Safestyle UK plc (LON: SFE), the leading UK-focused retailer and manufacturer of PVCu replacement windows and doors for the homeowner market, today announced its final results for financial year 20211.
Commenting on the results, Mike Gallacher, CEO said:
“Despite the continued uncertainty caused by the pandemic as well as the widely-documented supply chain and inflationary pressures, I am delighted we have been able to deliver our best financial performance since 2017 and make significant progress against our stated strategic objectives.
The Group’s underlying profit before tax for the year represents a £16.4m turnaround from 2018’s underlying losses as we continued to improve margins and deliver growth. The strong performance of the business in 2021 made the cyber attack in January 2022 even more frustrating, however our previous investments in upgrading IT systems proved invaluable in helping to mitigate the worst of its impacts.
Looking ahead, the Group will continue to proactively manage cost-inflation, however we expect consumer confidence to be impacted by the ongoing cost-of-living crisis. Pleasingly, our record-level order book will allow us to smooth the impact of any short term slowing of demand. Notwithstanding the factors above, the Board and I remain positive on the outlook for 2022 as the business emerges transformed after four very challenging years and continues its return to our historically strong financial performance and growth.”
Financial and operational highlights
| FY 2021 | FY 2020 | FY 2019 | FY21 v FY20 % change | FY21 v FY19 % change | |
| Revenue (£m) | 143.3 | 113.2 | 126.2 | 26.6% | 13.5% |
| Gross profit (£m) | 43.8 | 28.5 | 31.9 | 53.7% | 37.2% |
| Gross margin %2 | 30.54% | 25.14% | 25.27% | 540bps | 527bps |
| Underlying profit / (loss) before taxation3 (£m) | 7.6 | (4.8) | (1.5) | n/a | n/a |
| Non-underlying items4 (£m) | (1.6) | (1.4) | (2.3) | (17.9%) | 28.7% |
| Profit / (Loss) before taxation (£m) | 6.0 | (6.2) | (3.8) | n/a | n/a |
| EPS – Basic (pence) | 3.5p | (4.3p) | (4.0p) | n/a | n/a |
| Net cash5 (£m) | 12.1 | 7.6 | 0.4 | n/a | n/a |
For the purposes of this announcement, where appropriate we have included comparisons of the Group’s financial and operating performance for 2020 and also 2019 with the latter, in many cases, a more meaningful comparative being prior to the disruption of the COVID-19 pandemic in 2020.
| 1) | The financial statements are presented for the year ended on the closest Sunday to the end of December. This date was 2 January 2022 for the current reporting year and 3 January 2021 for the prior year. All references made throughout these accounts for the financial year 2021 are for the period 4 January 2021 to 2 January 2022 and references to the financial year 2020 are for the period 30 December 2019 to 3 January 2021. |
| 2) | Gross margin % is gross profit divided by revenue. |
| 3) | Underlying profit / (loss) before taxation is defined as reported profit / (loss) before taxation before non-underlying items and is included as an alternative performance measure in order to aid users in understanding the ongoing performance of the Group. |
| 4) | Non-underlying items consist of non-recurring costs, share-based payments and the Commercial Agreement amortisation. |
| 5) | Net cash is cash and cash equivalents less borrowings. |
A reconciliation between the terms used in the above table and those in the financial statements can be found in the Financial Review.
Financial headlines
· The Group’s underlying profit before taxation of £7.6m represents the first return to full year profitability since 2017 and a £16.4m turnaround versus 2018.
· Revenue growth of 13.5% versus 2019 demonstrates the Group’s improving revenue trajectory.
· Early anticipation of cost inflation combined with the positive impact of strategic initiatives delivered a 527bps improvement in gross margin versus 2019.
· Net cash position strengthened to £12.1m versus £7.6m at the end of 2020.
Operational headlines
· The COVID pandemic continued to impact operations in 2021 and our priority remained the safety of our staff and customers throughout the period. Managers and staff have shown huge flexibility and resilience as we have maintained our commercial operations.
· Despite the sustained disruption, continued progress was made against our core strategic priorities, including brand development, consumer finance costs, revenue management, compliance and sustainability.
· A 14th installation depot was opened in Milton Keynes during the year. This investment improves operational coverage, reduces travelling time and will help drive the productivity of our fitting teams.
· Order book at the end of the year was 8.4% lower than 2020’s record levels, but remains healthy at over a third higher than any other year.
· The Group has achieved a 19% reduction in its CO2 per frames installed metric versus 2020 which represents early achievement of our 2024 target. Over 95% of the waste generated from the Group’s operations, which includes the removal of old product from customers’ homes, was recycled.
· Customer service provision was extremely challenging due to the broad range of disruption experienced, most notably labour availability. Investment in resource resulted in the backlog being cleared by the end of the year.
Post balance sheet event
· Having achieved our objectives set out in the Turnaround Plan and reporting a strong financial performance in 2021, the business was hit by a cyber attack, originating from Russia, at the end of January 2022.
· Business continuity actions, as well as IT investments in the last two years, mitigated the impact, although it caused a level of operational disruption that took some weeks to fully recover from.
· We have now recovered our systems and processes and the Group is trading in line with original plans.
Outlook
· Despite strong progress being made by the Group in 2021 to overcome well documented labour shortages, we anticipate resource shortages in critical skilled labour pools will continue in the short to medium term.
· Cost pressures have escalated in the first quarter across raw materials, fuel and labour. We will continue to address these issues through pricing whilst also using our scale advantage to mitigate the impact.
· Demand has remained robust in the first quarter.
· We successfully launched our new TV campaign in February 2022 which has underpinned our continued order book growth in the first quarter.
· Over the full year, we aim to maintain a balance between order intake and installations capacity to continue to optimise margins.
· Despite the short-term impact of the cyber attack on the financial performance of the business, the Group has a strong balance sheet and the Board therefore intends to continue to invest behind its strategic initiatives.
· The Board expects performance for 2022 to be in line with current expectations with annualised H2 financial performance representing further growth on the good profit delivery of 2021.
A webinar for analysts and investors for the 2021 Full Year Results will be held today at 10:00 am. If you would like to join, please contact FTI Consulting at [email protected] in order to access the registration details.
CEO’s Statement
Faced with another year of turbulence, our core challenge through 2021 was to deliver both a step change in our financial performance and to accelerate the pace of our strategic transformation. I am delighted to report that against these objectives in 2021, we delivered our best financial performance since 2017 and made significant progress across the breadth of our strategic agenda.
Once again, I have been hugely impressed by the agility and resilience of our staff and self-employed agents. The overwhelming priority of maintaining a safe working environment for our people and our customers posed day to day challenges through the year. However, from our return to work from the first lockdown in May 2020, we were able to sustain manufacturing and installations operations continually, despite the impact of labour and supply interruptions.
Financial delivery despite turbulence
The Group’s underlying profit before tax for the year represents a £16.4m turnaround from 2018’s underlying losses, a £22.2m improvement versus 2018’s reported loss before tax and a strong step up from 2019 as we continued to improve margins and deliver growth. Our financial delivery in H2 was impacted by an investment in recovering customer service levels, which were disrupted by the operational challenges associated with increased COVID isolations in early summer, the post pandemic supply chain shortages and latterly, the Omicron surge at the end of the year. Despite this, the financial progress we have made demonstrates the underlying potential and resilience of the business model as we emerge from three years of turbulence. The performance also completes the execution of the Group’s Turnaround Plan.
Revenue growth of 26.6% vs 2020 and 13.5% versus 2019 showed a sustained trajectory of performance and was underpinned by an early and proactive response to emerging cost pressure and capacity constraints. The number of frames installed improved by 12.1% year on year and gross margin increased to 30.5%, an improvement of 540bps vs 2020 and 527bps vs 2019.
Our strong order intake in 2020 built a record order book for the start of 2021 and allowed us to smooth the interruptions in sales caused by the third national lockdown. Subsequently, the excellent order intake continued through 2021 giving us a closing order book 8.4% lower than 2020’s record closing level, albeit more than 30% higher than any other year in the Group’s history.
The impact of operational disruption on our customers meant that it was imperative that we invested in recovering our customer service levels in H2. This required central resource and, inevitably, utilisation of our installation capacity to complete orders that were partially delayed or impacted by disruption. As a result, we ended the year having returned to normal levels of service.
The priority given to improving our customer experience is in line with our strategic work to focus on the consumer experience, building our brand through word of mouth recommendation in addition to TV investment. However, the inefficiency associated with this recovery underlined the need to accelerate the modernisation of our core business IT systems which is underway.
Our net cash position improved during the year to £12.1m at year end, an increase of £4.5m from 2020. This represents a return to a healthy and stable financial position and is after the Group repaid £2.4m of VAT that was deferred from 2020 as part of our COVID support measures.
Accelerated strategic delivery
The work done during 2020 enabled us to accelerate the pace of change within the business during 2021.
Levelling Up Depots and Sales Branches: The range of performance across our sites represents a significant opportunity and is being unlocked through embedding Standard Operating Procedures (‘SOPs’), effective IT systems and through establishing training and performance management processes. During 2020, SOPs were developed for both Operations and Sales and H2 saw us establish, recruit and train almost 100 new PAYE sales branch management roles.
Delivering Profitable Growth: Our brand development project completed work on a modernised brand logo and refreshed brand communications campaign, fronted by David Seaman MBE, the former England goalkeeper. This work was underpinned by new research and consumer insight which informs much of our business strategy during 2022. We continued to advance our digital marketing capability, which now encompasses the use of artificial intelligence, to drive volume and mitigate cost pressure in the digital channel. We continued to move pricing promptly in response to emerging cost pressure and capacity constraints and this delivered revenue growth and margin improvement.
Transforming the Customer Experience: Our metrics show that the vast majority of our customers have a seamless experience from sales through to installations, but we know we have an opportunity to improve this further. During 2021 we implemented Net Promoter Score (‘NPS’) across our operations divisions, combined with financial incentives for quality performance across our depot network. While disrupted by supply and labour issues in H2, the underlying progress is clear and these actions support our intent of placing customer experience at the heart of the business.
Embedding Sustainability and Compliance: I have been delighted that we were able to exceed our original target of 10% reduction in our CO2 per frame by 2024 well ahead of time, achieving a 19% reduction this year. We now see an opportunity for a further 6% improvement before 2025. This will be delivered by continued incremental improvement ahead of the introduction, when technology and infrastructure enables it, of a fully-electrified vehicle fleet. We will continue to target the elimination of the remaining 5% of consumer waste going to landfill in conjunction with both existing and new partners. In addition, we will conduct a Scope 3 audit of our ten largest suppliers in 2022 to ensure that progress on reducing emissions is also being made downstream.
The year also saw us become the first major sales force in the industry to join the Association of Professional Sales and be awarded their ethical sales business accreditation.
Our progress in financial delivery and against our strategic priorities has been supported by sustained investment in our people and in modernising our systems. The latter has encompassed the replacement of legacy systems, system resilience and most importantly, the preparation for implementing a new CRM system in 2022.
We are particularly proud of the launch of the Safestyle Academy, the largest professional development programme for installers in the UK. This is a major long term investment and illustrates our commitment to raising professional standards across the industry.
Sustaining the strategic transformation in 2022
Despite the progress made in 2021, we have more work ahead to complete and embed the strategic changes that are now underway in the business.
Our key strategies will remain;
· Delivering our Financial Roadmap
· Levelling Up our Depots and Branches
· Driving Profitable Growth
· Transforming our Customer Experience
· Embedding Sustainability and Compliance
All supported by our two enabling strategies; investing in the development of our people and modernising our systems and processes.
Current trading and outlook
Our first quarter has seen robust order intake supported by the successful launch of our new TV Advertising campaign, our largest investment in our brand since 2017. This saw the fruition of our 2021 brand development work. Our communication focuses on value with a ‘Safestyle Saves’ message, fronted by David Seaman. Initial results have been positive with the campaign still underway.
It was immensely frustrating that as we emerged from four years of turbulence and following strong financial performance in 2021, the business was hit on 25 January 2022 by a sophisticated cyber attack, which originated from Russia. Safestyle was one of a number of businesses impacted by what we understand to be a significant increase in cyber attacks on mid-size UK businesses. The immediate response from our staff was prompt and impressive and we were able to sustain our core operations, sales, surveying, manufacturing and installations throughout the business recovery period, which is now complete.
It is clear that our programme of recent IT investments contributed to significantly mitigating the impact of the attack.
Despite our ability to sustain our core operations, the attack did cause a level of disruption as we temporarily reverted to our business continuity processes. The business now has all core systems back up and running and concurrently has further enhanced our cyber security measures. Based on the increased and likely persistent threat to UK businesses, we plan to accelerate our existing IT modernisation plan further during 2022 and 2023.
Looking forward, we expect the impact of inflation and consumer confidence to be reflected in consumer demand for the year ahead, albeit our order book, which is now at record levels, will allow us to smooth the impact of any mid term slowing of demand. Furthermore, our historic performance as a value brand has demonstrated resilience through periods of reduced consumer demand. Meanwhile, raw material, labour and material cost inflation are at record levels and we intend to mitigate these impacts through pricing whilst maintaining focus on both costs and productivity to limit the impact as far as possible.
The business will continue to assess opportunities to accelerate growth in line with our strategy, which encompasses acquisitions, new business development and organic core business growth. This will be the prime call on our cash, but we do intend, if our net cash position grows from its current levels after these growth opportunities, to return to the dividend list in the relatively near future. The timing of this will depend on the scale and timing of our investments.
Our strategic intent remains consistent into 2022; to build long term value by consolidating our position as the clear UK market leader. Despite the factors above, the Board remains positive on the outlook for 2022 as the business emerges transformed after three very challenging years and continues to deliver a return to our historical strong financial performance and growth.
Mike Gallacher
Safestyle UK Chief Executive Officer
20 April 2022
