SFE.L Regulatory News (SFE)

26 March 2015

Safestyle UK plc

("Safestyle UK" or the "Group")

Final Results 2014

Safestyle UK plc (AIM: SFE), the window and door replacement company, today announces its final results for the year ended 31 December 2014.

Financial Highlights

· Recommended final dividend of 6.2p (2013: 5.5p) per share giving a total dividend for the year of 9.3p per share

Operational Highlights

· Leads generated from media and internet marketing grown by 10.9% to 52,842 (2013: 47,660)

· A record 57,682 installations with volume of frames installed increased by 7.0% to 267,642 (2013: 250,185)

· Average unit sales price up 1.6% to £504 (2013: £496)

· Average order value up 3.8% to £2,806 (2013: £2,704)

· Growth in market share to 8.48% at 31 December 2014 from 7.85% at prior year end

· 10th consecutive year of market share growth

Steve Birmingham, CEO of Safestyle UK plc, said:

"Safestyle UK has again achieved impressive revenue growth and improved its margin which have resulted in a record level of profit in 2014. We have continued to increase our market share and therefore maintain our position as the leading player in the highly fragmented and competitive replacement window and door market. The business is well positioned to build on these results as the general economy and RMI (repair maintenance & improvement) market continues to recover. Moreover, our dedicated focus on quality and price together with our continued geographic expansion into the South and South East as well as our forthcoming entry into the conservatory refurbishment market should lead to further growth.

"Having introduced a price increase on 1 January 2015, I am pleased that in the first 11 weeks of the current financial year our order intake has been strong, and we are trading in line with our expectations. With this in mind the Board looks to the future with confidence."

Enquiries:

About Safestyle UK plc

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

Chairman's Statement

I am pleased to report the Group's full year results for the year ended 31 December 2014.

Summary of Financial Performance

The Group has delivered record revenue, market share and operating profit. Revenue for the year increased 9% to £136.0m (2013: £124.8m), delivering profit before tax of £16.4m, up 73% (2013: £9.5m). Underlying profit before tax was £16.8m (2013: £15.3m), an increase of 10% on 2013 and underlying EBITDA was £17.8m, up 11% (2013: £16.1m) after adjusting for listing costs, share based payments and pre-IPO tax settlement costs. Adjusted earnings per share increased 11% to 16.5p (2013: 14.8p).

The business continues to be highly cash generative, with 2014 cash conversion (the ratio of net cash inflow from operating activities before taxation to underlying EBITDA) at 88%, compared with 82% for 2013 (after adjusting for the repayment of loans made to directors in the period before the Group's IPO which amounted to £1.8m). As a consequence, our balance sheet remains strong and the business had £8.5m net cash at 31 December 2014, compared with £5.2m at 31 December 2013, having paid dividends of £6.7m in the second half of 2014.

Market Share

Whilst FENSA data reported a 3.1% contraction in the overall market in 2014, the Company has continued to gain market share increasing from 7.85% as at 31 December 2013 to 8.48% as at 31 December 2014. The FENSA data for 2014 showed mixed market dynamics, with the first half up 4.3% by volume (Safestyle installation volumes were up 4.8%), but the second half down by a marked 10.0% (Safestyle up 4.7%).

We are pleased with our market share gain and continue to drive towards our medium term target of 10%. We ended the year with our order book up 3% by value compared with 2013.

Final Dividend

The Board recommends, subject to approval at the Annual General Meeting to be held on 21 May 2015, a final dividend of 6.2p per share payable to ordinary shareholders registered on 19 June 2015. Together with our interim dividend already paid of 3.1p per share, this takes total proposed distributions up to 9.3p per share representing 56% of earnings per share of 16.5p.

Looking Ahead

The majority of general macro-economic indicators are favourable which we believe will result in increased demand in the RMI market from which the replacement windows and doors market should benefit.

Since the year end I am pleased to report that incoming orders have been encouraging and the Board looks forward to further progress in 2015 driven by our compelling customer proposition, continuing growth in market share and further geographic penetration.

Finally, I would like to thank our many stakeholders, and our employees in particular, for their continued support and their contribution to our success.

RS Halbert

Chairman

26 March 2015 

CEO's Statement

I am pleased to report that Safestyle UK enjoyed a successful first full year as a public company and I would like to formally express my thanks to all our people for their dedicated hard work and loyalty.

Business Review

In 2014, the Group increased its market share for the tenth consecutive year to 8.48% (from 7.85% in 2013) maintaining its sector leading position. During the period we carried out a record 57,682 installations (up 4.7% on 2013) consisting of 267,642 window and door frames (up 7.0% on 2013). Our average frame sales price excluding VAT increased by 1.6% to £504 and total average installed order value increased from £2,704 to £2,806. This strong operational performance enabled the Group to deliver increased revenue, up 9% to £136.0m, and profit before tax up 73% from £9.5m in 2013 to £16.4m in 2014. Underlying profit before tax of £16.8m increased by 10% from £15.3m in 2013 after adjusting for listing costs, share based payments and pre-IPO tax settlement costs.

Our focus on continued expansion into the South and South East delivered sales growth of 17.0% in the region. We believe there is further scope for Safestyle UK to continue to gain market share across the South of England given the fragmented market, our attractive pricing proposition compared to our competitors, and an increasing awareness of our brand in the region. We opened two new sales branches during the year in Sittingbourne and Avon, both of which are performing well, and since the year end, we have opened a new branch in Watford. A further sales branch opening is planned for later this year in Surrey. During 2014 we opened a new installation depot in Crawley to cater for our growing footprint in the region. A further installation depot is planned for the Watford area during 2015.

The Group has continued to grow its digital and internet presence and leads generated from direct response channels now account for 31% of all business. Whilst door canvassing will remain an important source of lead generation, we believe our increased focus on direct digital marketing will enable us to continue to gain market share and reduce average lead generation costs.

During the year we invested significantly in our Wombwell manufacturing facilities in Yorkshire. In particular we upgraded the glass furnace, installed a new sash line and added a new machining and cutting centre. We have already seen improvements in efficiency and quality as a result of this investment. We will retain the flexibility to further invest in our manufacturing site to respond to our growth requirements and will keep the structure and capacity of our site under review to ensure we can meet our medium and long term plans.

After a long period of selling price stability we took the decision to increase our prices from 1 January 2015 to reflect some supply side cost inflation, in particular glass prices; more stringent regulation and health & safety standards; and higher TV advertising costs. Despite this price increase the order intake in the first 11 weeks of the current financial year has been strong and we remain significantly cheaper than our national rivals and committed to our market leading price and value proposition.

Regulation

Reflecting our market leading position, the Group has continued to work closely with the relevant industry bodies throughout the introduction of new regulation in 2014. We welcome any new legislation that will bring further professionalism to the industry and improve standards, better protect customers and drive out unscrupulous operators.

On 1 April 2014 the Financial Conduct Authority ("FCA") became the regulatory body for organisations offering consumer credit. A stated aim of the FCA is to ensure that businesses put consumer protection and treating customers fairly ahead of profits. Unlike many of our competitors, we do not offer commission or incentives to our sales personnel based on selling finance to our customers and already have the systems and standards in place to ensure we comply with the FCA's legislation.

In June 2014, the industry introduced a competent person scheme requiring verification of minimum technical competence and the provision of mandatory insurance backed guarantees. Once again, we already adhere to these requirements and believe we are ideally positioned to benefit from any fall out at the smaller end of the market resulting from this increased regulation.

Product Development

Whilst our core market and strength remains the manufacture and installation of replacement windows and doors, the Group has been conducting a feasibility study into the launch of a new product offering focused on the conservatory market. We have been very encouraged by the initial feedback and as a result will begin the roll out of the new service across an initial eight sales branches in April 2015.

The service will focus on conservatory refurbishment where we will replace the roofs and frames of poorly performing conservatories onto existing bases. The roofs will be sourced as complete units from the leading UK conservatory roof manufacturer and the frames will be produced in our own manufacturing facility.

There are currently around four million conservatories in the UK, many of which were installed in the 1980s and 1990s. We estimate that the refurbishment market totals approximately 20,000 conservatories a year with further growth expected driven by new glass and insulation technology that has vastly improved the energy efficiency of a traditional conservatory. The refurbishment market is highly fragmented with few national players and little brand awareness. The Board believes that by utilising existing levels of customer demand and Safestyle UK's strong brand, combined with our current installation infrastructure and manufacturing capabilities, the Group can, over time, secure a similar percentage share of the total conservatory refurbishment market to that which it enjoys in the retail replacement market.

Outlook

Turning to the future, we will continue our drive to grow our market share whilst building our geographic penetration. We are seeing material benefits from the significant investment we have made in new manufacturing equipment and we are excited about the prospects of our entry into the conservatory refurbishment market. Moreover, our robust cash generation and strong financial position enables the Group to retain the flexibility to balance shareholder returns with the ability to take advantage of our leading position within a fragmented market should the opportunity arise.

We believe that consumers will continue to invest in home improvement, and our A-rated energy efficient products make both financial and aesthetic sense for the homeowner.

The Group delivered record results in 2014 and it is our intention to continue our successful journey in 2015. Early signs from the first two months of 2015 are encouraging and we have started the year in line with our expectations.

SJ Birmingham FCA

Chief Executive Officer

26 March 2015

Finance Review

Revenue

Revenue for the year was £136.0 million, an increase of 9.0% over 2013. The key factors underpinning this growth were:

· 10.9% growth in leads generated from direct response channels

· 2.4% improvement in conversion from order to installation

· 7.0% growth in the volume of frames installed from 250,185 to 267,642

· 1.6% growth in average unit price from £496 to £504

· 3.8% growth in average order value from £2,704 to £2,806

Gross margin

Gross profit increased by 10% in the year to £49.7 million (2013: £45.2 million), with gross margin higher at 36.5% (2013: 36.2%). The gross margin improvement was driven by a slightly higher average sales price, reflecting the higher growth of sales in the South, and a continued increase in the proportion of direct response leads. Margins in the second half of the year were impacted by the cost of providing compulsory Insurance Backed Guarantees to all our customers and by the imposition of a 20% increase on our glass purchases.

Other operating expenses

Other operating expenses for 2014 were £33.3 million (2013: £35.8 million), a reduction of 7.0%. The 2013 expenses included items totalling £5.5 million which were the costs of the IPO and the settlement of a historic tax planning scheme relating to National Insurance and PAYE. After adjusting for these one-off costs operating expenses increased from £30.2 million to £33.3 million, an increase of 10%. Salary costs increased slightly ahead of revenues reflecting increased costs resulting from the annual pay award and auto-enrolment. Marketing costs were £1.2 million higher than 2013, an increase of 15%. This was driven by inflation in TV advertising rates and an increased investment in digital marketing which resulted in a 10.9% increase in leads and a 14% increase in digital business.

EBITDA and PBT

Underlying EBITDA was £17.8 million for the year (2013: £16.1 million), an increase of £1.7 million (after adjusting for listing costs, share based payments and pre-IPO tax settlement costs). PBT was £6.9 million higher at £16.4 million, but after adjusting for share-based payments, listing costs and historic tax settlement costs was 10% higher than last year at £16.8 million.

The earnings per share are 16.5p, up from 8.3p in 2013. However, after adjusting for admission fees and tax settlement, the earnings per share are up 11% from 14.8p in 2013. The basis for these calculations is detailed in note 8.

Cash

Strong operating cash flow allowed the Group to increase its cash balance from £5.3 million at 31 December 2013 to £8.5 million as at 31 December 2014 whilst paying £6.7 million in dividends in the year.

Dividends

The Board is recommending a final dividend of 6.2 pence per share subject to approval by shareholders at the AGM. The dividend will be paid on 13 July 2015 to shareholders on the register at close of business on 19 June 2015.

MJ Robinson

Chief Financial Officer

26 March 2015

Consolidated statement of comprehensive income for the year ended 31 December 2014

Consolidated statement of financial position as at 31 December 2014

Consolidated statement of changes in equity for the year ended 31 December 2014

For an explanation of components of shareholders' equity see note 7.

Consolidated statement of cash flows for the year end 31 December 2014

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 April 2015. The financial information set out in this Preliminary Announcement does not constitute the Group's Consolidated Financial Statements for the years ended 31 December 2014 or 2013, but is derived from those Financial Statements. Statutory Financial Statements for 2014 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 2014 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 2014 ("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 2.

(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.

· IFRS 10 Consolidated Financial Statements and IAS 27 (2011) Separate Financial Statements

· IFRS 11 Joint Arrangements and Amendments to IAS 28 (2008) Investments in Associates and Joint Ventures

· IFRS 12 Disclosure of Interests in Other Entities

· Amendments to IAS 32 'Offsetting Financial Assets and Financial Liabilities'

· Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27)

· Transition Guidance (Amendments to IFRS 10, IFRS 11 and IFRS 12)

(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 affective (and in some cases have not yet been adopted by the EU):

· Annual improvement cycles 2010 - 2012 and 2011 - 2013 (mandatory for year ending 31 December 2015)

· IFRS 14 Regulatory Deferral Accounts (mandatory for year ending 31 December 2016).

· Amendments to IFRS 11: Accounting for Acquisitions of Interests in Joint Operations (mandatory for year ending 31 December 2016).

· Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation (mandatory for year ending 31 December 2016). R Amendments to IAS 16 and IAS 41: Bearer plants (mandatory for year ending 31 December 2016)

· Amendments to IAS 27: Equity method in separate financial statements (mandatory for year ending 31 December 2016).

· Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets (mandatory for year ending 31 December 2016).

· Annual improvement cycles 2012-2014 (mandatory for year ending 31 December 2016).

· IFRS 15 Revenue from contracts with customers (mandatory for year ending 31 December 2017).

· IFRS 9 Financial Instruments (mandatory for year ending 31 December 2018).

The Group is currently considering the implication of these standards, however it is anticipated the impact of these standards 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.

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 2014 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 2014 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 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.

3 Dividends

Dividends in the prior year relate to payments made to shareholders of Style Group Holdings Ltd prior to the acquisition by Safestyle UK plc.

A final dividend of 6.2p per ordinary share is proposed by the Board subject to approval at the AGM.

4 Earnings per share

On 4 December 2013 the share capital was increased by the creation of 44,860,100 new ordinary shares, 44,950 new A ordinary shares, 44,950 new B ordinary shares and 32,727,777 new C ordinary shares each as bonus shares out of share premium to the existing shareholders in proportion to their existing holdings. At the same time the existing 2,000 shares with a nominal value of £0.50 were subdivided into shares of £0.01 and all shares were reclassified as ordinary shares. This resulted in their being 77,777,777 ordinary shares in issue. As these transactions have changed the number of ordinary shares outstanding without a corresponding change in resources the weighted average number of ordinary shares outstanding during the year and for the comparative year for both basic and diluted EPS have been adjusted.

4 Earnings per share (continued)

5 Admission costs and historic tax settlement

The admission costs in the prior year related to legal and professional costs associated with the AIM admission on 11 December 2013.

The Group also issued warrants to Zeus Capital in lieu of payment for services related to the IPO. The warrant is for 3% of the fully diluted share capital of the company following the exercise of the subscription rights. The warrant is exercisable at any time between the 1st and 10th anniversary of admission to AIM. The fair value of the warrant has been determined by the estimated value of services provided and has been charged as an IPO expense in the period.

On 25 November 2013, the Group agreed to pay £3,148,000 to Her Majesty's Revenue and Customs ("HMRC") to settle a previously unprovided payroll liability following an investigation by HMRC. The liability related to 2004/2005 and was unprovided at 31 December 2012 and earlier period ends because the Directors, following advice from external advisors, were confident that they were not liable. However, in October 2013, in preparing to float the Group, the directors received external advice that they should approach HMRC in order to resolve the matter and to avoid a lengthy and drawn out investigation, which could ultimately lead to financial settlement post floatation. A corporation tax adjustment of £510,000 has been netted off these costs.

6 Taxation