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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Safestyle Uk Plc | LSE:SFE | London | Ordinary Share | JE00BGP63272 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0.32 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Manufacturing Industries,nec | 154.32M | -6.51M | -0.0469 | -0.07 | 444.37k |
From Apr 2022 to Apr 2024
TIDMSFE
RNS Number : 8204I
Safestyle UK PLC
21 April 2022
21 April 2022
Safestyle UK plc
("Safestyle" or the "Group")
Final Results for Financial Year 2021
Return to profitability alongside continued progress made against our strategic priorities
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 final results for financial year 2021(1) .
Commenting on the results, Mike Gallacher, CEO said:
"Despite the continued uncertainty caused by the pandemic as well as the widely-documented supply chain and inflationary pressures, I am delighted we have been able to deliver our best financial performance since 2017 and make significant progress against our stated strategic objectives.
The Group's underlying profit before tax for the year represents a GBP16.4m turnaround from 2018's underlying losses as we continued to improve margins and deliver growth. The strong performance of the business in 2021 made the cyber attack in January 2022 even more frustrating, however our previous investments in upgrading IT systems proved invaluable in helping to mitigate the worst of its impacts.
Looking ahead, the Group will continue to proactively manage cost-inflation, however we expect consumer confidence to be impacted by the ongoing cost-of-living crisis. Pleasingly, our record-level order book will allow us to smooth the impact of any short term slowing of demand. Notwithstanding the factors above, the Board and I remain positive on the outlook for 2022 as the business emerges transformed after four very challenging years and continues its return to our historically strong financial performance and growth."
Financial and operational highlights
Hot Features
Premium
FY 2021 FY 2020 FY 2019 FY21 v FY21 v
FY20 % FY19 %
change change
Revenue (GBPm) 143.3 113.2 126.2 26.6% 13.5%
-------- -------- -------- -------- --------
Gross profit (GBPm) 43.8 28.5 31.9 53.7% 37.2%
-------- -------- -------- -------- --------
Gross margin %(2) 30.54% 25.14% 25.27% 540bps 527bps
-------- -------- -------- -------- --------
Underlying profit / (loss)
before taxation(3) (GBPm) 7.6 (4.8) (1.5) n/a n/a
-------- -------- -------- -------- --------
Non-underlying items(4)
(GBPm) (1.6) (1.4) (2.3) (17.9%) 28.7%
-------- -------- -------- -------- --------
Profit / (Loss) before
taxation (GBPm) 6.0 (6.2) (3.8) n/a n/a
-------- -------- -------- -------- --------
EPS - Basic (pence) 3.5p (4.3p) (4.0p) n/a n/a
-------- -------- -------- -------- --------
Net cash(5) (GBPm) 12.1 7.6 0.4 n/a n/a
-------- -------- -------- -------- --------
For the purposes of this announcement, where appropriate we have included comparisons of the Group's financial and operating performance for 2020 and also 2019 with the latter, in many cases, a more meaningful comparative being prior to the disruption of the COVID-19 pandemic in 2020.
1) The financial statements are presented for the year ended
on the closest Sunday to the end of December. This date was
2 January 2022 for the current reporting year and 3 January
2021 for the prior year. All references made throughout these
accounts for the financial year 2021 are for the period 4
January 2021 to 2 January 2022 and references to the financial
year 2020 are for the period 30 December 2019 to 3 January
2021.
2) Gross margin % is gross profit divided by revenue.
3) Underlying profit / (loss) before taxation is defined as reported
profit / (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.
4) Non-underlying items consist of non-recurring costs, share-based
payments and the Commercial Agreement amortisation.
5) 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.
Financial headlines
-- The Group's underlying profit before taxation of GBP7.6m represents the first return to full year profitability since 2017 and a GBP16.4m turnaround versus 2018.
-- Revenue growth of 13.5% versus 2019 demonstrates the Group's improving revenue trajectory.
-- Early anticipation of cost inflation combined with the positive impact of strategic initiatives delivered a 527bps improvement in gross margin versus 2019.
-- Net cash position strengthened to GBP12.1m versus GBP7.6m at the end of 2020.
Operational headlines
-- The COVID pandemic continued to impact operations in 2021 and our priority remained the safety of our staff and customers throughout the period. Managers and staff have shown huge flexibility and resilience as we have maintained our commercial operations.
-- Despite the sustained disruption, continued progress was made against our core strategic priorities, including brand development, consumer finance costs, revenue management, compliance and sustainability.
-- A 14(th) installation depot was opened in Milton Keynes during the year. This investment improves operational coverage, reduces travelling time and will help drive the productivity of our fitting teams.
-- Order book at the end of the year was 8.4% lower than 2020's record levels, but remains healthy at over a third higher than any other year.
-- The Group has achieved a 19% reduction in its CO(2) per frames installed metric versus 2020 which represents early achievement of our 2024 target. Over 95% of the waste generated from the Group's operations, which includes the removal of old product from customers' homes, was recycled.
-- Customer service provision was extremely challenging due to the broad range of disruption experienced, most notably labour availability. Investment in resource resulted in the backlog being cleared by the end of the year.
Post balance sheet event
-- Having achieved our objectives set out in the Turnaround Plan and reporting a strong financial performance in 2021, the business was hit by a cyber attack, originating from Russia, at the end of January 2022.
-- Business continuity actions, as well as IT investments in the last two years, mitigated the impact, although it caused a level of operational disruption that took some weeks to fully recover from.
-- We have now recovered our systems and processes and the Group is trading in line with original plans.
Outlook
-- Despite strong progress being made by the Group in 2021 to overcome well documented labour shortages, we anticipate resource shortages in critical skilled labour pools will continue in the short to medium term.
-- Cost pressures have escalated in the first quarter across raw materials, fuel and labour. We will continue to address these issues through pricing whilst also using our scale advantage to mitigate the impact.
-- Demand has remained robust in the first quarter.
-- We successfully launched our new TV campaign in February 2022 which has underpinned our continued order book growth in the first quarter.
-- Over the full year, we aim to maintain a balance between order intake and installations capacity to continue to optimise margins.
-- Despite the short-term impact of the cyber attack on the financial performance of the business, the Group has a strong balance sheet and the Board therefore intends to continue to invest behind its strategic initiatives.
-- The Board expects performance for 2022 to be in line with current expectations with annualised H2 financial performance representing further growth on the good profit delivery of 2021.
A webinar for analysts and investors for the 2021 Full Year Results will be held today at 10:00 am. If you would like to join, please contact FTI Consulting at safestyle@fticonsulting.com in order to access the registration details.
Enquiries:
Safestyle UK plc via FTI Consulting Mike Gallacher, Chief Executive Officer Rob Neale, Chief Financial Officer Zeus (Nominated Adviser & Joint Broker) Tel: 0203 Dan Bate / Dan Harris (Investment Banking) 829 5000 Dominic King (Corporate Broking) Liberum Capital Limited (Joint Broker) Tel: 0203 Neil Patel / Jamie Richards 100 2100 FTI Consulting (Financial PR) Tel: 0203 Alex Beagley / Sam Macpherson / Amy Goldup 727 1000
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
Faced with another year of turbulence, our core challenge through 2021 was to deliver both a step change in our financial performance and to accelerate the pace of our strategic transformation. I am delighted to report that against these objectives in 2021, we delivered our best financial performance since 2017 and made significant progress across the breadth of our strategic agenda.
Once again, I have been hugely impressed by the agility and resilience of our staff and self-employed agents. The overwhelming priority of maintaining a safe working environment for our people and our customers posed day to day challenges through the year. However, from our return to work from the first lockdown in May 2020, we were able to sustain manufacturing and installations operations continually, despite the impact of labour and supply interruptions.
Financial delivery despite turbulence
The Group's underlying profit before tax for the year represents a GBP16.4m turnaround from 2018's underlying losses, a GBP22.2m improvement versus 2018's reported loss before tax and a strong step up from 2019 as we continued to improve margins and deliver growth. Our financial delivery in H2 was impacted by an investment in recovering customer service levels, which were disrupted by the operational challenges associated with increased COVID isolations in early summer, the post pandemic supply chain shortages and latterly, the Omicron surge at the end of the year. Despite this, the financial progress we have made demonstrates the underlying potential and resilience of the business model as we emerge from three years of turbulence. The performance also completes the execution of the Group's Turnaround Plan.
Revenue growth of 26.6% vs 2020 and 13.5% versus 2019 showed a sustained trajectory of performance and was underpinned by an early and proactive response to emerging cost pressure and capacity constraints. The number of frames installed improved by 12.1% year on year and gross margin increased to 30.5%, an improvement of 540bps vs 2020 and 527bps vs 2019.
Our strong order intake in 2020 built a record order book for the start of 2021 and allowed us to smooth the interruptions in sales caused by the third national lockdown. Subsequently, the excellent order intake continued through 2021 giving us a closing order book 8.4% lower than 2020's record closing level, albeit more than 30% higher than any other year in the Group's history.
The impact of operational disruption on our customers meant that it was imperative that we invested in recovering our customer service levels in H2. This required central resource and, inevitably, utilisation of our installation capacity to complete orders that were partially delayed or impacted by disruption. As a result, we ended the year having returned to normal levels of service.
The priority given to improving our customer experience is in line with our strategic work to focus on the consumer experience, building our brand through word of mouth recommendation in addition to TV investment. However, the inefficiency associated with this recovery underlined the need to accelerate the modernisation of our core business IT systems which is underway.
Our net cash position improved during the year to GBP12.1m at year end, an increase of GBP4.5m from 2020. This represents a return to a healthy and stable financial position and is after the Group repaid GBP2.4m of VAT that was deferred from 2020 as part of our COVID support measures.
Accelerated strategic delivery
The work done during 2020 enabled us to accelerate the pace of change within the business during 2021.
Levelling Up Depots and Sales Branches : The range of performance across our sites represents a significant opportunity and is being unlocked through embedding Standard Operating Procedures ('SOPs'), effective IT systems and through establishing training and performance management processes. During 2020, SOPs were developed for both Operations and Sales and H2 saw us establish, recruit and train almost 100 new PAYE sales branch management roles.
Delivering Profitable Growth : Our brand development project completed work on a modernised brand logo and refreshed brand communications campaign, fronted by David Seaman MBE, the former England goalkeeper. This work was underpinned by new research and consumer insight which informs much of our business strategy during 2022. We continued to advance our digital marketing capability, which now encompasses the use of artificial intelligence, to drive volume and mitigate cost pressure in the digital channel. We continued to move pricing promptly in response to emerging cost pressure and capacity constraints and this delivered revenue growth and margin improvement.
Transforming the Customer Experience: Our metrics show that the vast majority of our customers have a seamless experience from sales through to installations, but we know we have an opportunity to improve this further. During 2021 we implemented Net Promoter Score ('NPS') across our operations divisions, combined with financial incentives for quality performance across our depot network. While disrupted by supply and labour issues in H2, the underlying progress is clear and these actions support our intent of placing customer experience at the heart of the business.
Embedding Sustainability and Compliance: I have been delighted that we were able to exceed our original target of 10% reduction in our CO(2) per frame by 2024 well ahead of time, achieving a 19% reduction this year. We now see an opportunity for a further 6% improvement before 2025. This will be delivered by continued incremental improvement ahead of the introduction, when technology and infrastructure enables it, of a fully-electrified vehicle fleet. We will continue to target the elimination of the remaining 5% of consumer waste going to landfill in conjunction with both existing and new partners. In addition, we will conduct a Scope 3 audit of our ten largest suppliers in 2022 to ensure that progress on reducing emissions is also being made downstream.
The year also saw us become the first major sales force in the industry to join the Association of Professional Sales and be awarded their ethical sales business accreditation.
Our progress in financial delivery and against our strategic priorities has been supported by sustained investment in our people and in modernising our systems. The latter has encompassed the replacement of legacy systems, system resilience and most importantly, the preparation for implementing a new CRM system in 2022.
We are particularly proud of the launch of the Safestyle Academy, the largest professional development programme for installers in the UK. This is a major long term investment and illustrates our commitment to raising professional standards across the industry.
Sustaining the strategic transformation in 2022
Despite the progress made in 2021, we have more work ahead to complete and embed the strategic changes that are now underway in the business.
Our key strategies will remain;
-- Delivering our Financial Roadmap -- Levelling Up our Depots and Branches -- Driving Profitable Growth -- Transforming our Customer Experience -- Embedding Sustainability and Compliance
All supported by our two enabling strategies; investing in the development of our people and modernising our systems and processes.
Current trading and outlook
Our first quarter has seen robust order intake supported by the successful launch of our new TV Advertising campaign, our largest investment in our brand since 2017. This saw the fruition of our 2021 brand development work. Our communication focuses on value with a 'Safestyle Saves' message, fronted by David Seaman. Initial results have been positive with the campaign still underway.
It was immensely frustrating that as we emerged from four years of turbulence and following strong financial performance in 2021, the business was hit on 25 January 2022 by a sophisticated cyber attack, which originated from Russia. Safestyle was one of a number of businesses impacted by what we understand to be a significant increase in cyber attacks on mid-size UK businesses. The immediate response from our staff was prompt and impressive and we were able to sustain our core operations, sales, surveying, manufacturing and installations throughout the business recovery period, which is now complete.
It is clear that our programme of recent IT investments contributed to significantly mitigating the impact of the attack.
Despite our ability to sustain our core operations, the attack did cause a level of disruption as we temporarily reverted to our business continuity processes. The business now has all core systems back up and running and concurrently has further enhanced our cyber security measures. Based on the increased and likely persistent threat to UK businesses, we plan to accelerate our existing IT modernisation plan further during 2022 and 2023.
Looking forward, we expect the impact of inflation and consumer confidence to be reflected in consumer demand for the year ahead, albeit our order book, which is now at record levels, will allow us to smooth the impact of any mid term slowing of demand. Furthermore, our historic performance as a value brand has demonstrated resilience through periods of reduced consumer demand. Meanwhile, raw material, labour and material cost inflation are at record levels and we intend to mitigate these impacts through pricing whilst maintaining focus on both costs and productivity to limit the impact as far as possible.
The business will continue to assess opportunities to accelerate growth in line with our strategy, which encompasses acquisitions, new business development and organic core business growth. This will be the prime call on our cash, but we do intend, if our net cash position grows from its current levels after these growth opportunities, to return to the dividend list in the relatively near future. The timing of this will depend on the scale and timing of our investments.
Our strategic intent remains consistent into 2022; to build long term value by consolidating our position as the clear UK market leader. Despite the factors above, the Board remains positive on the outlook for 2022 as the business emerges transformed after three very challenging years and continues to deliver a return to our historical strong financial performance and growth.
Mike Gallacher
Chief Executive Officer
20 April 2022
Financial Review
2021 2020 2021 2021
vs vs 2019
2020 % change
% change
Underlying Non-underlying Total Underlying Non-underlying Total
Financials items(1) items(1)
----------- --------------- ----------- --------------- ---------
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------- --------------- --------- ----------- --------------- ---------
Revenue 143,251 - 143,251 113,191 - 113,191 26.6% 13.5%
----------- --------------- --------- ----------- --------------- --------- --------- ----------
Cost of
sales (99,496) - (99,496) (84,732) - (84,732) (17.4%) (5.5%)
------------- ----------- --------------- --------- ----------- --------------- --------- --------- ----------
Gross Profit 43,755 - 43,755 28,459 - 28,459 53.7% 37.2%
----------- --------------- --------- ----------- --------------- --------- --------- ----------
Other
operating
expenses(2) (34,519) (1,650) (36,169) (32,057) (1,399) (33,456) (7.7%) (7.8%)
------------- ----------- --------------- --------- ----------- --------------- --------- --------- ----------
Operating
profit
/ (loss) 9,236 (1,650) 7,586 (3,598) (1,399) (4,997) n/a n/a
----------- --------------- --------- ----------- --------------- --------- --------- ----------
Finance
Income - - - 1 - 1 n/a n/a
----------- --------------- --------- ----------- --------------- --------- --------- ----------
Finance
Costs (1,623) - (1,623) (1,161) - (1,161) (39.8%) (15.8%)
------------- ----------- --------------- --------- ----------- --------------- --------- --------- ----------
Profit /
(loss)
before
taxation(3) 7,613 (1,650) 5,963 (4,758) (1,399) (6,157) n/a n/a
----------- --------------- --------- ----------- --------------- --------- --------- ----------
Taxation (1,188) 1,103 n/a n/a
------------- ----------- --------------- --------- ----------- --------------- --------- --------- ----------
Profit /
(loss)
for the y
ear 4,775 (5,054) n/a n/a
------------- ----------- --------------- --------- ----------- --------------- --------- --------- ----------
Basic EPS
(pence
per share) 3.5p (4.3p)
----------- --------------- --------- ----------- --------------- --------- --------- ----------
Diluted EPS
(pence
per share) 3.4p (4.3p)
----------- --------------- --------- ----------- --------------- --------- --------- ----------
Cash and
cash
equivalents 16,351 11,705
----------- --------------- --------- ----------- --------------- --------- --------- ----------
Borrowings (4,231) (4,127)
------------- ----------- --------------- --------- ----------- --------------- --------- --------- ----------
Net cash(4) 12,120 7,578
------------- ----------- --------------- --------- ----------- --------------- --------- --------- ----------
For the purposes of this announcement, where appropriate we have included comparisons of the Group's financial and operating performance for 2020 and also 2019 with the latter, in many cases, a more meaningful comparative being prior to the disruption of the COVID-19 pandemic in 2020.
2021 2021
vs 2020 vs 2019
KPIs 2021 2020 change 2019 change
Revenue GBP000 143,251 113,191 26.6% 126,237 13.5%
-------- -------- ------------ -------- -------------
Gross margin %(5) 30.54% 25.14% 540bps 25.27% 527bps
-------- -------- ------------ -------- -------------
Average Order Value (GBP inc
VAT) 4,032 3,474 16.1% 3,337 20.8%
-------- -------- ------------ -------- -------------
Average Frame Price (GBP ex
VAT) 791 704 12.4% 678 16.7%
-------- -------- ------------ -------- -------------
Frames installed (units) 183,374 163,617 12.1% 190,252 (3.6%)
-------- -------- ------------ -------- -------------
Orders installed 43,167 39,789 8.5% 46,412 (7.0%)
-------- -------- ------------ -------- -------------
Frames per order 4.25 4.11 3.4% 4.10 3.7%
-------- -------- ------------ -------- -------------
2021 represents a return to full year profitability and further improvement to the Group's financial performance trajectory which builds on the performance in H2 2020. The Group moved swiftly to mitigate inflationary pressures and gross margins have improved materially versus 2020 and 2019 as a result of a number of margin-enhancing initiatives. 2021 also included further investment in customer service resource and installation capacity as the Group focused on recovery from the operational turbulence caused by the pandemic in 2020 and early 2021.
The Group made an underlying profit before taxation(3) of GBP7.6m for the year, representing a strong recovery from the losses sustained in 2020. Net cash(4) also strengthened to GBP12.1m at the end of the period, an increase of GBP4.5m versus the prior year.
This Financial Review now provides further detail behind the changes in the financial measures and KPIs of the business and will draw attention to how the performance compares to both 2020 and also 2019 which is, in many cases, a more meaningful comparative being prior to the disruption of the COVID-19 pandemic in 2020.
Financial and KPI headlines
-- Revenue increased to GBP143.3m, growth of 26.6% compared to the COVID-impacted 2020 and by 13.5% compared to 2019.
-- Frames installed increased by 12.1% versus 2020 to 183,374 with the prior year levels adversely impacted by the first half COVID disruption in 2020. Compared to 2019, frames installed reduced by 3.6% with the Group optimising the balance between utilisation of its available installation capacity for new customers alongside customer service recovery work.
-- The Group has continued to improve average frame price, achieving a 12.4% increase over 2020 which is attributable to necessary price increases to negate input cost inflation, favourable market conditions and discount management. H igher-priced composite guard doors were relatively consistent year on year at 7.3% of frames installed compared to 7.6% for 2020.
-- Alongside the average price improvement, the majority of the benefit arising from changes made to the Group's consumer finance portfolio in the latter part of 2020 is now being realised. This has resulted in a reduction in finance subsidy costs of GBP1.9m versus 2020 and GBP3.3m versus 2019.
-- Gross profit increased by 53.7% and 37.2% over 2020 and 2019 respectively to GBP43.8m. Gross margin percentage(5) increased by 540bps versus 2020 and by 527bps versus 2019 to 30.5%. This is predominantly attributable to the improvement in average frame price, the reduction in finance subsidy costs and finally, lower lead generation costs which are a result of both internally-driven efficiencies and favourable market conditions. The latter effect was most noticeable in the first half of the year. Lead generation costs in the second half of the year normalised back towards pre-pandemic levels of 2019.
-- Underlying other operating expenses(2) for the period increased by GBP2.5m (7.7%) compared to 2020. 2020 was materially reduced as a result of a GBP1.1m furlough reclaim benefit as part of the Government's Coronavirus Job Retention Scheme ('CJRS') and reduced levels of operating activity during the lockdown period in the first half of the year. Excluding this impact, the year on year increase represents ongoing investment in the Group's installation capacity, customer service resource and IT.
-- Finance costs increased versus 2020 despite reduced borrowing costs due to lower utilisation (and thus lower fees) in relation to the GBP3m revolving credit facility. This effect was offset by higher finance costs on lease liabilities following the renewal of the Group's vehicle fleet and the consequential higher interest expense charged at the beginning of the lease under IFRS 16.
-- Underlying profit / (loss) before taxation was a profit of GBP7.6m for the period (2020: loss of GBP(4.8)m) with the recovery in volume and improvements in gross margin described above driving the GBP12.4m improvement.
-- Non-underlying items(1) were GBP1.7m for the period (2020: GBP1.4m) and therefore reported profit / (loss) before taxation was GBP6.0m versus a loss of GBP(6.2)m in 2020.
-- Net cash improved to GBP12.1m compared to GBP7.6m at the end of the prior year. The improved cash position is directly related to the profitability of the year with this positive cash generation being partially offset by repayment of a GBP2.4m VAT liability which was deferred from May 2020 as part of the Group's COVID support measures.
(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 profit / (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 three 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 and consequential items continued into 2019 as the Group addressed the impact of these challenges, predominantly as part of its Turnaround Plan. 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. In 2021, the Group has incurred some non-recurring restructuring and operational costs. Further details are provided below in this Financial Review.
Consequently, adjusted measures of underlying other operating expenses and underlying profit / (loss) before taxation have been presented as the 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 profit / (loss) before taxation is the basis of performance targets for incentive plans for the Executive Directors and senior management team.
Non-underlying items consist of non-recurring costs, share based payments and Commercial Agreement amortisation. Non-recurring costs are excluded because they are not expected to repeat in future years. These costs are therefore not included in these alternative 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 these alternative performance measures as such changes would again potentially distort the evaluation of the Group's performance year to year.
Finally, Commercial Agreement amortisation is also excluded from these alternative 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 2021 was GBP143.3m compared to GBP113.2m for 2020, representing an increase of 26.6% with the prior period comparative adversely impacted by the cessation of installation activity between late March and the end of May 2020. Revenue versus 2019 represents growth of 13.5% and this increase is more representative of the Group's improving revenue trajectory.
Frames installed volume improved by 12.1% versus 2020 to 183,374 frames, which is 3.6% lower than 2019. The revenue improvement exceeds the volume performance for both comparative periods as a result of improvements in the following areas:
-- The average frame price increased by 12.4% year on year to GBP791 (2020: GBP704, 2019: GBP678). The impact of necessary list price increases alongside the continued drive to reduce discount levels and optimise margins are the main components to this improvement.
-- The growth in the average frame price was also despite a marginal adverse average price effect due to a lower mix of higher-priced composite guard doors of 7.3% versus 7.6% and 9.2% for 2020 and 2019 respectively.
-- Alongside the favourable average frame price change, the results of the Group's project to reduce finance subsidy costs incurred as part of its consumer finance offering, which was launched in H2 2020, are now being almost fully realised this year. These reductions follow changes to our promotional finance portfolio in late 2020 which have generated a GBP1.9m benefit versus 2020 and a GBP3.3m benefit versus more comparable volumes and full year cost of 2019.
Following a comprehensive re-tender process with both existing and potential new partners at the start of 2021, we expect finance subsidy costs to be a minimal net cost to the Group. At the same time, we remain focussed on ensuring we have a market-leading set of payment options available to our customers.
-- The average number of frames per order has also increased to 4.25 in the year, which represents an increase of 3.4% and 3.7% over 2020 and 2019 respectively. The Group has driven a higher order size which, alongside the average frame price growth described above, has resulted in an increase in the average order value versus 2020 of 16.1% to GBP4,032. Focus on improving metrics such as these has underpinned the improvements in the Group's gross margin.
Gross profit
Gross profit was GBP43.8m, growth of 53.7% over 2020 and 37.2% over 2019. The Group's gross margin percentage improved significantly by 540bps to 30.5% versus 2020's 25.1%. This also represents a 527bps increase versus the 25.3% gross margin percentage of 2019.
The combination of the installation volume increase alongside the average price and finance subsidy reductions described above were all contributors to the growth in gross profit and the improvement in the Group's gross margin percentage. Further components behind the improving trends were as follows:
-- The Group began the year with an order book that was 83% ahead of the prior year which proved important in protecting the Group from selling restrictions at the start of the year when a third national lockdown was required in response to the COVID pandemic. By the end of 2021, the order book had reduced by 8.4% versus the record closing position of 2020. The order book remains healthy with 2021's closing position still over a third higher than any other year excluding 2020. The year on year reduction in the record opening order book equates to a GBP0.4m gross margin benefit in 2021.
-- The third national lockdown in the UK restricted the Group's selling and marketing activities in January. Once the Group was able to restart activities in February 2021, the Group experienced a strong consumer response that was similar to that experienced in the second half of 2020. Lead generation activities were increased across all lead sources and costs per lead remained low compared to pre-pandemic levels. As lockdown restrictions lifted in late April and May, lead costs increased and have returned to levels similar to those in 2019.
Alongside the lead generation cost context described above, the Group has continued to make strong progress on lead management, conversion optimisation and sales performance which has reduced cancellation rates and mitigated some of the inflationary pressures of lead generation.
As a result of all these factors, the cost to order intake ratio for 2021 was 8.6% lower than in 2020.
-- The improvement in gross profit versus the prior period is also despite a GBP0.7m reclaim in 2020 under the CJRS scheme to contribute to the costs of the Group's furloughed factory employees during the 2020 lockdown.
Although there has continued to be disruption caused by COVID-required isolations and illness across 2021, the return to higher / more normal levels of activity across the period has driven an improved utilisation of fixed costs included within cost of sales. This has also contributed to the improvement in the Group's gross margin percentage.
Underlying other operating expenses
Underlying other operating expenses were GBP34.5m for the year, which represents an increase of GBP2.5m compared to both 2020 and 2019. 2020 comparatives are reduced by the receipt of a GBP1.1m furlough claim and thus 2019 is a more meaningful comparative to understand the operating cost base of the business. The key factors behind the increase versus 2019 are as follows:
-- The Group has invested in both its customer service resource levels and its installations capacity in the last 18 months. Since 2019, the Group has re-opened its Crawley depot and also opened new depots in Nottingham (prior to the end of 2020) and Milton Keynes (August 2021). In conjunction with this increased depot footprint, further resources have been added to manage operations.
-- The Group has increased investment in additional IT licensing and infrastructure costs as it continues to rollout new technology. This includes further upgrades to network security and resilience alongside the implementation of Office 365 and Microsoft Teams. The latter have facilitated the continuation of operations throughout the last two years within the context of the COVID pandemic which was necessitated by more people working remotely than prior to the pandemic. This investment has also helped to mitigate the impact of the cyber attack in January 2022.
-- Finally, marketing spend increased by GBP0.3m versus 2019 which includes costs of brand consultancy, consumer insight research and other services incurred in advance of the Group's return to TV advertising in February 2022.
Underlying profit / (loss) before taxation
Underlying profit before taxation was GBP7.6m versus a loss in 2020 of GBP(4.8)m and a loss of GBP(1.5)m for 2019. This loss is before the non-underlying items described below.
Non-underlying items
A total of GBP1.7m has been separately treated as non-underlying items for the year (2020: GBP1.4m, 2019: GBP2.3m). The current year's total consists of GBP0.5m of non-recurring costs (2020: GBP0.5m, 2019: GBP1.9m), a GBP0.7m share based payment charge (2020: GBP0.4m, 2019: GBP0.0m) and GBP0.5m (2020 and 2019: GBP0.5m) of Commercial Agreement (Intangible Asset) amortisation. The table below shows the full breakdown of these items:
2021 2020 2019
GBP000 GBP000 GBP000
------- ------- -------
Holiday accrual (79) 470 -
------- ------- -------
RSA related costs 147 - -
------- ------- -------
Litigation Costs 90 74 -
------- ------- -------
Restructuring and operational
costs 300 266 1,058
------- ------- -------
Modification of right-of-use assets
and liabilities (83) 5 -
------- ------- -------
Impairment of right-of-use assets 122 - 692
------- ------- -------
Reversal of prior year impairment
of right-of-use assets - (292) -
------- ------- -------
IT project impairment 14 - 113
------- ------- -------
Commercial Agreement service fee - - (13)
------- ------- -------
Total non-recurring costs (note
6) 511 523 1,850
------- ------- -------
Commercial Agreement amortisation 452 452 452
------- ------- -------
Equity-settled share based payment
charges 687 424 12
------- ------- -------
Total non-underlying items 1,650 1,399 2,314
------- ------- -------
The holiday pay 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 into future holiday years in line with the legislation. This increased the level of deferred holiday entitlement of our people at the end of 2020 which was recognised as an accrual in 2020 and will reverse in full by 2023. This item was excluded from the Group's underlying performance measures to ensure performance of the business is not skewed by both the expense in 2020, or its subsequent use in 2021/22.
The Group incurred GBP0.3m (2020: GBP0.3m, 2019: GBP1.1m) of restructuring and non-recurring operational costs which reduced the Group's overheads in some areas. In addition, non-recurring costs of GBP0.1m were incurred linked to the issuance of the Restricted Share Award in June 2021.
As reported in the last three years, the Commercial Agreement arose as a result of an agreement entered into in 2018 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 five years which matches the term of the non-compete arrangement.
Share based payment charges predominantly increased versus 2020 due to charges in relation to the Restricted Share Award granted in October 2020 that vested in June 2021.
The items classified as non-recurring costs in the Consolidated Income Statement, the share based payment charges and the amortisation of the intangible asset created as a result of the Commercial Agreement reached in 2018 have all been excluded from the underlying profit / (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 3.5p for the year compared to a loss of (4.3)p for 2020. Diluted earnings per share were 3.4p (2020: loss of (4.3)p, 2019 loss of (4.0)p). The basis for these calculations is detailed in note 7.
Net cash and cashflow
As reported previously, the actions taken last year to protect liquidity and maintain the Group's borrowing facility ensured that it could invest quickly to facilitate a strong restart to trading following cessation of business activity for the first lockdown in 2020. The Group continued to increase its net cash last year, closing at GBP12.1m versus GBP7.6m at the end of 2020. GBP4.5m of the Group's GBP7.5m facility, being that of the term loan, remains drawn with the remaining GBP3.0m revolving credit facility undrawn.
Net cash inflow from operating activities, including the cashflow impact of non-underlying items, was GBP9.6m (2020: GBP3.4m). The inflow for the period reflects the strength of the Group's operating model with trading results correlating positively with cashflow generation.
Partially offsetting the impact of this positive profit to cash conversion was further working capital investment of GBP0.7m in the Group's raw material inventories last year to protect 'on time in full' fulfilment from short-term supply chain disruption. This builds on significant investment in profile stock in 2020 which was also to underpin continuity of supply; this stock remains in place.
Furthermore, the overall net cash inflow from operating activities is also after the Group has repaid GBP2.4m of VAT that was deferred in 2020 as part of the Group's COVID support measures. The final payment of GBP0.1m was made in January 2022.
Capital expenditure increased to GBP1.2m versus GBP0.6m in 2020 with the prior year representing a reduced level of activity similar to operating expenses. The majority of the capital expenditure in the year was in relation to ongoing investment in the Group's IT infrastructure and systems.
Dividends
The Board does not propose a final dividend (2020: GBPnil). As reported in the CEO's statement, based on current performance expectations, the Group will generate further net cash by the end of 2022. The Board's capital allocation policy is to firstly utilise surplus cash to fund forthcoming strategic initiatives. If all current initiatives are funded as required and surplus cash remains, the Board signals its intent to return to the dividend list in the relatively near future.
Rob Neale
Chief Financial Officer
20 April 2022
Consolidated Income Statement for the year ended 2 January 2022
Note 2021 2020
GBP000 GBP000
Revenue 4 143,251 113,191
Cost of sales (99,496) (84,732)
Gross profit 43,755 28,459
Expected credit losses expensed (362) (890)
Other operating expenses(1) (35,807) (32,566)
Operating profit / (loss) 7,586 (4,997)
Finance income - 1
Finance costs(2) (1,623) (1,161)
Profit / (loss) before taxation 5,963 (6,157)
--------- ---------
Underlying profit / (loss)
before taxation before non-recurring
costs, Commercial Agreement
amortisation and share based
payment charges 7,613 (4,758)
Non-recurring costs 6 (511) (523)
Commercial Agreement amortisation (452) (452)
Equity settled share based
payment charges (687) (424)
Profit / (loss) before taxation 5,963 (6,157)
Taxation (1,188) 1,103
Profit / (loss) for the period 4,775 (5,054)
========= =========
Earnings per share
Basic (pence per share) 7 3.5p (4.3p)
Diluted (pence per share) 7 3.4p (4.3p)
(1) Other operating expenses includes GBP511k (2020: GBP523k) of non-recurring costs, GBP452k (2020: GBP452k) of Commercial Agreement amortisation and GBP687k (2020: GBP424k) of share based payment charges. Adjusting for these gives underlying other operating expenses of GBP34,157k (2020: GBP31,167k). See Financial Review for details.
(2) Finance costs includes GBP761k (2020: GBP487k) of lease related interest costs (see note 9) and GBP269k (2020: GBPnil) for the unwind of the provision discount in the year.
There is no other comprehensive income for the year. 2020 represents the year ended 3 January 2021.
All operations were continuing throughout all years.
Consolidated Statement of Financial Position as at 2 January 2022
Note 2021 2020
GBP000 GBP000
Assets
Intangible assets - Trademarks 504 504
Intangible assets - Goodwill 20,758 20,758
Intangible assets - Software 870 850
Intangible assets - Other 832 1,284
Property, plant and equipment 10,811 11,475
Right-of-use assets 9 11,146 8,004
Deferred taxation asset 1,053 1,980
Non-current assets 45,974 44,855
Inventories 5,298 4,545
Trade and other receivables 4,880 5,663
Cash and cash equivalents 16,351 11,705
Current assets 26,529 21,913
Total assets 72,503 66,768
========= =========
Equity
Called up share capital 1,386 1,368
Share premium account 89,495 89,495
Profit and loss account 10,893 5,347
Common control transaction reserve (66,527) (66,527)
35,247 29,683
Liabilities
Trade and other payables 8 18,052 21,929
Lease liabilities 9 4,104 2,524
Corporation taxation liability 159 -
Provision for liabilities and
charges 1,274 1,118
Current liabilities 23,589 25,571
Provision for liabilities and
charges 2,109 1,801
Lease liabilities 9 7,327 5,586
Borrowings 4,231 4,127
Non-current liabilities 13,667 11,514
Total liabilities 37,256 37,085
Total equity and liabilities 72,503 66,768
========= =========
2020 represents the financial position at 3 January 2021.
Consolidated Statement of Changes in Equity for the year ended 2 January 2022
Share Share Profit Common Total
capital premium and loss control equity
account transaction
reserve
GBP000 GBP000 GBP000 GBP000 GBP000
Balance at 30 December
2019 828 81,845 10,009 (66,527) 26,155
Total comprehensive
(loss) for
the year - - (5,054) - (5,054)
Transactions with
owners recorded
directly in equity:
Issue of new shares 500 8,000 - - 8,500
Transaction costs
relating to
the issue of new
shares - (350) - - (350)
Deferred taxation asset
taken
to reserves - - 8 - 8
Issue of shares -
Commercial
Agreement 40 - (40) - -
Equity settled share
based payment
transactions - - 424 - 424
------------------- ------------------- ------------ ------------------- ---------------
Balance at 3 January
2021 1,368 89,495 5,347 (66,527) 29,683
------------------- ------------------- ------------ ------------------- ---------------
Total comprehensive
profit for
the year - - 4,775 - 4,775
Transactions with
owners recorded
directly in equity:
Issue of new shares 18 - (18) - -
Deferred taxation asset
taken
to reserves - - 4 - 4
Corporation taxation
taken to
reserves - - 98 - 98
Equity settled share
based payment
transactions - - 687 - 687
Balance at 2 January
2022 1,386 89,495 10,893 (66,527) 35,247
=================== =================== ============ =================== ===============
Consolidated Statement of Cash Flows for the year ended 2 January 2022
Note 2021 2020
GBP000 GBP000
Cash flows from operating activities
Profit / (loss) for the year 4,775 (5,054)
Adjustments for:
Depreciation of plant, property and equipment 1,473 1,559
Depreciation of right-of-use assets 9 3,882 3,745
Amortisation of intangible fixed assets 842 880
Reversal of impairment loss - (292)
Impairment of right-of-use assets 9 122 -
Modification of right-of-use assets and liabilities 9 (83) 5
Finance income - (1)
Finance expense 1,623 1,161
IT project impairment 14 -
Equity settled share based payment charges 687 424
Taxation charge / (credit) 1,188 (1,103)
-------- --------
14,523 1,324
(Increase) in inventories (753) (1,820)
Decrease / (increase) in trade and other receivables 783 (1,664)
(Decrease) / increase in trade and other payables 8 (3,877) 6,545
Increase in provisions 195 38
-------- --------
(3,652) 3,099
Other interest (paid) (1,250) (986)
-------- ------------
Net cash inflow from operating activities 9,621 3,437
-------- ------------
Cash flows from investing activities
Acquisition of property, plant and equipment (809) (401)
Interest received - 1
Acquisition of intangible fixed assets (424) (156)
Net cash (outflow) from investing activities (1,233) (556)
Cash flows from financing activities
Proceeds from issue of share capital - 8,500
Transaction costs relating to the issue of share capital - (350)
Proceeds from loans and borrowings - 2,000
Repayment of borrowings - (2,000)
Transaction costs relating to loans and borrowings - (39)
Payment of lease liabilities 9 (3,742) (3,722)
-------- ------------
Net cash (outflow) / inflow from financing activities (3,742) 4,389
Net inflow in cash and cash equivalents 4,646 7,270
Cash and cash equivalents at start of period 11,705 4,435
Cash and cash equivalents at end of period 16,351 11,705
======== ============
2020 represents the year ended 3 January 2021.
Notes to the year end financial information
1 Statement of compliance
Whilst the financial information included in this Preliminary Announcement has been prepared on the basis of the requirements of International Financial Reporting Standards (IFRSs) in issue, as adopted by the European Union, this announcement does not itself contain sufficient information to comply with IFRS.
The financial information set out above does not constitute the company's statutory accounts for the financial years 2021 or 2020 but is derived from those accounts. Statutory accounts for 2020 have been delivered to the registrar of companies with the Jersey Financial Statements Commission (JSFC), and those for 2021 will be delivered in due course. Grant Thornton UK LLP has reported on those accounts. Their reports for 2021 and 2020 were (i) unqualified, (ii) did not include a reference of any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 113B (3) or (6) of the Companies (Jersey) Law 1991.
Safestyle UK plc is a public listed group incorporated in Jersey. The Group's shares are traded on AIM. The Group is required under AIM rule 19 to provide shareholders with audited consolidated financial statements. The registered office address of the Safestyle UK plc is 47 Esplanade, St Helier, Jersey JE1 0BD.
The Group is not required to present parent company information.
2 General information and basis of preparation
The Group's financial statements for the financial year 2021, which ended on 2 January 2022 ("financial statements"), have been prepared on a going concern basis under the historical cost convention and are in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU and the International Financial Reporting Standards Interpretations Committee interpretations issued by the International Accounting Standards Board ("IASB") that are effective or issued and early adopted as at the time of preparing these financial statements.
Safestyle UK plc was incorporated on 8 November 2013. On 3 December 2013 Safestyle UK plc acquired Style Group Holdings Limited through a share for share exchange. This was accounted for as a common control transaction. The result of this is that the financial statements of Style Group Holdings have been included in the Group consolidated financial statements of Safestyle UK plc at their book value at the IFRS transition date of 1 January 2010 with the assumption that the Group was in existence for all the periods presented. The excess of the cost at the time of acquisition over its book value has been recorded as a common control transaction reserve.
The accounting policies set out below have unless otherwise stated, been applied consistently to all periods presented in these financial statements.
The preparation of financial statements requires Management to exercise its judgement in the process of applying accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to these financial statements are disclosed in note 5.
(a) New and amended standards adopted by the Group.
The Group has adopted the following new standards and amendments for the first time. Unless otherwise stated, they have not had a material impact on the financial statements.
-- Interest Rate Benchmark Reform 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) -- Amendments to References to the Conceptual Framework (Various Standards) -- COVID-19 Rent Related Concessions beyond 30 June 2021 (Amendments to IFRS 16)
(b) New standards, amendments and interpretations issued but not effective and not early adopted.
At the date of approval of these financial statements, the following standards, amendments and interpretations which have not been applied in these financial statements were in issue but not yet effective (and in some cases have not yet been adopted by the EU):
-- IFRS 17 Insurance Contracts -- Amendments to IFRS 17 Insurance Contracts (Amendments to IFRS 17 and IFRS 4) -- References to the Conceptual Framework -- Proceeds before Intended Use (Amendments to IAS 16) -- Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37)
-- Annual Improvements to IFRS Standards 2018-2020 Cycle (Amendments to IFRS 1, IFRS 9, IFRS 16, IAS 41)
-- Classification of Liabilities as Current or Non-Current (Amendments to IAS 1) -- Deferred taxation related to Assets and Liabilities from a Single Transaction
Basis of consolidation
Subsidiaries are entities that the Company has power over, exposure or rights to variable returns and an ability to use its power to affect those returns. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account.
The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date control ceases.
Intragroup transactions and balances are eliminated on consolidation.
Year end
The financial statements are presented for the year ended on the closest Sunday to the end of December. This date was 2 January 2022 for the current reporting year and 3 January 2021 for the prior year. All references made throughout these accounts for the financial year 2021 are for the period 4 January 2021 to 2 January 2022 and references to the financial year 2020 are for the period 30 December 2019 to 3 January 2021.
3 Going concern
The financial statements are prepared on a going concern basis which the Directors believe to be appropriate for the following reasons.
The Group made a statutory profit of GBP4.8m in the financial year 2021 (2020: (loss) of GBP(5.1)m) and had net current assets of GBP2.9m at the end of the financial year 2021 (2020: net current liabilities of GBP(3.7)m. As detailed in the Financial Review, the profit reported represents a return to full year profitability for the Group for the first time since 2017. Net cash improved further to GBP12.1m at the end of the year, an increase of GBP4.5m versus the prior year. Actions taken to protect cash during the pandemic lockdown in 2020 have ceased and the deferral of a GBP2.5m VAT liability has been settled; working capital is being managed as normal.
The Group has banking facilities which consist of a GBP4.5m term loan and a GBP3.0m revolving credit facility. This facility matures in October 2023 and the finance agreement contains certain covenants, including a minimum EBITDA to be tested on a cumulative monthly basis. By the end of the financial year, the EBITDA covenant headroom had increased significantly to GBP7.2m. The GBP4.5m term loan was fully drawn at the end of the year, while the revolving credit facility was unutilised. This has been the case since May 2020 and remains the case at the date of signing the accounts. The Group presently has sufficient liquidity to repay the term loan prior to, or on the facility maturity date, if required.
The Directors have prepared forecasts covering the period to the end of the financial year 2023. The forecasts include a number of assumptions in relation to sales volume, pricing, margin improvements and overhead investment. The Directors believe the key assumptions to be cautious and realistic with order intake for FY22 to be 10% below the levels achieved in H2 20. This target is deemed to be highly achievable. The Group has a strong opening order book and order intake at this level would match the current capacity of the installation network. Installation volumes are forecast to grow by 5.5% versus 2020, due to a combination of the full year effect of the new Milton Keynes Depot, the recovery of the post-lockdown customer service backlogs as well the expectation that the ongoing workforce availability due to ongoing COVID restrictions experienced throughout 2021 will subside. The Group is forecasting significant increases in manufacturing costs as suppliers pass on increasing energy and raw material prices that they are incurring themselves. Increases in overhead costs have also been forecast as the Group continues its strategic agenda to invest in IT, customer services, field operations as well as annual pay increases in line with rising inflation. These forecasts result in further increases in EBITDA covenant headroom, net cash and liquidity.
Whilst the Directors believe the assumptions above to be sensible, the operating environment is exposed to a number of risks which could impact the actual performance achieved in 2022. These risks include, but are not limited to, reducing consumer confidence due to the general economic conditions, delivering the required levels of order intake as the economy reopens and competition from other sectors increases and the Group's ability to maintain margins given the rising input costs.
The Directors have modelled various sensitised downside scenarios for 2022 and 2023. For 2022, these included a scenario which modelled a 9% reduction in order intake versus 2020 and installation volumes at similar levels to the COVID-impacted year of 2020. In this scenario, mitigating actions within the control of management, including reductions in areas of discretionary spend could be deployed. Even with the above significant reductions in activity, the resultant cash flow forecasts and projections show that the Group will be able to increase its net cash position and operate within the financial covenants of the borrowing facility.
A sensitised downside scenario has been modelled where performance is significantly worse than the scenario described above. In this scenario, whilst a breach of the covenant tests on the borrowing facilities would occur, the Group would still have sufficient cash to repay the borrowing facility.
On 25 January 2022, the Group was subject to a sophisticated cyber attack. The impact of the attack on the business was partly mitigated by recent investments to modernise the Group's IT infrastructure. Business continuity plans enabled the business to continue to sell, survey, manufacture, and install, albeit installations levels were reduced for several weeks. The Group's customer service operations were also disrupted. However, with sales remaining strong, the order book has continued to grow and net cash and liquidity has been maintained. The impact of the incident on installation activity levels is now fully overcome and by the end of March, installation levels were fully back to original plans levels. The Group has maintained its hugely important self-employed installation capacity which has underpinned the swift recovery from the disruption. Elements of the pre-existing IT strategy have been accelerated following the attack to further increase the Group's cyber security defences.
The Directors have compared the financial impact of the cyber attack to its sensitivity scenarios and notes that the sales order intake has remained well ahead of these scenarios and is largely in line with original plans. Whilst weekly installation revenue dropped briefly below the sensitised scenario for a few weeks, the Group's weekly revenue by the end of March had recovered to 20% higher than the downside scenario. The Group has returned to trading profitably following the recovery from the incident.
The Directors have considered the cyber attack as a post balance sheet event and have determined that this is a non-adjusting event as the event occurred after the reporting period. Aside from the short-term impact on trading described above, the Directors do not expect there to be any consequential cash outflows as a result of the cyber attack and therefore no such items have been included in any of the sensitivity scenarios.
In forming their view on preparing the financial statements on a going concern basis, the Directors have reviewed the impact of the cyber attack on the business and highlight the continued strong order intake performance, record order book, maintained liquidity levels and the swift return to expected operational levels following the incident.
Based on the above the above indications and work prepared, the Directors believe that it is appropriate to prepare the financial statements on a going concern basis.
4 Significant accounting policies
Revenue recognition
The Group earns revenue from the design, manufacture, delivery and installation of domestic double-glazed replacement windows and doors.
There are five main steps followed for revenue recognition:
-- Identifying the contract with a customer -- Identifying the performance obligations -- Determining the transaction price -- Allocating the transaction price to the performance obligations; and -- Recognising revenue when or as an entity satisfied performance obligations.
The various stages of the performance obligations are the design, manufacture, delivery of and installation of domestic double-glazed replacement windows and doors.
In applying the principal of recognising revenue related to satisfaction of performance obligations under IFRS 15, the Group considers that the final end product is dependent upon a number of services in the process that may be capable of distinct identifiable performance obligations. However, where obligations are not separately identifiable, in terms of a customer being unable to enjoy the benefit in isolation, the standard allows for these to be combined. The Group considers that in the context of the contracts held these are not distinct. As such the performance obligations are treated as one combined performance obligation and revenue is recognised in full, at a point in time, being on completion of the installation. Revenue is shown net of discounts, sales returns, charges for the provision of consumer credit 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 have determined that this revenue is derived from its ordinary activities and as such this balance is recognised within revenue.
Non-recurring items
Non-underlying items consist of non-recurring costs, share based payments and Commercial Agreement amortisation. Non-recurring costs are excluded because they are not expected to repeat in future years.
5 Accounting estimates and judgements
When preparing the Group's consolidated financial statements, management makes a number of judgements, estimates and assumptions about the recognition and measurement of assets, liabilities, revenue and expenses. Actual results can differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognised prospectively.
Significant management judgements
The following are the judgements made by management in applying the accounting policies of the Group that have the most significant effect on these consolidated financial statements.
Recognition of deferred taxation assets
The extent to which deferred taxation assets can be recognised is based on an assessment of the probability that future taxable income will be available against which the deductible temporary differences and taxation loss carry-forwards can be utilised. The deferred taxation asset of GBP1,053k (2020: GBP1,980k) has been recognised on the basis that the Group is forecasting to make sufficient levels of profits in future periods.
Estimation uncertainty
Impairment of goodwill
In assessing impairment, management estimates the recoverable amount of each asset or cash generating unit based on expected future cash flows and uses an appropriate rate to discount them. Estimation uncertainty relates to assumptions about future operating results and the determination of a suitable discount rate. A discount rate of 11% has been applied to the impairment assessment calculation. This was calculated and compared to the discount rates disclosed by a range of comparable quoted companies. Management used judgement in the decision to use a discount factor of 11%.
Dilapidations provision
The Group has a portfolio of leased properties that sales branches and installation depots operate from. A dilapidations provision is provided for leased properties where the lease agreement contains a contractual obligation to undertake remedial works at the end of the lease term and where wear-and-tear or damage on the property has occurred. The calculation of the estimate is based on historical experience of cost to rectify upon exiting similar properties. The estimated costs are subject to estimation uncertainty as the final payment agreed may differ to the estimated cost given the process whereby dilapidations are negotiated. If the effect of discounting is material, the dilapidations provision is determined by calculating the expected future cash flows at a pre-taxation rate that reflects current market assessments of the time value of money, and when appropriate, the risks specific to the liability.
Product guarantee provision
The Group guarantees all of its products, which in the majority of cases covers a period of 10 years. The provision is calculated to cover the cost of fulfilling any guarantee work to its customers and is based on the expected future costs of rectifying faults and the future rate of product failure arising within the guarantee period. The level of provision required to cover this cost is subject to estimation uncertainty. If the effect of discounting is material, the guarantee provision is determined by calculating the expected future cash flows at a pre-taxation rate that reflects current market assessments of the time value of money, and when appropriate, the risks specific to the liability.
Expected credit loss for trade receivables
The Group assesses, on a forward-looking basis, the expected credit losses ('ECL') associated with its trade receivables. This is based on historical experience, external indicators and forward-looking information to calculate the expected credit losses.
6 Non-recurring costs
2021 2020
GBP000 GBP000
Holiday pay accrual (79) 470
RSA related costs 147 -
Litigation costs 90 74
Restructuring and operational
costs 300 266
Modification of right-of-use
assets and liabilities (83) 5
Impairment of right-of-use assets 122 -
Reversal of prior year impairment
of right-of-use assets - (292)
IT project impairment 14 -
T otal non-recuring costs 511 523
------- --------
The holiday pay accrual arose as a result of the impact of the shutdown of operations and resultant extension of 2020 leave entitlement which, for some employees, is up to March 2023. The release 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 of the business.
Modification of right-of-use assets and liabilities relates to the closure of properties identified as right-of-use assets during the period.
Impairment of right-of-use assets relates to the closure of properties identified as assets under IFRS 16 where the lease commitment extended beyond 2021.
Reversal of prior year impairment of right-of-use assets is the reversal of an impairment charge made in 2019 following closure of the Crawley installation depot which was subsequently reopened in 2020.
IT project impairment charge represented the impairment of a capital investment made in a new electronic survey system that was stopped following results of field trials.
For further detail on the 2020 non-recurring costs, please refer to the Group's Annual Report & Accounts 2020.
7 Earnings per share
2021 2020
Basic earnings per ordinary
share (pence) (3.5) (4.3)
Diluted earnings per ordinary
share (pence) (3.4) (4.3)
a) Basic earnings per share
The calculation of basic earnings per share has been based on the
following profit attributable to ordinary shareholders and weighted-average
number of shares outstanding.
2021 2020
GBP000 GBP000
Profit / (loss) attributable
to ordinary shareholders 4,775 (5,054)
================== ==================
Weighted-average number
of ordinary shares (basic)
No of shares No of shares
'000 '000
In issue during the period 137,753 117,749
================== ==================
b) Diluted earnings per share
The calculation of diluted earnings per share has been based on the following profit attributable to ordinary shareholders and weighted-average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential ordinary shares.
2021 2020
GBP000 GBP000
Profit / (loss) attributable
to ordinary shareholders
(diluted) 4,775 (5,054)
======= ========
Weighted-average number
of ordinary shares (diluted) No. of shares No. of shares
Weighted-average number
of ordinary shares (basic) 137,753 117,749
Effect of conversion of
share options 3,589 -
-------------- --------------
141,342 117,749
============== ==============
The average market value of the Group's shares for the purpose of calculating the dilutive effect of share options was based on quoted market prices for the period during which the options were outstanding.
Diluted earnings per share is calculated by adjusting the earnings and number of shares for the effects of dilutive options. In the event that a loss is recorded for the period, share options are not considered to have a dilutive effect.
8 Trade and other payables
2021 2020
GBP000 GBP000
Trade payables 7,118 7,036
Other taxation and social
security costs 3,169 5,563
Other c reditors and deferred
income 4,747 5,025
Accruals 3,018 4,305
18,052 21,929
--------- ---------
9 Right-of-use assets and liabilities
Motor
Properties Vehicles Equipment Total
GBP000 GBP000 GBP000 GBP000
------------- ------------- ---------------- -------------
Assets
At 3 January 2021 4,770 3,034 200 8,004
Additions 2,080 5,123 256 7,459
Impairment (122) - - (122)
Modification (253) (60) - (313)
Depreciation (1,298) (2,411) (173) (3,882)
------------- ------------- ---------------- -------------
At 2 January 2022 5,177 5,686 283 11,146
Liabilities
At 3 January 2021 4,899 2,996 215 8,110
Payment (1,653) (2,657) (193) (4,503)
Additions 2,080 5,123 256 7,459
Interest 388 357 16 761
Modification (342) (54) - (396)
------------- ------------- ---------------- -------------
At 2 January 2022 5,372 5,765 294 11,431
------------- ------------- ---------------- -------------
Reconciliation of movements of liabilities to cashflows arising
from financing activities
At 3 January 2021 4,899 2,996 215 8,110
Changes from financing cash
flows
Payment of lease liabilities (1,265) (2,300) (177) (3,742)
------------- ------------- ---------------- -------------
Total changes from financing
cash flows (1,265) (2,300) (177) (3,742)
------------- ------------- ---------------- -------------
Other changes
New leases 2,080 5,123 256 7,459
Modification (342) (54) - (396)
Interest expense 388 357 16 761
Interest paid (388) (357) (16) (761)
------------- ------------- ---------------- -------------
Total liability-related
other changes 1,738 5,069 256 7,063
At 2 January 2022 5,372 5,765 294 11,431
------------- ------------- ---------------- -------------
Liabilities classification
Current (<1 year) 1,570 2,419 115 4,104
Long term (>1 year) 3,802 3,346 179 7,327
------------- ------------- ---------------- -------------
5,372 5,765 294 11,431
------------- ------------- ---------------- -------------
The interest expense recognised in the profit and loss statement is in the table above. No expenses relating to short-term leases and low value leases has been recognised. The total cash outflow for leases is GBP4,503k (2020: GBP4,209k). This comprises the payment of lease liabilities of GBP3,742k (2020: GBP3,722k) and the interest paid of GBP761k (2020: GBP487k).
The Group has a number of leases within the business including properties for installation depots and sales branches, vehicles and plant & equipment. With the exception of short-term leases and leases of low-value underlying assets, each lease is reflected in the consolidated statement of financial position as a right-of-use asset and a lease liability. Leases are either non-cancellable or may only be cancelled by incurring a substantive termination fee. For leases relating to properties, the Group must keep those properties in a good state of repair and return the properties to their original condition at the end of the lease.
10 Post-balance sheet events
The Group was hit by a cyber attack, emanating from Russia, at the end of January 2022. Immediately following the incident, there was a short term impact on the Group's operations as it implemented business continuity workarounds as it recovered its systems. The Group now has all its core systems back up and running.
Aside from the impact above, no consequential cash outflows as a result of the attack are expected and this is treated as a non-adjusting event as it occurred after the balance sheet date.
Full details of the incident, as well as the response by the Group, are included within the 'Current trading and outlook' section of the CEO's Statement.
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END
FR EANLEADNAEFA
(END) Dow Jones Newswires
April 21, 2022 02:01 ET (06:01 GMT)
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