Interim Results 2021

RNS Number : 6809M

Safestyle UK PLC

23 September 2021

 

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is disclosed in accordance with the Group's obligations under Article 17 of MAR.

23 September 2021

Safestyle UK plc

("Safestyle" or the "Group")

Interim Results 2021

Strong first half driven by improved gross margins and 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 interim results for the six months ended 4 July 2021.

Financial and operational highlights

	H1 2021	H1 2020	H1 2019	H1 21 v 20 % change	H1 21 v 19 % change
Revenue (£m)	73.0	42.1	64.4	73.4%	13.3%
Gross profit (£m)	23.5	9.7	16.6	141.7%	41.4%
Gross margin %	32.23%	23.13%	25.84%	910bps	639bps
Underlying profit / (loss) before taxation1 (£m)	5.1	(5.1)	(0.8)	n/a	n/a
Non-underlying items2 (£m)	(0.8)	(0.5)	(1.6)	(47.3%)	53.5%
Profit / (Loss) before taxation (£m)	4.3	(5.6)	(2.5)	n/a	n/a
EPS - Basic (pence)	3.0p	(5.0p)	(2.8p)	n/a	n/a
Net cash / (debt)3 (£m)	14.4	6.0	(0.6)

For the purposes of this announcement, where appropriate we have included comparisons of the Group's financial and operating performance for H1 2020 and also H1 2019 with the latter, in many cases, a more meaningful comparative being prior to the disruption of the COVID-19 pandemic in 2020.

1)	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.
2)	Non-underlying items consist of non-recurring items, share-based payments and the Commercial Agreement amortisation.
3)	Net cash / (debt) 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 £5.1m represents the strongest financial performance of the business since H2 2017 and a £10.4m turnaround versus H2 2018.  This was driven by a recovery in volume and improvements in gross margin alongside a transformation agenda.

· The net cash position of the business has strengthened to £14.4m versus £6.0m at the end of H1 2020 which included the support received from shareholders in May 2020.  Based on this and current expectations for 2022, the Board will engage with shareholders in Q4 to discuss its cash allocation policy.  Clearly this will be in the context of any other investment opportunities.

· Revenue growth of 13.3% versus H1 2019 demonstrates the Group's execution of its Turnaround Plan from 2018.

· Early anticipation of cost inflation, a benign market combined with the impact of strategic initiatives delivered a 639bps improvement in gross margin versus H1 2019.

Operational headlines

· The COVID pandemic continued to impact operations in H1 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 sustained our commercial operations.

· Despite the sustained turbulence, continued progress was made against our core strategies, including brand development, consumer finance costs, revenue management, compliance and sustainability.

· A 14^th installation depot was recently opened in Milton Keynes.  This investment improves operational coverage, reduces travelling time and will help drive the productivity of our fitting teams.

· Order book at the end of H1 was 9.6% ahead of H1 2020's position and 65.7% ahead of the closing position at the end of H1 2019.

· The Group has achieved a 10.9% reduction in its CO₂ per frames installed metric versus 2020.  95% of the waste generated from the Group's operations, which includes the removal of old product from customers' homes, was recycled.  Several initiatives are underway which are expected to further reduce emissions and increase this recycling % in H2. 

· Customer service provision has remained a challenge due to the broad range of disruption experienced, most notably labour availability.

Outlook

· Continued operational challenges are anticipated for the remainder of the year, particularly potential supply chain disruption and resource shortages in critical skilled labour pools.

· The business will take prompt action to anticipate further cost pressures during H2, including raw materials and labour cost increases.

· Demand has normalised over the summer versus very high levels in February to April as other channels for consumer spending re-opened.  However, household savings remain at historic highs and we will maintain a balance between order intake with installations capacity to continue to optimise margins.

· Like many companies, the Group is focused on recovering and improving its customer service levels, a priority aligned with our pre-pandemic strategic focus on transforming our customer experience.

· Trading in July and August has continued to be as expected notwithstanding the operational challenges we continue to experience.  H2 will see continued focus on delivering and embedding our long term strategic priorities.  Faced with this sustained uncertainty, the Board expects performance for the full 2021 year to be in line with current expectations.

Commenting on the results, Mike Gallacher, CEO said:

"The business faced continued operational disruption during H1 and I am proud of the flexibility and resilience of all our staff in sustaining our operations while ensuring the safety of our customers and our people.

The momentum we built on return from the first lockdown was sustained into H1 2021 resulting in strong revenue growth versus 2019 and an order book 65.7% higher than at the end of H1 2019.  This performance has underpinned our ability to deliver a rapid recovery in profitability and a further strengthening of our balance sheet.

Despite the continuing challenges of managing the disruption caused by the pandemic we have continued to make progress on a number of our strategic priorities.  Our aim remains to build long term value for shareholders by modernising the business and hence building the foundations for sustained long term growth."

A webinar for analysts and investors for the 2021 Interim Results will be held today at 9.00 am.  If you would like to join, please contact FTI Consulting at [e-mail] or using the details below in order to access the registration details.

Enquiries:

Safestyle UK plc Mike Gallacher, Chief Executive Officer Rob Neale, Chief Financial Officer	via FTI Consulting
Zeus Capital (Nominated Adviser & Joint Broker) Dan Bate /Dan Harris/ Dominic King	Tel: [phone]
Liberum Capital Limited (Joint Broker) Neil Patel / Jamie Richards	Tel: [phone]
FTI Consulting (Financial PR) Alex Beagley / James Styles / Sam Macpherson	Tel: [phone]

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

During the first half of 2021 our focus remained on ensuring the safety of staff and customers while endeavouring to sustain our business operations.  Clearly in some areas this proved impossible at times and both Door Canvass and our Sales teams were impacted heavily in Q1, whilst attendance and customer availability saw sustained operational challenges impacting all functions within the business.  I would like to thank all our staff and agents for their flexibility and resilience through this period, following on from the challenges of 2020.

Summary of Performance

Our H1 performance has further strengthened the financial position of the Group with £14.4m of net cash at the end of the first half, an increase of £6.8m since the year-end and more than double the H1 2020 position.

Our H1 revenues grew 13.3% versus H1 2019 and gross margin increased by 639bps to 32.2% which demonstrates our focus on margin development.  We have experienced unprecedented levels of cost inflation for materials and resources, most notably due to constraints on installation capacity, predominantly in skilled installation and service engineers.  Labour shortages in this area will likely continue and offer a strategic opportunity to differentiate ourselves positively in both the retention, development and recruitment of skilled contractors.  Our margin improvement activity anticipated the cost increases we are now experiencing and we will continue to take proactive action as necessary to protect our margins in H2.

We continued to invest behind our strategic priorities, notably customer service resource levels and our installation network in H1 and underlying other operating expenses for the first half were £17.8m, similar to H2 2020 levels.

The Group's underlying profit before taxation was £5.1m, a £10.2m improvement versus the H1 2020 loss of £(5.1)m and a £5.9m improvement versus H1 2019's loss of £(0.8)m.

Trading and Operational Update

Order intake: Our sales and canvass activities were severely impacted during Q1 as a result of the UK's third COVID lockdown.  Restrictions began to subside in February and order intake performed well into early Q2.  This enabled the Group to replenish the order book that had been partly utilised in Q1, when our sales were severely restricted but installation operations continued. 

Order intake levels slowed in May as a result of both the normal seasonal trends and the impact of the reopening of other sectors of the UK economy.  Costs of order acquisition also increased versus the very low levels seen in the first four months of the year and we do not anticipate that these extraordinarily low costs will be replicated in H2.  The order book at the end of H1 was 9.6% ahead of H1 2020's position and 65.7% ahead of the closing position at the end of H1 2019.  This will continue to support momentum into the second half of the year.  

Operations: We have continued to manage the broad range of operational challenges that emerged as the business restarted operations last year.  These challenges have encompassed staff absences due to isolations, supply chain interruptions, material shortages and critical skill shortages.

Our strategic work on improving our customer experience has partly mitigated the impact of these challenges and will remain a priority for the business into 2022 and beyond.  The scope of work in this area has included training, enhanced staffing levels and new system development.

As reported earlier in the year, we opened our 13^th depot in Nottingham in December 2020 and we have recently opened our 14^th depot in Milton Keynes.  This investment improves our operational coverage, reduces travelling time and hence will help drive the productivity of our fitting teams.  Concurrently, significant progress has been made in improving our offering for installers faced with the national shortage of skilled labour in this area.

The Group is navigating these challenges while driving long term changes and I am pleased that we have not seen disruption so far this year at levels that are in any way comparable to those we experienced in August and September 2020.  The collaboration between our people and those of our key partners combined with our scale have proven to be real advantages in ensuring very high levels of supply continuity which have in turn enabled us to maintain good levels of fulfilment with our customers.

Strategic Progress

Despite the management challenges of operating through a period of sustained turbulence we continue to make good progress on our strategic priorities, modernising our sales force and our Safestyle brand, establishing a competitive advantage in digital marketing, embedding compliance and delivering on our sustainability targets. 

The work we have done to date on improving our customer experience has undoubtedly mitigated the impact of the operational turbulence outlined above but these challenges will continue during H2.  This has required short term investment with the aim of exiting 2021 having recovered service levels to our pre pandemic standards.

Outlook

Looking ahead, the Board remains cognisant of the risk of further disruption to operations if infection rates accelerate in the Autumn, up to and including the risk of a further lockdown.  Certainly the legacy issues of supply chain disruption and inflation will continue to impact the business and we will take prompt action to protect margins as we have demonstrated throughout H1.  It is likely that the business and the wider industry will continue to be constrained by the shortage of available skilled labour.

Despite this background of uncertainty, the Board is confident in the progress the Group has made to build a sustainable long term business, that leverages our scale advantage in the UK.  This confidence is underpinned by the financial strength of the business following the execution of our 2018/19 Turnaround Plan, the subsequent recovery from the Covid pandemic and the continued demand in the RMI market.  Despite our clear national market leadership position, our market share remains small and this represents significant potential for future growth.

The Board intends to carefully consider its cash allocation policy during Q4.  Clearly sustained progress offers the possibility of a return to a progressive shareholder distribution policy, but due consideration will also be given to any strategic investment opportunities that may also arise.

In summary, the business continues to improve its financial performance and modernise while navigating the significant operational challenges associated with the pandemic. Whilst uncertainty remains for H2 the fundamentals of the business continue to improve.  Consequently, the Board expects performance for the full 2021 year to be in line with current expectations and believes that we are well placed to sustain our trajectory of improvement in 2022 and beyond.

Mike Gallacher

Chief Executive Officer

23 September 2021

Financial Review

	H1 2021 £000	H1 2020 £000	H1 21 vs 20 % change	H1 2019 £000	H1 21 vs 19 % change
Revenue	72,980	42,082	73.4%	64,413	13.3%
Cost of sales	(49,456)	(32,349)	(52.9%)	(47,771)	(3.5%)
Gross Profit	23,524	9,733	141.7%	16,642	41.4%
Underlying other operating expenses1	(17,838)	(14,207)	(25.6%)	(16,745)	(6.5%)
Underlying operating profit / (loss)	5,686	(4,474)	n /a	(103)	n/a
Finance Income	-	-	n/a	1	n/a
Finance Costs	(628)	(619)	(1.5%)	(728)	13.7%
Underlying profit / (loss) before taxation2	5,058	(5,093)	n/a	(830)	n/a
Non-underlying items3	(766)	(520)	(47.3%)	(1,649)	53.5%
Profit / (loss) before taxation	4,292	(5,613)	n/a	(2,479)	n/a
Taxation	(729)	622		170
Profit / (loss) for the period	3,563	(4,991)		(2,309)
Basic EPS (pence per share)	3.0p	(5.0p)		(2.8p)
Diluted EPS (pence per share)	2.9p	(5.0p)		(2.8p)
Cash and cash equivalents	18,600	10,120		5,374
Borrowings	(4,193)	(4,095)		(6,016)
Net cash / (debt)4	14,407	6,025		(642)

KPIs	H1 2021	H1 2020	H1 21 v 20 change	H1 2019	H1 21 v 19 change
Gross margin %5	32.23%	23.13%	910bps	25.84%	639bps
Average Order Value (£ inc VAT)	4,020	3,440	16.9%	3,304	21.7%
Average Frame Price (£ ex VAT)	764	688	11.0%	669	14.2%
Frames installed - units	96,241	62,697	53.5%	98,966	(2.8%)
Orders installed	21,958	15,054	45.9%	24,029	(8.6%)
Frames per order	4.38	4.16	5.3%	4.12	6.3%

H1 2021 represents a further improvement on the Group's H2 2020 financial performance.  The Group has more than mitigated inflationary pressures and has materially improved gross margins through a number of margin-enhancing initiatives.  The Group has also invested in customer service resource and installation capacity as it continues to recover from the impact of 2020 and early 2021 operational turbulence caused by the pandemic. 

In the first half of the year, the Group made an underlying profit before taxation² of £5.1m, representing the most profitable six month period for the Group since 2017.  Net cash⁴ has also continued to increase during the first half of the year to £14.4m at the end of the period, an increase of £6.8m versus year-end.  

This Financial Review now expands on the changes in the financial measures and KPIs of the business and will draw attention to how the performance compares to both H1 2020 and also H1 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 £73.0m, growth of 73.4% versus the COVID-impacted H1 2020 and by 13.3% versus H1 2019.

· Frames installed increased by 53.5% versus H1 2020 to 96,241 with the prior year level adversely impacted by the first half COVID disruption in 2020.  Versus H1 2019, frames installed reduced by 2.8% with the Group optimising the balance between utilisation of its available installation capacity alongside delivering material improvements in its margins. 

· The Group has continued to improve average frame price, achieving an 11.0% increase versus H1 2020 which is attributable to both favourable market conditions and discount management.  H igher average-priced composite guard doors were 7.4% of frames installed in the first half versus 7.7% in H1 2020.

· Alongside the average price improvement, the majority of the benefit as a result of changes made to the Group's consumer finance portfolio in the latter part of 2020 are now being realised which has resulted in a reduction in finance subsidy costs of £1.1m versus H1 2020 and £1.8m versus H1 2019. 

· Gross profit increased by 141.7% and 41.4% versus H1 2020 and H1 2019 respectively to £23.5m.  Gross margin percentage increased by 910bps versus H1 2020 and by 639bps versus H1 2019.  This is predominantly attributable to the improvement in average frame price, the reduction in finance subsidy costs and lower lead generation costs which are a result of both internally-driven efficiencies and favourable market conditions. 

· Underlying other operating expenses¹ for the period increased by £3.63m (25.6%) versus H1 2020.  The prior period was materially reduced as a result of a £1.1m 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 last 12 months, the Group has invested in its installation capacity, customer service resource and IT with the increase versus H1 2019 of £1.1m (6.5%) being a clearer measure of the impact of these changes.

· Finance costs marginally increased versus H1 2020 with reduced borrowing costs due to lower utilisation (and thus lower fees) in relation to the £3m revolving credit facility.  These were offset by higher finance costs on lease liabilities following the renewal of the Group's installation van 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 £5.1m for the period (H1 2020: loss of £(5.1)m) with the recovery in volume and improvements in gross margin described above driving the swing from loss to profitability.

· Non-underlying items³ were £0.8m for the period (H1 2020: £0.5m) and therefore reported profit / (loss) before taxation was £4.3m versus a loss of £(5.6)m in H1 2020.

· Net cash improved to £14.4m versus £7.6m at the end of last year.  The improved cash position is directly related to the profitability of the first half of the year.  The £2.5m VAT deferral reported at the end of the year has reduced to 1.7m at the end of H1 and will be fully repaid by January 2022.  With this exception, working capital is being controlled normally and the Group is generating sustained, positive net cash inflows.

1 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 2 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 3 See the non-underlying items section in this Financial Review 4 Net cash / (debt) 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 which is described in detail below.

Consequently, adjusted measures of underlying other operating expenses and underlying profit / (loss) before taxation have been presented as the primary measures of financial performance.  Adoption of these measures results in non-underlying items being excluded to enable a meaningful evaluation of the performance of the Group compared to prior periods. 

These alternative measures are entirely consistent with how the Board monitors the financial performance of the Group and the underlying 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.  A full breakdown of these items is shown below.  Non-recurring costs are excluded because they are not expected to repeat in future years.  These costs are therefore not included in the Group's primary performance measures as they would distort how the performance and progress of the Group is assessed and evaluated. 

Share based payments are subject to volatility and fluctuation and are excluded from the primary performance measures as such changes would again potentially distort the evaluation of the Group's performance year to year.

Finally, Commercial Agreement amortisation is also excluded from the primary performance measures because the Board believes that exclusion of this enables a better evaluation of the Group's underlying performance year to year.

Revenue

Revenue for H1 2021 was £73.0m compared to £42.1m for H1 2020, representing an increase of 73.4% with the prior period comparative impacted by the cessation of installation activity between late March and the end of May 2020.  Revenue versus H1 2019 represents year on year growth of 13.3% and this increase is more representative of the Group's improving revenue performance.

Frames installed volume improved by 53.5% versus H1 2020 to 96,241 frames, which is 2.8% lower than H1 2019.  The revenue improvement exceeds this volume performance for both comparative periods as a result of improvements in the following areas:

· The average frame price increased by 11.0% to £764 (H1 2020: £688, H1 2019: £669).  The impact of modest list price increases in H2 2020 were realised alongside a larger benefit coming from the continued drive to reduce discount levels and optimise margins alongside volume. 

· The improvement in the average frame price was also despite a reduced mix of higher average-priced composite guard doors which reduced to 7.4% of installed volumes (H1 2020: 7.7%, H1 2019: 10.0%).

· Alongside the above favourable average frame price improvements, 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 in this reporting period.  These reductions follow changes to our promotional finance portfolio in late 2020 which have generated a £1.1m benefit in the first half of the year versus H1 2020 and a £1.7m benefit versus more comparable volumes in H1 2019. 

Following a comprehensive re-tender process with both existing and potential new partners earlier this year, we expect the residual subsidy costs to reduce slightly in H2 2021.  The cost of providing market-leading consumer finance products as a means of payment is now expected to be a minimal net cost to the Group in the future. 

· The metric of the average number of frames per order has also increased to 4.38 in the first half of the year, which represents an increase of 5.3% and 6.3% versus H1 2020 and H1 2019 respectively.  This is a result of the Group driving a higher order size and this higher frame count alongside the average frame price growth described above has resulted in an increase in the average order value versus H1 2020 of 16.9% to £4,020.  Improvements in these metrics have underpinned the improvements in the Group's margins.

Gross profit

Gross profit increased by 141.7% to £23.5m versus H1 2020 and by 41.4% versus H2 2019.  The Group's gross margin percentage improved significantly by 910bps to 32.2% versus H1 2020 of 23.1%.  This represents a further increase on the improved gross margin percentage for the second half of 2020 of 26.3%.

The combination of the increase in installation volumes versus H1 2020 alongside the average price and finance subsidy reductions described above were all significant contributors to the growth in gross profit and the improvement in the Group's gross margin percentage in H1 versus the preceding period.  The additional 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 invaluable to insulating the Group from selling restrictions at the start of the year as part of another national lockdown in response to the COVID pandemic.  At the end of the first half of the year, the order book remained ahead of the H1 2020 closing order book by 9.6%.

Despite remaining at these healthy levels, the Group has utilised some of the record order book built in the latter part of last year which has resulted in an 8.3% reduction in the order book versus the year's opening position.  

· 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 from February this year, the Group again experienced a strong consumer response that was similar to that experienced in H2 2020.  Lead generation activities were increased across all lead sources and costs per lead remained low when compared to pre-pandemic levels.  As lockdown restrictions lifted in late April and May, lead costs have increased and are now similar to pre-pandemic levels.

Alongside the lead generation cost environment described above, the Group has continued to make strong progress on lead management, conversion optimisation and sales performance which has reduced cancellation rates.  As a result of all these factors, the cost to order intake ratio for H1 2021 was 11.9% lower than H1 2020. 

· The improvement in gross profit versus the prior period is despite a £0.7m reclaim / benefit in H1 2020 under the CJRS scheme to contribute to the costs of the Group's furloughed factory employees.  In H1 2021, the Group made a claim of less than £0.1m during the first few months of the year when it furloughed a small number of its staff for a short period during the third lockdown. 

Although there has continued to be short-term disruption caused by COVID-required isolations and illness in 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 £17.84m for the first half, which are the same as H2 2020 levels (£17.85m) and represent an increase of £1.1m (6.5%) versus H1 2019, two periods that are more reasonable comparatives than H1 2020 in terms of the Group's activity levels.  The key factors behind the increase versus H1 2019 are as follows:

· The Group has invested in both its customer service resource levels and its installations capacity in H2 2020 and into H1 2021.  In H2 2020, the Group re-opened its Crawley depot and also opened a new depot in Nottingham just prior to the end of 2020.  In conjunction with this increased depot footprint, further resources have been added to manage the operation.

· In addition to the above, the Group has increased investment in IT licensing and infrastructure with the rollout of new technology including further improvements in network security and resilience alongside the implementation of Office 365 and Microsoft Teams which have facilitated the continuation of operations throughout the last 18 months within the context of the COVID pandemic.

Underlying other operating expenses increased by £3.6m (25.6%) versus H1 2020.  Whilst taking into account the factors detailed above, this increase is predominantly a result of the H1 2020 comparative being reduced when the business was, for over 2 months, in full lockdown and thus activity levels and associated operating costs were much reduced. 

In addition to this activity-driven variance, H1 2020 included £1.1m received for the Group's CJRS reclaim for furloughed staff costs which further reduced operating expenses for the first half of last year.  The equivalent for H1 2021 was a claim of £0.1m which was made during the first few months of 2021 when the Group furloughed some of its staff for a short period during the third national lockdown.

Underlying profit / (loss) before taxation

Underlying profit / (loss) before taxation was £5.1m versus a loss in H1 2020 of £(5.1)m and a loss of £(0.8)m for H1 2019.  This loss is before the non-underlying items described below.

Non-underlying items

A total of £0.8m has been separately treated as non-underlying items for the year (H1 2020: £0.5m, H1 2019: £1.6m).  The current year's total consists of £0.1m of non-recurring items (H1 2020: £0.1m, H1 2019: £1.1m), a £0.5m shared based payment charge (H1 2020: £0.2m, H1 2019: £0.3m) and £0.2m (H1 2020 and H1 2019: £0.2m) of Commercial Agreement (Intangible Asset) amortisation.  The table below shows the full breakdown of these items:

	H1 2021	H1 2020	H1 2019
	£000	£000	£000
Holiday pay release	(88)	-	-
Restructuring and operational costs	96	100	571
Litigation Costs	33	-	-
Impairment of right-of-use assets	-	-	524
Modification of right-of-use assets	12	36	-
Total non-recurring items (note 4)	53	136	1,095
Commercial Agreement amortisation	226	226	226
Equity-settled share based payment charges	487	158	328
Total non-underlying items	766	520	1,649

The holiday pay release represents a release for part of an accrual made at the end of 2020 of £0.5m which arose as a result of the impact of the shutdown of operations and resultant extension of 2020 leave entitlement into early 2022 which is 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 early 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 release in 2021/22.

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 identifiable, non-monetary item without physical substance, which is within the control of the entity and is capable of generating future economic benefits for the entity.  The intangible asset was measured based on the fair value of the consideration that the Group expects to issue under the terms of the agreement and is being amortised over five years which matches the term of the non-compete arrangement.

Share-based payment charges predominantly increased versus H1 2020 as a result of the charges in relation to the Restricted Share Award granted in October 2020 that vested in June 2021.

The items classified as non-recurring costs on the Consolidated Income Statement, the share based payment charge 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 3.0p for the first half compared to a loss of (5.0)p for H1 2020.  Diluted earnings per share were 2.9p (H1 2020: loss of (5.0)p, H1 2019 loss of (2.8)p).  The basis for these calculations is detailed in note 5.

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 last year.  The Group has, since the end of June last year, increased its net cash by £8.4m to £14.4m at the end of H1 2021.  £4.5m of the Group's £7.5m facility, being that of the term loan, remains drawn with the remaining £3.0m revolving credit facility undrawn. 

Net cash inflow / (outflow) from operating activities, including the cashflow impact of non-underlying items, was £9.2m (H1 2020 outflow: £(0.1)m).  The inflow for the period reflects the strength of the Group's operating model with trading results correlating positively with cashflow generation.  This net inflow is after the Group has begun repaying £2.5m of VAT that was deferred as part of the Group's COVID protection measures.  This has reduced to £1.7m at the end of the first half and, in line with the scheme, will be fully repaid by January 2022.  With this one exception, the Group is managing all its working capital outflows as normal.

Capital expenditure has increased to £0.6m in the first half from £0.3m in H1 2020 with the prior year representing a reduced level of activity similar to operating expenses.  The majority of the expenditure in H1 is in relation to ongoing investment in the Group's IT infrastructure and systems. 

Dividends

The Board does not propose an interim dividend (H1 2020: £nil).  However, based on current performance expectations, the Group would generate further net cash by the end of the year.  Consequently, the Board intends to discuss its cash allocation policy with shareholders in Q4, with due consideration also given to any strategic investment opportunities that may arise.

Rob Neale

Chief Financial Officer

23 September 2021

Consolidated Income Statement

				Unaudited		Unaudited		Audited
			Note	6 months ended		6 months ended		12 months ended
				4th Jul 2021		28th Jun 2020		3rd Jan 2021
				£000		£000		£000
	Revenue			72,980		42,082		113,191
	Cost of sales			(49,456)		(32,349)		(84,732)
	Gross profit			23,524		9,733		28,459
	Expected credit losses expensed			(269)		(665)		(890)
	Other operating expenses			(18,335)		(14,062)		(32,566)
	Operating profit / (loss)			4,920		(4,994)		(4,997)
	Finance income			-		-		1
	Finance costs			(628)		(619)		(1,161)
	Profit / (loss) before taxation			4,292		(5,613)		(6,157)
	Underlying profit / (loss) before taxation before non-recurring costs, Commercial Agreement amortisation and share based payments			5,058		(5,093)		(4,758)
	Non-recurring items		4	(53)		(136)		(523)
	Commercial Agreement amortisation			(226)		(226)		(452)
	Share based payments			(487)		(158)		(424)
	Profit / (loss) before taxation			4,292		(5,613)		(6,157)
	Taxation			(729)		622		1,103
	Profit / (loss) for the period			3,563		(4,991)		(5,054)
	Earnings per share
	Basic (pence per share)		5	3.0p		(5.0p)		(4.3p)
	Diluted (pence per share)		5	2.9p		(5.0p)		(4.3p)

There is no other comprehensive income for the period.

All operations were continuing throughout all periods.

Consolidated Statement of Financial Position

			Unaudited		Unaudited		Audited
		Note	6 months ended		6 months ended		12 months ended
			4 July 2021		28 June 2020		3 January 2021
			£000		£000		£000
Assets
Intangible assets - Trademarks			504		504		504
Intangible assets - Goodwill			20,758		20,758		20,758
Intangible assets - Software			856		824		850
Intangible assets - Other			1,058		1,510		1,284
Property, plant and equipment			11,089		12,213		11,475
Right-of-use assets		7	11,119		6,318		8,004
Deferred taxation asset			1,433		1,508		1,980
Non-current assets			46,817		43,635		44,855
Inventories			4,785		3,346		4,545
Trade and other receivables			5,828		6,184		5,663
Cash and cash equivalents			18,600		10,120		11,705
Current assets			29,213		19,650		21,913
Total assets			76,030		63,285		66,768
Equity
Called up share capital			1,384		1,328		1,368
Share premium account			89,495		89,495		89,495
Profit and loss account			9,258		5,176		5,347
Common control transaction reserve			(66,527)		(66,527)		(66,527)
			33,610		29,472		29,683
Liabilities
Trade and other payables		6	23,576		19,990		21,929
Lease liabilities		7	3,814		4,291		2,524
Corporation taxation liabilities			177		-		-
Deferred taxation liability			-		17		-
Provision for liabilities and charges			1,102		1,089		1,118
Current liabilities			28,669		25,387		25,571
Provision for liabilities and charges			2,079		1,888		1,801
Lease liabilities		7	7,479		2,443		5,586
Borrowing facility			4,193		4,095		4,127
Non-current liabilities			13,751		8,426		11,514
Total liabilities			42,420		33,813		37,085
Total equity and liabilities			76,030		63,285		66,768

Consolidated Statement of Changes in Equity

	Share capital	Share premium	Profit and loss account	Common control transaction reserve	Total equity
	£000	£000	£000	£000	£000
Balance at 29 December 2019	828	81,845	10,009	(66,527)	26,155
Total comprehensive (loss) for the period	-	-	(4,991)	-	(4,991)
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)
Equity settled share based payment transactions	-	-	158	-	158
Balance at 28 June 2020	1,328	89,495	5,176	(66,527)	29,472
Total comprehensive (loss) for the period	-	-	(63)	-	(63)
Transactions with owners recorded directly in equity:
Equity settled share based payment transactions	-	-	266	-	266
Deferred taxation asset taken to reserves	-	-	8	-	8
Issue of shares - Commercial Agreement	40	-	(40)	-	-
Balance at 3 January 2021	1,368	89,495	5,347	(66,527)	29,683
Total comprehensive profit for the period	-	-	3,563	-	3,563
Transactions with owners recorded directly in equity:
Issue of new shares	16	-	(16)	-	-
Deferred taxation asset taken to reserves	-	-	6	-	6
Equity settled share based payment transactions	-	-	358	-	358
Balance at 4 July 2021	1,384	89,495	9,258	(66,527)	33,610

Consolidated Statement of Cash Flows

		Unaudited		Unaudited		Audited
		6 months ended		6 months ended		12 months ended
	Note	4 July 2021		28 June 2020		3 January 2021
		£000		£000		£000
Cash flows from operating activities
Profit / (loss) for the period		3,563		(4,991)		(5,054)
Adjustments for:
Depreciation of plant, property and equipment		754		771		1,559
Depreciation of right-of-use assets	7	1,835		1,939		3,745
Amortisation of intangible fixed assets		426		441		880
Reversal of impairment loss		-		-		(292)
Modification of right-of-use assets and liabilities	7	12		-		5
Finance income		-		-		(1)
Finance expense		678		619		1,161
Equity settled share based payments charge		343		158		424
Taxation charge / (credit)		729		(622)		(1,103)
		8,340		(1,685)		1,324
(Increase) in inventories		(240)		(621)		(1,820)
(Increase) in trade and other receivables		(165)		(2,185)		(1,664)
Increase in trade and other payables	6	1,647		4,606		6,545
Increase in provisions		262		96		38
		1,504		1,896		3,099
Other interest (paid)		(613)		(280)		(986)
Net cash inflow / (outflow) from operating activities		9,231		(69)		3,437
Net cash (outflow) from investing activities
Acquisition of property, plant and equipment		(197)		(254)		(401)
Interest received		-		-		1
Acquisition of intangible fixed assets		(377)		(15)		(156)
Net cash (outflow) from investing activities		(574)		(269)		(556)
Cash flows from financing activities
Proceeds from issue of share capital		16		8,150		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		-		(9)		(39)
Payment of lease liabilities	7	(1,779)		(2,118)		(3,722)
Net cash (outflow) / inflow from financing activities		(1,763)		6,023		4,389
Net inflow in cash and cash equivalents		6,894		5,685		7,270
Cash and cash equivalents at start of period		11,706		4,435		4,435
Cash and cash equivalents at end of period		18,600		10,120		11,705

Notes to the interim financial information

1  General information and basis of preparation

The interim financial information for the six months ended 4 July 2021 and for the six months ended 28 June 2020 does not constitute statutory financial statements and is neither reviewed nor audited.  The comparative figures for the year ended 3 January 2021 are not the Group's consolidated statutory accounts for that financial year but are extracted from those accounts which have been reported on by the Group's auditor and delivered to the Registrar of Companies.  The report of the auditor was (i) unqualified and (ii) did not contain a statement with reference to Articles 113B of Companies (Jersey) Law 1991.

The condensed consolidated interim financial information for the period ended 4 July 2021 has been prepared in accordance with IAS 34, 'Interim financial reporting' as adopted by the European Union.

Selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in financial position and performance of the Group since the last annual consolidated financial statements as at and for the year ended 3 January 2021.

The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the period ended 3 January 2021 which have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union.

The accounting policies adopted in the condensed interim financial information are consistent with those set out in the financial statements for the year ended 3 January 2021. 

Period end

These interim financial statements are presented for the first 26 weeks of the financial year which ended on 4 July 2021 for the current year and which ended on the 28 June 2020 and 30 June 2019 for the first half comparative periods of the two prior years.  All references made throughout these accounts for H1 2021 are for the period 4 January 2021 to 4 July 2021.  References to H1 2020 are for the period 30 December 2019 to 28 June 2020 and references to H1 2019 are for the period 30 December 2018 to 30 June 2019.

2  Going concern

The financial statements are prepared on a going concern basis which the Directors believe to be appropriate for the following reasons.

The Group made a statutory profit of £3.6m in the 6 months to 4 July 2021 (June 20: £(5.0)m loss) and had net current assets / (liabilities) of £0.5m (June 2020: £(5.7)m).  As described in the financial review, the Group returned to profitability in H1 2021, with this being the most profitable 6 month period since 2017.  The Group's net cash position strengthened considerably to £14.4m (June 20: £6.0m) driven by the cash inflow generated from operating activities.

The banking facilities in place remain unchanged with a £4.5m term loan and a £3.0m revolving credit facility which mature in October 2023.  Throughout the period to 4 July 2021, the term loan was fully drawn whilst the revolving credit facility remained undrawn.  This remains the case at the date of this announcement.  The finance agreement contains certain covenants, including a minimum EBITDA to be tested on a cumulative monthly basis.  The covenant headroom has increased significantly to £6.1m at the end of the reporting period.

The Directors have prepared forecasts covering the period to December 2022.  The forecasts includes a number of assumptions in relation to sales volume, pricing, margin improvements and overhead investments.

Whilst the Group's trading and cash flow forecasts have been prepared using current trading assumptions, the operating environment presents a number of challenges which could negatively impact the actual performance achieved.  Excluding the potential impact of COVID-19 which is considered below, these risks include, but are not limited to, achieving forecast levels of order intake, the impact on customer confidence as a result of general economic conditions and Brexit and achieving forecast margin improvements.  If future trading performance significantly underperforms the Group's forecasts, this could impact the ability of the Group to comply with its covenant tests over the period of the forecasts.

Despite a level of uncertainty from COVID-19 remaining, the Directors have considered the Group's strengthened financial position alongside possible future operational interruption caused by the UK government's response if the present context worsens again.  The Directors note that the period to June 2021 has been impacted by a third national lockdown at the start of the year.  In addition, some of the Group's customers and some members of the workforce have had to isolate at times during the year in accordance with government policy.  Despite these challenges, the financial position of the Group is the strongest it has been since 2017 and has indeed strengthened during the period despite these challenges.  As such, the Directors have concluded that the risk of the liquidity requirements of the business exceeding the total quantum of facilities available remain remote.

Based on the above, the directors believe that it remains appropriate to prepare the financial statements on a going concern basis. 

3  Significant accounting policies

Revenue recognition

The Group earns revenues from the design, manufacture, delivery of, and installation of domestic double-glazed replacement windows and doors.

There are five main steps followed for revenue recognition:

-  Identifying the contract with a customer

-  Identifying the performance obligations

-  Determining the transaction price

-  Allocating the transaction price to the performance obligations; and

-  Recognising revenue when or as an entity satisfied performance obligations.

The various stages of the performance obligations are the design, manufacture, delivery of and installation of domestic double-glazed replacement windows and doors.

In applying the principle of recognising revenue related to satisfaction of performance obligations under IFRS 15, the Group considers that the final end product is dependent upon a number of services in the process that may be capable of distinct identifiable performance obligations.  However, where obligations are not separately identifiable, in terms of a customer being unable to enjoy the benefit in isolation, the standard allows for these to be combined.  The Group considers that in the context of the contracts held these are not distinct.  As such the performance obligations are treated as one combined performance obligation and revenue is recognised in full, at a point in time, being on completion of the installation.  Revenue is shown net of discounts, sales returns, charges for the provision of consumer credit and VAT and other sales related taxes.  Revenue is measured based on the consideration specified in a contract with a customer.

There is no identifiable amount included in the final price for a warranty, as the Group provides a guarantee on all installations.

Payments received in advance are held within other creditors as a contract liability.  The final payment is due on installation.

A survey fee is paid at the point of agreeing the contract and the customer has up to 14 days, defined in the contract to change their minds.  If the customer changes their mind after this cooling off period, the Group has the right to retain this survey fee and as such revenue for this is recognised at the point in time that this becomes non-refundable.

In addition to the above, the Group recognises revenue from the sale of materials for recycling.  The revenue is recognised when the materials are collected by the recycling company which represents the completion of the performance obligation.  The Group has determined that this revenue is derived from its ordinary activities and as such this balance is recognised within revenue.

Non-recurring items

Items that are either material because of their nature, non-recurring or whose significance is sufficient to warrant separate disclosure and identification within the consolidated financial statements are referred to as non-recurring items.  The separate reporting of non-recurring items is important to provide an understanding of the Group's underlying performance.

4  Non-recurring items

			Unaudited		Unaudited		Audited
			6 months ended		6 months ended		12 months ended
			4 July 2021		28 June 2020		3 January 2021
Non-recurring items consist of the following:			£000		£000		£000
Holiday pay (release) / accrual			(88)		-		470
Restructuring and operational costs			96		100		266
Litigation costs			33		-		74
Modification of right-of-use assets			12		36		5
Reversal of prior year impairment of right-of-use assets			-		-		(292)
			53		136		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 part-unwinding of the original accrual booked in 2020 due to the deferred holiday subsequently taken in H1 2021.

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.

Litigations costs are 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.

Modification of right-of-use assets relates to the closure of properties identified as right-of-use assets during the period.

For further detail on the 2020 non-recurring charges, please refer to the Group's Annual Report & Accounts 2020.

5  Earnings per share

			Unaudited		Unaudited		Audited
			6 months ended		6 months ended		12 months ended
			4 July 2021		28 June 2020		3 January 2021
Profit / (loss) per share (pence)			3.0		(5.0)		(4.3)
Diluted Profit / (loss) per share (pence)			2.9		(5.0)		(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.

			Unaudited		Unaudited		Audited
			6 months ended		6 months ended		12 months ended
			4 July 2021		28 June 2020		3 January 2021
			£000		£000		£000
Profit / (loss) attributable to ordinary shareholders			3,563		(4,991)		(5,054)
Weighted-average number of ordinary shares (basic)
			No of shares '000		No of shares '000		No of shares '000
In issue during the period			117,921		99,753		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.

			Unaudited
			6 months ended
			4 July 2021
			£000
Profit attributable to ordinary shareholders			3,563
			No of shares '000
Weighted-average number of ordinary shares (basic)			117,921
Effect of conversion of share options and share consideration			4,907
Weighted-average number of ordinary shares (d iluted) at period end			122,828

The comparatives for H1 20 and FY 20 have not been included on the basis that the basic and diluted amounts are the same.

6  Trade and other payables

			Unaudited		Unaudited		Audited
			6 months ended		6 months ended		12 months ended
			4 July 2021		28 June 2020		3 January 2021
			£000		£000		£000
Trade payables			6,500		6,018		7,036
Other taxation and social security costs			7,023		5,856		5,563
Other c reditors and deferred income			5,088		2,451		5,025
Accruals			4,965		5,665		4,305
			23,576		19,990		21,929

Trade payables represents the total amounts payable by Safestyle as part of normal business operations. 

Other creditors and deferred income have increased versus June 2020 as a result of a higher number of customer deposits and survey fees received in the first half of the year that are deferred until the revenue can be recognised.

7  IFRS 16

	Properties £000	Motor Vehicles £000	Equipment £000	Total £000
Assets
At 3 January 2021	4,770	3,034	200	8,004
Additions	296	3,503	190	3,989
Lease extensions	533	545	40	1,118
Depreciation	(553)	(1,198)	(84)	(1,835)
Modification	(134)	(23)	-	(157)
At 4 July 2021	4,912	5,861	346	11,119
Liabilities
At 3 January 2021	4,899	2,996	215	8,110
Payment	(689)	(1,334)	(97)	(2,120)
Lease extensions	533	545	40	1,118
Interest	169	163	9	341
Modification	(129)	(16)	-	(145)
Additions	296	3,503	190	3,989
At 4 July 2021	5,079	5,857	357	11,293
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	(520)	(1,171)	(88)	(1,779)
Total changes from financing cash flows	(520)	(1,171)	(88)	(1,779)
Other changes
New leases	829	4,048	230	5,107
Lease modification	(129)	(16)	-	(145)
Interest expense	169	163	9	341
Interest paid (cash)	(169)	(163)	(9)	(341)
Total liability-related other changes	700	4,032	230	4,962
At 4 July 2021	5,079	5,857	357	11,293
Liabilities classification
Current (<1 year)	1,480	2,206	128	3,814
Long term (>1 year)	3,599	3,651	229	7,479
	5,079	5,857	357	11,293

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 £2,120k.  This comprises the payment of lease liabilities of £1,779k and the interest paid of £341k.

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.

 

END

 

 

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