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RNS
Safestyle UK PLC  -  SFE   

Final Results

Released 07:00 23-Mar-2017

RNS Number : 2585A
Safestyle UK PLC
23 March 2017
 

23 March 2017

 

Safestyle UK plc

 

Final Results 2016

 

Continued market share growth and a good start to 2017

 

Safestyle UK plc (AIM: SFE), the leading UK-focused retailer and manufacturer of PVCu replacement windows and doors for the homeowner market, today announces its final results for the 12 months ended 31 December 2016.

 

Financial Highlights

 

 

Year ended

31 December 2016

£m

Year ended

31 December 2015

£m

 

 

% change

Revenue

163.1

148.9

+9.5%

Gross profit***

55.6

49.7

+11.9%

Gross margin %***

34.1%

33.4%

+70bps

EBITDA

20.4

18.6

+9.7%

Underlying EBITDA*

21.6

19.1

+13.1%

PBT

19.3

17.6

+9.7%

Underlying PBT**

20.5

18.0

+13.9%

EPS - Basic

19.0p

17.8p

+6.7%

Final Dividend

7.5p

6.8p

+10.3%

 

* Underlying EBITDA is defined as earnings before interest, tax, depreciation, amortisation and share based payments charges

** Underlying PBT is defined as earnings before taxation and share based payments charges

*** Cost of sales restated to reflect lead generation costs previously stated as other operating expenses

The company uses underlying measures where it believes the removal of significant, one-off items provides a truer picture of the company's performance to shareholders.

 

Operational Highlights

 

·     Volume of frames installed increased by 3.2% to 288,460 (2015: 279,453)

·     Continued growth in market share to 10.2% at 31 December 2016 (2015: 9.5%)

·     Leads generated from media and on-line marketing grew by 23% to 73,686 (2015: 59,965)

·     Average unit sales price up 6.4% to £565 (2015: £531)

·     New sales offices opened in Guildford and Norwich

·     Pre-tax operating cash flow of £21.1 million (2015: £18.2 million)

·     12th consecutive year of market share growth

 

Commenting on the results, Steve Birmingham, CEO said:

 

"I am delighted to report that Safestyle UK has yet again achieved record sales and profitability in 2016.  We have continued to execute on our strategy of increasing market share which increased to 10.2% at the year end (2015: 9.5%).

 

Our investment in the expansion of our manufacturing facility is near to completion and remains on plan and on budget.

 

So far in 2017 order intake is up 4% against strong prior year comparatives. This broadly reflects the increase in our selling prices and more than offsets the higher raw material costs resulting from the weaker pound following the EU referendum.

 

We have entered 2017 in a market leading position.  Moreover, whilst mindful of the uncertainty in the macroeconomic outlook, our strong balance sheet, excellent cash generation and differentiated product offering leaves us well positioned to build on our competitive advantages.  The Board remains confident of delivering growth over the year ahead."

 

Enquiries:

 

Safestyle UK plc

Tel: 0207 653 9850

Steve Birmingham, Chief Executive Officer

 

Mike Robinson, Chief Financial Officer

 

 

 

Zeus Capital (Nominated Adviser & Joint Broker)

Tel: 0203 829 5000

Nick How /Dominic King/ Andrew Jones

 

 

Liberum (Joint Broker)

Neil Patel

 

 

Tel: 0203 100 2100

FTI Consulting (Financial PR)

Tel: 0203 727 1000

Oliver Winters / Alex Beagley / James Styles

safestyle@fticonsulting.com

 

 

 

 

 

 

 

 

 

 

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 and www.safestyle-windows.co.uk.

 

 

Chairman's Statement

I am pleased to report the Group's results for the year ended 31 December 2016.

 

Summary of Financial Performance

 

The Group has delivered record revenue and profit. Revenue increased 9.5% to £163.1m (2015: £148.9m), delivering profit before tax of £19.3m, up 9.7% (2015: £17.6m). Earnings per share increased 6.7% to 19.0p (2015: 17.8p).

 

The Group continued to gain market share (as measured by FENSA installations), which is now 10.2%, and against strong H2 2015 comparatives we grew revenue and profit before tax by 6.3% and 11.3% respectively.

 

Factory Expansion Plans

 

Our factory expansion plans are well advanced with the new production facility and key items of plant now operational. We are delighted with the project's progress, which remains on schedule and on budget. The facility is scheduled to be fully operational in summer 2017.

 

Balance Sheet and Final Dividend

 

The business continues to be highly cash generative with 2016 cash conversion (the ratio of net cash inflow from operating activities before taxation to underlying EBITDA) at 98% (2015: 95%). Our balance sheet is strong with £13.5m net cash at 31 December 2016 having paid a special dividend during the year of £5.6m and incurred £4.6m of expenditure on our factory extension.

 

The Board recommends, subject to approval at the Annual General Meeting to be held on 18 May 2017, a final dividend of 7.5p per share payable to ordinary shareholders registered on 16 June 2017. Together with our interim dividend of 3.75p per share which has already been paid, this takes the total proposed ordinary distributions up to 11.25p per share, representing cover of circa 1.7 times.

 

Looking Ahead

 

Whilst macroeconomic factors have introduced an element of uncertainty into the general outlook for RMI demand, our proposition is resilient and we remain confident of our ability to outperform the market. Our business is focused on delivering market share gains through our differentiated customer proposition, leading product offering and low cost production.

 

We have well-invested manufacturing, a compelling finance offering, a broadened energy efficient product range, market leading digital media performance and a strong after sales service. We continue to invest in our production resources, our brand, our sales technology, branch network and our people. In this regard, I am delighted that Giles Richell joined the Board as Chief Operating Officer in February 2017 to build on the positive momentum achieved over the past year.

 

Order intake through 2016 was strong.  In 2017 to date we have more than mitigated currency and other cost pressures through price increases.  We continue to expand our UK footprint and the Board looks forward to further growth in 2017.

 

Finally, I would like to thank our colleagues for their contribution to our continued success.

 

RS Halbert

Chairman

23 March 2017

 

 

CEO Statement

 

I am pleased to report that Safestyle UK achieved record sales and profitability in 2016 and is well placed to continue its progress in 2017.

 

Business Review

 

In 2016 Safestyle's market share (as measured by FENSA installations) increased for the twelfth consecutive year to 10.2% (from 9.5% in 2015) consolidating our sector leading position. During the period we carried out a record 62,989 installations (up 4.7% on 2015) consisting of 288,460 window and door frames (up 3.2% on 2015). Our average frame sales price excluding VAT increased by 6.4% to £565 and our average installed order value increased from £2,963 to £3,103. This strong operational performance resulted in increased revenue, up 9.5% to £163.1m (2015: £148.9m) and underlying profit before tax up 13.9% to £20.5m (2015: £18.0m).

 

We continued to expand our sales branch network during the year with new sales branch openings in Guildford and Norwich.  In addition we added an installation depot in South Wales in February 2017 to increase our capacity and customer service levels in that region and now have a network of 36 sales branches and 13 installation depots across the UK. There still remain significant opportunities to widen our sales network and over the course of 2017 we will remain focused on identifying further locations in which we are relatively underrepresented in relation to our target customer base.

 

We have continued to increase our activity in generating enquiries from lower cost digital media and direct response channels which accounted for 41% of all orders in 2016 compared to 37% in 2015. Lead generation from our traditional door canvassing remains an important part of the marketing mix and the value of business from this source increased by 9% in 2016.  Our planned increased investment in direct and digital marketing will remain an important factor during 2017 as we aim to continue growing our market share and reducing average lead generation costs.

 

The weakness in Sterling following the EU referendum resulted in industry wide increased raw material costs in the second half of 2016. However we have been able to fully offset these costs through an increase in our prices from 1st January 2017.  Going forward the strength of our market position, low cost manufacturing capabilities as well as our track record in delivering sustainable price increases leaves us well positioned to manage any further input cost pressures.

 

Factory Expansion Plan on Target

 

We are pleased that construction of the new factory which commenced in 2016 is nearing completion and is progressing to plan and budget. We have received and installed the new glass toughening furnace, high speed cutting table and high speed IGU line. By June 2017 we will have transferred the existing glass manufacturing process to the new factory.  The manufacturing of both the frames and double glazed units on a single site will reduce handling, improve quality, increase efficiency and enhance capacity as the Group broadens its product range and continues to grow its market share.

 

Product and Other Developments

 

Following the launch and proof of concept of our conservatory upgrade product in 2015, growth accelerated during 2016 and we installed 551 conservatory upgrades against our target of 450. We are pleased with the progress made and expect continued growth of this exciting area in 2017 as the contribution from this revenue stream increases.

 

The new premium products and colours we introduced in 2016 have steadily gained traction and are contributing to our broader product offering and appeal.

 

As part of our strategy to further improve our sales effectiveness in 2016 we provided all of our sales representatives with digital tablets which contain a range of sales presentation aids, including finance application results whilst in the customer's home. We have received positive feedback from our sales representatives and in 2017 will continue to develop software tools for both our sales and canvass forces which aim to make the sales process more efficient.

 

Outlook

 

Whilst we anticipate the macroeconomic outlook to remain uncertain, the long-term fundamental drivers underpinning the UK RMI market remain robust. Our proven track record in growing market share and implementing price increases means we are well positioned, as market leader, to build on the momentum achieved over the past year.

 

During 2017 we will continue our drive to grow market share and develop our sales branch network. We continue to invest in our manufacturing equipment and look forward to achieving a key milestone when the major expansion of our factory is complete.

 

We have already experienced strong growth following our entry into the conservatory refurbishment market and expect further growth in 2017.

 

Our robust cash generation and strong financial position enables the Group to continue to make substantial investment in its infrastructure without compromising returns to shareholders.

 

We believe that our broad range of energy efficient products, attractive promotional consumer finance options and low-cost value proposition are compelling differentiators in a highly fragmented market and will continue to separate Safestyle from its competitors.

 

The Group again delivered record results in 2016 and it is our intention to continue our successful growth in 2017.

 

SJ Birmingham FCA

Chief Executive Officer

23 March 2017

 

 

Financial Review

 

Revenue

 

Revenue for the period was £163.1 million against £148.9 million for the same period last year, representing growth of 9.5%.  Average unit prices increased by 6.4% in the year from £531 to £565.  This followed a price list increase implemented at the start of 2016 to counterbalance the additional costs of the new consumer finance products introduced in June 2015.  It also reflected the growth in conservatory upgrades with a total of 551 installations during the year and a change to the timing of revenue recognition for survey fees that increased sales by £0.3 million in the period.

 

The volume of frames installed in 2016 was 288,460, an increase of 3.2% over the previous year (2015: 279,453).  Average order value also showed encouraging growth from £2,963 (inc VAT) in 2015 to £3,103 in 2016.

 

Leads generated from direct response continued to be the engine for growth.  Leads from this source were 73,686 in the year compared to 59,965 in 2015, an increase of 22.9%.

 

Gross margin

 

The basis of calculating gross margin has been changed from the beginning of 2016 and the prior period comparatives have been restated accordingly.  Marketing costs that are directly linked to lead generation and previously included as 'Operating expenses' have been reclassified as 'Cost of sales', as explained in note 2.

 

On this basis gross profit increased by 11.9% in the period from £49.7 million in 2015 to £55.6 million in 2016.  As was indicated in the half year results gross margin continued to improve in the second half of the year, ending the year at 34.1% compared to 33.4% in the full year 2015.  As expected average sales prices were higher in the second half, more than offsetting the increased costs from the impact of Sterling weakness.

 

Other operating expenses

 

Other operating expenses in 2016 were £36.4 million (2015: £32.2 million), an increase of 13.0%.  The costs in the period included one-off Employer National Insurance costs of £0.9 million which were incurred as a result of the exercise in April 2016 of LTIP options granted when the company floated in 2013.

 

An increase in the provision for doubtful debts impacted operating costs in the period by £0.7 million.  The majority of the increase relates to outstanding debts over 1 year old.  Much of this debt has been secured with a charge over the customers' property. The recent rate of recovery has been very slow and it has been decided to make a full provision for these amounts,

 

Other overhead costs grew at a slower rate than revenues and resulted, despite the above costs, in the pre-tax profit margin increasing slightly to 11.9% (2015: 11.8%).

 

Profit and EPS

 

Profit before tax increased by 9.7% from £17.6 million in 2015 to £19.3 million in 2016.  This was after charging share based payments of £1.2 million in 2016 (2015: £0.4 million), the current year being impacted by the one-off cost of £0.9 million from the LTIP exercise. Underlying PBT before share based payments was £20.5 million for the period (2015: £18.0 million), an increase of 13.9%.

 

Basic earnings per share for the period were 19.0p compared to 17.8p for the same period last year.  The value for 2016 has been impacted by the one-off LTIP cost and by the dilution effect on the weighted average number of shares of the LTIP exercise and 2015 warrant exercise.  The basis for the calculation is detailed in note 6 to the accounts.

 

Cash

 

The cash balance at 31 December 2016 was £13.5 million, a reduction of £3.0 million in the period.  This was after paying total dividends of £14.4 million (2015: £7.5 million), including a special dividend of £5.6 million (2015: Nil).

 

Operating cashflow in the year was £17.2 million, up £2.6 million from the previous year.  This was helped by a reduction in the working capital level which reduced by £0.5 million compared to a £0.9 million increase in 2015.

 

Capital expenditure in the period was £5.9 million (2015: £1.6 million).  The factory expansion, including the new glass furnace, accounted for £4.6 million of this year's investment.  This leaves a balance of £2.7 million still to be spent on this project which is scheduled to complete in Q2 2017.

 

Dividends

 

The Board is proposing a final dividend of 7.5p per share subject to approval of shareholders at the AGM.  The dividend will be paid on 10 July 2017 to shareholders on the register at close of business on 16 June 2017.

 

MJ Robinson

Chief Financial Officer

23 March 2017

 

 

Consolidated statement of comprehensive income for the year ended 31 December 2016

 

 

 

 

 

 

 

 

Restated

 

 

 

 

 

 

 

2016

2015

 

 

 

 

 

 

    Note

£000

£000

 

 

 

 

 

 

 

 

 

 

 

Revenue 

 

 

 

 

163,116

148,902

 

 

Cost of sales

 

 

 

 

(107,507)

(99,212)

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

 

 

55,609

49,690

 

 

Other operating expenses

 

 

 

 

(36,362)

(32,205)

 

 

 

 

 

 

 

 

 

 

 

Operating profit

 

 

 

 

19,247

17,485

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EBITDA before share based payments, depreciation and amortisation

 

 

 

 

21,602

19,060

 

 

 

 

 

 

 

 

 

 

 

Equity settled share based payments charges

 

 

 

5

(1,187)

(443)

 

 

Depreciation and amortisation

 

 

 

 

(1,168)

(1,132)

 

 

 

 

 

 

 

 

 

 

 

Operating profit

 

 

 

 

19,247

17,485

 

 

 

 

 

 

 

 

 

 

 

Finance income

 

 

 

 

98

96

 

 

Finance costs

 

 

 

 

(11)

(18)

 

 

 

 

 

 

 

 

 

 

 

Profit before tax

 

 

 

 

19,334

17,563

 

 

 

 

 

 

 

 

 

 

 

Taxation

 

 

 

7

(3,778)

(3,603)

 

 

 

 

 

 

 

 

 

 

 

Profit after taxation

 

 

 

 

15,556

13,960

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

-

-

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive income for the period attributable to equity shareholders

 

 

 

 

15,556

13,960

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings Per Share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic (pence per share)

 

 

 

6

19.0p

17.8p

 

 

Diluted (pence per share)

 

 

 

 

18.9p

17.3p

 

 

           

 

All operations were continuing throughout all periods.

 

 

Consolidated statement of financial position as at 31 December 2016

 

           

 

 

 

 

 

2016

2015

 

 

 

Note

£000

£000

Assets

 

 

 

 

 

Intangible assets - Trademarks

 

 

 

504

504

Intangible assets - Goodwill

 

 

 

20,758

20,758

Intangible assets - Software

 

 

 

415

609

Property, plant and equipment

 

 

 

12,389

7,492

Deferred tax asset

 

 

 

119

1,241

 

 

 

 

 

 

Non-current assets

 

 

 

34,185

30,604

 

 

 

 

 

 

Inventories

 

 

 

2,176

1,500

Trade and other receivables

 

 

 

4,560

3,858

Cash and cash equivalents

 

 

 

13,459

16,485

 

 

 

 

 

 

Current assets

 

 

 

20,195

21,843

 

 

 

 

 

 

Total assets

 

 

 

54,380

52,447

 

 

 

 

 

 

Equity

 

 

 

 

 

Called up share capital

 

 

8

828

803

Share premium account

 

 

 

81,979

79,440

Profit and loss account

 

 

 

22,052

24,278

Common control transaction reserve

 

 

 

(66,527)

(66,527)

 

 

 

 

 

 

Total equity

 

 

 

38,332

37,994

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Trade and other payables

 

 

 

11,983

10,159

Financial liabilities

 

 

 

70

108

Corporation tax liabilities

 

 

 

1,599

1,746

Provision for liabilities and charges

 

 

 

701

668

 

 

 

 

 

 

Current liabilities

 

 

 

14,353

12,681

 

 

 

 

 

 

Financial liabilities

 

 

 

                   -  

70

Provision for liabilities and charges

 

 

 

1,695

1,702

 

 

 

 

 

 

Non-current liabilities

 

 

 

1,695

1,772

 

 

 

 

 

 

Total liabilities

 

 

 

16,048

14,453

 

 

 

 

 

 

Total equity and liabilities

 

 

 

54,380

52,447

 

           

Consolidated statement of changes in equity for the year ended 31 December 2016

           

 

 

 

Share capital

Share premium

Profit and loss account

Common control transaction reserve

Total equity

 

 

£000

£000

£000

£000

£000

 

 

 

 

 

 

 

Balance at 1 January 2015

 

778

77,000

16,537

(66,527)

27,788

 

 

 

 

 

 

 

Total comprehensive income for the year

 

 

 

13,960

 

13,960

 

 

 

 

 

 

 

Transactions with owners recorded directly in equity:

 

 

 

 

 

 

Issue of shares

 

25

2,440

                   -  

                   -  

2,465

Equity settled share based payment transactions

 

                   -  

                   -  

443

                   -  

443

Deferred tax asset taken to reserves

 

                   -  

                   -  

808

                   -  

808

Dividends

 

                   -  

                   -  

(7,470)

                   -  

(7,470)

Balance at 31 December 2015

 

803

79,440

24,278

(66,527)

37,994

 

 

 

 

 

 

 

Total comprehensive income for the year

 

 

 

15,556

 

15,556

 

 

 

 

 

 

 

Transactions with owners recorded directly in equity:

 

 

 

 

 

 

Issue of shares (see note 8)

 

25

2,539

(2,564)

                   -  

                   -  

Equity settled share based payment transactions

 

                   -  

                   -  

240

                   -  

240

Deferred tax asset taken to reserves

 

                   -  

                   -  

(1,091)

                   -  

(1,091)

Dividends

 

                   -  

                   -  

(14,367)

                   -  

(14,367)

Balance at 31 December 2016

 

828

81,979

22,052

(66,527)

38,332

 

Consolidated statement of cash flows for the year ended 31 December 2016

 

 

 

 

 

 

2016

2015

 

 

 

 

 

£000

£000

Cash flows from operating activities

 

 

 

 

 

 

Profit for the year

 

 

 

 

15,556

13,960

Adjustments for:

 

 

 

 

 

 

Depreciation of plant, property and equipment

 

 

 

 

954

957

Amortisation of intangible fixed assets

 

 

 

 

214

175

Finance income

 

 

 

 

(98)

(96)

Finance expense

 

 

 

 

11

18

Loss on sale of plant, property and equipment

 

 

 

 

7

                     -  

Equity settled share based payments

 

 

 

 

240

443

Tax expense

 

 

 

 

3,778

3,603

 

 

 

 

 

20,662

19,060

Increase in inventories

 

 

 

 

(676)

(36)

Increase in trade and other receivables

 

 

 

 

(702)

(544)

Increase/(decrease) in trade and other payables

 

 

 

 

1,824

(160)

Increase/(decrease) in provisions

 

 

 

 

26

(142)

 

 

 

 

 

472

(882)

Hire purchase interest paid

 

 

 

 

(11)

(17)

Other interest paid

 

 

 

 

                     -  

(1)

 

 

 

 

 

(11)

(18)

Taxation paid

 

 

 

 

(3,893)

(3,540)

Net cash from operating activities

 

 

 

 

17,230

14,620

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

Acquisition of property, plant and equipment

 

 

 

 

(5,901)

(1,343)

Interest received

 

 

 

 

98

96

Proceeds from issue of property, plant and equipment

 

 

 

 

42

                     -  

Acquisition of intangible fixed assets

 

 

 

 

(20)

(243)

Net cash outflow from investing activities

 

 

 

 

(5,781)

(1,490)

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from the issue of ordinary shares

 

 

 

 

                     -  

2,465

Payment of hire purchase and finance leases

 

 

 

 

(108)

(97)

Dividends paid

 

 

 

 

(14,367)

(7,470)

Net cash outflow from financing activities

 

 

 

 

(14,475)

(5,102)

 

 

 

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

 

 

 

(3,026)

8,028

Cash and cash equivalents at start of year

 

 

 

 

16,485

8,457

 

 

 

 

 

 

 

Cash and cash equivalents at end of year

 

 

 

 

13,459

16,485

           

Notes to the financial statements

1          Statement of compliance

Whilst the financial information included in this Preliminary Announcement has been prepared on the basis of the requirements of International Financial Reporting Standards (IFRSs) in issue, as adopted by the European Union, this announcement does not itself contain sufficient information to comply with IFRS.

 

The Group expects to publish full Consolidated Financial Statements in March 2017. The financial information set out in this Preliminary Announcement does not constitute the Group's Consolidated Financial Statements for the years ended 31 December 2016 or 2015, but is derived from those Financial Statements. Statutory Financial Statements for 2016 will be delivered to the registrar of companies with the Jersey Financial Services Commission (JFSC), following the Company's Annual General Meeting. The auditor, KPMG LLP, has reported on the 2016 Financial Statements. Their report was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and did not contain statements under Section 113B (3) or (6) of the Companies (Jersey) Law 1991.

 

Safestyle UK plc is a public listed company incorporated in Jersey. The company's shares are traded on AIM. The company is required under AIM rule 19 to provide shareholders with audited consolidated financial statements.  The registered office address of the Safestyle UK plc is 47 Esplanade, St Helier, Jersey JE1 0BD.

The company is not required to present parent company information.

 

Basis of preparation

The Group's financial statements for the year ended 31 December 2016 ("financial statements")  have been prepared on a going concern basis under the historical cost convention and are in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU and the International Financial Reporting Standards Interpretations Committee interpretations issued by the International Accounting Standards Board ("IASB") that are effective or issued and early adopted as at the time of preparing these financial statements.

Safestyle UK plc was incorporated on 8 November 2013. On 3 December 2013 Safestyle UK plc acquired Style Group Holdings through a share for share exchange. This was accounted for as a common control transaction. The result of this is that the financial statements of Style Group Holdings have been included in the group consolidated financial statement of Safestyle UK plc at their book value at the IFRS transition date of 1 January 2010 with the assumption that the group was in existence for all the periods presented. The excess of the cost at the time of acquisition over its book value has been recorded as a common control transaction reserve.

The preparation of financial statements requires Management to exercise its judgement in the process of applying accounting policies.  The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to these financial statements are disclosed in note 3.

 

(a) New and amended standards adopted by the Group

The Group has adopted the following new standards and amendments for the first time. Unless otherwise stated, they have not had a material impact on the financial statements.

·     Clarification of Acceptable Methods of Depreciation and Amortisation - Amendments to IAS 16 and IAS 38

·     Annual Improvements to IFRSs - 2012-2014 Cycle

·     Disclosure Initiative - Amendments to IAS 1

 (b) New standards, amendments and interpretations issued but not effective and not early adopted

At the date of approval of these financial statements, the following standards, amendments and interpretations which have not been applied in these financial statements were in issue but not yet effective (and in some cases have not yet been adopted by the EU):

·     IFRS 9 Financial Instruments (effective 1 January 2018)

·     IFRS 15 Revenue from Contracts with Customers (effective 1 January 2018)

·     Recognition of Deferred Tax Assets for Unrealised Losses - Amendments to IAS 12 (not yet endorsed)

·     Disclosure Initiative - Amendments to IAS 7 (not yet endorsed)

·     Clarifications to IFRS 15 Revenue from Contracts with Customers (not yet endorsed)

·     Classification and Measurement of Share-based Payment Transactions - Amendments to IFRS 2 (not yet endorsed)

·     IFRS 16 Leases (not yet endorsed)

The Group is currently considering the implication of those standards not yet endorsed and has completed an initial assessment of the impact. It is anticipated the impact of IFRS 9 on the financial position and performance of the Group will be minimal and effects will principally relate to amendment and extension of current disclosures. The Board is aware of the effective dates and will continue to review the potential impact on the financial statements. In respect of IFRS 16 the Group is undertaking an assessment of the impact of this standard on the financial position of the Group. This is expected to result in a material change given the annual value of operating lease costs. In respect of IFRS 15 the Group is undertaking an assessment of the impact given the addition clarity provided by the standard.

Basis of consolidation

Subsidiaries are entities that the Company has power over, exposure or rights to variable returns and an ability to use its power to affect those returns.  In assessing control, potential voting rights that are currently exercisable or convertible are taken into account.  The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date control ceases.

Intragroup transactions and balances are eliminated on consolidation.

 

Responsibility Statement

The Statement of Directors' Responsibilities is made in respect of the full Annual Report and Accounts not the extracts from the financial statements required to be set out in this Announcement.

 

The Directors confirm that to the best of our knowledge:

 

The Group Consolidated Financial Statements, contained in the 2016 Annual Report and Financial Statements prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and loss of the Group; and

 

· The Strategic Report contained in the 2015 Annual Report and Financial Statements includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

 

Cautionary Statement

This Report contains certain forward looking statements with respect to the financial condition, results, operations and business of Safestyle UK plc. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward looking statements and forecasts. Nothing in this Report should be construed as a profit forecast.

2          Summary of significant accounting policies

Revenue recognition

Revenue is recognised at the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of business and is shown net of Value Added Tax.  The Group primarily earns revenues from the sale, design, manufacture and installation of domestic double-glazed replacement windows and doors.  Product sales revenues are recognised once the goods have been installed. Survey fees are recognised at the point at which they become non-refundable. The Group received no commissions for introducing finance products to customers in 2016, only paying subsidies which are recognised as a cost of sale. Revenue from maintenance is recognised on completion of the work carried out.

Change in accounting policy

During the year the revenue recognition policy was voluntarily updated to recognise survey fees at the point at which they become non-refundable. Previously this income was deferred until the goods were installed and was held within accruals and deferred income. The impact in current year financial statements was to increase revenue by £0.3m. The directors do not consider that the change in accounting policy is material to the users of the accounts and consequently have not restated the comparatives for the effect of this change. The effect in 2015 would have been to increase revenue by £0.4m; this amount was recognised in 2016 in line with the old accounting policy.

Reclassification of costs

In the current year costs of £6.0m (FY 2015: £4.8m) relating to the cost of generating of customer leads were reclassified as a 'cost of sale', previously these were classed as 'other operating expenses'. The board of Directors decided this reflected the 'true nature' of the cost. There is no resulting change to operating profit in the period and there are no prior year adjustments to profit. The previous year's figures have been restated to allow comparison with the current year.

3          Accounting estimates and judgements

Details of the Group's significant accounting judgements and critical accounting estimates are set out in these financial statements and include:

Recoverability of trade receivables

The assessment of whether trade receivables are recoverable requires judgement.  An allowance for impairment is made where there is an identified loss event which, based on previous experience, is evidence of a reduction in the recoverability of the cash flows.

Warranty provisions

The Group gives guarantees against all its products, which in the majority of cases covers a period of 10 years.  The level of provision required to cover the expected future costs of rectifying faults and the future rate of product failure arising within the guarantee period requires judgement.

4          Dividends

 

The aggregate amount of dividends paid comprises:

 

 

 

 

2016

2015

 

 

 

 

 

£000

£000

Final dividend paid of £0.068 (2015: £0.062) per ordinary share

 

 

 

 

5,631

4,822

Special dividend paid of £0.068 per ordinary share

 

 

 

 

5,631

                   -  

Interim dividend paid of £0.0375 (2015: £0.034) per ordinary share

 

 

 

 

3,105

2,648

 

 

 

 

 

14,367

7,470

 

5          Equity settled share based payments charges

 

On 22 April 2016 the LTIP 2013 options were exercised resulting in an employer's national insurance contribution charge of £920k and £27k of associated charges. These have been shown within 'operating profit' but excluded from 'EBITDA before share based payments and charges relating to exercised LTIP options' on the face of the statement of comprehensive income.

 

 

 

 

 

 

 

2016

2015

 

 

 

 

 

 

£000

£000

Equity settled - LTIP

 

 

 

 

 

153

369

Equity settled - SAYE

 

 

 

 

 

87

74

Employers national insurance on issue of LTIP with associated charges

 

947

-  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,187

443

 

6        Earnings per share

 

 

 

 

 

 

2016

2015

 

 

 

 

 

 

 

 

 

Basic earnings per ordinary share (pence)

 

 

 

 

19.0

17.8

 

Diluted earnings per ordinary share (pence)

 

 

 

 

18.9

17.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

a) Basic earnings per share

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

i) Profit attributable to ordinary shareholders (basic)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2016

2015

 

 

 

 

 

 

 £000

 £000

 

 

 

 

 

 

 

 

 

Profit attributable to ordinary shareholders

 

 

 

 

15,556

13,960

 

 

 

 

 

 

 

 

 

ii) Weighted-average number of ordinary shares (basic)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

No of shares

No of shares

 

 

 

 

 

 

'000

'000

 

In issue during the year

 

 

 

 

82,006

78,283

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

b) Diluted earnings per share

 

 

 

 

 

The calculation of diluted earnings per share has been based on the following profit attributable to ordinary shareholders and weighted-average number of ordinary shares outstanding after adjustment for the effects of all dilutive potential ordinary shares.

 
 
 

 

 

 

 

 

 

 

 

i) Profit attributable to ordinary shareholders (diluted)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2016

2015

 

 

 

 

 

 

£000

£000

 

 

 

 

 

 

 

 

 

Profit attributable to ordinary shareholders

 

 

 

 

15,556

13,960

 

 

 

 

 

 

 

 

 

ii) Weighted-average number of ordinary shares (diluted)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

No of shares

No of shares

 

 

 

 

 

 

'000

'000

 

Weighted-average number of ordinary shares (basic)

 

 

 

 

82,006

78,283

 

Effect of conversion of share options and warrants

 

 

 

 

341

2,435

 

 

 

 

 

 

 

 

 

 

 

 

 

 

82,347

80,718

 

 

 

 

 

 

 

 

 

The average market value of the Company'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

 

 

 

 

 

 

2016

2015

 

 

 

 

 

£000

£000

Recognised in the statement of comprehensive income

 

 

 

 

 

 

Current tax

 

 

 

 

 

 

Current tax on income for the period

 

 

 

 

3,958

3,696

Adjustments in respect of prior periods

 

 

 

 

(211)

                   -  

Total current tax

 

 

 

 

3,747

3,696

 

 

 

 

 

 

 

Deferred tax

 

 

 

 

 

 

Origination and reversal of timing differences

 

 

 

 

22

(87)

Effect of change in tax rate

 

 

 

 

9

1

Adjustments in respect of prior periods

 

 

 

 

                   -  

(7)

Total deferred tax (see note 15)

 

 

 

 

31

(93)

 

 

 

 

 

 

 

Total tax expense 

 

 

 

 

3,778

3,603

 

 

 

 

 

 

 

The current year tax charge is split into the following:

 

 

 

 

 

 

Tax charge

 

 

 

 

3,778

3,603

 

 

 

 

 

 

 

Total tax expense 

 

 

 

 

3,778

3,603

 

 

 

 

 

 

 

Reconciliation of effective tax rate

 

 

 

 

 

 

 

 

 

 

 

2016

2015

Current tax reconciliation

 

 

 

 

£000

£000

 

 

 

 

 

 

 

Profit for the year

 

 

 

 

15,556

13,960

Total tax expense

 

 

 

 

3,778

3,603

Profit excluding tax

 

 

 

 

19,334

17,563

 

 

 

 

 

 

 

Expected tax charge based on the standard rate of corporation tax in the UK of 20.00% (2015: 20.25%)

 

 

 

 

3,867

3,557

Effects of:

 

 

 

 

 

 

Expenses not deductible for tax purposes

 

 

 

 

113

52

Adjustments to tax charge in respect of prior periods

 

 

 

 

(211)

(7)

Effect of change in tax rate

 

 

 

 

9

1

Total tax expense

 

 

 

 

3,778

3,603

 

 

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 2016. This will reduce the company's future current tax charge accordingly. The deferred tax asset at 31 December 2016 has been calculated based on these rates.

8          Share capital

 

 

 

2016

2015

 

 

 £000

 £000

Authorised

 

 

 

77,777,777 Ordinary Shares @ 1p each

 

778

778

97,223 Ordinary Shares @ 1p each on 17 July 2015

 

1

1

2,367,143 Ordinary Shares @ 1p each on 22 October 2015

 

24

24

2,564,427 Ordinary Shares @ 1p each on 22 April 2016

 

25

                   -  

 

 

828

803

 

 

 

 

Allotted, issued and fully paid

 

 

 

77,777,777 Ordinary Shares @ 1p each

 

778

778

97,223 Ordinary Shares @ 1p each on 17 July 2015

 

1

1

2,367,143 Ordinary Shares @ 1p each on 22 October 2015

 

24

24

2,564,427 Ordinary Shares @ 1p each on 22 April 2016

 

25

                   -  

 

 

828

803

 

During the year 2,564,427 ordinary shares of £0.01 each were issued relating to the 2013 LTIP scheme at an exercise price of £1.00 per share, settled in cash. £25,644 was credited to share capital and £2,538,783 was credited to the share premium account.  All the members vested their options resulting in the issue of 2,564,427 new shares out of 3,986,110 originally granted. The remaining shares are not exercisable under the criteria used in the issue of the shares and the LTIP 2013 has now closed.

9          Share Based Payments

At 31 December 2016 the Group had the following share based payment arrangements:

 

LTIPS

 

The Group operates an equity-settled LTIP remuneration scheme for Directors and certain management ("LTIP 2013", "LTIP 2015" & "LTIP 2016").

The only vesting condition attached to the LTIP 2013 scheme was that the individual must remain an employee of the Group for a minimum period. The LTIP 2013 options vested on 5 December 2015. On 22 April 2016 all the members exercised their options resulting in the issue of 2,564,427 new shares out of 3,986,110 originally granted. The remaining shares are not exercisable under the criteria used in the issue of the shares and the LTIP 2013 has now closed.

On 29 April 2016, a further 448,523 options were granted ("LTIP 2016"). The LTIP 2015 and 2016 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:

 

 

 

 

 

2016

2015

 

 

 

 

Number of share options

Weighted average exercise price

Number of share options

Weighted average exercise price

Outstanding at start of period

 

 

 

4,581,976

 £1.10

4,083,333

 £1.00

Granted during the year

 

 

 

448,533

 £2.68

595,866

 £1.79

Issued in the year

 

 

 

(2,564,427)

 £1.00

(97,223)

 £1.00

Cancelled in the year

 

 

 

(1,421,683)

 £1.00

-  

  -  

Lapsed in the year

 

 

 

(14,265)

 £1.79

-  

  -  

Outstanding at end of period

 

 

 

1,030,134

 £2.18

4,581,976

 £1.10

Exercisable at end of period

 

 

 

-  

  -  

3,986,110

 £1.00

 

 

Options are valued using the Black-Schools option pricing model.  The following information is relevant in the determination of the fair value of the options granted during the period.

 

 

 

 

 

 

LTIP 2016

LTIP 2015

LTIP 2013

Grant date

 

 

 

 

29/04/2016

01/04/2015

05/12/2013

Vesting date

 

 

 

 

29/04/2019

01/04/2018

05/12/2015

Lapsing date

 

 

 

 

01/04/2026

01/04/2025

05/12/2018

 

 

 

 

 

 

 

 

Risk free interest rate

 

 

 

 

1.22%

1.28%

1.19%

Expected volatility

 

 

 

 

36.93%

43.13%

38.90%

Expected option life (in years)

 

 

 

 

6.50

6.50

3.50

Weighted average share price after adjusting for PV of dividends

 

£2.67

£1.80

£0.77

Weighted average exercise price

 

 

 

 

£2.68

£1.79

£1.00

Weighted average fair value of options granted

 

 

65.79

44.78p

15.93p

Dividend Yield

 

 

 

 

3.60%

5.20%

8.00%

Remaining contractual life

 

 

 

 

9.76

8.76

2.44

 

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.

 

SAYE

 

On 1 April 2016 the company launched a new share save (SAYE) scheme ("SAYE 2016") in addition to the existing schemes ("SAYE 2014" and "SAYE 2015") 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:

 

 

 

 

 

 

 

 

2016

2015

 

 

 

 

Number of share options

Weighted average exercise price

Number of share options

Weighted average exercise price

Outstanding at start of period

 

 

 

452,460

 £1.37

         262,598

 £1.31

Granted during the year

 

 

 

87,485

 £2.25

         211,657

 £1.43

Lapsed during the period

 

 

 

(116,563)

 £1.57

(21,795)

 £1.31

Outstanding at end of period

 

 

 

423,382

 £1.49

         452,460

 £1.37

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 2016

SAYE 2015

SAYE 2014

Grant date

 

 

 

 

01/04/2016

01/04/2015

27/03/2014

Vesting date

 

 

 

 

01/05/2019

01/05/2018

01/05/2017

Lapsing date

 

 

 

 

01/11/2019

01/11/2018

01/11/2017

 

 

 

 

 

 

 

 

Risk free interest rate

 

 

 

 

56.00%

0.76%

1.31%

Expected volatility

 

 

 

 

32.88%

33.54%

40.04%

Expected option life (in years)

 

 

 

 

3.35

3.35

3.35

Weighted average share price after adjusting for PV of dividends

 

£2.81

£1.80

£1.57

Weighted average exercise price

 

 

 

 

£2.25

£1.43

£1.31

Weighted average fair value of options granted

 

 

71.93

41.52p

58.40p

Dividend Yield

 

 

 

 

3.40%

5.20%

8.00%

Remaining contractual life

 

 

 

 

3.34

2.34

1.34

 

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 comprises:

 

 

 

 

 

 

 

2016

2015

 

 

 

 

 

 

£000

£000

Equity settled - LTIP

 

 

 

 

 

153

369

Equity settled - SAYE

 

 

 

 

 

87

74

 

 

 

 

 

 

 

 

 

 

 

 

 

 

240

443

 


This information is provided by RNS
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