REG - Safestyle UK PLC - Interim Results
27/09/2023 07:00
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RNS Number : 7526N Safestyle UK PLC 27 September 2023
27(th) September 2023
Safestyle UK plc
("Safestyle" or the "Group")
Interim Results 2023
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 interim results for the six months ended 2 July 2023(1) (H1).
Financial and operational highlights
£m H1 2023 H1 2022 H1 23 v H1 22 % change
Revenue 74.1 78.3 (5.3%)
Gross Profit 16.2 19.4 (16.1%)
Gross margin % 21.92% 24.75% (283 bps)
Underlying (loss) before taxation(2) (6.0) (1.4) (323.8%)
Non-underlying items(3) (0.7) (1.4) 86.5%
(Loss) before taxation (6.7) (2.8) (135.8%)
EPS - Basic (3.9)p (1.5)p n/a
Net cash(4) 1.0 13.0 n/a
Interim dividend per share - 0.4p n/a
1) The interim financial statements are presented for the period ended on the
closest Sunday to the end of June. This date was 2 July 2023 for the current
reporting period and 3 July 2022 for the prior period. All references made
throughout to H1 2023 are for the period 2 January 2023 to 2 July 2023 and
references to H1 2022 are for the period 3 January 2022 to 3 July 2022.
Underlying (loss) before taxation is defined as reported (loss) before
taxation before non-underlying items and is included as an alternative
2) 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.
Business outlook
The trading context of the UK economy and consumer confidence remains
extremely difficult. Encouragingly, inflation is beginning to show some
signs of moderating, but that follows a period of sustained high inflation.
The impact of significantly higher interest rates than expected is clearly
impacting consumers' disposable income.
As reported in our Trading Update on the 19(th) September 2023, whilst our
order intake went according to plan in early August, the period since
mid-August has been challenging with independent indicators of market health,
such as online search activity, showing that the current market is performing
at c.24% below the July and August levels of 2022. Pleasingly, our order
intake has not fallen this far, being down c.11% YoY which shows our product
offering is withstanding wider market pressures better than others.
We continue to attempt to stimulate demand and purchase intent through a
combination of our online activity, the deployment of our upgraded website,
discount management and our commitment to a leading consumer finance
portfolio.
The Group continues to engage with its stakeholders to discuss ways to
strengthen the balance sheet in order to support its recovery and help
facilitate future growth and a further update will be provided in due course.
Looking further ahead, the Board maintains that growth recovery prospects are
strong and data of an ageing housing stock in need of repair underpins this.
The Board highlights the progress described above in the Group's strategic
priorities, its transformation and market share growth as signs that there
remains a compelling opportunity for the business to capitalise on a market
recovery and achieve its medium-term targets.
Commenting on the results, Rob Neale, CEO said:
"As has been widely reported, the first half of 2023 saw continued economic
uncertainty and depressed consumer confidence, which resulted in another
challenging period for the business. I would like to thank our hard-working
people for their ongoing dedication and resilience during this time. As
outlined in our most recent trading update, we have continued to work hard to
mitigate these ongoing headwinds and we remain focused on delivering on our
strategic efficiency and cost reduction programme that will deliver annualised
reductions of c.£2.8m.
I am pleased that we continue to grow our market share and I remain confident
that the business is well-positioned to deliver a strong recovery when macro
conditions improve. The volume of the UK's aging housing stock in need of
repair remains one of the most compelling opportunities for the business in
the medium-term and I believe that the progress made against our core
strategic priorities will stand us in good stead as we look to the future as
the UK's market leader."
Enquiries:
Safestyle UK plc via FTI Consulting
Rob Neale, Chief Executive Officer
Phil Joyner, Chief Financial 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 / William King
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) .
CEO's Statement
Overview
The market represented an increasingly challenging backdrop as we moved
through the latter stages of 2022 into 2023. Late 2022 forecasts by the
Construction Products Association ('CPA') for the 2023 market were for single
digit declines and these 2023 forecasts have steadily deteriorated to -11% as
we have moved through a tougher year than expected.
Market activity has been impacted by rising inflation, which has continued to
remain higher than economic forecasters expected and consequential higher
interest rates have resulted. This has put even greater pressure on our
customers' disposable incomes, weakened consumer confidence and increased the
cost of providing our market-leading finance products.
Within this context, it is pleasing that we have made market share gains and
it is clear that these trading difficulties are reducing capacity in our
sector which represents an opportunity for a strong recovery when conditions
improve.
We have responded to this far more challenging context with a number of
actions to reduce our cost base and strike the balance between volume and
price actions which have been necessary to mitigate our own rising input cost
pressures and costs of generating enquiries. Our response has inevitably
resulted in reduced levels of investment in some of our strategic
priorities. However, as I will cover below, it is pleasing to report that
despite this, we have continued to make measurable progress on many of our
strategic priorities.
Before I expand on our first half performance, I once again want to recognise
all of Safestyle's people. We are transforming our business and our culture
and our people are at the heart of this. I have said it many times, but I
believe that their resilience, skill and commitment makes a huge difference.
I thank all our people for their ongoing contribution.
Trading and financial performance
Our revenue for the first half of the year declined by 5.3% to £74.1m with
frames installed volume of 79,546 representing a reduction of 15.8% versus H1
2022. It is notable that the number of orders installed reduced by less; an
8.3% reduction to 20,120 orders installed versus H1 22. The remaining
balance of the total frames volume decline came from an 8.4% reduction in the
average number of frames per order.
This decline in frames per order/basket size is consistent with the wider
FENSA market trends for this metric; consumers are reducing the number of
products they purchase which we attribute to the pressure on disposable
income. Measured price actions to address inflationary pressures mitigated a
large part of the overall volume shortfall, with promotional activity to drive
enquiries, conversion and ultimately volume also being components of our
response.
Maintaining accessibility for large purchases in this market is critical. We
have carefully managed our consumer finance offering to keep a leading
portfolio with compelling affordability options. This has come at an
increased cost this year due to higher funding costs from our partners which
are linked to interest base rate rises. However, it is a critical component
of our value positioning and an important point of difference to many of our
competitors and thus a margin investment that we believe it is important to
continue to make.
Our order book in the first half of the year reduced by 5.8% during the period
and ended the period 22.1% lower than the end of H1 22. We have made some
improvements to how orders flow through our business to optimise performance
and customer fulfilment, but comparatives from recent times have been stronger
than historical norms.
Moving beyond our order intake and topline performance, input costs across all
categories including materials, people costs, energy, fuel and lead generation
continued to increase in the first half. Within our material costs are
higher costs for PVCu profile from our new supplier, Liniar, who we
transitioned to at the end of 2022 for supply chain assurance and improved
quality. This important relationship is working well and presents further
range expansion opportunities that we are actively exploring. Most
importantly, this change has mitigated what was an ever-present risk of supply
disruption with our previous partner who has since confirmed they will exit
the market in September.
Operating expenses include the costs of continuing with our brand investment
activity with a £1.4m TV and radio campaign across February and March.
Pleasingly, on the back of this activity, we have seen further increases in
our brand awareness which is covered in more detail below.
Our other operating expenses for the first half increased versus H1 2022,
largely as a result of inflation. However, our exit rate for operating
expenses at the end of the first half is materially lower as a result of our
cost reduction and restructuring programme that we enacted in response to the
deteriorating market. These actions are expected to deliver annualised
reductions of c.£2.8m.
Strategic priorities
Continuing to make progress on our strategic priorities remains critical to
our long-term aspirations. Whilst the trading context has inevitably slowed
down the pace and level of our investment, I am pleased that we have made
demonstrable progress against many of the targets I shared in our 2022 Annual
Report. As I stated then, these targets were shared to enable transparent
measurement of the progress being made towards our medium-term goals. I
reiterate these targets below and have shared our progress against these
underneath.
● Against our accelerating growth plans, we aim for a further increase in
unprompted brand awareness. We are also working towards opening new sales
branches and growing our market share further versus FY22.
● To progress on transforming the customer experience, we are targeting an
installation 'On Time In Full' ('OTIF') improvement, a reduction in open
complaints and an improvement in our contact centre call answer rate.
● As we drive operational performance, our aim is that all installation depot
management will 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 which form part of 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% reduction in our CO(2) per frame measure.
● For our two enablers, starting with our People initiatives, we are targeting
an increase in our gender balance 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.
Accelerating growth: Driving our brand awareness is a key element of our
market share growth strategy and we have built on the investment in 2022 with
another material campaign in Q1 2023. This follows a protracted pause in
brand investment from 2018 which resulted in a deterioration in our brand
awareness that the last 18 months has reversed. Pleasingly, the latest
campaign increased brand awareness to 22% from 19% at the end of last year.
Alongside this above the line activity, we have been developing our new
website which represents a more modern, efficient and optimised version of our
current website. This was launched at the start of September 2023 and we
expect this more engaging customer experience to drive improvements in our
enquiry to order metrics.
We have also continued to develop our sales branch network and opened a new
sales branch in Yeovil in July 2023.
I am confident that the above activities will deliver demonstrable results in
the medium-term and have already contributed to our first half market share
gains of 2.3% versus H1 22. When market conditions improve, I believe that
we are in an increasingly strong position to help consumers through their
important decision-making and purchase journey.
Transforming the customer experience: Our mission is to deliver a great
customer experience every time. This multi-year approach is based on
ensuring our customers are at the heart of how we operate, designing and
implementing robust business processes, supported by modern IT systems and
effective training.
Our focus this year has been to continue to drive improved customer service
response levels alongside the introduction of a new system and process to
manage customer complaints.
In reference to performance versus targets, our 'OTIF' performance has
improved by 1.9% and our call answer rate has also increased by 8.2% versus
the end of last year. Whilst the number of open complaints has increased
this year, which is in part attributable to the improvements being made in our
systems, the processes now in place will more accurately capture complaints,
which will enable better response times and therefore a better customer
outcome.
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.'
Our Role Model Depot management training programme was completed in the first
half of the year and we have commenced the rollout of a stock management
system which will ultimately be deployed across our entire depot network to
drive visibility, accuracy and better facilitate us meeting our commitments to
our customers.
Our Safestyle Academy adult fast-track installer training programme continues
to see last year's cohort progress through the various training levels with
some already having graduated to become qualified window fitters. We plan to
have a new cohort join us at the end of the year. Alongside this course, we
are now deploying the academy to other areas of the business.
Leveraging sustainability and embedding compliance: We have set the
highly-ambitious target of zero waste to landfill by 2025 and I am delighted
to report that our ongoing programme of marginal gains continued to reduce our
waste to landfill metric from 5% last year to 3.8% in the first half of the
year. This is becoming an increasingly important component of a customer's
choice alongside our value proposition and I believe that we are setting the
standard for the wider market in this regard.
As we reported in our 2022 Annual Report, we have a carbon offset programme in
place with one of our partners. This will exceed all the carbon that our
business processes produce. We remain committed to continuing to report our
pre and post-carbon offset performance to clearly capture our progress on
reducing our own emissions as well as the impact of our offset initiatives.
Our pre-carbon offset CO(2) emissions per frame increased in the first half
versus the prior year by 4.9%. This is predominantly a reflection of a
dilution in the frames per order metric. We are proud to report that our
post-carbon offset emissions per frame is better than net zero meaning the sum
of the carbon offset credits we receive exceeds the carbon emissions our
business produces.
We will always maintain a focus on maintaining our greatly improved compliance
record. Our ongoing health and safety performance remains excellent and our
membership of the Institute of Sales Professionals continues.
IT: Our IT strategy is designed to drive productivity, improve the customer
experience, support growth and reduce cost. We upgraded some of our business
critical systems in the first half of the year as well as rolling out new
tools to help us further support the customer experience. We are also on
track with the implementation of a new HR system and our new website launch.
People: I am pleased that we have made important progress on our People agenda
in the first half of the year as we continue to bring the transformation of
our people experience and customer experience closer together. In the first
half of 2023 we completed the roll out of our Role Model Depot programme,
began to cascade our new sales training module "Purpose", and further enhanced
our technical training offering. As we develop our DEIB strategy, we have
implemented equality and diversity monitoring into our recruitment process and
delivered our 4th Women in Safestyle forum. We also launched our new
Employee Assistance Programme as part of our wellbeing strategy development.
Looking forward, in July we launched "Your Safestyle, Your Voice" - our first,
company-wide engagement survey. In addition to celebrating the things we do
well for our people, the action plans stemming from this are intended to form
an integral part of our operating plan and people agenda for 2024 as we strive
to make Safestyle an even better place to work.
Our progress can also be measured by a 7.9% reduction in employee turnover
since H1 22 and a 4.6% increase in our women to men gender balance ratio. We
are pleased with progress, whilst also recognising the opportunity that
driving this forward represents.
New business development
In the first half of the year, we have continued the test and learn
development phase for our new brand - Beam. We continue to investigate how,
through a digital platform, we can provide what consumers require in spite of
the infrequent, bespoke nature and technical complexity of this offering that
most consumers find daunting. I am pleased to report that the feedback from
customers who have engaged on this journey to date has been excellent.
Ventures such as this represent opportunities to access additional consumers
in ways that will complement our existing core Safestyle value brand.
Rob Neale
Chief Executive Officer
27 September 2023
Financial Review
H1 2023 H1 2022
Non-underlying items(1) Non-underlying items
Underlying Total Underlying Total H1 23 v H1 22 change in underlying %
Financials £000 £000 £000 £000 £000 £000
Revenue 74,115 74,115 78,250 78,250 (5.3%)
Cost of sales (57,868) (57,868) (58,886) (58,886) 1.7%
Gross profit 16,247 16,247 19,364 19,364 (16.1%)
Other operating expenses(2) (21,222) (715) (21,937) (19,943) (1,429) (21,372) (6.4%)
Operating (loss) (4,975) (715) (5,690) (579) (1,429) (2,008) (759.1)%
Finance costs (1,008) (1,008) (833) (833) (21.0%)
(Loss) before taxation(3) (5,983) (715) (6,698) (1,412) (1,429) (2,841) (323.8%)
Taxation 1,333 807
(Loss) for the period (5,365) (2,034)
Basic EPS (pence per share) (3.9)p (1.5)p
Diluted EPS (pence per share) (3.9)p (1.5)p
Cash and cash equivalents 4,041 17,327
Borrowing facility (3,071) (4,305)
Net cash(4) 970 13,022
KPIs H1 2023 H1 2022 H1 23 v H1 22 change
Gross margin %(5) 21.92% 24.75% (283 bps)
Average Order Value (£ inc VAT) 4,505 4,300 4.8%
Average Frame Price (£ ex VAT) 950 832 14.2%
Frames installed (units) 79,546 94,525 (15.8%)
Orders installed 20,120 21,946 (8.3%)
Frames per order 3.95 4.31 (8.4%)
As reported in the CEO's statement, the replacement windows and doors market
has declined significantly during H1 23, with the market dropping 11.8% in Q2
vs Q1 (as measured by FENSA) as a result of the widely reported rising cost of
living and economic uncertainty in the UK. In a first half that has seen our
market share increase by 2.3% vs H1 22, our frames installed volume has
reduced by 15.8%.
The Group invested £1.4m in TV, which has significantly increased brand
awareness, and has also been exposed to cost inflation and the increased cost
of offering our market leading suite of consumer finance products.
As a result of the above, the Group made an underlying loss before taxation of
£(6.0)m for the period. Net cash reduced to £1.0m from the year end
position of £8.0m with this reduction in line with the trading performance
for the period.
As part of its capital allocation policy, the Group paid a final dividend of
0.1p per share.
Financial and KPI headlines
● H1 revenue reduction of 5.3% to £74.1m.
● Orders installed decreased by 8.3% to 20,120 and frames installed decreased by
15.8% to 79,546.
● Average frame price increased by 14.2% to £950 in H1 23 to help offset cost
inflation. The mix of higher priced composite guard doors increased year on
year from 6.6% to 7.0% which represents a small positive mix effect on the
average frame price.
● Finance subsidy costs have increased by £1.0m due to increased interest
rates.
● Gross profit reduced by 16.1% to £16.2m, which is largely attributable to the
lower volume, inflationary cost push and increased utility rates. Gross
margin percentage(5) decreased by (283)bps vs H1 22 to 21.92% with increased
lead generation costs and the consequential under-recovery of semi-fixed costs
being the key drivers.
● Underlying other operating expenses(2) for the period increased by £1.3m
(6.4%) versus H1 22. TV investment increased by £0.4m and IT costs
increased by £0.4m following annualisation of investments made during 2022 in
what remains a key enabler for our strategic agenda.
● Finance costs have increased by £0.2m in the period, mainly as a result of
the increased discount unwind on provisions due to the increased discount
rates at the end of H1 23 vs H1 22.
● Net cash(4) reduced to £1.0m versus £8.0m at the end of last year which
reflects the trading performance described above.
(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) 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. These gave rise to a number of
significant non-underlying items in 2018 including a Commerical Agreement
which will become fully amortised in 2023. The impact of COVID-19 in 2020
has also given rise to a material non-underlying item in the form of a holiday
pay accrual which is described in detail below.
Consequently, adjusted measures of underlying other operating expenses and
underlying (loss) before taxation have been presented as the primary measures
of financial performance. Adoption of these measures results in
non-underlying items being excluded to enable a meaningful evaluation of the
performance of the Group compared to prior periods.
These alternative measures are entirely consistent with how the Board monitors
the financial performance of the Group and the underlying (loss) before
taxation is the basis of the performance targets for incentive plans for the
Executive Directors and senior management team.
Non-underlying items consist of non-recurring costs, share based payments and
Commercial Agreement amortisation. A full breakdown of these items is shown
below. Non-recurring costs are excluded because they are not expected to
repeat in future years. These costs are therefore not included in the
Group's primary performance measures as they would distort how the performance
and progress of the Group is assessed and evaluated.
Share based payments are subject to volatility and fluctuation and are
excluded from the primary performance measures as such changes year to year
would again potentially distort the evaluation of the Group's performance year
to year.
Finally, Commercial Agreement amortisation is also excluded from the primary
performance measures because the Board believes that exclusion of this enables
a better evaluation of the Group's underlying performance year to year.
Revenue
Revenue for the period was £74.1m compared to £78.3m for H1 22, representing
a decline of 5.3% in the period. This was driven by the market-led reduction
of frames installed in the period of 15.8% versus H1 22 to 79,546 frames,
which was offset to a degree by an increase in the average frame price of
14.2% to £950 (H1 22: £832).
The other factors driving the revenue reduction are explained below:
● The growth in the average frame price was supported to a degree by an
increased mix of higher average-priced composite guard doors which rose to
7.0% of the total installed volumes (H1 22: 6.6%).
● Having achieved cost neutrality last year, finance subsidy costs increased by
£1.0m as higher interest rates increase the cost of offering consumer
finance. The Group remains focused on ensuring that it has a market-leading
set of affordability options available to customers.
● The average number of frames per order reduced by 8.4% to 3.95 (H1 22:
4.31). We attribute the continued reduction in this metric to reduced
consumer confidence as a result of the well-documented economic uncertainty
and cost of living increases in the UK. When combined with the 8.3%
reduction in order volume, total frames installed reduced by 15.8%.
● Overall, as a result of price gains being partially offset by lower average
frames per order, the average order value improved by 4.8% to £4,505 (H1 22:
£4,300).
Gross profit
Gross profit was £16.2m, a reduction of 16.1% over H1 22, while the gross
margin percentage declined by (283) bps to 21.92% (H1 22: 24.75%).
The reduction in installation volumes described above was the key driver of
the year on year reduction in gross profit. The additional elements behind
the reduction in these metrics are as follows:
● Inflationary cost increases linked to labour, scaffolding, PVCu profile and
steel along with increased utility costs represent an increase of £6.2m which
was recovered through sales price increases.
● As described in the CEO's statement, the cost of lead generation rose in the
period due to the overall weaker replacement windows and doors market
increasing online search costs. The increased cost of lead generation over
H1 22 equates to a £1.5m year on year increase.
● The closing order book reduced by 5.8% during the period and by 22.1% in
comparison to H1 22 which was unusually high in part due to the interruption
to operations caused by the January 2022 cyber attack along with a stronger
order intake. The benefit of the reduction in the order book largely offsets
the increased cost of lead generation as described above.
Underlying other operating expenses
Underlying other operating expenses were £21.2m (H1 22: £19.9m) which
includes TV investment of £1.4m and is an increase of £1.3m (6.4%) over H1
22. The key factors behind this increase were as follows:
● The Q1 23 brand investment activity was an increase of £0.4m over H1 22. As
described in the CEO's statement, this investment drove an increase in brand
awareness and we believe it is a key factor behind the H1 23 market share
growth.
● The investment in upgrading and implementing new IT systems is key to our
strategic agenda and this represents a £0.4m increase over H1 22.
● Wage inflation through a 6.7% annual pay rise for most of our staff at the
start of the period has been largely offset through headcount management
actions.
● Our cost reduction and restructuring programme will deliver a £2.8m
annualised decrease versus Q1 23 run rate.
Underlying (loss) before taxation
Underlying (loss) before taxation was £(6.0)m (H1 22: loss of £(1.4)m).
This loss is before the non-underlying items described below.
Non-underlying items
A total of £0.7m has been separately treated as non-underlying items for the
year (H1 22: £1.4m).
The current period's costs consist of £0.3m of non-recurring costs (H1 22:
£0.9m), a £0.2m share based payment charge (H1 22: £0.3m) and £0.2m (H1
22: £0.2m) of Commercial Agreement (Intangible Asset) amortisation. The
table below shows the full breakdown of these items:
H1 23 H1 22
£000 £000
Holiday pay accrual (214) (72)
RSA related costs - 12
Litigation Costs 26 23
Restructuring and operational costs 500 96
Modification of vacant right-of-use assets and liabilities - (112)
Impairment of vacant right-of-use assets - 27
Cyber incident related costs - 945
Total non-recurring costs (note 4) 312 919
Commercial Agreement amortisation 230 226
Equity settled share based payments charges 173 284
Total non-underlying items 715 1,429
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 has now fully reversed in 2023. This item was excluded
from the Group's underlying performance measures to ensure the performance of
the business is not skewed by both the expense in 2020 or its subsequent use.
The Group incurred £0.5m (H1 22: £0.1m) of restructuring and non-recurring
operational costs. These costs predominantly relate to the remuneration
arrangements for employees leaving the business under the cost reduction and
restructuring programme implemented in the period.
As reported in the last four years, the Commercial Agreement arose as a result
of 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.
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 Commerical Agreement reached in
2018 have all been excluded from the underlying (loss) before taxation
performance measure to enable a meaningful evaluation of the performance of
the Group from year to year.
Earnings per share
Basic earnings per share for the period were a loss of (3.9)p compared to a
loss of (1.5)p in H1 22. The basis for these calculations is detailed in
note 5.
Net cash and cashflow
The Group's net cash reduced by £7.0m during the period, closing
at £1.0m compared to £8.0m at the end of 2022. £3.5m of the
Group's £7.5m revolving credit facility was drawn at the end of the period
to cover the intra-month working capital movements.
The Group's previous borrowing facility was replaced in January 2023 with a
£7.5m revolving credit facility that can be utilised as required to support
the Group's 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 cashflow from operating activities, including the cashflow impact of
non-underlying items, was a £4.3m outflow (H1 22: £3.7m inflow). The
outflow for H1 23 reflects the trading performance for the period along with
the working capital impact of reduced payment terms from Liniar, our mew PVCu
profile provider.
Capital expenditure of £0.5m reduced from £0.9m in H1 22 with investment
levels being managed across the Group.
During the period, the Group paid a final dividend of 0.1p per share resulting
in a £0.1m outflow (H1 22: nil).
Dividends
The Board have not declared an interim dividend as a result of the first half
losses sustained by the Group.
Phil Joyner
Chief Financial Officer
27 September 2023
Consolidated Income Statement
Unaudited Unaudited Audited
6 months ended 6 months ended 12 months ended
2nd Jul 2023 3rd Jul 2022 1st Jan 2023
Note £000 £000 £000
Revenue 74,115 78,250 154,315
Cost of sales (57,868) (58,886) (116,441)
Gross profit 16,247 19,364 37,874
Expected credit losses expensed (420) (348) (293)
Other operating expenses (21,517) (21,024) (44,371)
Operating (loss) (5,690) (2,008) (6,790)
Finance costs 6 (1,008) (833) (1,756)
(Loss) before taxation (6,698) (2,841) (8,546)
Underlying (loss) before taxation before non-recurring costs, Commercial (5,983) (1,412) (4,428)
Agreement amortisation and share based payments
Non-recurring costs 4 (312) (919) (3,644)
Share based payments (173) (284) (22)
Commercial Agreement amortisation (230) (226) (452)
(Loss) before taxation (6,698) (2,841) (8,546)
Taxation 1,333 807 2,035
(Loss) after taxation (5,365) (2,034) (6,511)
Other comprehensive income - - -
Total comprehensive (loss) for the period attributable to equity shareholders (5,365) (2,034) (6,511)
Earnings Per Share
Basic (pence per share) 5 (3.9p) (1.5p) (4.7p)
Diluted (pence per share) 5 (3.9p) (1.5p) (4.7p)
Consolidated Statement of Financial Position
Unaudited Unaudited Audited
6 months ended 6 months ended 12 months ended
2nd Jul 2023 3rd Jul 2022 1st Jan 2023
Note £000 £000 £000
Assets
Intangible assets - Trademarks 504 504 504
Intangible assets - Goodwill 20,758 20,758 20,758
Intangible assets - Software 1,289 1,103 1,305
Intangible assets - Other 150 606 380
Property, plant and equipment 9,696 10,589 10,024
Right-of-use assets 10,779 10,578 9,416
Deferred taxation asset 4,326 1,847 2,984
Non-current assets 47,502 45,985 45,371
4,552 5,457 3,939
Inventories
Current taxation asset 114 - 114
Trade and other receivables 5,741 6,985 5,106
Cash and cash equivalents 4,041 17,327 12,369
Current assets 14,448 29,769 21,528
Total assets 61,950 75,754 66,899
Equity
Called up share capital 1,389 1,389 1,389
Share premium account 89,495 89,495 89,495
Profit and loss account (1,467) 9,127 3,856
Common control transaction reserve (66,527) (66,527) (66,527)
22,890 33,484 28,213
Liabilities
Trade and other payables 7 21,305 23,400 21,069
Lease liabilities 4,293 4,332 4,154
Corporation taxation liabilities - 159 -
Provision for liabilities and charges 1,508 1,333 1,338
Borrowing facility - - 4,372
Current liabilities 27,106 29,224 30,933
Provision for liabilities and charges 2,121 2,219 2,160
Lease liabilities 6,762 6,522 5,593
Borrowing facility 3,071 4,305 -
Non-current liabilities 11,954 13,046 7,753
Total liabilities 39,060 42,270 38,686
Total equity and liabilities 61,950 75,754 66,899
Consolidated Statement of Changes in Equity
Share capital Share premium Profit and loss account Common control transaction reserve Total equity
£000 £000 £000 £000 £000
Balance at 2nd January 2022 1,386 89,495 10,893 (66,527) 35,247
Total comprehensive (loss) for the period - - (2,034) - (2,034)
Transactions with owners recorded directly in equity:
Issue of new shares 3 - (3) - -
Deferred taxation asset taken to reserves - - (13) - (13)
Equity settled share based payment transactions - - 284 - 284
Balance at 3rd July 2022 1,389 89,495 9,127 (66,527) 33,484
Total comprehensive (loss) for the period - - (4,477) - (4,477)
Transactions with owners recorded directly in equity:
Deferred taxation asset taken to reserves - - 23 - 23
Dividends - - (555) - (555)
Equity settled share based payment transactions - - (262) - (262)
Balance at 1st January 2023 1,389 89,495 3,856 (66,527) 28,213
Total comprehensive (loss) for the period - - (5,365) - (5,365)
Transactions with owners recorded directly in equity:
Deferred taxation asset taken to reserves - - 9 - 9
Dividends - - (140) - (140)
Equity settled share based payment transactions - - 173 - 173
Balance at 2nd July 2023 1,389 89,495 (1,467) (66,527) 22,890
Consolidated Statement of Cash Flows
Unaudited Unaudited Audited
6 months ended 6 months ended 12 months ended
Note 2nd Jul 3rd Jul 2022 1st Jan 2023
2023
£000 £000 £000
Cash flows from operating activities
(Loss) for the period (5,365) (2,034) (6,511)
Adjustments for:
Depreciation of plant, property and equipment 645 699 1,368
Depreciation of right-of-use assets 1,929 1,851 3,729
Amortisation of intangible fixed assets 431 438 875
Impairment of right-of-use assets - 27 27
Modification of right-of-use assets and liabilities - (112) (113)
Finance expense 6 1,008 833 1,756
Equity settled share based payments charge 173 284 22
Taxation (credit) (1,333) (807) (2,035)
(2,512) 1,179 (882)
(Increase) / decrease in inventories (613) (159) 1,359
(Increase) in trade and other receivables (635) (2,105) (226)
Increase in trade and other payables 7 236 5,348 3,017
(Decrease) / increase in provisions (145) 8 (226)
(1,157) 3,092 3,924
Other interest (paid) (600) (599) (1,274)
Taxation (paid) - - (159)
Net cash (outflow) / inflow from operating activities (4,269) 3,672 1,609
Net cash (outflow) from investing activities
Acquisition of property, plant and equipment (315) (477) (730)
Acquisition of intangible fixed assets (188) (445) (709)
Net cash (outflow) from investing activities (503) (922) (1,439)
Cash flows from financing activities
Proceeds from loans and borrowings 3,500 - -
Repayment of loans and borrowings (4,934) - -
Dividends paid (140) - (555)
Payment of lease liabilities (1,982) (1,774) (3,597)
Net cash (outflow) from financing activities (3,556) (1,774) (4,152)
Net (outflow) / inflow in cash and cash equivalents (8,328) 976 (3,982)
Cash and cash equivalents at start of period 12,369 16,351 16,351
Cash and cash equivalents at end of period 4,041 17,327 12,369
Notes to the interim financial information
1 General information and basis of preparation
The interim financial information for the six months ended 2nd July 2023 and
for the six months ended 3rd July 2022 does not constitute statutory financial
statements and is neither reviewed nor audited. The comparative figures for
the period ended 3(rd) July 2022 are not the Group's consolidated statutory
accounts for that financial year but are extracted from those accounts which
have been reported on by the Group's auditor and delivered to the Registrar of
Companies. The report of the auditor was (i) unqualified and (ii) did not
contain a statement with reference to Articles 113B of Companies (Jersey) Law
1991
The condensed consolidated interim financial information for the period ended
2nd July 2023 has been prepared in accordance with IAS 34, 'Interim financial
reporting' as adopted by the European Union.
Selected explanatory notes are included to explain events and transactions
that are significant to an understanding of the changes in financial position
and performance of the Group since the last annual consolidated financial
statements as at and for the year ended 1st January 2023.
The condensed consolidated interim financial information should be read in
conjunction with the annual financial statements for the year ended 1st
January 2023 which have been prepared in accordance with International
Financial Reporting Standards ("IFRS") as adopted by the European Union.
The accounting policies adopted in the condensed interim financial information
are consistent with those set out in the financial statements for the year
ended 1st January 2023.
Period-end
These interim financial statements are presented for the first 26 weeks of the
financial year which ended on 2nd July 2023 for the current year and ended on
the 3rd July 2022 for the first half comparative period of the prior year.
All references made throughout these accounts for H1 23 are for the period 2nd
January 2023 to 2nd July 2023. References to H1 22 are for the period 3rd
January 2022 to 3rd July 2022.
2 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 £(5.4)m in the 6 months to 2 July 2023
(June 22: £(2.0)m loss) and had net current liabilities of £12.7m (June
2022: £0.5m net assets). As described in the CEO's statement and the
Financial Review, H1 23's trading was significantly impacted by the
challenging market and economic environment within the UK and specifically
within the RMI market. During the period, the Group's net cash position
reduced from £8.0m to £1.0m predominantly due to the trading losses in the
period along with the revised payment terms linked to the transition to a new
key supplier to secure the supply chain. The Directors' forecasts are that
year-end net debt is expected to be between £(5.5)m and £(6.5)m as a result
of the ongoing challenging trading conditions described in the CEO's
Statement.
Consequently, as described in the Business Outlook , the Group has commenced
discussions with its stakeholders to strengthen the balance sheet at this
time. There has been a good level of engagement in this process and the
Directors believe that they have sufficient options available in order to
conclude that the Group will have adequate liquidity against forecast downside
scenarios through to the end of the going concern period (31 December 2024).
As the Group is still in discussion with its stakeholders and requires such
discussions to be concluded positively, the Directors consider at this time
that a material uncertainty exists that may cast significant doubt on the
Group's ability to continue as a going concern. Notwithstanding this, the
Directors believe that based on the progress made to date, there is good
reason to believe that sufficient stakeholder support will be obtained in a
timely fashion and that the Group's working capital and liquidity position can
be managed effectively to ensure that the Group can continue to realise its
assets and discharge its liabilities in the normal course of business.
Accordingly, they have adopted the going concern basis of accounting.
3 Significant accounting policies
Revenue recognition
The Group earns revenues from the design, manufacture, delivery of, and
installation of domestic double-glazed replacement windows and doors.
There are five main steps followed for revenue recognition:
- Identifying the contract with a customer
- Identifying the performance obligations
- Determining the transaction price
- Allocating the transaction price to the performance obligations;
and
- Recognising revenue when or as an entity satisfied performance
obligations.
The various stages of the performance obligations are the design, manufacture,
delivery and installation of domestic double-glazed replacement windows and
doors.
In applying the principle of recognising revenue related to satisfaction of
performance obligations under IFRS 15, the Group considers that the final end
product is dependent upon a number of services in the process that may be
capable of distinct identifiable performance obligations. However, where
obligations are not separately identifiable, in terms of a customer being
unable to enjoy the benefit in isolation, the standard allows for these to be
combined. The Group considers that in the context of the contracts held
these are not distinct. As such the performance obligations are treated as
one combined performance obligation and revenue is recognised in full, at a
point in time, being on completion of the installation. Revenue is shown net
of discounts, sales returns, charges for the provision of consumer credit and
VAT and other sales related taxes. Revenue is measured based on the
consideration specified in a contract with a customer.
There is no identifiable amount included in the final price for a warranty, as
the Group provides a guarantee on all installations.
Payments received in advance are held within other creditors as a contract
liability. The final payment is due on installation.
A survey fee is paid at the point of agreeing the contract and the customer
has up to 14 days, defined in the contract to change their minds. If the
customer changes their mind after this cooling off period, the Group has the
right to retain this survey fee and as such revenue for this is recognised at
the point in time that this becomes non-refundable.
The Group offers consumer finance products from a range of providers whilst
acting as a credit broker and not the lender. The Group earns commission and
pays subsidies for its role as a credit broker. As the Group is acting as the
agent and not the principal, commission is not disclosed as a separate income
stream.
In addition to the above, the Group recognises revenue from the sale of
materials for recycling. The revenue is recognised when the materials are
collected by the recycling company which represents the completion of the
performance obligation. The Group has determined that this revenue is
derived from its ordinary activities and as such this balance is recognised
within revenue.
Non-recurring items
Items that are either material because of their nature, non-recurring or whose
significance is sufficient to warrant separate disclosure and identification
within the consolidated financial statements are referred to as non-recurring
items. The separate reporting of non-recurring items is important to provide
an understanding of the Group's underlying performance.
4 Non-recurring costs
Unaudited Unaudited Audited
6 months ended 6 months ended 12 months ended
2nd July 2023 3rd July 2022 1st January 2023
Non-recurring costs consist of the following: £000 £000 £000
Holiday pay accrual (release) (214) (72) (46)
RSA related costs - 12 -
Litigation Costs 26 23 131
Restructuring and operational costs 500 96 473
Modification of right-of-use assets and liabilities - (112) (113)
Impairment of vacant right-of-use assets - 27 27
Cyber incident related costs - 945 953
Operational project costs - - 1,663
Former CEO retirement costs - - 556
312 919 3,644
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, was up to March 2023. The release in the current reporting period
represents a partial-unwinding of the original accrual booked in 2020 due to
the deferred holiday subsequently taken in the year.
RSA related costs are the employer related taxes associated with the issue of
Restricted Share Award scheme during the year.
Litigation costs are mainly expenses incurred as a result of an ongoing legal
dispute between the Group and an ex-agent. These costs are predominantly
legal advisor's fees.
Restructuring and operational costs are expenses incurred, including
redundancy payments, as a result of changes being made to reduce the cost
structure to the business.
Modification of right-of-use assets and liabilities relate to the closure of
the properties identified as right-of-use assets during the period.
Impairment of right-of-use assets relate to the closure of the properties
identified as assets under IFRS 16.
Cyber incident related costs are 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 whist it recovered its systems.
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 charge of £0.6m in 2022 represents the costs of the previous CEO, Mike
Gallacher's, remuneration arrangements following his retirement from the Board
on 14 December 2022.
For further detail on the 2022 non-recurring charges, please refer to the 2022
Annual Report.
5 Earnings per share
Unaudited Unaudited Audited
6 months ended 6 months ended 12 months ended
2nd July 2023 3rd July 2022 1st January 2023
Basic (loss) per share (pence) (3.9p) (1.5p) (4.7p)
Diluted (loss) per share (pence) (3.9p) (1.5p) (4.7p)
Basic earnings per share
The calculation of basic earnings per share has been based on the following
loss attributable to ordinary shareholders and weighted-average number of
shares outstanding.
Unaudited Unaudited Audited
6 months ended 6 months ended 12 months ended
2nd July 2023 3rd July 2022 1st January 2023
£000 £000 £000
(Loss) attributable to ordinary shareholders (5,365) (2,034) (6,511)
Weighted-average number of ordinary shares (basic)
No of shares '000 No of shares '000 No of shares '000
In issue during the period 138,867 138,628 138,748
As a loss has been recorded for the period, the shares are not considered to
have a dilutive effect.
6 Finance costs
Unaudited Unaudited Audited
6 months ended 6 months ended 12 months ended
2nd July 2023 3rd July 2022 1st January 2023
£000 £000 £000
On borrowing costs 399 327 727
Unwind of discount on provisions 276 161 341
On lease liabilities 333 345 688
1,008 833 1,756
7 Trade Payables
Unaudited Unaudited Audited
6 months ended 6 months ended 12 months ended
2nd July 2023 3(rd) July 2022 1st January 2023
£000 £000 £000
Trade payables 7,869 9,112 8,512
Other taxation and social security costs 4,074 4,465 3,649
Other creditors and deferred income 4,253 5,901 4,298
Accruals 5,109 3,922 4,610
21,305 23,400 21,069
Trade payables represents the total amounts payable by the Group as part of
normal business operations.
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