Fireangel Regulatory News (FA.)

3 February 2020

FireAngel Safety Technology Group plc

('FireAngel', the 'Group' or the 'Company')

Trading update

and

Connected trials update

FireAngel (AIM: FA.), one of Europe's leading developers and suppliers of home safety products, announces a trading update ahead of the release of its audited final results for the year ended 31 December 2019 (the 'Year'). The figures set out in this announcement are subject to audit.

Sales for the Year are expected to be up 20 per cent. at approximately £45.5 million (2018: £37.6 million) and the underlying operating loss1, before the impact of the change to straight line amortisation, previously described in the Company's interim results announcement released on 24 September 2019 (the 'Interim Results Announcement'), is expected to be approximately £2.9 million (2018: underlying operating loss of £2.0 million), in line with market expectations.

1Expected underlying operating loss for the Year, before the impact of the change to straight line amortisation of approximately £2.9 million, is before exceptional charges of approximately £5.3 million (further details of which are set out below) and a share-based payments charge of £37,000 (2018: underlying operating loss of £2.0 million is stated before exceptional charges of £3.7 million and a share-based payments charge of £0.1 million).

As described in the Interim Results Announcement, exceptional charges have been incurred during the Year in increasing the legacy battery warranty provision for increased product replacement costs, and for restructuring and fundraising costs. As expected, these amounted to £1.4 million and £0.7 million respectively for the Year.

The Board now expects to make a further exceptional charge of approximately £3.2 million in the Year. This charge is non-cash in nature and relates to stock provisions and the impairment of intangible development costs as a result of a thorough review of product lines and future development plans in line with the Group's evolved strategy to become a more technology-led connected home solutions provider.

The Board believes that the Company's connected home safety system strategy is now proving to be correct with several live installations. The Company therefore proposes to narrow its focus to developing and promoting those products and services which give the highest and quickest returns. This focus should, in the Board's opinion, make the Company less complex, less cash consumptive and support its gross margin improvement plans in both the short and medium term. As a result, the Group's number of stock keeping units ('SKUs') will be almost halved, before relaunch and repositioning initiatives, together with new strategic product launches, increase that slightly for an overall net reduction of around 30 per cent. in the total number of SKUs. The majority of this reduction is expected to be achieved before the end of this year.

Continuing ongoing monitoring of warranty returns data has identified that the number of units expected to be impacted by the third-party supplied battery impedance issue, first identified in April 2016, could be approximately 30 per cent. higher than originally anticipated, impacting approximately 300,000 units. Whilst this increase represents a small percentage of the overall production volume, is not a safety critical issue and impacts only certain products and territories, the Group will set aside a further provision for this increased volume which is expected to be approximately £2.7 million, the cash cost of which is expected to be incurred over the next three financial years. This is still being evaluated by the Company and remains subject to audit. The need for this charge is due to an error in the assumptions on which the warranty provision was modelled when the issue was first discovered in 2016. It is therefore expected that the charge may be recognised as a prior period adjustment in the Company's Report and Accounts for the Year, rather than impact the Income Statement for 2019.

The Board is conducting a thorough investigation into the failures in certain of the Company's historical manufacturing quality review processes. It does not anticipate that there will be any further increase in the number of units impacted as it relates only to units produced at one of the Company's previous manufacturers in China up to the end of March 2018. The units produced at the Company's manufacturing partner in Poland since April 2018 are not affected.

The Company has operated within its banking facilities throughout the Year. Net debt at 31 December 2019 was £4.9 million (31 December 2018: £4.4 million). Net of impairment provisions, including the exceptional charges described in this announcement, stock at 31 December 2019 stood at £6.3 million (2018: £8.4 million).

The Company expects to announce its audited final results for the year ended 31 December 2019 in late March 2020.

The Board expects the Group's results for the year ending 31 December 2020 to be in line with market expectations.

Connected trials update

Trials of FireAngel's connected home products, including FireAngel PredictTM, the Group's predictive algorithm management information platform, have been well received, and market response is building well. As a result, the Group is now engaged in a number of commercial discussions for the short, medium and long term with recurring revenue opportunities, some of which are expected to be material to the Group's future prospects and results. It is pleasing to see the Group's connected home products performing well in the field and the first responses to FireAngel PredictTM have been positive and revelatory for both customers and FireAngel.

John Conoley, Executive Chairman of FireAngel, commented:

"FireAngel's results continue to be negatively impacted by legacy issues as a result of certain historically poor internal processes. However, the strategic decision to invest heavily in future technology is proving to be correct. The fruits of the investment made in connected technology are now beginning to come through in successful real-world trials, the financial benefits of which are expected to be realised in the short, medium and long term. We look forward to providing further updates at the time of our full year results."

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Notes to Editors

About FireAngel Safety Technology Group plc

FireAngel's mission is to protect, save and improve our customers' lives by making innovative, leading-edge technology simple and accessible. FireAngel is one of the market leaders in the European home safety products market.

FireAngel's principal products are connected smoke alarms, CO alarms, heat alarms and accessories. The Company has an extensive portfolio of patented intellectual property in Europe, the US and other selected territories. Products are sold under FireAngel's leading brands of FireAngel, FireAngel Pro, FireAngel Specification and AngelEye.

For further product information, please visit: www.fireangeltech.com