TIDMSFE
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
GBPm 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
2) 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 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.GBP2.8m.
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 or
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
GBP74.1m 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 GBP1.4m 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.GBP2.8m.
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 Non-underlying
Underlying items(1) Total Underlying items Total
------------ --------------- --------- ------------ --------------- --------- -------------
Financials GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 H1 23 v H1
22 change in
underlying %
------------ --------------- --------- ------------ --------------- --------- -------------
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
(GBP inc VAT) 4,505 4,300 4.8%
-------- -------- ----------
Average Frame Price
(GBP 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 GBP1.4m 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 GBP(6.0)m for the period. Net cash reduced to
GBP1.0m from the year end position of GBP8.0m 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 GBP74.1m.
-- 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 GBP950 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 GBP1.0m due to
increased interest rates.
-- Gross profit reduced by 16.1% to GBP16.2m, 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 GBP1.3m (6.4%) versus H1 22. TV investment
increased by GBP0.4m and IT costs increased by GBP0.4m
following annualisation of investments made during 2022
in what remains a key enabler for our strategic agenda.
-- Finance costs have increased by GBP0.2m 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 GBP1.0m versus GBP8.0m 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 GBP74.1m compared to GBP78.3m 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 GBP950 (H1
22: GBP832).
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 GBP1.0m 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 GBP4,505 (H1 22: GBP4,300).
Gross profit
Gross profit was GBP16.2m, 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 GBP6.2m 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 GBP1.5m 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 GBP21.2m (H1 22:
GBP19.9m) which includes TV investment of GBP1.4m and is an
increase of GBP1.3m (6.4%) over H1 22. The key factors behind this
increase were as follows:
-- The Q1 23 brand investment activity was an increase of
GBP0.4m 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 GBP0.4m
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 GBP2.8m annualised decrease versus Q1 23 run rate.
Underlying (loss) before taxation
Underlying (loss) before taxation was GBP(6.0)m (H1 22: loss of
GBP(1.4)m). This loss is before the non-underlying items described
below.
Non-underlying items
A total of GBP0.7m has been separately treated as non-underlying
items for the year (H1 22: GBP1.4m).
The current period's costs consist of GBP0.3m of non-recurring
costs (H1 22: GBP0.9m), a GBP0.2m share based payment charge (H1
22: GBP0.3m) and GBP0.2m (H1 22: GBP0.2m) of Commercial Agreement
(Intangible Asset) amortisation. The table below shows the full
breakdown of these items:
H1 23 H1 22
GBP000 GBP000
--------------------- --------
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 GBP0.5m (H1 22: GBP0.1m) 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
identi able, non-monetary item without physical substance, which is
within the control of the entity and is capable of generating
future economic bene ts for the entity. The intangible asset was
measured based on the fair value of the consideration that the
Group expects to issue under the terms of the agreement and is
being amortised over 5 years which matches the term of the
non-compete arrangement.
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 GBP7.0m during the period,
closing at GBP1.0m compared to GBP8.0m at the end of 2022. GBP3.5m
of the Group's GBP7.5m 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 GBP7.5m 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
GBP4.5m term loan was repaid in January 2023.
Net cashflow from operating activities, including the cashflow
impact of non-underlying items, was a GBP4.3m outflow (H1 22:
GBP3.7m 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 GBP0.5m reduced from GBP0.9m 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 GBP0.1m 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 6 months 12 months
ended ended ended
2nd Jul 3rd Jul 1st Jan
2023 2022 2023
Note GBP000 GBP000 GBP000
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 Agreement
amortisation and share based
payments (5,983) (1,412) (4,428)
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 6 months 12 months
ended ended ended
2nd Jul 3rd Jul 1st Jan
2023 2022 2023
Note GBP000 GBP000 GBP000
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
Inventories 4,552 5,457 3,939
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 Common control Total equity
account transaction reserve
GBP000 GBP000 GBP000 GBP000 GBP000
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
GBP000 GBP000 GBP000
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 GBP(5.4)m in the 6 months to
2 July 2023 (June 22: GBP(2.0)m loss) and had net current
liabilities of GBP12.7m (June 2022: GBP0.5m 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 GBP8.0m to GBP1.0m 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 GBP(5.5)m and GBP(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 6 months 12 months
ended ended ended
2nd July 3rd July 1st January
2023 2022 2023
Non-recurring costs consist
of the following: GBP000 GBP000 GBP000
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 GBP1.7m
due to the incremental costs of transitioning to the new profile
and the impairment of the remaining stock held that was specific to
the old profile which will no longer be sold to customers.
The charge of GBP0.6m 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 6 months 12 months
ended ended ended
2nd July 3rd July 1st January
2023 2022 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 6 months 12 months
ended ended ended
2nd July 3rd July 2022 1st January
2023 2023
GBP000 GBP000 GBP000
(Loss) attributable to
ordinary shareholders (5,365) (2,034) (6,511)
=============== =============== ==============
Weighted-average number
of ordinary shares (basic)
No of shares No of shares No of shares
'000 '000 '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 6 months 12 months
ended ended ended
2nd July 3rd July 1st January
2023 2022 2023
GBP000 GBP000 GBP000
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 6 months 12 months
ended ended ended
2nd July 3(rd) July 1st January
2023 2022 2023
GBP000 GBP000 GBP000
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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END
IR UNORROKUKUUR
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