SFE.L Regulatory News (SFE)

18 September 2014

Safestyle UK plc

Unaudited interim results for the six months ended 30 June 2014

Safestyle UK plc (AIM: SFE), the leading UK-focused retailer and manufacturer of PVCu replacement windows and doors for the homeowner replacement market, today announces its interim results for the six months ended 30 June 2014.

Financial highlights

* 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

· Pre-tax operating cash inflow of £8.2 million

· Interim dividend of 3.1p per share to be paid on 3 November 2014

Operational highlights

· Leads generated from media and on-line marketing grown by 12% to 27,762 (H1 2013: 24,877)

· Sales in South of England grown by 21%

· Volume of frames installed increased by 8.0% to 136,518 (H1 2013: 126,451)

· Average unit sales price up 1.5% to £503 (FY 2013: £495)

· Growth in market share to 8.24% at 30 June 2014 from 7.85% at end of 2013

Commenting on the results, Steve Birmingham, CEO said: "Safestyle UK plc has enjoyed a successful first half of 2014 during which market share, turnover and profitability all increased. We continue to pursue our strategies of expansion in the South and South East and increasing market share. We started the second half of 2014 with a strong order book and order intake to date has been as expected, and we remain on course to meet full year expectations."

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 the Safestyle UK website: www.safestyle-windows.co.uk.

Chairman's Statement

Summary of Performance

I am pleased to report that Safestyle UK has performed well in the six months ended 30th June 2014.

Revenue was up 10.4% to £69.2m (H1 2013: £62.7m) and the Group continued to increase its market share in the period to 8.24% (7.85% as at 31 December 2013 for FY 2013) according to FENSA installations data.

Profit before tax increased by 10.3% to £8.6m (H1 2013: £7.8m), reflecting improved gross and net margins, with earnings per share up 10.4% to 8.5p. Underlying EBITDA was up 12.1% at £9.3m (H1 2013: £8.3m).

The business continues to convert profit into cash, with H1 2014 cash conversion (the ratio of net cash inflow from operating activities before taxation to underlying EBITDA) for the period at 88%, compared with 82%* for FY 2013. As a consequence, the Group's balance sheet is robust, with cash of £10.8m at 30 June 2014.

Interim Dividend

We will pay an interim dividend of 3.1 pence per share on 3rd November 2014. The record date will be 3rd October 2014.

Business Review

The market in which the Group operates grew by 4.3% by volume in H1 2014. Following a strong first quarter, as anticipated the rate of growth slowed in the second quarter. In the first half our installation volumes were up 8% to 136,518 (H1 2013: 126,451), with average unit sales price up 1.5% to £503. With our focus on continued expansion into the South East, where sales were up 21%, we grew ahead of the market and continued to gain market share, in part reflecting the effectiveness of our on-line strategy where lead generation was up 12%. Our focus on excellence in performance - from sales conversion, through manufacturing efficiency, to right first time installations - enables us to drive improving financial performance from market share gain.

During the period, we converted our increased revenue to higher profits, reflecting operational efficiencies in our business and our tight control of in-house operating costs. These efficiencies help mitigate the effects of inflationary cost pressures, currently being experienced in glass prices and the cost of TV advertising, as well as from a recent regulatory change requiring insurance-backed guarantees for all domestic glazing installations. Our ongoing programme of capital expenditure will help us deliver growth and drive further manufacturing gains.

Outlook

Our expectation for the market as a whole is of modest volume growth for the remainder of 2014 and into 2015. With our focus on increased geographic penetration and market share gains, the Board is confident that we can continue to deliver growth in sales, profit and cash flow, and accordingly we expect to report further progress for the full year.

RS Halbert

Chairman

18th September 2014

Note

* (after adjusting for the repayment of loans made to directors in the period before the Group's IPO which amounted to £1.8million).

Finance Review

Revenue

Revenue for the period was £69.2 million against £62.7 million for the same period last year, growth of 10.4%. The key factors underpinning this growth were:

· 12% growth in leads generated from direct response from 24,877 to 27,762

· 8.0% growth in the volume of frames installed from 126,451 to 136,518

· 1.5% growth in average unit price from £495 to £503 ex VAT

Gross margin

Gross profit increased by 12% in the period from £22.4 million in 2013 to £25.2 million in 2014. Gross margin in the period was 36.4% compared to 35.7% for the same period in 2013. An increase in finance subsidies was more than offset by the benefits from higher prices and lower door canvas lead generation costs. The proportion of leads being generated by door canvassing fell from 56% in 2013 to 53% in the reported period.

Other operating expenses

Other operating expenses for the period were £16.6 million (2013: £14.6 million), an increase of 14%. Salary costs increased slightly ahead of revenues reflecting increased costs resulting from the annual pay award and auto-enrolment. 

Marketing costs were 18% higher than for the same period in 2013. The additional investment contributed to a 12% increase in direct response leads generated but was impacted by a hardening of TV advertising rates.

EBITDA and PBT

Underlying EBITDA before share based payments was £9.3 million for the period (2013: £8.3 million), an increase of 12%. PBT increased by 10% from £7.8 million in 2013 to £8.6 million in the period.

Basic earnings per share for the period were 8.5p compared to 7.7p for the same period last year. The basis for these calculations are detailed in note 6 to the accounts.

Cash

The cash balance at 30 June 2014 was £10.8 million, an increase of £5.6 million in the period.

Operating activities in the period generated £8.2 million (2013: £5.8 million). After adjusting for accrued dividends, working capital movements resulted in an outflow of £1.4 million. This reflects seasonal fluctuations.

Dividends

The Board is paying an interim dividend of 3.1p per share. The dividend will be paid on 3 November 2014 to shareholders on the register at close of business on 3 October 2014.

Condensed consolidated interim statement of comprehensive income

Condensed consolidated interim statement of financial position

Condensed consolidated interim statement of changes in equity

For an explanation of components of shareholders' equity see note 8.

Condensed consolidated interim statement of cash flows

Notes to the interim financial information

1 General information

The condensed interim financial information set out herein are in respect of Safestyle UK plc and its subsidiaries (the Group) for the period ended 30 June 2014.

Safestyle UK plc is a public listed company incorporated in Jersey. The registered office address of Safestyle UK plc is 47 Esplanade, St Helier, Jersey JE1 0BD.

The financial information for the year ended 31 December 2013 is not the statutory accounts for the year but is instead extracted from the statutory accounts for that year and the financial information for the year ended 30 June 2013 is not the statutory accounts for that year but is instead extracted from the financial information included within the Admission Document to AIM issued on 6 December 2013.

The company is not required to present parent company information.

2 Basis of preparation

The condensed consolidated interim financial information for the period ended 30 June 2014 has been prepared in accordance with IAS 34, 'Interim financial reporting' as adopted by the European Union.

Selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in financial position and performance of the Group since the last annual consolidated financial statements as at and for the year ended 31 December 2013.

The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the period ended 31 December 2013 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 financial statements for the period ended 31 December 2013.

3 Going concern

The Group has considerable financial resources and has prepared forecasts that show the Group is expected to continue to trade strongly and as a consequence, the directors believe that the Group is well placed to manage its business risks successfully.

The assessment of Group's ability to execute its strategy by funding future working capital requirements involves judgement. The Directors monitor future cash requirements to assess Group's ability to meet these funding requirements.

The directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the annual financial statements.

4 Significant accounting policies

Accounting Estimates

In preparing this condensed consolidated interim financial report, significant judgments made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 31 December 2013.

5 Dividends

A final dividend for the year end 31 December 2013 of 5.5 pence per ordinary share totaling £4,277,778 was paid on the 14 July 2014.

A proposed interim dividend for the half year end 30 June 2014 of 3.1 pence per ordinary share will be paid on 3 November 2014.

6 Earnings per share

a) Basic 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.

6 Earnings per share (continued)

b) Diluted earnings per share

c) Earnings per share adjusted for the effect of admission costs and historical tax settlement.

Admission costs and historic tax settlement are shown net of corporation tax refund of £510k on the historic tax settlement.

7 Taxation

The condensed interim financial information includes a tax charge based on the management's best estimate of the full year effective tax rate based on expected full year profits to 31 December 2014. The effective tax rate applied in the period was 23.2% (period ended 30 June 2013: 23.9%) which compares to the standard corporation tax rate of 21.5%. The main reason for the effective tax rate being higher than the standard rate is due to the effect of expenses not deductible for tax purposes.

Reductions in the UK corporation tax rate from 23% to 21% (effective from 1 April 2014) and from 21% to 20% (effective from 1 April 2015) were substantively enacted on 2 July 2013. These will reduce the Group's future tax charge accordingly and have been taken into account when performing the relevant tax calculations in this financial information.

8 Share capital

On 3 December 2013 Safestyle UK issued 2,000 shares at £38,888.89 each (total value of £77,777,777) to acquire a 100% ownership of Style Group Holdings Limited. The 2,000 shares, which each had a nominal value of 50p, comprised 998 ordinary shares, 1 A ordinary share, 1 B ordinary share and 1,000 C ordinary shares.

On 4 December 2013 the share capital was increased to £777,777.77 by the creation of 44,860,100 new ordinary shares of £0.01 each, 44,950 new A ordinary shares of £0.01 each, 44,950 new B ordinary shares of £0.01 each and 32,727,777 new C ordinary shares of £0.01 each as bonus shares out of share premium to the existing shareholders in proportion to their existing holdings. At the same time the existing shares with a nominal value of £0.50 were subdivided into shares of £0.01 and all shares were reclassified as ordinary shares resulting in the Company having 77,777,777 ordinary shares of £0.01 in issue.

A Common Control Transaction Reserve has been created through Safestyle UK plc's acquisition of the group headed by Style Group Holdings Limited. The reserve of £66.5 million represents the difference in the fair value of the consideration paid for Style Group Holdings of £77.8 million and the share capital and share premium held by Style Group Holdings Limited at the time of the acquisition of £11.3 million.

9 Share Based Payment

The Group operates an equity-settled LTIP remuneration scheme for directors and certain management. The only vesting conditions attached to the options are that the individual must remain an employee of the Group for a minimum period.

The number of share options in existence during the year were as follows:

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

9 Share Based Payment (continued)

In the period the company launched a sharesave (SAYE) scheme for employees. This allowed 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. It commenced on the 27 March 2014 and matures on 1 May 2017.

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.