SFE.L Regulatory News (SFE)

RNS Number : 3071Z

Safestyle UK PLC

17 September 2015

 

17 September 2015

 

Safestyle UK plc

 

Unaudited interim results for the six months ended 30 June 2015

 

Safestyle UK plc (AIM: SFE), the leading UK-focused retailer and manufacturer of PVCu replacement windows and doors for the homeowner market, today announces its interim results for the six months ended 30 June 2015.

 

Financial and Operational highlights

 

	Unaudited 6 months ended 30 June 2015 £m	Unaudited 6 months ended 30 June 2014 £m	% change
Revenue	74.0	69.2	+6.9%
Gross profit	27.6	25.2	+9.5%
Gross margin %	37.2%	36.4%	+0.8%
Underlying EBITDA*	9.5	9.3	+2.2%
Underlying PBT**	9.0	8.8	+2.3%
EPS - Basic	9.1p	8.5p	+7.1%
Interim Dividend	3.4p	3.1p	+9.7%

 

* 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

 

· Volume of frames installed increased by 3.8% to 141,712 (H1 2014: 136,518)

· Growth in market share to 9.5% at 30 June 2015 from 8.5% at end of 2014

· Leads generated from media and on-line marketing grown by 12% to 31,095 (H1 2014: 27,762)

· Average unit sales price up 2.8% to £517 (FY 2014: £503)

· Pre-tax operating cash flow of £8.7 million

· Successful launch of new conservatory refurbishment offering

· New sales branch opened in Watford

 

Commenting on the results, Steve Birmingham, CEO said:

 

"Safestyle UK has delivered a successful first half of 2015 during which our turnover, market share and profit all increased, despite increased advertising investment and the expected uplift in other underlying operating costs. Furthermore, the Group's cash conversion and balance sheet remain strong. We continue to execute our strategies of increasing market share and geographic expansion and, although wider market conditions remain subdued, we have entered the second half of 2015 in a strong position.

 

Order intake since the half year has been buoyant, helped by our improved consumer finance offer which we launched on 1st June and our recently introduced conservatory upgrade product which is gaining momentum. We remain confident of delivering a full year outturn in line with market expectations."

 

Enquiries:

 

Safestyle UK plc	Tel: 0207653 9850
Steve Birmingham, Chief Executive Officer
Mike Robinson, Chief Financial Officer
Zeus Capital (Nominated Adviser &Joint Broker)	Tel: 0207533 7727
Nick How / Ross Andrews
Dominic King (Institutional Sales)   Liberum (Joint Broker) Neil Patel Tom Fyson	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 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 2015.

 

Revenue was up 6.9% to £74.0 million (H1 2014: £69.2 million) as we continued to increase our market share in the period to 9.5% (8.5% as at 31 December 2014) according to FENSA installations data.

 

Profit before tax increased by 2.3% to £8.8 million (H1 2014: £8.6 million), with earnings per share up 2.4% to 9.1p. Underlying EBITDA was up 2.2% at £9.5 million (H1 2014: £9.3 million).

 

The business continues to convert profit into cash, with H1 2015 cash conversion (the ratio of net cashflow from operating activities before taxation to underlying EBITDA) for the period at 91%, compared with 88% for FY 2014. As a consequence, the Group's balance sheet is robust with cash of £14.9 million at 30 June 2015 (£8.5 million as at 31 December 2014).

 

Interim Dividend

 

We will pay an interim dividend of 3.4 pence per share on 2 November 2015. The record date will be 2 October 2015.

 

Business Review

 

According to FENSA data, the market in which the Group operates contracted by 10.1% by volume in H1 2015, with further deterioration evident in July and August 2015. Such a contraction remains surprising given the generally favourable consumer economic conditions and the order trends that we have experienced.

 

However the Group's recently enhanced range of consumer finance offerings is proving to be extremely attractive to our customers and provides a clear competitive advantage enabling us to continue to secure market share. While there is an associated increase in costs and a consequential reduction in the Group's gross margin for the full year, we see it as an essential component of our successful proposition and it means that the Group is well positioned in spite of the current contracting market.

 

In addition to our enhanced finance offerings, the Group invested in additional marketing expenditure in the first half of 2015, and we expect this increased advertising commitment to continue in the second half. With a very strong comparative H1 2014 trading period, and increased operating costs feeding through, H1 2015 earnings growth was more modest and fully in line with internal management forecasts.

 

We launched our conservatory refurbishment programme in April 2015 and early order intake has been encouraging, with installations increasing in volume in H2. We expect this product to support growth in 2016 as we benefit from a full year of operation.

 

 

 

Outlook

 

For the remainder of 2015 our expectation is that the rate of market contraction will slow. Against this backdrop, we intend to maintain our growth through our continued focus on increased geographic penetration, market share gains and an enhanced product range.

 

The business is well positioned, and with strong order intake in July and August, we expect to deliver a full year outturn in line with market expectations.

 

RS Halbert

Chairman

17th September 2015

 

 

 

Finance Review

 

Revenue

 

Revenue for the period was £74.0 million against £69.2 million for the same period last year, representing growth of 6.9%. The key factors underpinning this growth were:

 

· 12.0% growth in leads generated from direct response from 27,762 to 31,095

· 3.8% growth in the volume of frames installed from 136,518 to 141,712

· 2.8% growth in average unit price from £503 to £517 ex VAT

 

The price list increase implemented at the start of the year has been secured, with the frame prices increasing steadily through the first half as the 2014 order book has been installed.

 

Gross margin

 

Gross profit increased by 9.5% in the period from £25.2 million in 2014 to £27.6 million in 2015. Gross margin in the period was 37.2% compared to 36.4% for the same period in 2014.

 

The main factors contributing to the improvement in gross margin were:

· Higher unit prices resulting from the January price list increase

· Reduction in PVCu costs as a result of lower resin prices

These were partially offset by the following negative factors:

· Introduction of mandatory insurance backed guarantees in June 2014

· Increase in glass prices from August 2014

· Increased subsidy costs as a result of the continued transition to promotional finance offers

 

Other operating expenses

 

Other operating expenses for the period were £18.8 million (2014: £16.6 million), an increase of 13%. The majority of the increase was due to increased marketing activity with associated costs having increased by 22% over last year. In addition to increased spend on TV and digital advertising, the business has invested in a new suite of TV advertisements. Direct response has become an increasingly important lead generation channel and the additional investment has resulted in a 26% increase in order values generated from this source compared to the first half of 2014.

 

EBITDA, PBT and EPS

 

Underlying EBITDA before share based payments was £9.5 million for the period (H1 2014: £9.3 million), an increase of 2%. PBT also increased by 2% from £8.6 million in H1 2014 to £8.8 million.

 

Basic earnings per share for the period were 9.1p compared to 8.5p 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 2015 was £14.9 million, an increase of £6.4 million in the period.

 

Operating activities generated £8.7 million (2014: £8.2 million). Capital expenditure in the period was £0.7 million. The majority of this is investment in manufacturing equipment as part of our 5 year programme.

 

Dividends

 

The Board is declaring an interim dividend of 3.4p per share. The dividend will be paid on 2 November 2015 to shareholders on the register at close of business on 2 October 2015.

 

 

 

Condensed consolidated interim statement of comprehensive income

 

				Unaudited		Unaudited		Audited
			Note	6 months ended 30 June 2015		6 months ended 30 June 2014		12 months ended 31 December 2014
				£000		£000		£000
	Revenue			73,990		69,249		136,012
	Cost of sales			(46,440)		(44,028)		(86,323)
	Gross profit			27,550		25,221		49,689
	Other operating expenses			(18,822)		(16,645)		(33,339)
	Operating profit			8,728		8,576		16,350
	EBITDA before share based payments			9,528		9,269		17,759
	Equity settled share based payments charges		8	(224)		(176)		(363)
	Depreciation and amortisation			(576)		(517)		(1,046)
	Operating profit			8,728		8,576		16,350
	Finance income			45		56		97
	Finance expense			(12)		(28)		(44)
	Profit before taxation			8,761		8,604		16,403
	Taxation		7	(1,701)		(1,992)		(3,572)
	Profit after taxation for the period			7,060		6,612		12,831
	Other comprehensive income			-		-		-
	Total comprehensive profit for the period attributable to shareholders			7,060		6,612		12,831
	Earnings per share
	Basic (pence)		6	9.1		8.5		16.5
	Diluted (pence)		6	8.7		8.2		15.9

 

 

All operations were continuing throughout all periods.

 

 

 

 

Condensed consolidated interim statement of financial position

 

 

 

Condensed consolidated interim statement of changes in equity

 

 

 

 

 

Condensed consolidated interim statement of cash flows

 

 

 

 

 

 

Notes to the interim financial information

1 General information

 

The condensed interim financial information set out herein is in respect of Safestyle UK plc and its subsidiaries (the Group) for the period ended 30 June 2015.

 

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 2014 is not the statutory accounts for that financial year, these accounts have been reported on by the company's auditor. The report of the auditor was unqualified and did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report.

 

 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 2015 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 2014.

 

The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the period ended 31 December 2014 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 2014.

 

 

3 Going concern

 

The Group has considerable financial resources and has prepared forecasts that show the Group is expected to continue to trade strongly. 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 the 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 2014.

 

 

 

5 Dividends

 

 

 

A final dividend for the year end 31 December 2014 of 5.5 pence per ordinary share totalling £4,822,222 was paid on 14 July 2015.

A proposed interim dividend for the half year end 30 June 2015 of 3.4 pence per ordinary share will be paid on 2 November 2015.

 

6 Earnings per share

 

a) Basic earnings per share

 

 

 

 

 

 

 

6 Earnings per share (continued)

 

 

b) Diluted earnings per share

 

 

 

 

 

 

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 2015. The effective tax rate applied in the period was 19.4% (period ended 30 June 2014: 23.2%) which compares to the standard corporation tax rate of 20.25%. The main reason for the effective tax rate being lower than the standard rate is due to movements in deferred tax relating to capital allowances and share based payments.

 

Reductions in the UK corporation tax rate from 23% to 21% (effective 1 April 2014) and 20% (effective from 1 April 2015) were substantively enacted on 2 July 2013. In the Budget on 8 July 2015, the Chancellor announced additional planned reductions to 18% by 2020. This will reduce the company's future current tax charge accordingly. The deferred asset at 30 June 2015 has been calculated based on the rate of 20% substantively enacted at the balance sheet date.

 

 

 

 

8 Share Based Payments

 

At 30 June 2015 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"). The only vesting conditions attached to the LTIP 2013 scheme are that the individual must remain an employee of the Group for a minimum period. On 1 April 2015, a further 595,866 options were granted ("LTIP 2015"). The LTIP 2015 scheme requires a combination of specific performance based criteria and remaining an employee 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.

 

 

 

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.

 

 

 

8 Share Based Payments (continued)

 

SAYE

 

On 1 April 2015 the company launched a new share save (SAYE) scheme ("SAYE 2015") in addition to the existing scheme ("SAYE 2014") for employees. Both 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.

 

 

 

 

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.

 

 

 

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.

 

 

 

 

 

8 Share Based Payment (continued)

 

The total share-based expense comprises:

 

 

 

9 Seasonality

 

Order intake is subject to small seasonal fluctuations with higher demand in the first and fourth quarters as a result of seasonal weather factors. The business can, within limits, smooth this demand by flexing its order book and aims to level load its operations to minimize costs. As a result revenues and profits would normally be similar for both halves of the year.

 

 

 

 

 

 

 

INDEPENDENT REVIEW REPORT TO SAFESTYLE UK PLC

Introduction

We have been engaged by the company to review the condensed set of financial statements in the half-yearly report for the six months ended 30 June 2015 which comprises the Condensed Consolidated Interim Statement of Comprehensive Income, the Condensed Consolidated Interim Statement of Changes in Equity, the Condensed Consolidated Interim Statement of Financial Position, the Condensed Consolidated Interim Statement of Cash Flows and the related explanatory notes. We have read the other information contained in the half-yearly report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with the terms of our engagement. Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached. Directors' responsibilities

The half-yearly report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly report in accordance with the AIM Rules.

As disclosed in note 2, the annual financial statements of the group are prepared in accordance with IFRSs as adopted by the EU. The condensed set of financial statements included in this half-yearly report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU. 

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly report for the six months ended 30 June 2015 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the AIM Rules.

 

Ian Beaumont

for and on behalf of KPMG LLP

Chartered Accountants

1 The Embankment

Neville Street

Leeds

LS1 4DW

 

17 September 2015

This information is provided by RNS

The company news service from the London Stock Exchange