Final Results
21 March 2019
Safestyle UK plc
("Safestyle" or the "Group")
Final Results 2018
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 the 12 months ended 31 December 2018.
Financial and operational highlights
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|
Year ended |
Year ended |
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|
|
31 December 2018 |
31 December 2017 |
|
|
|
£m |
£m |
% change |
|
|
Revenue |
116.4 |
158.6 |
-27% |
|
Underlying gross profit1 |
26.7 |
51.4 |
-48% |
|
Underying gross margin % |
22.9% |
32.4% |
-950bps |
|
Gross profit |
25.9 |
51.4 |
-50% |
|
Gross margin % |
22.2% |
32.4% |
-1,020bps |
|
Underlying (loss) / profit before taxation2 |
(8.7) |
15.1 |
-158% |
|
Non-underlying items3 |
(7.5) |
(1.3) |
-501% |
|
(Loss) / profit before taxation |
(16.3) |
13.8 |
-218% |
|
EPS - Basic |
(16.1p) |
13.1p |
-223% |
|
Net cash4 |
0.3 |
11.0 |
-98% |
1 Underlying gross grofit is defined as reported gross profit 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.
2 Underlying (loss) / profit before taxation is defined as reported (loss) / profit before taxation before non-underlying items and is included as an alternative performance measure in order to aid users in understanding the ongoing performance of the Group.
3 Non-underlying items consist of non-recurring costs, share-based payments and the Commercial Agreement amortisation.
4 Net Cash is cash and cash equivalents less loan facility.
A reconciliation between the terms used in the above table and those in the financial statements can be found in the Financial Review.
· Challenging 2018 with significant business disruption caused by an aggressive new market entrant.
· By year end, following appropriate legal action, the Group had achieved a substantial recovery in its contracted workforce across its canvass, sales, surveying and installations operations, resulting in a significantly improved sales order intake in the final two months of the year.
· A detailed three phase turnaround plan was developed in mid-2018, the first phase of which - stabilising the business - was completed by October 2018.
· The implementation of phase two is well underway, which involves returning the Group to profitability.
· Volume of frames installed decreased by 30.7% to 184,184 (2017: 265,716).
· Average unit sales price up 6.2% to £646 (2017: £608).
· Conversion of leads into orders improved by 16.1% versus 2017, offsetting to some extent the reduction in total leads caused by disruption relating to the aggressive competitor.
· Investment made into improving customer service, compliance and Health & Safety processes, training and equipment.
· Digital Transformation project progressed which will increase efficiency and enhance customer experience.
Outlook
2019 represents a key year for the Group's turnaround and the Board is confident, despite the broader market backdrop of weaker consumer confidence, that Safestyle can emerge stronger for the future.
The momentum generated by an improvement in sales order intake in the last two months of 2018, following the recovery in the Group's contracted workforce numbers, has continued into the first part of 2019. This represents an encouraging start to the year.
Safestyle is well-invested in its manufacturing facilities and remains focused on implementing phase two of its three phase turnaround plan to develop a more efficient, professional and profitable business, whilst retaining as much as possible of what made the Group successful in the past.
The Board expects the Group to return to profitability in 2019 and to generate positive cashflow. Whilst cognisant of the broader macro-economic uncertainty, the Board recognises that 2019 represents a year of turnaround as opposed to an immediate return to the Group's historical levels of financial performance.
Commenting on the results, Mike Gallacher, CEO said:
"The business faced a unique and challenging operating context in 2018, but I am pleased to say that, through the dedication and hard work of our people, we ended the year with our business stabilised and trading position materially improved.
With many of the issues faced in 2018 behind us, our experienced management team is wholly focused on driving growth, improving margins and building on the underlying strengths of the business. We are the UK market leader, with a strong brand, industry leading production facilities and skilled people across the organisation. Whilst there is still much work to do, we look forward to the opportunities of the year ahead and returning Safestyle to profitability."
Enquiries:
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About Safestyle UK plc
The Group is the leading retailer and manufacturer of PVCu replacement windows and doors to the UK homeowner market. For more information please visit www.safestyleukplc.co.uk or www.safestyle-windows.co.uk.
Chairman's Statement - Results Announcement for the year ended 31 December 2018
Summary of performance
2019 represents a key year for our turnaround after 2018 saw an unprecedented period of disruption and change for Safestyle that significantly impacted the financial performance of the Group. We have started 2019 well and are encouraged by our sales order intake for the first part of the year, which has continued the momentum achieved in late 2018.
Much of 2018 was severely impacted by the activities of an aggressive new entrant, NIAMAC Developments Ltd ("NIAMAC") (trading as SafeGlaze UK), which affected all areas of the Group's operations and which resulted in the Group taking legal action to protect itself in May 2018. This event, combined with a backdrop of a challenging consumer environment, resulted in a severe decline in our financial performance in the year.
Revenue was down 26.6% to £116.4m (2017: £158.6m) with underlying (loss) / profit before taxation1 a loss of £(8.7)m as compared to a £15.1m profit in 2017. Reported (loss) / profit before taxation was a loss of £(16.3)m (2017: profit of £13.8m). Basic EPS for the period was down from 13.1p to (16.1)p.
There were also significant non-underlying items2 incurred in the year of £7.5m (2017: £1.3m). These consist of costs principally associated with litigation, restructuring, the Commercial Agreement (see below) and a fine from the Health and Safety Executive ("HSE") following prosecution for an incident which occurred in March 2017.
The Group settled its legal action against NIAMAC in September 2018 and subsequently entered into a Commercial Agreement (see below) which led to a recovery in the contracted workforce across our canvass, sales, surveying and installations operations at the start of November.
Linked to this upturn in workforce, the Group invested significantly in lead generation, commissions and associated overheads prior to the end of the year. Whilst this investment is expected to result in a quicker recovery than would otherwise have been the case, it occurred too late in the year to improve the financial performance for 2018. Nonetheless, as I mentioned above, sales order intake for the final two months of 2018 saw a step change in performance compared to the majority of the year and I am pleased to report that the first part of 2019 has continued this positive momentum, with a performance that is ahead of the comparative period in 2018.
The Group is now focussed on a rapid return to profitability. A detailed three phase turnaround plan was developed in the second half of the year which has clearly-defined projects and milestones that are designed to stabilise the Group, rebuild sales and margins, and manage costs effectively. The first phase of the turnaround, involving the stabilisation of the Group, was successfully completed in the year. The second phase, which is to return the Group to profitability and to improve operational efficiencies, is well underway. The third phase, aimed at accelerating growth, will begin in 2020.
References
1 - see the Financial Review for definition of underlying (loss) / profit before taxation
2 - see the Financial Review for definition and detail of non-underlying items
Litigation
The Group has invested heavily in building its leading market position over many years and whilst the Group welcomes healthy competition in the market, it is committed to protecting its brand, its reputation, and its staff.
As such, in May 2018, the Group issued a claim seeking injunctive relief and damages against NIAMAC and a number of named individuals. The claim was made in the Business and Property Courts of England & Wales, on the Intellectual Property list.
The claim asked the Court to determine whether Safestyle was entitled to injunctive relief and damages from what the Group considered to be passing off, the misuse of confidential information, unlawful means conspiracy and malicious falsehood. Safestyle also applied for urgent interim relief, pending the trial of the matter.
As a result of interim applications to the Court, a series of injunctions were put in place in May and subsequently in July. On 3 September 2018, the Group announced that it had settled the claim against all parties with a number of appropriate undertakings made by NIAMAC to the Court.
Further details of the settlement were kept confidential. NIAMAC was subsequently placed into administration on 30 October 2018.
The Board is pleased that this matter is closed and the restoration of the Group to profitability is now our focus.
Commercial Agreement
Shortly after the announcement that the litigation had been settled, the Group entered into an agreement with Mr M. Misra, who was a party to the Group's dispute involving NIAMAC.
Whilst the full detail of the agreement is confidential, it encompasses 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 the period to the fourth quarter of 2020 and Safestyle's trading performance in 2019.
Subject to satisfying the strict terms of the agreement, the consideration will take the form of an allotment by Safestyle to Mr Misra of four million ordinary shares of 1 pence each in the capital of the Group and a payment of cash consideration of between £nil and £2.0 million. Both the allotment of shares and payment of the cash, if any, would only be made in the fourth quarter of 2020.
Balance Sheet and Dividend
As part of phase one of its turnaround plan, the Group secured a £7.5m committed finance facility in October 2018, which will remain in place to October 2020. This facility is designed to support the Group's working capital needs in the short term. The net cash position at the end of the year was £0.3m with an additional £3m of the facility remaining unutilised.
To ensure that the Group maintains suitable liquidity for the immediate future, the Board does not propose a final dividend for the year (2017: £nil). The Board will continue to assess the possibility of resuming payment of a dividend; this would be linked to increases in the Group's net cash levels and delivery of the turnaround plan.
Directorate changes
There have been a number of changes to the Board this year and the following appointments were made in 2018:
· Mike Gallacher was appointed as Chief Executive Officer on 1 May 2018.
· I, Alan Lovell, was appointed as Non-executive Chairman on 16 July 2018.
· Rob Neale was appointed as Chief Financial Officer on 16 July 2018.
· Fiona Goldsmith joined the Board as a Non-executive Director and Chair of the Audit Committee on 17 September 2018.
· Julia Porter joined the Board as a Non-executive Director on 5 November 2018.
These new appointees joined Chris Davies, a Non-executive Director who will retire from the Board after the May AGM. I would sincerely like to thank Chris for his service to the Group since flotation, particularly during 2018 when the Group and the Board was going through a challenging period.
These appointments replaced longstanding Executive Directors Steve Birmingham and Mike Robinson who left the Group in the first half of the year along with the previous Chairman, Steve Halbert and Non-executive Director Peter Richardson.
Most recently, on 5 March 2019, Giles Richell, Chief Operating Officer, resigned from both his Executive role and Board Directorship. Giles's role will not be replaced and his reporting lines will revert to the senior leadership team as the Group works to simplify its organisational structure and recover its overhead position.
I am pleased with how the new Board is working and I am confident that the considerable breadth and depth of the Board's experience will underpin our plans to return Safestyle to profitability and deliver value to our shareholders.
Looking ahead / outlook
2019 represents a key year for our turnaround from which the Board and the Executive team are confident, despite the backdrop of weaker consumer confidence, that we can emerge stronger for the future.
We reported before the close of 2018 that in the last two months of the year, following the recovery in our contracted workforce numbers, the Group achieved an improved sales order intake that was in line with the comparative period for 2017, signalling a step-change in the performance seen for the majority of the year.
As I have previously described, our sales order intake performance for the first part of 2019 has sustained the momentum from late 2018; this represents an encouraging start to the year.
We are well-invested in our manufacturing facilities and are focussed on implementing our turnaround plan to modernise our operations and develop a more efficient and professional business, whilst retaining as much as possible of what made the Group successful in the past.
Finally and most importantly, in such a year of uncertainty and adversity, I would sincerely like to thank all our colleagues for their unparalleled hard work, tenacity and commitment.
A C Lovell
Chairman
21 March 2019
CEO's Statement
Summary
The business faced a unique and challenging operating context in 2018, but I am pleased to say that, through the dedication and hard work of our people, we ended the year with our business stabilised and trading position materially improved.
Nonetheless, much of 2018 was spent combating the impact of a well-funded and aggressive competitor, NIAMAC, trading as SafeGlaze UK. As previously noted, NIAMAC rapidly took over 30% of our self-employed agents as well as some key managerial and specialist staff. Safestyle responded with appropriate legal action and we reached an early out of court settlement during the third quarter of our financial year.
By the end of 2018, the business had experienced a significant recovery in its contracted workforce across its canvass, sales, surveying and installations operations, resulting in a significantly improved sales order intake in the final two months of the year.
2018 has also seen needed advances in our Health, Safety and Compliance practices and significant progress in our Digital Transformation initiative, all of which I am confident will support our leading position in the market in the future.
In summary, our business model remains simple and focussed. We have a strong and recognised brand, one of the sector's leading production facilities, along with committed and skilled people across all areas of the organisation. I would like to thank all our staff and self-employed agents for their hard work through such an unusual set of circumstances.
Business review
The NIAMAC issue impacted the business in three ways; the rapid loss of both key permanent staff and revenue driving self-employed agents, cost increases associated with retaining staff and agents, and the cost of litigation and the diversion of management time. These factors combined led to a fall in turnover of 26.6% to £116.4m (2017: £158.6m) and an underlying loss before taxation1 of £(8.7)m (2017: Profit of £15.1m). After 13 consecutive years of market share gains, our market share decreased to 8.2% (from 10.7% in 2017) reflecting a 28.3% drop in installations from 59,983 to 42,995. We were able, however, to increase our average frame sales price by 6.2% to £646 and our average installed order value by 2.7% from £3,232 to £3,319.
References
1 - see the Financial Review for definition of underlying (loss) / profit before taxation
Turnaround plan
Faced with the challenges outlined above, the business developed a three phase turnaround plan in mid-2018. The plan has clearly-defined projects and milestones designed to stabilise the business in 2018, before returning it to profitability in 2019 and then accelerating growth in 2020.
The first phase of the turnaround plan was aimed at stabilising the business through taking immediate legal action to address the NIAMAC issue, putting in place robust funding to support the turnaround process and establishing a new Board. After the initial success in our legal case we then reached an early out of court settlement, albeit after significant costs were incurred due to the scale and complexity of the legal action.
Concurrently, new funding was quickly put in place and a series of highly experienced appointments were made to rebuild the Board and to bolster the Executive Team. Accordingly, the first phase of the turnaround plan was completed by October 2018.
As a result, the business is now engaged in the second phase of the plan through 2019 which is to return the business to profitability. Our work will be focussed on rebuilding our branches and organisation, improving margins, addressing costs, recovering operational KPIs and driving growth. A key element of the plan includes delivering a step change in our compliance, working closely with regulatory and industry bodies to strengthen our processes and controls.
The third phase of the plan will start in 2020, when the business plans to step up investment in our brand and the Group's core capabilities, establish new revenue streams and capitalise on our Digital Transformation.
Health, safety and compliance
Since late 2017, the business has initiated a step change in its approach to managing Health and Safety with significant investment in additional resource, new processes, training and equipment. Our prime focus has been on the most significant risk for our people, working at height. This followed a working at height incident with one of our people, earlier in 2017, for which the Group received a significant fine from the HSE in 2018. The transformation in our approach has been reinforced by additional audits and management reporting.
Given the scale and nature of our operations, close management is needed to monitor compliance with relevant Fair Trading and Consumer legislation. During 2018, West Yorkshire Trading Standards ("WYTS") took the Group to court over a number of historical incidents. As a result of this, the new business leadership team has put in place a comprehensive series of actions while aiming to establish an effective and collaborative partnership with WYTS. Good progress has been made on this at the time of writing.
The Board and Executive team will continue to monitor and adapt our business practices as befits our leading position in the market and a generally stricter regulatory environment.
Modernisation
I am pleased to report that we made good progress during the year with our ambitious Digital Transformation project.
At the start of 2018, the first phase of this project, Electronic Lead Generation, was launched. In August 2018, the second phase, Electronic Contract, was put in place. Before these changes, all our self-employed sales representatives carried paper price lists and entered orders onto forms which were then faxed to head office every day. They have all now been equipped with a tablet with a sales process that ensures quick and accurate pricing and an immediate digital contract submission process.
For our door canvass and sales agents, this represents the largest single change for Safestyle since flotation and the smooth implementation of the programme in such challenging circumstances is one of the major successes in 2018.
This programme has enabled simplification and delivered some cost savings within the business. Moreover, the new real time sales data flow gives us a detailed, data-driven understanding of our sales performance through a rich source of Management Information which will deliver performance-improving insights in the years ahead.
During 2019, we will consolidate the implementation of the system changes we have already made and further expand them into other parts of the business as we develop our digital capability.
Outlook
Clearly, as a UK consumer-facing business, we are not alone in experiencing significant headwinds in 2019. There is of course a great deal of speculation and some uncertainty about the impact that Brexit will have on UK consumer confidence, along with the impact that it may also have on our supply chain and input costs. The actions and steps taken by the Board to mitigate specific Brexit risks are described in the Annual Report.
Nonetheless, we are confident in the underlying strength of the Safestyle business model and we are encouraged that our sales order intake performance for the first part of 2019 has sustained the momentum from late 2018. With an experienced Board and Executive team now in place, our focus is on delivering phase two of our turnaround plan, preparing the ground for accelerating our growth and financial performance in 2020.
Turnaround Plan
The business developed a three phase turnaround plan in June 2018. This plan consisted of three phases focussed respectively on: stabilising the business, returning the business to profitability and finally, accelerating growth.
Phase one - Stabilising the business: May to October 2018. There were three key elements of this initial stabilisation phase delivered during 2018:
Leadership: The Board and Executive team experienced high levels of turnover in early 2018. Led by Chris Davies (Senior Non-executive Director), the business moved swiftly to appoint new, experienced leaders to the Board. Alan Lovell was appointed as Chairman in July along with the arrival of our new CFO, Rob Neale. Fiona Goldsmith (Non-executive Director) was appointed in September and Julia Porter (Non-executive Director) also joined the Board in November.
The Executive team was strengthened with the appointments of industry veteran Martin Troughton as Marketing Director (formerly Marketing Director at Everest Home Improvements and previously Anglian Home Improvements) and Andrew Parkinson as Sales Director (formerly Operations Director at Provident Financial Group).
Legal case: Our legal response to the aggressive challenge from NIAMAC was aimed at protecting our brand, our people and our business model. Over the previous decade, Safestyle has made considerable investment in building a nationally recognised brand and we could not allow consumers to be confused by the SafeGlaze UK brand name.
In May 2018 we sought immediate injunctive protection and lodged a series of claims with strong support from major shareholders. Our claims met with early success, providing protection to the business and led in due course to a number of court orders being made, including one requiring NIAMAC to change its SafeGlaze UK brand name. While we were confident of the expected final outcome of our court case we were pleased to reach an early out of court settlement with NIAMAC, allowing the management team to refocus its efforts with the case successfully concluded and behind us.
Financing: To underpin the next phases of the turnaround plan and support the Group's working capital needs, a £7.5m committed finance facility was obtained in October 2018, which will remain in place until October 2020.
Phase two - Return to profitability
With the conclusion of our legal case, funding in place and the arrival of a new leadership team, the business moved into the second phase of our turnaround plan. This phase is focussed on returning the business to profitability. This phase will run through 2019 and the key elements are:
Rebuilding our staff & self-employed workforce: The business made progress on rebuilding staff and agent numbers through the second half of the year and this accelerated in the fourth quarter with the return of former agents following NIAMAC going into administration. Integrating large numbers of agents carried some cost, but supported a clear step up in our sales and installation volumes as we exited 2018.
Deliver top line growth: Fuelled by the return of a significant number of agents and strong investment in demand generation, sales order intake grew to similar levels to those seen in the same six week period last year. Our plan for 2019 shows an improvement versus 2018 with a strong recovery in Door Canvass and sustained growth in Media demand generation. In addition, we will be making selective above the line investments, using new TV copy which was aired to support the sales campaign at the start of 2019.
Improving margins: During 2018, margins were negatively impacted by a number of factors. These include commission costs which rose due to the competitive landscape, increased digital lead generation costs and higher overheads due to investment in compliance, customer service and IT systems. We expect these costs to normalise and for our margin performance to improve.
Operational effectiveness and cost: The business has experienced significant cost increases since 2017, shaped by a combination of costs associated with the disruption caused by NIAMAC and investment into key areas of the business. Our focus during phase two of our turnaround plan is to recover large components of the cost shape we had during 2017. We also aim to make progress on basic operational metrics such as 'right first time installation,' fleet and transport costs, frame and door remakes, lead conversion rates and cancellation rates. All of these have clear plans in place for improvement during 2019.
Compliance: We operate in an increasingly regulated industry. This is evident from the 2018 fines relating to historic Health & Safety and Trading Standards issues. As a direct result we have now established effective working relationships with WYTS as we move to put in place the right management processes and standards. We also continue our focus on the management of our main Health & Safety risks, with industry-leading practices and equipment.
Phase three - Accelerate growth
Phase three of our turnaround plan will focus on accelerating our growth from a base of profitable and sustainable operations. The key elements of this part of our programme are;
Brand investment: We plan to recharge our brand investment with stepped-up investment in TV advertising and lead generation. We will aim to achieve a leading Share of Voice in the industry with effective TV copy.
Capability development: We will broaden our initial investments in our staff with the establishment of a Technical Training Academy and selective investment in management development.
New business: We will be making selective investments in new growth opportunities, encompassing New Product Development ("NPD") and geographic expansion, as well as exploring near adjacent opportunities. Our focus will be on growing our core business and this will not come at the expense of increasing complexity or diverting from our strong and simple core business.
Modernisation: As referenced above, the Digital Transformation of the business will continue with a strong emphasis on harnessing technology to enable business improvements and deliver cost savings.
Compliance: We will continue to focus on compliance and continuously live our values around customer service, integrity and safety.
Mike Gallacher
Chief Executive Officer
21 March 2019
Financial Review
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Financials |
2018 |
2017 |
|
||||
|
Underlying |
Non-underlying items |
Total |
Underlying |
Non-underlying items |
Total |
Change in underlying % |
|
|
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
||
|
Revenue |
116,426 |
|
116,426 |
158,552 |
|
158,552 |
(26.6%) |
|
Cost of sales |
(89,748) |
(801) |
(90,549) |
(107,133) |
|
(107,133) |
16.2% |
|
Gross profit |
26,678 |
(801) |
25,877 |
51,419 |
|
51,419 |
(48.1%) |
|
Other operating expenses |
(35,287) |
(6,717) |
(42,004) |
(36,379) |
(1,251) |
(37,630) |
3.0% |
|
Operating (loss) / profit |
(8,609) |
(7,518) |
(16,127) |
15,040 |
(1,251) |
13,789 |
(157.2%) |
|
Finance income |
7 |
|
7 |
35 |
|
35 |
(80.0%) |
|
Finance costs |
(142) |
|
(142) |
(10) |
|
(10) |
(1,320.0%) |
|
(Loss) / profit before taxation |
(8,744) |
(7,518) |
(16,262) |
15,065 |
(1,251) |
13,814 |
(158.0%) |
|
Taxation |
|
|
2,964 |
|
|
(2,986) |
|
|
(Loss) / profit for the year |
|
|
(13,298) |
|
|
10,828 |
|
|
|
|||||||
|
Basic EPS (pence per share) |
|
|
(16.1)p |
|
|
13.1p |
|
|
Diluted EPS (pence per share) |
|
|
(16.1)p |
|
|
13.0p |
|
|
|
|||||||
|
Cash and cash equivalents |
|
|
4,163 |
|
|
10,975 |
|
|
Loan facility |
|
|
(3,903) |
|
|
- |
|
|
Net cash1 |
|
|
260 |
|
|
10,975 |
|
|
KPIs |
2018 |
2017 |
Change % |
|
Average Order Value (£ inc VAT) |
3,319 |
3,232 |
2.7% |
|
Average Frame Price (£ ex VAT) |
646 |
608 |
6.2% |
|
Frames installed - units |
184,184 |
265,716 |
(30.7%) |
|
Orders installed |
42,995 |
59,983 |
(28.3%) |
|
Frames per order |
4.28 |
4.43 |
(3.3%) |
Financial and KPI headlines
· Frames installed declined by 30.7% to 184,184 units with a similar decline of 28.3% for orders installed to 42,995.
· Average frame price improved by 6.2% to £646 as a result of price actions and a larger mix of higher average priced composite guard doors.
· Revenue decreased by 26.6% to £116.4m, largely as a result of the significant decline in installation volumes for the majority of the year linked to the NIAMAC disruption.
· Underlying gross profit2 declined by 48.1% to £26.7m with the decline in revenue described above further compounded by higher commission costs, an increase in lead generation investment (specifically in digital media), a growth in installation-related materials and access solutions equipment and finally, higher (mix-driven) consumer finance subsidies. Reported Gross Profit declined by 49.7% to £25.9m.
· Underlying other operating expenses3 reduced by 3% to £35.3m with reductions in TV advertising offset by increased Factory and IT capital investment-driven depreciation, an increase in costs linked to rebuilding the Board and management team, and investment in compliance, customer service and IT systems and infrastructure costs.
· Reported other operating expenses increased by 11.6% to £42.0m with the increase largely attributable to £7.0m of non-recurring costs in 2018 (see note 4 for full breakdown).
· Finance costs include costs of the borrowing facilities from November 2018.
· Underlying (loss) / profit before taxation4 was a loss of £(8.7)m for the year (2017: profit of £15.1m).
· Non-underlying items were £7.5m in the year, full details of which are provided on the following pages of this Financial Review.
· Reported (loss) / profit before taxation was a loss of £(16.3)m (2017: profit of £13.8m) which is attributable to the decline in gross profit due to the trading performance in the year, coupled with a £7.0m increase in non-recurring costs versus 2017.
· Net cash1 was £0.3m versus the prior year position of £11.0m.
References
1 Net cash is cash and cash equivalents less loan facility
2 Underlying gross profit 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
3 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
4 Underlying (loss) / profit before taxation is defined in the 'Underlying performance measures' section below and the reconciliation between this measure and the GAAP measure is shown in the 'Financials' table at the front of this Financial Review
Underlying performance measures
As described in the Chairman's Statement, the Group has faced an unprecedented series of events. These events have given rise to a number of significant non-underlying items in the year.
Consequently, adjusted measures of underlying gross profit, underlying other operating expenses and underlying (loss) / profit before taxation have been presented as the primary measures of financial performance. Adoption of these measures means that non-underlying items are excluded to enable a meaningful evaluation of the performance of the Group from year to year.
Non-underlying items consist of non-recurring costs, share-based payments and Commercial Agreement amortisation. A full breakdown of these items with details are 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.
These alternative measures are entirely consistent with how the Board monitors the financial performance of the Group.
Revenue
Revenue for the period was £116.4m compared to £158.6m last year, representing a decline of 26.6%. The key performance drivers were as follows:
· Leads generated from direct response media increased by 2.8%. However, leads from other sources, particularly canvass which was significantly disrupted by the NIAMAC issues during the year, declined by 60% for the full year.
· Significantly, in the last two months of the year, following the recovery of the workforce described in the Chairman's Statement, the Group experienced a marked improvement in lead generation with total leads only 3.9% lower than the same period last year.
· Conversion of leads into orders improved by 16.1% versus 2017, which was driven by the increased mix of digital media leads that convert at an improved rate compared to other lead sources. This improvement in conversion went some way to offsetting the reduction in total leads described above.
· For the full year, there was a 28.3% decline in the volume of orders installed from 59,983 to 42,995 which was largely driven by the decline in our workforce due to the NIAMAC disruption.
· A reduction in the number of frames installed also occurred, predominantly for the same reason as above, with a 30.7% decline from 265,716 to 184,184 frames, resulting in a slight reduction in number of frames installed per order of 3.3% to 4.28.
· The average order value including VAT increased by 2.7% to £3,319 and the average frame price increased by 6.2% from £608 to £646. Some price increases were implemented during the year. Whilst the Group remains focussed on maintaining a competitive price point, the price increases were required to negate margin pressures in a number of areas along with the impact of Sterling weakness and commodity and silicone inflation. These price changes, together with an increased share of higher value composite doors and coloured frames, resulted in the overall average price increase observed.
· This favourable average price impact was partially offset by an increase in uptake of our consumer finance products, the impact of which is deducted from revenue.
Underlying gross profit
Underlying gross profit reduced by 48.1% in the period to £26.7m (2017: £51.4m). Underlying gross margin percentage reduced to 22.9% (2017: 32.4%).
£11.7m of the reduction in underlying gross profit is attributable to the decline in installation volumes described above. The other main drivers of the lower gross profit and diluted gross margin percentage are as follows:
· There has been an increased utilisation of traditional scaffolding solutions to ensure our teams are working safely at height.
· The change of mix generated via direct response media drove an adverse cost per order effect despite an improved lead to order conversion rate. The mix effect was compounded in FY18 by a significant year on year increase in 'Pay Per Click' rates which were driven by increased online competition. The increase in digital media costs was partially offset by savings in TV advertising investment which is included within underlying operating expenses.
· Agent commission costs as a percentage of sales increased in the year. The single largest driver was the business responding to the more competitive recruitment environment. In the last two months of the year, following the recovery of the workforce, this effect was amplified by investing in lead generation and installer training ahead of the installation activity occurring.
Underlying other operating expenses
Underlying other operating expenses decreased by 3% versus 2017. There were reductions in the amount invested in TV advertising, which partially offset the higher investment in digital media referred to above. There were increases in other overhead areas as follows:
· Depreciation increased due to factory and IT capital investment in the last 2 years.
· Salary and related costs increased despite cost reductions in some operational areas as a result of the Digital Transformation project. These savings have been offset by investment in Health & Safety, Customer Service, HR and Installation workforce management as well as costs associated with the rebuild of the Board and Executive team. A key component of the turnaround plan is for the Group to simplify its organisational structure and recover its overhead position during 2019.
· IT licensing and infrastructure costs also increased in the year as a result of the Digital Transformation project, the rollout of technology across the branch network and the implementation of improved network security and resilience.
Underlying (loss) / profit before taxation
Underlying (loss) / profit before taxation was a loss of £(8.7)m in the period (2017: a profit of £15.1m). This is before the non-underlying items described below.
Non-underlying items
A total of £7.5m has been separately treated as non-underlying items for the year (2017: £1.3m). These consist of £7.8m of non-recurring costs, a £0.4m shared based payment credit and £0.1m of Commercial Agreement (Intangible Asset) amortisation. The following table provides the full breakdown:
|
Non-underlying Items |
2018 |
2017 |
|
£000 |
£000 |
|
|
Product guarantees provision |
801 |
- |
|
|
|
|
|
Non-recurring costs charged to cost of sales (note 4) |
801 |
- |
|
|
|
|
|
Litigation costs |
1,912 |
- |
|
Restructuring and operational costs |
1,167 |
830 |
|
Fines |
1,079 |
- |
|
Onerous leases |
294 |
- |
|
Commercial Agreement costs |
311 |
- |
|
Commercial Agreement service fee |
1,000 |
|
|
Non-recurring pay awards |
635 |
- |
|
Dilapidations provision |
618 |
- |
|
|
|
|
|
Non-recurring costs charged to other operating expenses (note 4) |
7,016 |
830 |
|
|
|
|
|
Total non-recurring costs (note 4) |
7,817 |
830 |
|
|
|
|
|
Equity-settled share based payment (credit) / charges (note 11) |
(374) |
421 |
|
Commercial Agreement amortisation (note 8) |
75 |
- |
|
|
|
|
|
Total non-underlying items |
7,518 |
1,251 |
The single largest non-recurring item is £1.9m of costs related to the NIAMAC litigation in the year as described in the Chairman's statement. This matter is now closed and there will be no continuation of these costs into 2019.
Included within the 'Fines' category is a fine from the HSE of £0.9m following prosecution for a working at height accident in March 2017. Since early 2017, the Group has taken significant steps to avoid a reoccurrence. These measures include an increased use of scaffolding, investment in other market-leading solutions for working safely at height, establishing a new Group Health and Safety Function managed by an experienced manager and significantly increasing safety audits alongside numerous other process improvements.
The remaining £0.2m within the 'Fines' category relates to a fine for 13 infringements brought by WYTS across a period of 2½ years between 2015 and early 2017. As a business, we view the conduct and behaviour of our representatives of the utmost importance and we are now pro-actively working in partnership with WYTS to ensure compliance with customer standards across the business.
The Commercial Agreement service fee is the assessed fair value of the consideration payable under the terms of the Commercial Agreement that has been attributed to services received in the year.
As part of a review by management of provisions made for the Group's future obligations, a revision to the estimates used for future product guarantee claims and the creation of a dilapidations provision has been made which management consider more accurately reflect the Group's obligations in these two areas. The full impact of this change in estimate has been recorded in the Consolidated Income Statement for the current year. However, included in non-recurring costs is the impact on the prior year had this change in estimate been retrospectively applied being £0.8m in relation to the change in product guarantee provision estimate (recognised in cost of sales) and £0.6m in relation to the dilapidation provision change in estimate (recognised in other operating expenses). Both of these amounts have been excluded from underlying results as management believes recording the full charge in 2018 distorts assessment of the underlying performance for the year.
Further detail of all non-recurring costs is contained in note 4.
Finally, in addition to the items classified as non-recurring costs on the Consolidated Income Statement, the share based payment (credit) / charge and the amortisation of the intangible asset created as a result of the Commercial Agreement have been excluded from the underlying (loss) / profit before taxation performance measure to enable a meaningful evaluation of the performance of the Group from year to year.
Earnings per share
Basic earnings per share for the period were a loss of (16.1)p compared to 13.1p profit for the prior year. The basis for these calculations is detailed in note 6.
Net cash1 and cashflow
As part of phase one of its turnaround plan, the Group secured a £7.5m committed finance facility in October 2018, which will remain in place to October 2020. This facility is designed to support the business and underpin the turnaround of the Group. The structure of the facility is that of a £4.5m term loan, which was drawn on completion of the deal and a £3m revolving credit facility that can be utilised as required over the next two years to support any ongoing working capital needs.
At the year-end, cash and cash equivalents were £4.2m (2017: £11.0m). After deducting the loan facility of £3.9m, which is stated net of arrangement fees, net cash1 of the Group was £0.3m at the end of the year (2017: £11.0m).
Net cash (outflow) / inflow from operating activities, including the cashflow impact of non-underlying items, was an outflow of £(8.8)m (2017: inflow of £11.7m).
Capital expenditure in the year on property, plant and equipment and software was £1.9m, a considerable reduction on the £4.7m spend in 2017 which included £2.4m related to the factory expansion. Investment in the Digital Transformation project in the year represented the largest component of capital investment in the period.
No dividends were paid in 2018 (2017: £9.3m) which, combined with the movements above, resulted in a net cash outflow in the year of £(6.8)m (2017: outflow of £(2.5)m).
References
1 Net cash is cash and cash equivalents less loan facility
Dividends
The Board is not proposing a final dividend for this year (2017: £nil per share).
R Neale
Chief Financial Officer
21 March 2019
Consolidated income statement for the year ended 31 December 2018
|
|
|
|
2018 |
2017 |
|
|
|
|
Note |
£000 |
£000 |
|
|
|
|
|
|
|
|
|
|
Revenue |
|
116,426 |
158,552 |
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
(90,549) |
(107,133) |
|
|
|
|
|
|
|
|
|
|
Gross profit1 |
|
25,877 |
51,419 |
|
|
|
|
|
|
|
|
|
|
Other operating expenses2 |
|
(42,004) |
(37,630) |
|
|
|
|
|
|
|
|
|
|
Operating (loss) / profit3 |
|
(16,127) |
13,789 |
|
|
|
|
|
|
|
|
|
|
Finance income |
|
7 |
35 |
|
|
|
Finance costs |
|
(142) |
(10) |
|
|
|
|
|
|
|
|
|
|
Net finance costs |
|
(135) |
25 |
|
|
|
|
|
|
|
|
|
|
(Loss) / profit before tax |
|
(16,262) |
13,814 |
|
|
|
|
|
|
|
|
|
|
Underlying (loss) / profit before tax before non-recurring costs, Commercial Agreement amortisation and share based payments |
|
(8,744) |
15,065 |
|
|
|
|
|
|
|
|
|
|
Non-recurring costs |
4 |
(7,817) |
(830) |
|
|
|
Commercial Agreement amortisation |
8 |
(75) |
- |
|
|
|
Share based payments |
11 |
374 |
(421) |
|
|
|
|
|
|
|
|
|
|
(Loss) / profit before tax |
|
(16,262) |
13,814 |
|
|
|
|
|
|
|
|
|
|
Taxation |
7 |
2,964 |
(2,986) |
|
|
|
|
|
|
|
|
|
|
(Loss) / profit for the year |
|
(13,298) |
10,828 |
|
|
|
|
|
|
|
|
|
|
Basic EPS (pence per share) |
6 |
(16.1p) |
13.1p |
|
|
|
Diluted EPS (pence per share) |
6 |
(16.1p) |
13.0p |
|
|
|
|
|
|
|
|
|
|
1 Gross profit includes £801k of non-recurring costs. Adjusting for this gives underlying gross profit of £26,678k. See Financial Review for details |
|
|||
|
|
2 Other operating expenses includes £7,016k of non-recurring costs. Adjusting for these gives underlying other operating expenses of £35,287k. See Financial Review for details |
|
|||
|
|
3 Operating loss includes £7,817k of non-recurring items, £374k of share based payments credit and £75k of Commercial Agreement amortisation. Adjusting for these gives an underlying operating loss of £8,609k. See Financial Review for details |
|
|||
Consolidated statement of financial position as at 31 December 2018
|
|
|
|
|
2018 |
2017 |
|
|
|
|
Note |
£000 |
£000 |
|
Assets |
|
|
|
|
|
|
Intangible assets - Trademarks |
|
|
8 |
504 |
504 |
|
Intangible assets - Goodwill |
|
|
8 |
20,758 |
20,758 |
|
Intangible assets - Software |
|
|
8 |
1,346 |
786 |
|
Intangible assets - Other |
|
|
8 |
2,188 |
- |
|
Property, plant and equipment |
|
|
|
14,213 |
14,975 |
|
Deferred taxation asset |
|
|
|
693 |
28 |
|
|
|
|
|
|
|
|
Non-current assets |
|
|
|
39,702 |
37,051 |
|
|
|
|
|
|
|
|
Inventories |
|
|
|
2,416 |
2,032 |
|
Current taxation asset |
|
|
|
2,287 |
- |
|
Trade and other receivables |
|
|
|
4,478 |
4,559 |
|
Cash and cash equivalents |
|
|
|
4,163 |
10,975 |
|
|
|
|
|
|
|
|
Current assets |
|
|
|
13,344 |
17,566 |
|
|
|
|
|
|
|
|
Total assets |
|
|
|
53,046 |
54,617 |
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
Called up share capital |
|
|
10 |
828 |
828 |
|
Share premium account |
|
|
|
81,845 |
81,845 |
|
Profit and loss account |
|
|
|
13,347 |
24,712 |
|
Common control transaction reserve |
|
|
|
(66,527) |
(66,527) |
|
|
|
|
|
|
|
|
Total equity |
|
|
|
29,493 |
40,858 |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
Trade and other payables |
|
|
|
15,286 |
10,864 |
|
Corporation taxation liabilities |
|
|
|
- |
776 |
|
Deferred taxation liability |
|
|
|
53 |
90 |
|
Provision for liabilities and charges |
|
|
9 |
1,123 |
599 |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
16,462 |
12,329 |
|
|
|
|
|
|
|
|
Provision for liabilities and charges |
|
|
9 |
3,188 |
1,430 |
|
Borrowing facility |
|
|
|
3,903 |
- |
|
|
|
|
|
|
|
|
Non-current liabilities |
|
|
|
7,091 |
1,430 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
|
23,553 |
13,759 |
|
|
|
|
|
|
|
|
Total equity and liabilities |
|
|
|
53,046 |
54,617 |
Consolidated statement of changes in equity for the year ended 31 December 2018
|
|
|
Share capital |
Share premium |
Profit and loss account |
Common control transaction reserve |
Total equity |
|
|
|
£000 |
£000 |
£000 |
£000 |
£000 |
|
|
|
|
|
|
|
|
|
Balance at 1 January 2017 |
|
828 |
81,979 |
22,052 |
(66,527) |
38,332 |
|
|
|
|
|
|
|
|
|
Total comprehensive income for the year |
|
- |
- |
10,828 |
- |
10,828 |
|
|
|
|
|
|
|
|
|
Transactions with owners recorded directly in equity: |
|
|
|
|
|
|
|
Issue of shares |
|
2 |
256 |
- |
- |
258 |
|
Buy back of shares |
|
(2) |
(390) |
- |
- |
(392) |
|
Equity settled share based payment transactions (see note 11) |
|
- |
- |
421 |
- |
421 |
|
Corporation taxation relief taken to reserves |
|
- |
- |
747 |
- |
747 |
|
Dividends |
|
- |
- |
(9,336) |
- |
(9,336) |
|
Balance at 31 December 2017 |
|
828 |
81,845 |
24,712 |
(66,527) |
40,858 |
|
|
|
|
|
|
|
|
|
Total comprehensive (loss) for the year |
|
- |
- |
(13,298) |
- |
(13,298) |
|
|
|
|
|
|
|
|
|
Transactions with owners recorded directly in equity: |
|
|
|
|
|
|
|
Equity settled share based payment transactions (see note 11) |
|
- |
- |
(374) |
- |
(374) |
|
Deferred taxation asset taken to reserves |
|
- |
- |
44 |
- |
44 |
|
Equity settled Commercial Agreement (see note 8) |
|
- |
- |
2,263 |
- |
2,263 |
|
Balance at 31 December 2018 |
|
828 |
81,845 |
13,347 |
(66,527) |
29,493 |
Consolidated statement of cash flows for the year ended 31 December 2018
|
|
|
|
|
|
2018 |
2017 |
|
|
|
|
|
|
£000 |
£000 |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
(Loss) / profit for the year |
|
|
|
|
(13,298) |
10,828 |
|
Adjustments for: |
|
|
|
|
|
|
|
Depreciation of plant, property and equipment |
|
|
|
|
1,715 |
1,489 |
|
Amortisation of intangible fixed assets |
|
|
|
|
400 |
241 |
|
Finance income |
|
|
|
|
(7) |
(35) |
|
Finance expense |
|
|
|
|
142 |
10 |
|
Loss on sale of plant, property and equipment |
|
|
|
|
42 |
- |
|
Equity settled share based payments (credit) / charge |
|
|
|
|
(374) |
421 |
|
Taxation (credit) / expense |
|
|
|
|
(2,964) |
2,986 |
|
|
|
|
|
|
(14,344) |
15,940 |
|
(Increase) / decrease in inventories |
|
|
|
|
(384) |
144 |
|
Decrease in trade and other receivables |
|
|
|
|
81 |
1 |
|
Increase / (decrease) in trade and other payables |
|
|
|
|
4,422 |
(1,120) |
|
Increase / (decrease) in provisions |
|
|
|
|
2,282 |
(367) |
|
|
|
|
|
|
6,401 |
(1,342) |
|
Hire purchase interest paid |
|
|
|
|
- |
(10) |
|
Other interest paid |
|
|
|
|
(142) |
- |
|
|
|
|
|
|
(142) |
(10) |
|
Taxation paid |
|
|
|
|
(757) |
(2,880) |
|
Net cash (outflow) / inflow from operating activities |
|
|
|
|
(8,842) |
11,708 |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
Acquisition of property, plant and equipment |
|
|
|
|
(1,028) |
(4,075) |
|
Acquisition of subsidiary |
|
|
|
|
(30) |
- |
|
Interest received |
|
|
|
|
7 |
35 |
|
Proceeds from sale of property, plant and equipment |
|
|
|
|
33 |
- |
|
Acquisition of intangible fixed assets |
|
|
|
|
(855) |
(612) |
|
Net cash outflow from investing activities |
|
|
|
|
(1,873) |
(4,652) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
Proceeds from loans and borrowings |
|
|
|
|
3,903 |
- |
|
Proceeds from the issue of ordinary shares |
|
|
|
|
- |
258 |
|
Purchase and cancellation of ordinary shares |
|
|
|
|
- |
(392) |
|
Payment of hire purchase and finance leases |
|
|
|
|
- |
(70) |
|
Dividends paid |
|
|
|
|
- |
(9,336) |
|
Net cash inflow / (outflow) from financing activities |
|
|
|
|
3,903 |
(9,540) |
|
|
|
|
|
|
|
|
|
Net (decrease) in cash and cash equivalents |
|
|
|
|
(6,812) |
(2,484) |
|
Cash and cash equivalents at start of year |
|
|
|
|
10,975 |
13,459 |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
|
|
|
4,163 |
10,975 |
Notes to the financial statements
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 Group expects to publish full Consolidated Financial Statements in March 2019. The financial information set out in this Preliminary Announcement does not constitute the Group's Consolidated Financial Statements for the years ended 31 December 2018 or 2017, but is derived from those Financial Statements. Statutory Financial Statements for 2018 will be delivered to the registrar of companies with the Jersey Financial Services Commission (JFSC), following the Group's Annual General Meeting. The auditor, KPMG LLP, has reported on the 2018 Financial Statements. Their report was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and did not contain statements 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.
Basis of preparation
The Group's financial statements for the year ended 31 December 2018 ("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 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 statement 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 3.
(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.
· IFRS 9 Financial Instruments (effective 1 January 2018)
· IFRS 15 Revenue from Contracts with Customers (effective 1 January 2018)
(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 16 Leases (effective 1 January 2019)
· IFRIC 23 Uncertainty over Income Taxation Treatments (effective 1 January 2019)
· Amendments to IFRS 9 Financial Instruments (effective 1 January 2019)
· Annual Improvements to IFRSs - 2015-2017 Cycle (effective 1 January 2019)
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.
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 £13.3m in the year to 31 December 2018 (FY17: £10.8m profit). The Group entered into a two year financing arrangement on 26 October 2018 for £7.5m. The finance facility includes certain covenants, including a minimum EBITDA to be tested on a cumulative monthly basis. As at 31 December 2018, £4.5m term loan was fully drawn on the facility and in the period to 13 March 2019, £2.5m of the revolving credit facility has also been drawn. The Group had net debt of £2.5m at the end of February 2019. This increase in net debt since the year-end was expected with the first quarter representing the peak period for lead generation investment.
The Directors have prepared forecasts covering the period to December 2020, built from the detailed Board approved budget for 2019. The 2019 Budget includes a number of assumptions in relation to sales volume growth and margin improvements. The Directors have considered reasonably possible downside sensitivity scenarios including a 10% reduction in sales and no margin growth in 2019, offset by mitigating actions within the control of management including reductions in areas of discretionary spend.
As part of this assessment the Directors have considered the potential impact from Brexit on the forecasts namely in terms of supply chain availability and pricing and the impact on the wider economy, potentially impacting sales of the Group's product.
These forecasts, including the reasonably possible downside scenarios with mitigating actions, show that the Group will continue to operate with sufficient headroom within the revised facility terms in place for the duration of the facility agreement (expires October 2020).
Based on the above, whilst recognising the challenges in the turnaround plan, the directors have reasonable expectation that the Group and company has adequate resources to continue in operational existence for the foreseeable future and therefore continue to adopt the going concern basis of accounting in preparing the annual financial statements.
Cautionary Statement
This Report contains certain forward looking statements with respect to the financial condition, results, operations and business of Safestyle UK plc. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward looking statements and forecasts. Nothing in this Report should be construed as a profit forecast.
2 Summary of significant accounting policies
Non-recurring costs
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.
Revenue recognition
Revenue is recognised at the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of business and is shown net of Value Added Taxation. The Group primarily earns revenues from the sale, design, manufacture and installation of domestic double-glazed replacement windows and doors. Product sales revenues are recognised once the goods have been installed. Survey fees are recognised at the point at which they become non-refundable. The Group received no commissions for introducing finance products to customers in 2018, only paying subsidies which are recognised as a reduction to revenue. Revenue from maintenance is recognised on completion of the work carried out.
3 Accounting estimates and judgements
In preparing these financial statements, management has made estimates that affect the application of the Group's accounting policies and the reported amounts of assets, liabilities, income 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.
Judgements
Information about judgements made in applying accounting policies that have the most significant effects on the amount recognised include the following notes:
Note 8 Intangible assets; judgement about the substance and accounting for the Commercial Agreement.
Note 9 Provisions for liabilities and charges; judgement about the substance and accounting for the Commercial Agreement.
Assumptions and estimation uncertainties
Information about assumptions and estimation uncertainties at 31 December 2018 that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities in the next financial year is included in the following notes:
Note 9 Recognition and measurement of provisions; key assumptions about the likelihood and magnitude of an outflow of resources in relation to the Commercial Agreement.
The assessment of whether trade receivables are recoverable is subject to estimation uncertainty. An allowance for impairment is made for estimated irrecoverable amounts.
Other sources of estimation uncertainties
Product guarantees provisions
The Group gives guarantees against all its products, which in the majority of cases covers a period of 10 years. The level of provision required to cover the expected future costs of rectifying faults and the future rate of product failure arising within the guarantee period is subject to estimation uncertainty. Further details can be found in note 9.
Dilapidations provisions
The Group has a number of operating leases in relation to properties, where there is a contractual obligation to undertake remedial works at the end of the lease term. The level of provision required to cover the expected future costs of dilapidations is subject to estimation uncertainty around expected costs and management intention. Further details can be found in note 9.
4 Non-recurring costs
|
|
2018 |
2017 |
|
|
|
£000 |
£000 |
Note |
|
|
|
|
|
|
Product guarantee provision |
801 |
- |
a |
|
|
|
|
|
|
Non-recurring items charged to cost of sales |
801 |
- |
|
|
|
|
|
|
|
Litigation Costs |
1,912 |
- |
b |
|
Restructuring and operational costs |
1,167 |
830 |
c |
|
Fines |
1,079 |
- |
d |
|
Onerous Leases |
294 |
- |
e |
|
Commercial Agreement costs |
311 |
- |
f |
|
Commercial Agreement service fee |
1,000 |
- |
g |
|
Non-recurring pay awards |
635 |
- |
h |
|
Dilapidations provision |
618 |
- |
i |
|
|
|
|
|
|
Non-recurring items charged to other operating expenses |
7,016 |
830 |
|
|
|
|
|
|
|
Total non-recurring items |
7,817 |
830 |
|
|
|
|
|
|
a) As part of a review by management of provisions made for the Group's future obligations, a revision to the estimates used for future product guarantee claims has been made which management consider more accurately reflects the Group's obligations. Included in non-recurring costs is the impact on the prior year had this change in estimate been retrospectively applied.
b) Litigation costs are expenses incurred as a result of the NIAMAC litigation referred to in the Chairman's Statement. These costs are predominantly legal advisor's fees.
c) 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.
d) Fines relate to the HSE and WYTS fines described in the Financial Review and related legal representation fees.
e) Onerous leases represent an accrual for all rental costs up until the first lease break date for properties that were closed in the year.
f) Commercial Agreement costs are expenses incurred in securing the Commercial Agreement referred to in the Chairman's Statement. These costs consist of legal advisor fees and a set of one-off payments made as part of the contractual terms of the final agreement.
g) Commercial Agreement service fee is the assessed fair value of the consideration payable under the terms of the Commercial Agreement that has been attributed to services received in the year.
h) Non-recurring pay awards relate to the bonus payments made to executives as described in the Statement from the Chairman of the Remuneration Committee in the Annual Report. These have been classified as non-recurring as they were paid to reflect the supplementary duties undertaken in a period of significant disruption and reward delivery of key actions required to secure and stabilise the business and are not linked to profit performance. These payments were only awarded due to the unprecedented events the Group experienced in 2018 and will not be made again.
i) The accounting policy for providing for exit obligations on leased property, principally dilapidations, has also been assessed in the year. In previous years, no provision has been made for these. Management have now concluded that a provision is appropriate based on new circumstances during the year, a strategic review by management, the existence of an obligation and the ability to reliably estimate it. Were a provision to have been applied in prior years, the cumulative charge to the end of 2017 would have been £618k.
5 Dividends
|
|
The aggregate amount of dividends paid comprises: |
|
|
|
|
2018 |
2017 |
|
|
|
|
|
|
|
|
£000 |
£000 |
|
|
|
2016 Final dividend paid of £0.075 (2015: £0.075) per ordinary share |
|
|
|
|
- |
6,224 |
|
|
|
2017 Interim dividend paid of £0.0375 (2016: £0.0375) per ordinary share |
|
|
|
|
- |
3,112 |
|
|
|
|
|
|
|
|
- |
9,336 |
|
No final dividend in relation to 2017 was declared and no dividends were declared in 2018.
6 Earnings per share
|
|
|
|
|
|
2018 |
2017 |
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Basic earnings per ordinary share (pence) |
|
|
|
|
(16.1) |
13.1 |
|
|||||||||||||||||
|
Diluted earnings per ordinary share (pence)* |
|
|
|
|
(16.1) |
13.0 |
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
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. |
|
|||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
i) (Loss) / profit attributable to ordinary shareholders (basic) |
|
|
|
|
|
|
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
|
|
|
|
|
2018 |
2017 |
|
|||||||||||||||||
|
|
|
|
|
|
£000 |
£000 |
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
(Loss) / profit attributable to ordinary shareholders |
|
|
|
|
(13,298) |
10,828 |
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
ii) Weighted-average number of ordinary shares (basic) |
|
|
|
|
|
|
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
|
|
|
|
|
No. of shares |
No. of shares |
|
|||||||||||||||||
|
|
|
|
|
|
'000 |
'000 |
|
|||||||||||||||||
|
In issue during the year |
|
|
|
|
82,809 |
82,883 |
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
b) Diluted earnings per share |
|
|
|
|
|
|||||||||||||||||||
|
*Due to net loss for the period, dilutive loss per share is the same as basic.
|
|
|
|
|
|
|
||||||||||||||||||
|
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. |
|
|||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
i) (Loss) / profit attributable to ordinary shareholders (diluted) |
|
|
|
|
|
|
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
|
|
|
|
|
2018 |
2017 |
|
|||||||||||||||||
|
|
|
|
|
|
£000 |
£000 |
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
(Loss) / profit attributable to ordinary shareholders |
|
|
|
|
(13,298) |
10,828 |
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
ii) Weighted-average number of ordinary shares (diluted) |
|
|
|
|
|
|
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
|
|
|
|
|
No. of shares |
No. of shares |
|
|||||||||||||||||
|
|
|
|
|
|
'000 |
'000 |
|
|||||||||||||||||
|
Weighted-average number of ordinary shares (basic) |
|
|
|
|
82,809 |
82,883 |
|
|||||||||||||||||
|
Effect of conversion of share options and share consideration |
|
|
|
|
2,270 |
396 |
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
|
|
|
|
|
85,079 |
83,279 |
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
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. |
|
|||||||||||||||||||||||
|
|
||||||||||||||||||||||||
|
|
||||||||||||||||||||||||
7 Taxation
|
|
|
|
|
|
2018 |
2017 |
|
||||||||
|
|
|
|
|
|
£000 |
£000 |
|
||||||||
|
Recognised in the Consolidated Income Statement |
|
|
|
|
|
|
|
||||||||
|
Current taxation |
|
|
|
|
|
|
|
||||||||
|
Current taxation on income for the period |
|
|
|
|
(2,461) |
2,805 |
|
||||||||
|
Adjustments in respect of prior periods |
|
|
|
|
155 |
- |
|
||||||||
|
Total current taxation |
|
|
|
|
(2,306) |
2,805 |
|
||||||||
|
|
|
|
|
|
|
|
|
||||||||
|
Deferred taxation |
|
|
|
|
|
|
|
||||||||
|
Origination and reversal of timing differences |
|
|
|
|
(658) |
180 |
|
||||||||
|
Effect of change in taxation rate |
|
|
|
|
- |
(11) |
|
||||||||
|
Adjustments in respect of prior periods |
|
|
|
|
- |
12 |
|
||||||||
|
Total deferred taxation |
|
|
|
|
(658) |
181 |
|
||||||||
|
|
|
|
|
|
|
|
|
||||||||
|
Total taxation (credit)/ expense |
|
|
|
|
(2,964) |
2,986 |
|
||||||||
|
|
|
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|
|
|
||||||||
|
Reconciliation of effective taxation rate |
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
2018 |
2017 |
|
||||||||
|
Current taxation reconciliation |
|
|
|
|
£000 |
£000 |
|
||||||||
|
|
|
|
|
|
|
|
|
||||||||
|
(Loss) / profit for the year |
|
|
|
|
(13,298) |
10,828 |
|
||||||||
|
Total taxation (credit) / expense |
|
|
|
|
(2,964) |
2,986 |
|
||||||||
|
(Loss) / profit excluding taxation |
|
|
|
|
(16,262) |
13,814 |
|
||||||||
|
|
|
|
|
|
|
|
|
||||||||
|
Expected taxation (credit) / charge based on the standard rate of corporation taxation in the UK of 19.00% (2017: 19.25%) |
|
|
|
|
(3,090) |
2,659 |
|
||||||||
|
Effects of: |
|
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
||||||||
|
Expenses not deductible for taxation purposes |
|
|
|
|
143 |
326 |
|
||||||||
|
Share based payments |
|
|
|
|
(127) |
|
|
||||||||
|
Adjustments to taxation charge in respect of prior periods |
|
|
|
|
155 |
12 |
|
||||||||
|
Effect of change in taxation rate |
|
|
|
|
(45) |
(11) |
|
||||||||
|
Total taxation (credit) / expense |
|
|
|
|
(2,964) |
2,986 |
|
||||||||
A reduction in the UK corporation taxation rate from 21% to 20% (effective from 1 April 2015) was substantively enacted on 2 July 2013. Further reductions to 19% (effective from 1 April 2017) and to 18% (effective 1 April 2020) were substantively enacted on 26 October 2015, and an additional reduction to 17% (effective 1 April 2020) was substantively enacted on 6 September 2017. This will reduce the Group's future current taxation charge accordingly. The deferred taxation asset at 31 December 2018 has been calculated based on these rates.
8 Intangible assets
|
|
|
|
Goodwill |
Trademark |
Software |
Assets under the course of construction |
Commercial Agreement |
Total |
|
|
|
|
£000 |
£000 |
£000 |
£000 |
£000 |
£000 |
|
Cost |
|
|
|
|
|
|
|
|
|
At 1 January 2018 |
|
|
20,758 |
504 |
1,717 |
163 |
- |
23,142 |
|
Additions |
|
|
30 |
- |
- |
855 |
2,263 |
3,148 |
|
Disposals |
|
|
- |
- |
- |
- |
- |
- |
|
Transfer |
|
|
- |
- |
579 |
(579) |
- |
- |
|
At 31 December 2018 |
|
|
20,788 |
504 |
2,296 |
439 |
2,263 |
26,290 |
|
|
|
|
|
|
|
|
|
|
|
Amortisation |
|
|
|
|
|
|
|
|
|
At 1 January 2018 |
|
|
- |
- |
1,094 |
- |
- |
1,094 |
|
Charge for the year |
|
|
30 |
- |
295 |
- |
75 |
400 |
|
Disposals |
|
|
- |
- |
- |
- |
- |
- |
|
At 31 December 2018 |
|
|
30 |
- |
1,389 |
- |
75 |
1,494 |
|
|
|
|
|
|
|
|
|
|
|
NBV at 31 December 2017 |
|
|
20,758 |
504 |
623 |
163 |
- |
22,048 |
|
NBV at 31 December 2018 |
|
|
20,758 |
504 |
907 |
439 |
2,188 |
24,796 |
The goodwill is allocated to one cash generating unit ("CGU") being Style Group Holdings Ltd. Management have performed impairment reviews on the carrying value of the goodwill at 31 December 2018 and 31 December 2017. For the review at 31 December 2018, the recoverable amount of the CGU has been determined from value in use calculations based on cash flow projections covering a two year period to 31 December 2020 which is then rolled forward for 10 years. The assessment was performed on a value in use basis using a 7% discount rate and the following year's budget as approved by the Board, followed by a forecast for 2020 used for the recent refinancing with no further growth into the future. The key assumptions underpinning these forecasts are based on historical sales trends and costs adjusted for up to date information, including pricing changes, product mix and headcount. Management does not currently believe that any reasonably possible change in the key assumptions on which assessments of recoverable amounts have been based would cause the carrying amount of goodwill to exceed its recoverable amount.
The trademark represents the Safestyle trademark which was acquired in 2010. The trademark is considered to have an indefinite useful life because there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the business. The trademark is not amortised but is tested annually to determine whether there is any indication of impairment and is included in the review above.
The Commercial Agreement represents the fair value of the share consideration that the Group expects to issue under the terms of the Commercial Agreement as described in the Chairman's statement for the non-compete services to be received. The Commercial Agreement is in place for a 5 year period, therefore the cost is amortised over the 5 year period. Management considered an alternative accounting treatment allowed under IFRS 2, whereby the cost of the non-compete agreement would be expensed over the vesting period of the shares, being 4 years. This would have the effect of removing the intangible asset of £2,188k from the balance sheet and therefore reduce the risk of future impairment. Management determined that the most appropriate accounting treatment was the recognition of an intangible asset.
9 Provisions
|
|
|
Dilapidations |
|
Product guarantees |
|
Commercial Agreement |
|
Total |
||||
|
|
|
2018 |
2017 |
|
2018 |
2017 |
|
2018 |
2017 |
|
2018 |
2017 |
|
|
|
£000 |
£000 |
|
£000 |
£000 |
|
£000 |
£000 |
|
£000 |
£000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
- |
- |
|
2,029 |
2,396 |
|
- |
- |
|
2,029 |
2,396 |
|
Utilised in year |
|
- |
- |
|
(1,197) |
(1,180) |
|
- |
- |
|
(1,197) |
(1,180) |
|
Provided in year |
|
767 |
- |
|
1,712 |
813 |
|
1,000 |
- |
|
3,479 |
813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year |
|
767 |
- |
|
2,544 |
2,029 |
|
1,000 |
- |
|
4,311 |
2,029 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
279 |
- |
|
844 |
599 |
|
- |
- |
|
1,123 |
599 |
|
Non current |
|
488 |
- |
|
1,700 |
1,430 |
|
1,000 |
- |
|
3,188 |
1,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year |
|
767 |
- |
|
2,544 |
2,029 |
|
1,000 |
- |
|
4,311 |
2,029 |
Dilapidations - The Group has a portfolio of leased properties that sales branches and installation depots operate from. Historically upon exiting a property lease, the Group has incurred contractual dilapidations charges from the landlord to cover the wear and tear repair costs from the Group's tenancy. The dilapidation provision is estimated on the property size, its use as either a sales branch or installation depot, and the historical charges incurred upon exiting similar properties.
Product Guarantee - The Group gives guarantees against all its products, which in the majority of cases covers a period of 10 years. A product guarantee provision is made for the expected future costs of rectifying faults arising within the guarantee period and then discounted at 7% to a net present value.
Commercial Agreement - The provision for the Commercial Agreement represents the cash consideration that the Group expects to issue under the terms of the Commercial Agreement as described in the Chairman's statement. The cash consideration of between £nil and £2,000k is payable in October 2020.
10 Share capital
|
|
|
2018 |
2017 |
|
|
|
£000 |
£000 |
|
Authorised |
|
|
|
|
77,777,777 Ordinary Shares @ 1p each |
|
778 |
778 |
|
97,223 Ordinary Shares @ 1p each on 17 July 2015 |
|
1 |
1 |
|
2,367,143 Ordinary Shares @ 1p each on 22 October 2015 |
|
24 |
24 |
|
2,564,427 Ordinary Shares @ 1p each on 22 April 2016 |
|
25 |
25 |
|
177,513 Ordinary Shares @ 1p each on 02 May 2017 |
|
2 |
2 |
|
2,201 Ordinary Shares @ 1p each on 09 May 2017 |
|
- |
- |
|
3,302 Ordinary Shares @ 1p each on 01 June 2017 |
|
- |
- |
|
4,128 Ordinary Shares @ 1p each on 01 June 2017 |
|
- |
- |
|
90,000 Ordinary shares @ 1p each cancelled on 03 October 2017 |
|
(1) |
(1) |
|
90,000 Ordinary shares @ 1p each cancelled on 04 October 2017 |
|
(1) |
(1) |
|
15,000 Ordinary shares @ 1p each cancelled on 05 October 2017 |
|
- |
- |
|
10,182 Ordinary Shares @ 1p each on 20 November 2017 |
|
- |
- |
|
|
|
|
|
|
|
|
828 |
828 |
|
|
|
|
|
|
Allotted, issued and fully paid |
|
|
|
|
77,777,777 Ordinary Shares @ 1p each |
|
778 |
778 |
|
97,223 Ordinary Shares @ 1p each on 17 July 2015 |
|
1 |
1 |
|
2,367,143 Ordinary Shares @ 1p each on 22 October 2015 |
|
24 |
24 |
|
2,564,427 Ordinary Shares @ 1p each on 22 April 2016 |
|
25 |
25 |
|
177,513 Ordinary Shares @ 1p each on 02 May 2017 |
|
2 |
2 |
|
2,201 Ordinary Shares @ 1p each on 09 May 2017 |
|
- |
- |
|
3,302 Ordinary Shares @ 1p each on 01 June 2017 |
|
- |
- |
|
4,128 Ordinary Shares @ 1p each on 01 June 2017 |
|
- |
- |
|
90,000 Ordinary shares @ 1p each cancelled on 03 October 2017 |
|
(1) |
(1) |
|
90,000 Ordinary shares @ 1p each cancelled on 04 October 2017 |
|
(1) |
(1) |
|
15,000 Ordinary shares @ 1p each cancelled on 05 October 2017 |
|
- |
- |
|
10,182 Ordinary Shares @ 1p each on 20 November 2017 |
|
- |
- |
|
|
|
|
|
|
|
|
828 |
828 |
|
|
|
|
|
11 Share based payments
At 31 December 2018 the Group had the following share based payment arrangements:
LTIPS
The Group operates an equity-settled Long Term Incentive Plan ("LTIP") remuneration scheme for Directors and certain management ("LTIP 2016", "LTIP 2017" & "LTIP 2018").
On 18 June 2018, 1,333,333 options were granted ("LTIP 2018"). On 15 August 2018, a further 350,000 options were granted (also "LTIP 2018"). Finally, on 19 October 2018, a further 1,104,830 options were granted (also "LTIP 2018"). All schemes require a combination of specific performance based criteria and remaining an employee for a minimum period.
The numbers of share options in existence during the year were as follows:
|
|
|
|
2018 |
|
2017 |
|
|
|
|
|
Number of share options |
Weighted average exercise price |
Number of share options |
Weighted average exercise price |
|
Outstanding at start of period |
|
|
907,359 |
£1.51 |
1,030,134 |
£2.18 |
|
Granted during the year |
|
|
2,788,163 |
- |
348,210 |
- |
|
Issued in the year |
|
|
- |
- |
- |
- |
|
Cancelled in the year |
|
|
- |
- |
- |
- |
|
Lapsed in the year |
|
|
(471,922) |
£0.37 |
(470,985) |
£1.86 |
|
Outstanding at end of period |
|
|
3,223,600 |
£0.17 |
907,359 |
£1.51 |
|
Exercisable at end of period |
|
|
- |
- |
- |
- |
Options are valued using the Black-Scholes option pricing model. The following information is relevant in the determination of the fair value of the options granted during the period.
|
|
|
LTIP 2018 |
LTIP 2017 |
LTIP 2016 |
||
|
Grant date |
|
19/10/2018 |
15/08/2018 |
18/06/2018 |
10/04/2017 |
29/04/2016 |
|
Vesting date |
|
18/06/2021 |
18/06/2021 |
18/06/2021 |
10/04/2020 |
29/04/2019 |
|
Lapsing date |
|
19/10/2028 |
15/08/2028 |
18/06/2028 |
10/04/2027 |
01/04/2026 |
|
|
|
|
|
|
|
|
|
Risk free interest rate |
|
0.85% |
0.75% |
0.78% |
0.15% |
1.22% |
|
Expected volatility |
|
60.90% |
51.90% |
47.10% |
33.60% |
36.93% |
|
Expected option life (in years) |
|
2.67 |
2.84 |
3.00 |
3.00 |
3.00 |
|
Weighted average share price after adjusting for PV of dividends |
|
£0.57 |
£0.33 |
£0.56 |
£3.04 |
£2.67 |
|
Weighted average exercise price |
|
£0.00 |
£0.00 |
£0.00 |
£0.00 |
£2.68 |
|
Weighted average fair value of options granted |
|
56.60p |
33.00p |
55.90p |
256.00p |
65.79p |
|
Dividend yield |
|
0.00% |
0.00% |
0.00% |
5.71% |
3.60% |
|
Remaining contractual life |
|
9.81 |
9.63 |
9.47 |
8.28 |
7.25 |
At the grant date there was limited share price history for the Group on which to calculate volatility. Volatility was therefore estimated using both Safestyle and companies classified in the 'Home Improvement Retailers' subsector on the London Stock Exchange.
SAYE
On 8 May 2018 the Group launched a new share save (SAYE) scheme ("SAYE 2018") in addition to the existing schemes ("SAYE 2016" and "SAYE 2017") for employees. All schemes allow employees to acquire a certain number of shares at a discount of 20% of the share price prior to the invitation to join the scheme, using amounts saved under a 'Save As You Earn' savings contract.
The "SAYE 2015" vested within the period and no shares have been issued. The numbers of share options in existence during the year were as follows:
|
|
|
|
2018 |
2017 |
||
|
|
|
|
Number of share options |
Weighted average exercise price |
Number of share options |
Weighted average exercise price |
|
Outstanding at start of period |
|
|
204,125 |
£2.10 |
423,382 |
£1.49 |
|
Granted during the year |
|
|
794,139 |
£0.49 |
128,205 |
£2.40 |
|
Issued in the year |
|
|
- |
- |
(197,236) |
£1.30 |
|
Lapsed during the period |
|
|
(194,972) |
£1.92 |
(150,226) |
£1.68 |
|
Outstanding at end of period |
|
|
803,292 |
£0.57 |
204,125 |
£2.10 |
|
Exercisable at end of period |
|
|
- |
- |
- |
- |
Options are valued using the Black-Scholes option pricing model. The following information is relevant in the determination of the fair value of the options granted during the year.
|
|
|
|
|
SAYE 2018 |
SAYE 2017 |
SAYE 2016 |
|
Grant date |
|
|
|
08/05/2018 |
25/04/2017 |
01/04/2016 |
|
Vesting date |
|
|
|
01/06/2021 |
01/06/2020 |
01/05/2019 |
|
Lapsing date |
|
|
|
01/12/2021 |
01/12/2020 |
01/11/2019 |
|
|
|
|
|
|
|
|
|
Risk free interest rate |
|
|
|
0.92% |
0.21% |
0.56% |
|
Expected volatility |
|
|
|
48.50% |
34.17% |
32.88% |
|
Expected option life (in years) |
|
|
|
3.35 |
3.35 |
3.35 |
|
Weighted average share price after adjusting for PV of dividends |
£0.59 |
£3.14 |
£2.81 |
|||
|
Weighted average exercise price |
|
|
|
£0.49 |
£2.51 |
£2.25 |
|
Weighted average fair value of options granted |
|
24.70p |
68.60p |
71.93p |
||
|
Dividend yield |
|
|
|
0.00% |
5.53% |
3.40% |
|
Remaining contractual life |
|
|
|
2.92 |
1.92 |
0.84 |
At the grant date there was limited share price history for the Group on which to calculate volatility. Volatility was therefore estimated using both Safestyle and companies classified in the 'Home Improvement Retailers' subsector on the London Stock Exchange.
Alan Lovell Options
On 20 December 2018, as described in the statement from the Chairman of the Remuneration Committee, the Group issued 250,000 options to its Chairman, Alan Lovell. The numbers of share options in existence during the year were as follows:
|
|
|
|
2018 |
2017 |
||
|
|
|
|
Number of share options |
Weighted average exercise price |
Number of share options |
Weighted average exercise price |
|
Outstanding at start of period |
|
|
- |
- |
- |
- |
|
Granted during the year |
|
|
250,000 |
- |
- |
- |
|
Issued in the year |
|
|
- |
- |
- |
- |
|
Lapsed during the period |
|
|
- |
- |
- |
- |
|
Outstanding at end of period |
|
|
250,000 |
- |
- |
- |
|
Exercisable at end of period |
|
|
- |
- |
- |
- |
Options are valued using the Black-Scholes option pricing model. The following information is relevant in the determination of the fair value of the options granted during the year.
|
|
|
|
|
|
Alan Lovell Options |
|
|
Grant date |
|
|
|
|
20/12/2018 |
20/12/2018 |
|
Vesting date |
|
|
|
|
16/07/2021 |
16/07/2020 |
|
Lapsing date |
|
|
|
|
20/12/2028 |
20/12/2028 |
|
|
|
|
|
|
|
|
|
Risk free interest rate |
|
|
|
|
0.73% |
0.71% |
|
Expected volatility |
|
|
|
|
63.50% |
76.50% |
|
Expected option life (in years) |
|
|
|
|
2.57 |
1.57 |
|
Weighted average share price after adjusting for PV of dividends |
|
£0.86 |
£0.86 |
|||
|
Weighted average exercise price |
|
|
|
|
£0.00 |
£0.00 |
|
Weighted average fair value of options granted |
|
|
86.30p |
86.30p |
||
|
Dividend yield |
|
|
|
|
0.00% |
0.00% |
|
Remaining contractual life |
|
|
|
|
9.98 |
9.98 |
At the grant date there was limited share price history for the Group on which to calculate volatility. Volatility was therefore estimated using both Safestyle and companies classified in the 'Home Improvement Retailers' subsector on the London Stock Exchange.
The total share-based (credit)/expense comprises:
|
|
|
|
2018 |
2017 |
||
|
|
|
|
|
£000 |
|
£000 |
|
Equity settled - LTIP |
|
|
|
(2) |
|
351 |
|
Equity settled - SAYE |
|
|
|
(375) |
|
70 |
|
Equity settled - Alan Lovell Options |
3 |
|
- |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
(374) |
|
421 |
12 Contingent Liability
During 2017 there was an incident during installation which led to a reportable injury. The Health & Safety Executive ("HSE") has carried out an investigation into the case. The HSE has stated that, at this time, it does not intend to prosecute the Company following its thorough investigation and consequently, management has not recognised a provision in these financial statements.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
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