TIDMSFE
RNS Number : 8791M
Safestyle UK PLC
19 September 2019
19 September 2019
Safestyle UK plc
("Safestyle" or the "Group")
Interim Results 2019
Safestyle UK plc (AIM: SFE), the leading UK-focussed retailer
and manufacturer of PVCu replacement windows and doors for the
homeowner market, today announces its interim results for the six
months ended 30 June 2019.
Financial and operational highlights
Unaudited Unaudited
6 months 6 months
ended ended
30-Jun-19 30-Jun-18
GBPm GBPm % change
---------- ---------
Revenue 64.41 60.54 6.4%
---------- ---------- ---------
Gross profit 16.64 14.57 14.2%
---------- ---------- ---------
Gross margin % 25.8% 24.1% 177bps
---------- ---------- ---------
Underlying (loss) before taxation(1) (0.83) (3.41) 75.7%
---------- ---------- ---------
Non-underlying items(2) (1.65) (2.24) 26.3%
---------- ---------- ---------
(Loss) before taxation (2.48) (5.65) 56.1%
---------- ---------- ---------
EPS - Basic (2.8p) (5.7p) 50.9%
---------- ---------- ---------
Net (debt) / cash(3) (0.64) 4.58
---------- ---------- ---------
(1) Underlying (loss) before taxation is defined as reported
(loss) before taxation before non-underlying items and is included
as an alternative performance measure in order to aid users in
understanding the ongoing performance of the Group.
(2) Non-underlying items consist of non-recurring costs,
share-based payments and the Commercial Agreement amortisation.
(3) Net (debt) / 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.
-- Turnaround on track - The implementation of phase two of the
three phase turnaround is making good progress; the focus for phase
two is returning the Group to profitability.
-- Profitability achieved from Q2 - The business returned to
profitability in Q2 2019 with levels forecast to increase in
H2.
-- Gross profit increased by GBP2.1m (14.2%) to GBP16.6m and
gross margin % of 25.8% improved by 177 basis points (bps) versus
H1 2018 (24.1%) and 417bps versus H2 2018 (21.7%).
-- Underlying (loss) before taxation(1) - loss reduced by GBP2.6m (75.7%) to GBP(0.8)m.
-- Reported (loss) before taxation - loss reduced by GBP3.2m (56.1%) to GBP(2.5)m.
-- Revenue growth - Revenue up 6.4% to GBP64.4m (H1 2018:
GBP60.5m) and up 15.3% versus H2 2018.
-- Volume recovery - Frames installed of 98,966 broadly in line
with H1 2018 of 99,491 and representing a 16.9% improvement on H2
2018.
-- Gaining market share - Market share as measured by FENSA now
recovering; at 8.6% in H1 2019 (H2 2018: 7.0%)* with continued
share recovery expected for H2.
-- Balanced growth - Growth achieved across all three lead
generation channels with a focus on cost effectiveness and
compliance.
-- Value improvement - Average price per frame up 8.6% versus H1 2018 to GBP669.
-- Cost control - Improvements in operational efficiencies and
cost reductions in a number of areas underpinned the recovery in
profitability.
* The market share figures for last year included in the 2018
Results Presentation and those referred to in the July 2019 trading
statement have been updated and restated following a revision to
the dataset from FENSA. The market share growth referred to in the
July 2019 trading statement of 19.5% versus H2 2018 has increased
to 22.9%.
Outlook
Since the Group's AGM Statement on 16 May 2019, management has
continued to make good progress on phase two of its turnaround plan
with the results for the first half of the year as expected. There
has been improvement in many of the Group's core KPIs and a return
to a small profit has been achieved in Q2.
Despite a challenging market where consumer demand appears soft
across the Repair, Maintenance and Improvement (RMI) market, the
Board expects a further increase in profitability during Q3 and
into Q4 of this year. The Board remains highly focussed on ensuring
that the trajectory of performance is carried through into 2020
with the aim to achieve acceleration in growth in revenue and
profitability next year as part of phase three of the Group's
turnaround plan.
To ensure the Group maintains its current momentum through the
end of the year into Q1 2020, the Board is anticipating an increase
in the levels of investment required in lead generation versus
those previously projected and when compared to those of previous
years. The Board also expects revenue to be marginally below
previous expectations, although still expects double-digit growth
in H2 versus the prior year alongside continued gains in market
share. Consequently, the Board now expects a small underlying loss
before taxation of c.GBP0.5m for the full year.
Looking further ahead, the Board remains confident that these
actions will give the Group the best possible base from which to
accelerate its revenue, margin and profit growth in 2020 as part of
phase three of the turnaround plan. The Board therefore remains
comfortable with market expectations for 2020.
Commenting on the results, Mike Gallacher, CEO said:
"We are making strong progress on delivery of the second phase
of our three phase turnaround plan. We have increased our revenues,
improved our margins and reduced costs and as a result the Group
returned to profitability in Q2. We expect this to continue into Q3
and the momentum to be sustained through to the end of the
year.
The Board and I are hugely encouraged by the progress we are
making as we look to turnaround the performance of our business and
build on our position as the UK market leader in the RMI industry.
We believe we have an enviable position in this market with a
strong, recognisable brand and a great value proposition. We also
have highly skilled and dedicated people across the entire
organisation.
There remains a lot of hard work to do, but it is rewarding that
we are beginning to see the results of the work completed so far.
We remain wholly focussed on modernising the business, improving
customer service, strengthening our processes and leveraging
technology whilst striving to make the business the industry
benchmark in all areas of compliance. We believe delivery of these
objectives, along with a relentless focus on maximising
opportunities for growth, will position Safestyle for success in
the years to come."
Enquiries:
Safestyle UK plc via FTI Consulting
Mike Gallacher, Chief Executive Officer
Rob Neale, Chief Financial Officer
Zeus Capital (Nominated Adviser & Joint Broker) Tel: 0203
Andrew Jones / Dan Bate / Dominic King 829 5000
Liberum Capital Limited (Joint Broker) Tel: 0203
Neil Patel / Jamie Richards 100 2100
FTI Consulting (Financial PR) Tel: 0203
Alex Beagley / James Styles 727 1000
About Safestyle UK plc
The Group is the leading retailer and manufacturer of PVCu
replacement windows and doors to the UK homeowner market. For more
information please visit www.safestyleukplc.co.uk or
www.safestyle-windows.co.uk.
Chairman's Statement
Summary of performance
Following 2018's unprecedented period of disruption and change,
2019 represents the year in which we aim to establish the
foundations to recover the financial performance of the Group. I am
pleased to report that we have made good progress in the year so
far and the return to profitability in Q2 represents an important
milestone in phase two of our turnaround plan.
For the first half of the year, revenues have improved by 6.4%
to GBP64.4m (GBP60.5m) with the underlying (loss) before
taxation(1) improving to GBP(0.8)m versus a loss of GBP(3.4)m in H1
2018. Reported (loss) before taxation was GBP(2.5)m compared to a
loss of GBP(5.7)m over the same period last year. Basic EPS for the
period has improved from (5.7)p to (2.8)p.
There were fewer non-underlying items(2) incurred in the period
of GBP1.6m (H1 2018: GBP2.2m). The current year items are
predominantly a result of restructuring actions and right-of-use
asset impairment of property taken as part of the turnaround plan
totalling GBP1.1m along with a share-based payment charge of
GBP0.3m.
The Group is now focussed on its rapid return to profitability.
A detailed three phase turnaround plan was developed in the second
half of 2018 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 2018. The second phase, which is to return the Group
to profitability and to improve operational efficiencies, is well
underway and I am pleased to report further good progress on this
front during the period. The third phase, aimed at accelerating
growth, will begin in 2020.
References
[1] see the Financial Review for definition of underlying (loss)
before taxation
[2] see the Financial Review for definition and detail of
non-underlying items
Looking ahead / outlook
2019 represents a hugely important year for our turnaround and
it is encouraging to see the progress that we are making, including
returning the Group to profitability in Q2, despite the
well-documented backdrop of weaker consumer confidence.
As we look towards the remaining months of 2019 and beyond, the
Group continues to implement its plans to modernise operations and
develop a more efficient and professional business whilst retaining
as much as possible of what made it successful in the past.
The Board remains confident in the Group's prospects, based on
the successful implementation of the remaining stages of the three
phase turnaround plan.
Finally, it is important to stress that the progress we have
made would not have been possible without all our skilled
colleagues who work tirelessly across the entire organisation. I
would once again like to acknowledge their talent and dedication
and thank them all for their continued commitment to Safestyle.
A C Lovell
Chairman
19 September 2019
CEO's Statement
Summary
The first half of 2019 has seen a significant recovery in the
financial performance of the business driven by a balanced
combination of volume growth, margin improvement and significant
cost reductions. As a result, the business returned to profit in
the second quarter and we expect this performance to continue in
H2.
The focus for phase two of our turnaround plan has been on cash
and profit, hence I am pleased that we have also been able to
deliver good revenue growth, with the business gaining market share
in H1. Major changes in our lead generation practices as a result
of both GDPR and improvements in our regulatory compliance limited
the scale of this growth and signal our intention to build solid
foundations for sustainable growth over the long term.
Our cost base has been reduced by an annualised rate of over
GBP2m through the simplification of management layers, general cost
saving initiatives and the creation of leaner organisation
structures across the business. Having taken these actions, we have
now re-established our cost base at close to 2017 levels. The
remaining additional costs relate to essential additional resource
in HR, Health and Safety and Compliance.
Margins have been driven up by selective pricing moves that have
consolidated our position as the value player of the three major
national operators in the category. Improvements visible in H1 have
continued in Q3 and, together with changes to our commissions
structure, will drive improvements in our financial shape in Q4 and
into 2020.
The basic operations of the business were significantly impacted
during 2018 and, combined with the pressing need to establish
robust and repeatable business processes, much effort has been
focussed on embedding long-term operational improvements. These
actions, together with a focus on enhancing the customer
experience, represent a continuing transformation within the
business. The changes are critical in providing the foundations for
sustainable future growth.
Business Overview
While the market has been subdued through H1 with limited volume
growth, Safestyle gained market share (as measured by FENSA) versus
H2 2018, moving from 7.0% to 8.6% for H1 2019. Revenue grew by 6.4%
versus H1 2018 and 15.3% versus H2 2018. We expect the current
level of revenue growth to sustain through H2 2019.
Average Frame rates increased by 8.6% versus H1 2018 with
Average Order Value remaining stable, largely due to the mix effect
of higher demand for composite doors. Frames installed were in line
with H1 2018, increasing by 16.9% versus H2 2018 and we again
expect this to be sustained in H2 2019.
The financial shape of the business has progressed rapidly with
a GBP2.6m (75.7%) improvement in underlying (loss) before
taxation(1) year on year and a GBP4.5m (84.4%) improvement in the
same measure between H2 2018 and H1 2019. The business has moved
into profitability in H1 and is now showing sustained monthly
improvements as margin enhancement, cost control and volume growth
combine to drive profitability.
Our cash position has been closely managed through the
turnaround programme, following the facility agreement with
Aurelius in H2 2018. The business is now cash generative.
1 Underlying (loss) before taxation is defined as reported
(loss) before taxation before non-underlying items and is included
as an alternative performance measure in order to aid users in
understanding the ongoing performance of the Group.
Turnaround Plan
The Executive Team developed a three phase turnaround plan in
June 2018. The plan had 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 completed at the end
of 2018 and successfully stabilised the business; taking legal
action to address the NIAMAC legal case, putting in place financing
to support the turnaround whilst establishing a new Board and
strengthening the Executive team. We reached an early out of court
settlement with NIAMAC, 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.
The second phase of the turnaround plan has been progressing
well, with the central aim of restoring profitability to the
business in a way that is balanced between cost effective revenue
growth alongside the need for compliance. The key elements of phase
two of our plan have been;
Embedding Regulatory Compliance and Health and Safety: Safestyle
operates in an increasingly regulated industry and this requires a
robust approach to our ways of working. The need to upgrade our
systems and processes was clear from the fines received during 2017
and 2018 relating to historic Advertising, Communications, Health
& Safety and Trading Standards issues. The Board and Executive
Team are determined to establish best practice in this new
operating context through working collaboratively with the relevant
regulators.
Good progress was made in H1 2019, governed by a new Compliance
Team and supported, in particular, by close engagement with West
Yorkshire Trading Standards (WYTS). Actions have encompassed the
development and delivery of new training for staff, the
introduction of new feedback processes, new controls and processes
and regular case reviews.
The introduction of GDPR has continued to drive significant
change in our sales and lead generation operations. The resulting
new policies and practices have increased cost and reduced growth
during H1. However, as an Executive Team, we are determined to
embed robust compliance across the business, in order to eliminate
regulatory issues and build a solid foundation for long term
growth.
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. During H1, progress was made on
most of these elements, however digital lead costs did not reduce
as expected, with continuing competitive pressure sustaining the
increasing cost trend of recent years.
The business continued to take selective price increases in H1
while the increases implemented in H2 2018 continue to flow through
to the benefit of gross profit in H1 2019. We are focussed on
maintaining our competitive position as the lowest cost national
player in the category.
Operational effectiveness and cost: Significant additional costs
were added to the business from late 2017. During H1 2019, we
firmly addressed our cost base which will deliver annualised
savings in excess of GBP2m versus 2018 exit rates. This has
included the removal of additional layers of management and a
number of specific senior management positions. The business has
also responded well to improved financial controls with savings
being generated widely across the business including fuel costs,
property maintenance, material suppliers, fleet costs and
sourcing.
During the period, we established project teams and gained
momentum on a number of critical KPIs that had deteriorated since
2017. These include 'Right First Time' installation, the number of
remakes and mis-measures and cancellation rates. These projects
will continue into H2 and will be supported by embedded processes
and metrics as we move into 2020.
Our Digital Transformation programme, delivered in 2018 despite
the challenging context, remains the largest single change since
the business was listed. The pace of change has continued with the
introduction of new technology into our Telephone Canvass and Sales
call centres. Work to embed and leverage this technology continues
with benefits now being delivered.
One of our largest opportunities continues to be the levelling
up of branch and sales rep performance enabled by targeted
training. The prevalence of detailed performance data is
transforming our ability to drive this and offers benefits that
will flow through over coming years.
Rebuilding our staff & self-employed workforce: The business
experienced a rapid loss of self-employed agents across canvass,
sales and installations during H1 2018. These numbers have now
substantially recovered with a 32% increase in canvassers, a 20%
increase in sales reps and an 11% increase in installation teams
versus the end of H1 2018. The business has worked to balance our
self-employed workforce to support our ability to both fit current
written sales and serve the regions cost effectively.
In addition to addressing headcount numbers, H1 2019 saw
significant training activity aimed at improving the skills and
capabilities of our self-employed agents. A new sales rep induction
programme was launched and all installation teams received customer
service training. These initiatives have been supported with
improved communication, monitoring tools and regular customer
feedback for installation teams. Further developments, such as a
new App for door canvassers, are also planned for H2 2019.
Delivering Growth: Supported by increased headcount, revenue
grew by 6.4% versus H1 2018 and by 15.3% versus H2 2018. Good
growth on Media-generated business was supported by a limited TV
campaign in H1. The business has also achieved growth through
internal telephone canvassing, despite significant changes to our
working practices.
The growth from our door canvass lead generation activities of
22.3% versus H1 2018 has been limited by a range of changes to our
practices aimed at focusing our teams on compliance and established
best practice. The business remains committed to growing our strong
and highly professional door canvass force as a sustainable source
of competitive advantage, unlocking latent consumer demand.
Outlook
The focus for H2 2019 remains phase two of our turnaround plan,
recovering the business to sustainable levels of profitability to
then achieve an acceleration of our growth in 2020. The business
has made significant progress in H1 whilst also managing huge
internal changes driven by new compliance requirements and the
implementation of new technology. Combined, the work being done now
will establish strong foundations for our future growth, building
on the powerful and simple business model that has been successful
in the past.
Our current performance trajectory is showing the results of the
turnaround plan and points to further progress in our financial
results in 2020.
Mike Gallacher
Chief Executive Officer
19 September 2019
Financial Review
6 months ended June 2019 6 months ended June 2018
Underlying Non-underlying Total Underlying Non-underlying Total Change in
items items underlying %
------------ --------------- --------- ------------ --------------- --------- -------------
Financials GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------ --------------- --------- ------------ --------------- --------- -------------
Revenue 64,413 64,413 60,539 60,539 6.4%
------------ --------------- --------- ------------ --------------- --------- -------------
Cost of sales (47,771) (47,771) (45,970) (45,970) (3.9%)
------------ --------------- --------- ------------ --------------- --------- -------------
Gross Profit 16,642 16,642 14,569 14,569 14.2%
------------ --------------- --------- ------------ --------------- --------- -------------
Other Operating
Expenses (16,745) (1,649) (18,394) (17,986) (2,241) (20,227) 6.9%
------------ --------------- --------- ------------ --------------- --------- -------------
Operating (Loss) (103) (1,649) (1,752) (3,417) (2,241) (5,658) 97.0%
------------ --------------- --------- ------------ --------------- --------- -------------
Finance Income 1 1 12 12
------------ --------------- --------- ------------ --------------- --------- -------------
Finance Costs (728) (728) (5) (5)
------------ --------------- --------- ------------ --------------- --------- -------------
(Loss) Before
Taxation (830) (1,649) (2,479) (3,410) (2,241) (5,651) 75.7%
------------ --------------- --------- ------------ --------------- --------- -------------
Taxation 170 933
------------ --------------- --------- ------------ --------------- --------- -------------
(Loss) for the
Year (2,309) (4,718)
------------ --------------- --------- ------------ --------------- --------- -------------
Basic EPS (pence
per share) (2.8p) (5.7p)
------------ --------------- --------- ------------ --------------- --------- -------------
Diluted EPS (pence
per share) (2.8p) (5.7p)
------------ --------------- --------- ------------ --------------- --------- -------------
Cash and Cash
equivalents 5,374 4,582
------------ --------------- --------- ------------ --------------- --------- -------------
Loan facility (6,016) -
------------ --------------- --------- ------------ --------------- --------- -------------
Net (debt) /
cash(1) (642) 4,582
------------ --------------- --------- ------------ --------------- --------- -------------
Change
KPIs H1 2019 H1 2018 %
Average Order Value
(GBP inc VAT) 3,304 3,388 (2.5%)
-------- -------- --------
Average Frame Price
(GBP inc VAT) 669 616 8.6%
-------- -------- --------
Frames installed - units 98,966 99,491 (0.5%)
-------- -------- --------
Orders installed 24,029 21,724 10.6%
-------- -------- --------
Frames per order 4.12 4.58 (10.1%)
-------- -------- --------
Financial and KPI headlines
-- Frames installed of 98,966 consistent with H1 2018 of 99,491
and represents a 16.9% improvement on H2 2018.
-- Orders installed increased by 10.6% to 24,029 installations.
-- Average frame price improved by 8.6% to GBP669 as a result of
price actions in H2 2018 and a larger mix of higher average-priced
composite guard doors which increased to over 10% of all frames in
H1 2019 (H1 2018: 8%).
-- Revenue increased by 6.4% to GBP64.4m, which is largely
driven by the increased average frame price, partially offset by
marginally lower volumes and higher consumer finance subsidy
costs.
-- Gross profit increased by GBP2.1m (14.2%) to GBP16.6m due to
the increase in revenue described above along with reduced costs
across commissions, access solutions and installation-related
materials. An increase in lead generation costs (specifically in
digital media) partially offset these cost reductions.
-- Underlying other operating expenses(2) reduced by 6.9% to
GBP16.7m. Reduced investment in TV advertising, all of which was
reinvested into digital channel lead generation, represents the
largest component of this change versus H1 2018. The adoption of
IFRS 16 Leases reduces underlying other operating expenses(2) by
GBP0.3m with a corresponding increased interest charge of GBP0.3m
as described below.
-- Reported other operating expenses reduced by 9.1% to GBP18.4m
with the decrease, in addition to the reasons above, also largely
attributable to the reduction in non-recurring costs. For H1 2019,
these consist of restructuring costs and right-of-use asset
impairment linked to actions taken as part of the cost reduction
initiatives of phase two of the turnaround plan.
-- Finance costs have increased as a result of the costs of the
borrowing facilities secured in October 2018 and there is also
GBP0.3m of interest on lease liabilities following the adoption of
IFRS 16 Leases.
-- Underlying (loss) before taxation(3) was a loss of GBP(0.8)m
(H1 2018: loss of GBP(3.4)m) which represents an improvement of
GBP2.6m (75.7%).
-- Non-underlying items were GBP1.6m for the period (H1 2018:
GBP2.2m), full details of which are provided on the following pages
of this Financial Review.
-- Reported (loss) before taxation was a loss of GBP(2.5)m (H1
2018: loss of GBP(5.7)m) with the impact attributable to the
recovery in profitability due to the improved trading and margin
performance, coupled with the decrease in non-recurring costs
versus H1 2018.
-- Net (debt) / cash(1) was GBP(0.6)m versus net cash of GBP4.6m
the end of H1 2018 and GBP0.3m at 31 December 2018.
-- At 30 June 2019, assets and liabilities have been grossed up
by GBP7.5m and GBP7.7m respectively following the adoption of IFRS
16 Leases. The impact on Underlying (loss) before taxation(3) and
Reported (loss) before taxation is GBP0.0m.
References
1 Net (debt) / cash is cash and cash equivalents less loan
facility
(2) Underlying other operating expenses are defined in the
'Underlying performance measures' section below and the
reconciliation between this measure and the GAAP measure is shown
in the 'Financials' table at the front of this Financial Review
(3) Underlying (loss) before taxation is defined in the
'Underlying performance measures' section below and the
reconciliation between this measure and the GAAP measure is shown
in the 'Financials' table at the front of this Financial Review
Underlying performance measures
Adjusted measures of underlying other operating expenses and
underlying (loss) before taxation have been presented as the
primary measures of financial performance. Adoption of these
measures means that non-underlying items are excluded to enable a
meaningful evaluation of the performance of the Group compared to
prior periods.
Non-underlying items consist of non-recurring costs, share-based
payments and Commercial Agreement amortisation. A full breakdown of
these items is shown below. Non-recurring costs are excluded
because they are not expected to repeat in future years. These
costs are therefore not included in the Group's primary performance
measures as they would distort how the performance and progress of
the Group is assessed and evaluated.
Share-based payments are subject to volatility and fluctuation
and are excluded from the primary performance measures as such
changes year to year would again potentially distort the evaluation
of the Group's performance period to period.
Finally, Commercial Agreement amortisation is 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.
Impact of reporting under IFRS 16 Leases
In these interim results, the Group has reported under IFRS 16
Leases for the first time. This has resulted in a material grossing
up of the Consolidated Statement of Financial Position with the
recognition of right-of-use assets and corresponding lease
liabilities for all qualifying leased vehicles, equipment and
property.
The underlying (loss) before taxation has not been significantly
impacted by this change as the right-of-use asset depreciation and
interest charged on the lease liability is offset by rental charges
no longer recognised.
There have also been no changes in the reported overall net cash
flows for the period although operating cash inflows and financing
cash outflows have both increased as described in the "Net (debt) /
cash and cashflow section" further on in this Financial Review.
The financial impact of IFRS 16 has been to increase underlying
operating profit by GBP0.3m and increase finance costs by the same
amount resulting in a net impact of GBP0.0m. On the Consolidated
Statement of Financial Position, the right-of-use asset recognised
at 30 June 2019 is GBP7.5m and the corresponding lease liability
recognised is GBP7.7m. An additional GBP2.0m of depreciation has
been charged in the period and an incremental interest charge of
GBP0.3m has also been expensed, largely offset by GBP2.3m of rental
charges no longer recognised.
See note 4 for further analysis of the impact of this change on
the financial statements.
Revenue
Revenue for the period was GBP64.4m compared to GBP60.5m last
year, representing an increase of 6.4%. The key performance drivers
were as follows:
-- The average frame price increased by 8.6% to GBP669 (H1 2018:
GBP616), which is a result of price increases that were
predominantly made in H2 2018 alongside the impact of an increased
mix of higher value composite doors which exceeded 10% of all
frames installed in H1 2019.
-- This favourable average price impact was partially offset by
an increase in uptake of our consumer finance products and a higher
proportion of our industry leading 3 year 0% option, the impact of
which is deducted from revenue.
-- The increased mix of composite doors was also the main factor
behind changes in the Group's other operational KPIs. The volume of
orders installed increased from 21,724 to 24,029, representing an
increase of 10.6%. However, the number of frames installed was
consistent with the prior year and therefore the number of frames
per order declined by 10.1% to 4.12 frames per order (H1 2018:
4.58). This trend of fewer frames per order largely reflects more
consumers opting for a higher-value composite door as part of their
order with average order value including VAT declining slightly by
2.5% to GBP3,304 (H1 2018: GBP3,388).
-- Finally, versus H2 2018, by way of demonstrating progress,
revenue and the KPIs for average order value, frames and orders
installed and average frames per order have all increased.
Gross profit
Gross profit increased by 14.2% in the period to GBP16.6m (H1
2018: GBP14.6m). Gross margin percentage increased to 25.8% (H1
2018: 24.1%).
Volume was consistent versus H1 2018 and the key drivers of the
improved gross profit and margin represent the impact of actions
taken as part of the turnaround plan which are partially offset by
increased lead generation costs as described below:
-- The increased average frame price and mix of composite doors
are the largest contributors to the gross profit and gross margin
improvement.
-- In addition, as part of the turnaround plan, the Group has
improved many of its cost ratios across commissions, access
solutions and other direct cost areas that increased during 2018
and further progress in these areas is expected in H2.
-- All lead channels have achieved growth versus H1 2018.
However, the costs of growing the number of leads and therefore
orders have increased versus H1 2018. There has been continued
increases in 'Pay Per Click' and other digital lead channel costs
with competition to generate enquiries remaining high. These
increases in lead generation costs within gross margin are
partially offset by reduced spend in TV advertising investment
which has contributed to a reduction in underlying operating
expenses.
Underlying other operating expenses
Underlying other operating expenses decreased by 6.9% versus H1
2018. There were reductions in the amount invested in TV
advertising versus H1 2018, which partially offset the increased
investment in digital media lead generation channels referred to
above.
Excluding the TV advertising reductions, all other operating
expenses are GBP0.3m lower than the first half of last year with
variances in specific areas as follows:
-- The adoption of IFRS 16 Leases reduces underlying other
operating expenses by GBP0.3m with a corresponding increased
interest charge of GBP0.3m as described above.
-- Salary and related costs decreased versus H1 2018 as the
Group has simplified its organisational structure as part of the
turnaround plan. The reductions will be larger in the second half
of 2019 as the actions were phased across the first half of the
year.
-- Recruitment costs have also reduced versus H1 2018 with the
prior period incurring recruitment fees as part of the search for
new senior management and executive directors.
-- Depreciation increased due to factory and IT capital investment in the last 2 years.
-- IT licensing and infrastructure costs have also increased
versus H1 2018 which is a result of the Digital Transformation
project and the rollout of technology across the branch
network.
Underlying (loss) before taxation
Underlying (loss) before taxation was a loss of GBP(0.8)m in the
period (H1 2018: a loss of GBP(3.4)m). This is before the
non-underlying items described below.
Non-underlying items
A total of GBP1.6m has been separately treated as non-underlying
items for the period (H1 2018: GBP2.2m). The current period
includes restructuring costs of GBP0.6m and impairment of
right-of-use assets of GBP0.5m following closure of an installation
branch and a sales office in the period. In addition, there was a
GBP0.3m shared based payment charge (H1 2018: credit of GBP0.6m)
and GBP0.2m of Commercial Agreement (Intangible Asset) amortisation
in the period.
The prior period included costs of GBP1.1m related to the NIAMAC
litigation and a fine from the HSE of GBP0.9m following prosecution
for a working at height accident in March 2017.
The table below shows the full breakdown of all items:
H1 2019 H1 2018
GBP000 GBP000
-------- --------
Litigation costs - 1,093
-------- --------
Restructuring and operational
costs 571 417
-------- --------
Fines - 859
-------- --------
Onerous leases - 468
-------- --------
Impairment of right-of-use assets 524 -
-------- --------
Total non-recurring costs (note
5) 1,095 2,837
-------- --------
Commercial Agreement amortisation 226 -
-------- --------
Equity-settled share based payment
charges / (credit) 328 (596)
-------- --------
Total non-underlying items 1,649 2,241
-------- --------
Earnings per share
Basic earnings per share for the period were a loss of (2.8)p
compared to a loss of (5.7)p in H1 2018. The basis for these
calculations is detailed in note 6.
Net (debt) / cash(1) and cashflow
As reported at the year-end, the Group secured a GBP7.5m
committed finance facility in October 2018 as part of phase one of
its turnaround plan, which will remain in place until October 2020.
GBP4.5m of the facility, being that of a term loan, was drawn on
completion of the deal and at the half year-end, GBP2m of the
available GBP3m revolving credit facility was also drawn.
At the end of the period, cash and cash equivalents were GBP5.4m
(H1 2018: GBP4.2m). After deducting the loan facility of GBP6.0m,
which is stated net of arrangement fees, net (debt)/cash(1) of the
Group was GBP(0.6)m at the end of the year which is an increase in
net debt since the year-end of GBP0.9m.
Net cash inflow / (outflow) from operating activities, including
the cashflow impact of non-underlying items and the amended
treatment of leases now classified as right-of-use assets following
the adoption of IFRS 16, was an inflow of GBP1.6m (H1 2018: outflow
of GBP(5.0)m). This positive cash inflow for the period included
receipt of GBP2.5m of corporation tax which was recognised at the
year-end following the Group's losses in 2018.
However, incorporating the cash outflow for payment of
right-of-use assets, which is now disclosed outside of operating
activity movements, the inflow from operating activities for the
period becomes an outflow of GBP(0.5)m which is then directly
comparable with the prior period outflow from operating activities
of GBP(5.0)m.
Capital expenditure in the first half of GBP0.3m was
significantly lower than the prior period of GBP1.4m. Investment
has continued, albeit at a lower quantum and selectively, largely
focussed on the development of our Electronic Lead and Electronic
Contract platforms that were rolled out during 2018.
As described above, a GBP2.0m drawdown of the revolving credit
facility was also made before the end of the period.
No dividends were paid in either period and the combined
movements above resulted in a net cash inflow in the period of
GBP1.2m (H1 2018: outflow of GBP(6.4)m).
References
1 Net (debt) / cash is cash and cash equivalents less loan
facility
Dividends
The Board is not declaring an interim dividend for this year
(2018: GBPnil per share).
R Neale
Chief Financial Officer
19 September 2019
Consolidated Income Statement
Unaudited Unaudited Audited
Note 6 months 6 months 12 months
ended ended ended
30 June 2019 30 June 2018 31 December
2018
GBP000 GBP000 GBP000
Revenue 64,413 60,539 116,426
Cost of sales (47,771) (45,970) (90,549)
Gross profit 16,642 14,569 25,877
Other operating expenses (18,394) (20,227) (42,004)
Operating (loss) (1,752) (5,658) (16,127)
Finance income 1 12 7
Finance costs (728) (5) (142)
------------- ------------- ------------
Net Finance Costs (727) 7 (135)
------------- ------------- ------------
(Loss) before taxation (2,479) (5,651) (16,262)
------------- ------------- ------------
Underlying (loss) before
taxation before non-recurring
costs, Commercial Agreement
amortisation and share
based payments (830) (3,410) (8,744)
Non-recurring costs 5 (1,095) (2,837) (7,817)
Commercial Agreement
amortisation (226) - (75)
Share based payments 8 (328) 596 374
(Loss) before taxation (2,479) (5,651) (16,262)
Taxation 7 170 933 2,964
(Loss) for the period (2,309) (4,718) (13,298)
============= ============= ============
(Loss) earnings per
share
Basic (pence per share) 6 (2.8p) (5.7p) (16.1p)
Diluted (pence per
share) 6 (2.8p) (5.7p) (16.1p)
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 6 months 12 months
ended ended ended
30 June 2019 30 June 2018 31 December
2018
GBP000 GBP000 GBP000
Assets
Intangible assets - Trademarks 504 504 504
Intangible assets - Goodwill 20,758 20,758 20,758
Intangible assets - Software 1,783 1,038 1,346
Intangible assets - Other 1,962 - 2,188
Property, plant and equipment 12,980 15,151 14,213
Right-of-use assets 4 7,488 - -
Deferred taxation asset 693 28 693
Non-current assets 46,168 37,479 39,702
Inventories 2,727 2,848 2,416
Trade and other receivables 6,880 5,118 4,478
Current taxation asset - 933 2,287
Cash and cash equivalents 5,374 4,582 4,163
Current assets 14,981 13,481 13,344
Total assets 61,149 50,960 53,046
============= ============= ============
Equity
Called up share capital 828 828 828
Share premium account 81,845 81,845 81,845
Profit and loss account 11,366 19,398 13,347
Common control transaction
reserve (66,527) (66,527) (66,527)
27,512 35,544 29,493
Liabilities
Trade and other payables 15,564 13,342 15,286
Lease liabilities 4 3,432 - -
Deferred taxation liability 53 90 53
Provision for liabilities
and charges 857 576 1,123
Current liabilities 19,906 14,008 16,462
Provision for liabilities
and charges 3,468 1,408 3,188
Lease liabilites 4 4,247 - -
Borrowing facility 6,016 - 3,903
Non-current liabilities 13,731 1,408 7,091
Total liabilities 33,637 15,416 23,553
Total equity and liabilities 61,149 50,960 53,046
============= ============= ============
Consolidated Statement of Changes in Equity
Share Share Profit Common Total
capital premium and loss control equity
account transaction
reserve
GBP000 GBP000 GBP000 GBP000 GBP000
Balance at 30 June 2018 828 81,845 19,398 (66,527) 35,544
Total comprehensive
(loss) for the period - - (8,580) - (8,580)
Transactions with owners
recorded directly in
equity:
Equity settled share
based payment transactions - - 222 - 222
Deferred taxation asset
taken to reserves - - 44 - 44
Equity settled Commercial
Agreement - - 2,263 - 2,263
--------- --------- ---------- ------------- --------
Balance at 31 December
2018 828 81,845 13,347 (66,527) 29,493
--------- --------- ---------- ------------- --------
Total comprehensive
(loss) for the period - - (2,309) - (2,309)
Transactions with owners
recorded directly in
equity:
Equity settled share
based payment transactions - - 328 - 328
Balance at 30 June 2019 828 81,845 11,366 (66,527) 27,512
========= ========= ========== ============= ========
Consolidated Statement of Cash Flows
Unaudited Unaudited Audited
6 months ended 6 months ended 12 months
ended
Note 30 June 2019 30 June 2018 31 December 2018
GBP000 GBP000 GBP000
Cash flows from operating activities
(Loss) for the period (2,309) (4,718) (13,298)
Adjustments for:
Depreciation of plant, property and equipment 850 829 1,715
Depreciation and impairment of right-of-use
assets 4 2,490 - -
Amortisation of intangible fixed assets 433 125 400
Finance income (1) (7) (7)
Finance expense 440 - 142
IFRS 16 Finance expense 4 287 - -
Loss on sale of plant, property and equipment - 43 42
Equity settled share based payments charge /
(credit) 328 (596) (374)
Taxation (credit) (170) (933) (2,964)
------------------ ---------------- -------------------
2,348 (5,257) (14,344)
(Increase) / decrease in inventories (311) (816) (384)
(Increase) / decrease in trade and other
receivables (2,402) (559) 81
Increase in trade and other payables 278 2,478 4,422
Increase / (decrease) in provisions 14 (45) 2,282
IFRS 16 reclassification of prepaid lease
costs 4 (428) - -
------------------ ---------------- -------------------
(2,849) 1,058 6,401
Other interest paid (327) - (142)
------------------ -------------------
(327) - (142)
Taxation received / (paid) 2,457 (776) (757)
Net cash inflow / (outflow) from operating
activities 1,629 (4,975) (8,842)
------------------ ---------------- -------------------
Cash flows from investing activities
Acquisition of property, plant and equipment (28) (804) (1,028)
Acquisition of subsidiary - - (30)
Interest received 1 7 7
Proceeds from sale of property, plant and
equipment - 28 33
Acquisition of intangible fixed assets (231) (649) (855)
Net cash outflow from investing activities (258) (1,418) (1,873)
Cash flows from financing activities
Proceeds from loans and borrowings 2,000 - 3,903
Payment of right-of-use leases 4 (2,160) - -
Net cash (outflow) / inflow from financing
activities (160) 3,903
Net inflow / (outflow) in cash and cash
equivalents 1,211 (6,393) (6,812)
Cash and cash equivalents at start of period 4,163 10,975 10,975
Cash and cash equivalents at end of period 5,374 4,582 4,163
================== ================ ===================
Notes to the interim financial information
1 General information
The condensed interim financial information set out herein is in
respect of Safestyle UK plc and its subsidiaries (the Group) for
the period ended 30 June 2019.
Safestyle UK plc is a public listed company incorporated in
Jersey. The registered office address of Safestyle UK plc is 47
Esplanade, St Helier, Jersey, JE1 0BD.
The unaudited interim financial report for the half year ended
30 June 2019 does not constitute statutory accounts as defined in
s435 of the Companies Act 2006. The financial statements for the
year ended 31 December 2018 were prepared in accordance with IFRS
and have been delivered to the Registrar of Companies. The report
of the auditor on those financial statements was unmodified. In
this report, the comparative figures for the year ended 31 December
2018 have been audited. The comparative figures for the half year
ended 30 June 2018 are unaudited.
The company is not required to present parent company
information.
2 Basis of preparation
The condensed consolidated interim financial information for the
period ended 30 June 2019 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 31 December 2018.
The condensed consolidated interim financial information should
be read in conjunction with the annual financial statements for the
period ended 31 December 2018 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 period ended 31 December 2018, except
for changes as a result of the adoption of IFRS 16 Leases on 1
January 2019.
3 Going concern
The financial statements are prepared on a going concern basis
which the directors believe to be appropriate for the following
reasons.
The Group made a statutory loss of GBP2.3m in the 6 months to 30
June 2019 (FY18: GBP13.3m loss). The Group entered into a two year
financing arrangement on 26 October 2018 for GBP7.5m. As at 30 June
2019, the GBP4.5m term loan was fully drawn on the facility and
GBP2.0m of the revolving credit facility has also been drawn. The
Group had net debt of (GBP0.6m) as at 30 Jun 2019 (Dec 2018:
GBP0.3m net cash). This increase in net debt since the year-end was
expected.
The Directors have prepared forecasts covering the period to
December 2020. The 2019 forecast includes a number of assumptions
in relation to sales volume growth and margin improvements which
captures up to date performance metrics. The Directors have
considered reasonably possible downside scenarios which it believes
can be offset by mitigating actions within the control of
management including reductions in areas of discretionary
spend.
Based on the above, whilst recognising the challenges in the
turnaround plan, the directors have a 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 interim financial statements.
4 Significant accounting policies
Accounting estimates and judgements
In preparing this condensed consolidated interim financial
report, significant judgements and estimates made by management in
applying the Group's accounting policies and the key sources of
estimation uncertainty were the same as those that applied to the
consolidated financial statements as at and for the year ended 31
December 2018, except for the new significant judgements related to
lessee accounting under IFRS 16, which are described in the note
below.
Impairment
The carrying amounts of the Group's assets, other than
inventories and deferred taxation assets are reviewed at each
balance sheet date to determine whether there is any indication of
impairment. If any such indicators exist, the asset's recoverable
amount is estimated.
For goodwill, assets that have an indefinite useful life and
intangible assets that are not yet available for use, the
recoverable amount is estimated at each balance sheet date.
An impairment loss is recognised whenever the carrying amount of
an asset or its cash-generating unit exceeds its recoverable
amount. Impairment losses are recognised in the income
statement.
Impairment losses recognised (not relating to other intangible
assets specifically) are allocated first to reduce the carrying
amount of any goodwill allocated to the cash-generating unit and
then, to reduce the carrying amount of the other assets in the unit
on a pro rata basis. A cash-generating unit is the group of assets
identified on acquisition that generate cash inflows that are
largely independent of the cash inflows from other assets or groups
of assets.
The recoverable amount of assets or the cash-generating unit is
the greater of their fair value less costs to sell and value in
use. In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-taxation discount
rate that reflects current market assessments of the time value of
money and the risks specific to the asset. For an asset that does
not generate largely independent cash inflows, the recoverable
amount is determined for the cash-generating unit to which the
asset belongs.
An impairment loss in respect of goodwill is not reversed. In
respect of other assets, an impairment loss is reversed if there
has been a change in the estimates used to determine the
recoverable amount.
An impairment loss is reversed only to the extent that the
asset's carrying amount does not exceed the carrying amount that
would have been determined, net of depreciation or amortisation, if
no impairment loss had been recognised.
The Directors have completed their estimation of the recoverable
amount and have concluded that there is no impairment of the
Group's assets at 30 June 2019.
Changes in significant accounting policies
IFRS 16 Leases
Previously, the Group determined at contract inception whether
an arrangement was or contained a lease under IFRIC 4 Determining
Whether an Arrangement contains a Lease. The Group now assesses
whether a contract is or contains a lease based on the new
definition of a lease. Under IFRS 16, a contract is, or contains a
lease, if the contract conveys a right to control the use of an
identified asset for a period of time in exchange for
consideration.
On transition to IFRS 16, the Group elected to apply the
practical expedient to continue to apply the outcome of the
assessments made under IAS 17 of which transactions are leases. It
applied IFRS 16 only to contracts that were previously identified
as leases. Contracts that were not identified as leases under IAS
17 and IFRIC 4 were not reassessed. The definition of a lease under
IFRS 16 has been applied only to contracts entered into or changed
on or after 1 January 2019.
Previously, the Group classified property leases as operating
leases under IAS 17. At transition, for leases classified as
operating leases under IAS 17, lease liabilities were measured at
the present value of the remaining lease payment, discounted at the
Group's incremental borrowing rate as at 1 January 2019.
Right-of-use assets are measured at an amount equal to the lease
liability and adjusted for any prepayment in place.
The Group used the following practical expedients when applying
IFRS 16 to leases previously classified as operating leases under
IAS 17.
- Applied the exemption not to recognise right-of-use assets and
liabilities for leases with less than 12 months of lease term.
- Used hindsight when determining the lease term if the contract
contains options to extend or terminate the lease.
- Safestyle has decided to rely on its view of whether leases
are onerous applying IAS 37 Provisions, Contingent Liabilities and
Contingent Assets immediately before the date of initial
application as an alternative to perform an impairment review.
The Group leases motor vehicles and plant and equipment. These
leases were classified as operating leases under IAS 17. For these
leases, the carrying amount of the right-of-use asset and the lease
liability at 1 January 2019 were determined at the carrying amount
of the lease liability under IAS 17 immediately before that
date.
Impact on financial statements
On transition to IFRS 16, the Group recognised additional
right-of-use assets and additional lease liabilities. The impact on
transition is summarised below.
1 Jan 2019
Right-of-use assets presented in property,
plant and equipment GBP000
Property, plant and equipment 6,110
Motor
vehicles 3,360
Plant & Equipment 293
Right-of-use
assets 9,763
Lease liabilities
Property, plant and equipment 5,771
Motor
vehicles 3,271
Plant & Equipment 293
Lease liabilities 9,335
Reconciliation between assets and liabilities
at transition:
Lease liabilities 9,335
Prepayments relating to IFRS 16 Leases
at 31 December 2018 428
Right-of-use
assets 9,763
When measuring lease liabilities for leases that were
classified as operating leases, the Group
discounted lease payments using its incremental borrowing
rate at 1 January 2019.
The rate applied is 7%.
GBP000
Operating lease commitment at 31 December 2018
as disclosed in the Group's consolidated financial
statements 12,470
Discounted using the incremental borrowing rate
at 1 January 2019 9,558
Finance lease liabilities recognised as at 31
December 2018 -
- Recognition exemption for leases with less
than 12 months lease term at transition (12)
- Recognition exemption for onerous leases
identified at 1 January 2019 (211)
Lease liabilities recognised
at 1 January 2019 9,335
Impact for the period
As a result of initially applying IFRS 16, in relation to the
leases that were previously classified as operating leases, the
Group recognised GBP9,763k right-of-use assets and GBP9,335k of
liabilities as at 1 January 2019.
Also, in relation to those leases under IFRS 16, the Group has
recognised depreciation and interest costs, instead of operating
lease expense. During the six months ended 30 June 2019, the Group
recognised GBP1,965k of depreciation charges and GBP288k of
interest costs from these leases. The P&L impact of adopting
IFRS 16 versus IAS 17 is a cost reduction of GBP9k.
Motor
Properties Vehicles Equipment Total
----------- ---------- ---------- --------
Assets GBP000 GBP000 GBP000 GBP000
1 January 2019 6,110 3,360 293 9,763
Additions 0 215 0 215
Depreciation (592) (1,294) (80) (1,966)
Impairment (524) 0 0 (524)
30 June 2019 4,994 2,281 213 7,488
Liabilities GBP000 GBP000 GBP000 GBP000
1 January 2019 5,771 3,271 293 9,335
Payment (759) (1,316) (85) (2,160)
Interest 189 90 8 287
Additions 0 217 0 217
30 June 2019 5,201 2,262 216 7,679
Liabilities classification GBP000 GBP000 GBP000 GBP000
Current (<1 year) 1,323 1,958 151 3,432
Long term (>1 year) 3,879 303 65 4,247
5,202 2,261 216 7,679
5 Non-recurring costs
Unaudited Unaudited Audited
6 months 6 months 12 months ended
ended ended
30 June 2019 30 June 2018 31 December
2018
Non-recurring costs consist
of the following: GBP000 GBP000 GBP000
Litigation costs - 1,093 1,912
Restructuring and operational
costs 571 417 1,167
Product guarantee provision - - 801
Fines - 859 1,079
Onerous leases - 468 294
Impairment of right-of-use 524 - -
assets
Dilapidations provision - - 618
Non-recurring pay awards - - 635
Commercial Agreement service
fee - - 1,000
Commercial Agreement costs - - 311
1,095 2,837 7,817
------------- ------------- ----------------
Restructuring costs are expenses incurred, including redundancy
payments, as a result of changes being made to reduce the cost
structure of the business.
Impairment of right-of-use assets relates to the closure of
properties identified as right-of-use assets during the period.
These would previously have been treated as an onerous lease charge
pre the adoption of IFRS 16 Leases.
For further detail on the 2018 non-recurring charges, please
refer to the 2018 Annual Report.
6 Earnings per share
Unaudited Unaudited Audited
6 months 6 months 12 months ended
ended ended
30 June 2019 30 June 2018 31 December
2018
(Loss) per share (pence) (2.8) (5.7) (16.1)
Diluted (loss) per share
(pence) (2.8) (5.7) (16.1)
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 6 months 12 months ended
ended ended
30 June 2019 30 June 2018 31 December
2018
GBP000 GBP000 GBP000
(Loss) attributable to
ordinary shareholders (2,309) (4,718) (13,298)
=============== ============== =================
Weighted-average number
of ordinary shares (basic)
No of shares No of shares No of shares
'000 '000 '000
In issue during the period 82,809 82,809 82,809
=============== ============== =================
b) Diluted earnings per share
Due to the net loss for the period, diluted 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.
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
30 June 2019 30 June 2018 31 December
2018
GBP000 GBP000 GBP000
(Loss) attributable to
ordinary shareholders (2,309) (4,718) (13,298)
============== ============== ==============
No of shares No of shares No of shares
'000 '000 '000
Weighted-average number
of ordinary shares (basic) 82,809 82,809 82,809
Effect of conversion
of share options and
share consideration 7,155 552 2,270
Weighted-average number
of ordinary shares (basic)
at period end 89,964 83,361 85,079
============== ============== ==============
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
The condensed interim financial information includes a tax
credit based on management's best estimate of the full year
effective tax rate based on expected full year statutory losses to
31 December 2019. The effective tax rate applied in the period was
6.9% (period ended 30 June 2018: 16.5%) which compares to the
standard corporation tax rate of 19.0%. The main reason for the
effective tax rate being lower than the standard rate is due to
some of the non-recurring costs in the year being not
deductible.
A reduction in the UK corporation tax 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 tax charge accordingly. The
deferred tax asset and liability at 30 June 2019 has been
calculated based on these rates.
8 Share based payments
At 30 June 2019 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 2017", "LTIP 2018" & "LTIP 2019").
On 27th June 2019, 327,273 options were granted in addition to
820,375 options granted on 25th June 2019 ("LTIP 2019"). 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:
Unaudited Unaudited Audited
6 months ended 6 months ended 12 months ended
30 June 2019 30 June 2018 31 December 2018
Number Weighted Number Weighted Number Weighted
of share average of share average of share average
options exercise options exercise options exercise
price price price
-------------------- ---------- ---------- ---------- ---------- ---------- ----------
Outstanding at
start of period 3,223,600 GBP0.17 907,359 GBP1.51 907,359 GBP1.51
Granted during
the year 1,147,648 - 1,333,333 - 2,788,163 -
Issued in the year - - - - - -
Cancelled in the
year - - - - - -
Lapsed in the year (580,390) GBP0.93 (471,922) GBP0.37 (471,922) GBP0.37
Outstanding at
end of period 3,790,858 - 1,768,770 GBP0.30 3,223,600 GBP0.17
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
LTIP 2019 LTIP 2019 LTIP 2018 LTIP 2018 LTIP 2018 LTIP 2017
Grant date 25/06/2019 27/06/2019 19/10/2018 15/08/2018 18/06/2018 10/04/2017
Vesting date 25/06/2022 27/06/2022 18/06/2021 18/06/2021 18/06/2021 10/04/2020
Lapsing date 25/06/2029 27/06/2029 19/10/2028 15/08/2028 18/06/2028 10/04/2027
Risk free
interest
rate 0.52% 0.56% 0.85% 0.75% 0.78% 0.15%
Expected
volatility 61.22% 60.79% 60.90% 51.90% 47.10% 33.60%
Expected
option life
(in years) 3.00 3.00 2.67 2.84 3.00 3.00
Weighted GBP0.65 GBP0.65 GBP0.57 GBP0.33 GBP0.56 GBP3.04
average
share price
after adj
for PV of
dividends
Weighted GBP0.00 GBP0.00 GBP0.00 GBP0.00 GBP0.00 GBP0.00
average
exercise
price
Weighted
average fair
value of
options
granted 65.00p 65.00p 56.60p 33.00p 55.90p 256.00p
Dividend
yield 0.00% 0.00% 0.00% 0.00% 0.00% 5.71%
Remaining
contractual
life 9.99 10.00 9.31 9.13 8.97 7.78
Prior to 2019, at the grant date there was limited share price
history for the company 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.
For 2019 options, there is a sufficiently long share price
dataset over which to measure volatility for the LTIP Awards.
SAYE
On 7 June 2019 the company launched a new share save (SAYE)
scheme ("SAYE 2019") in addition to the existing schemes ("SAYE
2017" and "SAYE 2018") 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 numbers of share options in existence during the year were
as follows:
Unaudited Unaudited Audited
6 months ended 6 months ended 12 months ended
30 June 2019 30 June 2018 31 December 2018
Number Weighted Number Weighted Number Weighted
of share average of share average of share average
options exercise options exercise options exercise
price price price
--------------------- ------------------- --------- ------------- --------- ------------------- ---------
Outstanding at
start of period 803,292 GBP0.57 204,125 GBP2.10 204,125 GBP2.10
Granted during
the year 449,800 - 794,139 GBP0.66 794,139 GBP0.49
Issued in the year - - - - - -
Lapsed during the
period (225,550) GBP0.59 (194,972) GBP1.94 (194,972) GBP1.92
Outstanding at
end of period 1,027,542 GBP0.63 803,292 GBP0.73 803,292 GBP0.57
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
SAYE 2019 SAYE 2018 SAYE 2017
Grant date 07/09/2019 08/05/2018 25/04/2017
Vesting date 01/07/2022 01/06/2021 01/06/2020
Lapsing date 01/01/2023 01/12/2021 01/12/2020
Risk free interest
rate 0.49% 0.92% 0.21%
Expected volatility 59.24% 48.50% 34.17%
Expected option
life (in years) 3.32 3.35 3.35
Weighted average share price after GBP0.90 GBP0.59 GBP3.14
adjusting for PV of dividends
Weighted average GBP0.72 GBP0.49 GBP2.51
exercise price
Weighted average fair value
of options granted 90.00p 24.70p 68.60p
Dividend yield 0.00% 0.00% 5.53%
Remaining contractual
life 3.51 2.42 1.42
Prior to 2019, at the grant date there was a limited share prices
history for the company 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.
For 2019 options, there is a sufficient long share price dataset
over which to measure volatility for the SAYE Options.
Alan Lovell Options
On 20 December 2018, as described in the 2018 Annual Report, the
Group issued 250,000 options to its Chairman, Alan Lovell. The
number of share options in existence during the year were as follows:
Unaudited Unaudited Audited
6 months ended 6 months ended 12 months ended
30 June 2019 30 June 2018 31 December 2018
Number Weighted Number Weighted Number Weighted
of share average of share average of share average
options exercise options exercise options exercise
price price price
------------- ---------- ---------- ---------- ---------- ---------- ----------
Outstanding
at
start of
period 250,000 - - - - -
Granted
during
the year - - - - 250,000 -
Issued in
the year - - - - - -
Cancelled in
the
year - - - - - -
Lapsed in
the year - - - - - -
Outstanding
at
end of
period 250,000 - - - 250,000 -
Exercisable
at
end of
period - - - - - -
-------------- ---------- ---------- ---------- ---------- ---------- ----------
Grant date 20/12/2018 20/12/2010
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 GBP0.86 GBP0.86
adjusting for PV of dividends
Weighted average exercise price GBP0.00 GBP0.00
Weighted average fair value of
options granted 86.30p 86.30p
Dividend yield 0.00% 0.00%
Remaining contractual life 9.48 9.48
Prior to 2019, at the grant date there was limited share price
history for the company 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 expense / (credit) comprises:
Unaudited Unaudited Audited
6 months 6 months 12 months
ended ended ended
30 June 30 June 31 December
2019 2018 2018
GBP000 GBP000 GBP000
Equity settled - LTIP 274 (33) (2)
Equity settled - SAYE (1) (563) (375)
Equity settled - Alan
Lovell Options 55 - 3
328 (596) (374)
---------- ---------- ------------
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.
END
IR BIGDCCXBBGCI
(END) Dow Jones Newswires
September 19, 2019 02:01 ET (06:01 GMT)
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