasingly - and a representation of our lender's confidence in the Group's
future - the £7.5m 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: £nil) was declared and paid in
the year. The Board has proposed a final dividend of 0.1p per share (2021:
£nil). 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
Our 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 £154.3m 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.£5m which includes £2.5m 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 £(4.4)m
compared to an underlying profit in 2021 of £7.6m. 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.£4m (largely due to the pricing delay
described above) and the year on year investments in our strategic priorities
of c.£5m.
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: £nil).
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: £nil) 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 £2.5m
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, we 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 £2.0m 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 items(1) Total Underlying Non-underlying items(1) Total Change in underlying %
Financials £000 £000 £000 £000 £000 £000
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
KPIs 2022 2021 Change %
Gross margin %(5) 24.5% 30.5% (600)bps
Average Order Value (£ inc VAT) 4,337 4,032 7.6%
Average Frame Price (£ 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.£5m 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
£(4.4)m for the year. Net cash ended the year at £8.0m (2021: £12.1m),
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: £nil) and has declared a final dividend of 0.1p per
share (2021: £nil).
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 £154.3m, 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 £0.5m.
· Gross profit reduced by 13.4% to £37.9m 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
£6.0m (17.5%) over 2021. The £2.5m 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 £(4.4)m for
the year (2021: profit of £7.6m) 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 £4.1m for the period (2021: £1.7m),
full details of which are provided on the following pages of this Financial
Review and therefore reported (loss) / profit before taxation was £(8.5)m
versus a profit of £6.0m in 2021.
· Net cash(4) reduced to £8.0m versus £12.1m at the end of last
year which reflects the trading performance described above and after an
interim dividend payment of £0.6m.
(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 £154.3m compared to £143.3m 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 £871 (2021:
£791). 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 £0.5m 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
£4,337.
Gross profit
Gross profit was £37.9m, 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 £5.1m 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 £10.2m which was recovered through
sales price rises implemented during the year.
Underlying other operating expenses
Underlying other operating expenses were £40.5m which includes TV investment
of £2.5m and is an increase of £6.0m (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 £3.5m (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 £(4.4)m (2021: profit of £7.6m).
This loss is before the non-underlying items described below.
Non-underlying items
A total of £4.1m has been separately treated as non-underlying items for the
year (2021: £1.7m).
The current year consists of £3.6m of non-recurring costs (2021: £0.5m), a
£0.0m share based payment charge (2021: £0.7m) and £0.5m (2021: £0.5m) of
Commercial Agreement (intangible asset) amortisation. The table below shows
the full breakdown of these items:
2022 2021
£'000 £'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.
£1.0m 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 £1.7m 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 £0.5m (2021: £0.3m) of restructuring and non-recurring
operational costs.
The charge of £0.6m 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 identifiable, non-monetary item
without physical substance, which is within the control of the entity and is
capable of generating future economic benefits 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 £4.1m during the year, closing at £8.0m
compared to £12.1m at the end of 2021. £4.5m of the Group's £7.5m
borrowing facility, being that of the term loan, remained drawn at the year
end with the £3.0m revolving credit facility undrawn.
The facility, which was due to expire in October 2023 was replaced in January
2023 with a £7.5m 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 £4.5m term loan was repaid in January 2023.
Net cash inflow from operating activities, including the cashflow impact of
non-underlying items, was a £1.6m inflow (2021: £9.6m 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 £1.4m increased from £1.2m 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 £0.6m outflow (2021: nil).
Dividends
The Board has approved a final dividend of 0.1p per share (2021: £nil)
following an interim dividend of 0.4p (2021: £nil). 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 £000 £000
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, (4,428) 7,613
Commercial Agreement amortisation and share based payment charges
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 £3,644k (2021: £511k) of non-recurring
costs, £452k (£2021: £452k) of Commercial Agreement amortisation and £22k
(2021: 687k) of share based payments charges. Adjusting for these gives
underlying other operating expenses of £40,253k (2021: £34,157k). 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 £000 £000
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 capital Share premium Profit and loss account Common control transaction reserve Total equity
£000 £000 £000 £000 £000
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
£000 £000
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 £(6.5)m in the financial year 2022 (2021:
profit of £4.8m) and had net current liabilities of £(9.4)m at the end of
the financial year 2022 (2021: net current assets of £2.9m). As detailed in
the Financial Review, the loss reported of £(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.£5m over 2022 in its strategic priorities as it focusses on its medium-term
objectives. Net cash ended the year at £8.0m (2021: £12.1m), 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 £4.5m
term loan and a £3.0m 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 £7.5m 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 £4.4m at 26 February 2023
(February 2022: net cash of £14.5m).
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 £2,984k
(2021: £1,053k) 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
£000 £000
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
£000 £000
(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
£000 £000
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
£000 £000
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
£000 £000
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
Properties Motor Vehicles Equipment Total
£000 £000 £000 £000
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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