RNS Number : 7526N
Safestyle UK PLC
27 September 2023
 

27th September 2023

 

Safestyle UK plc

("Safestyle" or the "Group")

 

Interim Results 2023

 

Safestyle UK plc (AIM: SFE), the leading UK-focused retailer and manufacturer of PVCu replacement windows and doors for the homeowner market, today announces its interim results for the six months ended 2 July 20231 (H1).

 

Financial and operational highlights

 

£m

H1 2023

H1 2022

H1 23 v H1 22 % change

Revenue

74.1

78.3

(5.3%)

Gross Profit

16.2

19.4

(16.1%)

Gross margin %

21.92%

24.75%

(283 bps)

Underlying (loss) before taxation2

(6.0)

(1.4)

(323.8%)

Non-underlying items3

(0.7)

(1.4)

86.5%

(Loss) before taxation

(6.7)

(2.8)

(135.8%)

EPS - Basic

(3.9)p

(1.5)p

n/a

Net cash4

1.0

13.0

n/a

Interim dividend per share

-

0.4p

n/a

 

1)

 

 

 

2)

 

The interim financial statements are presented for the period ended on the closest Sunday to the end of June.  This date was 2 July 2023 for the current reporting period and 3 July 2022 for the prior period.  All references made throughout to H1 2023 are for the period 2 January 2023 to 2 July 2023 and references to H1 2022 are for the period 3 January 2022 to 3 July 2022.  

Underlying (loss) before taxation is defined as reported (loss) before taxation before non-underlying items and is included as an alternative performance measure in order to aid users in understanding the ongoing performance of the Group. 

3)

Non-underlying items consist of non-recurring costs, share-based payments and the Commercial Agreement amortisation.

4)

Net cash is cash and cash equivalents less borrowings.

 

A reconciliation between the terms used in the above table and those in the financial statements can be found in the Financial Review.

Business outlook

 

The trading context of the UK economy and consumer confidence remains extremely difficult.   Encouragingly, inflation is beginning to show some signs of moderating, but that follows a period of sustained high inflation.  The impact of significantly higher interest rates than expected is clearly impacting consumers' disposable income. 

 

As reported in our Trading Update on the 19th September 2023, whilst our order intake went according to plan in early August, the period since mid-August has been challenging with independent indicators of market health, such as online search activity, showing that the current market is performing at c.24% below the July and August levels of 2022.  Pleasingly, our order intake has not fallen this far, being down c.11% YoY which shows our product offering is withstanding wider market pressures better than others.

 

We continue to attempt to stimulate demand and purchase intent through a combination of our online activity, the deployment of our upgraded website, discount management and our commitment to a leading consumer finance portfolio. 

 

The Group continues to engage with its stakeholders to discuss ways to strengthen the balance sheet in order to support its recovery and help facilitate future growth and a further update will be provided in due course.

 

 

Enquiries:

 

Safestyle UK plc

Rob Neale, Chief Executive Officer

Phil Joyner, Chief Financial Officer

 

via FTI Consulting

Zeus (Nominated Adviser & Joint Broker)

Dan Bate / James Edis (Investment Banking)

Dominic King (Corporate Broking)

 

Tel: 0203 829 5000

Liberum Capital Limited (Joint Broker)

Jamie Richards / William King

 

Tel: 0203 100 2100

FTI Consulting (Financial PR)

Alex Beagley / Sam Macpherson / Amy Goldup

 

Tel: 0203 727 1000

About Safestyle UK plc

The Group is the leading retailer and manufacturer of PVCu replacement windows and doors to the UK homeowner market.  For more information please visit www.safestyleukplc.co.uk or www.safestyle-windows.co.uk.

 

CEO's Statement

 

Overview

 

The market represented an increasingly challenging backdrop as we moved through the latter stages of 2022 into 2023.  Late 2022 forecasts by the Construction Products Association ('CPA') for the 2023 market were for single digit declines and these 2023 forecasts have steadily deteriorated to -11% as we have moved through a tougher year than expected.

 

Market activity has been impacted by rising inflation, which has continued to remain higher than economic forecasters expected and consequential higher interest rates have resulted.  This has put even greater pressure on our customers' disposable incomes, weakened consumer confidence and increased the cost of providing our market-leading finance products.  

 

Within this context, it is pleasing that we have made market share gains and it is clear that these trading difficulties are reducing capacity in our sector which represents an opportunity for a strong recovery when conditions improve.

 

We have responded to this far more challenging context with a number of actions to reduce our cost base and strike the balance between volume and price actions which have been necessary to mitigate our own rising input cost pressures and costs of generating enquiries.  Our response has inevitably resulted in reduced levels of investment in some of our strategic priorities.  However, as I will cover below, it is pleasing to report that despite this, we have continued to make measurable progress on many of our strategic priorities.

 

Before I expand on our first half performance, I once again want to recognise all of Safestyle's people.  We are transforming our business and our culture and our people are at the heart of this.  I have said it many times, but I believe that their resilience, skill and commitment makes a huge difference.  I thank all our people for their ongoing contribution. 

 

Trading and financial performance

 

Our revenue for the first half of the year declined by 5.3% to £74.1m with frames installed volume of 79,546 representing a reduction of 15.8% versus H1 2022.  It is notable that the number of orders installed reduced by less; an 8.3% reduction to 20,120 orders installed versus H1 22.  The remaining balance of the total frames volume decline came from an 8.4% reduction in the average number of frames per order. 

 

This decline in frames per order/basket size is consistent with the wider FENSA market trends for this metric; consumers are reducing the number of products they purchase which we attribute to the pressure on disposable income.  Measured price actions to address inflationary pressures mitigated a large part of the overall volume shortfall, with promotional activity to drive enquiries, conversion and ultimately volume also being components of our response.

 

Maintaining accessibility for large purchases in this market is critical.  We have carefully managed our consumer finance offering to keep a leading portfolio with compelling affordability options.  This has come at an increased cost this year due to higher funding costs from our partners which are linked to interest base rate rises.  However, it is a critical component of our value positioning and an important point of difference to many of our competitors and thus a margin investment that we believe it is important to continue to make.

 

Our order book in the first half of the year reduced by 5.8% during the period and ended the period 22.1% lower than the end of H1 22.  We have made some improvements to how orders flow through our business to optimise performance and customer fulfilment, but comparatives from recent times have been stronger than historical norms.  

 

Moving beyond our order intake and topline performance, input costs across all categories including materials, people costs, energy, fuel and lead generation continued to increase in the first half.  Within our material costs are higher costs for PVCu profile from our new supplier, Liniar, who we transitioned to at the end of 2022 for supply chain assurance and improved quality.  This important relationship is working well and presents further range expansion opportunities that we are actively exploring.  Most importantly, this change has mitigated what was an ever-present risk of supply disruption with our previous partner who has since confirmed they will exit the market in September.

 

Operating expenses include the costs of continuing with our brand investment activity with a £1.4m TV and radio campaign across February and March.  Pleasingly, on the back of this activity, we have seen further increases in our brand awareness which is covered in more detail below. 

 

Our other operating expenses for the first half increased versus H1 2022, largely as a result of inflation.  However, our exit rate for operating expenses at the end of the first half is materially lower as a result of our cost reduction and restructuring programme that we enacted in response to the deteriorating market.  These actions are expected to deliver annualised reductions of c.£2.8m.

 

Strategic priorities

 

Continuing to make progress on our strategic priorities remains critical to our long-term aspirations.  Whilst the trading context has inevitably slowed down the pace and level of our investment, I am pleased that we have made demonstrable progress against many of the targets I shared in our 2022 Annual Report.  As I stated then, these targets were shared to enable transparent measurement of the progress being made towards our medium-term goals.  I reiterate these targets below and have shared our progress against these underneath.


Against our accelerating growth plans, we aim for a further increase in unprompted brand awareness. We are also working towards opening new sales branches and growing our market share further versus FY22.

To progress on transforming the customer experience, we are targeting an installation 'On Time In Full' ('OTIF') improvement, a reduction in open complaints and an improvement in our contact centre call answer rate.

As we drive operational performance, our aim is that all installation depot management will have completed role model depot training, factory output per hour worked increases and that our exit rate cost of quality has reduced over 2022.

Our sustainability targets for FY23 which form part of the journey to our 2025 goals are to achieve waste to landfill of 3.5%, a mileage per frame installed reduction and a further 1.5% reduction in our CO2 per frame measure.

For our two enablers, starting with our People initiatives, we are targeting an increase in our gender balance as well as reducing our employee turnover.  Within IT our objectives are to deliver further Safestyle and Beam website developments, a new HR system and to be progressing with our multiyear CRM programme.

 

Accelerating growth: Driving our brand awareness is a key element of our market share growth strategy and we have built on the investment in 2022 with another material campaign in Q1 2023.  This follows a protracted pause in brand investment from 2018 which resulted in a deterioration in our brand awareness that the last 18 months has reversed.  Pleasingly, the latest campaign increased brand awareness to 22% from 19% at the end of last year.

 

Alongside this above the line activity, we have been developing our new website which represents a more modern, efficient and optimised version of our current website.  This was launched at the start of September 2023 and we expect this more engaging customer experience to drive improvements in our enquiry to order metrics.

 

We have also continued to develop our sales branch network and opened a new sales branch in Yeovil in July 2023. 

 

I am confident that the above activities will deliver demonstrable results in the medium-term and have already contributed to our first half market share gains of 2.3% versus H1 22.  When market conditions improve, I believe that we are in an increasingly strong position to help consumers through their important decision-making and purchase journey. 

 

Transforming the customer experience: Our mission is to deliver a great customer experience every time.  This multi-year approach is based on ensuring our customers are at the heart of how we operate, designing and implementing robust business processes, supported by modern IT systems and effective training. 

 

Our focus this year has been to continue to drive improved customer service response levels alongside the introduction of a new system and process to manage customer complaints.

 

In reference to performance versus targets, our 'OTIF' performance has improved by 1.9% and our call answer rate has also increased by 8.2% versus the end of last year.  Whilst the number of open complaints has increased this year, which is in part attributable to the improvements being made in our systems, the processes now in place will more accurately capture complaints, which will enable better response times and therefore a better customer outcome. 

 

Driving performance: This strategic priority targets delivering consistency and improved results through standardisation, training, best practice alignment and innovation across our three initiatives of 'getting it right', 'levelling up' and 'capacity and productivity.'

 

Our Role Model Depot management training programme was completed in the first half of the year and we have commenced the rollout of a stock management system which will ultimately be deployed across our entire depot network to drive visibility, accuracy and better facilitate us meeting our commitments to our customers.

 

Our Safestyle Academy adult fast-track installer training programme continues to see last year's cohort progress through the various training levels with some already having graduated to become qualified window fitters.  We plan to have a new cohort join us at the end of the year.  Alongside this course, we are now deploying the academy to other areas of the business.

 

Leveraging sustainability and embedding compliance: We have set the highly-ambitious target of zero waste to landfill by 2025 and I am delighted to report that our ongoing programme of marginal gains continued to reduce our waste to landfill metric from 5% last year to 3.8% in the first half of the year.  This is becoming an increasingly important component of a customer's choice alongside our value proposition and I believe that we are setting the standard for the wider market in this regard.

 

As we reported in our 2022 Annual Report, we have a carbon offset programme in place with one of our partners.  This will exceed all the carbon that our business processes produce.  We remain committed to continuing to report our pre and post-carbon offset performance to clearly capture our progress on reducing our own emissions as well as the impact of our offset initiatives. 

 

Our pre-carbon offset CO2 emissions per frame increased in the first half versus the prior year by 4.9%.  This is predominantly a reflection of a dilution in the frames per order metric.  We are proud to report that our post-carbon offset emissions per frame is better than net zero meaning the sum of the carbon offset credits we receive exceeds the carbon emissions our business produces.

 

We will always maintain a focus on maintaining our greatly improved compliance record.  Our ongoing health and safety performance remains excellent and our membership of the Institute of Sales Professionals continues. 

 

IT: Our IT strategy is designed to drive productivity, improve the customer experience, support growth and reduce cost.  We upgraded some of our business critical systems in the first half of the year as well as rolling out new tools to help us further support the customer experience.  We are also on track with the implementation of a new HR system and our new website launch. 

 

People: I am pleased that we have made important progress on our People agenda in the first half of the year as we continue to bring the transformation of our people experience and customer experience closer together.  In the first half of 2023 we completed the roll out of our Role Model Depot programme, began to cascade our new sales training module "Purpose", and further enhanced our technical training offering.  As we develop our DEIB strategy, we have implemented equality and diversity monitoring into our recruitment process and delivered our 4th Women in Safestyle forum.  We also launched our new Employee Assistance Programme as part of our wellbeing strategy development. 

 

Looking forward, in July we launched "Your Safestyle, Your Voice" - our first, company-wide engagement survey.  In addition to celebrating the things we do well for our people, the action plans stemming from this are intended to form an integral part of our operating plan and people agenda for 2024 as we strive to make Safestyle an even better place to work.

 

Our progress can also be measured by a 7.9% reduction in employee turnover since H1 22 and a 4.6% increase in our women to men gender balance ratio.  We are pleased with progress, whilst also recognising the opportunity that driving this forward represents.

 

New business development

 

In the first half of the year, we have continued the test and learn development phase for our new brand - Beam.  We continue to investigate how, through a digital platform, we can provide what consumers require in spite of the infrequent, bespoke nature and technical complexity of this offering that most consumers find daunting.  I am pleased to report that the feedback from customers who have engaged on this journey to date has been excellent.  Ventures such as this represent opportunities to access additional consumers in ways that will complement our existing core Safestyle value brand.

 

Rob Neale

Chief Executive Officer

27 September 2023

 

Financial Review

 


H1 2023

H1 2022


 

 

Underlying

Non-underlying items1

 

Total

 

Underlying

Non-underlying items

 

Total

 

H1 23 v H1 22 change in underlying %

Financials

£000

£000

£000

£000

£000

£000


 

 

 





Revenue 

74,115

 

74,115

78,250


78,250

(5.3%)

Cost of sales

(57,868)

 

(57,868)

(58,886)


(58,886)

1.7%

Gross profit

16,247

 

16,247

19,364


19,364

(16.1%)

Other operating expenses2

(21,222)

(715)

(21,937)

(19,943)

(1,429)

(21,372)

(6.4%)

Operating (loss)

(4,975)

(715)

(5,690)

(579)

(1,429)

(2,008)

(759.1)%

Finance costs

(1,008)

 

(1,008)

(833)


(833)

(21.0%)

(Loss) before taxation3

(5,983)

(715)

(6,698)

(1,412)

(1,429)

(2,841)

(323.8%)

 

 

 

 

 

 

 

 

Taxation

 

 

1,333



807










(Loss) for the period

 

 

(5,365)



(2,034)



 

 

 





Basic EPS (pence per share)

 

 

(3.9)p



(1.5)p


Diluted EPS (pence per share)

 

 

(3.9)p



(1.5)p










Cash and cash equivalents

 

 

4,041



17,327


Borrowing facility

 

 

(3,071)



(4,305)


Net cash4

 

 

970



13,022


 

 

KPIs

H1 2023

H1 2022

H1 23 v H1 22 change

Gross margin %5

21.92%

24.75%

(283 bps)

Average Order Value (£ inc VAT)

4,505

4,300

  4.8%

Average Frame Price (£ ex VAT)

950

832

 14.2%

Frames installed (units)

79,546

94,525

(15.8%)

Orders installed

20,120

21,946

(8.3%)

Frames per order

3.95

4.31

(8.4%)

 

As reported in the CEO's statement, the replacement windows and doors market has declined significantly during H1 23, with the market dropping 11.8% in Q2 vs Q1 (as measured by FENSA) as a result of the widely reported rising cost of living and economic uncertainty in the UK.  In a first half that has seen our market share increase by 2.3% vs H1 22, our frames installed volume has reduced by 15.8%.

 

The Group invested £1.4m in TV, which has significantly increased brand awareness, and has also been exposed to cost inflation and the increased cost of offering our market leading suite of consumer finance products.

 

As a result of the above, the Group made an underlying loss before taxation of £(6.0)m for the period.  Net cash reduced to £1.0m from the year end position of £8.0m with this reduction in line with the trading performance for the period. 

 

As part of its capital allocation policy, the Group paid a final dividend of 0.1p per share.

 

Financial and KPI headlines

 

H1 revenue reduction of 5.3% to £74.1m.

Orders installed decreased by 8.3% to 20,120 and frames installed decreased by 15.8% to 79,546. 

Average frame price increased by 14.2% to £950 in H1 23 to help offset cost inflation.  The mix of higher priced composite guard doors increased year on year from 6.6% to 7.0% which represents a small positive mix effect on the average frame price.

Finance subsidy costs have increased by £1.0m due to increased interest rates.

Gross profit reduced by 16.1% to £16.2m, which is largely attributable to the lower volume, inflationary cost push and increased utility rates.  Gross margin percentage5 decreased by (283)bps vs H1 22 to 21.92% with  increased lead generation costs and the consequential under-recovery of semi-fixed costs being the key drivers.

Underlying other operating expenses2 for the period increased by £1.3m (6.4%) versus H1 22.  TV investment increased by £0.4m and IT costs increased by £0.4m following annualisation of investments made during 2022 in what remains a key enabler for our strategic agenda. 

Finance costs have increased by £0.2m in the period, mainly as a result of the increased discount unwind on provisions due to the increased discount rates at the end of H1 23 vs H1 22.

Net cash4 reduced to £1.0m versus £8.0m at the end of last year which reflects the trading performance described above.

 

See the non-underlying items section in this Financial Review

2 Underlying other operating expenses are defined in the 'Underlying performance measures' section below and the reconciliation between this measure and the GAAP measure is shown in the 'Financials' table at the front of this Financial Review

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

Net cash is cash and cash equivalents less borrowings

5 Gross margin % is gross profit divided by revenue

 

Underlying performance measures

 

In the course of the last five years, the Group has encountered a series of unprecedented and unusual challenges.  These gave rise to a number of significant non-underlying items in 2018 including a Commerical Agreement which will become fully amortised in 2023.  The impact of COVID-19 in 2020 has also given rise to a material non-underlying item in the form of a holiday pay accrual which is described in detail below.

 

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

 

These alternative measures are entirely consistent with how the Board monitors the financial performance of the Group and the underlying (loss) before taxation is the basis of the performance targets for incentive plans for the Executive Directors and senior management team.

 

Non-underlying items consist of non-recurring costs, share based payments and Commercial Agreement amortisation.  A full breakdown of these items is shown below.  Non-recurring costs are excluded because they are not expected to repeat in future years.  These costs are therefore not included in the Group's primary performance measures as they would distort how the performance and progress of the Group is assessed and evaluated. 

 

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

 

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

 

Revenue

 

Revenue for the period was £74.1m compared to £78.3m for H1 22, representing a decline of 5.3% in the period.  This was driven by the market-led reduction of frames installed in the period of 15.8% versus H1 22 to 79,546 frames, which was offset to a degree by an increase in the average frame price of 14.2% to £950 (H1 22: £832).

 

The other factors driving the revenue reduction are explained below:

 

The growth in the average frame price was supported to a degree by an increased mix of higher average-priced composite guard doors which rose to 7.0% of the total installed volumes (H1 22: 6.6%).

Having achieved cost neutrality last year, finance subsidy costs increased by £1.0m as higher interest rates increase the cost of offering consumer finance.  The Group remains focused on ensuring that it has a market-leading set of affordability options available to customers. 

The average number of frames per order reduced by 8.4% to 3.95 (H1 22: 4.31).  We attribute the continued reduction in this metric to reduced consumer confidence as a result of the well-documented economic uncertainty and cost of living increases in the UK.  When combined with the 8.3% reduction in order volume, total frames installed reduced by 15.8%.

Overall, as a result of price gains being partially offset by lower average frames per order, the average order value improved by 4.8% to £4,505 (H1 22: £4,300).

 

Gross profit

 

Gross profit was £16.2m, a reduction of 16.1% over H1 22, while the gross margin percentage declined by (283) bps to 21.92% (H1 22: 24.75%). 

 

The reduction in installation volumes described above was the key driver of the year on year reduction in gross profit.  The additional elements behind the reduction in these metrics are as follows:

 

Inflationary cost increases linked to labour, scaffolding, PVCu profile and steel along with increased utility costs represent an increase of £6.2m which was recovered through sales price increases.

As described in the CEO's statement, the cost of lead generation rose in the period due to the overall weaker replacement windows and doors market increasing online search costs The increased cost of lead generation over H1 22 equates to a £1.5m year on year increase.

The closing order book reduced by 5.8% during the period and by 22.1% in comparison to H1 22 which was unusually high in part due to the interruption to operations caused by the January 2022 cyber attack along with a stronger order intake.  The benefit of the reduction in the order book largely offsets the increased cost of lead generation as described above.

 

Underlying other operating expenses

 

Underlying other operating expenses were £21.2m (H1 22: £19.9m) which includes TV investment of £1.4m and is an increase of £1.3m (6.4%) over H1 22.  The key factors behind this increase were as follows:

 

The Q1 23 brand investment activity was an increase of £0.4m over H1 22.  As described in the CEO's statement, this investment drove an increase in brand awareness and we believe it is a key factor behind the H1 23 market share growth.

The investment in upgrading and implementing new IT systems is key to our strategic agenda and this represents a £0.4m increase over H1 22.

Wage inflation through a 6.7% annual pay rise for most of our staff at the start of the period has been largely offset through headcount management actions.

Our cost reduction and restructuring programme will deliver a £2.8m annualised decrease versus Q1 23 run rate.

 

Underlying (loss) before taxation

 

Underlying (loss) before taxation was £(6.0)m (H1 22: loss of £(1.4)m).  This loss is before the non-underlying items described below.

 

Non-underlying items

A total of £0.7m has been separately treated as non-underlying items for the year (H1 22: £1.4m). 

 

The current period's costs consist of £0.3m of non-recurring costs (H1 22: £0.9m), a £0.2m share based payment charge (H1 22: £0.3m) and £0.2m (H1 22: £0.2m) of Commercial Agreement (Intangible Asset) amortisation.  The table below shows the full breakdown of these items:

 

 

H1 23

H1 22


 £000

 £000

Holiday pay accrual

(214)

(72)

RSA related costs

                    -  

12

Litigation Costs

26

23

Restructuring and operational costs

500

96

Modification of vacant right-of-use assets and liabilities

                    -  

(112)

Impairment of vacant right-of-use assets

                    -  

27

Cyber incident related costs

                    -  

945

Total non-recurring costs (note 4)

312

919


 


Commercial Agreement amortisation

230

226

Equity settled share based payments charges

173

284


 


Total non-underlying items

715

1,429

 

The holiday pay accrual release represents a release for part of an accrual made at the end of 2020 which arose as a result of the impact of the shutdown of operations and resultant extension of 2020 leave entitlement until March 2023 for some employees.  This increased the level of deferred holiday entitlement of our people at the end of 2020 which was recognised as an accrual in 2020 and has now fully reversed in 2023.  This item was excluded from the Group's underlying performance measures to ensure the performance of the business is not skewed by both the expense in 2020 or its subsequent use.

 

The Group incurred £0.5m (H1 22: £0.1m) of restructuring and non-recurring operational costs.  These costs predominantly relate to the remuneration arrangements for employees leaving the business under the cost reduction and restructuring programme implemented in the period.

 

As reported in the last four years, the Commercial Agreement arose as a result of an agreement entered into with Mr M Misra which encompassed a five year non-compete agreement and the provision of services by Mr Misra in support of the continued recovery of Safestyle.  The Group agreed consideration with Mr Misra subject to the satisfaction of both clear performance conditions by him over five years and Safestyle's trading performance in 2019.

 

The non-compete element of the Commercial Agreement was accounted for as an intangible asset on the basis that it is an identiable, non-monetary item without physical substance, which is within the control of the entity and is capable of generating future economic benets for the entity.  The intangible asset was measured based on the fair value of the consideration that the Group expects to issue under the terms of the agreement and is being amortised over 5 years which matches the term of the non-compete arrangement.

 

Earnings per share

 

Basic earnings per share for the period were a loss of (3.9)p compared to a loss of (1.5)p in H1 22.  The basis for these calculations is detailed in note 5.

 

Net cash and cashflow

 

The Group's net cash reduced by £7.0m during the period, closing at £1.0m compared to £8.0m at the end of 2022.  £3.5m of the Group's £7.5m revolving credit facility was drawn at the end of the period to cover the intra-month working capital movements.

 

The Group's previous borrowing facility was replaced in January 2023 with a £7.5m revolving credit facility that can be utilised as required to support the Group's working capital needs.  This facility is in place until 31 December 2026.  As a result, the £4.5m term loan was repaid in January 2023.

 

Net cashflow from operating activities, including the cashflow impact of non-underlying items, was a £4.3m outflow (H1 22: £3.7m inflow).  The outflow for H1 23 reflects the trading performance for the period along with the working capital impact of reduced payment terms from Liniar, our mew PVCu profile provider.

 

Capital expenditure of £0.5m reduced from £0.9m in H1 22 with investment levels being managed across the Group.

 

During the period, the Group paid a final dividend of 0.1p per share resulting in a £0.1m outflow (H1 22: nil).

 

Dividends

 

The Board have not declared an interim dividend as a result of the first half losses sustained by the Group.

 

Phil Joyner

Chief Financial Officer

27 September 2023

 

Consolidated Income Statement






Unaudited

Unaudited

Audited






6 months ended

6 months ended

12 months ended






2nd Jul 2023

3rd Jul 2022

1st Jan 2023



Note


£000

£000

£000


 

 



 

 




Revenue 

 



 

74,115

78,250

154,315


Cost of sales





(57,868)

(58,886)

(116,441)










Gross profit

 




16,247

19,364

37,874


Expected credit losses expensed




 

(420)

(348)

(293)


Other operating expenses





(21,517)

(21,024)

(44,371)










Operating (loss)

 



 

(5,690)

(2,008)

(6,790)










Finance costs



6

 

(1,008)

(833)

(1,756)


(Loss) before taxation

 




(6,698)

(2,841)

(8,546)










Underlying (loss) before taxation before non-recurring costs, Commercial Agreement amortisation and share based payments

 




(5,983)

(1,412)

(4,428)


Non-recurring costs



4

 

(312)

(919)

(3,644)


Share based payments




 

(173)

(284)

(22)


Commercial Agreement amortisation




 

(230)

(226)

(452)


(Loss) before taxation





(6,698)

(2,841)

(8,546)










Taxation




 

1,333

807

2,035










(Loss) after taxation

 




(5,365)

(2,034)

(6,511)










Other comprehensive income





-

-

-


Total comprehensive (loss) for the period attributable to equity shareholders

 




(5,365)

(2,034)

(6,511)


















Earnings Per Share

 





Basic (pence per share)

5

 

(3.9p)

(1.5p)

(4.7p)


Diluted (pence per share)

5

 

(3.9p)

(1.5p)

(4.7p)

 

Consolidated Statement of Financial Position




Unaudited

Unaudited

Audited




6 months ended

6 months ended

12 months ended




2nd Jul 2023

3rd Jul 2022

1st Jan 2023




Note

£000

£000

£000

Assets

 





Intangible assets - Trademarks



 

504

504

504

Intangible assets - Goodwill



 

20,758

20,758

20,758

Intangible assets - Software



 

1,289

1,103

1,305

Intangible assets - Other



 

150

606

380

Property, plant and equipment



 

9,696

10,589

10,024

Right-of-use assets



 

10,779

10,578

9,416

Deferred taxation asset



 

4,326

1,847

2,984

Non-current assets

 


47,502

45,985

45,371

 

Inventories



 

4,552

5,457

3,939

Current taxation asset



114

-

 114  

Trade and other receivables



 

5,741

6,985

5,106

Cash and cash equivalents



 

4,041

17,327

12,369

Current assets

 


14,448

29,769

21,528







 

Total assets

 


61,950

75,754

66,899







 

Equity

 





 

Called up share capital



 

1,389

1,389

1,389

Share premium account



89,495

89,495

89,495

Profit and loss account



(1,467)

9,127

3,856

Common control transaction reserve



(66,527)

(66,527)

(66,527)

 

 


22,890

33,484

28,213

Liabilities

 





 

Trade and other payables



7

21,305

23,400

21,069

Lease liabilities



 

4,293

4,332

4,154

Corporation taxation liabilities




-  

159

-

Provision for liabilities and charges



 

1,508

1,333

1,338

Borrowing facility



 

-

-

4,372

Current liabilities

 


27,106

29,224

30,933







Provision for liabilities and charges



 

2,121

2,219

2,160

Lease liabilities



 

6,762

6,522

5,593

Borrowing facility



 

3,071

4,305

-

Non-current liabilities

 


11,954

13,046

7,753







Total liabilities

 


39,060

42,270

38,686







Total equity and liabilities

 


61,950

75,754

66,899

 

Consolidated Statement of Changes in Equity

 


Share capital

Share premium

Profit and loss account

Common control transaction reserve

Total equity

 

£000

£000

£000

£000

£000

 






Balance at 2nd January 2022

1,386

89,495

10,893

(66,527)

35,247

 

 

 

 

 

 

Total comprehensive (loss) for the period

-  

 -  

(2,034)

 -  

(2,034)

Transactions with owners recorded directly in equity:





 

Issue of new shares

3

-

(3)

-

-  

Deferred taxation asset taken to reserves

-  

 -  

(13)

 -  

(13)

Equity settled share based payment transactions

-  

 -  

284

 -  

284

Balance at 3rd July 2022

1,389

89,495

9,127

(66,527)

33,484

 






Total comprehensive (loss) for the period

-  

 -  

(4,477)

-  

(4,477)

Transactions with owners recorded directly in equity:





 

Deferred taxation asset taken to reserves

-  

 -  

23

 -  

23

Dividends

-  

 -  

(555)

-  

(555)

Equity settled share based payment transactions

-  

 -  

(262)

 -  

(262)

Balance at 1st January 2023

1,389

89,495

3,856

(66,527)

28,213

 

 

 

 

 

 

Total comprehensive (loss) for the period

-  

 -  

(5,365)

-  

(5,365)

Transactions with owners recorded directly in equity:

 

 

 

 

 

Deferred taxation asset taken to reserves

-

-

9

-

9

Dividends

-

-

(140)

-

(140)

Equity settled share based payment transactions

-

-

173

-

173

Balance at 2nd July 2023

1,389

89,495

(1,467)

(66,527)

22,890

 

Consolidated Statement of Cash Flows


 

Unaudited


Unaudited


Audited


 

 6 months ended


 6 months ended


12 months ended


Note

2nd Jul

2023

 

3rd Jul 2022

 

1st Jan 2023



£000


£000


£000

Cash flows from operating activities

 

 





(Loss) for the period

 

(5,365)


(2,034)


(6,511)

Adjustments for:

 

 





Depreciation of plant, property and equipment

 

645


699


1,368

Depreciation of right-of-use assets

 

1,929


1,851


3,729

Amortisation of intangible fixed assets

 

431


438


875 

Impairment of right-of-use assets

 

-


27


27

Modification of right-of-use assets and liabilities

 

-


(112)


(113)

Finance expense

6

1,008


833


1,756

Equity settled share based payments charge

 

173


284


22

Taxation (credit)

 

(1,333)


(807)


(2,035)


 

(2,512)


1,179


(882)

(Increase) / decrease in inventories

 

(613)


(159)


1,359

(Increase) in trade and other receivables

 

(635)


(2,105)


(226)

Increase in trade and other payables

7

236


5,348


3,017

(Decrease) / increase in provisions

 

(145)


8


(226)


 

(1,157)


3,092


3,924

Other interest (paid)

 

(600)


(599)


(1,274)

Taxation (paid)

 

-


-


(159)

Net cash (outflow) / inflow from operating activities

 

(4,269)


3,672


1,609

 

 

 





Net cash (outflow) from investing activities

 

 





Acquisition of property, plant and equipment

 

(315)


(477)


(730)

Acquisition of intangible fixed assets

 

(188)


(445)


(709)

Net cash (outflow) from investing activities

 

(503)



(1,439)

 

 

 




Cash flows from financing activities

 

   


   


  

Proceeds from loans and borrowings

 

3,500


-


-  

Repayment of loans and borrowings

 

(4,934)


-


-

Dividends paid

 

(140)


-


(555)

Payment of lease liabilities

 

(1,982)


(1,774)


(3,597)

Net cash (outflow) from financing activities

 

(3,556)


(1,774)


(4,152)


 

 





Net (outflow) / inflow in cash and cash equivalents

 

(8,328)


976


(3,982)

Cash and cash equivalents at start of period

 

12,369


16,351


16,351


 

 





Cash and cash equivalents at end of period

 

4,041


17,327


12,369

 

 

 





 

 

 





 

 

Notes to the interim financial information

 

1              General information and basis of preparation

 

The interim financial information for the six months ended 2nd July 2023 and for the six months ended 3rd July 2022 does not constitute statutory financial statements and is neither reviewed nor audited.  The comparative figures for the period ended 3rd July 2022 are not the Group's consolidated statutory accounts for that financial year but are extracted from those accounts which have been reported on by the Group's auditor and delivered to the Registrar of Companies.  The report of the auditor was (i) unqualified and (ii) did not contain a statement with reference to Articles 113B of Companies (Jersey) Law 1991

 

The condensed consolidated interim financial information for the period ended 2nd July 2023 has been prepared in accordance with IAS 34, 'Interim financial reporting' as adopted by the European Union.

 

Selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in financial position and performance of the Group since the last annual consolidated financial statements as at and for the year ended 1st January 2023.

 

The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 1st January 2023 which have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union.

 

The accounting policies adopted in the condensed interim financial information are consistent with those set out in the financial statements for the year ended 1st January 2023.        

 

Period-end

These interim financial statements are presented for the first 26 weeks of the financial year which ended on 2nd July 2023 for the current year and ended on the 3rd July 2022 for the first half comparative period of the prior year.  All references made throughout these accounts for H1 23 are for the period 2nd January 2023 to 2nd July 2023.  References to H1 22 are for the period 3rd January 2022 to 3rd July 2022.

 

2              Going concern

 

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

 

The Group made a statutory loss of £(5.4)m in the 6 months to 2 July 2023 (June 22: £(2.0)m loss) and had net current liabilities of £12.7m (June 2022: £0.5m net assets).  As described in the CEO's statement and the Financial Review, H1 23's trading was significantly impacted by the challenging market and economic environment within the UK and specifically within the RMI market.  During the period, the Group's net cash position reduced from £8.0m to £1.0m predominantly due to the trading losses in the period along with the revised payment terms linked to the transition to a new key supplier to secure the supply chain.  The Directors' forecasts are that year-end net debt is expected to be between £(5.5)m and £(6.5)m as a result of the ongoing challenging trading conditions described in the CEO's Statement.

 

Consequently, as described in the Business Outlook , the Group has commenced discussions with its stakeholders to strengthen the balance sheet at this time.  There has been a good level of engagement in this process and the Directors believe that they have sufficient options available in order to conclude that the Group will have adequate liquidity against forecast downside scenarios through to the end of the going concern period (31 December 2024). 

 

As the Group is still in discussion with its stakeholders and requires such discussions to be concluded positively, the Directors consider at this time that a material uncertainty exists that may cast significant doubt on the Group's ability to continue as a going concern.  Notwithstanding this, the Directors believe that based on the progress made to date, there is good reason to believe that sufficient stakeholder support will be obtained in a timely fashion and that the Group's working capital and liquidity position can be managed effectively to ensure that the Group can continue to realise its assets and discharge its liabilities in the normal course of business.  Accordingly, they have adopted the going concern basis of accounting.

 

3              Significant accounting policies

 

Revenue recognition

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

There are five main steps followed for revenue recognition:

 

-       Identifying the contract with a customer

-       Identifying the performance obligations

-       Determining the transaction price

-       Allocating the transaction price to the performance obligations; and

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

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

 

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

 

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

 

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

 

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

 

The Group offers consumer finance products from a range of providers whilst acting as a credit broker and not the lender. The Group earns commission and pays subsidies for its role as a credit broker. As the Group is acting as the agent and not the principal, commission is not disclosed as a separate income stream.

 

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

 

Non-recurring items

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

 

4              Non-recurring costs

 




Unaudited


Unaudited


Audited




 6 months ended


 6 months ended


12 months ended




2nd July 2023


3rd July 2022


1st January 2023

Non-recurring costs consist of the following:



£000


£000


£000




 


 



Holiday pay accrual (release)



(214)


(72)


(46)

RSA related costs



-


12


-

Litigation Costs



26


23


131

Restructuring and operational costs



500


96


473

Modification of right-of-use assets and liabilities



-


(112)


(113)

Impairment of vacant right-of-use assets



-


27


27

Cyber incident related costs



-


945


953

Operational project costs



-


-


1,663

Former CEO retirement costs



                   -  

 

-

 

556




312


919


3,644

 

The holiday pay accrual arose as a result of the impact of the shutdown of operations and resultant extension of 2020 leave entitlement which, for some employees, was up to March 2023.  The release in the current reporting period represents a partial-unwinding of the original accrual booked in 2020 due to the deferred holiday subsequently taken in the year.

 

RSA related costs are the employer related taxes associated with the issue of Restricted Share Award scheme during the year.

 

Litigation costs are mainly expenses incurred as a result of an ongoing legal dispute between the Group and an ex-agent.  These costs are predominantly legal advisor's fees.

 

Restructuring and operational costs are expenses incurred, including redundancy payments, as a result of changes being made to reduce the cost structure to the business.

 

Modification of right-of-use assets and liabilities relate to the closure of the properties identified as right-of-use assets during the period.

 

Impairment of right-of-use assets relate to the closure of the properties identified as assets under IFRS 16.

 

Cyber incident related costs are costs directly incurred and associated with the cyber-attack that took place in January 2022.  Immediately following the attack, there was a short term impact on the Group's operations as it implemented business continuity workarounds whist it recovered its systems.

 

At the end of 2022 the Group transitioned to a new provider of PVCu profile, Liniar.  The Group incurred a one-off cost of £1.7m due to the incremental costs of transitioning to the new profile and the impairment of the remaining stock held that was specific to the old profile which will no longer be sold to customers.

 

The charge of £0.6m in 2022 represents the costs of the previous CEO, Mike Gallacher's, remuneration arrangements following his retirement from the Board on 14 December 2022.

 

For further detail on the 2022 non-recurring charges, please refer to the 2022 Annual Report.

 

5              Earnings per share




Unaudited


Unaudited


Audited




 6 months ended


 6 months ended


12 months ended




2nd July 2023


3rd July 2022


1st January 2023

Basic (loss) per share (pence)



(3.9p)


(1.5p)


(4.7p)

Diluted (loss) per share (pence)



(3.9p)


(1.5p)


(4.7p)









 

     Basic earnings per share

 

The calculation of basic earnings per share has been based on the following loss attributable to ordinary shareholders and weighted-average number of shares outstanding.

 

 




Unaudited


Unaudited


Audited




 6 months ended


 6 months ended


12 months ended




2nd July 2023


3rd July 2022


1st January 2023




£000


£000


£000




 





(Loss) attributable to ordinary shareholders



(5,365)


(2,034)


(6,511)




 





Weighted-average number of ordinary shares (basic)

 

 

 

 

 

 

 




 








No of shares '000


No of shares '000


No of shares '000




 





In issue during the period



138,867


138,628


138,748

 

 

As a loss has been recorded for the period, the shares are not considered to have a dilutive effect.

 

6          Finance costs




Unaudited


Unaudited


Audited




 6 months ended


 6 months ended


12 months ended




2nd July 2023


3rd July 2022


 1st January 2023




£000


£000


£000




 


 



On borrowing costs



399

 

327


727

Unwind of discount on provisions



276

 

161


341

On lease liabilities



333

 

345


688




 

 


 

 




1,008


833


1,756

 

 

7          Trade Payables

 




Unaudited


Unaudited


Audited




 6 months ended


 6 months ended


12 months ended




2nd July 2023


3rd July 2022


 1st January 2023




£000


£000


£000




 


 



Trade payables



7,869

 

9,112


8,512

Other taxation and social security costs



4,074

 

4,465


3,649

Other creditors and deferred income



4,253

 

5,901


4,298

Accruals



5,109

 

3,922


4,610




21,305


23,400


21,069

 

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

 

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.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our Privacy Policy.
 
END
 
 
IR UNORROKUKUUR